United States Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Quarterly Period Ended June 30, 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 June 30, 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 29,965,947 29,586,047
------------- -------------
142,318,183 141,938,283
Less accumulated depreciation (45,604,998) (43,176,995)
------------- -------------
96,713,185 98,761,288
Cash and cash equivalents 4,761,132 3,378,174
Replacement reserve receivable 788,283 500,440
Rent receivable 1,179,098 318,626
Deferred charges, net of accumulated
amortization of $4,079,790 in 1996 and
$3,849,203 in 1995 429,995 495,582
------------- -------------
Total Assets $ 103,871,693 $ 103,454,110
============= =============
Liabilities and Partners' Deficit
Liabilities:
Accounts payable and accrued expenses $ 196,949 $ 41,645
Due to affiliates 25,717 20,397
Mortgage loan payable 70,000,000 70,000,000
Accrued interest 14,639,886 13,104,156
Deferred interest 9,238,196 8,800,319
Notes and loans - affiliate 55,384,699 53,016,740
Loan payable - Hyatt 3,772,578 3,772,578
------------- -------------
Total Liabilities 153,258,025 148,755,835
Partners' Deficit:
General Partner (1,177,083) (1,136,237)
Limited Partners (48,209,249) (44,165,488)
------------- -------------
Total Partners' Deficit (49,386,332) (45,301,725)
------------- -------------
Total Liabilities and Partners' Deficit $ 103,871,693 $ 103,454,110
============= =============
Statement of Partners' Deficit
For the six months ended June 30, 1996
Limited General
Partners Partner Total
Balance at December 31, 1995 $ (44,165,488) $ (1,136,237) $ (45,301,725)
Net loss (4,043,761) (40,846) (4,084,607)
------------- ------------ -------------
Balance at June 30, 1996 $ (48,209,249) $ (1,177,083) $ (49,386,332)
============= ============ =============
Statements of Operations
Three months ended Six months ended
June 30, June 30,
1996 1995 1996 1995
Income
Rental income:
Operating income $ 2,992,652 $ 2,005,082 $ 4,748,417 $ 3,572,286
Replacement escrow 357,982 314,369 667,743 605,988
Interest income 42,766 38,893 78,512 70,443
Miscellaneous income 710 710 1,075 1,360
----------- ----------- ----------- -----------
Total Income 3,394,110 2,359,054 5,495,747 4,250,077
----------- ----------- ----------- -----------
Expenses
Interest expense 3,429,328 3,306,053 6,843,928 6,581,239
Depreciation and amortization 1,332,687 1,386,741 2,658,590 2,766,703
General and administrative 43,171 33,105 77,836 69,283
----------- ----------- ----------- -----------
Total Expenses 4,805,186 4,725,899 9,580,354 9,417,225
----------- ----------- ----------- -----------
Net Loss $(1,411,076) $(2,366,845) $(4,084,607) $(5,167,148)
=========== =========== =========== ===========
Net Loss Allocated:
To the General Partner $ (14,111) $ (23,668) $ (40,846) $ (51,671)
To the Limited Partners (1,396,965) (2,343,177) (4,043,761) (5,115,477)
----------- ----------- ----------- -----------
$(1,411,076) $(2,366,845) $(4,084,607) $(5,167,148)
=========== =========== =========== ===========
Per limited partnership
unit (7,174,100 outstanding) $(.19) $(.33) $(.56) $(.71)
----------- ----------- ----------- -----------
Statements of Cash Flows
For the six months ended June 30, 1996 1995
Cash Flows From Operating Activities:
Net loss $ (4,084,607) $ (5,167,148)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 2,658,590 2,766,703
Rental income from replacement escrow (667,743) (605,988)
Increase in deferred interest on notes
and loans - affiliate 2,367,959 2,134,727
Increase (decrease) in cash arising from
changes in operating assets and liabilities:
Rent receivable (860,472) (250,633)
Accounts payable and accrued expenses (9,696) (36,292)
Due to affiliates 5,320 279
Accrued and deferred interest 1,973,607 2,246,512
------------ ------------
Net cash provided by operating activities 1,382,958 1,088,160
------------ ------------
Cash Flows From Investing Activities:
Proceeds from replacement reserve receivable 379,900 379,614
Additions to real estate (379,900) (379,614)
------------ ------------
Net cash used for investing activities 0 0
------------ ------------
Net increase in cash and cash equivalents 1,382,958 1,088,160
Cash and cash equivalents, beginning of period 3,378,174 2,668,685
------------ ------------
Cash and cash equivalents, end of period $ 4,761,132 $ 3,756,845
============ ============
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for interest $ 2,502,362 $ 2,200,000
------------ ------------
Supplemental Disclosure of Noncash Financing Activities:
Deferred charges of $165,000 were funded through accounts payable in 1996.
Notes to the Financial Statements
The unaudited financial statements should be read in conjunction with the
Partnership's 1995 audited financial statements within Form 10-K.
The unaudited financial statements include all adjustments which are, in the
opinion of management, necessary to present a fair statement of financial
position as of June 30, 1996 and the results of operations and cash flows for
the six months ended June 30, 1996 and 1995 and the statement of partner's
deficit for the six months ended June 30, 1996. Results of operations for the
periods are not necessarily indicative of the results to be expected for the
full year.
The following significant event has occurred subsequent to fiscal year 1995
which requires disclosure in this interim report per Regulation S-X, Rule
10-01, Paragraph (a)(5):
Note 1:
On July 2, 1996, a payment of $2,609,326 was made by the Partnership to the
Bank of Nova Scotia ("BNS") representing the excess of rents received by the
Partnership less disbursements for the period from July 1, 1995 through
June 30, 1996, as defined in the Amended and Restated Promissory Note Secured
by the Deed of Trust dated June 30, 1992. This payment will be applied toward
reducing BNS's portion of the accrued interest on the Partnership's first
mortgage.
Part I, Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Liquidity and Capital Resources
The Partnership 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, increasing aggregate indebtedness, and the
impending January 2, 1997 maturity date of the Partnership's secured mortgage
loans, 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.
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
from 1989 through 1994, 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. Although the Partnership
has met its minimum debt service payments to date, 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 April 2, 1996 and July 2, 1996. In
addition, on July 2, 1996, a payment of $2,609,326 was made 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 defined in the Amended and
Restated Promissory Note Secured by the Deed of Trust dated June 30, 1992. This
payment will be applied toward reducing BNS's portion of the accrued interest
on the Partnership's first mortgage. 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 October 2, 1996 under the Restructuring. 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, until the January 2, 1997 maturity of the
debt, 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 substantially 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 affected 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
secured mortgage debt or enable the Hotel to be sold for an amount that would
be in excess of the Partnership's secured mortgage debt in order to provide any
distributions to the Limited Partners. The General Partner is exploring
whether there are any viable alternatives with respect to the impending
maturity of the Partnership's debt 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
debt. In order to facilitate either selling the Hotel or obtaining replacement
financing for the Partnership's debt, the General Partner has retained the
services of Eastdil Realty Company ("Eastdil"), a nationally-recognized real
estate investment firm. However, there can be no assurance that a satisfactory
alternative will be implemented, 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 June 30, 1996, the Partnership had cash and cash equivalents, which are held
in an interest-bearing account, of $4,761,132, compared to $3,378,174 at
December 31, 1995. The increase is due primarily to cash provided by operating
activities.
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
$788,283 at June 30, 1996, largely due to contributions to the reserve
exceeding expenditures for furniture, fixtures and equipment ("FF&E"). Rent
receivable increased by $860,472 from December 31, 1995 to $1,179,098 at June
30, 1996, due to the timing of payments and the increase in rent from
operations.
Accounts payable and accrued expenses increased to $196,949 at June 30, 1996
compared with $41,645 at December 31, 1995. The increase is due primarily to
the accrual of professional fees for legal expenses in anticipation of a
possible sale of the Hotel or refinancing of the Partnership's debt, and in
connection with the retention of Eastdil. Accrued interest increased to
$14,639,886 at June 30, 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 payments made on January 2, 1996 and April 2,
1996. Deferred interest increased from $8,800,319 at December 31, 1995 to
$9,238,196 at June 30, 1996, and Notes and Loans Affiliate increased from
$53,016,740 at December 31, 1995 to $55,384,699 at June 30, 1996. These
accounts have increased due to the compounding of unpaid interest on the
principal balances.
Results of Operations
The average occupancy rate and average room rate at the Hotel for the six-month
period ended June 30, 1996 were 84.7% and $152.43, respectively, compared to
79.6% and $141.56, respectively, for the comparable six-month period in 1995.
For the three- and six-month periods ended June 30, 1996, the Partnership
incurred net losses of $1,411,076 and $4,084,607, respectively, compared to net
losses of $2,366,845 and $5,167,148, respectively, for the three- and six-month
periods ended June 30, 1995. The decrease in the Partnership's net loss is
primarily attributable to an increase in rental income and a decrease in
depreciation expense, which was partially offset by an increase in interest
expense.
For the three- and six-month periods ended June 30, 1996, rental income
included operating income of $2,992,652 and $4,748,417, respectively, compared
to $2,005,082 and $3,572,286, respectively, for the same periods in 1995. The
improvement for the 1996 periods is due primarily 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 the 1996
periods. Interest income for the three- and six-month periods ended
June 30, 1996 was $42,766 and $78,512, respectively, compared with $38,893 and
$70,443, respectively, for the same periods in 1995. The increases in 1996 are
due primarily to higher average cash balances being maintained by the
Partnership.
Total expenses were $4,805,186 and $9,580,354 for the three and
six-month periods ended June 30, 1996, respectively, compared to $4,725,899
and $9,417,225, respectively for the three- and six-month periods ended
June 30, 1995. The increases are 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 8K were filed during
the quarter ended June 30, 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: August 13, 1996 BY: /s/ Jeffrey C. Carter
---------------------
President, Director and
Chief Financial Officer
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-END> Jun-30-1996
<CASH> 4,761,132
<SECURITIES> 0
<RECEIVABLES> 1,179,098
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 142,318,183
<DEPRECIATION> 45,604,998
<TOTAL-ASSETS> 103,871,693
<CURRENT-LIABILITIES> 222,666
<BONDS> 153,035,359
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0
0
<OTHER-SE> (49,386,332)
<TOTAL-LIABILITY-AND-EQUITY> 103,871,693
<SALES> 5,417,235
<TOTAL-REVENUES> 5,495,747
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,736,426
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,843,928
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,084,607)
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