10QSB 1 usrp.txt USRP FORM 10-QSB-QUARTERLY OR TRANSITIONAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Quarterly or Transitional Report U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-QSB (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2001 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________to _________ Commission file number 0-15656 U.S. REALTY PARTNERS LIMITED PARTNERSHIP (Exact name of small business issuer as specified 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) (864) 239-1000 (Issuer's telephone number) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act 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___ PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS a) U.S. REALTY PARTNERS LIMITED PARTNERSHIP BALANCE SHEET (Unaudited) (in thousands, except unit data) September 30, 2001
Assets Cash and cash equivalents $ 102 Receivables and deposits 5 Restricted escrows 140 Other assets 358 Investment properties: Land $ 2,123 Buildings and related personal property 16,274 18,397 Less accumulated depreciation (7,720) 10,677 $11,282 Liabilities and Partners' Deficit Liabilities Accounts payable $ 16 Tenant security deposit liabilities 81 Accrued property taxes 257 Other liabilities 178 Due to Corporate General Partner 44 Mortgage notes payable 10,845 Partners' Deficit General partners $ (4) Depositary unit certificate holders (2,440,000 units authorized; 1,222,000 units issued and outstanding) (135) (139) $11,282 See Accompanying Notes to Financial Statements
b) U.S. REALTY PARTNERS LIMITED PARTNERSHIP STATEMENTS OF OPERATIONS (Unaudited) (in thousands, except per unit data)
Three Months Ended Nine Months Ended September 30, September 30, 2001 2000 2001 2000 Revenues: Rental income $ 693 $ 753 $ 2,175 $ 2,247 Other income 54 62 148 131 Total revenues 747 815 2,323 2,378 Expenses: Operating 346 279 923 854 General and administrative 30 55 119 149 Depreciation 142 136 428 405 Interest 222 207 678 439 Property taxes 59 77 194 206 Total expenses 799 754 2,342 2,053 Net (loss) income $ (52) $ 61 $ (19) $ 325 Net income allocated to general partners (1%) $ -- $ -- $ -- $ 3 Net (loss) income allocated to depositary unit certificate holders (99%) (52) 61 (19) 322 $ (52) $ 61 $ (19) $ 325 Net (loss) income per depositary unit certificate $ (.04) $ .05 $ (.02) $ .26 Distribution per depositary unit certificate $ -- $ 5.76 $ -- $ 5.76 See Accompanying Notes to Financial Statements
c) U.S. REALTY PARTNERS LIMITED PARTNERSHIP STATEMENT OF CHANGES IN PARTNERS' DEFICIT (Unaudited) (in thousands, except unit data)
Depositary Depositary Unit Unit General Certificate Certificates Partners Holders Total Original capital contributions 1,222,000 $ 2 $30,550 $30,552 Partners' deficit at December 31, 2000 1,222,000 $ (4) $ (116) $ (120) Net loss for the nine months ended September 30, 2001 -- -- (19) (19) Partners' deficit at September 30, 2001 1,222,000 $ (4) $ (135) $ (139) See Accompanying Notes to Financial Statements
d) U.S. REALTY PARTNERS LIMITED PARTNERSHIP STATEMENTS OF CASH FLOWS (Unaudited) (in thousands)
Nine Months Ended September 30, 2001 2000 Cash flows from operating activities: Net (loss) income $ (19) $ 325 Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities: Depreciation 428 405 Amortization of loan costs 11 1 Change in accounts: Restricted cash -- 512 Receivables and deposits 24 (131) Other assets (35) (8) Accounts payable (35) (110) Tenant security deposit liabilities 13 6 Accrued property taxes 194 142 Due to Corporate General Partner (319) 16 Other liabilities (11) (345) Net cash provided by operating activities 251 813 Cash flows from investing activities: Property improvements and replacements (370) (406) Net (deposits to) withdrawals from restricted escrows (3) 145 Net cash used in investing activities (373) (261) Cash flows from financing activities: Payments on mortgage notes payable (178) (293) Principal payments on due to Corporate General Partner (257) -- Repayment of mortgage note payable -- (3,517) Proceeds from mortgage note payable -- 11,080 Distribution to partners -- (7,045) Loan costs paid -- (310) Net cash used in financing activities (435) (85) Net (decrease) increase in cash and cash equivalents (557) 467 Cash and cash equivalents at beginning of period 659 -- Cash and cash equivalents at end of period $ 102 $ 467 Supplemental disclosure of cash flow information: Cash paid for interest $ 987 $ 740 At December 31, 2000 and September 30, 2001, accounts payable and property improvements and replacements were adjusted by approximately $167,000 for non-cash activity. See Accompanying Notes to Financial Statements
e) U.S. REALTY PARTNERS LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS (Unaudited) September 30, 2001 Note A - Basis of Presentation The accompanying unaudited financial statements of U.S. Realty Partners Limited Partnership (the "Partnership" or "Registrant") have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB and Item 310 (b) of Regulation S-B. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. 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"), a publicly traded real estate investment trust. In the opinion of the Corporate General Partner, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine month periods ended September 30, 2001, are not necessarily indicative of the results that may be expected for the year ending December 31, 2001. For further information, refer to the financial statements and footnotes thereto included in the Partnership's Annual Report on Form 10-KSB for the year ended December 31, 2000. Segment Reporting: Statement of Financial Accounting 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. As defined in SFAS No. 131, the Partnership has only one reportable segment. Moreover, due to the very nature of the Partnership's operations, the Corporate General Partner believes that segment-based disclosures will not result in a more meaningful presentation than the financial statements as presently presented. Note B - Refinance of Partnership Debt On August 31, 2000, the Partnership refinanced its mortgage note payable with Continental Casualty Consultants with a new mortgage from GMAC. 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 will 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 will be fully amortized. Capitalized loan costs of approximately $310,000 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. Note C - Reconciliation of Cash Flow As required by the Partnership Agreement, the following is a reconciliation of "Net cash provided by" in the accompanying consolidated statements of cash flows to "Net cash from operations," as defined in the Partnership Agreement.
For the Nine Months Ended September 30, 2001 2000 (in thousands) Net cash provided by operating activities $ 251 $ 813 Payments on mortgage notes payable (178) (293) Principal payments on due to Corporate General Partner (257) -- Property improvements and replacements (370) (406) Change in restricted escrows, net (3) 145 Changes in reserves for net operating liabilities (assets) 426 (82) Additional reserves 131 (177) Net cash provided by operations $ -- $ --
During the nine months ended September 30, 2001, the Corporate General Partner released previously reserved funds of approximately $131,000. During the nine months ended September 30, 2000, the Corporate General Partner reserved approximately $177,000 to fund capital improvements and repairs at the Partnership's two investment properties. Note D - 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 were paid or accrued to the Corporate General Partner and its affiliates during the nine months ended September 30, 2001 and 2000: 2001 2000 (in thousands) Property management fees (included in operating expenses) $119 $116 Reimbursement for services of affiliates (included in general and administrative, operating expenses and investment properties) 87 63 Due to Corporate General Partner 44 612 Loan costs (included in other assets) -- 111 During the nine months ended September 30, 2001 and 2000, 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 $119,000 and $116,000 for the nine months ended September 30, 2001 and 2000, respectively. An affiliate of the Corporate General Partner received reimbursement of accountable administrative expenses amounting to approximately $87,000 and $63,000 for the nine months ended September 30, 2001 and 2000, respectively. Included in these amounts are approximately $29,000 and $14,000, respectively, at construction service fees. In connection with the 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 B - Refinance of Partnership Debt"). In addition to its indirect ownership of the Corporate General Partner interest in the Partnership, AIMCO and its affiliates currently own 735,685 depositary unit certificates in the Partnership representing 60.20% 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. In this regard, on September 4, 2001, AIMCO Properties, LP, commenced a tender offer to acquire any and all of the Units not owned by affiliates of AIMCO for a purchase price of $1 per Unit. Pursuant to this offer AIMCO acquired an additional 700 Units when the offer expired subsequent to September 30, 2001. 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 60.20% of the outstanding units, AIMCO is in a position to control 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 its affiliation with the Corporate General Partner. Note E - Distributions No distributions were declared or paid during the nine months ended September 30, 2001. During the nine months ended September 30, 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). Item 2. Management's Discussion and Analysis or Plan of Operation The matters discussed in this Form 10-QSB 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-QSB 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. The Partnership's investment properties consist of two apartment complexes. The following table sets forth the average occupancy of the properties for the nine months ended September 30, 2001 and 2000: Average Occupancy Property 2001 2000 Twin Lakes Apartments Palm Harbor, Florida 94% 96% Governor's Park Apartments Little Rock, Arkansas 94% 95% Results of Operations The Registrant's net loss for the three and nine months ended September 30, 2001 was approximately $52,000 and $19,000, respectively, as compared to approximately $61,000 and $325,000 of net income for the three and nine months ended September 30, 2000, respectively. The increase in net loss for the three and nine months ended September 30, 2001 is primarily attributable to an increase in total expenses and a decrease in total revenues. The increase in total expenses for the three and nine months ended September 30, 2001 is due primarily to an increase in operating, interest and depreciation expenses which were partially offset by a decrease in general and administrative expenses and property tax expense. Operating expense increased due to an increase in property and maintenance expense at Governor's Park Apartments and an increase in insurance premiums at Twin Lakes Apartments. Property expenses increased as a result of an increase in employee salaries and related benefits and an increase in utility costs as a result of vacant apartments at Governor's Park Apartments. Maintenance expense increased as a result of the increase in contract labor used for cleaning, painting, and yard and ground care at the property. Insurance expense increased at Twin Lakes Apartments due to the increase in insurance premiums at the property. Interest expense increased due to the refinancing of the consolidated mortgage encumbering the investment properties during the third quarter of 2000 and obtaining separate mortgages for each property. Depreciation expense increased due to property improvements and replacements placed in service during the past twelve months at the investment properties which are now being depreciated. The decrease in property tax expense for both periods is the result of changes in assessed values of the investment properties and the timing and receipt of invoices from the taxing authorities. General and administrative expense decreased due to a decrease in legal, professional and audit expenses partially offset by an increase in management reimbursements allowed under the Partnership Agreement. Also included in general and administrative expenses are costs associated with the quarterly and annual communications with investors and regulatory agencies. The decrease in total revenues for the three and nine months ended September 30, 2001 is primarily attributable to a decrease in rental income. Rental income decreased primarily due to a decrease in the occupancy levels and an increase in concessions at both investment properties. The decrease in rental income was largely offset by an increase in average rental rates at both investment properties. Other income increased for the nine months ended September 30, 2001 due to increased utilities reimbursements and collections of lease cancellation fees at Twin Lakes Apartments which was partially offset by a decrease in interest income at the Partnership due to a decrease in average cash balances held in interest bearing accounts. 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 September 30, 2001, the Partnership had cash and cash equivalents of approximately $102,000 versus approximately $467,000 at September 30, 2000. The decrease in cash and cash equivalents of approximately $557,000 for the nine months ended September 30, 2001, from the Partnership's calendar year end is due to approximately $373,000 of cash used in investing activities and approximately $435,000 of cash used in financing activities partially offset by approximately $251,000 of cash provided by operating activities. Cash used in investing activities consisted of property improvements and replacements and, to a lesser extent, net deposits to restricted escrows. Cash used in financing activities consisted of payments made on mortgages encumbering the Partnership's properties and principal payments on amounts due to the Corporate General Partner. 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 Partnership and to comply with Federal, State, and local legal and regulatory requirements. Capital improvements planned for each of the Registrant's properties are detailed below. Governor's Park Apartments The Partnership completed approximately $55,000 in budgeted and non-budgeted capital expenditures at Governor's Park Apartments during the nine months ended September 30, 2001, consisting primarily of plumbing improvements, structural improvements, floor covering and appliance replacements, wall coverings and fencing. These improvements were funded with cash from operations. The Partnership has budgeted, but is not limited to, approximately $45,000 for capital improvements during 2001 consisting primarily of floor covering and appliance replacements, air conditioning improvements, major landscaping, and other building improvements. Twin Lakes Apartments The Partnership completed approximately $148,000 in capital expenditures at Twin Lake Apartments during the nine months ended September 30, 2001, consisting primarily of office computers, air conditioning improvements, roof replacements, floor covering and appliance replacements, and other building improvements. These improvements were funded with cash from operations. The Partnership has budgeted, but is not limited, to approximately $164,000 for capital improvements during 2001 consisting primarily of roof replacements, water heater replacements, floor covering and appliance replacement and interior decoration. The additional 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 Partnership'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 approximately $10,845,000 requires monthly payments due on the first day of each month until the loans mature on September 1, 2020 at which time the loans are scheduled to be fully amortized. The Corporate General Partner will attempt to refinance such indebtedness and/or sell the properties prior to such maturity date. There were no distributions declared or paid during the nine months ended September 30, 2001. During the nine months ended September 30, 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). The Registrant's distribution policy is reviewed on a monthly basis. Future cash distributions will depend on the levels of net cash generated from operations, the availability of cash reserves, and the timing of the debt maturities, refinancings and/or property sales. There can be no assurance, however, that the Registrant will generate sufficient funds from operations after required capital expenditures to permit distributions to its partners during the remainder of 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 735,685 depositary unit certificates in the Partnership representing 60.20% 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. In this regard, on September 4, 2001, AIMCO Properties, LP, commenced a tender offer to acquire any and all of the Units not owned by affiliates of AIMCO for a purchase price of $1 per Unit. Pursuant to this offer AIMCO acquired an additional 700 Units when the offer expired subsequent to September 30, 2001. 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 60.20% of the outstanding units, AIMCO is in a position to control 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 its affiliation with the Corporate General Partner. PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a) Exhibits: None. b) Reports on Form 8-K filed during the quarter ended September 30, 2001: None. SIGNATURES In accordance with the requirements 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: October 30, 2001