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, 1996
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
0-17633
USF&G/LEGG MASON REALTY PARTNERS LIMITED PARTNERSHIP
(Exact name of registrant as specified in its Certificate
of Limited Partnership)
Maryland 75-2228850
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
100 Light Street
Tenth Floor
Baltimore, Maryland 21202
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (410) 625-5500
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 and 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 over the past 90 days.
Yes X No _____
-----------
<PAGE>
INDEX
USF&G/LEGG MASON REALTY PARTNERS LIMITED PARTNERSHIP
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets -- March 31, 1996 and December 31, 1995
Statements of Operations -- For the three months ended March 31, 1996
and March 31, 1995
Statements of Cash Flows -- For the three months ended March 31, 1996
and March 31, 1995
Notes to Financial Statements -- March 31, 1996
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
PART II.OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
The Partnership did not file any reports on Form 8-K during the three
months ended March 31, 1996.
SIGNATURES
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
USF&G/LEGG MASON REALTY PARTNERS LIMITED PARTNERSHIP
BALANCE SHEETS
<S> <C> <C>
(Unaudited)
March 31, 1996 December 31, 1995
ASSETS
Real Estate Investments:
Income Producing Properties -- Note B $28,406,070 $28,612,932
Cash and Cash Equivalents (including temporary
investments at March 31, 1996 and December 31,
1995 of $147,957 and $515,389, respectively) -- Note C 1,066,249 887,555
Restricted Cash Escrow -- Note E 150,288 192,402
Accounts Receivable 74,032 68,776
Other Assets 255,903 259,462
------------ ------------
Total Assets $29,952,542 $30,021,127
========== ==========
LIABILITIES
Mortgages Payable -- Note E $20,579,594 $20,595,531
Accounts Payable and Other Liabilities 2,070,485 1,406,228
Due to General Partners and Affiliates -- Note D 2,671,914 1,886,808
Cash Flow Protector Loan -- Note G 4,849,734 4,849,734
------------ -----------
$30,171,727 $28,738,301
PARTNERS' EQUITY
General Partners (246,605) (231,585)
Assignor and Assignee Limited Partners
1,094,283 Units Issued and Outstanding 27,420 1,514,411
------- -----------
(219,185) 1,282,826
-------- -----------
Total Liabilities and Partners' Equity $29,952,542 $30,021,127
========== ==========
See accompanying notes to the financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
USF&G/LEGG MASON REALTY PARTNERS LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
(UNAUDITED)
<S> <C> <C>
For the Three For the Three
Months Ended Months Ended
March 31, 1996 March 31, 1995
-------------- --------------
REVENUE:
Rental $ 1,142,296 $1,115,041
Interest 5,878 10,808
-------- -----------
Total Revenue 1,148,174 1,125,849
EXPENSES:
Property Operating 511,207 451,028
St. Andrews Repair and Legal Costs, Net of
Recoveries - Note J 1,259,109 98,410
General and Administrative 33,281 36,897
Interest 540,721 534,884
Depreciation and Amortization 305,867 302,400
----------- ----------
Total Expenses 2,650,185 1,423,619
---------- ---------
NET LOSS $ (1,502,011) $ (297,770)
========== =========
Net Loss Allocated to:
General Partners $ (15,020) $ (2,978)
Assignor and Assignee Limited Partners (1,486,991) (294,792)
---------- --------
$ (1,502,011) $ (297,770)
========= =========
Net Loss per Unit -- Note A $ (1.36) $ (.27)
============== =============
Cash Distributions per Unit -- Notes A and F $ 0 $ 0 $ 0
================ ================
Weighted Average Number of Units 1,094,283 1,094,283
========== =========
See accompanying notes to the financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
USF&G LEGG MASON REALTY PARTNERS LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<S> <C> <C>
For the Three For the Three
Months Ended Months Ended
March 31, 1996 March 31, 1995
-------------- --------------
OPERATING ACTIVITIES
Net Loss $(1,502,011) $(297,770)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 305,867 302,400
Change in net assets and liabilities related to
operating activities:
Decrease in restricted cash escrow 42,114 42,781
Increase in due to general partners and affiliates 85,106 77,596
Increase (decrease) in accounts payable and other
liabilities 664,257 (2,254)
(Increase) decrease in accounts receivable (5,256) 31,441
Increase in other assets (21,072) (5,764)
------- ------
Net Cash (Used in) Provided by Operating Activities (430,995) 148,430
-------- ---------
INVESTING ACTIVITIES
Investment in income producing properties (74,374) (29,009)
------- -------
Net Cash Used in Investing Activities (74,374) (29,009)
------- -------
FINANCING ACTIVITIES
Mortgage principal payments (15,937) (14,516)
St. Andrews Construction Loan Advances 700,000 0
---------- ----------
Net Cash Provided by (Used in) Financing Activities 684,063 (14,516)
---------- -------
Increase in Cash and Cash Equivalents 178,694 104,905
Cash and Cash Equivalents, Beginning of Period 887,555 623,032
---------- ---------
Cash and Cash Equivalents, End of Period $ 1,066,249 $ 727,937
========== ========
See accompanying notes to the financial statements.
</TABLE>
<PAGE>
USF&G/LEGG MASON REALTY PARTNERS LIMITED PARTNERSHIP
Notes to Financial Statements
March 31, 1996
(Unaudited)
NOTE A - Organization, Basis of Presentation and Summary of Significant
Accounting Policies
USF&G/Legg Mason Realty Partners Limited Partnership (the "Partnership") was
organized under the laws of the State of Maryland on April 12, 1988. The
Partnership was formed to acquire, hold, lease and ultimately dispose of income
producing commercial and multi-family residential properties located primarily
in the Eastern half of the United States.
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three months ended March 31, 1996 are not necessarily
indicative of the results that may be expected for the year ending December 31,
1996. For further information, refer to the financial statements and footnotes
thereto included in the Partnership's annual report on Form 10-K for the year
ended December 31, 1995.
New Accounting Standards
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
of", which requires impairment losses to be recorded on long-lived assets used
in operations when indicators of impairment are present and the undiscounted
cash flows estimated to be generated by those assets are less than the asset's
carrying amount. SFAS No. 121 also addressed the accounting for long-lived
assets that are to be disposed of.
The Partnership adopted the standard in the first quarter of 1996. The standard
includes a requirement that impairments in the value of real estate investments
be recorded as direct reductions in the carrying value of those investments. The
Partnership's prior practice has been to reduce the carrying value for
impairments to specific investments where impairment is deemed other than
temporary. At March 31, 1996, none of the Partnership's long-lived assets was
determined to be impaired under the provision of SFAS No. 121.
<PAGE>
USF&G/LEGG MASON REALTY PARTNERS LIMITED PARTNERSHIP
Notes to Financial Statements (Continued)
March 31, 1996
(Unaudited)
NOTE A - Organization, Basis of Presentation and Summary of Significant
Accounting Policies (Continued)
Allocation of Net (Loss) Income from Operations
Net (loss) income from operations is allocated first among the partners in
proportion to cash distributions and second, if there have been no cash
distributions, 99% to the assignee limited partners ("Unitholders") and 1% to
General Partners. Net (loss) income and cash distributions per Unit were
computed based upon net (loss) income allocated to and cash distributions paid
to Unitholders divided by the weighted average number of Units outstanding
during the periods indicated. The allocated 1% net (loss) income from operations
to the General Partners is prorated for net (loss) on the basis of 80% to USF&G
Realty Partners, Inc. (the "USF&G General Partner") and 20% to Legg Mason Realty
Partners, Inc. (collectively, the "General Partners") while net income is
allocable on the basis of 50% to the USF&G General Partner and 50% to Legg Mason
Realty Partners, Inc.
Reclassifications
Certain 1995 amounts have been reclassified to conform with the 1996
presentation.
NOTE B - Income Producing Properties
The following table sets forth summarized financial information for Northeast
Business Campus, St. Andrews Apartments at Westwood and Shadeland Retail Center,
the three properties owned directly by the Partnership, as of the dates
indicated:
<TABLE>
<S> <C> <C>
March 31, 1996 December 31, 1995
-------------- -----------------
Buildings and improvements $29,193,356 $29,118,982
Land 5,444,913 5,444,913
----------- -----------
34,638,269 34,563,895
Less: Accumulated depreciation (6,232,199) (5,950,963)
---------- ----------
$28,406,070 $28,612,932
========== ==========
</TABLE>
NOTE C - Cash and Cash Equivalents
Cash and cash equivalents include temporary investments in money market funds
with maturities of three months or less.
<PAGE>
USF&G/LEGG MASON REALTY PARTNERS LIMITED PARTNERSHIP
Notes to Financial Statements (Continued)
March 31, 1996
(Unaudited)
NOTE D - Related Party Transactions
The following is a summary of interest, compensation and reimbursements of
expenses incurred to the General Partners and their affiliates for the periods
indicated:
<TABLE>
<S> <C> <C>
For the Three Months Ended
March 31, 1996 March 31, 1995
-------------- --------------
Charged to expenses:
Interest Expense $83,439 $76,178
Operating Expense 21,026 23,146
</TABLE>
Due to General Partners and affiliates consists of the following as of the dates
indicated:
<TABLE>
<S> <C> <C>
March 31, 1996 December 31, 1995
-------------- -----------------
Asset Management Fees $ 423,990 $ 423,990
Accrued Interest on the Cash Flow Protector Loan 1,305,801 1,233,255
General Partner Loans 200,000 200,000
Accrued Interest on General Partner Loans 23,671 19,503
St. Andrews Construction Loan 700,000 0
Accrued Interest on St. Andrews Construction Loan 5,250 0
Operating Expenses 13,202 10,060
------ ------
$2,671,914 $1,886,808
========= =========
</TABLE>
In connection with the loan modification at NEBC executed in the fourth quarter
of 1994 discussed in Note E, the General Partners, USF&G Realty Partners, Inc.
and Legg Mason Realty Partners, Inc., provided equally a total of $200,000 to
the Partnership toward establishing the required reserves and escrows at NEBC.
The amounts provided by the General Partners are in the form of loans from each
General Partner which accrue interest at the prime rate and mature on August 15,
1999. The Partnership's obligation to make interest and principal payments under
the loans is limited to the extent of available NEBC reserves and escrows and
sale or refinancing proceeds (as defined in the Partnership Agreement)
attributable to the NEBC property.
See Note J - St. Andrews Repair and Legal Costs for a discussion of the St.
Andrews construction loan from USF&G Realty Partners, Inc.
<PAGE>
USF&G/LEGG MASON REALTY PARTNERS LIMITED PARTNERSHIP
Notes to Financial Statements (Continued)
March 31, 1996
(Unaudited)
NOTE E - Mortgages Payable
Mortgages payable consists of the following as of the dates indicated:
<TABLE>
<S> <C> <C>
March 31, 1996 December 31, 1995
Mortgage loan, secured by Northeast Business Campus,
due August 15, 1999, interest at 8.00% $ 7,975,000 $ 7,975,000
Mortgage loan, secured by St. Andrews at Westwood,
due September 1, 1997, interest at 9.65% 8,500,000 8,500,000
Mortgage loan, secured by a portion of Shadeland Retail
Center, due January 1, 1997, interest at 9.375% 4,104,594 4,120,531
--------- ---------
$20,579,594 $20,595,531
========== ==========
</TABLE>
The mortgage loans are non-recourse obligations except under certain defined
circumstances. Interest expense of $457,282 and $458,706 was incurred on these
mortgages for the three months ended March 31, 1996, and 1995, respectively.
Interest payments of $461,138 and $462,438 were made for the three months ended
March 31, 1996, and 1995, respectively.
In connection with the 1994 NEBC loan modification, the Partnership was required
to establish with the lender a reserve for future tenant improvements and lease
commissions and escrows for taxes and insurance. At March 31, 1996, the lender
held a total of $150,288 of restricted cash escrow which included $91,023 in
reserves and $59,265 in tax and insurance escrows. Future cash flow generated by
the NEBC property will be held in a reserve account which may be used only for
the benefit of NEBC or to meet obligations to the lender. See Note D - Related
Party Transactions and Note I - Commitments and Contingencies.
NOTE F - Distributions to Partners
The Partnership Agreement provides for quarterly cash distributions to the
partners no later than 45 days after the close of each quarter. The quarterly
cash distributions are allocated 99% to Unitholders and 1% to the General
Partners.
As of March 31, 1996, cumulative cash distributions of $10,545,983 and $106,517
had been made to the Unitholders and General Partners, respectively. These cash
distributions represent a cumulative return of 2% per quarter on invested
capital through the period ended July 13, 1993. There have been no cash
distributions made since November 12, 1993.
<PAGE>
USF&G/LEGG MASON REALTY PARTNERS LIMITED PARTNERSHIP
Notes to Financial Statements (Continued)
March 31, 1996
(Unaudited)
NOTE G - Cash Flow Protector Loan
Pursuant to the Cash Flow Protector Loan, the USF&G General Partner agreed to
lend to the Partnership an amount up to $5,471,415, representing 20% of the
gross proceeds of the offering, to the extent that the Partnership's
distributable cash flow was insufficient to pay a 2% cumulative quarterly return
(8% annual return) to Unitholders. In connection with cumulative cash
distributions, as of March 31, 1996, the USF&G General Partner had funded
$4,849,734 pursuant to the Cash Flow Protector Loan. The last distribution to
Unitholders was made November 12, 1993.
The USF&G General Partner's commitment to lend amounts pursuant to the Cash Flow
Protector Loan expired on July 13, 1993. The Cash Flow Protector Loan currently
accrues interest at an annual simple rate of 6%, a reduction in the rate from 8%
by the USF&G General Partner effective January 1, 1993. The Cash Flow Protector
Loan is due and payable on December 31, 2003 or earlier, from sale or
refinancing proceeds. The related aggregate accrued interest of $1,305,801 as of
March 31, 1996 is subordinate to the return of Unitholder capital contributions.
NOTE H - Right of Presentment
The Right of Presentment procedures as set forth in the Partnership Agreement
were amended during 1995. This Program now provides that if in a year Units are
presented in excess of the amount required to be purchased by USF&G Realty
Partners, Inc. then the General Partners may elect to purchase such excess
presented Units, provided that the total number of Units repurchased shall not
exceed 10% of the outstanding Units owned by persons other than the General
Partners and their affiliates.
The USF&G General Partner will repurchase the Units presented under the 1996
Right of Presentment at the 1996 Right of Presentment purchase price of $4.39
per Unit. If more than 13,886 Units are presented for purchase, 13,886 Units
will be purchased by the USF&G General Partner on a pro rata basis from the
Unitholders that present. The other General Partner may elect to purchase all or
a portion of the excess Units presented up to 47,038 additional units. Units
will be purchased by June 28, 1996. Certificates of Assignee Units of Limited
Partnership Interests will be issued representing those Units tendered but not
purchased. The purchasing General Partner is entitled to the beneficial rights
attributable to any purchased Units, including the rights to cash distributions,
and a percentage of the Partnership's income, gains, losses, deductions and
credits, but not voting rights. For the administrative convenience of the
Partnership and Unitholders, the General Partners have modified the procedures
for exercising the Right of Presentment from those outlined in the Prospectus
and Partnership Agreement. Presentment will be based upon acceptance of the
announced per Unit purchase price. There is no longer a withdrawal period.
Unitholders must present their Units for purchase by June 7, 1996.
<PAGE>
USF&G/LEGG MASON REALTY PARTNERS LIMITED PARTNERSHIP
Notes to Financial Statements (Continued)
March 31, 1996
(Unaudited)
NOTE I - Commitments and Contingencies
In order to obtain the NEBC loan modification during 1994 discussed in Note E,
the Partnership agreed to permit the NEBC mortgage lender to participate in the
NEBC sales proceeds above the outstanding debt and closing costs. Upon sale of
NEBC, the lender will be entitled to receive 60% of the first $1,500,000, 40% of
the next $500,000 and 10% thereafter of the remaining proceeds limited to an
amount which would cause the lender's rate of return to equal ten percent (10%)
over the term of the restated note.
NOTE J - St. Andrews Repair and Legal Costs
During the second quarter of 1995, the Partnership entered into a $2.9 million
contract to complete the necessary repairs at St. Andrews. Repairs began during
the third quarter of 1995 and are expected to be completed late in the third
quarter of 1996. During 1995, modifications to the original construction
contract were made to install new windows, replace the roofs and repair and
replace the underlying wooden structures as necessary on all the buildings. The
1995 modifications resulted in a $617,600 increase in the $2.9 million base
contract. Additional modifications to repair damaged drywall were made during
1996 which increased the total construction contract modifications by $130,000
to $747,600.
The Partnership has incurred significant costs to date, including construction
and engineering expenses, in connection with assessing and repairing the
construction problems and pursuing legal remedies. The Partnership has recovered
$627,500 to date in settlements from responsible parties, including $565,000
during 1995 and $62,500 during 1994. Settlement payments received are used to
offset construction costs incurred. During the first quarter of 1996, the
Partnership incurred approximately $1,698,000 and $62,000 of St. Andrews repair
and legal costs, respectively, $500,000 of which were offset by insurance
recoveries received during the year. The Partnership incurred approximately
$24,000 and $75,000 of St. Andrews repair and legal costs, respectively, during
the first quarter of 1995 which were not offset by settlements or recoveries
until the second and third quarters of 1995.
The Partnership executed an agreement for a construction loan with the USF&G
General Partner during the third quarter of 1995 which will permit the
Partnership to borrow up to $3.5 million to complete the necessary repairs.
Under its term, the loan will mature September 1, 1997 and pay interest monthly
on advanced funds at 9.0%. The terms also provide for early repayment from
additional recoveries from the Partnership's lawsuit, net operating income after
reserves or sale or refinancing proceeds. As of March 31, 1996, advances of
$700,000 had been made. Interest expense of $6,725 was incurred and interest
payments totalling $1,475 were made on this loan for the three months ended
March 31, 1996. An additional $990,000 was advanced on the loan through
May 7, 1996.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
General
On June 28, 1988, the Partnership's Registration Statement registering 1,400,000
Units at an offering price of $25 per Unit was declared effective by the
Securities and Exchange Commission. As of December 31, 1989, at the termination
of the offering, 1,094,283 Units had been sold for aggregate gross proceeds of
$27,357,075.
After deducting rebates to Unitholders of $835,001 and offering and
organizational costs and selling commissions totalling $2,174,276, approximately
$24,348,000 was available for investment in income producing properties.
Substantially all of the proceeds available for investment were invested in four
income producing properties meeting the investment criteria of the Partnership.
Northeast Business Campus ("NEBC"), St. Andrews Apartments at Westwood ("St.
Andrews"), and Shadeland Retail Center ("Shadeland") are owned directly by the
Partnership (collectively, the "Properties") and the Partnership owns a fifty
percent general partnership interest in the Greenbrier Towers General
Partnership (the "Greenbrier Joint Venture"). The Greenbrier Joint Venture's
sole property, Greenbrier Towers, was purchased by the lender at foreclosure on
April 26, 1995. As a result, the Joint Venture Partners determined to liquidate
the Greenbrier Towers General Partnership as of December 31, 1995. The Joint
Venture was in the process of liquidation as of March 31, 1996.
Liquidity and Capital Resources
The cash and cash equivalents position of the Partnership at March 31, 1996
increased $178,694 from December 31, 1995. The increase was primarily due to
cash flow from operations at Shadeland and the St. Andrews insurance recovery
offset in part by the St. Andrews repair and legal costs paid. The Partnership's
cash and cash equivalents position will continue to fluctuate during each
quarter as follows: (1) decreasing with the funding of lease-up costs at
Shadeland and capital improvements at Shadeland and St. Andrews; (2) increasing
as net rental income and interest income are received; and (3) decreasing as
expenses (including debt service requirements) are paid.
The Partnership's ability to compete in each market is adversely affected by the
declining level of cash provided by operations since the level of tenant
improvement is limited to the cash available for investment in income producing
properties. In connection with the acquisition of the Properties, the
Partnership established cumulative working capital reserves of approximately 3%
of gross offering proceeds. For the foreseeable future, the Partnership expects
to apply cash flow from operations to increase Partnership working capital
reserves and to provide for the St. Andrews construction repairs and certain
other property maintenance and improvements, and consequently, there is no
expectation that Distributable Cash Flow will be available to make distributions
to Unitholders. This policy reflects the commitment by the General Partners to
maintain adequate working capital reserves. The General Partners believe that
such a policy is prudent in view of the current real estate and economic
environment and is consistent with the Partnership's objective to maintain and
increase the value of the Properties.
<PAGE>
During the second quarter of 1995, the Partnership entered into a $2.9 million
contract to complete the necessary repairs at St. Andrews. Repairs began during
the third quarter of 1995 and are expected to be completed late in the third
quarter of 1996. During 1995, modifications to the original construction
contract were made to install new windows, replace the roofs and repair and
replace the underlying wooden structures as necessary on all the buildings. The
1995 modifications resulted in a $617,600 increase in the $2.9 million base
contract. Additional modifications to repair damaged drywall were made during
1996 which increased the total construction contract modifications by $130,000
to $747,600. The Partnership has incurred significant costs to date, including
construction and engineering expenses, in connection with assessing and
repairing the construction problems and pursuing legal remedies. To date, the
Partnership has paid approximately $2.1 million under the construction contract
and expects to pay an additional $1.6 million to complete the repairs.
During the first quarter of 1996, the Partnership incurred approximately
$1,698,000 and $62,000 of St. Andrews repair and legal costs, respectively,
$500,000 of which were offset by an insurance recovery received during the year.
The Partnership incurred approximately $24,000 and $75,000 of St. Andrews repair
and legal costs, respectively, during the first quarter of 1995 which were not
offset by settlements or recoveries until the second and third quarters of 1995.
The Partnership executed an agreement for a construction loan with the USF&G
General Partner during the third quarter of 1995 which will permit the
Partnership to borrow up to $3.5 million to complete the necessary repairs.
Under its terms, the loan will mature on September 1, 1997 and interest is
payable monthly on advanced funds at 9.0%. The terms also provide for early
repayment from additional settlements from the Partnership's lawsuit, net
operating income after reserves, or sale or refinancing proceeds. As of March
31, 1996, advances of $700,000 had been made. An additional $990,000 was
advanced on the loan through May 7, 1996.
The Partnership filed suit in 1994 in state court in Orlando, Florida against
various parties involved in the St. Andrews project seeking recovery for the
costs of the anticipated repairs as well as other consequential damages. While
the Partnership intends to assert its claims vigorously, there can be no
assurance that it will recover its damages in full. The Partnership has
negotiated settlements of $627,500 through March 31, 1996. During the second
quarter of 1995, the Partnership received $465,000 from the architect and
$100,000 during the third quarter of 1995 from United States Fidelity and
Guaranty Company, the insurer of the painting and reconstruction contractor. The
settlement with United States Fidelity and Guaranty Company, an affiliate of the
USF&G General Partner, was negotiated at arms length between counsel for the
Partnership and the claims representative. The remaining $62,500 settlement
payment was received in 1994 and used to offset certain construction costs
incurred during 1994. The Partnership continues to assert claims in the
litigation against the remaining responsible parties.
The Partnership anticipates that the repairs at St. Andrews may result in lower
occupancy and/or rental rates during the period that repairs are being made. A
reduction in occupancy or rental rates would result in lower cash flow from
operations at St. Andrews. At March 31, 1996, occupancy at St. Andrews was 92%.
The apartment market in the area continues to be very strong and occupancies of
main competitors range from 92% to 98%. A new apartment community, The Mission
Club, is under development within one mile of the St. Andrews complex. This
352-unit luxury complex opened its first building in December 1995 and is
expected to be completed in June 1996. The Partnership will closely monitor its
impact on occupancy and rental rates.
<PAGE>
Occupancy at Shadeland remains stable as of March 31, 1996 at 86% since most
tenants are renewing their leases upon expiration. During October 1995, Ace
Hardware vacated its 8,000 square foot space at the end of its lease due to
increased competition in the immediate area. There are currently two parties
showing interest in this newly vacant space. In addition, a small strip center
has opened across the street anchored by a Walgreen drugstore, an Osco
competitor. That center is now fully occupied. The Shadeland mortgage matures on
January 1, 1997. The Partnership intends to refinance the mortgage loan prior to
that date.
The Partnership continued discussions with Marsh Supermarkets and Osco
Drugstores regarding the expansion desires of Marsh into the Osco space.
Previously, Osco was presented with a relocation plan which involved the vacant
Ace Hardware space in order to provide space for Marsh. However, given Osco's
unwillingness to relocate, Marsh has been focusing on partial expansion which
would include expanding into the parking lot as well as towards the road to the
north of the shopping center. This would increase Marsh's space by approximately
14,000 square feet. In addition, Osco may expand into the parking lot and
increase its space by approximately 3,000 square feet. The expansion of the two
spaces will increase the aggregate rentable square feet of the shopping center
to approximately 122,000 square feet. The Partnership is optimistic that the
Marsh and Osco plans will be finalized during the second or third quarter of
1996. However, to date, there has been no formal documentation of such plans.
F.C. Tucker Company, Inc. was chosen to replace Duke Realty Investments, Inc. as
the property manager at Shadeland on April 1, 1996. Key factors considered
in selecting the new property management company were aggressive leasing
activities, strong financial reporting capabilities and marketing support
offered by that firm.
<TABLE>
<CAPTION>
Results of Operations
<S> <C> <C>
Net Income (Loss) Net Income (Loss)
for the Three for the Three
Months Ended Months Ended
March 31, 1996 March 31, 1995
-------------- --------------
NEBC $ (46,294) $ (62,706)
St. Andrews (109,693) (74,810)
St. Andrews Repair and Legal Costs, Net (1,259,109) (98,410)
Shadeland 26,204 45,218
------------ ---------
(1,388,892) (190,708)
Partnership Expense (113,119) (107,062)
-------- --------
$(1,502,011) $(297,770)
========== ========
</TABLE>
<PAGE>
Three Months Ended March 31, 1996 ("Current Period")
as compared to March 31, 1995 ("Comparable Period")
The Partnership incurred a net loss of $1,502,011 for the three months ended
March 31, 1996 ("current period"). Rental revenue increased $27,255 to
$1,142,296 for the current period as compared to $1,115,041 for the three month
period ended March 31, 1995 ("the comparable period"). The increased rental
revenue was due to increased occupancy at NEBC. Property operating expenses
increased $60,179 to $511,207 for the current period from $451,028 for the
comparable period. The increased operating expenses were due to higher snow
removal costs at Shadeland and increases in various operating expenses at St.
Andrews. The net St. Andrews repair and legal costs increased significantly for
the current period due to the completion of a large portion of the construction
repairs as compared to the comparable period which consisted primarily of legal
costs.
Rental revenue at NEBC increased $30,986 to $419,593 for the current period as
compared to $388,607 for the comparable period due to increased occupancy. The
occupancy at NEBC increased to 91% as of March 31, 1996 as compared to 81% as of
March 31, 1995. The occupancy for NEBC's office and service center space at
March 31, 1996 was 87% and 100% respectively, as compared to 77% and 90%
respectively, at March 31, 1995. The increased occupancy was due primarily to
the 14,589 square foot Electronic Data Systems lease in Building 5 executed
during the third quarter of 1995. The average rental rate at March 31, 1996
decreased to $8.71 per square foot for office space and $6.83 per square foot
for service center space as compared to $8.99 and $7.51, respectively, at March
31, 1995. The decline in average rental rates is due to new tenant leases at
lower rental rates.
Operating expenses at NEBC increased $7,626 to $193,619 for the current period
as compared to $185,993 for the comparable period. The increase was primarily
due to increased utilities and cleaning offset in part by lower grounds and
landscaping costs and bad debt expense. Utilities and cleaning are up due to the
higher usage and occupancy at Building 5 during 1996. Grounds and landscaping
costs are lower due to a cost reduction in the new groundskeeping contract.
Bad debt expense was higher as of March 31, 1995 due to the write-off of tenant
charges deemed uncollectible.
Rental revenue at St. Andrews decreased $5,036 to $428,131 for the current
period as compared to $433,167 for the comparable period. The decline in rental
revenue was due to the slight decline in the average occupancy and rental rates.
The average occupancy at St. Andrews was 89% and 90% for the current and
comparable periods, respectively. The average monthly rental rate during the
current period decreased to $593 per unit as compared to $602 during the
comparable period due to increased rental concessions offered during the current
period. However, at March 31, 1996, the average rental rate per unit was $600.
Operating expenses at St. Andrews increased $26,869 to $221,005 for the current
period as compared to $194,136 for the comparable period. The increase in
operating expenses is primarily due to an increase in payroll costs, corporate
unit expenses, and real estate taxes. Payroll costs are higher due to the
addition of a part-time groundskeeper. Corporate unit expenses are higher due to
increased corporate unit rentals. Real estate taxes increased due to an increase
in the real estate assessment.
<PAGE>
The Partnership has incurred significant engineering, construction and legal
costs at St. Andrews related to assessing and repairing the construction
problems and pursuing legal remedies against responsible parties. During the
first quarter of 1996, the Partnership incurred approximately $1,698,000 and
$62,000 of St. Andrews repair and legal costs, respectively, which were offset
in part by insurance recoveries received of $500,000. The Partnership incurred
approximately $24,000 and $75,000 of St. Andrews repair costs, respectively,
during the first quarter of 1995. No insurance recoveries or settlement payments
were received during that period.
Rental revenue at Shadeland increased $1,305 to $294,572 for the current period
as compared to $293,267 for the comparable period. The increase is primarily due
to higher expense reimbursements offset in part by a decline in rental revenue
due to decreased occupancy. The average rental rate was $10.55 per square foot
at March 31, 1996 and $10.43 at March 31, 1995. Occupancy at Shadeland was 86%
for the current period as compared to 96% for the comparable period. The
decrease in occupancy is due to Ace Hardware, a Shadeland tenant, vacating its
8,000 square foot space at the end of its lease in the fourth quarter of 1995.
Expense reimbursements were higher in the current period due to the collection
of reimbursable taxes. Operating expenses at Shadeland increased $25,684 to
$96,583 for the current period as compared to $70,899 for the comparable period.
The increase is primarily due to higher snow removal costs associated with the
severe winter weather.
Partnership expense is comprised of general and administrative expenses and the
interest expense related to the Cash Flow Protector, General Partner, and St.
Andrews construction loans offset in part by interest earned on temporary
investments. The increase of $6,057 to $113,119 for the current period as
compared to $107,062 is primarily due to the interest expense related to the St.
Andrews construction loan from the USF&G General Partner which was initially
funded in February, 1996.
Total general and administrative expenses decreased by $3,617 to $33,280 for the
current period as compared to $36,897 for the comparable period. General and
administrative expenses include various costs required for the administration of
the Partnership. The decrease is primarily due to lower administrative costs.
Interest expense includes interest incurred in connection with the mortgages
secured by NEBC, St. Andrews and Shadeland and interest on the Cash Flow
Protector Loan from the USF&G General Partner, the General Partner loans, and
the St. Andrews construction loan. Interest expense increased $5,837 to $540,721
for the current period as compared to $534,884 for the comparable period. The
increase is due to interest incurred on the St. Andrews construction loan during
the first quarter as mentioned above.
Depreciation and amortization expense increased by $3,467 to $305,867 for the
current period as compared to $302,400 for the comparable period primarily due
to the amortization of leasing commissions and tenant improvement additions at
NEBC.
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS
27 Financial Data Schedule
<PAGE>
SIGNATURES
Pursuant to the requirements 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, and in the capacity and on the date
indicated.
USF&G/LEGG MASON REALTY PARTNERS
LIMITED PARTNERSHIP
(Registrant)
By: USF&G Realty Partners, Inc.,
A General Partner
Date: __________ /s/ Joseph A. Wesolowski
Joseph A. Wesolowski
Vice President and
Chief Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 1066249
<SECURITIES> 0
<RECEIVABLES> 74032
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 34638269
<DEPRECIATION> 6232199
<TOTAL-ASSETS> 29952542
<CURRENT-LIABILITIES> 0
<BONDS> 20579594
0
0
<COMMON> (219185)
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 29952542
<SALES> 0
<TOTAL-REVENUES> 1148174
<CGS> 0
<TOTAL-COSTS> 2109464
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 540721
<INCOME-PRETAX> (1502011)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1502011)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1502011)
<EPS-PRIMARY> (1.36)
<EPS-DILUTED> (1.36)
<FN>
<F1>
REGISTRANT REPORTS AN UNCLASSIFIED BALANCE SHEET
</FN>
</TABLE>
