UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
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 33-17577
U.S. Realty Income Partners L.P.
(Exact name of small business issuer as specified in its charter)
DELAWARE 62-1331754
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P.O. Box 50507, Nashville, TN 37205
(Address of principal executive offices) (Zip Code)
(615) 665-5959
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report)
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
U.S. REALTY INCOME PARTNERS L.P.
INDEX
PART I Financial Information
Item l. Financial Statements 3
Compilation Report 4
Balance Sheets at June 30, 1997 and December
31, 1996 5
Statements of Partnership Equity for the period
January 1, 1996 through June 30, 1997 6
Statements of Operations for the three months and six
months ended June 30, 1997 and 1996 7
Statements of Cash Flows for the six months ended
June 30, 1997 and 1997 8
Notes to Financial Statements 9 - 10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11 - 13
PART II Other Information
Item 1. Legal Proceedings 14
Item 2. Changes in Securities 14
Item 3. Default Upon Senior Securities 14
Item 4. Submissions of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 15
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
The following balance sheet at June 30, 1997 (unaudited) and
statements of operations, partnership equity, and cash flows for the three and
six months ended June 30, 1997 (unaudited), for U.S. Realty Income Partners L.P.
(a Delaware limited partnership) (the "Partnership"), have not been examined by
independent public accountants but reflect, in the opinion of management, all
adjustments (consisting of normal recurring accruals) necessary to presentfairly
the information required.
These financial statements should be read in conjunction with the
financial statements and notes thereto included in the Partnership's 1996
Annual Report, as reported on Form 10-K.
<PAGE>
OSBORNE & CO., P.C.
761 OLD HICKORY BLVD., SUITE 201
BRENTWOOD, TN 37027
To the Partners
U.S. Realty Income Partners L.P.
P. O. Box 50507
Nashville, TN 37205
We have compiled the accompanying balance sheet of U.S. Realty Income Partners
L.P. (a limited partnership) as of June 30, 1997, and the related statements of
operations, partnership equity, and cash flows for the three months and six
months then ended, in accordance with Statements on Standards for Accounting and
Review Services issued by the American Institute of Certified PublicAccountants.
A compilation is limited to presenting in the form of financial statements
information that is the representation of management. We have not audited or
reviewed the accompanying financial statements and, accordingly, do not express
an opinion or any other form of assurance on them.
We are not considered to be independent with respect to U.S. Realty Income
Partners L.P. according to Securities and Exchange Commission regulations.
The financial statements for the year ended December 31, 1996, were audited by
other accountants, and they expressed an unqualified opinion on them in their
report dated January 21, 1997, but they have not performed any auditing
procedures since that date.
July 24, 1997
Osborne & Co., P.C
Certified Public Accountants
<PAGE>
U.S. REALTY INCOME PARTNERS L.P.
(A LIMITED PARTNERSHIP)
BALANCE SHEETS
Unaudited Audited
June 30, December 31,
1997 1996
ASSETS
CASH $ 405,540 $ 291,829
TENANT RECEIVABLES 8,076 6,035
PREPAID ADMINISTRATIVE FEES
PROPERTY AND IMPROVEMENTS, net of
accumulated depreciation of
$1,346,985 and $1,269,294 3,962,942 4,040,633
INVESTMENT IN LIMITED PARTNERSHIP 1,000 1,000
OTHER ASSETS 256,605 266,984
TOTAL ASSETS $4,634,163 $4,606,481
LIABILITIES AND PARTNERSHIP EQUITY
ACCOUNTS PAYABLE $ 1,660 $ 2,548
ACCRUED EXPENSES 49,470 83,492
NOTES PAYABLE 3,581,006 3,600,032
TOTAL LIABILITIES 3,632,136 3,686,072
MINORITY PARTNER'S INTEREST IN JOINT
VENTURE ( 96,492) ( 121,073)
PARTNERSHIP EQUITY 1,096,519 1,041,482
TOTAL PARTNERSHIP EQUITY 1,002,027 920,409
TOTAL LIABILITIES & PARTNERSHIP EQUITY $4,634,163 $4,606,481
U.S. REALTY INCOME PARTNERS L.P.
(A LIMITED PARTNERSHIP)
STATEMENTS OF PARTNERSHIP EQUITY
Period from January 1, 1996 to June 30, 1997
Limited General
Partners Partner Total
Distributive share of
net earnings 95% 5% 100%
Balance at January 1, 1996 $1,275,793 ($181,671) $1,094,122
Net loss ( 50,008) ( 2,632) ( 52,640)
Balance at December 31, 1996 1,225,785 ( 184,303) 1,041,482
Net income 54,185 2,852 57,037
Balance at June 30, 1997 $1,279,970 ($181,451) $1,098,519
<PAGE>
U.S. REALTY INCOME PARTNERS L.P.
(A LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
For the Three Months and Six Months Ended June 30, 1997 and 1996
Unaudited Unaudited Unaudited Unaudited
3 Months 3 Months 6 Months 6 Months
1997 1996 1997 1996
Revenues
Rental income $ 149,868 $ 147,470 $ 342,062 $ 329,647
CAM reimbursements 30,921 24,062 58,144 66,296
Miscellaneous 144 97 144 97
Interest income 958 357 1,798 1,774
181,891 171,986 402,148 397,814
Expenses
Interest 59,780 91,222 149,690 182,202
Loan costs 0 0 1,500 0
Professional fees 31 11,348 3,057 11,348
Depreciation 38,845 38,857 77,691 77,715
Amortization 2,607 5,214 6,047 10,428
Property taxes 17,012 17,012 34,023 34,023
Leasing & admin. 21,618 16,642 35,768 62,721
Management fees 6,394 6,300 14,735 14,181
Repairs 10,755 6,015 21,190 14,537
Insurance 2,515 2,353 7,538 5,535
159,557 194,963 351,239 412,690
Net Income Before
Minority Partner's
Share of Income 22,334 ( 22,977) 50,909 ( 14,876)
Minority Partner's
Interest in
Operating Profit ( 10,304) ( 35) ( 24,581) ( 16,061)
Income (Loss) from
Operations 12,030 ( 23,012) 26,328 ( 30,937)
Income from Investment
in Joint Venture 0 0 30,709 0
Net Income (Loss) $ 12,030 ($ 23,012) $ 57,037 ($ 30,937)
Net Income (Loss) per
Unit $ 2.35 ($ 4.50) $ 11.15 ($ 6.05)
Weighted Average
Number of Units 4,858 4,858 4,858 4,858
U.S. REALTY INCOME PARTNERS L.P.
(A LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
Unaudited Unaudited
Six Months Six Months
Ending Ending
June 30, 1997 June 30, 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 57,037 ($ 30,937)
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Minority partner's interest in net loss
of consolidated partnership 24,581 16,061
Depreciation 77,691 77,715
Amortization 6,047 10,428
(Increase) decrease in:
Tenant receivables ( 2,041) ( 1,141)
Other assets 4,332 ( 15,361)
Increase (decrease) in:
Accounts payable ( 888) 1,099
Accrued expenses ( 34,024) ( 34,024)
Tenant Deposits 0 1,625
NET CASH PROVIDED (USED) BY OPERATING
ACTIVITIES 132,735 25,465
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on mortgage note ( 19,024) ( 20,756)
NET CASH USED IN FINANCING ACTIVITIES ( 19,024) ( 20,756)
NET INCREASE IN CASH/EQUIVALTNES 113,711 4,709
CASH & CASH EQUIVALENTS AT BEGINNING PERIOD 291,829 155,183
CASH & CASH EQUIVALENTS AT END OF PERIOD $ 405,540 $ 159,892
SUPPLEMENTAL DISCLOSURES:
INTEREST PAID $ 149,690 $ 182,202
U.S. REALTY INCOME PARTNERS L.P.
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
Unaudited
June 30, 1997
A. ACCOUNTING POLICIES
Refer to the Partnership's annual financial statements for the year
ended December 31, 1996 for a description of the accounting policies which
have been continued without change. Also, refer to the footnotes of these
annual statements for additional details of the Partnership's financial
condition. The details in those notes have not significantly changed
except as a result of normal transactions in the interim. In the opinion
of management, all adjustments (consisting of normal recurring accruals)
considered necessary have been included. Operating results are not
necessarily indicative of the results that may be expected for the year
ending December 31, 1997.
B. INVESTMENT IN JOINT VENTURES
The Partnership had a 50% interest in DR/US West End General
Partnership, a joint venture formed to own and operate a commercial office
building in Nashville, Tennessee. The Company's initial investment of
$900,000 in the general partner joint venture was made on November 1,
1988. Effective December 31, 1991, the Partnership adopted the
liquidation method of accounting for its investment in the joint venture.
Accordingly, the basis has been held at $1,000 since December 31, 1991.
Effective July 28, 1995, the partnership exchanged its interest in the assets of
DR/US West End General Partnership (DR/US) for an indirect 4.17% equity interest
(held through a limited partnership interest in Daniel S. E. Office Limited
Partnership) in Prudential/Daniel Office Venture, LLC (the LLC). The LLC owns
six office buildings (including the DR/US property) located in Nashville,
Tennessee and Raleigh, North Carolina. Management believes the fair value ofthe
partnership's interest in the LLC approximates capital contributions recognized
by the LLC (for the 4.17% interest) amounting to $1,361,445. Such capital
contributions were valued based on management's (unaudited) estimated values of
the contributed properties.
U.S. REALTY INCOME PARTNERS L.P.
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
Unaudited
June 30, 1997
C. TRANSACTIONS WITH AFFILIATES
Fees and other costs and expense paid to the general partner or its
affiliates were as follows:
Six Months Year Ended
Ended June 30, December 31,
1997 1996
Administrative expenses $ 18,000 $ 65,000
In 1996, the Partnership paid $29,000, in deferred payments in addition to
normal recurring charges.
The Partnership believes the amounts paid to affiliates are
representative of amounts which would have been paid to independent
parties for similar services.
<PAGE>
PART I - FINANCIAL INFORMATION
continued
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
At December 31, 1996, the partnership had $291,829 in cash and
cash equivalents. This represents 6.01% of capital raised. At June 30, 1997,
the Partnership had $405,540 in cash and cash equivalents. This
represents 8.35% of capital raised. The Partnership had established a
working capital reserve of 5% of the gross proceeds of the offering.
After May 15, 1990, the Partnership's Prospectus provided that the working
capital reserve could be reduced to 3% of capital raised depending upon
the Partnership's experience with its properties. The working capital was
reduced to allow the Partnership to pay costs associated with the DR/US
refinancing. In the event such reserves are insufficient to satisfy
unanticipated costs, the Partnership will be required to borrow additional
funds to meet such costs. The General Partner does not anticipate having
to borrow for working capital reserves in 1997.
The General Partner has deemed it advisable not to make any cash
distributions since May 1990. The General Partner cannot determine whether any
cash will be available for distribution until the Bellevue mortgage is
refinanced.
Bellevue
In October 1988, the Partnership acquired a 66.67% interest in a Tennessee
joint venture known as Bellevue Plaza Partners holding as its primary asset a
shopping center located in Nashville, Tennessee ("Bellevue") which was renovated
in 1988. The Bellevue property was 100% leased at the end of 1993 - 1996. Lease
rent from the tenants amounts to $48,367 per occupancy month. In addition, the
tenants pay common area maintenance charges of $5,881 per month for a total of
$54,248 per month.
On February 1, 1989, the joint venture obtained a $3,800,000 firstmortgage
loan on this property from an unaffiliated lender. The mortgage bears interest
at a rate of 10% per annum and requires monthly installments of interest only
through February 1, 1991. Monthly debt service was $31,667 until March 1991 at
which time monthly installments of principal and interest rose to $33,743. The
loan became due on February 1, 1997. However, the lender has extended the
maturity date to August 1997, with the expectation of additional extensions. The
Partnership is currently negotiating refinancing this loan. The Partnership has
paid debt service on a current basis.
The pollution problem is moving slowly. The State of Tennessee plans to
promulgate rules and regulations pertaining to state-wide pollution problems by
year end. Hopefully, we would then know what it takes to resolve the problem.
As part of the overall solution, a "super fund" of money would be made available
for participants such as Ted's Cleaners to pay for the cleanup ofthepollutants.
In the meantime, Ted's has accepted responsibility and has funded various
expenses.
In January, Haverty's did not extend their lease by exercising their
option. This means their lease terminates at the end of October 1997. They have
requested to remain in the center for an additional year from October 1996 at a
slightly higher rental rate but with a thirty-day termination rate. Their lease
would essentially be a month to month lease. At this time, we do not feel that
we need to commit to this. A search has started for a replacement tenant who
could go into the center as early as November 1997. If a tenant is not forth
coming, we would then grant Haverty's request.
In the meantime, Mass Mutual as part of their mortgage extension, is
requiring that all cash-flow be placed in escrow in case the partnership has any
expense for Ted's Cleaners and for tenant improvements and commissions for re-
leasing the Haverty's space. Unfortunately, this provision prevents the
partnership from paying any distributions from Bellevue Plaza.
DR/US WEST END
In November 1988, the Partnership acquired a 50% ownership interest in a
joint venture known as DR/US West End General Partnership (the "Joint Venture")
which owns an office building located in Nashville, Tennessee.The Partnership's
Joint Venture partner is Daniel West End Limited Partnership,the general partner
of which is the Daniel Corporation (Daniel"). The property was 95% occupied at
December 31, 1994, 1995 and 1996.
The partnership contributed 3310 West End office building to a new
partnership in July 1995.A major reason for this was we had one tenant, Gresham
and Smith, leasing 65,000 square feet out of a total of 107,000 square feet with
their lease ending in 1998.They have terminated their lease and are moving from
the building. Of course, they are still liable for the rent until their lease
termination. Management has known about their planned move for several months
and all of the space has been re-leased. The positive aspect of this is the
building will not have any loss of rental revenue. However, their is a cost of
over $1,300,000 that must be paid for tenant improvements and commissions. This
expense will be paid for from rental cash flow.
Our contribution of 3310 in 1995 to the new partnership with Prudential
Life Insurance paying off the mortgage was a wise decision. It now enables that
partnership to have sufficient cash flow to pay their these costs.If we had not
made that change, our partnership would not have the cash flow to pay these
expenses and the partnership would stand a good chance of losing the building.
PART I - FINANCIAL INFORMATION
continued
Results of Operations
The Partnership holds a majority joint venture interests in
Bellevue Plaza Partners (66 2/3%). The operational results of the Partnership
for the six months ending June 30, 1997 are summarized below.
Bellevue Partnership Total
Revenues $401,220 $ 31,637 $432,857
Operating expenses 99,264 18,547 117,811
Interest 149,690 - 149,690
Depreciation & amort. 78,524 5,214 83,738
327,478 23,761 351,239
Net income (loss) 73,742 7,876 81,618
Partnership share 66 2/3% 100%
Partnership net income
(loss) $ 49,161 $ 7,876 $ 57,037
Partnership Oper. cash
flow $119,645 $ 13,090 $132,735
Operational results for the comparable six month period ended
June 30, 1996 were:
Bellevue Partnership Total
Revenues $397,080 $ 734 $397,814
Operating expenses 83,767 58,578 142,345
Interest 182,202 - 182,202
Depreciation & amort. 82,929 5,214 88,143
348,898 63,792 412,690
Net income (loss) 48,182 ( 63,058) ( 14,876)
Partnership share 66 2/3% 100% %
Partnership net income
(loss) $ 32,121 ($ 63,058) ($ 30,937)
Partnership Operating
cash flow $ 83,309 ($ 57,844) $ 25,465
The Partnership utilized the proceeds of the offering to acquire,
operate and hold for investment existing income producing commercial real
estate properties. Since the proceeds of the offering were less than the
maximum amount the Partnership was unable to diversify its investments to
the extent initially desired.
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
None.
ITEM 2. Changes in Securities
None.
ITEM 3. Default Upon Senior Securities
None.
ITEM 4. Submission of Matters to a Vote of Security Holders
None.
ITEM 5. Other Information
None.
ITEM 6. Exhibits and Reports on Form 8-K
1. Exhibits
None.
2. Form 8-K.
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
U.S. REALTY INCOME PARTNERS L.P.
By: Vanderbilt Realty Joint Venture,
the General Partner
By: Vanderbilt Realty Associates, Inc.
its Managing General Partner
By: Robert Bond Miller
Robert Bond Miller
President, Director, Chief Executive
Officer, Chief Financial Officer and
Chief Accounting Officer
August 4, 1997
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<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 405,540
<SECURITIES> 0
<RECEIVABLES> 8,076
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 5,309,927
<DEPRECIATION> (1,346,985)
<TOTAL-ASSETS> 4,634,163
<CURRENT-LIABILITIES> 51,130
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0
0
<COMMON> 0
<OTHER-SE> 1,002,027
<TOTAL-LIABILITY-AND-EQUITY> 4,634,163
<SALES> 400,350
<TOTAL-REVENUES> 402,148
<CGS> 0
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<OTHER-EXPENSES> 201,549
<LOSS-PROVISION> 0
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<INCOME-PRETAX> 50,909
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