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, 1998
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, 1998 and December
31, 1997 5
Statements of Operations for the three months
and nine months ended September 30,1998 and 1997 6
Statements of Cash Flows for the nine months ended
September 30, 1998 and 1997 7
Statements of Partnership Equity for the period
January 1, 1997 through September 30, 1998 8
Notes to Financial Statements 9 - 10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11 - 15
PART II Other Information
Item 1. Legal Proceedings 16
Item 2. Changes in Securities 16
Item 3. Default Upon Senior Securities 16
Item 4. Submissions of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 17
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
The following balance sheet at September 30, 1998 (unaudited)
and statements of operations, partnership equity, and cash flows for
the three months and nine months ended September 30, 1998 (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 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 1997 Annual Report, as reported on Form 10-K.
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, 1998 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 Review Services 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, 1997, were
audited by other accountants, and they expressed an unqualified opinion
on them in their report dated January 27, 1998, but they have not
performed any auditing procedures since that date.
October 26, 1998
Osborne & Co., P.C
Certified Public Accountants
U.S Realty Income Partners, L.P.
(A Limited Partnership)
Balance Sheets
Unaudited Audited
September 30, December 31,
1998 1997
Assets
Cash $ 353,425 $ 477,135
Tenant receivables 5,823 1,996
Property & improvements, net of
accumulated depreciation of
$1,541,248 and $1,424,675 3,825,983 3,885,251
Investment in limited partnership 1,000 1,000
Other assets 296,960 256,080
Total Assets $ 4,483,191 $ 4,621,462
Liabilities & Partnership Equity
Accounts payable $ 33,860 $ 1,187
Accrued expenses 72,649 120,548
Notes payable 3,514,751 3,557,105
Total Liabilities 3,621,260 3,678,840
Minority partner's interest in JV (125,573) (102,925)
Partnership equity
Gen. Partners, no units authorized (187,002) (184,100)
Limited Partners, 4,858 units
authorized, issued,
and outstanding 1,174,506 1,229,647
Total Partnership Equity 861,931 942,622
Total Liabilities & Partnership
Equity $ 4,483,191 $ 4,621,462
U.S. Realty Income Partners L.P.
(A Limited Partnership)
Statements of Operations
For the Three Months and Nine Months Ended
September 30, 1998 and 1997
Unaudited Unaudited Unaudited Unaudited
3 Months 3 Months 9 Months 9 Months
1998 1997 1998 1997
Revenues
Rental income $111,288 $156,227 $394,508 $498,288
CAM reimbursements 13,578 27,223 45,974 85,366
Miscellaneous 349 - 527 144
Interest income 4,514 821 14,214 2,619
129,729 184,271 455,223 586,417
Expenses
Interest 88,300 119,171 265,433 268,860
Loan costs - 500 - 2,000
Professional fees 3,554 15,095 17,792 18,152
Depreciation 38,858 38,845 116,573 116,536
Amortization 2,607 2,607 7,821 8,655
Property taxes 18,872 17,012 56,617 51,035
Leasing & admin. 21,871 23,808 63,486 59,576
Management fees 4,797 6,433 16,917 21,168
Repairs 11,239 6,713 29,904 27,903
Insurance (19) 1 8,715 7,539
190,079 230,185 583,258 581,424
Net income before
minority partner's
share of income (60,350) (45,914) (128,035) 4,993
Minority partner's
interest in operating
profit 12,340 3,406 22,648 (21,174)
Inc (Loss) from
operation (48,010) (42,508) (105,387) (16,181)
Income from investment
in Joint Venture - - 47,344 30,709
Net Income (Loss) $(48,010) $(42,508) $(58,043) $ 14,528
Net Inc. (Loss) per
Unit $ (9.39) $ (8.31) $(11.35) $ 2.84
Weighted Average
No. 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
9 Months 9 Months
Ending Ending
9/30/98 9/30/97
Cash Flows From Operating Activities
Net income (loss) $ (58,043) $ 14,528
Adjustments to reconcile net income (loss)
to net cash provide by (used in)
operating activities:
Minority partner's interest in operating
profit (loss) of consolidated
partnership (22,648) 21,174
Depreciation 116,573 116,536
Amortization 7,821 8,655
(Increase) decrease in:
Tenant receivables (3,827) (4,323)
Other assets (48,703) 6,497
Increase (decrease) in:
Accounts payable 32,673 (2,535)
Accrued expenses (48,486) (17,012)
Tenant deposits 587 -
Net cash provided by (used in)
operating activities (24,053) 143,520
Cash Flows From Investing Activities
Purchase of property and improvements (57,304) -
Net cash provided by (used in)
investing activities (57,304) -
Cash Flows From Financing Activities
Payments on mortgage note (42,353) (34,825)
Net cash provided by (used in)
financing activities (42,353) (34,825)
Net increase (decrease) in cash
and cash equivalents (123,710) 108,695
Cash & cash equivalents at beginning
of period 477,135 291,829
Cash & cash equivalents at end of period $353,425 $400,524
Supplemental Disclosures
Interest paid $265,433 $268,860
U.S. Realty Income Partners L.P.
(A Limited Partnership)
Statements of Partnership Equity
Period from January 1, 1997 to September 30, 1998
Limited General
Partners Partner Total
Distributive share of net earnings 95% 5% 100%
Balance at January 1, 1997 $1,225,785 $(184,303) $1,041,482
Net loss 3,862 203 4,065
Balance at December 31, 1997 1,229,647 (184,100) 1,045,547
Net income (loss) (55,141) (2,902) (58,043)
Balance at September 30, 1998 $1,174,506 $(187,002) $ 987,504
U.S. REALTY INCOME PARTNERS L.P.
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
Unaudited
September 30, 1998
A. ACCOUNTING POLICIES
Refer to the Partnership's annual financial statements for the year
ended December 31, 1997 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, 1998.
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, 1998
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 September 30, December 31,
1998 1997
Administrative expenses $ 40,500 $ 36,000
The Partnership believes the amounts paid to affiliates are
representative of amounts which would have been paid to independent
parties for similar services.
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, 1997, the partnership had $477,135 in cash and
cash equivalents. This represents 9.08% of capital raised. At
September 30, 1998, the Partnership had $353,425 in cash and cash
equivalents. This represents 7.3% 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 1998.
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. A refinancing will
occur when the vacant space is released and the pollution problem with
Ted's Cleaners is resolved. The State of Tennessee has promulgated
rules and regulations pertaining to state wide pollution problems.
Ted's Cleaners has made application to the Industry "Super Fund" to
obtain money to clean up the pollution. The problem should be
addressed this spring. Hopefully, there will be a final resolution
this year.
Haverty's moved from the center at the end of October, 1997. We
have reached an agreement with T. J. Maxx/Marshalls for 28,300 sq. ft..
Plans call for the store to open November 8, 1998. As our Partnership
does not have extensive reserves, the tenant did front the cost of this
and the Partnership will repay the amount from the first two years
lease payments. The term of the lease is 10 years. Lease payments will
yield approximately $50,000 more revenue to the Partnership each year
after the first two years than received from the lease with Haverty's.
However, for the next two years, this center will only break even on a
cash flow basis. The Partnership has paid debt service on a current
basis.
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 terminated
their lease and moved from the building. However, the total space has
been re-leased.
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.
Properties in Raleigh, NC
These properties consist of one 110,000 sq. ft. building (Center
98) and four sq. ft. buildings (Park). These buildings are operating
accounting to schedule. Prudential Life Insurance Company has funded
the partnership with approximately 7,280,000 to build a garage and a
new 55,600 sq. ft. building which should be completed by the end of
1998. Approximately 50% of this space has been already pre-leased.
The new parking garage will have 178 spaces.
With the circumstances regarding the shopping center and the
$1,000,000 payment due on the 3310 Office Building, it does not appear
there will be any cash distribution in 1998 from operations. However,
if the study and interest regarding the office buildings prove
positive, there is a possibility of one or more sales of the office
buildings. The Partnership would make distributions to the partners if
this occurs.
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, 1998 are
summarized below.
Bellevue Partnership Total
Revenues $453,218 $ 49,349 $502,567
Operating expenses 138,976 54,455 193,431
Interest 265,433 - 265,433
Depreciation & amortization 116,573 7,821 124,394
520,982 62,276 583,258
Net income (loss) (67,764) (12,927) (80,691)
Partnership share 66.67% 100%
Partnership net income $(45,116) $(12,927) $(58,043)
Partnership operating
cash flow $(18,947) $ (5,106) $(24,053)
Operational results for the comparable nine month period
ended September 30, 1997 were:
Bellevue Partnership Total
Revenues $585,069 $ 32,057 $617,126
Operating expenses 136,150 51,223 187,373
Interest 268,860 - 268,860
Depreciation & amortization 116,536 8,655 125,191
521,546 59,878 581,424
Net income (loss) 63,523 (27,821) 35,702
Partnership share 66.67% 100%
Partnership net income (loss) $ 42,349 $(27,821) $ 14,528
Partnership operating
cash flow $162,686 $ (19,166) $143,520
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: s/n Robert Bond Miller
Robert Bond Miller
President, Director, Chief
Executive Officer, Chief Financial
Officer and Chief Accounting
Officer
November 4, 1998
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<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
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<SECURITIES> 0
<RECEIVABLES> 5,823
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<COMMON> 0
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<OTHER-EXPENSES> 317,825
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