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 March 31, 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 March 31, 1998 and December
31, 1997 5
Statements of Partnership Equity for the period
January 1, 1997 through March 31,1998 6
Statements of Operations for the three months
ended March 31,1998 and 1997 7
Statements of Cash Flows for the three months ended
March 31, 1998 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 March 31, 1998 (unaudited) and
statements of operations, partnership equity, and cash flows for the three
months ended March 31, 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 March 31, 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, 1996, 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.
April 23, 1998
Osborne & Co., P.C
Certified Public Accountants
U.S. REALTY INCOME PARTNERS L.P.
(A LIMITED PARTNERSHIP)
BALANCE SHEETS
Unaudited Audited
March 31, December 31,
1997 1997
ASSETS
CASH $ 471,747 $ 477,135
TENANT RECEIVABLES 2,022 1,996
PREPAID ADMINISTRATIVE FEES
PROPERTY AND IMPROVEMENTS, net of
accumulated depreciation of
$1,463,533 and $1,424,675 3,846,394 3,885,251
INVESTMENT IN LIMITED PARTNERSHIP 1,000 1,000
OTHER ASSETS 251,306 256,080
TOTAL ASSETS $4,572,469 $4,621,462
LIABILITIES AND PARTNERSHIP EQUITY
ACCOUNTS PAYABLE $ 1,290 $ 1,187
ACCRUED EXPENSES 34,904 120,548
NOTES PAYABLE 3,540,497 3,557,105
TOTAL LIABILITIES 3,576,691 3,678,840
MINORITY PARTNER'S INTEREST IN JOINT
VENTURE ( 100,281) ( 102,925)
PARTNERSHIP EQUITY
General Partners, no units authorized ( 181,574) ( 184,100)
Limited Partners, 4,858 units
authorized, issued, and outstanding 1,277,633 1,229,647
TOTAL PARTNERSHIP EQUITY 995,778 942,622
TOTAL LIABILITIES & PARTNERSHIP EQUITY $4,572,469 $4,621,462
U.S. REALTY INCOME PARTNERS L.P.
(A LIMITED PARTNERSHIP)
STATEMENTS OF PARTNERSHIP EQUITY
Period from January 1, 1997 to March 31, 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) 47,986 2,526 50,512
Balance at March 31, 1998 $1,277,633 ($181,574) $1,096,059
U.S. REALTY INCOME PARTNERS L.P.
(A LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
For the Three Months Ended March 31, 1998 and 1997
Unaudited Unaudited
3 Months 3 Months
1998 1997
Revenues
Rental income $ 167,650 $ 192,194
CAM reimbursements 16,516 27,223
Miscellaneous 0 0
Interest income 4,426 840
188,592 220,257
Expenses
Interest 88,721 89,910
Loan costs 0 1,500
Professional fees 1,942 3,026
Depreciation 38,854 38,845
Amortization 2,607 3,440
Property taxes 18,872 17,012
Leasing & admin. 8,917 14,150
Management fees 7,339 8,341
Repairs 9,731 10,435
Insurance 5,793 5,023
182,780 191,682
Net Income Before
Minority Partner's
Share of Income 5,812 28,574
Minority Partner's
Interest in
Operating Profit ( 2,644) ( 14,277)
Income (Loss) from
Operations 3,168 14,297
Income from Investment
in Joint Venture 47,344 30,709
Net Income (Loss) $ 50,512 $ 45,006
Net Income (Loss) per
Unit $ 9.88 $ 8.80
Weighted Average
Number of Units 4,858 4,858
U.S. REALTY INCOME PARTNERS L.P.
(A LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
Unaudited Unaudited
Three Months Three Months
Ending Ending
March 31, 1998 Sept. 30, 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 50,512 $ 45,006
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 2,644 14,277
Depreciation 38,858 28,845
Amortization 2,607 3,440
(Increase) decrease in:
Tenant receivables ( 26) 3,601
Prepaid administrative fees 0 ( 9,000)
Other assets 2,166 2,166
Increase (decrease) in:
Accounts payable 103 31,424
Accrued expenses ( 86,231) ( 51,035)
Tenant Deposits 587 0
NET CASH PROVIDED (USED) BY OPERATING
ACTIVITIES 11,220 87,724
CASH FLOWS FROM INVESTING ACTIVITIES:
Distributions from Limited Partnership - -
NET CASH PROVIDED BY INVESTING ACTIVITIES - -
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on mortgage note ( 16,608) ( 11,319)
NET CASH USED IN FINANCING ACTIVITIES ( 16,608) ( 11,319)
NET INCREASE (decrease) IN CASH/EQUIVALTNES ( 5,388) 76,405
CASH & CASH EQUIVALENTS AT BEGINNING PERIOD 477,135 291,829
CASH & CASH EQUIVALENTS AT END OF PERIOD $ 471,747 $ 368,234
SUPPLEMENTAL DISCLOSURES:
INTEREST PAID $ 88,721 $ 89,910
U.S. REALTY INCOME PARTNERS L.P.
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
Unaudited
March 31, 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
March 31, 1998
C. TRANSACTIONS WITH AFFILIATES
Fees and other costs and expense paid to the general partner or its
affiliates were as follows:
Three Months Year Ended
Ended March 31, December 31,
1998 1997
Administrative expenses $ -0- $ 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, 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 for participants such as 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 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 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
See Accountants' Compilation Report and Notes to Financial Statements.
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