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, 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 June 30, 1998 and December
31, 1997 5
Statements of Partnership Equity for the period
January 1, 1997 through June 30,1998 6
Statements of Operations for the three months
and six months ended June 30,1998 and 1997 7
Statements of Cash Flows for the six months ended
June 30, 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 - 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 June 30, 1998 (unaudited) and
statements of operations, partnership equity, and cash flows for the three
months and six months ended June 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 June 30, 1998 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 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.
July 17, 1998
Osborne & Co., P.C
Certified Public Accountants
U.S. REALTY INCOME PARTNERS L.P.
(A LIMITED PARTNERSHIP)
BALANCE SHEETS
Unaudited Audited
June 30, December 31,
1998 1997
ASSETS
CASH $ 444,990 $ 477,135
TENANT RECEIVABLES 5,484 1,996
PREPAID ADMINISTRATIVE FEES
PROPERTY AND IMPROVEMENTS, net of
accumulated depreciation of
$1,502,391 and $1,424,675 3,807,536 3,885,251
INVESTMENT IN LIMITED PARTNERSHIP 1,000 1,000
OTHER ASSETS 246,533 256,080
TOTAL ASSETS $4,505,543 $4,621,462
LIABILITIES AND PARTNERSHIP EQUITY
ACCOUNTS PAYABLE $ 1,805 $ 1,187
ACCRUED EXPENSES 53,776 120,548
NOTES PAYABLE 3,527,681 3,557,105
TOTAL LIABILITIES 3,583,262 3,678,840
MINORITY PARTNER'S INTEREST IN JOINT
VENTURE ( 113,233) ( 102,925)
PARTNERSHIP EQUITY
General Partners, no units authorized ( 184,602) ( 184,100)
Limited Partners, 4,858 units
authorized, issued, and outstanding 1,220,116 1,229,647
TOTAL PARTNERSHIP EQUITY 922,281 942,622
TOTAL LIABILITIES & PARTNERSHIP EQUITY $4,505,543 $4,621,462
U.S. REALTY INCOME PARTNERS L.P.
(A LIMITED PARTNERSHIP)
STATEMENTS OF PARTNERSHIP EQUITY
Period from January 1, 1997 to June 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 income 3,862 203 4,065
Balance at December 31, 1997 1,229,647 ( 184,100) 1,045,547
Net income ( 9,531) ( 502) ( 10,003)
Balance at June 30, 1998 $1,220,116 ($184,602) $1,035,514
U.S. REALTY INCOME PARTNERS L.P.
(A LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
For the Three Months and Six Months Ended June 30, 1998 and 1997
Unaudited Unaudited Unaudited Unaudited
3 Months 3 Months 6 Months 6 Months
1998 1997 1998 1997
Revenues
Rental income $ 115,569 $ 149,868 $283,219 $ 342,062
CAM reimbursements 15,881 30,921 32,396 58,144
Miscellaneous 178 144 178 144
Interest income 5,274 958 9,700 1,798
136,902 181,891 325,494 402,148
Expenses
Interest 88,412 59,780 177,133 149,690
Loan costs 0 0 0 1,500
Professional fees 12,295 31 14,237 3,057
Depreciation 38,858 38,845 77,715 77,691
Amortization 2,607 2,607 5,214 6,047
Property taxes 18,872 17,012 37,745 34,023
Leasing & admin. 32,699 21,618 41,615 35,768
Management fees 4,781 6,394 12,120 14,735
Repairs 8,934 10,755 18,665 21,190
Insurance 2,941 2,515 8,734 7,538
210,398 159,557 393,179 351,239
Net Income Before
Minority Partner's
Share of Income ( 73,496) 22,334 ( 67,685) 50,909
Minority Partner's
Interest in
Operating Profit 12,952 ( 10,304) 10,308 ( 24,581)
Income (Loss) from
Operations ( 60,544) 12,030 ( 57,377) 26,328
Income from Investment
in Joint Venture 0 0 47,344 30,709
Net Income (Loss) ($ 60,544) $ 12,030 ($10,033) $ 57,037
Net Income (Loss) per
Unit ($ 11.84) $ 2.35 ($ 1.96) $ 11.15
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, 1998 June 30, 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ($ 10,033) $ 57,037
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 ( 10,308) 24,581
Depreciation 77,715 77,691
Amortization 5,214 6,047
(Increase) decrease in:
Tenant receivables ( 3,488) ( 2,041)
Other assets 4,332 4,332
Increase (decrease) in:
Accounts payable 618 ( 888)
Accrued expenses ( 67,358) ( 34,024)
Tenant Deposits 587 0
CASH FLOWS FROM INVESTING ACTIVITIES
Net cash provided by (used in) ( 2,721) 132,735
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on mortgage note ( 29,424) ( 19,026)
NET CASH USED IN FINANCING ACTIVITIES ( 29,424) ( 19,026)
NET INCREASE (decrease) IN CASH/EQUIVALENTS ( 32,145) 113,709
CASH & CASH EQUIVALENTS AT BEGINNING PERIOD 477,135 291,829
CASH & CASH EQUIVALENTS AT END OF PERIOD $ 444,990 $ 405,538
SUPPLEMENTAL DISCLOSURES:
INTEREST PAID $ 177,133 $ 149,690
U.S. REALTY INCOME PARTNERS L.P.
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
Unaudited
June 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
June 30, 1998
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 March 31, December 31,
1998 1997
Administrative expenses $ 22,500 $ 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 June 30, 1998, the
Partnership had $444,990 in cash and cash equivalents. This represents 9.2% 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 financed. 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. and the lease
has been negotiated. Our Partnership will complete work on the space with
includes tear out, removal of existing fixtures, providing a separate meter,
upgrading the electrical supply and putting the HVAC in good working order.
The tenant will be responsible for the completion of any work to make the space
suitable to the tenant. As our Partnership does not have extensive reserves,
the tenant will 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 have terminated their lease and are
moving from the building.
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 25% of this space
has been already pre-leased. The new parking garage will have 178 spaces.
In the next couple of months a nationally known brokerage firm will be
retained to determine the market value of the office buildings and secure any
interest in the purchase of them. A report will be made when there is any
significant news.
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 six months ending June 30, 1998 are summarized below.
Bellevue Partnership Total
Revenues $324,266 $ 48,572 $372,838
Operating expenses 100,073 33,044 133,117
Interest 177,133 - 177,133
Depreciation & amort. 77,715 5,214 82,929
354,921 38,258 393,179
Net income (loss) (30,655) 10,314 (20,341)
Partnership share 66 2/3% 100%
Partnership net income ($ 20,347) $ 10,314 ($ 10,033)
Partnership Oper. cash
flow ($ 17,275) $ 14,554 ($ 2,721)
Operational results for the comparable six month period ended
June 30, 1997 were:
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 Operating
cash flow $119,645 $ 13,090 $132,735
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
August 7, 1998
17
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