UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2002
Commission file number 33-17577
U.S. Realty Income Partners L.P.
(Exact name of small business issuer as specified in its charter)
DELAWARE 62-1331754
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) (Identification No.)
P.O. Box 58006, Nashville, TN 37205
(Address of principal executive offices) (Zip Code)
(615) 665-5959
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 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
U.S. REALTY INCOME PARTNERS L.P.
INDEX
PART I Financial Information
Item 1. Financial Statements 3
Balance Sheets at September 30, 2002 and
December 31, 2001 4
Statements of Operations for the three months
and nine months ended September 30, 2002
and 2001 5
Statements of Cash Flows for nine months
ended September 30, 2002 and 2001 6
Statements of Partnership Equity for the
period January 1, 2001 through September
30, 2002 7
Notes to Financial Statements 8-9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10-13
PART II Other Information
Item 1. Legal Proceedings 14
Item 2. Changes in Securities 14
Item 3. Default Upon Senior Securities 14
Item 4. Submissions of Matters to a Vote of
Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 15
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
The following balance sheet at September 30, 2002(unaudited)
and statements of operations, partnership equity, and cash flows for
the three months and nine months ended September 30, 2002 (unaudited),
for U.S. Realty Income Partners L.P. (a Delaware limited partnership)
(the "Partnership"), have not been examined by independent public
accountants but reflect, in the opinion of management, all adjustments
(consisting of normal recurring accruals) necessary to present fairly
the information required.
These financial statements should be read in conjunction with
the financial statements and notes thereto included in the
Partnership's 2001 Annual Report, as reported on Form 10-K.
U.S Realty Income Partners, L.P.
(A Limited Partnership)
Balance Sheets
Unaudited Audited
?? September 30, December 31,
2002 2001
Assets
Cash $ 983,913 $ 847,086
Escrow deposits 69,180 9,894
Tenant receivables 12,228 986
Property & improvements, net of
accumulated depreciation of
$2,175,836 & $2,051,462 3,319,588 3,364,773
Other assets 694,051 763,992
Total Assets $ 5,078,960 $ 4,986,731
Liabilities & Partnership Equity
Accounts payable $ 16,077 $ 16
Accrued expenses 78,039 22,774
Notes payable 3,604,636 3,743,183
Total Liabilities 3,698,752 3,765,973
Minority partner's interest in JV 24,491 (42,178)
Partnership equity
Gen. Partners, no units authorized (83,591) (88,230)
Limited Partners, 4,858 units
authorized, issued,
and outstanding 1,439,308 1,351,166
Net Partnership Equity 1,355,717 1,262,936
Total Liabilities & Partnership
Equity $ 5,078,960 $ 4,986,731
See Notes to Financial Statements.
U.S. Realty Income Partners L.P.
(A Limited Partnership)
Statements of Operations
For the Three Months & Nine Months Ended
September 30, 2002 and 2001
Unaudited Unaudited Unaudited Unaudited
3 Months 3 Months 9 Months 9 Months
2002 2001 2002 2001
Revenues
Rental income $ 183,908 $ 180,422 $ 635,210 $ 615,054
CAM reimbursements 20,302 20,715 106,860 64,344
Interest income 2,671 15,210 8,607 35,664
206,881 216,347 750,677 715,062
Expenses
Interest 67,366 70,703 202,407 212,131
Professional fees 750 5,000 14,920 16,732
Depreciation 41,458 41,136 124,374 123,407
Amortization 18,049 16,241 54,146 52,339
Property taxes 19,005 18,306 57,015 54,918
State taxes 11,853 0 12,053 0
Leasing & admin. 35,555 31,225 86,359 80,360
Management fees 7,872 7,795 27,439 26,579
Repairs 5,355 37,960 17,891 55,782
Utilities 2,140 1,896 7,271 6,702
Insurance 7,740 4,572 9,098 6,837
217,143 234,834 612,973 635,787
Net income before minority partner's
share of income (10,262) (18,486) 137,704 79,275
Minority partner's interest
in operating profit (6,837) 2,341 (66,669) (34,987)
Income (Loss) from
operation (17,099) (16,146) 71,035 44,288
Income from investment
in partnership 0 81,884 21,746 1,456,737
Net Income (Loss) $ (17,099) $ 65,738 $ 92,781 $1,501,025
Net Income (Loss)
per Unit $ (3.34) $ 12.86 $ 18.14 $ 293.53
Weighted Avg. No.
of Units 4,858 4,858 4,858 4,858
See Notes to Financial Statements.
U.S. Realty Income Partners L.P.
(A Limited Partnership)
Statements of Cash Flows
Unaudited Unaudited
9 Months 9 Months
Ending Ending
9/30/02 9/30/01
Cash Flows From Operating Activities
Net income (loss) from operations $ 71,035 $ 44,288
Adjustments to reconcile net income (loss)
to net cash provide by (used in)
operating activities:
Minority partner's interest in operating
profit (loss) of consolidated
partnership 66,669 34,987
Depreciation 124,374 123,407
Amortization 54,146 52,339
(Increase) decrease in:
Escrow deposits (59,286) (45,918)
Tenant receivables (11,242) (792)
Other assets 15,795 16,268
Increase (decrease) in:
Accounts payable 16,061 1,502
Accrued expenses 57,015 54,918
Tenant deposits (1,750) 0
Net cash provided by (used in)
operating activities 332,817 280,999
Cash Flows From Investing Activities
Income from partnership 21,746 1,457,737
Purchase of property and improvements (79,190) 0
Distributions to limited partners 0 (1,300,001)
Net cash provided by (used in)
investing activities (57,444) 157,736
Cash Flows From Financing Activities
Payments on mortgage note (138,548) (128,824)
Net cash provided by (used in)
financing activities (138,548) (128,824)
Net increase (decrease) in cash
and cash equivalents 136,825 309,911
Cash & cash equivalents at beginning
of period 847,088 495,790
Cash & cash equivalents at end of period $ 983,913 $805,701
Supplemental Disclosures
Interest paid $ 202,407 $212,131
See Notes to Financial Statements.
U.S. Realty Income Partners L.P.
(A Limited Partnership)
Statements of Partnership Equity
Period from January 1, 2001 to September 30, 2002
Limited General
Partners Partner Total
Distributive share of net earnings 95% 5% 100%
Balance at January 1, 2001 $1,203,192 $(164,439) $1,038,753
Cash distributions (1,300,000) (1,300,000)
Net earnings of 2001 1,447,974 76,209 1,524,183
Balance at December 31, 2001 1,351,166 (88,230) 1,262,936
Net earnings of 2002 88,142 4,639 92,781
Balance at September 30, 2002 $1,439,308 $(83,591) $1,355,717
See Notes To Financial Statements.
U.S. REALTY INCOME PARTNERS L.P.
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
Unaudited
September 30, 2002
A. ACCOUNTING POLICIES
Refer to the Partnership's annual financial statements for the year
ended December 31, 2001 for a description of the accounting policies
which have been continued without change. Also, refer to the footnotes
of these annual statements for additional details of the Partnership's
financial condition. The details in those notes have not significantly
changed except as a result of normal transactions in the interim. In
the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary have been included. Operating
results are not necessarily indicative of the results that may be
expected for the year ending December 31, 2002.
B. INVESTMENT IN JOINT VENTURES
The Partnership had a 50% interest in DR/US West End General
Partnership, a joint venture formed to own and operate a commercial
office building in Nashville, Tennessee. The Company's initial
investment of $900,000 in the general partner joint venture was made on
November 1, 1988. Effective December 31, 1991, the Partnership adopted
the liquidation method of accounting for its investment in the joint
venture.
Effective July 28, 1995, the partnership exchanged its interest in the
assets of DR/US West End General Partnership (DR/US) for an indirect
3.745% equity interest (held through a limited partnership interest in
Daniel S. E. Office Limited Partnership) in Prudential/Daniel Office
Venture, LLC (the LLC). The LLC, which is controlled by Prudential
Life Insurance Company of America, owned six office buildings located
in Nashville, Tennessee and Raleigh, North Carolina. The LLC interest
was disposed of in 2001.
U.S. REALTY INCOME PARTNERS L.P.
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
Unaudited
September 30, 2002
C. TRANSACTIONS WITH AFFILIATES
Fees and other costs and expense paid to the general partner or its
affiliates were as follows:
Nine Months Year Ended
Ended September 30 December 31,
2002 2001
Administrative expenses $ 36,000 $ 66,000
The Partnership believes the amounts paid to affiliates are
representative of amounts which would have been paid to independent
parties for similar services.
PART I - FINANCIAL INFORMATION
continued
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Liquidity and Capital Resources
At December 31, 2001, the partnership had $847,088 in cash and
cash equivalents. This represents 17.4% of capital raised. At
September 30, 2002, the Partnership had $983,913 in cash and cash
equivalents. This represents 20.3% of capital raised. The Partnership
had established a working capital reserve of 5% of the gross proceeds
of the offering. After May 15, 1990, the Partnership's Prospectus
provided that the working capital reserve could be reduced to 3% of
capital raised depending upon the Partnership's experience with its
properties. The General Partner does not anticipate having to borrow
for working capital reserves in 2002.
The Partnership distributed $1,300,000 in September 2001.
This represented the funds received from Daniel S. E. Office Limited
Partnership. The General Partner anticipates that no further cash
distributions will be made in 2002.
Bellevue
In October 1988, the Partnership acquired a 66.67% interest in a
Tennessee joint venture known as Bellevue Plaza Partners holding as its
primary asset a shopping center located in Nashville, Tennessee
("Bellevue") which was renovated in 1988. The Bellevue property is
100% leased. Lease rent from the tenants amounts to $48,367 per
occupancy month. In addition, the tenants pay common area maintenance
charges of $5,881 per month for a total of $54,248 per month.
On July 1, 1999, the joint venture obtained a $4,150,000 first
mortgage loan on this property from an unaffiliated lender. The
mortgage bears interest at a rate of 7.25% per annum and requires
monthly installments of principal and interest of $37,656. The loan
fully amortizes over 15 years. After paying off Mass Mutual, the
partnership has enough cash to pay for the improvements made to the T.
J. Maxx space. These funds had previously been advanced by T. J. Maxx
to the Partnership. This resulted in T. J. Maxx beginning monthly
rental payments in November of 1999. T. J. Maxx/Marshalls moved into
the center in November 1999 as planned. They occupy 28,300 square
feet. Due to the refinancing, payments from T. J. Maxx have increased
the gross cash flow from the center by approximately $50,000 a year
over the previous tenant.
Properties in Raleigh, NC
These properties consist of one 110,000 sq. ft. building (Center
98) and four 50,000 sq. ft. buildings (Park). These buildings are
operating accounting to schedule. Prudential Life Insurance Company
has funded the partnership with approximately $7,280,000 to build a
garage and a new 55,600 sq. ft. building which was completed at the end
of 1998. Approximately 95% of this space has been leased. The new
parking garage has 178 spaces.
The remaining buildings in Raleigh, North Carolina have been
sold. The accounting has not been finalized yet. Our Partnership
received $1,381,000 from the sale. $1,300,000 was distributed to the
partners with the remainder held by the partnership.
In July 2000, the 3310 office property was sold. The
partnerships share of the proceeds was $397,000. These proceeds were
distributed to the partners in December 2000.
In July 2001, the remaining properties were sold. The
Partnerships share of the proceeds was $1,456,737. $1,300,000 was
distributed to the partners in September 2001.
PART I - FINANCIAL INFORMATION
continued
Results of Operations
The Partnership holds a majority joint venture interests
in Bellevue Plaza Partners (66 2/3%). The operational results of the
Partnership for the nine months ending September 30, 2002 are
summarized below.
Bellevue Partnership Total
Revenues $742,809 $ 29,614 $ 772,423
Operating expenses 169,693 62,352 232,045
Interest 202,407 - 202,407
Depreciation & amortization 170,699 7,821 178,520
542,799 70,173 612,972
Net income (loss) 200,010 (40,559) 159,451
Partnership share 66 2/3% 100%
Partnership net income $133,340 $ (40,559) $ 92,781
Partnership operating
cash flow $365,555 $ (32,738) $ 332,817
Operational results for the comparable nine month period
ended September 30, 2001 were:
Bellevue Partnership Total
Revenues $680,073 $1,492,726 $2,172,799
Operating expenses 195,057 52,853 247,910
Interest 212,131 - 212,131
Depreciation & amortization 167,925 7,821 175,746
575,113 60,674 635,787
Net income (loss) 104,960 1,432,052 1,537,012
Partnership share 66 2/3% 100%
Partnership net income $ 69,973 $1,432,052 $1,502,025
Partnership operating
cash flow $248,563 $ 32,436 $ 280,999
The Partnership utilized the proceeds of the offering to
acquire, operate and hold for investment existing income producing
commercial real estate properties. Since the proceeds of the offering
were less than the maximum amount, the Partnership was unable to
diversify its investments to the extent initially desired.
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
None.
ITEM 2. Changes in Securities
None.
ITEM 3. Default Upon Senior Securities
None.
ITEM 4. Submission of Matters to a Vote of Security Holders
None.
ITEM 5. Other Information
None.
ITEM 6. Exhibits and Reports on Form 8-K
1. Exhibits
None.
2. Form 8-K.
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
U.S. REALTY INCOME PARTNERS L.P.
By: Vanderbilt Realty Joint Venture,
The General Partner
By: Vanderbilt Realty Associates, Inc.
Its Managing General Partner
By: s/n Robert Bond Miller
Robert Bond Miller
President, Director, Chief
Executive Officer, Chief Financial
Officer and Chief Accounting
Officer
November 5, 2002
?
1
15