-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HRbwv5AXMXYCTSgD86ahDdzYQZ2ZlDSQpdKS/qV5jYpWcZHuOgq1kYl/P0+q9bKJ ZMAX/W7EL5Hs9tcJl4SLlw== 0000711642-00-000088.txt : 20000331 0000711642-00-000088.hdr.sgml : 20000331 ACCESSION NUMBER: 0000711642-00-000088 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: US REALTY PARTNERS LTD PARTNERSHIP CENTRAL INDEX KEY: 0000788955 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE OPERATORS (NO DEVELOPERS) & LESSORS [6510] IRS NUMBER: 570814502 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB SEC ACT: SEC FILE NUMBER: 000-15656 FILM NUMBER: 588668 BUSINESS ADDRESS: STREET 1: 55 BEATTIE PLACE STREET 2: P O BOX 1089 CITY: GREENVILLE STATE: SC ZIP: 29602 BUSINESS PHONE: 3037578101 MAIL ADDRESS: STREET 1: 1873 SOUTH BELLAIRE STREET STREET 2: 17TH FLOOR CITY: DENVER STATE: CO ZIP: 80222 10KSB 1 YEAR END 10-KSB March 21, 2000 United States Securities and Exchange Commission Washington, D.C. 20549 RE: U.S. Realty Partners Limited Partnership Form 10-KSB File No. 0-15656 To Whom it May Concern: The accompanying Form 10-KSB for the year ended December 31, 1999 describes a change in the method of accounting to capitalize exterior painting and major landscaping, which would have been expensed under the old policy. The Partnership believes that this accounting principle change is preferable because it provides a better matching of expenses with the related benefit of the expenditures and it is consistent with industry practice and the policies of the Corporate General Partner. Please do not hesitate to contact the undersigned with any questions or comments that you might have. Very truly yours, Stephen Waters Real Estate Controller FORM 10-KSB - ANNUAL OR TRANSITIONAL REPORT UNDER SECTION 13 OR 15(d) (As last amended by 34-31905, eff. 4/26/93) FORM 10-KSB (Mark One) [X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [No Fee Required] For the fiscal year ended December 31, 1999 or [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [No Fee Required] For the transition period from.........to......... Commission file number 0-15656 U.S. REALTY PARTNERS LIMITED PARTNERSHIP (Name of small business issuer in its charter) South Carolina 57-0814502 (State or other jurisdiction of I.R.S. Employer incorporation or organization) (Identification No.) 55 Beattie Place, P.O. Box 1089 Greenville, South Carolina 29602 (Address of principal executive offices) Issuer's telephone number (864) 239-1000 Securities registered under Section 12(b) of the Exchange Act: None Securities registered under Section 12(g) of the Exchange Act: None Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. State issuer's revenues for its most recent fiscal year. $3,105,000 State the aggregate market value of the voting partnership interests held by non-affiliates computed by reference to the price at which the partnership interests were sold, or the average bid and asked prices of such partnership interests, as of December 31, 1999. No market exists for the limited partnership interests of the Registrant, and, therefore, no aggregate market value can be determined. - -------------------------------------------------------------------------------- DOCUMENTS INCORPORATED BY REFERENCE None PART I Item 1. Description of Business U.S. Realty Partners Limited Partnership (the "Partnership" or "Registrant") was organized as a limited partnership under the laws of South Carolina on January 23, 1986. The general partner responsible for management of the Partnership's business is U.S. Realty I Corporation, a South Carolina corporation (the "Corporate General Partner"). The only other general partner of the Partnership was N. Barton Tuck, Jr. Mr. Tuck was not an affiliate of the Corporate General Partner and was effectively prohibited by the Partnership's partnership agreement (the "Partnership Agreement") from participating in the management of the Partnership. In June 1999, Mr. Tuck's general partner interest was purchased by AIMCO Properties, L.P., an affiliate of the Corporate General Partner. The Corporate General Partner is a subsidiary of Apartment Investment and Management Company ("AIMCO"). The Partnership Agreement provides that the Partnership is to terminate on December 31, 2005 unless terminated prior to such date. The Registrant is engaged in the business of operating and holding real estate properties for investment. The Registrant commenced operations on August 26, 1986, and acquired its first property, a newly constructed apartment property, on August 28, 1986. Prior to September 5, 1986, it acquired an existing apartment property, a newly constructed shopping center and an existing shopping center. The Registrant continues to own and operate two of these properties. The shopping centers were sold on February 1, 1999 and July 2, 1999. See "Item 2. Description of Properties." Commencing on August 26, 1986, the Registrant delivered 1,222,000 Depositary Unit Certificates, representing assignments of limited partnership interests ("DUCs"), to Wheat First Securities, Inc. and received $30,550,000 ($25.00 per DUC) in proceeds. The DUCs were offered by several underwriters in minimum investment amounts of 100 DUCs ($25.00 per DUC). The Registrant also received $16,369,000 as proceeds from a contemporaneous private bond offering. The Registrant used substantially all of the proceeds from these offerings to acquire its initial four operating properties. On April 1, 1993, the Partnership filed for protection under Chapter 11 of the Federal Bankruptcy Code. The filing was made due to the Partnership's inability to repay its secured debt due to an insurance company (see "Note E" of financial statements). On April 23, 1993, the Partnership filed a Reorganization Plan ("the Plan") with the United States Bankruptcy Court for the District of South Carolina. The significant provision of the Plan was the refinancing of the secured debt. On July 23, 1993, the Court entered an order confirming the Partnership's Plan. On January 27, 1994, the Court closed the case. The Registrant has no employees. Management and administrative services are provided by the Corporate General Partner and by agents retained by the Corporate General Partner. With respect to the Partnership's residential properties these services were provided by affiliates of the Corporate General Partner for the years ended December 31, 1999 and 1998. With respect to the Partnership's commercial properties these services were provided by affiliates of the Corporate General Partner for the nine months ended September 30, 1998. As of October 1, 1998 the management services were provided by an unaffiliated party for the commercial properties. Both the income and expenses of operating the properties owned by the Partnership are subject to factors outside of the Partnership's control, such as changes in the supply and demand for similar properties resulting from various market conditions, increases/decreases in unemployment or population shifts, changes in the availability of permanent mortgage financing, changes in zoning laws, or changes in patterns or needs of users. In addition, there are risks inherent in owning and operating residential properties because such properties are susceptible to the impact of economic and other conditions outside of the control of the Partnership. There have been, and it is possible there may be other, Federal, state and local legislation and regulations enacted relating to the protection of the environment. The Partnership is unable to predict the extent, if any, to which such new legislation or regulations might occur and the degree to which such existing or new legislation or regulations might adversely affect the properties owned by the Partnership. The Partnership monitors its properties for evidence of pollutants, toxins and other dangerous substances, including the presence of asbestos. In certain cases environmental testing has been performed, which resulted in no material adverse conditions or liabilities. In no case has the Partnership received notice that it is a potentially responsible party with respect to an environmental clean up site. The real estate business in which the Partnership is engaged is highly competitive. There are other residential properties within the market area of the registrant's remaining residential properties. The number and quality of competitive properties, including those which may be managed by an affiliate of the Corporate General Partner in such market area, could have a material effect on the rental market for the apartments at the Registrant's properties and the rents that may charged for such apartments. While the Corporate General Partner and its affiliates own and/or control a significant number of apartment units in the United States, such units represent an insignificant percentage of total apartment units in the United States and competition for apartments is local. A further description of the Partnership's business is included in "Management's Discussion and Analysis or Plan of Operation" included in "Item 6" of this Form 10-KSB. Transfer of Control Pursuant to a series of transactions which closed on October 1, 1998 and February 26, 1999, Insignia Financial Group, Inc. and Insignia Properties Trust merged into AIMCO, a publicly traded real estate investment trust, with AIMCO being the surviving corporation (the "Insignia Merger"). As a result, AIMCO acquired 100% ownership interest in the Corporate General Partner. The Corporate General Partner does not believe that this transaction has had or will have a material effect on the affairs and operations of the Partnership. Item 2. Description of Properties The following table sets forth the Registrant's investments in properties:
Date of Property Purchase Type of Ownership Use Governor's Park Apartments 08/29/86 Fee ownership subject to Apartment Little Rock, Arkansas first mortgage 154 units Twin Lakes Apartments 08/28/86 Fee ownership subject to Apartment Palm Harbor, Florida first mortgage 262 units
Schedule of Properties: Set forth below for each of the Registrant's properties is the gross carrying value, accumulated depreciation, depreciable life, method of depreciation and federal tax basis.
Gross Carrying Accumulated Federal Property Value Depreciation Rate Method Tax Basis -------- ----- ------------ ---- ------ --------- (in thousands) (in thousands) Governor's Park $ 6,368 $ 2,753 5-35 S/L $ 2,010 Twin Lakes 11,149 3,998 5-35 S/L 4,428 ------ ------ ------ $17,517 $ 6,751 $ 6,438 ====== ====== ======
See "Note A" of the financial statements included in "Item 7" for a description of the Partnership's depreciation policy and "Note I - Change in Accounting Principle". Schedule of Property Indebtedness: The following table sets forth certain information relating to the loan encumbering the Registrant's properties.
Principal Principal Balance At Stated Balance December 31, Interest Period Maturity Due At 1999 Rate Amortized Date Maturity (2) ---- ---- --------- ---- ------------ (in thousands) U.S. Realty Partnership $ 3,810 10.00% 95 months 08/01/01 (1) ======
(1) The balance at maturity is directly related to the ability of the Partnership to make cash flow payments per the mortgage agreement. (2) See Item 7, Financial Statements - Note D for information with respect to the Registrant's ability to repay this loan and other specific details about the loan. Rental Rates and Occupancy: Average annual rental rates and occupancy for 1999 and 1998 for each property is as follows: Average Annual Average Annual Rental Rates Occupancy (per unit) Property 1999 1998 1999 1998 Governor's Park $6,836 $6,696 95% 91% Twin Lakes 7,703 7,475 97% 93% The Corporate General Partner attributes the increase in occupancy at Twin Lakes Apartments to a strong reputation in the Palm Harbor area concerning customer service provided by the property's personnel. Management has been able to maintain a higher standard of service for their tenants than local competition at lower rental rates. The Corporate General Partner attributes the increase in occupancy at Governor's Park Apartments to improved conditions in the apartment industry in the Little Rock area. As noted under "Item 1. Description of Business," the real estate industry is highly competitive. All of the properties of the Partnership are subject to competition from other residential apartment complexes in the area. The Corporate General Partner believes that all of the properties are adequately insured. Each property is an apartment complex which leases units for lease terms of one year or less. No residential tenant leases 10% or more of the available rental space. All properties are in good condition subject to normal depreciation and deterioration as is typical for assets of this type and age. Schedule of Real Estate Taxes and Rates: Real estate taxes and rates in 1999 for each property were as follows: 1999 1999 Billing Rate (in thousands) Governor's Park $ 63 6.39% Twin Lakes 180 2.09% Capital Improvements: - -------------------- Governor's Park Apartments: The Partnership completed approximately $294,000 in capital expenditures at Governor's Park Apartments as of December 31 ,1999, consisting primarily of appliance and floor covering replacements, parking lot improvements, fencing, and major landscaping. These improvements were funded primarily from operations. The Partnership is currently evaluating the capital improvement needs of the property for the upcoming year. The minimum amount to be budgeted is expected to be $300 per unit or $46,200. Additional improvements may be considered and will depend on the physical condition of the property as well as replacement reserves and anticipated cash flow generated by the property. Twin Lakes Apartments: The Partnership completed approximately $192,000 in capital expenditures at Twin Lakes Apartments as of December 31, 1999, consisting primarily of floor covering replacements, parking lot improvements, fencing and major landscaping. These improvements were funded primarily from operations. The Partnership is currently evaluating the capital improvement needs of the property for the upcoming year. The minimum amount to be budgeted is expected to be $300 per unit or $78,600. Additional improvements may be considered and will depend on the physical condition of the property as well as replacement reserves and anticipated cash flow generated by the property. Item 3. Legal Proceedings The Partnership is unaware of any pending or outstanding litigation that is not of a routine nature arising in the ordinary course of business. Item 4. Submission of Matters to a Vote of Security Holders During the quarter ended December 31, 1999, no matter was submitted to a vote of security holders through the solicitation of proxies or otherwise. PART II Item 5. Market for Partnership Equity and Related Partnership Matters As of December 31, 1999, the number of DUC holders of record was 1.5%. Transfer of DUCs is subject to certain suitability and other requirements. Due to the security being delisted during 1990, no public trading market has developed for the Units and it is not anticipated that such a market will develop in the future. No distributions were made in 1999 or 1998. Pursuant to the loan agreement, no distributions can be made until all long-term debt is repaid. Several tender offers were made by various parties, including affiliates of the general partners, during the year ended December 31, 1999. As a result of these tender offers, AIMCO and its affiliates currently own 475,380 depositary unit certificate units of limited partnership units in the Partnership representing approximately 38.90% of the outstanding units. It is possible that AIMCO or its affiliates will make one or more additional offers to acquire additional limited partnership interests in the Partnership for cash or in exchange for units in the operating partnership of AIMCO. Under the Partnership Agreement, unitholders holding a majority of the Units are entitled to take action with respect to a variety of matters. When voting on matters, AIMCO would in all likelihood vote the Units it acquired in a manner favorable to the interest of the Corporate General Partner because of their affiliation with the Corporate General Partner. Item 6. Management's Discussion and Analysis or Plan of Operation The matters discussed in this Form 10-KSB contain certain forward-looking statements and involve risks and uncertainties (including changing market conditions, competitive and regulatory matters, etc.) detailed in the disclosures contained in this Form 10-KSB and the other filings with the Securities and Exchange Commission made by the Registrant from time to time. The discussions of the Registrant's business and results of operations, including forward-looking statements pertaining to such matters, does not take into account the effects of any changes to the Registrant's business and results of operation. Accordingly, actual results could differ materially from those projected in the forward-looking statements as a result of a number of factors, including those identified herein. This item should be read in conjunction with the financial statements and other items contained elsewhere in this report. Results of Operations The Registrant's net income for the year ended December 31, 1999 was approximately $5,010,000 as compared to a net loss of approximately $76,000 for the year ended December 31, 1998. (See "Note E" of the financial statements for a reconciliation of these amounts to the Registrant's federal taxable losses). The increase in net income is primarily attributable to the gain on sale of discontinued operations of approximately $4,626,000 realized on the sale of The Gallery-Knoxville and The Gallery-Huntsville. On February 1, 1999, The Gallery-Knoxville, located in Knoxville, Tennessee, was sold to an unaffiliated third party for $9,300,000. After closing expenses of approximately $283,000 the net proceeds received by the Partnership were approximately $9,017,000. On July 2, 1999, The Gallery-Huntsville, located in Huntsville, Alabama, was sold to an unaffiliated third party for approximately $7,310,000. After closing expenses of approximately $261,000, the net proceeds received by the Partnership were approximately $7,049,000. The Partnership used the proceeds from the sale of both of the properties to pay down the debt encumbering the Partnership's properties by approximately $15,875,000. Excluding the impact of the operations and the sale of The Gallery-Knoxville and The Gallery-Huntsville, the Registrant had a net income of approximately $128,000 for the year ended December 31, 1999 as compared to a net loss of approximately $1,478,000 for the year ended December 31, 1998. The increase in the income from continuing operations for the year ended December 31, 1999 is primarily the result of both an increase in total revenues and a decrease in total expenses at the Partnership's residential properties. The increase in total revenues is attributable to the increase in rental revenue at the Partnership's residential properties. Rental revenue increased primarily due to an increase in occupancy and the average rental rates at both Twin Lakes Apartments and Governor's Park Apartments as noted in "Item 2. Description of Properties." The decrease in total expenses is primarily the result of a decrease in interest expense, slight decreases in operating expense, and general and administrative expense, which are partially offset by a slight increase in depreciation expense. The decrease in operating expense is the result of a decrease in insurance expense as a result of changing insurance carriers late in 1998 which resulted in lower premiums. Interest expense decreased as a result of the pay down of the mortgage encumbering the Partnership's investment properties, with the net proceeds from the sale of The Gallery-Knoxville and The Gallery-Huntsville as noted above. General and administrative expense decreased as a result of a decrease in management reimbursements allowed by the Partnership Agreement and audit fees. Depreciation expense increased as a result of the capital improvements performed at both the residential properties as noted in "Item 2. Description of Properties". Property tax remained relatively constant for the comparable periods. Also included in general and administrative expenses for the year ended December 31, 1999 and 1998 are costs associated with the quarterly and annual communications with investors and regulatory agencies. Effective January 1, 1999, the Partnership changed its method of accounting to capitalize the cost of exterior painting and major landscaping on a prospective basis. The Partnership believes that this accounting principle change is preferable because it provides a better matching of expenses with the related benefit of the expenditures and it is consistent with industry practice and the policies of the Corporate General Partner. The effect of the change in 1999 was to increase net income by approximately $95,000 ($0.08 per depository unit certificate). The cumulative effect, had this change been applied to prior periods, is not material. The accounting principle change will not have an effect on cash flow, funds available for distribution or fees payable to the Corporate General Partner and affiliates. As part of the ongoing business plan of the Partnership, the Corporate General Partner monitors the rental market environment of each of its investment properties to assess the feasibility of increasing rents, maintaining or increasing occupancy levels and protecting the Partnership from increases in expenses. As part of this plan, the Corporate General Partner attempts to protect the Partnership from the burden of inflation-related increases in expenses by increasing rents and maintaining a high overall occupancy level. However, due to changing market conditions, which can result in the use of rental concessions and rental reductions to offset softening market conditions, there is no guarantee that the Corporate General Partner will be able to sustain such a plan. Liquidity and Capital Resources All of the Partnership's cash is restricted pursuant to the terms of the mortgage loan encumbering the Partnership's properties. At December 31, 1999 the Partnership had approximately $512,000 of restricted cash from both continuing and discontinued operations as compared to approximately $557,000 of restricted cash from both continuing and discontinued operations at December 31, 1998. The Partnership had approximately $1,205,000 of cash provided by operating activities and approximately $15,566,000 of cash provided by investing activities which was offset by approximately $16,772,000, of cash used in financing activities. Cash provided by investing activities consisted of proceeds from the sale of the two commercial properties (see discussion above) partially offset by property improvements and replacements and net deposits to restricted escrows. Cash used in financing activities consisted primarily of the partial repayment and the monthly payments on the mortgage encumbering all of the Partnership's properties. The sufficiency of existing liquid assets to meet future liquidity and capital expenditure requirements is directly related to the level of capital expenditures required at the various properties to adequately maintain the physical assets and other operating needs of the Registrant and to comply with Federal, state, and local legal and regulatory requirements. The Partnership is currently evaluating the capital improvement needs of the two remaining properties for the upcoming year. The minimum to be budgeted is expected to be $300 per unit or $124,800. Additional improvements may be considered and will depend on the physical condition of the properties as well as replacement reserves and anticipated cash flow generated by the properties. The total mortgage indebtedness of $3,810,000 requires a balloon payment on August 1, 2001. The Corporate General Partner will attempt to refinance such indebtedness and/or sell the properties prior to such maturity date. If the properties cannot be refinanced or sold for a sufficient amount, the Partnership will risk losing such properties through foreclosure. Pursuant to the loan agreement, Net Cash Flow of the Partnership is required to be paid to the mortgage holder on a monthly basis to reduce accrued interest and principal. No distributions can be made until all long-term debt is repaid. Tender Offer Several tender offers were made by various parties, including affiliates of the general partners, during the year ended December 31, 1999. As a result of these tender offers, AIMCO and its affiliates currently own 475,380 depositary unit certificate units of limited partnership units in the Partnership representing approximately 38.90% of the outstanding units. It is possible that AIMCO or its affiliates will make one or more additional offers to acquire additional limited partnership interests in the Partnership for cash or in exchange for units in the operating partnership of AIMCO. Under the Partnership Agreement, unitholders holding a majority of the Units are entitled to take action with respect to a variety of matters. When voting on matters, AIMCO would in all likelihood vote the Units it acquired in a manner favorable to the interest of the Corporate General Partner because of their affiliation with the Corporate General Partner. Year 2000 Compliance General Description The Year 2000 issue is the result of computer programs being written using two digits rather than four digits to define the applicable year. The Partnership is dependent upon the Corporate General Partner and its affiliates for management and administrative services ("Managing Agent"). Any of the Managing Agent's computer programs or hardware that had date-sensitive software or embedded chips might have recognized a date using "00" as the year 1900 rather than the year 2000. This could have resulted in a system failure or miscalculations causing disruptions of operations, including, among other things, a temporary inability to process transactions, send invoices, or engage in similar normal business activities. Computer Hardware, Software and Operating Equipment In 1999, the Managing Agent completed all phases of its Year 2000 program by completing the replacement and repair of any hardware or software system or operating equipment that was not yet Year 2000 compliant. The Managing Agent's hardware and software systems and its operating equipment are now Year 2000 compliant. No material failure or erroneous results have occurred in the Managing Agent's computer applications related to the failure to reference the Year 2000 to date. Third Parties To date, the Managing Agent is not aware of any significant supplier or subcontractor (external agent) or financial institution of the Partnership that has a Year 2000 issue that would have a material impact on the Partnership's results of operations, liquidity or capital resources. However, the Managing Agent has no means of ensuring or determining the Year 2000 compliance of external agents. At this time, the Managing Agent does not believe that a Year 2000 issue of any non-compliant external agent will have a material impact on the Partnership's financial position or results of operations. Costs The total cost of the Managing Agent's Year 2000 project was approximately $3.2 million and was funded from operating cash flows. Risks Associated with the Year 2000 The Managing Agent completed all necessary phases of its Year 2000 program in 1999, and did not experience system or equipment malfunctions related to a failure to reference the Year 2000. The Managing Agent or Partnership have not been materially adversely effected by disruptions in the economy generally resulting from the Year 2000 issue. At this time, the Managing Agent does not believe that the Partnership's businesses, results of operations or financial condition will be materially adversely effected by the Year 2000 issue. Contingency Plans Associated with the Year 2000 The Managing Agent has not had to implement contingency plans such as manual workarounds or selecting new relationships for its banking or elevator operation activities in order to avoid the Year 2000 issue. Item 7. Financial Statements U.S. REALTY PARTNERS LIMITED PARTNERSHIP LIST OF FINANCIAL STATEMENTS Report of Ernst & Young LLP, Independent Auditors Balance Sheet - December 31, 1999 Statements of Operations - Years ended December 31, 1999 and 1998 Statements of Changes in Partners' (Deficit) Capital - Years ended December 31, 1999 and 1998 Statements of Cash Flows - Years ended December 31, 1999 and 1998 Notes to Financial Statements Report of Ernst & Young LLP, Independent Auditors The Partners U. S. Realty Partners Limited Partnership We have audited the accompanying balance sheet of U. S. Realty Partners Limited Partnership as of December 31, 1999, and the related statements of operations, changes in partners' (deficit) capital and cash flows for each of the two years in the period ended December 31, 1999. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the Partnership's management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of U. S. Realty Partners Limited Partnership at December 31, 1999, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. As discussed in Note I to the financial statements, the Partnership changed its method of accounting to capitalize the cost of exterior painting and major landscaping effective January 1, 1999. /s/ERNST & YOUNG LLP Greenville, South Carolina February 24, 2000 U.S. REALTY PARTNERS LIMITED PARTNERSHIP BALANCE SHEET (in thousands, except unit data) December 31, 1999
Assets Restricted cash $ 512 Receivables and deposits, net of $190 for doubtful accounts 156 Restricted escrows 283 Other assets 41 Investment properties (Notes D & G): Land $ 2,123 Buildings and related personal property 15,394 17,517 Less accumulated depreciation (6,751) 10,766 $ 11,758 Liabilities and Partners' Capital Liabilities Accounts payable $ 153 Tenant security deposit liabilities 58 Accrued property taxes 70 Other liabilities 521 Due to Corporate General Partner 596 Mortgage notes payable (Note D) 3,810 Partners' Capital General partners $ 4 Depositary unit certificate holders (2,440,000 units authorized; 1,222,000 units issued and outstanding) 6,546 6,550 $ 11,758
See Accompanying Notes to Financial Statements U.S. REALTY PARTNERS LIMITED PARTNERSHIP STATEMENTS OF OPERATIONS (in thousands, except unit data) Years Ended December 31, 1999 1998 (restated) Revenues: Rental income $2,930 $2,655 Other income 175 159 Total revenues 3,105 2,814 Expenses: Operating 1,096 1,134 General and administrative 184 227 Depreciation 489 459 Interest 967 2,225 Property taxes 241 247 Total expenses 2,977 4,292 Income (loss) from continuing operations 128 (1,478) Income from discontinued operations 256 1,402 Gain on sale of discontinued operations 4,626 -- Net income (loss) $5,010 $ (76) Net income (loss) allocated to general partners 451 (1) Net income (loss) allocated to depositary unit certificate holders 4,559 (75) $5,010 $ (76) Net income (loss) per depositary unit certificate: Income (loss) from continuing operations .10 $(1.20) Income from discontinued operations .21 1.14 Gain on sale of discontinued operations 3.42 -- $ 3.73 $ (.06) See Accompanying Notes to Financial Statements U.S. REALTY PARTNERS LIMITED PARTNERSHIP STATEMENTS OF CHANGES IN PARTNERS' (DEFICIT) CAPITAL (in thousands, except unit data)
Depositary Limited Unit Partnership General Certificate Units Partners Holders Total Original capital contributions 1,222,000 $ 2 $30,550 $30,552 Partners' (deficit) capital at December 31, 1997 1,222,000 $(446) $ 2,062 $ 1,616 Net loss for the year ended December 31, 1998 -- (1) (75) (76) Partners' (deficit) capital at December 31, 1998 1,222,000 (447) 1,987 1,540 Net income for the year ended December 31, 1999 -- 451 4,559 5,010 Partners' capital at December 31, 1999 1,222,000 $ 4 $ 6,546 $ 6,550
See Accompanying Notes to Financial Statements U.S. REALTY PARTNERS LIMITED PARTNERSHIP STATEMENTS OF CASH FLOWS (in thousands)
Years Ended December 31, 1999 1998 Cash flows from operating activities: Net income (loss) $ 5,010 $ (76) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation 598 857 Amortization of lease commissions and software 4 13 Bad debt expense 190 42 Gain on sale of discontinued operations (4,626) -- Change in accounts: Restricted cash 45 (225) Receivables and deposits 74 (31) Other assets (19) 39 Accounts payable 138 (13) Tenant security deposit liabilities (62) (1) Accrued property taxes (133) 69 Due to Corporate General Partner 36 12 Other liabilities (49) 49 Net cash provided by operating activities 1,206 735 Cash flows from investing activities: Net proceeds from sale of investment property 16,066 -- Property improvements and replacements (489) (154) Net deposits to restricted escrows (11) (5) Net cash provided by (used in) investing activities 15,566 (159) Cash flows from financing activities: Payments on mortgage notes payable (897) (576) Repayment of mortgage note payable (15,875) -- Net cash used in financing activities (16,772) (576) Net change in cash and cash equivalents -- -- Cash and cash equivalents at beginning of period -- -- Cash and cash equivalents at end of period $ -- $ -- Supplemental disclosure of cash flow information: Cash paid for interest $ 953 $ 2,145
See Accompanying Notes to Financial Statements U. S. REALTY PARTNERS LIMITED PARTNERSHIP Notes to Financial Statements December 31, 1999 Note A - Organization and Significant Accounting Policies Organization: U.S. Realty Partners Limited Partnership (the "Partnership" or "Registrant") was organized as a limited partnership under the laws of the State of South Carolina on January 23, 1986. The general partner responsible for management of the Partnership's business is U.S. Realty I Corporation, a South Carolina Corporation (the "Corporate General Partner"). The only other general partner of the Partnership was N. Barton Tuck, Jr. Mr. Tuck was not an affiliate of the Corporate General Partner and was effectively prohibited by the Partnership's partnership agreement (the "Partnership Agreement") from participating in the management of the Partnership. In June 1999, Mr. Tuck's general partner interest was purchased by AIMCO Properties, L.P. an affiliate of the Corporate General Partner. The Corporate General Partner is a subsidiary of Apartment Investment and Management Company ("AIMCO"). See "Note B - Transfer of Control." The directors and officers of the Corporate General Partner also serve as executive officers of AIMCO. The Partnership Agreement provides that the Partnership is to terminate on December 31, 2005, unless terminated prior to such date. The Partnership commenced operations on August 26, 1986, and completed its acquisition of two apartment complexes and two commercial properties on September 4, 1986, all of which are located in the South. The commercial properties were sold on February 1, 1999 and July 2, 1999. The Depositary Unit Certificate ("DUC") holders are assignees of USS Assignor, Inc. (the Limited Partner), an affiliate of the Corporate General Partner, and as such will be entitled to receive the economic rights attributable to the Limited Partnership Interests represented by their DUCs. DUC holders will for all practical purposes be treated as limited partners of the Partnership. Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Allocation of Cash Distributions: Cash distributions by the Partnership are allocated 98% to the DUC holders and 2% to the general partners until the DUC holders have received annual noncumulative distributions equal to 10% of their Adjusted Capital Values. Net cash from operations then will be distributed to the general partners until the general partners collectively have received 7% of net cash from operations distributed in that fiscal year. Thereafter, (after repayment of any loans by the general partners to the Partnership), net cash from operations will be distributed 93% to the DUC holders and 7% to the general partners. According to the terms of the Partnership's loan agreements, no distributions may be made until the long term debt is repaid. During the first eight quarters following the issuance of the DUCs, the Corporate General Partner was obligated to loan to the Partnership up to approximately $811,000 to cover any deficiency in the quarterly cash distributions. The Corporate General Partner loaned the Partnership $300,000 under this guarantee, which expired August 26, 1988. A deficiency arose when the DUC holders did not receive annualized cash distributions equal to 10% of the average of their Adjusted Capital Values. The loan bears interest at the lesser of the rates being paid by the parent company of the Corporate General Partner or two percentage points over the CitiBank, N.A. prime interest rate. The repayment of the loan would reduce the amount subsequently available for distribution to the DUC holders. This loan may not be repaid until the Partnership's long term debt is repaid. The balance at December 31, 1999, including accrued interest is $596,000. Allocation of Profits, Gains and Losses: Profits, gains and losses of the Partnership are allocated between the Corporate General Partner and DUC holders in accordance with the provisions of the Partnership Agreement. Profits and losses generally will be allocated 99% to the DUC holders and 1% to the Corporate General Partner. Income (loss) from operations per DUC for the years ended December 31, 1999 and 1998, was computed as 99% of the income (loss) from operations divided by 1,222,000 depositary units outstanding. The gain on sale of discontinued operations was allocated in accordance with the Partnership Agreement for the year ended December 31, 1999. Investment Properties: Investment properties consist of two apartment complexes and are stated at cost. Acquisition fees are capitalized as a cost of real estate. In accordance with Financial Accounting Standards Board Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," the Partnership records impairment losses on long-lived assets used in operations when events and circumstances indicate that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of those assets. Costs of apartment properties that have been permanently impaired have been written down to appraised value. No adjustment for impairment of value was recorded for the years ended December 31, 1999 and 1998. The Partnership sold both of the shopping centers during 1999. The Gallery - Knoxville was sold on February 1, 1999 and The Gallery-Huntsville was sold on July 2, 1999. Fair Value of Financial Instruments: Statement of Financial Accounting Standards ("SFAS") No. 107, "Disclosures about Fair Value of Financial Instruments", as amended by SFAS No. 119, "Disclosures about Derivative Financial Instruments and Fair Value of Financial Instruments", requires disclosure of fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate fair value. Fair value is defined in the SFAS as the amount at which the instruments could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. The Partnership believes that the carrying amount of its financial instruments (except for long term debt) approximates their fair value due to the short term maturity of these instruments. The fair value of the Partnership's long term debt, after discounting the scheduled loan payments at an estimated borrowing rate currently available to the Partnership approximates its carrying value. Depreciation: Depreciation is provided by the straight-line method over the estimated lives of the rental properties and related personal property. For Federal income tax purposes, the accelerated cost recovery method is used: 1) for real property over periods of 19 years for additions after May 8, 1985, and before January 1, 1987, and 2) for personal property over 5 years for additions after December 31, 1986, the modified accelerated cost recovery method is used for depreciation of 1) real property additions over 27-1/2 years, and 2) personal property additions over 5 years. Effective January 1, 1999 the Partnership changed its method of accounting to capitalize the cost of exterior painting and major landscaping (Note I). Amortization: Computer software costs were amortized over six years and were fully amortized as of December 31, 1998. Lease commissions were being amortized over a period of one to ten years using the straight-line method over the term of the respective leases and were included in other assets for the year ended December 31, 1998. For the year ended December 31, 1999, lease commissions were written off due to the sale of the Partnership's two commercial properties. Leases: The Partnership generally leases apartment units for twelve-month terms or less. The Partnership recognizes income as earned on its leases. In addition, the Corporate General Partner's policy is to offer rental concessions during particularly slow months or in response to heavy competition from other similar complexes in the area. Concessions are charged against rental income as incurred. Commercial property leases vary from one to ten years. For leases with scheduled rental increases, rental income was recognized on a straight-line basis over the life of the applicable leases. Certain tenants had percentage rent claims which provide for additional rent upon the tenant achieving certain rental objections. Percentage rent totaled approximately $141,000 for 1998. Restricted Cash Tenant Security Deposits - The Partnership requires security deposits from all apartment lessees for the duration of the lease. Deposits are refunded when the tenant vacates the apartment if there has been no damage. The Partnership held $58,000 of such funds at December 31, 1999. Net Cash Flow Fund - The Partnership maintains a restricted cash account for the purpose of repayment of the Partnership's debt. The Partnership held approximately $459,000 of such funds at December 31, 1999. The Partnership deposits Net Cash Flow, as defined in the loan agreement, into this account to facilitate "Cash Sweeps" as defined in the loan agreement. On a monthly basis, the Net Cash Flow Fund is disbursed or retained as follows: Note A - Organization and Significant Accounting Policies (Continued) (a) first, at any time as there shall be a balance of less than $150,000 in the Working Capital Account, an amount equal to the difference between the actual balance and $150,000 but not in excess of twenty percent (20%) of such Net Cash Flow shall be paid to the Partnership for deposit into the Working Capital Account; (b) second, to the payment of, or the reimbursement to the Partnership for certain repairs and expenses and Capital Expenditures; (c) third, to the payment of accrued but unpaid interest; (d) fourth, to the payment of that portion of the Principal Balance equal to accrued and unpaid interest therefore added to the Principal Balance pursuant to the loan agreement; (e) fifth, to the payment of the remaining Principal Balance and to any and all other amounts payable to the Surety thereunder, including, but not limited to, the additional interest. Restricted Escrows Capital Improvement Account - The Partnership established an interest bearing bank account (see "Note D"), for the purpose of deposit and expenditure of cash flow for Capital Expenditures. The Partnership shall deposit from time to time from revenues a reasonable allowance for Capital Expenditures, provided the amount of such deposit shall have been approved in advance by the Surety. The Partnership may withdraw any amounts on deposit in the Capital Expenditures Account to pay for Capital Expenditures as they are made, provided the amount of such withdrawals shall have been approved in advance by the Surety. At December 31, 1999, the balance was approximately $123,000. Working Capital Account - The Partnership established the "Working Capital Account" for the purpose of providing a cash reserve available to the Partnership (see "Note D"). On September 16, 1993, prior to making the first deposit into the Net Cash Flow Fund, the Partnership deposited $150,000 into the Working Capital Account. The bank holds the funds in the Working Capital Account for the benefit of the Surety. The Partnership has the right to access these funds without the consent of the Surety under specific guidelines mutually agreed to by the Partnership and the Surety. Specifically, the Working Capital Account may be used to fund negative cash flow, or emergency or immediate funding needs of a property. At December 31, 1999, the balance was approximately $160,000. Escrow for Taxes: All escrow funds are designated for the payment of real estate taxes and are held by the Partnership. These funds totaled approximately $169,000 at December 31, 1999 and are included in receivables and deposits. Segment Reporting: Statement of Financial Standards ("SFAS" No. 131, Disclosure about Segments of an Enterprise and Related Information ("Statement 131"), established standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports. It also establishes standards for related disclosures about products and services, geographic areas, and major customers. See "Note H" for required disclosures. Advertising: The Partnership expenses the costs of advertising as incurred. Advertising expense, included in operating expense, was approximately $60,000 and $48,000 for the years ended December 31, 1999 and 1998, respectively. Reclassifications: Certain reclassifications have been made to the 1998 financial statements to conform with the 1999 presentation. Note B - Transfer of Control Pursuant to a series of transactions which closed on October 1, 1998 and February 26, 1999, Insignia Financial Group, Inc. and Insignia Properties Trust merged into AIMCO, a publicly traded real estate investment trust, with AIMCO being the surviving corporation (the "Insignia Merger"). As a result, AIMCO acquired 100% ownership interest in the Corporate General Partner. The Corporate General Partner does not believe that this transaction has had or will have a material effect on the affairs and operations of the Partnership. Note C - Disposition of Property/Operating Segment On February 1, 1999, The Gallery - Knoxville, located in Knoxville, Tennessee, was sold to an unaffiliated third party for $9,300,000. After closing expenses of approximately $283,000, the net proceeds received by the Partnership were approximately $9,017,000. The Partnership was required to use the net proceeds from the sale of the property to pay down the mortgage encumbering the Partnership's properties. The sale of the property resulted in a gain on sale of investment property of approximately $2,701,000. In connection with the sale, a commission of approximately $93,000 was paid to the Corporate General Partner (see Note F). On July 2, 1999, The Gallery - Huntsville, located in Huntsville, Alabama, was sold to an unaffiliated third party for $7,310,000. After closing expenses of approximately $261,000, the net proceeds received by the Partnership were approximately $7,049,000. The Partnership was required to use the net proceeds from the sale of the property to pay down the mortgage encumbering the Partnership's properties. The sale of the property resulted in a gain on sale of investment property of approximately $1,925,000. In connection with the sale, a commission of approximately $73,100 was paid to the Corporate General Partner (see Note F). The Gallery - Knoxville and The Gallery - Huntsville were the only commercial properties owned by the Partnership and represented one segment of the Partnership's operations. Due to the sale of these properties, the results of the commercial segment have been shown as income from discontinued operations and gain on sale of discontinued operations. Revenues of these properties were approximately $588,000 and $2,479,000 for 1999 and 1998, respectively. Income from discontinued operations was approximately $256,000 and $1,402,000 for 1999 and 1998, respectively. Note D - Mortgage Note Payable On October 15, 1993, the Partnership finalized the refinancing of all debt encumbering its real estate assets. The debt has a stated interest rate of 10%, which shall accrue and, to the extent such interest is not paid currently out of Net Cash Flow, as defined in the loan agreement, shall be added to the principal balance on August 16 of each year prior to the maturity date of August 1, 2001; provided, however, that the amount of accrued and unpaid interest, shall at no time exceed the sum of $1,740,733 and the balances in the Capital Expenditures Account, the Working Capital Account, and the Tax Escrow Account established under provisions of the loan agreement. Amounts in excess of this total must be immediately paid by the Partnership. The loan agreement also calls for additional interest of approximately $59,000, which accrues annually on August 1, and is payable on the earlier of the maturity date or the date on which the principal balance and all accrued interest is paid. The obligations of the Partnership to the Surety in connection with the issuance of the debt are secured by a first mortgage or deed of trust on each of the Partnership's properties and are cross-defaulted so that a default with respect to one property is a default under each mortgage or deed of trust. The mortgage note payable is non-recourse. The note does not require prepayment penalties if repaid prior to maturity. The principle terms of the note payable are as follows: Principal Principal Balance At Stated Balance December 31, Interest Period Maturity Due At 1999 Rate Amortized Date Maturity (in thousands) U.S. Realty Partnership $ 3,810 10.00% 95 months 08/01/01 (1) (1) The balance at maturity is directly related to the ability of the Partnership to make cash flow payments per the mortgage agreement. At December 31, 1999 and 1998, approximately $17,000 and $97,000, respectively, of accrued interest was included in other liabilities. Note E - Income Taxes The Partnership has received a ruling from the Internal Revenue Service that it will be classified as a partnership for Federal income tax purposes. Accordingly, no provision for income taxes is made in the financial statements of the Partnership. Taxable income or loss of the Partnership is reported in the income tax returns of its partners. The following is a reconciliation of reported net income (loss) and Federal taxable income (loss) (in thousands except per unit data): Years Ended December 31, 1999 1998 Net income (loss) as reported $ 5,010 $ (76) Add (deduct): Depreciation differences (374) (685) Difference in bad debt expense (286) 135 Difference in rents recognized 197 25 Change in prepaid rentals 37 (60) Gain on sale of discontinued operations (3,212) -- Other 73 (79) Federal taxable income (loss) $1,445 $ (740) Federal taxable income (loss) per DUC $ 1.17 $ (.60) ===== ===== The following is a reconciliation between the Partnership's reported amounts and Federal tax basis of net assets and liabilities (in thousands): Net assets as reported $ 6,550 Land and buildings 1,318 Accumulated depreciation (5,646) Syndication 2,774 Other 188 Net assets - tax basis $ 5,184 Note F - Transactions with Affiliated Parties The Partnership has no employees and is dependent on the Corporate General Partner and its affiliates for the management and administration of all Partnership activities. The Partnership Agreement provides for (i) certain payments to affiliates for services and (ii) reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. The following payments were made to the Corporate General Partner and its affiliates during the year ended December 31, 1999 and 1998: 1999 1998 (in thousands) Property management fees (included in operating expenses) expenses) $153 $255 Reimbursement for services of affiliates (included in operating, general and administrative expenses, and investment properties) 83 117 Real estate brokerage commissions (included in gain on sale of discontinued operations) 166 -- Due to Corporate General Partner 596 560 During the years ended December 31, 1999 and 1998, affiliates of the Corporate General Partner were entitled to receive 5% of gross receipts from both of the Registrant's residential properties for providing property management services. The Registrant paid to such affiliates $153,000 and $142,000 for the years ended December 31, 1999 and 1998, respectively. For the nine months ended September 30, 1998 affiliates of the Corporate General Partner were entitled to receive varying percentages of gross receipts from both of the Registrant's commercial properties for providing property management services. The Registrant paid to such affiliates $113,000 for the nine months ending September 30, 1998. No such fees were paid for the year ended December 31, 1999 as these services were provided by an unrelated third party effective October 1, 1998. An affiliate of the Corporate General Partner received reimbursement of accountable administrative expenses amounting to approximately $83,000 and $117,000 for the year ended December 31, 1999 and 1998, respectively. Pursuant to the Partnership Agreement, the Corporate General Partner is entitled to receive a commission equal to 1% of the aggregate disposition price of sold properties. The Partnership paid a commission of $93,000 and $73,100 to the Corporate General Partner related to the sales of The Gallery - Knoxville and The Gallery - Huntsville, respectively in 1999. These commissions are subordinate to the limited partners receiving their original capital contributions plus a cumulative preferred return of 10% per annum of their adjusted capital investment, as defined in the Partnership Agreement. If the limited partners have not received these returns when the Partnership terminates, the Corporate General Partner will return these amounts to the Partnership. Several tender offers were made by various parties, including affiliates of the general partners, during the year ended December 31, 1999. As a result of these tender offers, AIMCO and its affiliates currently own 475,830 depositary unit certificate units of limited partnership units in the Partnership representing 38.90% of the outstanding units. It is possible that AIMCO or its affiliates will make one or more additional offers to acquire additional limited partnership interests in the Partnership for cash or in exchange for units in the operating partnership of AIMCO. Under the Partnership Agreement, unitholders holding a majority of the Units are entitled to take action with respect to a variety of matters. When voting on matters, AIMCO would in all likelihood vote the Units it acquired in a manner favorable to the interest of the Corporate General Partner because of their affiliation with the Corporate General Partner. Note G - Real Estate and Accumulated Depreciation Investment Properties Initial Cost To Partnership (in thousands) Cost Buildings Capitalized and Related (Removed) Personal Subsequent to Description Land Property Acquisition (in thousands) Governor's Park Apartments Little Rock, Arkansas $ 423 $ 5,701 $ 244 Twin Lakes Apartments Palm Harbor, Florida 1,928 9,283 (62) Totals $2,351 $14,984 $ 182 The cost removed, net of additions, subsequent to the acquisition is primarily due to write-downs and removals in prior years. Gross Amount At Which Carried At December 31, 1999 (in thousands)
Buildings and Related Personal Accumulated Date of Date Depreciable Description Land Property Total Depreciation Construction Acquired Life-Years Governor's Park 423 5,945 6,368 2,753 1985 08/29/86 5-35 Twin Lakes 1,700 9,449 11,149 3,998 1986 08/28/86 5-35 Totals $2,123 $15,394 $17,517 $ 6,751
Each of the Partnership's properties is secured by a first mortgage or deed of trust in connection with the issuance of an Amended and Restated Surety Note, Bond Notes and Suretyship Agreement. Reconciliation of "Real Estate and Accumulated Depreciation": Years Ended December 31, 1999 1998 (in thousands) Real Estate Balance at beginning of year $33,460 $33,306 Property improvements 486 154 Disposals of property (16,429) -- Balance at end of year $17,517 $33,460 Accumulated Depreciation Balance at beginning of year $11,380 $10,523 Additions charged to expense 598 857 Disposals of property (5,227) -- Balance at end of year $ 6,751 $11,380 The aggregate cost of the real estate for Federal income tax purposes at December 31, 1999 and 1998, is approximately $18,835,000 and $44,206,000 respectively. The accumulated depreciation taken for Federal income tax purposes at December 31, 1999 and 1998, is approximately $12,397,000 and $22,867,000, respectively. Note H - Segment Reporting Description of the types of products and services from which the reportable segment derives its revenues: The Partnership had two reportable segments: residential properties and commercial properties. The Partnership's residential property segment consists of two apartment complexes located in Arkansas and Florida. The Partnership rents apartment units to tenants for terms that are typically twelve months or less. The commercial property segment consisted of a shopping center located in Alabama, which was sold on July 2, 1999 and a shopping center in Tennessee which was sold on February 1, 1999. As a result of the sale of both commercial properties during 1999 the commercial segment is shown as discontinued operations. Measurement of segment profit and loss: The Partnership evaluates performance based on segment profit (loss) before depreciation. The accounting policies of the reportable segment are the same as those described in the summary of significant policies. Factors management used to identify the enterprise's reportable segment: The Partnership's reportable segment consists of investment properties that offer different products and services. The reportable segments are each managed separately because they provide distinct services with different types of products and customers. Segment information for the years ended December 31, 1999 and 1998 is shown in the tables below. The "Other" column includes partnership administration related items and income and expense not allocated to the reportable segment.
1999 Residential Commercial Other Totals ----------- ---------- ----- ------ (discontinued) (in thousands) Rental income $ 2,930 $ -- $ -- $ 2,930 Other income 118 -- 57 175 Interest expense -- -- 967 967 Depreciation 489 -- -- 489 General and administrative expense -- -- 184 184 Income from discontinued operations -- 256 -- 256 Gain on sale of discontinued operations -- 4,626 -- 4,626 Segment profit (loss) 1,222 4,882 (1,094) 5,010 Total assets 10,920 -- 838 11,758 Capital expenditures for investment properties 486 3 -- 489
1998 Residential Commercial Other Totals ----------- ---------- ----- ------ (discontinued) (in thousands) Rental income $ 2,655 $ -- $ -- $ 2,655 Other income 128 -- 31 159 Interest expense -- -- 2,225 2,225 Depreciation 459 -- -- 459 General and administrative expense -- -- 227 227 Income from discontinued operations -- 1,402 -- 1,402 Segment profit (loss) 943 1,402 (2,421) (76) Total assets 10,920 11,849 821 23,590 Capital expenditures for investment properties 142 12 -- 154
Note I - Change in Accounting Principle Effective January 1, 1999, the Partnership changed its method of accounting to capitalize the cost of exterior painting and major landscaping on a prospective basis. The Partnership believes that this accounting principle change is preferable because it provides a better matching of expenses with the related benefit of the expenditures and it is consistent with industry practice and the policies of the Corporate General Partner. The effect of the change in 1999 was to increase net income by approximately $95,000 ($0.08 per depository unit certificate). The cumulative effect, had this change been applied to prior periods, is not material. The accounting principle change will not have an effect on cash flow, funds available for distribution or fees payable to the Corporate General Partner and affiliates. Item 8. Changes in and Disagreements with Accountant on Accounting and Financial Disclosure None. PART III Item 9. Directors, Executive Officers, Promoters and Control Persons, Compliance with Section 16(a) of the Exchange Act The Registrant has no officers or directors. The Corporate General Partner of the Registrant is U.S. Realty I Corporation. The names and ages of, as well as the position and offices held by the present executive officers and director of the Corporate General Partner are set forth below. There are no family relationships between or among any officers and directors. Name Age Position Patrick J. Foye 42 Executive Vice President and Director Martha L. Long 40 Senior Vice President and Controller Patrick J. Foye has been Executive Vice President and Director of the Corporate General Partner since October 1, 1998. Mr. Foye has served as Executive Vice President of AIMCO since May 1998. Prior to joining AIMCO, Mr. Foye was a partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1989 to 1998 and was Managing Partner of the firm's Brussels, Budapest and Moscow offices from 1992 through 1994. Mr. Foye is also Deputy Chairman of the Long Island Power Authority and serves as a member of the New York State Privatization Council. He received a B.A. from Fordham College and a J.D. from Fordham University Law School. Martha L. Long has been Senior Vice President and Controller of the Corporate General Partner and AIMCO since October 1998, as a result of the acquisition of Insignia Financial Group, Inc. From June 1994 until January 1997, she was the Controller for Insignia, and was promoted to Senior Vice President - Finance and Controller in January 1997, retaining that title until October 1998. From 1988 to June 1994, Ms. Long was Senior Vice President and Controller for The First Savings Bank, FSB in Greenville, South Carolina. Based solely upon a review of Forms 3 and 4 and amendments thereto furnished to the Registrant under Rule 16a-3(e) during the Registrant's most recent fiscal year and Forms 5 and amendments thereto furnished to the Registrant with respect to its most recent fiscal year, the Registrant is not aware of any director, officer, beneficial owner of more than ten percent of the units of limited partnership interest in the Registrant that failed to file on a timely basis, as disclosed in the above Forms, reports required by section 16(a) of the Exchange Act during the most recent fiscal year or prior fiscal years. Item 10. Executive Compensation None of the directors and officers of the Corporate General Partner received any remuneration from the Registrant. Item 11. Security Ownership of Certain Beneficial Owners and Management Except as noted below, no person or entity was known by the Registrant to be the beneficial owner of more than 5% of the Depositary Unit Certificate of the Registrant as of December 31, 1999. Entity Number of DUCs Percentage AIMCO Properties, LP 475,380 38.90% (an affiliate of AIMCO) AIMCO Properties, LP is ultimately owned by AIMCO. Its business address is 2000 South Colorado Boulevard, Denver, Colorado. No director or officer of the Corporate General Partner owns any Units. Item 12. Certain Relationships and Related Transactions The Partnership has no employees and is dependent on the Corporate General Partner and its affiliates for the management and administration of all Partnership activities. The Partnership Agreement provides for (i) certain payments to affiliates for services and (ii) reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. The following payments were made to the Corporate General Partner and its affiliates during the year ended December 31, 1999 and 1998: 1999 1998 (in thousands) Property management fees $153 $255 Reimbursement for services of affiliates 83 117 Real estate brokerage commissions 166 -- Due to Corporate General Partner 596 560 During the years ended December 31, 1999 and 1998, affiliates of the Corporate General Partner were entitled to receive 5% of gross receipts from both of the Registrant's residential properties for providing property management services. The Registrant paid to such affiliates $153,000 and $142,000 for the years ended December 31, 1999 and 1998, respectively. For the nine months ended September 30, 1998 affiliates of the Corporate General Partner were entitled to receive varying percentages of gross receipts from both of the Registrant's commercial properties for providing property management services. The Registrant paid to such affiliates $113,000 for the nine months ending September 30, 1998. No such fees were paid for the year ended December 31, 1999 as these services were provided by an unrelated third party effective October 1, 1998. An affiliate of the Corporate General Partner received reimbursement of accountable administrative expenses amounting to approximately $83,000 and $117,000 for the year ended December 31, 1999 and 1998, respectively. Pursuant to the Partnership Agreement, the Corporate General Partner is entitled to receive a commission equal to 1% of the aggregate disposition price of sold properties. The Partnership paid a commission of $93,000 and $73,100 to the Corporate General Partner related to the sales of The Gallery - Knoxville and The Gallery - Huntsville, respectively in 1999. These commissions are subordinate to the limited partners receiving their original capital contributions plus a cumulative preferred return of 10% per annum of their adjusted capital investment, as defined in the Partnership Agreement. If the limited partners have not received these returns when the Partnership terminates, the Corporate General Partner will return these amounts to the Partnership. Several tender offers were made by various parties, including affiliates of the general partners, during the year ended December 31, 1999. As a result of these tender offers, AIMCO and its affiliates currently own 475,830 depositary unit certificate units of limited partnership units in the Partnership representing 38.90% of the outstanding units. It is possible that AIMCO or its affiliates will make one or more additional offers to acquire additional limited partnership interests in the Partnership for cash or in exchange for units in the operating partnership of AIMCO. Under the Partnership Agreement, unitholders holding a majority of the Units are entitled to take action with respect to a variety of matters. When voting on matters, AIMCO would in all likelihood vote the Units it acquired in a manner favorable to the interest of the Corporate General Partner because of their affiliation with the Corporate General Partner. Item 13. Exhibits, and Reports on Form 8-K (a) Exhibits: Exhibit 18, Independent Accountants' Preferability Letter for Change in Accounting Principle, is filed as an exhibit to this report. Exhibit 27, Financial Data Schedule, is filed as an exhibit to this report. (b) Reports on Form 8-K filed in the fourth quarter of calendar year 1999: None. SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. U.S. REALTY PARTNERS LIMITED PARTNERSHIP By: U.S. Realty I Corporation Corporate General Partner By: /s/Patrick J. Foye Patrick J. Foye Executive Vice President By: /s/Martha L. Long Martha L. Long Senior Vice President and Controller Date: Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By: /s/Patrick J. Foye Date: --------------------- Patrick J. Foye Executive Vice President and Director By: /s/Martha L. Long Date: ----------------- Martha L. Long Senior Vice President and Controller EXHIBIT INDEX Exhibit 3 See Exhibit 4(a) 2.1 Agreement and Plan of Merger, dated as of October 1, 1998, by and between AIMCO and IPT (Incorporated by reference to Exhibit 2.1 of IPT's Current Report on Form 8-K, File No. 1-14179, dated October 1, 1998). 4(a) Amended and Restated Certificate and Agreement of Limited Partnership (included as Exhibit A to the Prospectus of Registrant dated August 19, 1986 contained in Amendment No. 4 Registration Statement, No. 33-2996, of Registrant filed August 19, 1986 (the "Prospectus") and is incorporated herein by reference). (b) Subscription Agreement and Signature Page (included as Exhibit B to the Prospectus and is incorporated herein by reference). (c) Instruments governing the Bonds (filed as Exhibit 10C to Amendment No. 4 to Registration Statement, No. 33-2996, of Registrant filed August 19, 1986 and incorporated herein by reference). (d) First Amendment to U.S. Realty Partners Limited Partnership Amended and Restated Agreement of Limited of Partnership (dated August 15, 1986) dated October 14, 1993. [Filed as Exhibit 4(c) to Form 10QSB for the quarter ended September 30, 1993 and incorporated herein by reference.] 10(i) Contracts related to acquisition of properties: (a) Purchase Agreement dated January 31, 1986 between The Gallery, Ltd./LNDC Venture and U.S. Realty Partners Limited Partnership to acquire The Gallery Shopping Plaza, Knoxville, Tennessee (filed as Exhibit 10D to Amendment No. 1 to Registration Statement, No. 33-2996, of the Registrant filed August 19, 1986 incorporated herein by reference). (b) Form of Purchase Agreement by which U.S. Realty Partners Limited Partnership expects to acquire The Gallery Shopping Plaza, Huntsville, Alabama (filed as Exhibit 10E to Amendment No. 2 to Registration Statement, No. 33-2996, of the Registrant filed August 19, 1986 and incorporated herein by reference). (ii) Form of Management Agreement with U.S. Shelter Corporation (filed with Amendment No. 4 to Registration Statement No. 33-2996, of Registrant filed August 19, 1986 and is incorporated herein by reference). Exhibit (iii)(a) Form of Master Lease and Management and Leasing Sub-Agreement related to Purchase Agreement (see 10(b) between Cazana/Huntsville Shopping Center, Ltd. and U.S. Shelter Corporation) to acquire The Gallery Shopping Plaza, Huntsville, Alabama (filed as Exhibit 10E to Amendment No. 4 to Registration Statement, No. 33-2996, of the Registrant filed August 19, 1986 and incorporated herein by reference). (b) Amended and Restated Surety Note, Bond Notes and Suretyship Agreement by and between U.S. Realty Partners Limited Partnership and Continental Casualty Company, dated October 15, 1993. * (c) First Amended and Restated Mortgage, Assignment of Rents and Security Agreement dated as of October 15, 1993 from U.S. Realty Partners Limited Partnership, a Delaware limited partnership, to Continental Casualty Company, an Illinois insurance company, securing Twin Lakes Apartments, Palm Harbor, Florida. * (d) State of Florida Uniform Commercial Code - Statement of Change - Form UCC - 3 Rev. 11-88 by U.S. Realty Partners Limited Partnership and Continental Casualty Company. * (e) First Amended and Restated Mortgage, Assignment of Rents and Security Agreement dated as of October 15, 1993 from U.S. Realty Partners Limited Partnership, a Delaware limited partnership, to Continental Casualty Company, an Illinois insurance company, securing Governor's Park (formerly St. Croix) Apartments, Little Rock, Arkansas. * (f) Uniform Commercial Code - Standard Form Pulaski County, Arkansas, Statements of Continuation, Partial Release, Assignment, etc. - Form UCC-3 by U.S. Realty Partners Limited Partnership and Continental Casualty Company. * (g) First Amended and Restated Mortgage, Assignment of Rents and Security Agreement dated as of October 15, 1993 from U.S. Realty Partners Limited Partnership, a Delaware limited partnership, to Continental Casualty Company, an Illinois insurance company, securing Gallery Shopping Plaza, Huntsville, Alabama.* (h) State of Alabama - Uniform Commercial Code, Statements of Continuation, Partial Release Assignments, etc. - Form UCC-3 by U.S. Realty Partners Limited Partnership and Continental Casualty Company. * Exhibit (i) First Amended and Restated Mortgage, Assignment of Rents and Security Agreement dated as of October 15, 1993 from U.S. Realty Partners Limited Partnership, a Delaware limited partnership, to Continental Casualty Company, an Illinois insurance company, securing Gallery Shopping Plaza, Knoxville, Tennessee.* (j) State of Tennessee Uniform Commercial Code Statements of Continuation Partial Release, Assignment, etc. - Form UCC-3 by U.S. Realty Partners Limited Partnership and Continental Casualty Company. * (k) First Amended and Restated Assignment of Rents and Leases dated October 15, 1993 from U.S. Realty Partners Limited Partnership to Continental Casualty Company, securing Gallery Shopping Plaza, Huntsville, Alabama and Gallery Shopping Plaza, Knoxville, Tennessee. * (l) Depositary Agreement dated as of October 15, 1993, among U.S. Realty Partners Limited Partnership, First Union National Bank of South Carolina and Continental Casualty Company. * (m) Financial Statement - Form UCC-1, State of South Carolina, Office of Secretary of State Jim Miles by US Realty Partners Limited Partnership and Continental Casualty Company. * (n) Incumbency Certificate by U.S. Realty I Corporation and U.S. Realty Partners Limited Partnership. * 10.21Contract of Sale between Registrant and The Gallery of Knoxville L.P., effective February 1, 1999 (filed February 9, 1999). 10.22Contract of Sale between Registrant and Huntgal, LLC, effective July 2, 1999 (Filed July 13, 1999) * Filed as Exhibits 10iii (a) through (m) to Form 10QSB for the quarter ended September 30, 1993 and incorporated herein by reference. 18 Independent Accountants' Preferability Letter for Change in Accounting Principle. 27 Financial Data Schedule. 99 Prospectus of Registrant dated August 19, 1986 (included in Registration Statement, No. 33-2996, of Registrant and incorporated herein by reference). Exhibit 18 February 7, 2000 Mr. Patrick J. Foye Executive Vice President U.S. Realty I Corporation Corporate General Partner of U.S. Realty Partners Limited Partnership 55 Beattie Place P.O. Box 1089 Greenville, South Carolina 29602 Dear Mr. Foye: Note I of Notes to the Financial Statements of U.S. Realty Partners Limited Partnership included in its Form 10-KSB for the year ended December 31, 1999 describes a change in the method of accounting to capitalize exterior painting and major landscaping, which would have been expensed under the old policy. You have advised us that you believe that the change is to a preferable method in your circumstances because it provides a better matching of expenses with the related benefit of the expenditures and is consistent with policies currently being used by your industry and conforms to the policies of the Corporate General Partner. There are no authoritative criteria for determining a preferable method based on the particular circumstances; however, we conclude that the change in the method of accounting for exterior painting and major landscaping is to an acceptable alternative method which, based on your business judgment to make this change for the reasons cited above, is preferable in your circumstances. Very truly yours, /s/ Ernst & Young LLP EX-27 2 FDS --
5 This schedule contains summary financial information extracted from US Realty Partners 1999 Fourth Quarter 10-KSB and is qualified in its entirety by reference to such 10-KSB filing. 0000788955 US Realty Partners 1,000 12-MOS DEC-31-1999 JAN-01-1999 DEC-31-1999 512 0 156 0 0 0 17,517 6,751 11,758 0 3,810 0 0 0 6,550 11,758 0 3,105 0 0 2,977 0 967 0 0 128 256 4626 0 545 3.73 0 Registrant has an unclassified balance sheet. Multiplier is 1.
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