-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, M+pNgIWv/+GcT4pZARB6vU4tZdBi+28JAEYwLDM4QLz8QszRvI6ReOyoGoRlmBh/ k5TO7DQV7Dacw+ZI3goCAQ== 0000830056-97-000006.txt : 19970328 0000830056-97-000006.hdr.sgml : 19970328 ACCESSION NUMBER: 0000830056-97-000006 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970327 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: US REALTY PARTNERS LTD PARTNERSHIP CENTRAL INDEX KEY: 0000788955 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE OPERATORS (NO DEVELOPERS) & LESSORS [6510] IRS NUMBER: 570814502 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-15656 FILM NUMBER: 97565752 BUSINESS ADDRESS: STREET 1: ONE INSIGNIA FINANCIAL PLAZA STREET 2: PO BOX 1089 CITY: GREENVILLE STATE: SC ZIP: 29602 BUSINESS PHONE: 8032391000 MAIL ADDRESS: STREET 1: ONE INSIGNIA FINANCIAL PLZ STREET 2: P O BOX 1089 CITY: GREENVILLE STATE: SC ZIP: 29602 10KSB 1 FORM 10-KSB - ANNUAL OR TRANSITIONAL REPORT UNDER SECTION 13 OR 15(d) (As last amended by 34-31905, eff. 4/26/93) FORM 10-KSB [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, 1996 or [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [No Fee Required] For the transition period.........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.) One Insignia Financial Plaza, P.O. Box 1089 Greenville, South Carolina 29602 (Address of principal executive offices) (Zip Code) 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. $5,266,000 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, 1996. Market value information for the Registrant's partnership interests is not available. Should a trading market develop for these interests, it is management's belief that such trading would not exceed $25,000,000. DOCUMENTS INCORPORATED BY REFERENCE None PART I Item 1. Description of Business U.S. Realty Partners Limited Partnership (the "Partnership" or the "Registrant") was formed on January 23, 1986. It is engaged in the business of acquiring, operating and holding real 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. 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 the four operating properties. The DUCs were registered under the Securities Act of 1933 via Registration Statement No. 33-2996 (the "Registration Statement"). On April 1, 1993, the Partnership filed for protection under Chapter 11 of the Federal Bankruptcy Code. The filing was made due to the Partnership's inability to repay its secured debt due to an insurance company (see "Note C" of financial statements). On April 23, 1993, the Partnership filed a Reorganization Plan ("the Plan") with the United States Bankruptcy Court for the District of South Carolina. The significant provision of the Plan was the refinancing of the secured debt. On July 23, 1993, the Court entered an order confirming the Partnership's Plan. On January 27, 1994, the Court closed the case. 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. The Registrant has no full-time employees. Management and administrative services are performed by U.S. Realty I Corporation, the Corporate General Partner, and by affiliates of Insignia Financial Group, Inc. ("Insignia"), the ultimate parent company of the Corporate General Partner. Pursuant to a management agreement between them, Insignia provides property management services to the Registrant. The real estate business of leasing commercial and residential properties is highly competitive and the Partnership is not a significant factor in this industry. The Registrant's real property investments are subject to competition from similar types of properties in the vicinities in which they are located. In addition, various limited partnerships have been formed by the General Partners and/or their affiliates to engage in business which may be competitive with the Registrant. Item 2.Description of Properties The following table sets forth the Registrant's investments in properties: Date of Property Purchase Type of Ownership Use The Gallery - Huntsville 08/29/86 Fee ownership subject to Retail Huntsville, Alabama first mortgage 101,258 s.f. The Gallery - Knoxville 09/04/86 Fee ownership subject to Retail Knoxville, Tennessee first mortgage 100,403 s.f. 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: (in thousands) Gross Carrying Accumulated Federal Property Value Depreciation Rate Method Tax Basis The Gallery - Huntsville $ 7,379 $1,972 5-35 S/L $ 8,260 The Gallery - Knoxville 9,021 2,354 5-35 S/L 8,114 Governor's Park 5,981 2,262 5-35 S/L 2,352 Twin Lakes 10,779 3,088 5-35 S/L 5,391 $33,160 $9,676 $24,117 See "Note A" of the financial statements included in "Item 7" for a description of the Partnership's depreciation policy. Schedule of Mortgages: (in thousands) Principal Principal Balance At Stated Balance December 31, Interest Period Maturity Due At 1996 Rate Amortized Date Maturity U.S. Realty Partnership $21,607 10.00% 95 months 08/01/01 (1) (1) The balance at maturity is directly related to the ability of the Partnership to make cash flow payments per the mortgage agreement. Schedule of Rental Rates and Occupancy: Average annual rental rate and occupancy for 1996 and 1995 for each property: Average Annual Average Annual Rental Rates Occupancy Property 1996 1995 1996 1995 The Gallery - Huntsville $ 8.99/s.f. $ 9.18/s.f. 93% 94% The Gallery - Knoxville 11.82/s.f. 11.60/s.f. 96% 95% Governor's Park 6,534/unit 6,371/unit 93% 95% Twin Lakes 7,032/unit 6,873/unit 95% 94% 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 and commercial buildings in the area. The Corporate General Partner believes that all of the properties are adequately insured. The multi-family residential properties' lease terms are for one year or less. No residential tenant leases 10% or more of the available rental space. The following schedule reflects information on commercial tenants occupying 10% or more of the leasable square feet for each property: Nature of Square Footage Annual Rent Lease Business Leased Per Square Foot Expiration The Gallery - Huntsville Book Store 12,000 $ 7.50 11/14/01 Shoe Store 13,800 11.25 09/14/04 The Gallery - Knoxville Book Store 13,330 8.73 09/06/01 As noted under "Item 1. Description of Business," the Partnership is in the business of acquiring, operating and holding real properties for investment. The Partnership holds two residential properties and two commercial properties. These properties are fully leveraged and the Partnership is currently paying principal and interest payments to reduce its liability. The following is a schedule of the lease expirations for the years 1997-2006 (dollars in thousands): Number of % of Gross The Gallery Expirations Square Feet Annual Rent Annual Rent Knoxville 1997 1 2,514 $ 28 2.34% 1998 6 16,150 194 16.40% 1999 3 14,344 141 11.97% 2000 1 3,600 41 3.51% 2001 6 29,428 342 28.96% 2002 2 7,290 112 9.52% 2003 0 0 0 0% 2004 2 10,917 187 15.86% 2005 0 0 0 0% 2006 0 0 0 0% The Gallery Huntsville 1997 2 15,400 $168 19.65% 1998 4 5,400 58 6.74% 1999 7 26,103 228 26.57% 2000 1 3,755 26 2.98% 2001 4 28,800 279 32.60% 2002 0 0 0 0% 2003 0 0 0 0% 2004 1 1,600 17 2.02% 2005 0 0 0 0% 2006 1 1,600 32 3.76% The principal businesses located at these properties are retail sales outlets. Real estate taxes and rates in 1996 for each property were (dollars in thousands): 1996 1996 Billing Rate The Gallery - Huntsville $ 57 5.80% The Gallery - Knoxville 138 5.97% Governor's Park 59 6.68% Twin Lakes 171 2.08% Item 3. Legal Proceedings The Registrant is unaware of any pending or outstanding litigation that is not of a routine nature. The Managing General Partner of the Registrant believes that all such pending or outstanding litigation will be resolved without a material adverse effect upon the business, financial condition, or operations of the Partnership. Item 4. Submission of Matters to a Vote of Security Holders During the fourth quarter ended December 31, 1996, 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 Depositary Unit Certificates were initially listed on the National Association of Securities Dealers, Inc. Automated Quotation System ("NASDAQ") under the symbol "USRLZ". As of December 31, 1996, the number of DUC holders of record was 2,033. Transfer of DUCs is subject to certain suitability and other requirements. Due to the security being delisted during 1990, no public trading market has developed and it is not anticipated that such a market will develop in the future. No distributions were made in 1996 or 1995. Pursuant to the loan agreement, no distributions can be made until all long-term debt is repaid. Item 6. Management's Discussion and Analysis or Plan of Operation This item should be read in conjunction with the consolidated financial statements and other items contained elsewhere in this report. Results of Operations The Partnership's net loss as reported in the financial statements for the year ended December 31, 1996, was approximately $258,000 compared to approximately $279,000 for the corresponding period in 1995. (See "Note D" of the financial statements for a reconciliation of these amounts to the Partnership's federal taxable losses.) The decrease in net loss was primarily due to a decrease in general and administrative expenses and an increase in rental revenue. General and administrative expenses decreased due to a decrease in professional fees in 1996. Rental income increased as a result of rent increases at Twin Lakes, as well as higher occupancy at both Twin Lakes and The Gallery Knoxville. Furthermore, the percentage of rental income, which is rental income based upon an agreed percentage of sales from certain commercial tenants, increased during the year ended December 31, 1996, at both The Gallery Huntsville and The Gallery Knoxville due to the increase in such sales. Offsetting the decrease in net loss were increases in maintenance expenses and operating expenses during the year ended December 31, 1996, compared to the corresponding period in 1995. The increase in maintenance expenses was due to the completion of an exterior painting contract at Governor's Park and the installation and repair of gutters at Twin Lakes. Operating expenses increased due to an increase in utilities resulting from increased water and sewer rates at Twin Lakes. Also contributing to the increase in operating expenses was an increase in concessions incurred at Twin Lakes in response to new competition. Included in maintenance expenses for the year ended December 31, 1996, is approximately $144,000 of major repairs and maintenance comprised primarily of exterior building expenses, painting and landscaping expenses. 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 high overall occupancy levels. 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 Based upon the terms of the debt structure, all cash is considered restricted. Net cash provided by operating activities decreased primarily as a result of a decrease in net cash provided by restricted cash as well as an increase in escrows for taxes. Net cash used in investing activities increased primarily due to an increase in deposits to restricted escrows, as well as an increase in property improvements and replacements. Net cash used in financing activities decreased due to a decrease in principal payments in 1996, as debt payments are a factor of the Partnership's cash flow which was lower due to the items discussed above. The Partnership has no material capital programs scheduled to be performed in 1997, although certain routine capital expenditures and maintenance expenses have been budgeted. These capital expenditures and maintenance expenses will be incurred only if cash is available from operations or is received from the capital reserve account. 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. Such assets are currently thought to be sufficient for any near-term needs of the Partnership. The total mortgage indebtedness of $21,607,000 requires a balloon payment on August 1, 2001, at which time the properties will be refinanced or sold. Pursuant to the loan agreement, Net Cash Flow of the Partnership is required to be paid to the mortgage holder on a monthly basis to reduce accrued interest and principal. No distributions can be made until all long-term debt is repaid. The Corporate General Partner is currently in the process of negotiating a possible refinancing of the mortgage indebtedness which, if successful, would reduce both the interest rate and restrictions on future distributions. As noted in "Item 3. Legal Proceedings," on March 29, 1994, Insignia Financial Group, Inc., an affiliate of the Corporate General Partner, was served with a complaint filed in the United States District Court, Eastern District of Kentucky and styled Kenneth Ogle, et. al., v. U. S. Shelter Corporation, et. al. The Corporate General Partner was a named defendant in such suit and was served with such complaint. Such complaint alleged, inter alia, that the Corporate General Partner engaged in a conspiracy to defraud limited partners in the Partnership, made certain material misstatements and omissions in the prospectus relating to the sale of limited partnership interests in the Partnership, and breached its fiduciary duties to a putative class of limited partners of the Partnership. The plaintiffs sought the certification by the court that the case may proceed as a class action. The case was dismissed with prejudice by the United States District Court for the Eastern District of Kentucky on April 25, 1996. Plaintiffs appealed the dismissal to the United States Court of Appeals for the Sixth Circuit. During the appeal process, the Partnership was notified that the parties had reached an agreement to discontinue the appeal. No payment by the Partnership has been or will be made as part of the discontinuation of the appeal. Accordingly, no provision for any resulting liability has been made in the financial statements. Item 7. Financial Statements U.S. REALTY PARTNERS LIMITED PARTNERSHIP LIST OF FINANCIAL STATEMENTS Report of Independent Auditors Balance Sheet - December 31, 1996 Statements of Operations - years ended December 31, 1996 and 1995 Statements of Changes in Partners' Capital (Deficit) - years ended December 31, 1996 and 1995 Statements of Cash Flows - years ended December 31, 1996 and 1995 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, 1996, and the related statements of operations, changes in partners' capital (deficit) and cash flows for each of the two years in the period ended December 31, 1996. 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 generally accepted auditing standards. 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 as of December 31, 1996, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. /s/ERNST & YOUNG LLP Greenville, South Carolina February 25, 1997 U.S. REALTY PARTNERS LIMITED PARTNERSHIP BALANCE SHEET (in thousands, except unit data) December 31, 1996 Assets Restricted cash $ 207 Accounts receivable (Note B) 47 Escrows for taxes 256 Restricted escrows 210 Other assets 437 Investment properties (Notes C & F): Land $ 6,534 Buildings and related personal property 26,626 33,160 Less accumulated depreciation (9,676) 23,484 $24,641 Liabilities and Partners' Capital (Deficit) Liabilities Accounts payable $ 55 Tenant security deposits 121 Accrued taxes 62 Other liabilities 408 Due to Corporate General Partner 524 Mortgage note payable (Note C) 21,607 Partners' Capital (Deficit) General partners $ (444) Depository unit certificate holders (2,440,000 units authorized, 1,222,000 units issued and outstanding) 2,308 1,864 $24,641 See Accompanying Notes to Financial Statements U.S. REALTY PARTNERS LIMITED PARTNERSHIP STATEMENTS OF OPERATIONS (in thousands, except per unit data) Years Ended December 31, 1996 1995 Revenues: Rental income $5,116 $4,619 Other income 150 561 Total revenues 5,266 5,180 Expenses: Operating 1,349 1,255 General and administrative 186 267 Maintenance 411 343 Depreciation 842 839 Interest 2,304 2,337 Property taxes 432 417 Total expenses 5,524 5,459 Net loss (Note D) $ (258) $ (279) Net loss allocated to general partner (1%) $ (3) $ (3) Net loss allocated to depository unit certificate holders (99%) (255) (276) $ (258) $ (279) Net loss per depository unit certificate $ (.21) $ (.23) See Accompanying Notes to Financial Statements U.S. REALTY PARTNERS LIMITED PARTNERSHIP STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT) (in thousands)
Depository Limited Unit Partnership General Certificate Units Partners Holders Total Original capital contributions 1,222,000 $ 2 $30,550 $50,002 Partners' capital (deficit) at December 31, 1994 1,222,000 $(438) $ 2,839 $ 2,401 Net loss for the year ended December 31, 1995 (3) (276) (279) Partners' capital (deficit) at December 31, 1995 1,222,000 (441) 2,563 2,122 Net loss for the year ended December 31, 1996 (3) (255) (258) Partners' capital (deficit) at December 31, 1996 1,222,000 $(444) $ 2,308 $ 1,864 See Accompanying Notes to Financial Statements
U.S. REALTY PARTNERS LIMITED PARTNERSHIP STATEMENTS OF CASH FLOWS (in thousands) Years Ended December 31, 1996 1995 Cash flows from operating activities: Net loss $ (258) $ (279) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation 842 839 Amortization 58 57 Bad debt expense 71 88 Change in accounts: Restricted cash 150 253 Accounts receivable (101) (76) Escrows for taxes (118) 41 Other assets 9 (12) Accounts payable (32) 13 Tenant security deposit liabilities (17) 14 Accrued taxes -- (80) Due to Corporate General Partner 24 -- Other liabilities 7 51 Net cash provided by operating activities 635 909 Cash flows from investing activities: Property improvements and replacements (184) (175) Deposits to restricted escrows (73) (19) Receipts from restricted escrows 75 56 Net cash used in investing activities (182) (138) Cash flows from financing activities: Payments on mortgage note payable (453) (771) Net cash used in financing activities (453) (771) Net change in cash -- -- Cash at beginning of period -- -- Cash at end of period $ -- $ -- Supplemental disclosure of cash flow information: Cash paid for interest $2,226 $2,246 See Accompanying Notes to Financial Statements U. S. REALTY PARTNERS LIMITED PARTNERSHIP Notes to Financial Statements December 31, 1996 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 pursuant to a Certificate of Limited Partnership filed January 24, 1986, and an Agreement of Limited Partnership dated January 23, 1986. The partnership agreement terminates December 31, 2005, or earlier upon the sale of all properties and distributions to the partners of all net proceeds thereof or certain other events. The Partnership commenced operations on August 26, 1986, and completed its acquisition of two apartment complexes and two shopping plazas on September 4, 1986, all of which are located in the South. The Depositary Unit Certificate ("DUC") holders are assignees of USS Assignor, Inc. (the Limited Partner), an affiliate of the Corporate General Partner, and as such will be entitled to receive the economic rights attributable to the Limited Partnership Interests represented by their DUCs. DUC holders will for all practical purposes be treated as limited partners of the Partnership. Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Allocation of Cash Distributions: Cash distributions by the Partnership are allocated 98% to the DUC holders and 2% to the general partners until the DUC holders have received annual noncumulative distributions equal to 10% of their Adjusted Capital Values. Net cash from operations then will be distributed to the general partners until the general partners collectively have received 7% of net cash from operations distributed in that fiscal year. Thereafter, (after repayment of any loans by the general partners to the Partnership), net cash from operations will be distributed 93% to the DUC holders and 7% to the general partners. According to the terms of the Partnership's loan agreements, no distributions may be made until the long term debt is repaid. During the first eight quarters following the issuance of the DUCs, the Corporate General Partner was obligated to loan to the Partnership up to approximately $811,000 to cover any deficiency in the quarterly cash distributions. The Corporate General Partner loaned the Partnership $300,000 under this guarantee, which expired August 26, 1988. A deficiency arose when the DUC holders did not receive annualized cash distributions equal to 10% of the average of their Adjusted Capital Values. The loan bears interest at the lesser of the rates being paid by the parent company of the Corporate General Partner or two percentage points over the CitiBank, N.A. prime interest rate. The repayment of the loan would reduce the amount subsequently available for distribution to the DUC holders. This loan may not be repaid until the Partnership's long term debt is repaid. The balance at December 31, 1996, including accrued interest is $524,000. Allocation of Profits, Gains and Losses: Profits, gains and losses of the Partnership are allocated between the Corporate General Partner and DUC holders in accordance with the provisions of the partnership agreement. Profits and losses generally will be allocated 99% to the DUC holders and 1% to the Corporate General Partner. Net loss per DUC for the years ended December 31, 1996 and 1995, was computed as 99% of the net loss divided by 1,222,000 depositary units outstanding. Investment Properties: During 1995, the Partnership adopted "FASB Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," which requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. For the years ended December 31, 1996 and 1995, no adjustments for impairment of value were recorded. The impairment loss is measured by comparing the fair value of the asset to its carrying amount. The effect of adoption was not material. Depreciation: Depreciation is provided by the straight-line method over the estimated lives of the rental properties and related personal property. For Federal income tax purposes, the accelerated cost recovery method is used: 1) for real property over periods of 19 years for additions after May 8, 1985, and before January 1, 1987, and 2) for personal property over 5 years for additions after December 31, 1986, the modified accelerated cost recovery method is used for depreciation of 1) real property additions over 27-1/2 years, and 2) personal property additions over 7 years. Amortization: Computer software costs are being amortized over six years. Lease commissions are being amortized over a period of one to ten years using the straight-line method over the term of the respective leases. Leases: The Partnership leases certain commercial space to tenants under various lease terms. The leases are accounted for as operating leases in accordance with "Financial Accounting Standards Board Statement No. 13." Some of the leases contain stated rental increases during their term. For leases with fixed rental increases, rents are recognized on a straight-line basis over the terms of the lease. This straight-line basis recognized $18,000 less and $19,000 less rental income than was collected in 1996 and 1995, respectively. Beginning in 1995, the cash collections under the terms of the leases exceed the straight-line method of revenue recognition. Additionally, some of the leases have percentage rent (rental payments based on agreed upon percentage of sale) clauses. The Partnership recognized $72,000 and $56,000 of such rent in the years ended December 31, 1996 and 1995, respectively. For all other leases, minimum rents are recognized over the terms of the leases. The Partnership generally leases apartment units for twelve-month terms or less. The Partnership recognizes income as earned on these leases. In addition, management finds it necessary to offer rental concessions during particularly slow months or in response to heavy competition from other similar complexes in the area. Concessions are charged to expense as incurred. Restricted Cash Tenant Security Deposits - The Partnership requires security deposits from all apartment lessees for the duration of the lease. Deposits as refunded when the tenant vacates the apartment if there has been no damage. The Partnership held $116,000 of such funds at December 31, 1996. Net Cash Flow Fund - The Partnership maintains a restricted cash account for the purpose of repayment of the Partnership's debt. The Partnership held $91,000 of such funds at December 31, 1996. The Partnership deposits Net Cash Flow, as defined in the loan agreement, into this account to facilitate "Cash Sweeps" as defined in the loan agreement. On a monthly basis, the Net Cash Flow Fund is disbursed or retained as follows: (a) first, at any time as there shall be a balance of less than $150,000 in the Working Capital Account, an amount equal to the difference between the actual balance and $150,000 but not in excess of twenty percent (20%) of such Net Cash Flow shall be paid to the Partnership for deposit into the Working Capital Account; (b) second, to the payment of, or the reimbursement to the Partnership for certain repairs and expenses and Capital Expenditures; (c) third, to the payment of accrued but unpaid interest; (d) fourth, to the payment of that portion of the Principal Balance equal to accrued and unpaid interest therefore added to the Principal Balance pursuant to the loan agreement; (e) fifth, to the payment of the remaining Principal Balance and to any and all other amounts payable to the Surety hereunder, including but not limited to the additional interest. Restricted Escrows Capital Improvement Account - The Partnership established an interest bearing bank account (see "Note C"), for the purpose of deposit and expenditure of cash flow for Capital Expenditures. The Partnership shall deposit from time to time from revenues a reasonable allowance for Capital Expenditures, provided the amount of such deposit shall have been approved in advance by the Surety. The Partnership may withdraw any amounts on deposit in the Capital Expenditures Account to pay for Capital Expenditures as they are made, provided the amount of such withdrawals shall have been approved in advance by the Surety. At December 31, 1996, the balance was approximately $59,000. Working Capital Account - The Partnership established the "Working Capital Account" for the purpose of providing a cash reserve available to the Partnership (see "Note C"). On September 16, 1993, prior to making the first deposit into the Net Cash Flow Fund, the Partnership deposited $150,000 into the Working Capital Account. The bank holds the funds in the Working Capital Account for the benefit of the Surety. The Partnership has the right to access these funds without the consent of the Surety under specific guidelines mutually agreed to by the Partnership and the Surety. Specifically, the Working Capital Account may be used to fund negative cash flow, or emergency or immediate funding needs of a property. At December 31, 1996, the balance was approximately $152,000. Escrow for Taxes: These escrows are held by the Partnership and are designated for the payment of real estate taxes. Fair Value: In 1995, the Partnership implemented "Statement of Financial Accounting Standards No. 107, Disclosure about Fair Value of Financial Instruments," which requires disclosure of fair value information about financial instruments for which it is practicable to estimate that value. The carrying amount of the Partnership's cash and investments approximates fair value due to short-term maturities. The Partnership's mortgage debt has payments due based on Net Cash Flow as defined in the loan agreement, and therefore it is impractical to estimate the Fair Value of this indebtedness. Advertising: The Partnership expenses the costs of advertising as incurred. Advertising expense, included in operating expenses, was approximately $35,000 and $28,000 for the years ended December 31, 1996 and 1995, respectively. Reclassifications: Certain reclassifications have been made to the 1995 financial statements to conform with 1996 presentation. Note B - Accounts Receivable Accounts receivable at December 31, 1996, consisted of the following (in thousands): Shopping center tenant rentals $ 151 Apartment tenant rentals 7 Common area maintenance, insurance and taxes 15 173 Less allowance for doubtful accounts (126) $ 47 An analysis of the allowance for doubtful accounts is set forth below (in thousands): Years Ended December 31, 1996 1995 Balance at beginning of period $115 $ 77 Charged to expenses 71 88 Uncollectible amounts written off against related assets (51) -- Amounts collected (9) (50) Balance at end of period $126 $115 Note C - Mortgage Note Payable On October 15, 1993, the Partnership finalized the refinancing of all debt encumbering its real estate assets. The debt has a stated interest rate of 10%, which shall accrue and, to the extent such interest is not paid currently out of Net Cash Flow, as defined in the loan agreement, shall be added to the principal balance on August 16 of each year prior to the maturity date of August 1, 2001; provided, however, that the amount of accrued and unpaid interest, shall at no time exceed the sum of $1,740,733 and the balances in the Capital Expenditures Account, the Working Capital Account, and the Tax Escrow Account established under provisions of the loan agreement. Amounts in excess of this total must be immediately paid by the Partnership. The loan agreement also calls for additional interest of approximately $59,000, which accrues annually on August 1, and is payable on the earlier of the maturity date or the date on which the principal balance and all accrued interest is paid. The Corporate General Partner is currently in the process of negotiating a possible refinancing of the mortgage indebtedness which, if successful, would reduce both the interest rate and restrictions on future distributions. The obligations of the Partnership to the Surety in connection with the issuance of the debt are secured by a first mortgage or deed of trust on each of the Partnership's properties and are cross-defaulted so that a default with respect to one property is a default under each mortgage or deed of trust. The mortgage note payable is non-recourse. The note does not require prepayment penalties if repaid prior to maturity. The principal terms of the note payable is as follows (in thousands): Principal Principal Balance At Stated Balance December 31, Interest Period Maturity Due At 1996 Rate Amortized Date Maturity U.S. Realty Partnership $21,607 10.00% 95 months 08/01/01 (1) (1) The balance at maturity is directly related to the ability of the Partnership to make cash flow payments per the mortgage agreement. At December 31, 1996 and 1995, approximately $93,000 and $98,000, respectively, of accrued interest was included in other liabilities. Note D - Income Taxes Under the provisions of the Internal Revenue Code, partnerships are not subject to income taxes. 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 and Federal taxable loss (in thousands): Years Ended December 31, 1996 1995 Net loss as reported $(258) $(279) Add (deduct): Depreciation differences (685) (674) Difference in bad debt expense 3 38 Difference in rents recognized 18 50 Change in prepaid rentals (12) (41) Other 37 (37) Federal taxable loss $(897) $(943) Federal taxable loss per DUC $(.73) $(.76) The following is a reconciliation between the Partnership's reported amounts and Federal tax basis of net assets and liabilities (in thousands): Net assets as reported $ 1,864 Land and buildings 10,746 Accumulated depreciation (10,113) Syndication 2,774 Other (16) Net assets - tax basis $ 5,255 Note E - 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 payments to affiliates for services and as reimbursements of certain expenses incurred by affiliates on behalf of the Partnership. Property management fees paid to affiliates of Insignia Financial Group, Inc. during each of the years ended December 31, 1996 and 1995, are included in operating expenses on the Consolidated Statement of Operations and are reflected in the following table. The Corporate General Partner and its affiliates received reimbursements and fees as reflected in the following table: 1996 1995 (in thousands) Property management fees $289 $282 Reimbursement for services of affiliates 138 91 Due to General Partner 524 500 Included in "reimbursements for services of affiliates" for 1996 are approximately $6,000 in reimbursements for construction oversight costs. The Partnership insures its properties under a master policy through an agency and insurer unaffiliated with the Corporate General Partner. An affiliate of the Corporate General Partner acquired, in the acquisition of a business, certain financial obligations from an insurance agency which was later acquired by the agent who placed the current year's master policy. The current agent assumed the financial obligations to the affiliate of the Corporate General Partner, who receives payments on these obligations from the agent. The amount of the Partnership's insurance premiums accruing to the benefit of the affiliate of the Corporate General Partner by virtue of the agent's obligations is not significant. Note F - Real Estate and Accumulated Depreciation (in thousands) Initial Cost To Partnership Cost Buildings Capitalized and Related (Removed) Personal Subsequent to Description Land Property Acquisition The Gallery Shopping Plaza Huntsville, Alabama $4,070 $ 8,377 $(5,068) The Gallery Shopping Plaza Knoxville, Tennessee 3,376 9,037 (3,392) Governor's Park Apartments Little Rock, Arkansas 423 5,701 (143) Twin Lakes Apartments Palm Harbor, Florida 1,928 9,283 (432) Totals $9,797 $32,398 $(9,035) The cost removed, net of additions, subsequent to the acquisition is primarily due to write-downs and removals in the prior years.
Gross Amount At Which Carried At December 31, 1996 (in thousands) Buildings And Related Personal Accumulated Date of Date Depreciable Description Land Property Total Depreciation Construction Acquired Life-Years The Gallery - Huntsville $2,341 $ 5,038 $ 7,379 $1,972 1986 08/29/86 5-35 The Gallery- Knoxville 2,070 6,951 9,021 2,354 1984 09/04/86 5-35 5-35 Governor's Park 423 5,558 5,981 2,262 1985 08/29/86 5-35 Twin Lakes 1,700 9,079 10,779 3,088 1986 08/28/86 Totals $6,534 $26,626 $33,160 $9,676
Each of the Partnership's properties is secured by a first mortgage or deed of trust in connection with the issuance of an Amended and Restated Surety Note, Bond Notes and Suretyship Agreement. Reconciliation of "Real Estate and Accumulated Depreciation" (in thousands): Years Ended December 31, 1996 1995 Real Estate Balance at beginning of year $32,985 $32,810 Property improvements 184 175 Disposals of property (9) -- Balance at End of Year $33,160 $32,985 Accumulated Depreciation Balance at beginning of year $ 8,840 $ 8,001 Additions charged to expense 842 839 Disposals of property (6) -- Balance at end of year $ 9,676 $ 8,840 The aggregate cost of the real estate for Federal income tax purposes at December 31, 1996 and 1995, is approximately $43,906,000 and $43,722,000, respectively. The accumulated depreciation taken for Federal income tax purposes at December 31, 1996 and 1995, is approximately $19,789,000 and $18,262,000, respectively. Note G - Revenues The future minimum rents to be received from commercial tenants under noncancelable operating leases, including leases signed or extended by January 31, 1996, are as follows (in thousands): 1997 $1,809 1998 1,598 1999 1,291 2000 1,063 2001 781 Thereafter 1,167 $7,709 Note H - Contingency The Registrant is unaware of any pending or outstanding litigation that is not of a routine nature. The Managing General Partner of the Registrant believes that all such pending or outstanding litigation will be resolved without a material adverse effect upon the business, financial condition, or operations of the Partnership. 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 Individual and Corporate General Partners are as follows: Individual General Partner - N. Barton Tuck, Jr., age 58, is the Individual General Partner of the Registrant. Mr. Tuck is Chairman of GolfSouth Management, Inc. Until August 1990, he served as Chairman and Chief Executive Officer of U.S. Shelter Corporation ("Shelter"), the former parent of AmReal Corporation (parent of the Corporate General Partner of the Partnership). For six years prior to 1966, Mr. Tuck was employed in Greenville, South Carolina by the certified public accounting firm of S.D. Leidesdorf & Company. From 1966 to 1970, he was a registered representative with the investment banking firm of Harris Upham & Co., Inc. in Greenville, South Carolina. Since 1970, Mr. Tuck has been engaged in arranging equity investments for individuals and partnerships. Mr. Tuck is a graduate of the University of North Carolina. Mr. Tuck has delegated to the Corporate General Partner all of his authority, as a general partner of the Partnership, to manage and control the Partnership and its business and affairs. Corporate General Partner - The names and ages of, as well as the positions and offices held by, the executive officers and directors of U.S. Realty I Corporation are set forth below. There are no family relationships between or among any officers or directors. Name Age Position William H. Jarrard, Jr. 50 President Ronald Uretta 41 Vice President and Treasurer John K. Lines 37 Vice President and Secretary Kelley M. Buechler 39 Assistant Secretary Mr. Jarrard, who had previously served as Vice President, became President in August 1994. In June 1994, Mr. Lines became Vice President and Secretary and Ms. Buechler, who had previously held the position of Secretary, became Assistant Secretary. William H. Jarrard, Jr. has been Managing Director - Partnership Administration of Insignia since January 1991. Mr. Jarrard served as Managing Director - Partnership Administration and Asset Management from July 1994 until January 1996. Ronald Uretta has been Insignia's Treasurer since January 1992. Since August 1996, he has also served as Chief Operating officer. He has also served as Secretary from January 1992 to June 1994 and as Chief Financial Officer from January 1992 to August 1996. Since September 1990, Mr. Uretta has also served as the Chief Financial Officer and Controller of Metropolitan Asset Group. John K. Lines, Esq. has been Vice President and Secretary of the Corporate General Partner since August 1994, Insignia's General Counsel since June 1994, and General Counsel and Secretary since July 1994. From May 1993 until June 1994, Mr. Lines was the Assistant General Counsel and Vice President of Ocwen Financial Corporation, West Palm Beach, Florida. From October 1991 until May 1993, Mr. Lines was a Senior Attorney with Banc One Corporation, Columbus, Ohio. From May 1984 until October 1991, Mr. Lines was an attorney with Squire Sanders & Dempsey, Columbus, Ohio. Kelley M. Buechler has been Assistant Secretary of the Corporate General Partner and Assistant Secretary of Insignia since 1991. During the five years prior to joining Insignia in 1991, she served in similar capacities for U. S. Shelter. Item 10. Executive Compensation Neither the Individual General Partner nor any 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 As of December 31, 1996, no person was known by the Registrant to be the beneficial owner of more than 5% of the Limited Partnership Units of the Registrant. No director or officer of the Corporate General Partner owns any Units. Item 12. Certain Relationships and Related Transactions The Individual General Partner and the Corporate General Partner received no cash distributions from operations as General or Limited Partners during or with respect to, the fiscal year ended December 31, 1996. For a description of the share of cash distributions from operations, if any, to which the general partners are entitled, reference is made to the material contained in the Prospectus under the heading PROFITS AND LOSSES AND CASH DISTRIBUTIONS. During the first eight quarters following the issuance of the DUCs, the Corporate General Partner was obligated to loan to the Partnership up to approximately $811,000 to cover any deficiency in the quarterly cash distributions. The Corporate General Partner loaned the Partnership $300,000 under this guarantee, which expired August 26, 1988. A deficiency arose when the DUC holders did not receive annualized cash distributions equal to 10% of the average of their Adjusted Capital Values. The loan bears interest at the lesser of the rates being paid by the parent company of the Corporate General Partner or two percentage points over the CitiBank, N.A. prime interest rate. The repayment of the loan would reduce the amount subsequently available for distribution to the DUC holders. This loan may not be repaid until the Partnership's long term debt is repaid. The balance at December 31, 1996, including accrued interest is approximately $524,000. The Registrant has a property management agreement with an affiliate of Insignia for the day-to-day management of the Partnership's properties. This service includes the supervision of leasing, rent collection, maintenance, budgeting, employment of personnel and payment of operating expenses. An affiliate of Insignia receives a property management fee equal to 5% of rental revenues for residential properties, and 6% for commercial properties. During the fiscal year ended December 31, 1996, approximately $289,000 was paid for property management fees. For a more detailed description of the management fee, see the material contained in the Prospectus under the heading CONFLICTS OF INTEREST - Property Management Services. For a further description of payments made by the Registrant to affiliates for services and as reimbursement of certain expenses incurred by affiliates on behalf of the Registrant, see "Note E" of Notes to Financial Statements in this report. Item 13. Exhibits, and Reports on Form 8-K (a) Exhibits: Exhibit 27, Financial Data Schedule, is filed as an exhibit to this report. (b) Reports on Form 8-K filed in the fourth quarter of fiscal year 1995: 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/William H. Jarrard, Jr. William H. Jarrard, Jr. President and Director Principal Executive Officer Date: March 27, 1997 In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated. /s/William H. Jarrard, Jr. President and Director William H. Jarrard, Jr. Principal Executive Officer /s/Ronald Uretta Treasurer Ronald Uretta Principal Financial Officer and Principal Accounting Officer EXHIBIT INDEX Exhibit 3 See Exhibit 4(a) 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.] (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. * * 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). EX-27 2
5 This schedule contains summary financial information extracted from U.S. Realty Partners Ltd. Partnership 1996 Year-End 10-KSB and is qualified in its entirety by reference to such 10-KSB filing. 0000788955 U.S. REALTY PARTNERS LTD. PARTNERSHIP 1,000 12-MOS DEC-31-1996 DEC-31-1996 0 0 47 0 0 0 33,160 9,676 24,641 0 21,607 0 0 0 1,864 24,641 0 5,266 0 0 5,524 0 2,304 0 0 0 0 0 0 (258) (.21) 0 Registrant has an unclassified balance sheet. Multiplier is 1.
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