UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 33-6678
UNION SQUARE HOTEL PARTNERS, L. P.
(Exact name of registrant as specified in its charter)
Delaware 13-3389008
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) identification No.)
3 World Financial Center, 29th Floor, NY, NY
ATTN: Andre Anderson 10285
(Address of principal executive offices) (Zip code)
(212) 526-3237
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Balance Sheets
June 30, December 31,
Assets 1995 1994
Real estate, at cost:
Land $ 32,231,229 $ 32,231,229
Building 80,121,007 80,121,007
Furniture, fixtures and equipment 29,128,722 28,749,108
141,480,958 141,101,344
Less accumulated depreciation (40,771,933) (38,235,817)
100,709,025 102,865,527
Cash 3,756,845 2,668,685
Replacement reserve receivable 315,880 89,506
Rent receivable 444,877 194,244
Deferred charges, net of accumulated
amortization of $3,618,615 in 1995
and $3,388,028 in 1994 726,170 956,757
Total Assets $ 105,952,797 $ 106,774,719
Liabilities and Partners' Deficit
Liabilities:
Accounts payable and accrued expenses $ 30,128 $ 66,420
Due to affiliates 28,621 28,342
Mortgage loan payable 70,000,000 70,000,000
Accrued interest 13,464,646 11,580,105
Deferred interest 8,382,254 8,020,283
Notes and Loans - Affiliate 51,026,363 48,891,636
Loan Payable - Hyatt 3,772,578 3,772,578
Total Liabilities 146,704,590 142,359,364
Partners' Deficit:
General Partner (1,090,737) (1,039,066)
Limited Partners (39,661,056) (34,545,579)
Total Partners' Deficit (40,751,793) (35,584,645)
Total Liabilities and Partners' Deficit $ 105,952,797 $ 106,774,719
Statement of Partners' Deficit
For the six months ended June 30, 1995
Limited General
Partners Partner Total
Balance at December 31, 1994 $ (34,545,579) $ (1,039,066) $ (35,584,645)
Net loss (5,115,477) (51,671) (5,167,148)
Balance at June 30, 1995 $ (39,661,056) $ (1,090,737) $ (40,751,793)
Statements of Operations
Three months ended Six months ended
June 30, June 30,
Income 1995 1994 1995 1994
Rental income:
Operating income $ 2,005,082 $ 1,454,710 $ 3,572,286 $ 2,458,199
Replacement escrow 314,369 283,877 605,988 551,849
Interest income 38,893 6,837 70,443 12,632
Miscellaneous income 710 690 1,360 1,450
Total Income 2,359,054 1,746,114 4,250,077 3,024,130
Expenses
Interest expense 3,306,053 3,054,877 6,581,239 6,060,262
Depreciation and amortization 1,386,741 1,360,798 2,766,703 2,719,286
General and administrative 33,105 61,530 69,283 100,478
Total Expenses 4,725,899 4,477,205 9,417,225 8,880,026
Net Loss $(2,366,845) $(2,731,091) $(5,167,148) $(5,855,896)
Net Loss Allocated:
To the General Partner $ (23,668) $ (27,311) $ (51,671) $ (58,559)
To the Limited Partners (2,343,177) (2,703,780) (5,115,477) (5,797,337)
$(2,366,845) $(2,731,091) $(5,167,148) $(5,855,896)
Per limited partnership unit
(7,174,100 outstanding): $(.33) $(.38) $(.71) $(.81)
Statements of Cash Flows
For the six months ended June 30, 1995 and 1994
Cash Flows from Operating Activities: 1995 1994
Net loss $ (5,167,148) $ (5,855,896)
Adjustments to reconcile net loss
to net cash provided by (used for)
operating activities:
Depreciation and amortization 2,766,703 2,719,286
Rental income from replacement escrow (605,988) (551,849)
Increase in deferred interest on
notes and loans-affiliate 2,134,727 1,904,009
Increase (decrease) in cash arising
from changes in operating assets
and liabilities:
Rent receivable (250,633) (257,708)
Receivable - life safety system 0 6,287
Accounts payable and accrued expenses (36,292) (8,690)
Due to affiliates 279 7,877
Accrued and deferred interest 2,246,512 2,231,253
Net cash provided by operating activities 1,088,160 194,569
Cash Flows from Investing Activities:
Proceeds from replacement reserve receivable 379,614 487,889
Additions to real estate (379,614) (487,889)
Net cash used for investing activities 0 0
Net increase in cash 1,088,160 194,569
Cash at beginning of period 2,668,685 1,488,632
Cash at end of period $ 3,756,845 $ 1,683,201
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for interest $ 2,220,000 $ 1,925,000
Notes to the Financial Statements
The unaudited interim financial statements should be read in conjunction with
the Partnership's annual 1994 audited financial statements within Form 10-K.
The unaudited financial statements include all adjustments which are, in the
opinion of management, necessary to present a fair statement of financial
position as of June 30, 1995 and the results of operations and cash flows for
the six months ended June 30, 1995 and 1994 and the statement of changes in
partners' deficit for the six months ended June 30, 1995. Results of
operations for the period are not necessarily indicative of the results to be
expected for the full year.
The following significant event has occurred subsequent to fiscal year 1994,
which requires disclosure in this interim report per Regulation S-X, Rule
10-01, Paragraph (a)(5).
Note 1:
On July 3, 1995, a payment of $2,193,025 was made to the Bank of Nova Scotia
("BNS") representing the excess of rents received by the Partnership less
disbursements for the period from July 1, 1994 through June 30, 1995, as
defined in the Amended and Restated Promissory Note Secured by the Deed of
Trust dated June 30, 1992. This payment will be applied toward reducing BNS's
portion of the accrued interest on the Partnership's first mortgage.
Part I, Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Liquidity and Capital Resources
The Partnership's liquidity and capital resources have been substantially
impacted by the funding of the Renovation Plan which was completed in January
1990 (the "Renovation Plan") and extensive borrowing subsequent to the initial
offering. Combined with weak results from operations since 1989, these factors
led to a default by the Partnership on its January 2, 1992 debt-service payment
with respect to its $70 million first mortgage loan (the "Mortgage Loan").
This default created other defaults under the Partnership's subordinate
financings. Effective June 30, 1992, a restructuring of the Partnership's
indebtedness and property leasing arrangements (the "Restructuring") was
successfully executed resulting in the waiver or cure of each of the
Partnership's defaults.
There can be no assurance that the Partnership's hotel (the "Hotel" or
"Property") will generate sufficient cash flow to enable the Partnership to
satisfy its debt service obligations. On April 27, 1993, an affiliate, Lehman
Brothers Holdings Inc. ("Lehman") elected not to renew the Guaranty of the
minimum pay rate under the restructured Mortgage Loan for the year commencing
July 4, 1993. The Partnership made its quarterly debt service payments, due on
April 3, 1995 and July 3, 1995 to the Bank of Nova Scotia ("BNS"), with cash
flow from operations. In addition, on July 3, 1995, a payment of $2,193,025
was made to BNS representing the excess of rents received by the Partnership
less disbursements for the period from July 1, 1994 through June 30, 1995, as
defined in the Amended and Restated Promissory Note Secured by the Deed of
Trust dated June 30, 1992. This payment will be applied toward reducing BNS's
portion of the accrued interest on the Partnership's first mortgage. The
General Partner currently expects that the Partnership's cash flow will be
sufficient to meet the minimum payment due on October 2, 1995 under the
restructured terms of the Mortgage Loan. However, there can be no assurance
that cash flow will continue to be sufficient to satisfy future payments, and
the General Partner is prepared to request financial support from Lehman to
supplement cash flow from the Hotel should the need arise. Lehman has
indicated that it would evaluate the need for additional funding on a quarterly
basis. Lehman is not contractually committed to provide any cash funding or
other financial support for the Partnership or the Hotel, and may or may not
elect to, based upon prevailing business conditions or any other considerations
at the time any request is made. Thus, the General Partner can provide no
assurances whatsoever with respect to Lehman's willingness to provide any cash
funding or any other form of financial support in the future.
The General Partner anticipates the need for continued interest accruals and
deferrals pursuant to the Restructuring, for the foreseeable future. This
accrual of interest may affect the Partnership's ability to refinance and/or
sell the Hotel at a price which enables the repayment of the Partnership's
restructured debt, including accrued and deferred interest. There are no
assurances that the Partnership's debt may be restructured to provide a
maturity date beyond its current maturity date of January 2, 1997. Nor is
there any assurance that if the debt is restructured to provide an extended
maturity date, the restructured debt will continue to provide for the accrual
of interest. In order for Limited Partners to receive any additional cash
distributions, the value of the Hotel will need to be in excess of all
Partnership debt, including accrued interest, by either the January 2, 1997
maturity date for that debt or any extended maturity date that may result from
any restructuring of that debt. A number of factors including, without
limitation, general economic conditions, factors affecting the hotel industry
in the San Francisco Bay area, and natural disasters have in the past and may
in the future affect the value of the Hotel. Although the Hotel's business
has improved on a relative basis in recent years, there is no assurance
whatsoever that the Hotel will have a value in the future sufficient to either
restructure the debt to extend its maturity or to enable the Hotel to be sold
for an amount that would be in excess of the debt in order to provide any
surplus for distribution to the Limited Partners.
At June 30, 1995, the Partnership had cash, which is held in an
interest-bearing account, of $3,756,845 compared to $2,668,685 at December 31,
1994. The increase is due primarily to an increase in cash provided by
operating activities resulting from an increase in Hotel operating income
provided to the Partnership.
Replacement reserve receivable increased from $89,506 at December 31, 1994 to
$315,880 at June 30, 1995, largely due to additions to the reserve exceeding
expenditures for furniture, fixtures and equipment ("FF&E"). Rent receivable
increased by $250,633 from December 31, 1994 to $444,877 at June 30, 1995, due
to the increase in rent from operations and the timing of payments.
Accounts payable and accrued expenses decreased to $30,128 at June 30, 1995
compared with $66,420 at December 31, 1994, primarily due to the payment of
taxes due to the City of San Francisco and the payment of audit fees accrued as
of year-end 1994. Accrued interest increased to $13,464,646 at June 30, 1995
compared with $11,580,105 at December 31, 1994. The change primarily
represents the net of accrued interest expense for the period less the minimum
interest payments made on January 3, 1995 and April 3, 1995. Subsequent to the
end of the second quarter of 1995, accrued interest was reduced by the payment
made to BNS on July 3, 1995 representing excess cash flow. Deferred interest
increased from $8,020,283 at December 31, 1994 to $8,382,254 at June 30, 1995
and Notes and Loans - Affiliate increased from $48,891,636 at December 31, 1994
to $51,026,363 at June 30, 1995. These accounts have increased due to
compounding of interest on the principal balances.
The General Partner suspended payment of cash distributions starting with the
second quarter of 1988. Future distributions will be dependent on the
Partnership's cash flow from operations and will be restricted until such time
as the Hotel's cash flow reaches a sufficient level in excess of its debt
service as required under the terms of the restructured Mortgage Loan.
Results of Operations
While operations have improved, the Hotel still operates in a competitive
environment which continues to keep Hotel profits and Partnership rental income
reduced from pre-1988 levels. The average occupancy rate and average room rate
for the six months ended June 30, 1995 were 79.61% and $141.56, respectively,
compared to 72.96% and $138.55, respectively, for the corresponding period in
1994.
For the three and six months ended June 30, 1995, the Partnership incurred a
net loss of $2,366,845 and $5,167,148, respectively, compared to a net loss of
$2,731,091 and $5,855,896, respectively, for the three and six months ended
June 30, 1994. The decrease in the Partnership's net loss is primarily
attributable to an increase in rental income and interest income and a decrease
in general and administrative expenses, which was partially offset by an
increase in interest expense and depreciation and amortization.
For the three and six months ended June 30, 1995, rental income included
operating income of $2,005,082 and $3,572,286, respectively, compared to
$1,454,710 and $2,458,199, respectively, for the same periods in 1994. The
improvement in 1995 is largely due to improved Hotel operating results.
Operating results were positively impacted by higher average occupancy and room
rates at the Hotel during 1995 compared to 1994, which resulted in increases in
room sales, food and beverage sales, telecommunication sales and other rental
income for the 1995 period. Interest income for the three and six months ended
June 30, 1995 was $38,893 and $70,443, respectively, compared with $6,837 and
$12,632, respectively, for the same periods in 1994. The increases in 1995 are
due primarily to the higher cash balances being maintained by the Partnership
and higher interest rates.
Total expenses were $4,725,899 and $9,417,225, respectively, for the three and
six months ended June 30, 1995, compared to $4,477,205 and $8,880,026,
respectively, for the three and six months ended June 30, 1994. The increases
primarily are due to higher interest expense resulting from the compounding of
interest on the principal debt balance and an increase in the prime rate during
1994 and through June 1995, which was partially offset by a decrease in general
and administrative expenses.
PART II OTHER INFORMATION
Items 1-5 Not applicable
Item 6 Exhibits and reports on Form 8-K.
(a) Exhibits - None
(b) Reports on Form 8-K - No reports on Form 8-K were filed
during the quarter ended June 30, 1995.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
UNION SQUARE HOTEL PARTNERS, L.P.
BY: UNION SQUARE/GP CORP.
General Partner
Date: August 11, 1995 BY: /s/Jeffrey C. Carter
Name: Jeffrey C. Carter
Title: President, Director and Chief
Financial Officer
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