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 September 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 September 30, 1997 and December
31, 1996 5
Statements of Partnership Equity for the period
January 1, 1996 through September 30, 1997 6
Statements of Operations for the three months and nine
months ended September 30, 1997 and 1996 7
Statements of Cash Flows for the nine months ended
September 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 September 30, 1997 (unaudited) and
statements of operations, partnership equity, and cash flows for the three and
nine months ended September 30, 1997 (unaudited), for U.S. Realty IncomePartners
L.P. (a Delaware limited partnership) (the "Partnership"), have not beenexamined
by independent public accountants but reflect, in the opinion of management, all
adjustments (consisting ofnormal recurring accruals) necessary to present fairly
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 September 30, 1997, and the related statements
of operations, partnership equity, and cash flows for the three months and nine
months then ended, in accordance with Statements on Standards for Accounting and
ReviewServices issued by the American Institute of Certified Public Accountants.
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.
November 8, 1997
Osborne & Co., P.C
Certified Public Accountants
<PAGE>
U.S. REALTY INCOME PARTNERS L.P.
(A LIMITED PARTNERSHIP)
BALANCE SHEETS
Unaudited Audited
September 30, December 31,
1997 1996
ASSETS
CASH $ 400,524 $ 291,829
TENANT RECEIVABLES 10,358 6,035
PROPERTY AND IMPROVEMENTS, net of
accumulated depreciation of
$1,385,830 and $1,269,294 3,924,097 4,040,633
INVESTMENT IN LIMITED PARTNERSHIP 1,000 1,000
OTHER ASSETS 251,832 266,984
TOTAL ASSETS $4,587,811 $4,606,481
LIABILITIES AND PARTNERSHIP EQUITY
ACCOUNTS PAYABLE $ 13 $ 2,548
ACCRUED EXPENSES 66,482 83,492
NOTES PAYABLE 3,565,205 3,600,032
TOTAL LIABILITIES 3,631,700 3,686,072
MINORITY PARTNER'S INTEREST IN JOINT
VENTURE ( 99,899) ( 121,073)
PARTNERSHIP EQUITY
General Partners, no units authorized ( 183,577) ( 184,303)
Limited Partners, 4,858 units
authorized, issued, and outstanding 1,239,587 1,225,785
TOTAL PARTNERSHIP EQUITY 956,111 920,409
TOTAL LIABILITIES & PARTNERSHIP EQUITY $4,587,811 $4,606,481<PAGE>
U.S. REALTY INCOME PARTNERS L.P.
(A LIMITED PARTNERSHIP)
STATEMENTS OF PARTNERSHIP EQUITY
Period from January 1, 1996 to September 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 (loss) 13,802 726 14,528
Balance at September 30, 1997 $1,239,587 ($183,577) $1,056,010
<PAGE>
U.S. REALTY INCOME PARTNERS L.P.
(A LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
For the Three Months and Nine Months Ended September 30, 1997 and 1996
Unaudited Unaudited Unaudited Unaudited
3 Months 3 Months 9 Months 9 Months
1997 1996 1997 1996
Revenues
Rental income $ 156,227 $ 149,350 $ 498,288 $ 478,997
CAM reimbursements 27,223 22,574 85,366 88,870
Miscellaneous 0 276 144 373
Interest income 821 959 2,619 2,733
184,271 173,159 586,417 570,973
Expenses
Interest 119,171 90,518 268,860 272,720
Loan costs 500 0 2,000 0
Professional fees 15,095 9,220 18,152 20,568
Depreciation 38,845 38,857 116,536 116,572
Amortization 2,607 5,214 8,655 15,642
Property taxes 17,012 17,012 51,035 51,035
Leasing & admin. 23,808 28,365 59,576 91,086
Management fees 6,433 6,446 21,168 20,628
Repairs 6,713 9,203 27,903 23,740
Insurance 1 0 7,539 5,535
230,185 204,835 581,424 617,526
Net Income Before
Minority Partner's
Share of Income ( 45,914) ( 31,676) 4,993 ( 46,553)
Minority Partner's
Interest in
Operating Profit 3,406 ( 658) ( 21,174) ( 16,719)
Income (Loss) from
Operations ( 42,508) ( 32,334) ( 16,181) ( 63,272)
Income from Investment
in Joint Venture 0 0 30,709 0
Net Income (Loss) ($ 42,508 ($ 32,334) $ 14,528 ($ 63,272)
Net Income (Loss) per
Unit ($ 8.31) ($ 6.32) $ 2.84 ($ 12.37)
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
Nine Months Nine Months
Ending Ending
Sept. 30, 1997 Sept. 30, 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 14,528 ($ 63,272)
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 21,174 16,719
Depreciation 116,536 116,572
Amortization 8,655 15,642
(Increase) decrease in:
Tenant receivables ( 4,323) 1,246
Other assets 6,497 25,792
Increase (decrease) in:
Accounts payable ( 2,535) 1,169
Accrued expenses ( 17,012) ( 17,012)
Tenant Deposits 0 1,625
NET CASH PROVIDED (USED) BY OPERATING
ACTIVITIES 143,520 98,481
CASH FLOWS FROM INVESTING ACTIVITIES:
Distributions from Limited Partnership - 20,845
NET CASH PROVIDED BY INVESTING ACTIVITIES - 20,845
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on mortgage note ( 34,825) ( 31,468)
NET CASH USED IN FINANCING ACTIVITIES ( 34,825) ( 31,468)
NET INCREASE IN CASH/EQUIVALTNES 108,695 87,858
CASH & CASH EQUIVALENTS AT BEGINNING PERIOD 291,829 155,184
CASH & CASH EQUIVALENTS AT END OF PERIOD $ 400,524 $ 243,042
SUPPLEMENTAL DISCLOSURES:
INTEREST PAID $ 268,860 $ 272,720
U.S. REALTY INCOME PARTNERS L.P.
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
Unaudited
September 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 of the
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
September 30, 1997
C. TRANSACTIONS WITH AFFILIATES
Fees and other costs and expense paid to the general partner or its
affiliates were as follows:
Nine Months Year Ended
Ended Sept. 30, December 31,
1997 1996
Administrative expenses $ 36,000 $ 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 September 30,
1997, the Partnership had $400,524 in cash and cash equivalents. This
represents 8.24% 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 first mortgage
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, 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
forparticipants suchas Ted's Cleaners to pay for the cleanup of the pollutants.
In the meantime, Ted's has accepted responsibility and has funded various
expenses. In any event, management anticipates no liability to the partnership
due to the existence of this fund since management believes the current tenant
is responsible for the cost of cleanup.
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 was made for a replacement tenant who could
go into the center as early as November 1997. Two tenants have been secured to
replace the Haverty lease.
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 ownsan office building located in Nashville, Tennessee. The Partnership's
Joint Venturepartner 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 inJuly 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 endingin 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 tohave 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 nine months ending September 30, 1997 are summarized below.
Bellevue Partnership Total
Revenues $585,069 $ 32,057 $617,126
Operating expenses 136,150 51,223 187,373
Interest 268,860 - 268,860
Depreciation & amort. 116,536 8,655 125,191
521,546 59,878 581,424
Net income (loss) 63,523 ( 27,821) 35,702
Partnership share 66 2/3% 100%
Partnership net income
(loss) $ 42,349 ($ 27,821) $ 14,528
Partnership Oper. cash
flow $162,686 ($ 19,166) $143,520
Operational results for the comparable nine month period ended
September 30, 1996 were:
Bellevue Partnership Total
Revenues $569,639 $ 1,334 $570,973
Operating expenses 126,319 87,590 213,909
Interest 272,720 - 272,720
Depreciation & amort. 124,393 7,821 132,214
523,432 95,411 618,843
Net income (loss) 46,207 ( 94,077) ( 47,870)
Partnership share 66 2/3% 100%
Partnership net income
(loss) $ 30,805 ($ 94,077) ($ 63,272)
Partnership Operating
cash flow $190,070 ($ 91,589) $ 98,481
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
November 12, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 400,524
<SECURITIES> 0
<RECEIVABLES> 10,358
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 5,309,927
<DEPRECIATION> (1,385,830)
<TOTAL-ASSETS> 4,587,811
<CURRENT-LIABILITIES> 66,495
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 956,111
<TOTAL-LIABILITY-AND-EQUITY> 4,587,811
<SALES> 586,417
<TOTAL-REVENUES> 586,417
<CGS> 0
<TOTAL-COSTS> 312,564
<OTHER-EXPENSES> 21,174
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 268,860
<INCOME-PRETAX> 14,528
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,528
<EPS-PRIMARY> 2.84
<EPS-DILUTED> 2.84
</TABLE>
