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 March 31, 1996
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
Incorporation or Organization I.R.S. Employer Identification No.
3 World Financial Center, 29th Floor,
New York, 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 At March 31, At December 31,
1996 1995
Assets
Real estate, at cost:
Land $ 32,231,229 $ 32,231,229
Building 80,121,007 80,121,007
Furniture, fixtures and equipment 29,815,682 29,586,047
------------- -------------
142,167,918 141,938,283
Less accumulated depreciation (44,387,604) (43,176,995)
------------- -------------
97,780,314 98,761,288
------------- -------------
Cash and cash equivalents 3,416,321 3,378,174
Replacement reserve receivable 580,566 500,440
Rent receivable 863,565 318,626
Deferred charges, net of accumulated
amortization of $3,964,497 in 1996
and $3,849,203 in 1995 380,288 495,582
------------- -------------
Total Assets $ 103,021,054 $ 103,454,110
============= =============
Liabilities and Partners' Deficit
Liabilities:
Accounts payable and accrued expenses $ 35,955 $ 41,645
Due to affiliates 20,712 20,397
Mortgage loan payable 70,000,000 70,000,000
Accrued interest 13,642,725 13,104,156
Deferred interest 9,238,196 8,800,319
Notes and loans - Affiliates 54,286,144 53,016,740
Loan payable - Hyatt 3,772,578 3,772,578
------------- -------------
Total Liabilities 150,996,310 148,755,835
Partners' Deficit:
General partner (1,162,972) (1,136,237)
Limited partners (46,812,284) (44,165,488)
------------- -------------
Total Partners' Deficit (47,975,256) (45,301,725)
------------- -------------
Total Liabilities and Partners' Deficit $ 103,021,054 $ 103,454,110
============= =============
Statement of Partners' Deficit
For the three months ended March 31, 1996
Limited General
Partners Partner Total
Balance at December 31, 1995 $ (44,165,488) $ (1,136,237) $ (45,301,725)
Net loss (2,646,796) (26,735) (2,673,531)
------------- ------------ -------------
Balance at March 31, 1996 $ (46,812,284) $ (1,162,972) $ (47,975,256)
============= ============ =============
Statements of Operations
For the three months ended March 31, 1996 1995
Income
Rental income:
Operating income $ 1,755,765 $ 1,567,204
Replacement escrow 309,761 291,619
Interest income 35,746 31,550
Miscellaneous income 365 650
------------ ------------
Total Income 2,101,637 1,891,023
============ ============
Expenses
Interest expense 3,414,600 3,275,185
Depreciation and amortization 1,325,903 1,379,962
General and administrative 34,665 36,179
------------ ------------
Total Expenses 4,775,168 4,691,326
------------ ------------
Net Loss $ (2,673,531) $ (2,800,303)
============ ============
Net Loss Allocated:
To the General Partner $ (26,735) $ (28,003)
To the Limited Partners (2,646,796) (2,772,300)
------------ ------------
$ (2,673,531) $ (2,800,303)
============ ============
Per limited partnership unit
(7,174,100 outstanding) $(.37) $(.39)
Statements of Cash Flows
For the three months ended March 31, 1996 1995
Cash Flows From Operating Activities
Net loss $ (2,673,531) $ (2,800,303)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 1,325,903 1,379,962
Rental income from replacement escrow (309,761) (291,619)
Increase in deferred interest on notes
and loans affiliates 1,269,404 1,142,485
Increase (decrease) in cash arising from
changes in operating assets and liabilities:
Rent receivable (544,939) (364,929)
Accounts payable and accrued expenses (5,690) (35,545)
Due to affiliates 315 (8,970)
Accrued and deferred interest 976,446 1,101,450
------------ ------------
Net cash provided by operating activities 38,147 122,531
------------ ------------
Cash Flows From Investing Activities
Proceeds from replacement reserve receivable 229,635 101,568
Additions to real estate (229,635) (101,568)
------------ ------------
Net cash used for investing activities 0 0
------------ ------------
Net increase in cash and cash equivalents 38,147 122,531
Cash and cash equivalents, beginning of period 3,378,174 2,668,685
------------ ------------
Cash and cash equivalents, end of period $ 3,416,321 $ 2,791,216
============ ============
Supplemental Disclosure of Cash Flow Information
Cash paid during the period for interest $ 1,168,750 $ 1,031,250
------------ ------------
Notes to the Financial Statements
The unaudited financial statements should be read in conjunction with the
Partnership's annual 1995 audited financial statements within its previously
filed 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 March 31, 1996 and the results of operations and cash flows for
the three months ended March 31, 1996 and 1995 and the statement of changes in
partner's deficit for the three months ended March 31, 1996. Results of
operations for the periods are not necessarily indicative of the results to be
expected for the full year.
No significant events have occurred subsequent to fiscal year 1995 and no
material contingencies exist, which would require disclosure in this interim
report per Regulation S-X, Rule 10- 01, Paragraph (a)(5).
Part I, Item 2. 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 audit report on the financial statements presented for the
year ended December 31, 1995 by the Partnership's independent accountants,
Coopers & Lybrand L.L.P., included an explanatory paragraph describing the
uncertainty about the Partnership's ability to continue as a going concern. The
financial statements presented herein 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. However, there can be no assurance that
the 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.
Nevertheless, the Partnership has continued to make its quarterly minimum debt
service payments to the Bank of Nova Scotia ("BNS") with cash flow from
operations, including the payments due on January 2, 1996 and April 2, 1996.
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. Based on current levels of operation, were they
to be maintained, the Partnership's cash flow should be sufficient to meet the
minimum payment due on July 2, 1996 under the Restructuring. In addition, on
July 2, 1996, the Partnership will be obligated to make a payment to BNS
representing the excess of rents received by the Partnership less disbursements
for the period from July 1, 1995 through June 30, 1996, as required 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 restructured Mortgage Loan. There can be
no assurance that cash flow will continue to be sufficient to satisfy future
debt service obligations, 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 that there will be continued interest accruals
and deferrals pursuant to the Restructuring. 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
and deferred 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 refinance or restructure the Partnership's
debts or to enable the Hotel to be sold for an amount that would be in excess
of the Partnership's debts in order to provide any distributions to the Limited
Partners. The General Partner is exploring viable alternatives with respect to
the impending maturity of the Partnership's debts in January 1997. The options
currently being investigated include selling the Hotel, refinancing the
Partnership's debt, or negotiating a suitable restructuring or extension of the
existing debts. 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 a filing under Chapter
11 of the United States Bankruptcy Code would be beneficial.
This Form 10-Q contains certain forward-looking statements that are based on
current expectations. In light of the important factors that can materially
affect results, including those set forth above and in the Form 10-K previously
filed, the inclusion of forward-looking information herein should not be
regarded as a representation by the General Partner or any other person that
the objectives or plans of the Partnership will be achieved.
At March 31, 1996, the Partnership had cash and cash equivalents, which are
held in an interest-bearing account, of $3,416,321, largely unchanged from
$3,378,174 at December 31, 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 $500,440 at December 31, 1995 to
$580,566 at March 31, 1996, largely due to contributions to the reserve
exceeding expenditures for furniture, fixtures and equipment ("FF&E"). Rent
receivable increased by $544,939 from December 31, 1995 to $863,565 at March
31, 1996, due to the timing of payments and the increase in rent from
operations.
Accounts payable and accrued expenses decreased to $35,955 at March 31, 1996
compared with $41,645 at December 31, 1995, primarily due to the payment of
professional fees for 1995. Accrued interest increased to $13,642,725 at March
31, 1996 compared with $13,104,156 at December 31, 1995. The change primarily
represents the net of accrued interest expense for the period less the minimum
interest payment made on January 2, 1996. Deferred interest increased from
$8,800,319 at December 31, 1995 to $9,238,196 at March 31, 1996, and Notes and
Loans - Affiliates increased from $53,016,740 at December 31, 1995 to
$54,286,144 at March 31, 1996. These accounts have increased due to the
compounding of unpaid interest on the principal balances.
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 three- month period ended March 31, 1996 were 81.4% and $146.66,
respectively, compared to 78.6% and $136.97, respectively, for the comparable
three-month period in 1995.
For the three months ended March 31, 1996, the Partnership incurred a net loss
of $2,673,531, compared to a net loss of $2,800,303 for the three months ended
March 31, 1995. The decrease in the Partnership's net loss is primarily
attributable to an increase in rental income, which was partially offset by an
increase in interest expense.
For the three months ended March 31, 1996, rental income included operating
income of $1,755,765, compared to $1,567,204 for the same period in 1995. The
improvement for the 1996 period is largely due to improved Hotel operating
results. Operating results were positively impacted by higher average occupancy
and room rates at the Hotel during 1996 compared to 1995, which resulted in
increases in room sales and telecommunication sales for 1996. Interest income
for the three months ended March 31, 1996 was $35,746, compared with $31,550
for the same period in 1995. The increase in 1996 is due primarily to higher
average cash balances being maintained by the Partnership.
Total expenses were $4,775,168 for the three months ended March 31, 1996,
compared to $4,691,326 for the three months ended March 31, 1995. The increase
is due primarily to higher interest expense resulting from the compounding of
interest on the principal debt balances, which was partially offset by lower
depreciation and amortization.
Part II Other Information
Items 1-5 Not applicable.
Item 6 Exhibits and reports on Form 8-K.
(a) Exhibits -
(27) Financial Data Schedule
(b) Reports on Form 8-K - No reports on Form 8-K were filed during
the quarter ended March 31, 1996.
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: May 15, 1996 BY: /s/ Jeffrey C. Carter
President, Director
and Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-END> Mar-31-1996
<CASH> 3,416,321
<SECURITIES> 0
<RECEIVABLES> 863,565
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 142,167,918
<DEPRECIATION> 44,387,604
<TOTAL-ASSETS> 103,021,054
<CURRENT-LIABILITIES> 56,667
<BONDS> 150,939,643
<COMMON> 0
0
0
<OTHER-SE> (47,975,256)
<TOTAL-LIABILITY-AND-EQUITY> 103,021,054
<SALES> 2,065,891
<TOTAL-REVENUES> 2,101,637
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,360,568
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,414,600
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,673,531)
<EPS-PRIMARY> (.37)
<EPS-DILUTED> (.37)
</TABLE>
