-----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, PdKX0xbIIPYSNcmRUpYIXjv9iVsjyUaPQ8flIAPcDC9C7C4dMaKDXce+Ax9XgT3p E4jQ4iR0Bl717oveDIh0yQ== 0000711642-01-000043.txt : 20010330 0000711642-01-000043.hdr.sgml : 20010330 ACCESSION NUMBER: 0000711642-01-000043 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010329 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: 1583448 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 0001.txt FORM 10-KSB FORM 10-KSB - ANNUAL OR TRANSITIONAL REPORT UNDER SECTION 13 OR 15(d) 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, 2000 [ ] 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. [X] State issuer's revenues for its most recent fiscal year. $3,163,000 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, 2000. 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 Corporate General Partner is a subsidiary of Apartment Investment and Management Company ("AIMCO"). 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 and 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. 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, 2000 and 1999. 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 be 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 $ 6,442 $ 2,948 5-35 S/L $ 1,800 Twin Lakes 11,752 4,344 5-35 S/L 4,544 $18,194 $ 7,292 $ 6,344
See "Note A" of the financial statements included in "Item 7" for a description of the Partnership's depreciation policy. Schedule of Property Indebtedness: The following table sets forth certain information relating to the loans encumbering the Registrant's properties.
Principal Principal Balance At Stated Balance December 31, Interest Period Maturity Due At 2000 Rate Amortized Date Maturity (in thousands) Twin Lakes (1) $ 7,243 7.98% 240 months 09/01/2020 -- Governor's Park (1) 3,780 7.93% 240 months 09/01/2020 -- $11,023
(1) See Item 7, Financial Statements - Note E for information with respect to the Registrant's ability to repay the loans and other specific details about the loans. On August 31, 2000, the Partnership refinanced its mortgage note payable encumbering the Partnership as a whole with individual mortgages on each property. The refinancing replaced mortgage indebtedness of $3,517,000 with a rate of 10% which encumbered both of the Partnership's investment properties. The new mortgage for Governor's Park Apartments was for $3,800,000 at a rate of 7.93%. Payments of approximately $32,000 are due on the first day of each month until the loan matures on September 1, 2020 at which time the loan is scheduled to be fully amortized. The new mortgage for Twin Lakes Apartments was for $7,280,000 at a rate of 7.98%. Payments of approximately $61,000 are due on the first day of each month until the loan matures on September 1, 2020 at which time the loan is scheduled to be fully amortized. Capitalized loan costs of approximately $301,000 were incurred as a result of the refinancing. Prepayment penalties are required on both new mortgages if repaid prior to maturity. The Corporate General Partner received approximately $111,000 which is included in the capitalized loan costs as a 1% fee for its assistance in obtaining the refinancing in accordance with the terms of the Partnership Agreement. Rental Rates and Occupancy: Average annual rental rates and occupancy for 2000 and 1999 for each property is as follows: Average Annual Average Annual Rental Rates Occupancy (per unit) Property 2000 1999 2000 1999 Governor's Park $7,026 $6,836 95% 95% Twin Lakes 7,919 7,703 96% 97% 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 2000 for each property were as follows: 2000 2000 Billing Rate (in thousands) Governor's Park $ 63 6.30% Twin Lakes 202 2.15% Capital Improvements: Governor's Park Apartments: The Partnership completed approximately $74,000 in capital expenditures at Governor's Park Apartments as of December 31, 2000, consisting primarily of appliance and floor covering replacements, wall covering and fencing improvements 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 $275 per unit or $42,350. 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 $603,000 in capital expenditures at Twin Lakes Apartments as of December 31, 2000, consisting primarily of roof and structural improvements, floor covering and appliance replacements, plumbing improvements, blind replacements 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 $275 per unit or $72,050. Additional improvements may be considered and will depend on the physical condition of the property as well as 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, 2000, 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 The Partnership, a publicly-held limited partnership received $30,550,000 upon delivery of 1,222,000 Depositary Units Certificates ("DUC's") which represent assignment of limited partnership interests to the holders. As of December 31, 2000, the number of DUCs holders of record was 1,226 and there were 1,222,000 units outstanding. Transfer of DUCs is subject to certain suitability and other requirements. Affiliates of the Corporate General Partner own 650,274 units or 53.21% at December 31, 2000. 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. During the year ended December 31, 2000 the Partnership paid distributions of approximately $7,045,000 (approximately $7,033,000 to the limited partners or $5.76 per depositary unit) consisting of cash from operations of approximately $620,000 (approximately $608,000 to the limited partners or $0.50 per depositary unit) and cash from refinance proceeds all paid to the limited partners of approximately $6,425,000 (approximately $5.26 per depositary unit). No distributions were declared or paid in 1999. Future cash distributions will depend on the level of net cash generated from operations, the availability of cash reserves and the timing of debt maturities, refinancings, and/or property sales. The Partnership's distribution policy is reviewed on a quarterly basis. There can be no assurance that the Partnership will generate sufficient funds from operations after required capital expenditures, to permit any distributions to its partners in 2001 or subsequent periods. See "Item 2 - Description of Properties - Capital Improvements" for information relating to anticipated capital expenditures at the properties. In addition to its indirect ownership of the Corporate General Partner interest in the Partnership, AIMCO and its affiliates currently own 650,274 depositary unit certificates in the Partnership representing 53.21% of the outstanding units. A number of these units were acquired pursuant to tender offers made by AIMCO or its affiliates. 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 which would include without limitation, voting on certain amendments to the Partnership Agreement and voting to remove the Corporate General Partner. As a result of its ownership of 53.21% of the outstanding units, AIMCO is in a position to influence all voting decisions with respect to the Registrant. 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, 2000 was approximately $375,000 as compared to net income of approximately $5,010,000 for the year ended December 31, 1999. The decrease 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 in 1999. 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. The decrease in net income is also attributable to a decrease in income from discontinued operations as a result of the above mentioned sales. Excluding the impact of the operations and the sale of The Gallery-Knoxville and The Gallery-Huntsville, the Registrant had income from continuing operations of approximately $375,000 for the year ended December 31, 2000 as compared to income from continuing operations of approximately $128,000 for the year ended December 31, 1999. The increase in income from continuing operations for the year ended December 31, 2000 is primarily the result of both a slight 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 the average rental rates at both Twin Lakes Apartments and Governor's Park Apartments (as noted in "Item 2. Description of Properties") partially offset by a slight decrease in occupancy at Twin Lakes. The decrease in total expenses is primarily the result of a decrease in interest expense and general and administrative expense, which were partially offset by a slight increase in operating, depreciation and property tax expense. 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 property improvements and replacements placed in service at the two remaining properties during the year ended December 31, 2000. Property tax expense increased as a result of an increase in the assessment value of Twin Lakes Apartments by the taxing authorities. The increase in operating expense is due primarily to increases in salaries and related employee benefits at both residential properties. Also included in general and administrative expenses for the years ended December 31, 2000 and 1999 are costs associated with the quarterly and annual communications with investors and regulatory agencies. 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 At December 31, 2000 the Partnership had approximately $659,000 of cash and cash equivalents. During the year ended December 31, 2000, the Partnership refinanced the mortgage encumbering the Registrant's investment properties as discussed below. At December 31, 1999 all of the Partnership's cash was restricted pursuant to the terms of the previous mortgage loan which encumbered the Partnership's properties. The increase in cash and cash equivalents of approximately $659,000 for the year ended December 31, 2000 is due to approximately $1,156,000 of cash provided by operating activities which was partially offset by approximately $364,000 of cash used in investing activities and approximately $133,000, of cash used in financing activities. Cash used by investing activities consisted of property improvements and replacements partially offset by withdrawals from restricted escrows. Cash used in financing activities consisted primarily of the repayment of the mortgage encumbering the Partnership's investment properties, distributions to the partners, loan costs paid and payments of principle made on the mortgage encumbering the Partnership's investment properties, partially offset by the proceeds from the new loans obtained on each of the Partnership's remaining two investment properties. The Partnership invests its working capital reserves in interest bearing accounts. 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 amount to be budgeted is expected to be $275 per unit or $114,400. 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 capital expenditures will be incurred only if cash is available from operations or from Partnership reserves. To the extent that such budgeted capital improvements are completed, the Registrant's distributable cash flow, if any may be adversely affected at least in the short term. The Registrant's current assets are thought to be sufficient for any near-term needs (exclusive of capital improvements) of the Registrant. The total mortgage indebtedness of $11,023,000 requires monthly payments due on the first day of each month until September 1, 2020 at which time the loans are scheduled to be fully amortized. On August 31, 2000, the Partnership refinanced its mortgage note payable encumbering the Partnership as a whole with individual mortgages on each property. The refinancing replaced mortgage indebtedness of $3,517,000 with a rate of 10% which encumbered both of the Partnership's investment properties. The new mortgage for Governor's Park Apartments was for $3,800,000 at a rate of 7.93%. Payments of approximately $32,000 are due on the first day of each month until the loan matures on September 1, 2020 at which time the loan is scheduled to be fully amortized. The new mortgage for Twin Lakes Apartments was for $7,280,000 at a rate of 7.98%. Payments of approximately $61,000 are due on the first day of each month until the loan matures on September 1, 2020 at which time the loan is scheduled to be fully amortized. Capitalized loan costs of approximately $301,000 were incurred as a result of the refinancing. Prepayment penalties are required on both new mortgages if repaid prior to maturity. The Corporate General Partner received approximately $111,000 which is included in the capitalized loan costs as a 1% fee for its assistance in obtaining the refinancing in accordance with the terms of the Partnership Agreement. 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. During the year ended December 31, 2000 the Partnership paid distributions of approximately $7,045,000 (approximately $7,033,000 to the limited partners or $5.76 per depositary unit) consisting of cash from operations of approximately $620,000 (approximately $608,000 to the limited partners or $0.50 per depositary unit) and cash from refinance proceeds all paid to the limited partners of approximately $6,425,000 (approximately $5.26 per depositary unit). Future cash distributions will depend on the level of net cash generated from operations, the availability of cash reserves and the timing of debt maturities, refinancings, and/or property sales. The Partnership's distribution policy is reviewed on a quarterly basis. There can be no assurance that the Partnership will generate sufficient funds from operations after required capital expenditures, to permit any distributions to its partners in 2001 or subsequent periods. In addition to its indirect ownership of the Corporate General Partner interest in the Partnership, AIMCO and its affiliates currently own 650,274 depositary unit certificates in the Partnership representing 53.21% of the outstanding units. A number of these units were acquired pursuant to tender offers made by AIMCO or its affiliates. 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 which would include without limitation, voting on certain amendments to the Partnership Agreement and voting to remove the Corporate General Partner. As a result of its ownership of 53.21% of the outstanding units, AIMCO is in a position to influence all voting decisions with respect to the Registrant. 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 7. Financial Statements U.S. REALTY PARTNERS LIMITED PARTNERSHIP LIST OF FINANCIAL STATEMENTS Report of Ernst & Young LLP, Independent Auditors Balance Sheet - December 31, 2000 Statements of Operations - Years ended December 31, 2000 and 1999 Statements of Changes in Partners' (Deficit) Capital - Years ended December 31, 2000 and 1999 Statements of Cash Flows - Years ended December 31, 2000 and 1999 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, 2000, 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, 2000. 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 financial statements referred to above present fairly, in all material respects, the financial position of U. S. Realty Partners Limited Partnership at December 31, 2000, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. /s/ERNST & YOUNG LLP Greenville, South Carolina February 22, 2001 U.S. REALTY PARTNERS LIMITED PARTNERSHIP BALANCE SHEET (in thousands, except unit data) December 31, 2000
Assets Cash and cash equivalents $ 659 Receivables and deposits 29 Restricted escrows 137 Other assets 334 Investment properties (Notes E & I): Land $ 2,123 Buildings and related personal property 16,071 18,194 Less accumulated depreciation (7,292) 10,902 $ 12,061 Liabilities and Partners' Deficit Liabilities Accounts payable $ 218 Tenant security deposit liabilities 68 Accrued property taxes 63 Other liabilities 189 Due to Corporate General Partner 620 Mortgage notes payable (Note E) 11,023 Partners' Deficit General partners $ (4) Depositary unit certificate holders (2,440,000 units authorized; 1,222,000 units issued and outstanding) (116) (120) $ 12,061
See Accompanying Notes to Financial Statements U.S. REALTY PARTNERS LIMITED PARTNERSHIP STATEMENTS OF OPERATIONS (in thousands, except unit data) Years Ended December 31, 2000 1999 Revenues: Rental income $2,983 $2,930 Other income 180 175 Total revenues 3,163 3,105 Expenses: Operating 1,155 1,096 General and administrative 166 184 Depreciation 541 489 Interest 670 967 Property taxes 256 241 Total expenses 2,788 2,977 Income from continuing operations 375 128 Income from discontinued operations -- 256 Gain on sale of discontinued operations -- 4,626 Net income $ 375 $5,010 Net income allocated to general partners $ 4 $ 451 Net income allocated to depositary unit certificate holders 371 4,559 $ 375 $5,010 Net income per depositary unit certificate: Income from continuing operations $ .30 $ .10 Income from discontinued operations -- .21 Gain on sale of discontinued operations -- 3.42 $ .30 $ 3.73 Distributions per depositary unit certificate $ 5.76 $ -- 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, 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 Distributions to partners -- (12) (7,033) (7,045) Net income for the year ended December 31, 2000 -- 4 371 375 Partners' deficit at December 31, 2000 1,222,000 $ (4) $ (116) $ (120)
See Accompanying Notes to Financial Statements U.S. REALTY PARTNERS LIMITED PARTNERSHIP STATEMENTS OF CASH FLOWS (in thousands)
Years Ended December 31, 2000 1999 Cash flows from operating activities: Net income $ 375 $ 5,010 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 541 598 Amortization of loan costs and lease commissions 4 4 Bad debt expense -- 190 Gain on sale of discontinued operations -- (4,626) Change in accounts: Restricted cash 512 45 Receivables and deposits 127 74 Other assets 4 (19) Accounts payable (102) 138 Tenant security deposit liabilities 10 (62) Accrued property taxes (7) (133) Due to Corporate General Partner 24 36 Other liabilities (332) (49) Net cash provided by operating activities 1,156 1,206 Cash flows from investing activities: Net proceeds from sale of investment property -- 16,066 Property improvements and replacements (510) (489) Net withdrawals from (deposits to) restricted escrows 146 (11) Net cash (used in) provided by investing activities (364) 15,566 Cash flows from financing activities: Payments on mortgage notes payable (350) (897) Proceeds from mortgage notes payable 11,080 -- Repayment of mortgage note payable (3,517) (15,875) Distribution to partners (7,045) -- Loan costs paid (301) -- Net cash used in financing activities (133) (16,772) Net increase in cash and cash equivalents 659 -- Cash and cash equivalents at beginning of period -- -- Cash and cash equivalents at end of period $ 659 $ -- Supplemental disclosure of cash flow information: Cash paid for interest $ 962 $ 953 Supplemental disclosure of Non-Cash Information: Fixed assets in accounts payable $ 167 $ --
See Accompanying Notes to Financial Statements U. S. REALTY PARTNERS LIMITED PARTNERSHIP Notes to Financial Statements December 31, 2000 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 Corporate General Partner is a subsidiary of Apartment Investment and Management Company ("AIMCO"). See "Note B - Transfer of Control". 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 and AIMCO. 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. 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. The balance at December 31, 2000, including accrued interest is approximately $620,000. Allocation of Profits, Gains and Losses: Profits, gains and losses of the Partnership are allocated between the Corporate General Partners 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 Partners. Income (loss) from operations per DUC for the years ended December 31, 2000 and 1999, 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, 2000 and 1999. 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 to maturity 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. Loan Costs: Loan costs of approximately $301,000 less accumulated amortization of $4,000, are included in other assets and are being amortized on a straight-line basis over the life of the loans. Amortization: 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. 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. Cash and Cash Equivalents - Cash and cash equivalents include cash on hand and in banks and money market accountants. At certain times, the amount of cash deposited at a bank may exceed the limit on insured deposits. Cash balances include approximately $566,000 at December 31, 2000, that are maintained by the affiliated management company on behalf of affiliated entities in cash concentration accounts. Tenant Security Deposits - The Partnership requires security deposits from all apartment lessees for the duration of the lease. The security deposits are refunded when the tenant vacates provided the tenant has not damaged the apartment and is current on rental payments. Restricted Escrows Capital Improvement Account - In connection with the October 1993 debt refinancing the Partnership established an interest bearing bank account for the purpose of deposit and expenditure of cash flow for Capital Expenditures. The Partnership was required to 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 was able to withdraw any amounts on deposit in the Capital Expenditures Account to pay for Capital Expenditures as they were made, provided the amount of such withdrawals had been approved in advance by the Surety. During 2000 the Partnership refinanced the debt encumbering its properties (see "Note E") and accordingly, was released from the requirement to maintain this account. All funds remaining in the account were paid to the Partnership during 2000. Working Capital Account - In connection with the October 1993 debt refinancing the Partnership established the "Working Capital Account" for the purpose of providing a cash reserve available to the Partnership. 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 held the funds in the Working Capital Account for the benefit of the Surety. The Partnership had 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 was to be used to fund negative cash flow, or emergency or immediate funding needs of a property. During 2000 the Partnership refinanced the debt encumbering its properties (see "Note E") and accordingly, was released from the requirement to maintain this account. All funds remaining in the account were paid to the Partnership during 2000. Completion Repair Account - In connection with the refinancing in August 2000 on Governor's Park approximately $137,000 of the proceeds were designated for a completion repair account. As the property completes the designated repairs these funds will be released. At December 31, 2000, the balance in this account was approximately $137,000. Segment Reporting: 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 J" for required disclosures. Advertising: The Partnership expenses the costs of advertising as incurred. Advertising expense, included in operating expense, was approximately $43,000 and $60,000 for the years ended December 31, 2000 and 1999, respectively. 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 - Reconciliation of Cash Flow The following is a reconciliation of the subtotal on the accompanying statements of cash flows captioned "net cash provided by operating activities" to "net cash provided by operations", as defined in the Partnership Agreement. However, "net cash used in operations" should not be considered an alternative to net income as an indicator of the Partnership's operating performance or to cash flows as a measure of liquidity. For the Year Ended December 31, 2000 1999 (in thousands) Net cash provided by operating activities $ 1,156 $ 1,206 Payments on mortgage notes payable (350) (897) Property improvements and replacements (510) (489) Change in restricted escrows, net 146 (11) Changes in reserves for net operating liabilities (236) (30) Additional reserves (206) 221 Net cash provided by operations $ -- $ -- The Corporate General Partner reserved approximately $206,000 at December 31, 2000 to fund capital improvements and repairs at the Partnership's two remaining investment properties. During the year ended December 31, 1999 approximately $221,000 of previously reserved funds were released. During the year ended December 31, 2000, the mortgage debt encumbering the Partnership's investment properties was refinanced as discussed in "Note E". For the year ended December 31, 1999 the Partnership considered all cash to be restricted for tenant security deposits and for the purpose of the deposit of Net Cash Flow, as defined by the debt restructuring in October of 1993. Note D - Discontinued Operations 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 H"). 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 $73,000 was paid to the Corporate General Partner (see "Note H"). 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 for 1999. Income from discontinued operations was approximately $256,000 for 1999. Note E - Mortgage Notes Payable The principle terms of the notes payable are as follows:
Principal Monthly Principal Balance At Payment Stated Balance December 31, Including Interest Maturity Due At 2000 Interest Rate Date Maturity (in thousands) Twin Lakes $ 7,243 $ 62 7.98% 09/01/2020 -- Governor's Park 3,780 32 7.93% 09/01/2020 -- $11,023 $ 94
On August 31, 2000, the Partnership refinanced its mortgage note payable encumbering the Partnership as a whole with individual mortgages on each property. The refinancing replaced mortgage indebtedness of $3,517,000 with a rate of 10% which encumbered both of the Partnership's investment properties. The new mortgage for Governor's Park Apartments was for $3,800,000 at a rate of 7.93%. Payments of approximately $32,000 are due on the first day of each month until the loan matures on September 1, 2020 at which time the loan is scheduled to be fully amortized. The new mortgage for Twin Lakes Apartments was for $7,280,000 at a rate of 7.98%. Payments of approximately $61,000 are due on the first day of each month until the loan matures on September 1, 2020 at which time the loan is scheduled to be fully amortized. Capitalized loan costs of approximately $301,000 were incurred as a result of the refinancing. Prepayment penalties are required on both new mortgages if repaid prior to maturity. The Corporate General Partner received approximately $111,000 included in the capitalized loan costs as a 1% fee for its assistance in obtaining the refinancing in accordance with the terms of the Partnership Agreement. The mortgage notes payable are nonrecourse and are secured by pledge of the Partnership's rental properties and by pledge of revenues from the rental properties. The investment properties may not be sold subject to the existing indebtedness. Scheduled principal payments of the mortgage notes payable subsequent to December 31, 2000 are as follows (in thousands): 2001 $ 240 2002 260 2003 281 2004 304 2005 330 Thereafter 9,608 $11,023 Note F - Distributions During the year ended December 31, 2000 the Partnership paid distributions of approximately $7,045,000 (approximately $7,033,000 to the limited partners or $5.76 per depositary unit) consisting of cash from operations of approximately $620,000 (approximately $608,000 to the limited partners or $0.50 per depositary unit) and cash from refinance proceeds all paid to the limited partners of approximately $6,425,000 (approximately $5.26 per depositary unit). Note G - 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 and Federal taxable income (in thousands except per unit data): Years Ended December 31, 2000 1999 Net income as reported $ 375 $ 5,010 Add (deduct): Depreciation differences (229) (374) Difference in bad debt expense (4) (286) Difference in rents recognized (14) 197 Change in prepaid rentals (20) 37 Gain on sale of discontinued operations -- (3,212) Other (18) 73 Federal taxable income $ 90 $1,445 Federal taxable income per DUC $ 0.07 $ 1.17 The following is a reconciliation between the Partnership's reported amounts and Federal tax basis of net liabilities (in thousands): Net liabilities as reported $ (120) Land and buildings 1,317 Accumulated depreciation (5,875) Syndication 2,774 Other 133 Net liabilities - tax basis $(1,771) Note H - 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, 2000 and 1999: 2000 1999 (in thousands) Property management fees (included in operating expenses) expenses) $156 $153 Reimbursement for services of affiliates (included in operating, general and administrative expenses, and investment properties) 89 83 Real estate brokerage commissions (included in gain on sale of discontinued operations) -- 166 Due to Corporate General Partner 620 596 Loan costs (included in other assets) 111 -- During the years ended December 31, 2000 and 1999, 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 approximately $156,000 and $153,000 for the years ended December 31, 2000 and 1999, respectively. An affiliate of the Corporate General Partner received reimbursement of accountable administrative expenses amounting to approximately $89,000 and $83,000 for the year ended December 31, 2000 and 1999, respectively. In connection with the August 2000 refinancing of the debt encumbering the Partnership and its properties, the Corporate General Partner was entitled to a fee of 1% of the new debt obtained. Accordingly, approximately $111,000 was paid during September 2000 (see "Note E - Mortgage Notes Payable"). 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 $73,000 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 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. In addition to its indirect ownership of the Corporate General Partner interest in the Partnership, AIMCO and its affiliates currently own 650,274 depositary unit certificates in the Partnership representing 53.21% of the outstanding units. A number of these units were acquired pursuant to tender offers made by AIMCO or its affiliates. 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 which would include without limitation, voting on certain amendments to the Partnership Agreement and voting to remove the Corporate General Partner. As a result of its ownership of 53.21% of the outstanding units, AIMCO is in a position to influence all voting decisions with respect to the Registrant. 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 I - Real Estate and Accumulated Depreciation Investment Properties
Initial Cost To Partnership (in thousands) Buildings Cost and Related Capitalized Personal Subsequent to Description Encumbrances Land Property Acquisition (in thousands) (in thousands) Governor's Park Apartments Little Rock, Arkansas $ 3,780 $ 423 $ 5,701 $ 318 Twin Lakes Apartments Palm Harbor, Florida 7,243 1,928 9,283 541 Totals $11,023 $2,351 $14,984 $ 859
Gross Amount At Which Carried At December 31, 2000 (in thousands) Buildings and Related Personal Accumulated Date of Date Depreciable Description Land Property Total Depreciation Construction Acquired Life-Years Governor's Park 423 $ 6,019 $ 6,442 $ 2,948 1985 08/29/86 5-35 Twin Lakes 1,700 10,052 11,752 4,344 1986 08/28/86 5-35 Totals $2,123 $16,071 $18,194 $ 7,292
Reconciliation of "Real Estate and Accumulated Depreciation": Years Ended December 31, 2000 1999 (in thousands) Real Estate Balance at beginning of year $ 17,517 $ 33,460 Property improvements 677 489 Disposals of property -- (16,432) Balance at end of year $ 18,194 $ 17,517 Accumulated Depreciation Balance at beginning of year $ 6,751 $ 11,380 Additions charged to expense 541 598 Disposals of property -- (5,227) Balance at end of year $ 7,292 $ 6,751 The aggregate cost of the real estate for Federal income tax purposes at December 31, 2000 and 1999, is approximately $19,512,000 and $18,835,000 respectively. The accumulated depreciation taken for Federal income tax purposes at December 31, 2000 and 1999, is approximately $13,168,000 and $12,397,000, respectively. Note J - 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 one each 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, 2000 and 1999 is shown in the tables below. The "Other" column includes partnership administration related items and income and expense not allocated to the reportable segment. 2000 Residential Other Totals (in thousands) Rental income $ 2,983 $ -- $ 2,983 Other income 148 32 180 Interest expense 300 370 670 Depreciation 541 -- 541 General and administrative expense -- 166 166 Segment profit (loss) 879 (504) 375 Total assets 12,025 36 12,061 Capital expenditures for investment properties 677 -- 677
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
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 43 Executive Vice President and Director Martha L. Long 41 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 since October 1998 as a result of the acquisition of Insignia Financial Group, Inc. As of February 2001, Ms. Long was also appointed head of the service business for AIMCO. 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. One or more of the above persons are also directors and/or officers of a general partner (or general partner of a general partner) of limited partnerships which either have a class of securities registered pursuant to Section 12(g) of the Securities Exchange Act of 1934, or are subject to the reporting requirements of Section 15(d) of such Act: Further, one or more of the above persons are also directors and/or officers of Apartment Investment and Management Company and the general partner of AIMCO Properties, L.P., entities that have a class of securities registered pursuant to Section 12(g) of the Securities Exchange Act of 1934, or are subject to the reporting requirements of Section 15 (d) of such Act. The executive officers and director of the Corporate General Partner fulfill the obligations of the Audit Committee and oversee the Partnership's financial reporting process on behalf of the Corporate General Partner. Management has the primary responsibility for the financial statements and the reporting process including the systems of internal controls. In fulfilling its oversight responsibilities, the executive officers and director of the Corporate General Partner reviewed the audited financial statements with management including a discussion of the quality, not just the acceptability, of the accounting principles, the reasonableness of significant judgments, and the clarity of disclosures in the financial statements. The executive officers and director of the Corporate General Partner reviewed with the independent auditors, who are responsible for expressing an opinion on the conformity of those audited financial statements with generally accepted accounting principles, their judgments as to the quality, not just the acceptability, of the Partnership's accounting principles and such other matters as are required to be discussed with the Audit Committee or its equivalent under generally accepted auditing standards. In addition, the Partnership has discussed with the independent auditors the auditors' independence from management and the Partnership including the matters in the written disclosures required by the Independence Standards Board and considered the compatibility of non-audit services with the auditors' independence. The executive officers and director of the Corporate General Partner discussed with the Partnership's independent auditors the overall scope and plans for their audit. In reliance on the reviews and discussions referred to above, the executive officers and director of the Corporate General Partner has approved the inclusion of the audited financial statements in the Form 10-KSB for the year ended December 31, 2000 for filing with the Securities and Exchange Commission. The Managing General Partner has reappointed Ernst & Young LLP as independent auditors to audit the financial statements of the Partnership for the current fiscal year. Fees for the last fiscal year were annual audit service of approximately $30,000 and non-audit services (principally tax-related) of approximately $14,000. 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, 2000. Entity Number of DUCs Percentage AIMCO Properties, LP 650,274 53.21% (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, 2000 and 1999: 2000 1999 (in thousands) Property management fees $156 $153 Reimbursement for services of affiliates 89 83 Real estate brokerage commissions -- 166 Due to Corporate General Partner 620 596 Loan costs 111 -- During the years ended December 31, 2000 and 1999, 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 approximately $156,000 and $153,000 for the years ended December 31, 2000 and 1999, respectively. An affiliate of the Corporate General Partner received reimbursement of accountable administrative expenses amounting to approximately $89,000 and $83,000 for the year ended December 31, 2000 and 1999, respectively. In connection with the August 2000 refinancing of the debt encumbering the Partnership and its properties, the Corporate General Partner was entitled to a fee of 1% of the new debt obtained. Accordingly, approximately $111,000 was paid during September 2000. 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 $73,000 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 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. In addition to its indirect ownership of the Corporate General Partner interest in the Partnership, AIMCO and its affiliates currently own 650,274 depositary unit certificates in the Partnership representing 53.21% of the outstanding units. A number of these units were acquired pursuant to tender offers made by AIMCO or its affiliates. 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 which would include without limitation, voting on certain amendments to the Partnership Agreement and voting to remove the Corporate General Partner. As a result of its ownership of 53.21% of the outstanding units, AIMCO is in a position to influence all voting decisions with respect to the Registrant. 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: None. (b) Reports on Form 8-K filed in the fourth quarter of calendar year 2000: Current report on Form 8-K dated August 28, 2000 and filed on November 27, 2000 in connection with the refinancing of Governor's Park Apartments and Twin Lakes Apartments. 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: March 29, 2001 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: March 29, 2001 Patrick J. Foye Executive Vice President and Director By: /s/Martha L. Long Date: March 29, 2001 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). (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. * (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) 10.23Multifamily Note dated August 28, 2000 between US Realty Partners Limited Partnership, a South Carolina Limited Partnership, and GMAC Commercial Mortgage Corporation for refinance of Governor's Park Apartments (Filed November 27, 2000) 10.24Multifamily Note dated August 28, 2000 between US Realty Partners Limited Partnership, a South Carolina Limited Partnership and GMAC Commercial Mortgage Corporation for refinance of Twin Lakes Apartments (Filed November 27, 2000) * Filed as Exhibits 10iii (a) through (m) to Form 10QSB for the quarter ended September 30, 1993 and incorporated herein by reference. 99 Prospectus of Registrant dated August 19, 1986 (included in Registration Statement, No. 33-2996, of Registrant and incorporated herein by reference). -----END PRIVACY-ENHANCED MESSAGE-----