UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (fee required)
For the fiscal year ended December 31, 1995
OR
[ ] TRANSITION PERIOD PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (no fee required)
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 incorporation or organization I.R.S. Employer Identification No.
ATTN: Andre Anderson
3 World Financial Center, 29th Floor, New York, New York 10285
Address of principal executive offices zip code
Registrant's telephone number, including area code: (212) 526-3237
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
DEPOSITARY UNITS OF LIMITED PARTNERSHIP INTEREST
Title of Class
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 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
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. (x)
Documents Incorporated by Reference:
Portions of Parts I, II, III and IV are incorporated by reference to the
Partnership's Annual Report to Unitholders for the year ended December 31,
1995, filed as an exhibit under Item 14.
PART I
Item 1. Business
(a) General Development of Business.
Union Square Hotel Partners, L.P. (the "Partnership), formerly Shearson Union
Square Associates L.P. (see Item 10. "Certain Matters Involving Affiliates"),
is a Delaware limited partnership formed in June 1986. The general partner of
the Partnership is Union Square/GP Corp. (the "General Partner"), formerly
Shearson Union Square/GP Corp. (see Item 10. "Certain Matters Involving
Affiliates"), a Delaware corporation and an affiliate of Lehman Brothers Inc.
("Lehman"), formerly Shearson Lehman Brothers Inc. (see Item 10. "Certain
Matters Involving Affiliates"). The Partnership was formed to acquire the
Hyatt on Union Square (the "Property" or "Hotel") located in San Francisco,
California and operated under a long-term lease (the "Operating Lease") by
California Hyatt Corporation ("California Hyatt"), a subsidiary of Hyatt
Corporation ("Hyatt"). The Hotel was renamed the Grand Hyatt San Francisco on
February 1, 1990. The Hotel is a 693-room hotel located on Stockton Street
between Post Street and Sutter Street in the Union Square area of San
Francisco. The Hotel includes 22,000 square feet of meeting room, conference
and banquet facilities and has two full service restaurants and one lounge.
See Note 3 to the Financial Statements contained herein at Item 8 for
additional information concerning the Hotel and the Operating Lease.
Between September 24, 1986, the date of the initial closing, and March 26,
1987, the date of the final closing, 7,174,100 depositary units of limited
partnership interest ("Units", holders of Units are herein referred to as
"Unitholders") were issued. The net proceeds of the offering, after payment of
offering and organization costs and acquisition fees, aggregated $67,650,091.
The Partnership commenced operation on August 29, 1986 with the acquisition of
the Hotel for a purchase price of $127,727,472. The purchase price, related
costs and establishment of initial reserve accounts were funded by the issuance
of (1) a first mortgage loan (the "Mortgage Loan") for $70,000,000; (2) a loan
payable secured by a second mortgage on the Hotel (the "Loan Payable") for
$13,325,000; and (3) a note payable (the "Note Payable") for $55,000,000. The
Note Payable was issued by an affiliate of the General Partner to enable the
Partnership to consummate the purchase of the Hotel and was repaid in full on
January 13, 1987 from the proceeds of the offering.
Renovation Plan. Incorporated by reference to Note 3 "Real Estate" of the
Notes to the Financial Statements contained in the Partnership's Annual Report
to Unitholders for the year ended December 31, 1995, filed as an exhibit under
Item 14.
The Restructuring. Incorporated by reference to Note 4 "Restructuring
Agreement" of the Notes to the Financial Statements contained in the
Partnership's Annual Report to Unitholders for the year ended December 31,
1995, filed as an exhibit under Item 14.
(b) Financial Information About Industry Segments.
The Partnership's sole business is to own and lease the Hotel that is operated
by California Hyatt under the Operating Lease. All of the Partnership's
revenues and assets relate solely to such industry segment.
(c) Narrative Description of Business.
The Partnership's principal objectives were to (i) provide quarterly cash
distributions, a portion of which were anticipated to be non-taxable due to
depreciation deductions, (ii) preserve and protect capital and (iii) achieve
long-term appreciation in the value of the Property for distribution upon sale.
However, due to the poor economic conditions in the hospitality industry and
the resulting decline in the Hotel's operations and Partnership operations
(including recurring losses and interest accrued), objective (i) has not been
achieved and it is unlikely that objectives (ii) and (iii) can be achieved.
Competition.
The Hotel operates in a highly competitive market. The Partnership has
identified 21 existing first-class and luxury properties with a total of
approximately 12,885 guest rooms which are competitive with the Hotel in San
Francisco.
The Westin St. Francis, the Hyatt Regency, the Fairmont Hotel, the Ritz Carlton
and the Sheraton Palace with a total of 3,485 guest rooms are considered by the
Partnership to be primary competitors. These hotels are considered primary
competitors due to their size, meeting facilities and market mix relative to
the Hotel. The remaining 16 properties, with a total of approximately 9,400
rooms, are considered by the Partnership to be secondary competitors which
compete with the Hotel to a lesser degree.
Eight hotels, the Ritz Carlton, the Sheraton Palace, the Mandarin Hotel, the
Pan Pacific Hotel (formerly the Portman Hotel), the Nikko Hotel, the Park
Hyatt, the San Francisco Marriott and the Hyatt Fisherman's Wharf opened after
the Partnership commenced operations. These hotels have a total of 4,110 rooms
and compete in varying degrees with the Hotel.
Information with respect to market conditions in the area where the Hotel is
located is incorporated by reference to the section entitled Message to
Investors of the Partnership's Annual Report to Unitholders for the year ended
December 31, 1995, filed as an exhibit under Item 14.
Employees.
The Partnership's business is managed by the General Partner, and the
Partnership has no employees. The Hotel's staff are employees of California
Hyatt.
Item 2. The Property
Incorporated by reference to Note 3 "Real Estate" of the Notes to the Financial
Statements and Contents page contained in the Partnership's Annual Report to
Unitholders for the year ended December 31, 1995, filed as an exhibit under
Item 14.
Item 3. Legal Proceedings
Incorporated by reference to Note 8 "Litigation" of the Notes to Financial
Statements contained in the Partnership's Annual Report to Unitholders for the
year ended December 31, 1995, filed as an exhibit under Item 14.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to the Unitholders for a vote during the fourth
quarter of the Partnership's past fiscal year.
PART II
Item 5. Market for the Partnership's Limited Partnership interests and
Security Holder Matters
(a) Market Information. There is no established trading market for the Units.
The securities issued by the Partnership consist of Units of Limited
Partnership interest.
(b) Holders. The number of Unitholders as of December 31, 1995 was 5,771.
(c) Dividends. Beginning with the second quarter of 1988, the General Partner
has deferred payment of distributions and will not resume payment until such
time as the Hotel's cash flow reaches a sufficient level in excess of its debt
service. The terms of the First Mortgage Loan provide that at the time of any
cash distribution, a cash flow to debt service ratio of not less than 1.2:1
must have been met or exceeded for the four most recently completed quarters
and that cash available for debt service immediately after such distributions
must be not less than $3,500,000.
Pursuant to the settlement of class actions against the Partnership and others
(the "Settlement"), Shearson paid cash distributions to class member Limited
Partners, in the amount of $.40 per Unit on February 12, 1993, $.30 per Unit on
February 14, 1992 and $.10 per Unit on March 8, 1991. Additional information
about the Settlement is incorporated by reference to Note 8 "Litigation" of the
Notes to the Financial Statements contained in the Partnership's Annual Report
to Unitholders for the year ended December 31, 1995, filed as an exhibit under
Item 14.
Item 6. Selected Financial Data
Selected Partnership financial data for the five years ended December 31 is
shown below. This data should be read in conjunction with the Partnership's
financial statements which are incorporated by reference to the Partnership's
Annual Report to Unitholders for the year ended December 31, 1995, filed as an
exhibit under Item 14.
For the Years ending December 31,
1995 1994 1993 1992 1991
Total Income $ 9,051,456 $ 7,005,899 $ 5,412,650 $ 4,255,525 $ 2,841,245
Net Loss (9,717,080) (11,015,227 (12,404,566) (13,825,960) (15,257,829)
Net Loss Per
Unit(1) (1.34) (1.52) (1.71) (1.91) (2.11)
Long-term
obligations
(2) 135,589,637 130,684,497 126,508,947 122,783,001 111,644,711
Total Assets 103,454,110 106,774,719 109,887,083 115,656,493 120,254,329
Cash
Distributions
Per Unit (1) .00 .00 .00 .40(3) .30(3)
(1) Based on 7,174,100 units outstanding.
(2) Accrued interest is not included in long-term obligations with the
exception of interest accrued on the Loan Payable which, according to the
original terms thereof, is not payable currently. In addition, pursuant to the
Restructuring, past due interest on the Mortgage Loan is being deferred and
will be due and payable upon maturity of the Mortgage Loan. Accordingly, such
deferred interest is included as a long-term obligation.
(3) Paid by Shearson pursuant to the Settlement.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
The Partnership has suffered continuing losses, including losses incurred each
year since the date of the Restructuring (as defined herein). Although the
Partnership has met the minimum debt service payments required by the
Restructuring, income from the Hotel's operations has not been adequate to fund
all accrued interest and other debt service obligations of the Partnership,
resulting in losses and an increasing level of indebtedness for each of the
years since the date of the Restructuring.
As a result of these losses and increasing aggregate indebtedness, and the
impending January 2, 1997 maturity date of the Partnership's principal secured
Mortgage Loan, the financial statements presented with this 10-K Annual Report
have been qualified by the Partnership's independent accountants, Cooper's &
Lybrand, L.L.P., by rendering a "going concern" opinion. The financial
statements do not reflect any impact upon the Partnership's business or
financial condition that would result from the Partnership's cessation of the
active conduct of business as a going concern nor the occurrence of a
bankruptcy filing or foreclosure proceeding. The values reflected on the
financial statements for the Hotel and other Partnership property and various
other elements of the Partnership's financial condition would be adversely
impacted by the cessation of business as a going concern.
The Partnership's liquidity and capital resources were 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 poor hotel market conditions and 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 will generate sufficient
cash flow to enable the Partnership to satisfy its future debt service
obligations. On April 27, 1993, an affiliate of the General Partner, 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
January 2, 1995, April 2, 1995, July 3, 1995 and October 2, 1995, as well as
the quarterly debt service payment due on January 2, 1996, 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 was applied toward
reducing BNS's portion of the accrued interest on the Partnership's first
mortgage. Pursuant to the terms of the Restructuring, the pay rate for the
minimum interest payment increased from 8.5% to 9.699% effective January 2,
1996. Other interest continues to accrue. The General Partner currently
expects that the Partnership's cash flow should be sufficient to meet the
minimum payment due on April 2, 1996 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 provide financial
support, 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 net proceeds from a sale 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 an y 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. The General Partner is
currently investigating all viable alternatives with respect to the impending
maturity of the Partnership's debt in January 1997. These options include
possibly selling the Hotel, negotiating a suitable restructuring or extension
of the existing mortgages or refinancing a portion of the existing mortgages
and restructuring the remaining Partnership indebtedness. However, there can
be no assurance that any of these will be achieved, or in the event the
Partnership is unable to implement a satisfactory solution, that the lenders
will not initiate foreclosure proceedings. Should the Partnership be faced
with a foreclosure of the Hotel, the General Partner will make a determination
as to whether it is in the best interest of the Partnership to file for
protection under Chapter 11 of the United States Bankruptcy Code.
At December 31, 1995, the Partnership had cash and cash equivalents, which are
held in an interest-bearing account, of $3,378,174 compared to $2,668,685 at
December 31, 1994. The increase is due primarily to an increase in rental
income from operations for 1995.
A reserve account has been established on behalf of the Partnership to cover
certain costs for replacement of furniture and equipment at the Hotel and is
noted as "Replacement reserve receivable" on the Partnership's balance sheet.
Replacement reserve receivable increased from $89,506 at December 31, 1994 to
$500,440 at December 31, 1995, largely due to additions to the reserve
exceeding expenditures for furniture, fixtures and equipment ("FF&E"). Rent
receivable increased by $124,382 from December 31, 1994 to $318,626 at December
31, 1995, due to the increase in rent from operations and the timing of
payments.
Accounts payable and accrued expenses decreased to $41,645 at December 31, 1995
compared with $66,420 at December 31, 1994, primarily due to the accrual of
professional fees during 1994, and the taxes due to the City of San Francisco
which were accrued for at December 31, 1994. Accrued interest increased to
$13,104,156 at December 31, 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, April 3,
1995, July 3, 1995 and October 2, 1995, as well as the additional interest
payment made on July 3, 1995. Deferred interest increased from $8,020,283 at
December 31, 1994 to $8,800,319 at December 31, 1995 and Notes and Loans -
Affiliate increased from $48,891,636 at December 31, 1994 to $53,016,740 at
December 31, 1995. These accounts have increased due to compounding of unpaid
interest on the principal balances.
Results of Operations
1995 versus 1994
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 year ended December 31, 1995 were 81.3% and $142.25, respectively,
compared to 75.5% and $141.17, respectively, for 1994.
For the year ended December 31, 1995, the Partnership incurred a net loss of
$9,717,080, compared to a net loss of $11,015,227 for the year ended December
31, 1994. The decrease in the Partnership's net loss is primarily attributable
to an increase in rental income and interest income, which was partially offset
by an increase in interest expense.
For the year ended December 31, 1995, rental income included operating income
of $7,677,616, compared to $5,816,107 for the same period in 1994. The
improvement for the year ended December 31, 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 1995. Interest income for
the year ended December 31, 1995 was $123,210, compared with $39,454 for the
same period in 1994. The increase in 1995 is due primarily to the higher cash
balances being maintained by the Partnership and higher interest rates.
Total expenses were $18,768,536 for the year ended December 31, 1995, compared
to $18,021,126 for the year ended December 31, 1994. The increase primarily is
due to higher interest expense resulting from the compounding of interest on
the principal debt balance and an increased prime rate during 1995. This
increase was partially offset by lower depreciation and amortization.
1994 versus 1993
Operations during the year ended December 31, 1994, while improved over results
for the corresponding period in 1993, continued to be affected by a combination
of reduced travel and strong competition in the San Francisco hotel market.
The average occupancy rate and average room rate for the year ended December
31, 1994 were 75.45% and $141.17, respectively, compared to 71.42% and
$138.43, respectively, for the corresponding period in 1993.
For the year ended December 31, 1994, the Partnership incurred a net loss of
$11,015,227 compared to a net loss of $12,404,566 for the year ended December
31, 1993. The decrease in the Partnership's net loss was primarily
attributable to an increase in income from operations and a decrease in
depreciation and amortization due to a portion of personal property becoming
fully depreciated, which was partially offset by an increase in interest
expense.
For the year ended December 31, 1994, rental income included operating income
of $5,816,107 compared to $4,045,593 for the same period in 1993. The
improvement for the year ended December 31, 1994 was largely due to improved
Hotel operating results. Operating results were positively impacted by
increases in room sales, telecommunication sales and other rental income,
resulting from higher average occupancy and room rates at the Hotel during 1994
compared to 1993. Also contributing was the reduction of room, food and
beverage, and telecommunications expenses. Miscellaneous income decreased by
$253,887 to $2,765 in 1994 reflecting the one-time receipt of real estate tax
abatements in 1993.
Total expenses were $18,021,126 for the year ended December 31, 1994, compared
to $17,817,216 for the year ended December 31, 1993. The increase primarily
was due to a larger interest expense resulting from the accrual of interest on
the principal debt balance and an increase in the prime rate in 1994, partially
offset by a decrease in depreciation and amortization expense.
Item 8. Financial Statements and Supplementary Data
Incorporated by reference to the Partnership's Annual Report to Unitholders for
the year ended December 31, 1995, filed as an exhibit under Item 14 and
Schedule III.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The Partnership has no officers or directors. The General Partner, Union
Square/GP Corp., formerly Shearson Union Square/GP Corp., is an affiliate of
Lehman, and has offices at the same location as the Partnership. The General
Partner manages and controls substantially all of the Partnership's affairs and
has general responsibility and ultimate authority in all matters affecting the
Partnership business. All of the officers and directors of the General Partner
are also officers and employees of Lehman.
Certain officers of the General Partner are now serving (or in the past have
served) as officers or directors of entities which act as general partners of a
number of real estate limited partnerships which have sought relief under the
United States Bankruptcy Code. The partnerships which have filed bankruptcy
petitions own real estate which has been adversely affected by the economic
conditions in the markets in which that real estate is located and,
consequently, the partnerships sought the protection of the bankruptcy laws
primarily to protect the partnerships' assets from loss through foreclosure.
The Officers and/or Directors of the General Partner are as follows:
Name Office
Jeffrey C. Carter President, Director and Chief Financial Officer
Rocco F. Andriola Director and Vice President
Joseph Donaldson Vice President
There is no family relationship among any of the foregoing directors or
officers. All of the foregoing directors have been elected to serve one-year
terms. The business experience during the past five years of each of the
directors and officers of the General Partner of the Partnership is detailed
below.
Jeffrey C. Carter, 50, is a Senior Vice President of Lehman Brothers in the
Diversified Asset Group. Mr. Carter joined Lehman Brothers in September 1988.
From 1972 to 1988, Mr. Carter held various positions with Helmsley-Spear
Hospitality Services, Inc. and Stephen W. Brener Associates, Inc. including
Director of Consulting Services at both firms. From 1982 through 1987, Mr.
Carter was President of Keystone Hospitality Services, an independent hotel
consulting and brokerage company. Mr. Carter received his B.S. degree in Hotel
Administration from Cornell University and an M.B.A. degree from Columbia
University.
Rocco F. Andriola, 37, is a Senior Vice President of Lehman Brothers in its
Diversified Asset Group. Since joining Lehman Brothers in 1986, Mr. Andriola
has been involved in a wide range of restructuring and asset management
activities involving real estate and other direct investment transactions.
From 1986-89, Mr. Andriola served as a Vice President in the Corporate
Transactions Group of Shearson Lehman Brothers' office of the general counsel.
Prior to joining Lehman Brothers, Mr. Andriola practiced corporate and
securities law at Donovan Leisure Newton & Irvine in New York. Mr. Andriola
received a B.A. degree from Fordham University, a J.D. degree from New York
University School of Law, and an LL.M degree in Corporate Law from New York
University's Graduate School of Law.
Joseph Donaldson, 32, serves as a Vice President of Lehman Brothers in its
Diversified Asset Group and has held such position since November 1990. From
October 1988 to October 1990, Mr. Donaldson held the position of Assistant
Manager with the Internal Audit Department of Citibank's Investment Bank.
Prior to that, Mr. Donaldson was employed with Price Waterhouse and Company.
Mr. Donaldson received a B.B.A. in accounting from the University of Georgia
and is a Certified Public Accountant.
Certain Matters Involving Affiliates
On July 31, 1993, Shearson Lehman Brothers Inc. ("Shearson") sold certain of
its domestic retail brokerage and asset management businesses to Smith Barney,
Harris Upham & Co. Incorporated ("Smith Barney"). Subsequent to this sale,
Shearson changed its name to Lehman Brothers Inc. The transaction did not
affect the ownership of the Partnership or the Partnership's General Partner.
However, the assets acquired by Smith Barney included the name "Shearson."
Consequently, effective October 21, 1993, the General Partner changed its name
to Union Square/GP Corp., and effective December 29, 1993, the Partnership
changed its name to Union Square Hotel Partners, L.P. to delete any reference
to "Shearson."
Item 11. Executive Compensation
All of the directors and executive officers of the General Partner are
employees of Lehman Brothers Inc. They do not receive any salaries or other
compensation from the Partnership.
Item 12. Security Ownership of Certain Beneficial Owners and Management
(a) Security ownership of certain beneficial owners
To the knowledge of the General Partner, no person owned more than 5% of the
outstanding Units as of December 31, 1995.
(b) Security ownership of management
As of December 31, 1995, none of the officers and directors of the General
Partner owned any Units.
(c) Changes in control
None.
Item 13. Certain Relationships and Related Transactions
All of the officers and directors of the General Partner are employees of
Lehman Brothers Inc. Information regarding transactions with affiliates is
incorporated by reference to Note 6 "Transactions with Related Parties" of the
Notes to Financial Statements contained in the Partnership's Annual Report to
Unitholders for the year ended December 31, 1995, filed as an exhibit under
Item 14.
PART IV
Item 14. Exhibits, Financial Statements, and Reports on Form 8-K
(a)(1) Financial Statements:
Report of Independent Public Accountants (1)
Balance Sheets - At December 31, 1995 and 1994 (1)
Statements of Operations - For the years ended
December 31, 1995, 1994 and 1993 (1)
Statements of Partners' Capital - For the years ended
December 31, 1995, 1994 and 1993 (1)
Statements of Cash Flows - For the years ended
December 31, 1995, 1994 and 1993 (1)
Notes to Financial Statements (1)
(1) Incorporated by reference to the Partnership's Annual Report to
Unitholders for the year ended December 31, 1995, which is filed as an
exhibit under Item 14.
(a) Financial Statement Schedules: Independent Accountant's Report
on Schedule III - Real Estate and Accumulated Depreciation.
All other schedules for which provision is made in the
applicable accounting regulations of the Securities and
Exchange Commission have been omitted as (1) the information
required is disclosed in the financial statements and notes
thereto; (2) the schedules are not required under the related
instructions; or (3) the schedules are inapplicable.
Exhibits: See Exhibit Index contained herein.
(b) Reports on Form 8-K: No reports on form 8-K were filed in the
fourth quarter of the calendar year 1995.
Exhibit Index
Exhibit Number
3.a Amended and restated Agreement of Limited Partnership of
Shearson Union Square Associates dated August 18, 1986 (included in
Amendment No. 2 to registration Statement No. 33-6678) incorporated by
reference.*
10.a Stipulation and Agreement of Compromise and Settlement filed in
the Court of Chancery of the State of Delaware in and for New Castle
County in June 8, 1990.*
10.b Documents for Restructuring of Indebtedness Encumbering the
Grand Hyatt Union Square Hotel among Shearson Union Square Associates
Limited Partnership, as Borrower, and The Bank of Nova Scotia, as First
Lien Holder, Capital Growth Mortgage Investors, L.P., as Second Lien
Holder, Hyatt Corporation, as Third Lien Holder, and California Hyatt
Corporation, as Hotel Manager dated June 30, 1992.*
13.1 Annual Report to Unitholders for the year ended December 31,
1995.
27.1 Financial Data Schedule
______________________
*Previously filed.
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: March 29, 1996
BY: s/Jeffrey C. Carter/
Name: Jeffrey C. Carter
Title: President, Director and
Chief Financial Officer
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/GP CORP.
General Partner
Date: March 29, 1996
BY: s/Jeffrey C. Carter/
Name: Jeffrey C. Carter
Title: President, Director and
Chief Financial Officer
Date: March 29, 1996
BY: s/Rocco F. Andriola/
Name: Rocco F. Andriola
Title: Director and Vice President
Date: March 29, 1996
BY: s/Joseph Donaldson/
Name: Joseph Donaldson
Title: Vice President
EXHIBIT 13.1
UNION SQUARE HOTEL PARTNERS, L.P.
1995 ANNUAL REPORT
Union Square Hotel Partners, L.P. was established in 1986 to acquire the Hyatt
on Union Square, which subsequently underwent a major renovation program and
was renamed the Grand Hyatt San Francisco in 1990. The Partnership's
operations are managed by its General Partner, Union Square/GP Corp.
The Hotel is a 693-room full-service first-class hotel. It features two
restaurants, one lounge and 22,000 square feet of meeting and banquet
facilities. The 36-story Hotel encompasses approximately 660,000 total square
feet on a 35,391 square foot site located at the center of San Francisco's
downtown retail district.
A comparison of the Hotel's key statistical results for the years ended
December 31, 1995 and 1994 is shown below:
1995 1994 % Change
________________________________________________________________
Average Occupancy 81.3% 75.5% 7.7%
Average Room Rate $142.25 $ 141.17 1.0%
________________________________________________________________
Administrative Inquiries Performance Inquiries/Form 10-Ks
Address Changes/Transfers First Data Investor Services Group
Service Data Corporation P.O. Box 1527
2424 South 130th Circle Boston, Massachusetts 02104-1527
Omaha, Nebraska 68144-2596 Attn: Financial Communications
800-223-3464 (select option 1) 800-223-3464 (select option 2)
Contents
1 Message to Investors
3 Financial Statements
6 Notes to Financial Statements
13 Report of Independent Accountants
Message to Investors
Presented for your review is the 1995 Annual Report for Union Square Hotel
Partners, L.P. (the "Partnership"). This report includes an overview of
hospitality industry conditions, an update on operations at the Partnership's
hotel, the Grand Hyatt San Francisco (the "Hotel"), and the Partnership's
audited financial statements for the year ended December 31, 1995.
Since the debt restructuring completed in June 1992, the Partnership has met
its minimum debt service payments to the Bank of Nova Scotia ("BNS"), including
the payment due thus far in 1996. Additionally, during the period from July 1,
1994 to June 30, 1995, the Partnership generated cash flow in excess of minimum
debt service in the amount of $2,193,025 which, in accordance with the
restructuring agreement, was paid to BNS and applied toward reducing the
accrued interest on the Partnership's first mortgage. Effective January 1996,
the pay rate for the minimum interest payment increased from 8.5% to 9.699%.
No assurance can be provided that the Partnership's cash flow will be
sufficient to fund future interest payments. Furthermore, given the increasing
level of indebtedness associated with the existing mortgages and the upcoming
January 1997 maturity of the Partnership's debt, we must clearly underscore the
great degree of uncertainty surrounding the future of the Partnership and your
investment.
Market/Property Update
The performance of the national hospitality industry continued to improve
throughout 1995, as increased occupancy and room rates translated to overall
higher profits. According to market analysts Smith Travel Research, for the
year ended December 31, 1995, average occupancy and daily room rates for U.S.
hotels increased to 65.5% and $67.34, respectively, compared with 64.7% and
$64.24, respectively, for 1994. With respect to the San Francisco hotel
market, for the year ended December 31, 1995, Smith Travel Research reported
that average occupancy and room rates for the city's hotels improved to 74.2%
and $96.92, respectively, from 72.4% and $92.74, respectively, for the year
ended December 31, 1994. Operating results at the Partnership's Hotel for 1995
reflected these improving conditions. As shown on the chart on the preceding
page, the Hotel's average occupancy increased 7.7% and the average room rate
increased 1.0% for 1995 relative to 1994. The General Partner will continue to
work closely with Hotel management to pursue various methods for attracting new
business, maximizing revenues and streamlining operations, while at the same
time, maintaining the high level of quality service the Hotel provides to its
guests.
Although the performance of the Partnership's Hotel has improved significantly,
the Partnership's total indebtedness has increased over 35% since 1990.
Accordingly, there can be no assurance that the Hotel's value has increased to
a level that will be sufficient to either restructure the Partnership's total
outstanding indebtedness or enable the Hotel to be sold for an amount that,
after satisfying such debt, would provide any surplus cash for distribution to
the Limited Partners.
Financial Overview
Total Hotel sales for the year ended December 31, 1995 improved 8.7% over 1994,
primarily due to the increase in the Hotel's average occupancy and room rate in
1995. This 8.7% increase, coupled with higher food and beverage and
telecommunications sales, resulted in an 18.8% increase in the Hotel's gross
operating profit. Total Partnership income increased 29.2% in 1995 relative to
1994, due to a significant improvement in rent from operating income and rent
from replacement escrow, which is calculated as a percentage of Hotel sales.
The increase in long-term debt is largely due to the deferral of interest on
the second mortgage loan and on other long-term liabilities of the Partnership
which do not require current payments of interest. The chart on the following
page summarizes the financial results of the Hotel and Partnership for the
years ended December 31, 1995 and 1994, respectively.
Financial Highlights For
the years ended December 31:
1995 1994 % Change
Total Hotel Sales $ 41,595,914 $ 38,252,425 8.7%
Gross Operating Profit 13,727,811 11,553,983 18.8%
Rent from Operating Income 7,677,616 5,816,107 32.0%
Rent from Replacement Escrow 1,247,873 1,147,573 8.7%
Total Partnership Income 9,051,456 7,005,899 29.2%
Long-term Debt* 148,693,793 142,264,602 4.5%
* As of December 31 and includes accrued and deferred interest.
Summary
The General Partner's foremost priority is to examine viable alternatives with
respect to the impending maturity of the Partnership's debt in January 1997.
These options include possibly selling the Hotel, refinancing the Partnership's
debt, or attempting to negotiate a suitable restructuring or extension of the
existing mortgages. However, there can be no assurance that any of these will
be achieved, in which case the lenders may initiate foreclosure proceedings.
Should the Partnership ultimately be faced with a foreclosure of the Hotel, the
General Partner will make a determination as to whether it is in the best
interest of the Partnership to file for protection under Chapter 11 of the
United States Bankruptcy Code. Please be assured that we will carefully
consider at such time appropriate options available to protect the
Partnership's investment. In the interim, it is the General Partner's
intention to continue maximizing revenues and minimizing expenses at both the
Hotel and Partnership levels. We will keep you apprised of any developments in
future investor reports.
Very truly yours,
Union Square/GP Corp.
The General Partner
s/Jeffrey C. Carter/
Jeffrey C. Carter
President
March 29, 1996
Balance Sheets
December 31, 1995 and 1994
Assets 1995 1994
Real estate, at cost (Note 3):
Land $ 32,231,229 $ 32,231,229
Building 80,121,007 80,121,007
Furniture, fixtures
and equipment 29,586,047 28,749,108
141,938,283 141,101,344
Less accumulated depreciation (43,176,995) (38,235,817)
98,761,288 102,865,527
Cash and cash equivalents 3,378,174 2,668,685
Replacement reserve receivable (Note 3) 500,440 89,506
Rent receivable (Note 4) 318,626 194,244
Deferred charges, net of accumulated
amortization of $3,849,203 in 1995
and $3,388,028 in 1994 495,582 956,757
Total Assets $103,454,110 $106,774,719
Liabilities and Partners' Deficit
Liabilities:
Accounts payable and
accrued expenses $ 41,645 $ 66,420
Due to affiliates (Note 6) 20,397 28,342
Mortgage loan payable (Note 4) 70,000,000 70,000,000
Accrued interest 13,104,156 11,580,105
Deferred interest 8,800,319 8,020,283
Notes and Loans - Affiliate
(Notes 4, 5, and 6) 53,016,740 48,891,636
Loan payable - Hyatt (Note 4) 3,772,578 3,772,578
Total Liabilities 148,755,835 142,359,364
Partners' Deficit:
General Partner (1,136,237) (1,039,066)
Limited Partners (44,165,488) (34,545,579)
Total Partners' Deficit (45,301,725) (35,584,645)
Total Liabilities and
Partners' Deficit $103,454,110 $106,774,719
Statements of Operations
For the years ended December 31, 1995, 1994 and 1993
Income 1995 1994 1993
Rental income (Notes 3 and 4):
Operating income $ 7,677,616 $ 5,816,107 $ 4,045,593
Replacement escrow 1,247,873 1,147,573 1,080,728
Interest income 123,210 39,454 29,677
Miscellaneous income 2,757 2,765 256,652
Total Income 9,051,456 7,005,899 5,412,650
Expenses
Interest expense
(Notes 4, 5 and 6) 13,159,716 12,337,774 11,453,674
Depreciation and amortization 5,402,353 5,474,406 6,165,463
General and administrative 206,467 208,946 198,079
Total Expenses 18,768,536 18,021,126 17,817,216
Net Loss $ (9,717,080) $(11,015,227) $(12,404,566)
Net Loss Allocated (Note 2):
To the General Partner $ (97,171) $ (110,152) $ (124,045)
To the Limited Partners (9,619,909) (10,905,075) (12,280,521)
$ (9,717,080) $(11,015,227) $(12,404,566)
Per limited partnership unit
(7,174,100 outstanding): $(1.34) $(1.52) $(1.71)
Statements of Partners' Deficit
For the years ended December 31, 1995, 1994 and 1993
Limited General
Partners Partner Total
Balance at December 31, 1992 $(11,359,983) $ (804,869) $(12,164,852)
Net loss (12,280,521) (124,045) (12,404,566)
Balance at December 31, 1993 (23,640,504) (928,914) (24,569,418)
Net loss (10,905,075) (110,152) (11,015,227)
Balance at December 31, 1994 (34,545,579) (1,039,066) (35,584,645)
Net loss (9,619,909) (97,171) (9,717,080)
Balance at December 31, 1995 $(44,165,488) $ (1,136,237) $(45,301,725)
Statements of Cash Flows
For the years ended December 31, 1995, 1994 and 1993
Cash Flows from Operating Activities:
1995 1994 1993
Net loss $(9,717,080) $(11,015,227) $(12,404,566)
Adjustments to reconcile net
loss to net cash
provided by (used for)
operating activities:
Depreciation and amortization 5,402,353 5,474,406 6,165,463
Rental income from
replacement escrow (1,247,873) (1,147,573) (1,080,728)
Increase in deferred
interest on loan
payable-affiliate 4,125,104 3,682,402 3,306,097
Increase (decrease) in cash
arising from changes
in operating assets and
liabilities:
Rent receivable (124,382) (40,703) 140,518
Due from Hyatt - - 30,355
Receivable - life safety
system - 6,287 68,713
Accounts payable and
accrued expenses (24,775) 21,702 (219,687)
Due to affiliates (7,945) 10,970 (55,081)
Accrued and deferred
interest 2,304,087 4,262,789 3,678,827
Net cash provided by (used for)
operating activities 709,489 1,255,053 (370,089)
Cash Flows from Investing Activities:
Proceeds from replacement
reserve receivable 836,939 1,385,996 1,410,987
Additions to real estate (836,939) (1,385,996) (1,410,987)
Net cash used for
investing activities - - -
Cash Flows from Financing
Activities:
Loan payable - Hyatt - (75,000) (75,000)
Net cash used for
financing activities - (75,000) (75,000)
Net increase (decrease) in cash 709,489 1,180,053 (445,089)
Cash and cash equivalents
at beginning of period 2,668,685 1,488,632 1,933,721
Cash and cash equivalents
at end of period $ 3,378,174 $ 2,668,685 $ 1,488,632
Supplemental Disclosure of Cash Flow Information:
Cash paid during the
period for interest $ 6,730,525 $ 4,392,583 $ 4,468,750
Notes to Financial Statements
December 31, 1995, 1994 and 1993
1. Organization
Union Square Hotel Partners L. P. (the "Partnership"), formerly Shearson Union
Square Associates Limited Partnership (see below), was formed in June 1986
under the Delaware Revised Uniform Limited Partnership Act for the purpose of
acquiring the Hyatt on Union Square (the "Hotel"), located in San Francisco,
California, under a long-term operating lease.
Initial capital of $1,000 was contributed by Union Square/GP Corp. (the
"General Partner"), formerly Shearson Union Square/GP Corp. (see below), a
Delaware corporation and an affiliate of Lehman Brothers Inc. The agreement of
limited partnership authorized the issuance of a maximum of 7,174,100
Depository Units (the "Units") which represent Partnership interests. At March
26, 1987, an aggregate of 7,174,100 units was issued, and the offering was
terminated.
On July 31, 1993, Shearson Lehman Brothers Inc. sold certain of its domestic
retail brokerage and asset management businesses to Smith Barney, Harris Upham
& Co. Incorporated ("Smith Barney"). Subsequent to the sale, Shearson changed
its name to Lehman Brothers Inc. ("Lehman"). The Transaction did not affect
the ownership of the General Partner. However, the assets acquired by Smith
Barney included the name "Shearson." Consequently, effective October 21, 1993,
the General Partner changed its name to Union Square/GP Corp., and effective
December 29, 1993, the Partnership changed its name to Union Square Hotel
Partners Limited Partnership.
2. Significant Accounting Policies
Basis of Accounting. The accompanying financial statements of the Partnership
have been prepared on the accrual basis of accounting.
Depreciation. Real estate investments, which consist of land, building and
personal property, are recorded at the lower of cost less accumulated
depreciation. Cost includes the initial purchase price of the property plus
closing costs, acquisition and legal fees, and capital improvements.
Depreciation of real property is computed using the straight-line method based
on the estimated useful life of 40 years. Depreciation of the personal property
is computed under the straight-line method over an estimated useful life of 7
years.
When building and personal property are sold or otherwise disposed of, when
required, the asset account and related accumulated depreciation account are
relieved, and any gain or loss is included in operations.
Accounting for Impairment. In March 1995, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed
Of" ("FAS 121"), which requires impairment losses to be recorded on long-lived
assets used in operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are less than
the assets' carrying amount. FAS 121 also addresses the accounting for
long-lived assets that are expected to be disposed of. The Partnership adopted
FAS 121 in the fourth quarter of 1995. Based on current circumstances, which
are reviewed on a quarterly basis, the adoption has no impact on the financial
statements.
Fair Value of Financial Instruments. Statement of Financial Accounting
Standards No. 107, "Disclosures about Fair Value of Financial Instruments"
("FAS 107"), requires that the Partnership disclose the estimated fair values
of its financial instruments. Fair values generally represent estimates of
amounts at which a financial instrument could be exchanged between willing
parties in a current transaction other than in forced liquidation. However, in
many instances current exchange prices are not available for certain of the
Partnership's financial instruments, since no active market generally exists
for such financial instruments.
Fair value estimates are subjective and are dependent on a number of
significant assumptions based on management's judgement regarding future
expected loss experience, current economic conditions, risk characteristics of
various financial instruments, and other factors. In addition, FAS 107 allows
a wide range of valuation techniques, therefore, comparisons between entities,
however similar, may be difficult.
Deferred Charges. The following fees and costs have been capitalized and are
amortized on a straight-line basis over the following periods:
Mortgage consent fee 7 years
Mortgage and loan origination fee 10-1/3 years
Mortgage loan placement fee 10-1/3 years
Loan negotiation fee 10-1/3 years
Offering Costs. Offering costs are nonamortizable and have been deducted from
the Limited Partners' capital.
Income Taxes. No income tax provision (benefit) has been recorded on the books
of the Partnership, as the respective shares of taxable income (loss) are
reportable by the partners on their individual tax returns.
Partnership Agreement. Pursuant to the terms of the Partnership Agreement, all
profits and losses incurred prior to the month in which Unitholders were first
admitted shall be allocated 99.99% to the General Partner and .01% to the
Assignor Limited Partner. Thereafter, all income, profits and losses shall be
allocated 99% to the Unitholders and 1% to the General Partner, except for the
profits from the sale or other disposition of all or any substantial part of
the Hotel.
Profits of the Partnership from the sale or other disposition of all or any
substantial part of the Hotel shall be allocated to the General Partner in an
amount equal to the greater of 1% of the profits or the amount distributable to
the General Partner as sale or refinancing proceeds from such sale. All
remaining profits shall be allocated among the Unitholders.
Net cash flow shall be distributed 99% to the Unitholders and 1% to the General
Partner until each Unitholder has received an aggregate cumulative compounded
distribution for each fiscal year equal to 12% of their capital investment
("Preferred Return"). Thereafter, distributions shall be allocated 90% to the
Unitholders and 10% to the General Partner.
Sale or refinancing proceeds shall be distributed 99% to the Unitholders and 1%
to the General Partner until such time as the Unitholders have received
cumulative distributions of sale or refinancing proceeds in an amount equal to
their unreturned original investment plus an aggregate amount of the net cash
flow and sale or refinancing proceeds equal to their aggregate Preferred
Return. Any remaining sale or refinancing proceeds shall first be applied to
the payment to the General Partner of a subordinated disposition fee, if any,
equal to 3% of sales proceeds and thereafter shall be allocated 90% to the
Unitholders and 10% to the General Partner. In conjunction with the settlement
agreement discussed in Note 8, the General Partner's share of the proceeds, in
the event of a sale or refinancing of the property, will be reduced to 5%.
Cash and Cash Equivalents. Cash and cash equivalents consist of short-term,
highly liquid investments which have maturities of three months or less from
date of issuance. The carrying amount approximates fair value because of the
short maturity of these instruments.
Concentration of Credit Risk. Financial instruments which potentially subject
the Partnership to a concentration of credit risk principally consist of cash
in excess of the financial institutions' insurance limits. The Partnership
invests available cash with high credit quality financial institutions.
Use of Estimates. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
3. Real Estate
The Partnership's real estate consists of a 693-room hotel known as the Grand
Hyatt San Francisco (formerly "Hyatt on Union Square") located in Union Square
in San Francisco, California. The Hotel was originally constructed in 1973 and
was purchased by the Partnership on August 29, 1986.
The Hotel was purchased subject to an operating lease with California Hyatt
Corporation ("California Hyatt"), a subsidiary of Hyatt Corporation ("Hyatt"),
which provides for an initial term of 20 years expiring on December 31, 1994
and two 10-year renewal options. On August 19, 1986, the first 10-year renewal
option was exercised, extending the lease term to December 31, 2004.
Rent payable under the lease has been modified by the restructuring agreement
effective June 30, 1992 (see Note 4). Pursuant to the terms of the operating
lease, California Hyatt is required to maintain a reserve fund on behalf of the
Partnership ("FF&E Reserve Fund") for the replacement of furnishings and
equipment in the Hotel. This reserve is funded by the operating revenues of
the Hotel and will be funded at 3% of the Hotel's gross receipts through 1997
and 4% thereafter. During 1988, the Partnership and California Hyatt
mutually agreed upon a renovation program which was to be effected for a cost
not expected to exceed $20,000,000. During 1989 and early 1990, the renovation
program was completed. The Hotel was renamed The Grand Hyatt San Francisco and
reopened on February 1, 1990. Other conditions of the renovation program
provided that 70% of the 1990 replacement escrow was to be applied to the
Partnerships liability to California Hyatt in 1990. From January 1, 1991 to
June 30, 1992, 70% of replacement escrow income was to be applied to the
outstanding balance of the loan payable - Hyatt. As of December 31, 1990,
$20,676,768 related to the renovation program was expended. In connection with
the reopening of the Hotel in 1990, the Partnership recorded a write-down in
carrying value of personal property which was replaced during the renovation,
based on the original purchase price allocated to such property.
During 1991, the Partnership and California Hyatt reached an agreement on the
revised terms of California Hyatt's contribution to the renovation program.
This contribution was to be 10% of the total renovation costs, in excess of
funds provided by the FF&E Reserve, up to a maximum of $2,000,000. As a result
of the revised agreement, the total contribution from California Hyatt (which
was fully funded at December 31, 1991) amounted to $1,874,379, and accordingly,
a reduction in the renovation contribution in the amount of $125,621 was
recorded. In addition, renovation costs in excess of $20,000,000 were to be
assumed and capitalized by the Partnership.
Asbestos was removed or abated where necessary, in conjunction with the
installation of sprinklers and other life safety systems. As disclosed in the
original prospectus, the Hotel contains asbestos in certain areas which have
been determined to be nonhazardous and in conformity with all current statutes.
This situation may or may not impact the future value of the property.
The following is summarized information with respect to the operations of the
Hotel provided by the lessee for the years ended December 31, 1995, 1994 and
1993 (See Note 4).
1995 1994 1993
Hotel revenues $ 41,595,914 $ 38,252,425 $ 36,024,256
Hotel expenses (27,868,103) (26,698,442) (26,829,851)
Gross operating profit 13,727,811 11,553,983 9,194,405
Less:
Adjustments to gross
operating profit:
FF&E Reserve 1,247,873 1,147,573 1,080,728
Taxes 1,510,965 1,491,415 1,479,842
Other adjustments 2,219,162 2,213,762 2,908,545
4,978,000 4,852,750 5,469,115
Adjusted gross operating profit $ 8,749,811 $ 6,701,233 $ 3,725,290
Rental income to the
Partnership $ 7,677,616 $ 5,816,107 $ 4,045,593
4. Restructuring Agreement
Under the terms of the Mortgage Loan, a regular installment of interest in the
amount of $3,394,650 was due on January 2, 1992. Under the terms of the Note
Payable, $1 million in principal and $341,502 in accrued interest was due on
December 31, 1991. None of the foregoing payments were made, and the
Partnership did not have sufficient funds to make such payments. On January 9,
1992, the Partnership received a notice from the First Mortgagee that the
Partnership was in default on its obligations with respect to the Mortgage Loan
and Note Payable. Such defaults entitled the Mortgage Lender to accelerate the
Mortgage Loan and Note Payable subject to any defenses available to the
Partnership. On January 21, 1992, an affiliate of the General Partner, which
guaranteed the Note Payable, fulfilled its commitment to repay the outstanding
balance of the Note Payable. On March 3, 1992, the Partnership received a
notice whereby the bank declared the entire principal and interest under the
Mortgage Loan immediately due and payable. On March 9, 1992, the First
Mortgagee recorded, with the San Francisco County Recorder, a Notice of Default
and Election to Sell under Deed of Trust (the "Default Notice").
The default on the Mortgage Loan also constituted an event of default under the
"Loan Payable - affiliate," the Supplemental Loan and the Hyatt Loan. On March
25, 1992, the Partnership received a notice of acceleration from the holder of
the Loan Payable - affiliate, which declared the entire principal and accrued
interest on the loan due and payable.
On June 30, 1992, Union Square Hotel Partners Limited Partnership (the
"Partnership") consummated a restructuring of its financing and property
leasing arrangements.
Mortgage Loan Payable - First Deed of Trust Note. Under the terms of the
restructuring, the outstanding principal amount of the Note - $70,000,000 -
will continue to accrue interest at the annual rate of 9.699%. Payments of
interest will be limited, however, to the Partnership's cash flow from the
Hotel. Minimum interest payments (the "Minimum Payments") must be made
quarterly and shall be computed on the principal balance of the First Deed of
Trust, less a $15,000,000 principal participation purchased by Lehman Brothers
Lending Corp, formerly Shearson Lending Corp, an affiliate of the General
Partner. The par rate for the Minimum Payments are as follows: 6.5% through
January 2, 1994; 7.5% through January 2, 1995; 8.5% through January 2, 1996;
and 9.699% thereafter until maturity on January 2, 1997. The amount of any
accrued and unpaid interest is to be added to the principal of the First Deed
of Trust Note.
Lehman Brothers Holdings Inc. (the "Guarantor"), formerly Shearson Lehman
Brothers Holdings Inc., an affiliate of the General Partner, provided a payment
guaranty (the "Guaranty") to the First Mortgagee with respect to the Minimum
Payments required to be made through July 3, 1993. The Guarantor may, at its
sole option, extend the Guaranty for successive one-year periods through the
maturity date of the First Deed of Trust Note. In the event that the Guarantor
does not elect to extend the Guaranty, the Partnership's interest payments
thereafter will be due and payable quarterly, rather than semi-annually as
previously provided. On April 27, 1993, the Guarantor elected not to renew the
Guaranty of the minimum pay rate commencing July 4, 1993.
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 Bank waived immediate repayment of the Past Due Interest, but the amount
will accrue interest at the Bank's "prime" rate plus 1%. The balance is due
upon maturity of the note.
Based on the borrowing rates currently available to the Partnership for
mortgage loans with similar maturities, the fair value of the mortgage loan
payable approximates carrying value.
Loan Payable - Affiliate - Second Deed of Trust Note. Capital Growth Mortgage
Investors, L.P. ("Capital Growth"), the holder of the second deed of trust in
the Hotel, agreed to reduce the interest rate applicable to the note from 12.5%
to 11%. The reduction of the interest rate is effective from and after January
2, 1992. Capital Growth also agreed to waive the mandatory prepayments of
interest of $261,199, $1,014,379 and $1,996,457, otherwise required to be paid
on January 2, 1995, January 2, 1996 and January 2, 1997, respectively. Capital
Growth also agreed to waive any prepayment (or yield maintenance) charges in
connection with the prepayment of all or any portion of the principal or
accrued interest under the Second Deed of Trust Note.
Capital Growth also agreed to automatically extend the maturity date of the
Second Deed of Trust Note to the same maturity date as the First Deed of Trust
Note, so long as the maturity date is no later than January 2, 1999.
Loan Payable - Hyatt - Third Deed of Trust Note. Hyatt Corporation ("Hyatt")
the holder of a third deed of trust note collateralized by the Hotel forgave
$2,000,000 of the outstanding indebtedness under the Third Deed of Trust Note.
Hyatt also reduced the interest rate from 1% above the prime rate to the lesser
of (i) the prime rate or (ii) 8%. Hyatt also agreed to a deferral of interest
to the extent that the interest payments otherwise required to be paid under
the note are not available from cash flow. Hyatt also agreed to extend the
maturity date of the note to January 2, 1997, the maturity date of the First
Deed of Trust Note. The Partnership made principal payments of $75,000 during
1994 and 1993 and $250,000 during 1992.
The effect of these concessions by Hyatt is a calculated amount of $1,041,372
for the Partnership resulting in a reduction of the Third Deed of Trust Note by
such amount. The amount has been recorded as an extraordinary item, gain on
restructuring for $23,287, net of restructuring expenses of $1,018,085.
It is not practicable for the Partnership to estimate the fair value of this
financial instrument as no quoted market price exists and the cost of obtaining
an independent valuation appears excessive considering the materiality of the
instrument to the Partnership.
Operating lease - California Hyatt Corporation. California Hyatt Corporation
operates the Hotel under the terms of a lease agreement ("the Lease") with the
Partnership. California Hyatt agreed to change the amount to be retained by
California Hyatt under the terms of the lease effective July 1, 1992 through
December 31, 1996, from an amount equal to 20% of the Hotel's net profit to an
amount equal to (i) one percent of the Hotel's gross revenues plus (ii) 7.5% of
the Hotel's net profit. California Hyatt agreed that after December 31, 1996
and until the First Deed of Trust Note matures, but in any event not after
January 2, 1999, the amount to be retained by California Hyatt will be an
amount equal to (i) 1% of the Hotel's gross revenues plus (ii) 10% of the
Hotel's net profit. Thereafter, the amount to be retained by California Hyatt
will return to 20% of the Hotel's net profit as required by the Lease for
periods prior to the restructuring. Amounts due to the Partnership will be
remitted 20 days after the end of each month.
Furthermore, California Hyatt agreed that the Partnership will have the
unilateral right to terminate the Lease, without cause, at any time from the
date of the restructuring through December 31, 1998, upon payment of a fee in a
fixed amount ranging from $10,000,000 to $16,032,500, which amount increases
with the passage of time. California Hyatt further agreed that upon payment of
the Early Termination Fee, it would cause Hyatt to forgive the entire amount of
indebtedness under the Third Deed of Trust Note.
In addition, California Hyatt agreed that the Partnership may terminate the
Lease, without the payment of a termination fee, in the event that (i) the
Hotel generates a deficit for any calendar year and (ii) the Partnership
prepays all indebtedness due under the Third Deed of Trust Note. California
Hyatt may, however, cure any such deficit and avoid a termination of the Lease
by paying the amount of such deficit to the Partnership.
Restructuring expense note. In order to provide the Partnership with the funds
to cover the costs of restructuring and other administrative expenses in 1992,
Lehman Lending Corp. committed to lend the Partnership up to $1,000,000.
Advances borrowed under this agreement accrue interest at prime plus 1%, and
all principal and accrued interest will be due and payable on the maturity date
of the Bank of Nova Scotia Note. The entire $1,000,000 is outstanding as of
December 31, 1995 and 1994. Accrued interest as of December 31, 1995 and 1994
was $274,559 and $176,292, respectively.
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 net proceeds from a sale 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 an y 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. The General Partner is
currently investigating all viable alternatives with respect to the impending
maturity of the Partnership's debt in January 1997. These options include
possibly selling the Hotel, negotiating a suitable restructuring or extension
of the existing mortgages or refinancing a portion of the existing mortgages
and restructuring the remaining Partnership indebtedness. However, there can
be no assurance that any of these will be achieved, or in the event the
Partnership is unable to implement a satisfactory solution, that the lenders
will not initiate foreclosure proceedings. Should the Partnership be faced
with a foreclosure of the Hotel, the General Partner will make a determination
as to whether it is in the best interest of the Partnership to file for
protection under Chapter 11 of the United States Bankruptcy Code.
5. Note Payable
In order to effect the renovation program, the Partnership has obtained the
consent of the First Mortgagee for various modifications of the first Mortgage
Loan which permits the use of substantially all of the Partnership's reserve
funds for reinvesting into the Hotel and also permits Hyatt Corporation to
provide financing to the Partnership. In consideration for such consent, the
Partnership paid a fee of $1,000,000 to the First Mortgagee which is evidenced
by a note, bearing interest at 9.699%, compounded annually, due either upon the
sale of the Hotel or December 31, 1991, whichever occurs first (see Note 6).
As a result of the Partnership's failure to pay the principal and accrued
interest on December 31, 1991, the note was declared in default. The lender
pursued its remedies under which, Lehman Holdings, Inc. ("LB Holdings"),
formerly Shearson Lehman Holdings Inc., was required to make payment as
guarantor of the note. LB Holdings fulfilled its commitment to repay the
outstanding balance in January 1992. The Partnership's obligation to LB
Holdings is included in Notes & Loans - Affiliates.
6. Transactions with Related Parties
Notes Payable. LB Holdings, an affiliate of the General Partner, has fulfilled
its guarantee of payment of the $1,000,000 plus interest thereon to the First
Mortgagee (see Note 5). As a result, the Partnership is now obligated to LB
Holdings in the amount of $1,341,502, plus accrued interest, in the form of a
note which bears interest at 9.699% and becomes payable upon the sale of the
property.
As required under the class action settlement, on March 4, 1991, an affiliate
of the General Partner and the Partnership entered into the Settlement Loan up
to a maximum of $10 million, bearing interest at an annual simple interest rate
of 5%. Proceeds of the loan were to be used to the extent needed to fund
operating and fixed expenses. On the effective date of the loan, $8,217,302 of
the proceeds were used to retire an interim loan plus accrued interest. On
July 12, 1991, the remaining proceeds of $1,782,698 were drawn and used to pay
a portion of the interest with respect to the First Mortgage Loan indebtedness.
As of December 31, 1995 and 1994, the full principal balance of $10,000,000
remains outstanding. Accrued interest on the Settlement Loan totalled
$2,383,077 and $1,883,077 as of December 31, 1995 and 1994, respectively. The
outstanding principal and accrued interest matures and becomes payable upon the
sale of the property or upon a refinancing which provides proceeds sufficient
to repay other existing indebtedness.
On July 12, 1991, a note was issued from an affiliate of the General Partner in
the amount of $1,611,953 (the Supplemental Loan). The Supplemental Loan
specifically provided for the proceeds to be used to pay a portion of the
interest with respect to the First Mortgage Loan indebtedness. The note bears
interest at an annual rate of prime plus 1%. The entire note balance remains
outstanding at December 31, 1995 and 1994. The outstanding principal and
accrued interest mature and become payable upon the sale of the Property or
upon a refinancing which provides proceeds sufficient to repay other existing
indebtedness and is compounded quarterly. As of December 31, 1995, the
accreted balance of the Supplemental Loan is $2,250,176 and the accrued
interest applicable to the note is $55,072.
The letter of default issued March 3, 1992 by the Bank of Nova Scotia also
constituted an event of default under the Supplemental Loan. The default was
cured through the restructuring of the Mortgage Loan Payable (see Note 4).
A summary of Notes and Loans - Affiliate is summarized as follows:
1995 1994
LB Holdings - Guarantee (Note 5) $ 1,762,536 $ 1,606,702
Settlement loan 10,000,000 10,000,000
Supplemental loan 2,250,176 2,047,071
Second Deed of Trust (Note 4) 38,004,028 34,237,863
Restructuring note (Note 4) 1,000,000 1,000,000
$53,016,740 $48,891,636
It is not practicable for the Partnership to estimate the fair value of this
class of financial instruments as no quoted market price exists and the cost of
obtaining an independent valuation appears excessive to the Partnership.
Fees and Compensation. The General Partner and its affiliates earned fees and
compensation in connection with syndication and acquisition services rendered
to the Partnership of approximately $10,000,000. Under the terms of the
Partnership Agreement, the Partnership reimburses the General Partner, at cost,
for the performance of certain administrative services provided by a third
party. For the years ended December 31, 1995, 1994, and 1993, the cost of such
services were $45,469, $37,325, and $49,920 respectively. At December 31, 1995
and 1994, $20,397 and $28,342, respectively, were due to the General Partner
for the performance of these services.
Cash and Cash Equivalents. Cash and cash equivalents reflected on the
Partnership's balance sheet at December 31, 1995 and 1994 were on deposit with
an affiliate of the General Partner.
7. Reconciliation of Financial Statement Net Loss and Partners' Deficit to
Federal Income Tax Basis Net Loss and Partners' Deficit
1995 1994 1993
Financial statement net loss $ (9,717,080) $(11,015,227) $(12,404,566)
Tax basis depreciation
over financial
statement depreciation (769,274) (936,081) (842,152)
Tax basis amortization
over financial
statement amortization (291,450) (291,450) (14,320)
Financial statement replacement
reserve income over
tax basis income - - (924,996)
Other (13,569) 1,033 10,878
Federal income tax
basis net loss $(10,791,373) $(12,241,725) $(14,175,156)
Financial statement
partners' deficit $(45,301,725) $(35,584,645) $(24,569,418)
Current year financial
statement net
loss over federal
income tax basis
net loss (1,074,293) (1,226,498) (1,770,590)
Cumulative financial
statement net loss over
federal income tax basis
net loss (20,178,590) (18,952,092) (17,181,502)
Federal income tax basis
partners' deficit $(66,554,608) $(55,763,235) $(43,521,510)
Because many types of transactions are susceptible to varying interpretations
under Federal and state income tax laws and regulations, the amounts reported
above may be subject to change at a later date upon final determination by the
taxing authorities.
8. Litigation
During 1989, two class actions were brought by Unitholders in the Court of
Chancery of the State of Delaware (the Delaware Chancery Court) against the
Partnership and others. In addition, during 1989, two class actions were filed
by Unitholders in the United States District Court for the Northern District of
California. Pursuant to a court order dated October 24, 1989, the Delaware
Chancery Court actions were consolidated by the Delaware Chancery Court (the
Consolidated Delaware Action). In all of the cases, the plaintiffs sought
damages in an unspecified amount as well as attorneys' fees and costs.
On December 18, 1990, the Delaware Chancery Court approved a settlement of the
Consolidated Delaware Action which became effective March 4, 1991. The terms
of the settlement called for Shearson to provide Unitholders cash
distributions, to the extent the Hotel did not generate sufficient cash flow,
of 1%, 3% and 4% of class members' capital contributions in 1990, 1991 and
1992, respectively. On March 8, 1991, the first of these distributions was
paid to class member Limited Partners in the amount of $.10 per $10 Unit; on
February 14, 1992, the second distribution under the settlement was paid in the
amount of $.30 per $10 Unit; and, on February 12, 1993, the third and final
cash distribution under the settlement was paid in the amount of $.40 per $10
Unit. Shearson also agreed to lend the Partnership up to a maximum of $10
million to cover debt service and other operating expenses through January 4,
1993, and to pay plaintiffs' attorneys' fees and expenses up to $1,350,000 and
$50,0 00, respectively. As of December 31, 1991, the Partnership had borrowed
and expended the full $10 million available under the Shearson Loan.
Subsequent to the settlement of the Consolidated Delaware Action, the
California complaints were dismissed pursuant to a stipulation on January 3,
1991.
_________________REPORT OF INDEPENDENT ACCOUNTANTS_____________________
To the Partners of
Union Square Hotel Partners, L.P.:
We have audited the accompanying balance sheets of Union Square Hotel Partners,
L.P. (formerly Shearson Union Square Associates, L.P.), as of December 31, 1995
and 1994, and the related statements of operations, partners' deficit and cash
flows for each of the three years in the period ended December 31, 1995. These
financial statements are the responsibility of the Partnership's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Union Square Hotel Partners,
L.P. as of December 31, 1995 and 1994, and the results of its operations and
its cash flows for each of the three years in the period ended December 31,
1995 in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Partnership will continue as a going concern. As discussed in Note 4 to the
financial statements, the Partnership has suffered recurring losses from
operations, which raises substantial doubt about the Partnership's ability to
continue as a going concern. The General Partner's plans in regard to these
matters are also described in Note 4. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
COOPERS & LYBRAND L.L.P.
Hartford, Connecticut
March 4, 1996
____________________REPORT OF INDEPENDENT ACCOUNTANTS ___________________
To the Partners of
Union Square Hotel Partners, L.P.:
Our report on the financial statements of Union Square Hotel Partners, L.P.
(formerly Shearson Union Square Associates, L.P.), a Delaware limited
partnership, has been incorporated by reference in this Form 10-K from the
Annual Report to Unitholders of Union Square Hotel Partners, L.P. for the year
ended December 31, 1995. In connection with our audit of such financial
statements, we have also audited the related financial statement schedule
listed in the index of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
COOPERS & LYBRAND, L.L.P.
Hartford, Connecticut
March 4, 1996
UNION SQUARE HOTEL PARTNERS, L.P.
Schedule III - Real Estate and Accumulated Depreciation
December 31, 1995
Cost Capitalized
Subsequent
Initial Cost to Partnership To Acquisition
--------------------------- ----------------
Buildings and Buildings and
Description Encumbrances Land Improvements Improvements
Commercial
Property:
Hotel Complex
San Francisco,
CA $130,364,193 $32,231,229 $95,496,243 $14,210,811
$130,364,193 $32,231,229 $95,496,243 $14,210,811
(CONT.)--------------------------------------------------------------
Gross Amount at Which
Carried at Close of Period
-------------------------------------
Buildings and Accumulated
Description Land Improvements Total (2) Depreciation (1)
Commercial
Property:
Hotel Complex
San Francisco,
CA $32,231,229 $109,707,054 $141,938,283 $43,176,995
$32,231,229 $109,707,054 $141,938,283 $43,176,995
(CONT.)--------------------------------------------------------------------
Life on which
Depreciation
in Latest
Date of Date Income Statements
Description Construction Acquired is Computed
Commercial Property:
Hotel Complex
San Francisco, CA 1973 1986 (3)
(1) For Federal income tax purposes, the amount of accumulated depreciation is
$72,483,386.
(2) For Federal income tax purposes, the basis of land, building and personal
property is $142,275,816
(3) Buildings and improvements - 40 years; personal property - 7 years.
A reconciliation of the carrying amount of real estate and accumulated
depreciation for the years ended December 31, 1995, 1994 and 1993:
Real Estate investments: 1995 1994 1993
Beginning of year $141,101,344 $139,715,348 $138,304,361
Acquisitions 836,939 1,385,996 1,410,987
End of year $141,938,283 $141,101,344 $139,715,348
Accumulated Depreciation:
Beginning of year $ 38,235,817 $ 33,222,871 $ 27,519,175
Depreciation expense 4,941,178 5,012,946 5,703,696
End of year $ 43,176,995 $ 38,235,817 $ 33,222,871
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 3,378,174
<SECURITIES> 0
<RECEIVABLES> 318,626
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 141,938,283
<DEPRECIATION> 43,176,995
<TOTAL-ASSETS> 103,454,110
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<BONDS> 148,693,793
<COMMON> 0
0
0
<OTHER-SE> (45,301,725)
<TOTAL-LIABILITY-AND-EQUITY> 103,454,110
<SALES> 8,928,246
<TOTAL-REVENUES> 9,051,456
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 5,608,820
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,159,716
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<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,717,080)
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