10KSB 1 usrp.txt USRP 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, 2001 [] 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. $3,110,000 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, 2001. 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"), a publicly traded real estate investment trust. The other general partner is 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, 2001 and 2000. 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. 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 Apartments $ 6,518 $ 3,149 5-35 S/L $ 1,598 Twin Lakes Apartments 11,890 4,714 5-35 S/L 4,173 $18,408 $ 7,863 $ 5,771
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 2001 Rate Amortized Date Maturity (in thousands) Governor's Park Apartments (1) $ 3,698 7.93% 240 months 09/01/2020 $ -- Twin Lakes Apartments (1) 7,085 7.98% 240 months 09/01/2020 -- $10,783
(1) See Item 7, Financial Statements - Note C 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 during 2000 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 2001 and 2000 for each property is as follows:
Average Annual Average Annual Rental Rates Occupancy (per unit) Property 2001 2000 2001 2000 Governor's Park Apartments $7,185 $7,026 94% 95% Twin Lakes Apartments 7,975 7,919 95% 96%
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 2001 for each property were as follows: 2001 2001 Billing Rate (in thousands) Governor's Park Apartments $ 68 6.80% Twin Lakes Apartments 198 2.10% Capital Improvements: Governor's Park Apartments The Partnership completed approximately $76,000 in capital expenditures at Governor's Park Apartments during the year ended December 31, 2001, consisting primarily of plumbing improvements, structural improvements, floor covering and appliance replacements, wall coverings and fencing. These improvements were funded with cash from Partnership reserves and operations. The Partnership is currently evaluating the capital improvement needs of the property for the upcoming year. The minimum amount to be budgeted is expected to be $300 per unit or $46,200. Additional improvements may be considered and will depend on the physical condition of the property as well as anticipated cash flow generated by the property. Twin Lakes Apartments The Partnership completed approximately $138,000 in capital expenditures at Twin Lake Apartments during the year ended December 31, 2001, consisting primarily of office computers, interior decorating, air conditioning improvements, roof replacements, floor covering and appliance replacements, structural and other building improvements. These improvements were funded with cash from operations. The Partnership is currently evaluating the capital improvement needs of the property for the upcoming year. The minimum amount to be budgeted is expected to be $300 per unit or $78,600. Additional improvements may be considered and will depend on the physical condition of the property as well as 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, 2001, 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, 2001, the number of DUCs holders of record was 925 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 838,677 units or 68.63% at December 31, 2001. Due to the security being delisted during 1990, no public trading market has developed for the Units and it is not anticipated that such a market will develop in the future. No distributions were declared or paid during the year ended December 31, 2001. 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 cash available for distribution is reviewed on a monthly 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 2002 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 owned 838,677 depositary unit certificates in the Partnership representing 68.63% of the outstanding units at December 31, 2001. 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 voting on certain amendments to the Partnership Agreement and voting to remove the Corporate General Partner. As a result of its ownership of 68.63% 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. 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 loss for the year ended December 31, 2001 was approximately $50,000 as compared to net income of approximately $375,000 for the year ended December 31, 2000. The decrease in net income for the year ended December 31, 2001 is primarily the result of a decrease in total revenues and an increase in total expenses. The decrease in total revenues is attributable to the decrease in rental income at the Partnership's residential properties. Rental income decreased primarily due to an increase in concessions and special promotions at both properties to attract new tenants. The decrease in rental income was partially offset by an increase in average rental rates. The increase in total expenses is primarily the result of an increase in interest expense, depreciation expense, property tax expense, and operating expense which were partially offset by a decrease in general and administrative expense. 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. Property tax expense increased due to the timing and receipt of invoices from the tax authorities. Operating expense increased due to an increase in insurance expense and property expense. Insurance expense increased due to an increase in insurance premiums at Twin Lakes Apartments. Property expenses increased due to an increase in employee salaries and related benefits and the leasing of employee apartments at both investment properties. General and administrative expense decreased as a result of a decrease in professional fees which was partially offset by an increase in administrative costs and the cost of services included in the management reimbursements to the Corporate General Partner as allowed by the Partnership Agreement. Also included in the general and administrative expenses for the year ended December 31, 2001 and 2000 were 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, 2001 the Partnership had approximately $134,000 of cash and cash equivalents as compared to approximately $659,000 at December 31, 2000. The decrease in cash and cash equivalents of approximately $525,000 for the year ended December 31, 2001 is due to approximately $725,000 of cash used in financing activities and approximately $351,000 of cash used in investing activities which was partially offset by approximately $551,000 of cash provided by operating activities. Cash used in investing activities consisted of property improvements and replacements partially offset by withdrawals from restricted escrows. Cash used in financing activities consisted of payments made on the mortgages encumbering the Partnership's investment properties and payments on amounts due to affiliates slightly offset by advances from affiliates. 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 $300 per unit or $124,800. Additional improvements may be considered and will depend on the physical condition of the properties and anticipated cash flow generated by the properties. The capital expenditures will be incurred only if cash is available from operations. 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 approximately $10,783,000 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 during 2000 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. Pursuant to the Partnership Agreement, the term of the Partnership is scheduled to expire on December 31, 2005. Accordingly, prior to such date the Partnership will need to either sell its investment properties or extend the term of the Partnership. If the Partnership is unable to extend its term, the ultimate sale price of the investment properties may be adversely affected. No distributions were declared or paid during the year ended December 31, 2001. 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 cash available for distribution is reviewed on a monthly 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 2002 or subsequent periods. In addition to its indirect ownership of the Corporate General Partner interest in the Partnership, AIMCO and its affiliates owned 838,677 depositary unit certificates in the Partnership representing 68.63% of the outstanding units at December 31, 2001. 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 voting on certain amendments to the Partnership Agreement and voting to remove the Corporate General Partner. As a result of its ownership of 68.63% 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. Recent Accounting Pronouncements In August 2001, the Financial Accounting Standards Board issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets". SFAS No. 144 provides accounting guidance for financial accounting and reporting for the impairment or disposal of long-lived assets. SFAS No. 144 supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of". SFAS No. 144 is effective for fiscal years beginning after December 15, 2001. The Corporate General Partner does not anticipate that its adoption will have a material effect on the financial position or results of operations of the Partnership. 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, 2001 Statements of Operations - Years ended December 31, 2001 and 2000 Statements of Changes in Partners' (Deficit) Capital - Years ended December 31, 2001 and 2000 Statements of Cash Flows - Years ended December 31, 2001 and 2000 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, 2001, 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, 2001. 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, 2001, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States. /s/ERNST & YOUNG LLP Greenville, South Carolina February 15, 2002 U.S. REALTY PARTNERS LIMITED PARTNERSHIP BALANCE SHEET (in thousands, except unit data) December 31, 2001
Assets Cash and cash equivalents $ 134 Receivables and deposits 16 Due from Corporate General Partner 23 Restricted escrows 107 Other assets 326 Investment properties (Notes C & G): Land $ 2,123 Buildings and related personal property 16,285 18,408 Less accumulated depreciation (7,863) 10,545 $ 11,151 Liabilities and Partners' Deficit Liabilities Accounts payable $ 102 Tenant security deposit liabilities 80 Accrued property taxes 68 Other liabilities 137 Due to Corporate General Partner 151 Mortgage notes payable (Note C) 10,783 Partners' Deficit General partners $ (4) Depositary unit certificate holders (2,440,000 units authorized; 1,222,000 units issued and outstanding) (166) (170) $ 11,151 See Accompanying Notes to Financial Statements
U.S. REALTY PARTNERS LIMITED PARTNERSHIP STATEMENTS OF OPERATIONS (in thousands, except unit data) Years Ended December 31, 2001 2000 Revenues: Rental income $2,917 $2,983 Other income 193 180 Total revenues 3,110 3,163 Expenses: Operating 1,271 1,155 General and administrative 142 166 Depreciation 571 541 Interest 898 670 Property taxes 278 256 Total expenses 3,160 2,788 Net (loss) income $ (50) $ 375 Net (loss) income allocated to general partners $ -- $ 4 Net (loss) income allocated to depositary unit certificate holders (50) 371 $ (50) $ 375 Net (loss) income per depositary unit certificate $ (.04) $ .30 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' 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) Net loss for the year ended December 31, 2001 -- -- (50) (50) Partners' deficit at December 31, 2001 1,222,000 $ (4) $ (166) $ (170) See Accompanying Notes to Financial Statements
U.S. REALTY PARTNERS LIMITED PARTNERSHIP STATEMENTS OF CASH FLOWS (in thousands)
Years Ended December 31, 2001 2000 Cash flows from operating activities: Net (loss) income $ (50) $ 375 Adjustments to reconcile net (loss) income to net cash provided by operating activities: Depreciation 571 541 Amortization of loan costs 15 4 Change in accounts: Restricted cash -- 512 Receivables and deposits 13 127 Due from Corporate General Partner (23) -- Other assets (7) 4 Accounts payable 51 (102) Tenant security deposit liabilities 12 10 Accrued property taxes 5 (7) Due to Corporate General Partner 16 24 Other liabilities (52) (332) Net cash provided by operating activities 551 1,156 Cash flows from investing activities: Property improvements and replacements (381) (510) Net withdrawals from restricted escrows 30 146 Net cash used in investing activities (351) (364) Cash flows from financing activities: Payments on advances from affiliates (605) -- Proceeds from advances from affiliates 120 -- Payments on mortgage notes payable (240) (350) Proceeds from mortgage notes payable -- 11,080 Repayment of mortgage note payable -- (3,517) Distribution to partners -- (7,045) Loan costs paid -- (301) Net cash used in financing activities (725) (133) Net (decrease) increase in cash and cash equivalents (525) 659 Cash and cash equivalents at beginning of period 659 -- Cash and cash equivalents at end of period $ 134 $ 659 Supplemental disclosure of cash flow information: Cash paid for interest $ 1,203 $ 962 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, 2001 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"), a publicly traded real estate investment trust. The other general partner is 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. The Partnership continues to operate two apartment properties 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, 2001, including accrued interest is approximately $30,000. Allocation of Profits, Gains and Losses: Profits, gains and losses of the Partnership are allocated between the 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 general partners. (Loss) income from operations per DUC for the years ended December 31, 2001 and 2000, was computed as 99% of the (loss) income from operations divided by 1,222,000 depositary units outstanding. 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, 2001 and 2000. See "Recent Accounting Pronouncements" below. 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, for additions after 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 approximately $19,000, are included in other assets and are being amortized on a straight-line basis over the life of the loans. 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 accounts. At certain times, the amount of cash deposited at a bank may exceed the limit on insured deposits. Cash balances include approximately $125,000 at December 31, 2001, 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 C") 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 C") 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, 2001, the balance in this account was approximately $107,000. Segment Reporting: SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information" 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 established 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. Advertising: The Partnership expenses the costs of advertising as incurred. Advertising expense, included in operating expense, was approximately $37,000 and $43,000 for the years ended December 31, 2001 and 2000, respectively. Recent Accounting Pronouncements In August 2001, the Financial Accounting Standards Board issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets". SFAS No. 144 provides accounting guidance for financial accounting and reporting for the impairment or disposal of long-lived assets. SFAS No. 144 supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of". SFAS No. 144 is effective for fiscal years beginning after December 15, 2001. The Corporate General Partner does not anticipate that its adoption will have a material effect on the financial position or results of operations of the Partnership. Note B - Reconciliation of Cash Flow As required by the Partnership Agreement, the following is a reconciliation of "Net cash used in operations" in the accompanying statements of cash flows to "Net cash from operations," as defined in the Partnership Agreement.
For the Years Ended December 31, 2001 2000 (in thousands) Net cash provided by operating activities $ 551 $ 1,156 Payments on mortgage notes payable (240) (350) Principal payments on due to Corporate General Partner, net of proceeds from advances (485) -- Property improvements and replacements (381) (510) Change in restricted escrows, net 30 146 Changes in reserves for net operating liabilities (15) (236) Release of (additional) reserves 540 (206) Net cash used in operations $ -- $ --
The Corporate General Partner released previously reserved funds of approximately $540,000 at December 31, 2001. 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. Note C - 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 2001 Interest Rate Date Maturity (in thousands) Governor's Park Apartments $ 3,698 $ 32 7.93% 09/01/2020 $ -- Twin Lakes Apartments 7,085 61 7.98% 09/01/2020 -- $10,783 $ 93
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 during 2000 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 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, 2001 are as follows (in thousands): 2002 $ 260 2003 281 2004 304 2005 330 2006 357 Thereafter 9,251 $10,783 Note D - Distributions No distributions were declared or paid during the year ended December 31, 2001. 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 E - Income Taxes The Partnership has received a ruling from the Internal Revenue Service that it will be classified as a partnership for Federal income tax purposes. Accordingly, no provision for income taxes is made in the financial statements of the Partnership. Taxable income or loss of the Partnership is reported in the income tax returns of its partners. The following is a reconciliation of reported net (loss) income and Federal taxable income (in thousands except per unit data): Years Ended December 31, 2001 2000 Net (loss) income as reported $ (50) $ 375 Add (deduct): Depreciation differences (216) (229) Difference in bad debt expense 1 (4) Difference in rents recognized 5 (14) Change in prepaid rentals (2) (20) Other 3 (18) Federal taxable (loss) income $ (259) $ 90 Federal taxable (loss) income per DUC $ (.21) $ 0.07 The following is a reconciliation between the Partnership's reported amounts and Federal tax basis of net liabilities (in thousands): Net liabilities as reported $ (170) Land and buildings 1,318 Accumulated depreciation (6,091) Syndication 2,774 Other 139 Net liabilities - tax basis $(2,030) Note F - Transactions with Affiliated Parties The Partnership has no employees and is dependent on the Corporate General Partner and its affiliates for the management and administration of all Partnership activities. The Partnership Agreement provides for (i) certain payments to affiliates for services and (ii) reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. The following payments were made to the Corporate General Partner and its affiliates during the years ended December 31, 2001 and 2000: 2001 2000 (in thousands) Property management fees (included in operating expenses) expenses) $176 $156 Reimbursement for services of affiliates (included in operating, general and administrative expenses, and investment properties) 127 89 Due from Corporate General Partner 23 -- Due to Corporate General Partner 151 620 Loan costs (included in other assets) -- 111 During the year ended December 31, 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 $176,000 and $156,000 for the years ended December 31, 2001 and 2000, respectively. An affiliate of the Corporate General Partner received reimbursement of accountable administrative expenses amounting to approximately $127,000 and $89,000 for the years ended December 31, 2001 and 2000, respectively. Included in these amounts are fees related to construction management services provided by an affiliate of the Corporate General Partner of approximately $50,000 and $20,000, for the years ended December 31, 2001 and 2000, respectively. The construction management service fees are calculated based on a percentage of current and certain prior year additions to both investment properties and are being depreciated over 15 years. At December 31, 2001 the Corporate General Partner owes the Partnership $23,000 for over payment of construction management services. 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 December 2000 (see "Note C - Mortgage Notes Payable"). During the year ended December 31, 2001, an affiliate of the Managing General Partner advanced the Partnership approximately $120,000 to pay property tax bills. In accordance with the Partnership Agreement, interest is to be charged at prime plus 2%. The Partnership recognized and accrued approximately $1,000 of interest expense related to this advance during the year ended December 31, 2001. 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, 2001, including accrued interest is approximately $30,000. Beginning in 2001, the Partnership began insuring its properties up to certain limits through coverage provided by AIMCO which is generally self-insured for a portion of losses and liabilities related to workers compensation, property casualty and vehicle liability. The Partnership insures its properties above the AIMCO limits through insurance policies obtained by AIMCO from insurers unaffiliated with the Corporate General Partner. During the year ended December 31, 2001, the Partnership paid AIMCO and its affiliates approximately $26,000 for insurance coverage and fees associated with policy claims administration. In addition to its indirect ownership of the Corporate General Partner interest in the Partnership, AIMCO and its affiliates owned 838,677 depositary unit certificates in the Partnership representing 68.63% of the outstanding units at December 31, 2001. 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 voting on certain amendments to the Partnership Agreement and voting to remove the Corporate General Partner. As a result of its ownership of 68.63% 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 G - 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 $ 3,698 $ 423 $ 5,701 $ 394 Twin Lakes Apartments Palm Harbor, Florida 7,085 1,928 9,283 679 Totals $10,783 $2,351 $14,984 $ 1,073
Gross Amount At Which Carried At December 31, 2001 (in thousands) Buildings and Related Personal Accumulated Date of Date Depreciable Description Land Property Total Depreciation Construction Acquired Life-Years Governor's Park $ 423 $ 6,095 $6,518 $ 3,149 1985 08/29/86 5-35 Twin Lakes 1,700 10,190 11,890 4,714 1986 08/28/86 5-35 Totals $2,123 $16,285 $18,408 $ 7,863
Reconciliation of "Real Estate and Accumulated Depreciation": Years Ended December 31, 2001 2000 (in thousands) Real Estate Balance at beginning of year $ 18,194 $ 17,517 Property improvements 214 677 Balance at end of year $ 18,408 $ 18,194 Accumulated Depreciation Balance at beginning of year $ 7,292 $ 6,751 Additions charged to expense 571 541 Balance at end of year $ 7,863 $ 7,292 The aggregate cost of the real estate for Federal income tax purposes at December 31, 2001 and 2000, is approximately $19,726,000 and $19,512,000 respectively. The accumulated depreciation taken for Federal income tax purposes at December 31, 2001 and 2000, is approximately $13,955,000 and $13,168,000, respectively. 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 44 Executive Vice President and Director Martha L. Long 42 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 accounting principles generally accepted in the United States, 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 auditing standards generally accepted in the United States. 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, 2001 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 audit services of approximately $32,000 and non-audit services (principally tax-related) of approximately $16,000. 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, 2001. Entity Number of DUCs Percentage AIMCO Properties, LP 838,677 68.63% (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, 2001 and 2000: 2001 2000 (in thousands) Property management fees $176 $156 Reimbursement for services of affiliates 127 89 Due from Corporate General Partner 23 -- Due to Corporate General Partner 151 620 Loan costs -- 111 During the year ended December 31, 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 $176,000 and $156,000 for the years ended December 31, 2001 and 2000, respectively. An affiliate of the Corporate General Partner received reimbursement of accountable administrative expenses amounting to approximately $127,000 and $89,000 for the years ended December 31, 2001 and 2000, respectively. Included in these amounts are fees related to construction management services provided by an affiliate of the Corporate General Partner of approximately $50,000 and $20,000, for the years ended December 31, 2001 and 2000, respectively. The construction management service fees are calculated based on a percentage of current and certain prior year additions to both investment properties and are being depreciated over 15 years. At December 31, 2001, the Corporate General Partner owes the Partnership $23,000 for overpayment of construction management services. 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 December 2000. During the year ended December 31, 2001, an affiliate of the Managing General Partner advanced the Partnership approximately $120,000 to pay property tax bills. In accordance with the Partnership Agreement, interest is to be charged at prime plus 2%. The Partnership recognized and accrued approximately $1,000 of interest expense related to this advance during the year ended December 31, 2001. 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, 2001, including accrued interest is approximately $30,000. Beginning in 2001, the Partnership began insuring its properties up to certain limits through coverage provided by AIMCO which is generally self-insured for a portion of losses and liabilities related to workers compensation, property casualty and vehicle liability. The Partnership insures its properties above the AIMCO limits through insurance policies obtained by AIMCO from insurers unaffiliated with the Corporate General Partner. During the year ended December 31, 2001, the Partnership paid AIMCO and its affiliates approximately $26,000 for insurance coverage and fees associated with policy claims administration. In addition to its indirect ownership of the Corporate General Partner interest in the Partnership, AIMCO and its affiliates owned 838,677 depositary unit certificates in the Partnership representing 68.63% of the outstanding units at December 31, 2001. 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 voting on certain amendments to the Partnership Agreement and voting to remove the Corporate General Partner. As a result of its ownership of 68.63% 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. 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 2001: None. SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. U.S. REALTY PARTNERS LIMITED PARTNERSHIP By: U.S. Realty I Corporation Corporate General Partner By: /s/Patrick J. Foye Patrick J. Foye Executive Vice President By: /s/Martha L. Long Martha L. Long Senior Vice President and Controller Date: Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By: /s/Patrick J. Foye Date: Patrick J. Foye Executive Vice President and Director By: /s/Martha L. Long Date: Martha L. Long Senior Vice President and Controller EXHIBIT INDEX Exhibit 3 See Exhibit 4(a) 2.1 Agreement and Plan of Merger, dated as of October 1, 1998, by and between AIMCO and IPT (Incorporated by reference to Exhibit 2.1 of IPT's Current Report on Form 8-K, File No. 1-14179, dated October 1, 1998). 4 (a) Amended and Restated Certificate and Agreement of Limited Partnership (included as Exhibit A to the Prospectus of Registrant dated August 19, 1986 contained in Amendment No. 4 Registration Statement, No. 33-2996, of Registrant filed August 19, 1986 (the "Prospectus") and is incorporated herein by reference). (b) Subscription Agreement and Signature Page (included as Exhibit B to the Prospectus and is incorporated herein by reference). (c) Instruments governing the Bonds (filed as Exhibit 10C to Amendment No. 4 to Registration Statement, No. 33-2996, of Registrant filed August 19, 1986 and incorporated herein by reference). (d) First Amendment to U.S. Realty Partners Limited Partnership Amended and Restated Agreement of Limited of Partnership (dated August 15, 1986) dated October 14, 1993. [Filed as Exhibit 4(c) to Form 10QSB for the quarter ended September 30, 1993 and incorporated herein by reference.] 10(i) Contracts related to acquisition of properties: (a) Purchase Agreement dated January 31, 1986 between The Gallery, Ltd./LNDC Venture and U.S. Realty Partners Limited Partnership to acquire The Gallery Shopping Plaza, Knoxville, Tennessee (filed as Exhibit 10D to Amendment No. 1 to Registration Statement, No. 33-2996, of the Registrant filed August 19, 1986 incorporated herein by reference). (b) Form of Purchase Agreement by which U.S. Realty Partners Limited Partnership expects to acquire The Gallery Shopping Plaza, Huntsville, Alabama (filed as Exhibit 10E to Amendment No. 2 to Registration Statement, No. 33-2996, of the Registrant filed August 19, 1986 and incorporated herein by reference). (ii) Form of Management Agreement with U.S. Shelter Corporation (filed with Amendment No. 4 to Registration Statement No. 33-2996, of Registrant filed August 19, 1986 and is incorporated herein by reference). (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).