Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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, TW1001
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 -- June 30, 1996 and December 31, 1995
Statements of Operations -- For the three months ended
June 30, 1996 and June 30, 1995 and for the six months
ended June 30, 1996 and June 30, 1995
Statements of Cash Flows -- For the six months ended
June 30, 1996 and June 30, 1995
Notes to Financial Statements -- June 30, 1996
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
PART II. OTHER INFORMATION
Item 2. Changes in Rights of Company's Security Holders
Item 6. Exhibits and Reports on Form 8-K
The Partnership did not file any reports on Form 8-K
during the six months ended June 30, 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)
June 30, 1996 December 31, 1995
------------- -----------------
ASSETS
Real Estate Investments:
Income Producing Properties -- Note B $28,152,567 $28,612,932
Cash and Cash Equivalents (including temporary
investments at June 30, 1996 and December 31, 1995
of $181,422 and $515,389, respectively) -- Note C 999,902 887,555
Restricted Cash Escrow -- Note E 41,267 192,402
Accounts Receivable, net 87,813 68,776
Other Assets 272,733 259,462
---------- ----------
Total Assets $29,554,282 $30,021,127
========== ==========
LIABILITIES
Mortgages Payable -- Note E $20,563,280 $20,595,531
Accounts Payable and Other Liabilities 1,737,964 1,406,228
St. Andrews Construction Loan - Note J 2,210,000 0
Due to General Partners and Affiliates -- Note D 2,060,403 1,886,808
Cash Flow Protector Loan -- Note G 4,849,734 4,849,734
---------- ----------
$31,421,381 $28,738,301
PARTNERS' (DEFICIT) EQUITY
General Partners (263,084) (231,585)
Assignor and Assignee Limited Partners
1,094,283 Units Issued and Outstanding (1,604,015) 1,514,411
---------- ----------
(1,867,099) 1,282,826
---------- ----------
Total Liabilities and Partners' (Deficit) Equity $29,554,282 $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> <C> <C>
For the Three For the Three For the Six For the Six
Months Ended Months Ended Months Ended Months Ended
June 30, 1996 June 30, 1995 June 30, 1996 June 30, 1995
------------- ------------- ------------- -------------
REVENUE:
Rental $ 1,180,555 $1,166,260 $ 2,322,851 $2,281,301
Interest 5,794 11,452 11,672 22,260
---------- --------- ---------- ---------
Total Revenue $ 1,186,349 $1,177,712 $ 2,334,523 $2,303,561
EXPENSES:
Property Operating - Note D 495,266 446,948 1,006,473 897,977
St. Andrews Repair and Legal Costs,
Net of Recoveries - Note J 1,425,838 66,040 2,684,947 164,449
General and Administrative 34,049 35,456 67,330 72,353
Interest - Notes D and E 568,791 535,407 1,109,512 1,070,291
Depreciation and Amortization 310,319 298,601 616,186 601,001
---------- --------- ---------- ----------
Total Expenses 2,834,263 1,382,452 5,484,448 2,806,071
---------- --------- ---------- ----------
NET LOSS $(1,647,914) $ (204,740) $(3,149,925) $ (502,510)
========== ========== ========== ==========
Net Loss Allocated to:
General Partners $ (16,479) $ (2,047) $ (31,499) $ (5,025)
Assignor and Assignee Limited Partners (1,631,435) (202,693) (3,118,426) (497,485)
---------- --------- ---------- ---------
$(1,647,914) $ (204,740) $(3,149,925) $ (502,510)
========== ========== ========== =========
Net Loss per Unit -- Note A $ (1.49) $ (.18) $ (2.85) $ (.45)
========== ========== ========== =========
Cash Distributions per Unit -- Note A $ 0 $ 0 $ 0 $ 0
========== ========== ========== =========
Weighted Average Number of Units 1,094,283 1,094,283 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 Six For the Six
Months Ended Months Ended
June 30, 1996 June 30, 1995
------------- -------------
Operating Activities
Net Loss $(3,149,925) $ (502,510)
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:
Depreciation and amortization 616,186 601,001
Change in net assets and liabilities related to operating
activities:
Decrease in restricted cash escrow 151,135 74,101
Increase in due to general partners and affiliates 173,595 153,703
Increase (decrease) in accounts payable and other
liabilities 331,736 (51,943)
Increase in deferred recoveries 0 398,439
(Increase) decrease in accounts receivable (19,037) 14,062
Increase in other assets (63,624) (21,085)
---------- ----------
Net Cash (used in) Provided by Operating Activities (1,959,934) 665,768
---------- ----------
Investing Activity
Investment in income producing properties (105,468) (83,996)
---------- ----------
Net Cash used in Investing Activities (105,468) (83,996)
---------- ----------
Financing Activities
Mortgage principal payments (32,251) (29,376)
St. Andrews Construction Loan Advances 2,210,000 0
----------- ----------
Net Cash Provided by (used in) Financing Activities 2,177,749 (29,376)
----------- ----------
Increase in Cash and Cash Equivalents 112,347 552,396
Cash and Cash Equivalents, Beginning of Period 887,555 623,032
----------- ----------
Cash and Cash Equivalents, End of Period $ 999,902 $1,175,428
=========== ==========
See accompanying notes to the financial statements.
</TABLE>
<PAGE>
USF&G/LEGG MASON REALTY PARTNERS LIMITED PARTNERSHIP
Notes to Financial Statements
June 30, 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 six months ended June 30, 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 June 30, 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)
June 30, 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:
June 30, 1996 December 31, 1995
------------- -----------------
Buildings and improvements $29,224,450 $29,118,982
Land 5,444,913 5,444,913
---------- ----------
34,669,363 34,563,895
Less: Accumulated depreciation (6,516,796) (5,950,963)
---------- ----------
$28,152,567 $28,612,932
========== ==========
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)
June 30, 1996
(Unaudited)
NOTE D - Related Party Transactions
The following is a summary of compensation and reimbursements of expenses
incurred to the General Partners and their affiliates for the periods indicated:
<TABLE>
<S> <C> <C> <C> <C>
For the Three Months Ended For the Six Months Ended
June 30, 1996 June 30, 1995 June 30, 1996 June 30, 1995
------------ ------------- ------------- -------------
Charged to expenses:
Interest Expense $111,884 $77,047 $195,323 $153,225
Operating Expenses 22,904 25,357 43,930 48,503
</TABLE>
Due to General Partners and affiliates consists of the following as of the dates
indicated:
June 30, 1996 December 31, 1995
------------- -----------------
General Partner Loans $ 200,000 $ 200,000
Accrued Interest on General Partner Loans 27,796 19,503
Accrued Interest on the St. Andrews
Construction Loan 16,315 0
Operating Expenses 13,954 10,060
---------- ---------
258,065 229,563
---------- ---------
Asset Management Fees 423,990 423,990
Accrued Interest on the Cash Flow
Protector Loan 1,378,348 1,233,255
---------- ---------
Amounts Subordinate to the return
of Unitholder contributions 1,802,338 1,657,245
---------- ---------
$2,060,403 $1,886,808
========= =========
In connection with the loan modification at NEBC executed in the fourth quarter
of 1994 discussed in Note F, the General Partners 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 and Note G for a discussion of the Cash Flow Protector
Loan from the USF&G General Partner.
<PAGE>
USF&G/LEGG MASON REALTY PARTNERS LIMITED PARTNERSHIP
Notes to Financial Statements (Continued)
June 30, 1996
(Unaudited)
NOTE D - Related Party Transactions (Continued)
The subordinated amount identified above is subordinate under Section 4.4 of the
Partnership Agreement.
NOTE E - Mortgages Payable
Mortgages payable consists of the following as of the dates indicated:
June 30, 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% 4,088,280 4,120,531
---------- ----------
$20,563,280 $20,595,531
========== ==========
The mortgage loans are non-recourse obligations except under certain defined
circumstances. Interest expense of $914,189 and $917,066 was incurred on these
mortgages for the six months ended June 30, 1996, and 1995, respectively.
Interest payments of $921,903 and $924,530 were made for the six months ended
June 30, 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 June 30, 1996, the lender
held $41,267 in reserves and escrows. All 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 - Commitment 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.
<PAGE>
USF&G/LEGG MASON REALTY PARTNERS LIMITED PARTNERSHIP
Notes to Financial Statements (Continued)
June 30, 1996
(Unaudited)
NOTE F - Distributions to Partners (Continued)
As of June 30, 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% on invested capital through
the period ended July 13, 1993. The last distribution to Unitholders was made
November 12, 1993.
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 June 30, 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 $1,378,348 as of
June 30, 1996 is subordinate to the return of Unitholder capital contributions
as discussed in Note D.
NOTE H - Right of Presentment
The Third Amendment to the Partnership Agreement which modified the Right of
Presentment procedures was executed during the second quarter of 1996. This
Program now provides that if in a year Units are presented in excess of the
amount required to be purchased by the USF&G General Partner then the General
Partners may elect to purchase such excess presented Units, provided that the
total number of Units repurchased shall not exceed 50% of the Units outstanding.
This modification was made as a result of the enactment of certain changes to
the proposed tax regulations that were pending at the time the Second Amendment
to the Partnership Agreement was executed.
On June 30, 1996, the General Partners purchased all of the 84,467 Units
presented under the 1996 Right of Presentment Program. The Units were purchased
at a price per unit of $4.39 from all Unitholders that presented. The USF&G
General Partner purchased 13,886 of the Units. The remaining 70,581 Units were
purchased by Legg Mason Realty Partners, Inc.
As of June 30, 1996, the General Partners have repurchased 169,509 Units under
the Right of Presentment Program.
<PAGE>
USF&G/LEGG MASON REALTY PARTNERS LIMITED PARTNERSHIP
Notes to Financial Statements (Continued)
June 30, 1996
(Unaudited)
NOTE I - Commitments and Contingencies
In order to obtain the NEBC loan modification during 1994 discussed in Note F,
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.
NOTE J - St. Andrews Repair and Legal Costs
During the second quarter of 1995, the Partnership entered into a $3.0 million
contract to complete the necessary repairs at St. Andrews. Repairs began during
the third quarter of 1995 and are expected to be completed during 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 $3.0 million base
contract. Additional modifications to repair damaged drywall and make
miscellaneous exterior repairs were made during 1996 which increased the total
construction contract modifications by $177,100 to $794,700. The total estimated
completed contract cost is approximately $3.8 million.
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
$672,500 to date in settlements from responsible parties, including $45,000
during the second quarter of 1996, $565,000 during 1995 and $62,500 during 1994.
Settlement payments received are used to offset construction costs incurred.
During 1996, the Partnership has incurred approximately $3,072,000 and $158,000
of St. Andrews repair and legal costs, respectively, $500,000 of which were
offset by an insurance recovery and a $45,000 settlement payment received during
the year.
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 June 30, 1996, advances of
$2,210,000 had been made. Interest expense of $41,938 was incurred and interest
payments totaling $25,622 were made on this loan for the six months ended June
30, 1996 (see Note D). An additional $500,000 was advanced on the loan through
August 7, 1996.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Because the Partnership desires to take advantage of new "safe harbor"
provisions of the Private Securities Litigation Reform Act of 1995, the
Partnership cautions readers regarding certain forward-looking statements in the
following discussion and elsewhere in the Form 10-Q and in any other statement
made by the Partnership, whether or not in future filings with the Securities
and Exchange Commission. Forward-looking statements are statements which relate
to future operations, strategies, financial results, or other developments.
Forward-looking statements are necessarily based upon estimates and assumptions
that are inherently subject to significant business, economic and competitive
uncertainties and contingencies, many of which are beyond the Partnership's
control and many of which, with respect to future business decisions, are
subject to change. These uncertainties and contingencies can affect actual
results and could cause actual results to differ materially from those expressed
in any forward-looking statements made by the Partnership.
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 totaling $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 owned a fifty
percent general partnership interest in the Greenbrier Towers General
Partnership (the "Joint Venture"). The Joint Venture's sole property, Greenbrier
Towers, was purchased by the lender at foreclosure on April 26, 1995.
Liquidity and Capital Resources
The cash and cash equivalents position of the Partnership at June 30, 1996
increased $112,347 from December 31, 1995. The increase was primarily due to the
additional borrowings under the St. Andrews construction loan as well as St.
Andrews settlements and insurance recoveries received during the year. 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 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.
<PAGE>
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 St. Andrews and Shadeland 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 and
is consistent with the Partnership's objective to maintain and increase the
value of the Properties.
During the second quarter of 1995, the Partnership entered into a $3.0 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 $3.0 million base
contract. Additional modifications to repair damaged drywall and make
miscellaneous exterior repairs were made during 1996 which increased the total
construction contract modifications by $177,100 to $794,700. 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. As of June 30, 1996, the Partnership had paid
approximately $3.0 million under the construction contract and expects to pay
approximately $780,000 more to complete the repairs.
During the first six months of 1996, the Partnership incurred approximately
$3,072,000 and $158,000 of St. Andrews repair and legal costs, respectively,
$500,000 of which were offset by an insurance recovery and a $45,000 settlement
payment received during the year. 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 of refinancing proceeds.
As of June 30, 1996, advances of $2,210,000 had been made. An additional
$500,000 was advanced on the loan through August 7, 1996.
The Partnership anticipates borrowing up to $3,000,000 under the construction
loan to complete the repairs.
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 $672,500 through June 30, 1996, including $45,000 from
the insurer of the painting consultant during the second quarter of 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.
<PAGE>
At June 30, 1996, occupancy at St. Andrews was 98%. The apartment market in the
area continues to be very strong and occupancies of St. Andrews' main
competitors range from 93% to 99%. A new apartment community, The Mission Club,
was completed during the second quarter of 1996. This 352-unit luxury complex is
located within one mile of the St. Andrews complex. The Partnership will closely
monitor its impact on occupancy and rental rates.
Occupancy at Shadeland increased slightly as of June 30, 1996 to 89% from 86% at
March 31, 1996 due to the addition of two new tenants occupying approximately
3,000 square feet during the second quarter. 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 vacant space. The Shadeland mortgage matures on January 1,
1997. The Partnership intends to refinance the mortgage loan prior to that date
and solicited and received various mortgage refinancing proposals during the
second quarter of 1996. The proposals offered interest rates that were lower
than the current mortgage rate based on treasury rates at the time of proposal.
However, there can be no assurance that the actual refinancing rate will be
lower than the current rate. The Partnership is considering borrowing an amount
greater that the current mortgage to meet potential tenant and capital
improvement and expansion needs at Shadeland. Alternatively, the Partnership may
use the additional refinancing proceeds to reduce the St. Andrews construction
loan.
The Partnership continued discussions with Marsh Supermarkets and Osco
Drugstores regarding Marsh's expansion desires. Osco has decided to stay in
their current space next to Marsh rather than relocating within Shadeland.
Consequently, Marsh's current expansion plans 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 alternatives include a potential increase in the net
rentable square feet of the shopping center by 17,000 square feet to
approximately 122,000 square feet. The Partnership is optimistic that the
expansion plans will be finalized during 1996. However, to date, there has been
no formal commitments regarding such plans.
Results of Operations
Net Income (Loss) Net Income (Loss)
for the Six Months for the Six Months
Ended June 30, 1996 Ended June 30, 1995
------------------- -------------------
NEBC $ (50,044) $(109,338)
St. Andrews (178,943) (164,230)
St. Andrews Repair and Legal Costs, Net (2,684,947) (164,449)
Shadeland 18,971 148,507
---------- --------
(2,894,963) (289,510)
Partnership Expense (254,962) (213,000)
---------- --------
$(3,149,925) $(502,510)
========== ========
<PAGE>
Six Months Ended June 30, 1996 ("Current Period")
as compared to June 30, 1995 ("Comparable Period")
The Partnership incurred a net loss of $(3,149,925) for the six months ended
June 30, 1996 ("current period"). Rental revenue for the current period was
$2,322,851 as compared to $2,281,301 for the six month period ended June 30,
1995 ("the comparable period"). The increase in rental revenue of $41,550 was
due to higher occupancy at NEBC and St. Andrews, offset in part by increased
vacancy at Shadeland. Property operating expenses increased $108,496 to
$1,006,473 for the current period from $897,977 for the comparable period. The
increase is the result of increased operating expenses at St. Andrews and
Shadeland, offset in part by decreased operating expenses at NEBC.
Rental revenue at NEBC increased $75,629 to $853,723 for the current period as
compared to $778,094 for the comparable period due to increased occupancy. The
occupancy at NEBC increased to 90% as of June 30, 1996 as compared to 80% as of
June 30, 1995. The occupancy for office and service center space at June 30,
1996 was 86% and 100% respectively, as compared to 77% and 87% respectively, at
June 30, 1995. The increased office occupancy was due primarily to the 14,589
square foot Electronic Data Systems Corporation ("EDS") lease in Building 5
executed during the third quarter of 1995. The average rental rate at June 30,
1996 decreased to $8.64 per square foot for office space as compared to $9.00 at
June 30, 1995. The average rental rate for service center space remained
unchanged at $6.84 per square foot. The decline in the office space average
rental rate is primarily due to the lower EDS rental rate. The EDS rate is lower
due to the large amount of space leased and the low level of tenant finish
provided by the Partnership. This lease also provided for larger levels of
expense reimbursements per square foot to offset the increased operating
expenses.
Operating expenses at NEBC decreased $8,916 to $355,861 for the current period
as compared to $364,777 for the comparable period. The decrease was primarily
due to lower real estate tax expense offset in part by increased cleaning and
utilities and real estate tax consulting expenses. Cleaning and utilities are up
due to the higher occupancy at Building 5 during 1996. The real estate taxes are
lower and real estate tax consulting expense was higher in the current period as
a result of a successful tax appeal.
Rental revenue at St. Andrews increased $25,132 to $893,915 for the current
period as compared to $868,783 for the comparable period. The increase in rental
revenue was due to increased occupancy. The occupancy at St. Andrews increased
to 98% at June 30, 1996 as compared to 91% at June 30, 1995. The average monthly
non-corporate rental rate during the current period increased to $606 per unit
as compared to $601 during the comparable period due to increased market rental
rates. The number of corporate units increased from two at June 30, 1995 to
twenty eight at June 30, 1996. The base rental rates of the additional corporate
unit leases do not include a corporate unit premium due to the lease term, which
is longer than the typical corporate lease. These leases do include an
additional rental fee for the furnished units.
<PAGE>
Operating expenses at St. Andrews, excluding the repair and legal costs
discussed below, increased $34,313 to $438,503 for the current period as
compared to $404,190 for the comparable period. The increase is due to increased
payroll costs, corporate unit expenses and on-site third-party property
management fees partially offset by lower real estate taxes. Payroll costs are
higher due to the use of a full-time groundskeeper during the current period as
compared to a part-time groundskeeper during the comparable period and the
implementation of a quarterly bonus program for the on-site third-party property
management personnel during the current period. Corporate unit expenses are
higher due to increased corporate unit rentals. On-site property management fees
are higher due to the payment of the 1995 incentive fee during the current
period. Real Estate taxes are lower due to the tax refund received as a result
of a successful tax appeal. In addition, operating expenses in general were up
due to the increased occupancy.
The St. Andrews repair and legal costs related to the construction problems have
been reclassified to that category from property operating expenses. During the
current period, the Partnership has incurred approximately $3,072,000 and
$158,000 of St. Andrews repair and legal costs, respectively. The Partnership
has negotiated and received settlements from several of the responsible parties
including $45,000 during the current period and $465,000 during the comparable
period. All of the amounts received during the current period were used to
offset repair costs incurred during that period. A $500,000 insurance recovery
was also received during the first quarter of 1996 and used to offset repair
costs incurred during 1996. Approximately $66,000 of the settlement received
during the comparable period was used to offset repair costs incurred during
that period. The remaining settlement proceeds of approximately $399,000 were
deferred and included in liabilities as deferred recoveries to offset future
construction costs at June 30, 1995.
Rental revenue at Shadeland decreased $59,211 to $575,213 for the current period
as compared to $634,424 for the comparable period. The decrease is primarily due
to decreased occupancy and a lower level of expense reimbursements. Occupancy at
Shadeland declined to 89% as of June 30, 1996 as compared to 96% at June 30,
1995. 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. The average rental rate increased to $10.68 per square foot at
June 30, 1996 as compared to $10.26 per square foot at June 30, 1995. The
increase was due to the Ace Hardware vacancy since their rental rate was lower
than the June 30, 1995 average rental rate. Expense reimbursements declined due
to the Ace Hardware vacancy and a lower level of reimbursable expenses.
Operating expenses at Shadeland increased $83,099 to $212,109 for the current
period as compared to $129,010 for the comparable period. The increase is due to
higher snow removal costs associated with the severe winter weather and higher
real estate taxes. The increased real estate taxes were due to a tax assessment
in excess of the amount anticipated and previously accrued in the current tax
year.
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 by interest earned on temporary investments.
The increase of $41,962 to $254,962 for the current period as compared to
$213,000 for the comparable period is primarily due to the interest expense
related to the St. Andrews construction loan from the USF&G General Partner
which was initially drawn upon in February 1996.
Total general and administrative expenses decreased by $5,023 to $67,330 for the
current period as compared to $72,353 for the comparable period. General and
administrative expenses include various costs required for the administration of
the Partnership. The decrease is 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 and St. Andrews construction loans from the USF&G General Partner and
the General Partner loans. Interest expense increased $39,221 to $1,109,512 for
the current period as compared to $1,070,291 for the comparable period. The
increase is due to interest incurred on the St. Andrews construction loan as
mentioned above.
Depreciation and amortization expense increased by $15,185 to $616,186 for the
current period as compared to $601,001 for the comparable period primarily due
to the amortization of leasing commissions and tenant improvements at NEBC.
<PAGE>
Results of Operations
Net Income Net Income
(Loss) for the (Loss) for the
Three Months Three Months
Ended Ended
June 30, 1996 June 30, 1995
------------- -------------
NEBC $ (3,750) $ (46,632)
St. Andrews (69,250) (89,419)
St. Andrews Repair and Legal Costs, Net (1,425,838) (66,040)
Shadeland (7,233) 103,289
---------- ---------
(1,506,071) (98,802)
Partnership Expense (141,843) (105,938)
---------- ----------
$(1,647,914) $(204,740)
========== ========
Three Months Ended June 30, 1996 ("Current Period")
as compared to June 30, 1995 ("Comparable Period")
The Partnership incurred a net loss of $(1,647,914) for the three months ended
June 30, 1996 ("current period"). Rental revenue for the current period was
$1,180,555 as compared to $1,166,260 for the three month period ended June 30,
1995 ("the comparable period"). The increase of $14,295 was primarily due to
higher occupancy at NEBC and St. Andrews offset partly by reduced occupancy at
Shadeland. Property operating expenses increased $48,318 to $495,266 for the
current period from $446,948 for the comparable period. The increase is
primarily due to the increased operating expenses at Shadeland.
Rental revenue at NEBC increased $44,643 to $434,130 for the current period as
compared to $389,487 for the comparable period due to increased occupancy. The
occupancy at NEBC increased to 90% as of June 30, 1996 as compared to 80% as of
June 30, 1995. The occupancy for office and service center space at June 30,
1996 was 86% and 100% respectively, as compared to 77% and 87% respectively, at
June 30, 1995. The increased office occupancy was due primarily to the 14,589
square foot EDS lease in Building 5 executed during the third quarter of 1995.
The average rental rate at June 30, 1996 decreased to $8.64 per square foot for
office space as compared to $9.00 at June 30, 1995. The average rental rate for
service center space remains unchanged at $6.84 per square foot. The decline in
the office space average rental rate is primarily due to the lower EDS rental
rate. The EDS rate is lower due to the large amount of space leased and the low
level of tenant finish provided by the Partnership. This lease also provided for
larger levels of expense reimbursements per square foot to offset the increased
operating expenses.
Operating expenses at NEBC decreased $16,542 to $162,242 for the current period
as compared to $178,784 for the comparable period. The decrease was primarily
due to lower real estate taxes offset in part by increased cleaning and grounds
and landscaping. Cleaning and grounds and landscaping are up due to the higher
occupancy at Building 5. The real estate taxes are lower in the current period
since this period included a refund received as a result of the successful tax
appeal.
<PAGE>
Rental revenue at St. Andrews increased $30,169 to $465,784 for the current
period as compared to $435,615 for the comparable period. The increase in rental
revenue was due to increased occupancy. The occupancy at St. Andrews increased
to 98% at June 30, 1996 as compared to 91% at June 30, 1995. The average monthly
rental rate during the current period increased to $606 per unit as compared to
$601 during the comparable period due to increased market rental rates. The
number of corporate units increased from two at June 30, 1995 to twenty eight at
June 30, 1996. The base rental rates of the additional corporate unit leases do
not include a corporate unit premium due to the lease term, which is longer than
the typical corporate lease. These leases do include an additional rental fee
for the furnished units.
Operating expenses at St. Andrews increased $7,445 to $217,498 for the current
period as compared to $210,053 for the comparable period. The increase is due to
increased payroll costs, corporate unit expenses and on-site third-party
property management fees partially offset by lower real estate taxes. Payroll
costs are higher due to the use of a full-time groundskeeper during the current
period as compared to a part-time groundskeeper during the comparable period and
the implementation of a quarterly bonus program for the on-site property
management personnel during the current period. Corporate unit expenses are
higher due to increased corporate unit rentals. On-site third-party property
management fees are higher due to the payment of the 1995 incentive fee during
the current period. Real estate taxes are lower due to the tax refund received
as a result of a successful tax appeal. In addition, operating expenses in
general were up due to the increased occupancy.
The St. Andrews repair and legal costs related to the construction problems have
been reclassified to that category from property operating expenses. During the
current period, the Partnership has incurred approximately $1,374,000 and
$96,000 repairs and legal costs, respectively at St. Andrews. The Partnership
has negotiated and received settlements from several of the responsible parties
including $45,000 during the current period and $465,000 during the comparable
period. All of the amounts received during the current period were used to
offset repair costs incurred during the current period. Approximately $66,000 of
the settlement received during the comparable period was used to offset repair
costs incurred during that period. The remaining settlement proceeds of
approximately $399,000 were deferred and included in liabilities as deferred
recoveries to offset future construction costs at June 30, 1995.
Rental revenue at Shadeland decreased $60,517 to $280,641 for the current period
as compared to $341,158 for the comparable period. The decrease is primarily due
to decreased occupancy and a lower level of expense reimbursements. Occupancy at
Shadeland declined to 89% as of June 30, 1996 as compared to 96% at June 30,
1995. 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. The average rental rate increased to $10.68 per square foot at
June 30, 1996 as compared to $10.26 per square foot at June 30, 1995. The
increase was due to the Ace Hardware vacancy since their rental rate was lower
than the June 30, 1995 average rental rate. Expense reimbursements declined due
to the Ace Hardware vacancy and a lower level of reimbursable expenses.
Operating expenses at Shadeland increased $57,415 to $115,526 for the current
period as compared to $58,111 for the comparable period due primarily to higher
real estate taxes. The increased real estate taxes were due to an assessment in
excess of the amount anticipated and previously accrued in the current tax year.
<PAGE>
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 by interest earned on temporary investments.
The increase of $35,905 to $141,843 for the current period as compared to
$105,938 is primarily due to the interest expense related to the St. Andrews
construction loan from the USF&G General Partner which was initially drawn upon
in February 1996.
Total general and administrative expenses decreased by $1,407 to $34,049 for the
current period as compared to $35,456 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 and St. Andrews construction loans from the USF&G General Partner and
the General Partner loans. Interest expense increased $33,384 to $568,791 for
the current period as compared to $535,407 for the comparable period. The
increase is due to interest incurred on the St. Andrews construction loan as
mentioned above.
Depreciation and amortization expense increased by $11,718 to $310,319 for the
current period as compared to $298,601 for the comparable period primarily due
to the amortization of leasing commissions and tenant improvement additions at
NEBC.
<PAGE>
PART II. OTHER INFORMATION
Item 2. Changes in Rights of Company's Security Holders
The Partnership's Partnership Agreement, which defines the
rights of holders of Units, was amended on June 25, 1996 in
order to modify the terms of the Partnership's Right of
Presentment Program. 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. (2% of the Units
originally issued to investors, which does not include the
$400,000 Units purchased by Fidelity & Guaranty Life Insurance
Company), then the General Partners may elect to purchase such
excess presented Units, provided that the number of such excess
Units repurchased shall not exceed 50% of the outstanding Units.
This modification was made as a result of the enactment of
certain changes to the proposed tax regulations that were
pending at the time the Second Amendment to the Partnership
Agreement was executed.
Item 6. Exhibits
(a) 4.9 Third Amendment to USF&G/Legg Mason Realty Partners Amended and
Restated Agreement of Limited Partnership Dated June 25, 1996.
<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: _____________ ________________________________
Joseph A. Wesolowski
Vice President and Chief
Accounting Officer
<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
THIRD AMENDMENT TO
USF&G/LEGG MASON REALTY PARTNERS
AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP
THIS THIRD AMENDMENT TO THE AMENDED AND RESTATED AGREEMENT OF LIMITED
PARTNERSHIP of USF&G/Legg Mason Realty Partners Limited Partnership (the
"Fund"), dated as of June 25, 1996 (this "Amendment"), is by and among USF&G
REALTY PARTNERS, INC., a Maryland corporation, and LEGG MASON REALTY PARTNERS,
INC., a Maryland corporation, the general partners of the Fund (collectively
the "General Partners"), and USF&G ASSIGNOR LIMITED PARTNER, INC., a Maryland
corporation (the "Assignor Limited Partner").
WHEREAS, the General Partners have determined that it is in the
best interests of the Unitholders and the Fund to amend Section 7.3 of the
Amended and Restated Agreement of Limited Partnership of the Fund dated as
of July 17, 1989, as amended on October 4, 1994 and June 26, 1995 (the
"Partnership Agreement"); and
WHEREAS, the General Partners have determined that such amendment
may be effected by the General Partners pursuant to Section 12.2.B(i) of the
Partnership Agreement and without the consent of the Unitholders because such
amendment: (i) is for the benefit of the Unitholders; (ii) is consistent with
Section 5.1 of the Partnership Agreement, which Section describes the
authority of the General Partners to manage the Fund; (iii) will not affect
the distribution of Distributable Cash Flow or Sale or Refinancing Proceeds
or the allocation of Net Income or Net Loss among the Unitholders as a class,
the Limited Partners as a class, and the General Partners as a class, except
as provided in Section 12.2.B(y) of the Partnership Agreement; and (iv) will
not affect the limited liability of the Unitholders or the status of the Fund
as a partnership for federal income tax purposes.
<PAGE>
NOW, THEREFORE, in consideration of the foregoing and other good
and valuable consideration, the receipt of which is hereby acknowledged, the
General Partners agree to amend the Partnership Agreement as follows,
effective for all Units presented for purchase during May 1996 or presented
for purchase in the future pursuant to Section 7.3 of the Partnership Agreement,
as amended hereby:
1. The recitals are hereby incorporated by reference herein.
2. Unless otherwise specified, all capitalized terms herein shall have
the meanings ascribed to them in the Partnership Agreement.
3. Section 7.3. Right of Presentment. The Introductory Paragraph to
Section 7.3 is hereby amended in its entirety to read as follows:
"Investors who have held their Units for more than two years (except
in the case of death or a legal determination of disability for which
there is no such holding period requirement) shall have the right, but
not the obligation, to present their Units to USF&G Realty Partners,
Inc. and/or Legg Mason Realty Partners, Inc., as the case may be, for
purchase, subject to the following terms and provisions."
4. Section 7.3.C. is hereby amended to read in its entirety as follows:
"C. The price that shall be paid by USF&G Realty Partners, Inc. or
Legg Mason Realty Partners, Inc., as the case may be, for Units
presented for purchase pursuant to this Section 7.3 shall be 90% of
the value of such Units as estimated by the General Partners based on
the value of the Fund and its assets as if the Fund had terminated the
date of valuation by the General Partners. USF&G Realty Partners, Inc.
and Legg Mason Realty Partners, Inc., as the case may be, will notify
the Investors at or about the time of the annual report of the purchase
price for the Units but, in no event later than 15 days prior to the
first day of any Purchase Period."
<PAGE>
5. Sections 7.3. D and E are hereby amended by substituting the words
"General Partners" in each place where the words "USF&G Realty
Partners, Inc." appear therein.
6. Section 7.3.F. is hereby amended by deleting the first sentence thereof
and replacing it with the following:
"F. USF&G Realty Partners, Inc. and/or Legg Mason Realty Partners,
Inc., as the case may be, in each of their sole discretion may, but
shall not be obligated to, purchase, in whole, the number of Units
presented by an Investor if the total number of Units that would be
owned by such Investor after taking into account the pro rata portion
of Units that would otherwise be purchased hereunder will be less than
1,000 Units, and otherwise the Units presented and accepted for
purchase in accordance with this Section 7.3 will be purchased on a
pro rata basis."
7. Section 7.3.G. is hereby amended by adding the words "or Legg Mason
Realty Partners, Inc., as the case may be," following the words "USF&G
Realty Partners, Inc." each time they appear therein.
8. Section 7.3.I. is hereby amended to read in its entirety as follows:
"I. With respect to any Units presented for purchase in excess of
the 2% of the total number of Units originally issued to Investors
which USF&G Realty Partners, Inc. is not obligated to purchase pursuant
to Section 7.3.B., USF&G Realty Partners, Inc. and/or Legg Mason Realty
Partners, Inc. shall each have the right, but not the obligation, in
each of their sole discretion, to purchase such additional Units that
may have been presented for purchase up to the Repurchase Limit (as
hereinafter defined) at the price and in accordance with the terms set
forth in this Section 7.3. The Repurchase Limit shall be the number
of Units that shall equal an aggregate of less than 50% of the smallest
number of Units outstanding at any time during the 12 months prior to
the repurchase date, minus the number of Units sold or exchanged by any
Unitholder, whether with or without the consent of the General
Partners, during the 12 months prior to the repurchase date."
9. Section 7.3.J. is hereby added to the Partnership Agreement to read in
its entirety as follows:
"J. The Provisions of this Section 7.3 are intended to constitute a
redemption or repurchase agreement of a closed end partnership,
within the meaning of IRS Notice 88-75, and a closed end redemption
plan, within the meaning of Treasury Regulation Section 1.7704-1(e)(4),
and shall be construed consistently with such intention."
<PAGE>
10. Except as hereby amended, the Partnership Agreement shall remain in
full force and effect.
11. This Amendment may be executed in several counterparts, all of which
together shall constitute on agreement binding on all parties hereto,
notwithstanding that all the parties have not signed the same
counterpart.
IN WITNESS WHEREOF, the undersigned have caused their respective duly
authorized officers to execute this Amendment on the date first
above-written.
ATTEST: GENERAL PARTNERS:
USF&G REALTY PARTNERS, INC.
___________________________ By:_______________________________(SEAL)
Name: Charles R. Werhane
Title: Vice President
LEGG MASON REALTY PARTNERS, INC.
___________________________ By:_______________________________(SEAL)
Name: Richard J. Himelfarb
Title: President
USF&G ASSIGNOR LIMITED PARTNER, INC.
___________________________ By:_______________________________(SEAL)
Name: Charles R. Werhane
Title: President
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 832482
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 999902
<SECURITIES> 0
<RECEIVABLES> 87813
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 34669363
<DEPRECIATION> (6516796)
<TOTAL-ASSETS> 29554282
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 20563280
0
0
<COMMON> (1867099)
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 29554282
<SALES> 0
<TOTAL-REVENUES> 2334523
<CGS> 0
<TOTAL-COSTS> 4374936
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1109512
<INCOME-PRETAX> (3149925)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3149925)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3149925)
<EPS-PRIMARY> (2.85)
<EPS-DILUTED> (2.85)
<FN>
<F1>
Registrant reports an unclassified balance sheet.
</FN>
</TABLE>
