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 March 31, 2004
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
Indicate by check mark whether the registrant is an accelerated
filer (as defined by Exchange Act Rule 12b-2).
YES NO X
U.S. REALTY INCOME PARTNERS L.P.
(A Delaware Limited Partnership)
INDEX
PART I Financial Information
Item 1. Financial Statements 3
Balance Sheets at March 31, 2004 and
December 31, 2003 4
Statements of Operations for the three months
ended March 31, 2004 and 2003 5
Statements of Cash Flows for three months
ended March 31, 2004 and 2003 6
Notes to Financial Statements 7
Item 2. Management?s Discussion and Analysis of
Financial Condition and Results of Operations 8-10
Item 3. Quantitative and Qualitative Disclosures
about Market Risk 11
Item 4. Controls and Procedures 11
PART II Other Information
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 12
Item 3. Default Upon Senior Securities 12
Item 4. Submissions of Matters to a Vote of
Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
Certification of Principal Executive Officer
and Chief Financial Officer under Securities
Exchange Act Rules 13a-14 and 15d-14 14
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
The following balance sheet at March 31, 2004 (unaudited) and
statements of operations, partnership equity, and cash flows for the
three months ended March 31, 2004(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 2003 Annual Report, as reported on Form 10-K.
U.S Realty Income Partners, L.P.
(A Delaware Limited Partnership)
Consolidated Balance Sheets
Unaudited
?? March 31, December 31,
_2004 2003
Assets
Cash $ 853,713 $ 757,636
Escrow deposits 35,898 18,477
Prepaid state taxes 12,514 -
Tenant receivables 5,275 6,111
Property and improvements, net of
accumulated depreciation of
$2,428,052 and $2,238,374,
respectively 3,177,931 3,219,610
Other assets 571,197 595,004
Total Assets $ 4,656,528 $ 4,596,838
Liabilities and Partnership Equity
Accounts payable $ 16,175 $ 15,373
Accrued expenses 36,328 32,405
Note payable 3,305,222 3,357,658
Total Liabilities 3,357,725 3,405,436
Minority partner?s interest in
Joint venture 165,861 121,240
Partnership equity
General partners, no units
authorized (74,730) (77,869)
Limited partners, 4,858 units
authorized,issued, and outstanding 1,207,672 1,148,031
Net Partnership Equity 1,132,942 1,070,162
Total Liabilities and Partnership
Equity $ 4,656,528 $ 4,596,838
Note: The balance sheet presented above at December 31, 2003 has been
derived from the audited financial statements at that date but does not
include all of the information and disclosures required by accounting
principles generally accepted in the United States of America for
complete financial statements.
See Notes to Consolidated Financial Statements.
U.S. Realty Income Partners L.P.
(A Delaware Limited Partnership)
Consolidated Statements of Operations
For the Three Months Ended
March 31, 2004 and 2003
Unaudited Unaudited
3 Months 3 Months
2004 2003
Revenues
Rental income $ 296,030 $ 289,442
Common area maintenance 21,998 21,598
Interest income 964 1,616
318,992 312,656
Expenses
Interest 61,215 64,181
Professional fees 5,003 16,078
Depreciation 41,678 41,678
Amortization 18,049 18,049
Property taxes 19,005 19,005
State taxes 4,529 816
Leasing and administrative 41,234 33,637
Management fees 12,762 12,368
Repairs 5,135 8,571
Utilities 2,981 2,570
211,591 216,953
Net income before minority
partner?s share of income 107,401 95,703
Minority partner?s interest
in operating profit (44,621) (43,780)
Income from operations 62,780 51,923
Net Income $ 62,780 $ 51,923
Net Income per Unit $ 12.92 $ 10.15
Weighted Average Number
of Units 4,858 4,858
See Notes to Consolidated Financial Statements.
U.S. Realty Income Partners L.P.
(A Delaware Limited Partnership)
Statements of Cash Flows
Unaudited Unaudited
3 Months 3 Months
Ending Ending
3/31/04 3/31/03
Cash Flows From Operating Activities
Net income from operations $ 62,780 $ 51,923
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Minority partner?s interest in operating
profit of consolidated
partnership 44,621 43,780
Depreciation 41,679 41,678
Amortization 18,049 18,049
(Increase) decrease in:
Escrow deposits (17,421) (20,865)
Tenant receivables 836 (2,806)
Prepaid state tax (12,514)
Other assets 5,758 5,759
Increase (decrease) in:
Accounts payable 802 51,697
Accrued expenses 3,923 14,304
Net cash provided by
operating activities 148,513 203,519
Cash Flows From Investing Activities
Purchase of property and improvements 0 (45,068)
Net cash provided by (used in)
investing activities 0 (45,068)
Cash Flows From Financing Activities
Payments on mortgage note (52,436) (49,471)
Net cash provided by (used in)
financing activities (52,436) (49,471)
Net increase (decrease) in cash
and cash equivalents 96,077 108,980
Cash and cash equivalents at beginning
of period 757,636 814,043
Cash and cash equivalents at end of period $ 853,713 $ 923,023
Supplemental Disclosures
Interest paid $ 61,215 $ 64,181
See Notes to Consolidated Financial Statements.
U.S. REALTY INCOME PARTNERS L.P.
(A Delaware Limited Partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
March 31, 2004
A. ACCOUNTING POLICIES
Refer to the Partnership's annual financial statements for the year
ended December 31, 2003 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, 2004.
B. TRANSACTIONS WITH AFFILIATES
Fees and other costs and expense paid to the general partner or its
affiliates were as follows:
Three Months
Ended March 31,
2004 2003
Administrative expenses $ 18,000 $ 18,300
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, 2003, the partnership had $757,636 in cash and
cash equivalents. This represents 15.6% of capital raised. At March
31, 2004, the Partnership had $853,713 in cash and cash equivalents.
This represents 17.6% 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 2004.
The Partnership distributed $200,000 in December 2003. This
represented operating funds from Bellevue Plaza. The General Partner is
evaluating cash flow to determine whether cash distributions will be
made in 2004.
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 $61,641 per
occupancy month. In addition to monthly rent, one tenant currently
pays 2.5% of their net profits annually which resulted in $110,442
collected during the quarter ended March 31, 2004. The tenants also pay
common area maintenance charges of $7,037 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 had 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.
In 2003, $110,560 was spent on capitalized roof repairs. Additional
repairs to the roof are estimated to be $150,000 in 2004.
PART I - FINANCIAL INFORMATION
continued
Results of Operations
The Parternship holds a majority joint venture interests
in Bellevue Plaza Partners (66 2/3%). The operational results of the
Partnership for the three months ending March 31, 2004 are summarized
below.
Bellevue Partnership Total
Revenues $318,028 $ 964 $ 318,992
Operating expenses 65,870 24,793 90,663
Interest 61,215 - 61,215
Depreciation and amortization 57,120 2,607 59,727
184,205 27,400 211,605
Net income (loss) 133,823 ( 26,436) 107,387
Partnership share 66 2/3% 100%
Partnership net income (loss) $ 89,216 $( 26,436) $ 62,780
Partnership operation
cash flow $184,843 $( 36,329) $ 148,514
Operational results for the comparable three month period
ended March 31, 2003 were:
Bellevue Partnership Total
Revenues $311,163 $ 1,493 $ 312,656
Operating expenses 58,522 34,523 93,045
Interest 64,181 - 64,181
Depreciation and amortization 57,120 2,607 59,727
179,823 37,130 216,953
Net income (loss) 131,340 (35,637) 95,703
Partnership share 66 2/3% 100%
Partnership net income (loss) $ 87,560 $ (35,637) $ 51,923
Partnership operating
cash flow $236,549 $ (33,030) $ 203,519
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.
Financial Position
The primary changes in financial position from December 31, 2003 to
March 31, 2004 are as follows:
.. The increase in cash of $96,077 is due to cash from operations
of $148,514 net of debt repayments of $52,437.
.. The decrease in property and improvements of $41,679 is
attributable to depreciation.
.. The decrease in the note payable of $52,437 is the result of
the debt amortization.
.. Partnership equity increased by the amount of earnings for the
three month period of $62,780.
.. The increase in the minority partner?s interest of $44,621
occurred from the partner?s proportionate share of earnings in
the joint venture since December 31, 2003.
Results of Operations
The more significant changes in the results of operations when
comparing the first quarter of 2004 with the corresponding period of
2003 are as follows:
.. The increase in net income of $10,857 was derived from an
increase of revenue of 2% annualized and reduction in total
expenses of 2%.
.. Professional fees in 2003 reflect additional billings related
to the audit of the 2002 consolidated financial statements and
other professional services utilized in 2003 that were not
necessary in 2004.
Item 3: Quantitative and Qualitative Disclosures about Market Risk
As the partnership?s debt has a fixed rate of interest, which is
the Partnership?s primary financial instrument, quantitative and
qualitative risks are not deemed significant.
Item 4: Controls and Procedures
The Partnership maintains disclosure controls and procedures, as
defined in Rule 13a-15(e) promulgated under the Securities Exchange Act
of 1934 (the ?Exchange Act?) that are designed to insure that
information required to be disclosed by it in the reports that it files
or submits under the Exchange Act is recorded, processed, summarized
and reported within the time periods specified under the SEC?s rules
and forms and that such information is accumulated and communicated to
the Partnership?s management, including its Chief Executive Officer and
Chief Accounting Officer, as appropriate, to allow timely decision
making regarding required disclosure. The Partnership, under the
supervision and participation of its management, including the
Partnership?s Chief Executive Officer and Chief Accounting Officer,
carried out an evaluation of the effectiveness of the design and
operation of the Partnership?s disclosure controls and procedures as of
the end of the period covered by this report pursuant to the Exchange
Act. Based upon that evaluation, the Chief Executive Officer and the
Chief Accounting Officer concluded that the Partnership?s disclosure
controls and procedures are effective in ensuring that all material
information required to be disclosed in this annual report has been
accumulated and communicated to them in a manner appropriate to allow
timely decisions regarding required disclosures. During the quarter
ended March 31, 2004, there have been no changes in the Partnership?s
internal control over financial reporting that have materially affected
or are reasonably likely to materially affect, the Partnership?s
internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
None.
ITEM 2. Changes in Securities, Use of Proceeds and Issuer
Purchases of Equity 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
31 CEO and CFO Certification
Pursuant Rule 13a-14(a)/15d-A(a)
32 CEO and CFO Certification
Pursuant 18 USC, Section 1350
Sarbanes ? Oxley Act 2002
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
May 12, 2004
EXHIBIT 31
Certification of Principal Executive Officer and Chief Financial
Officer Under Securities Exchange Act Rules 13a-14 and 15d-14
I, Robert Bond Miller, certify that:
1) I have reviewed this Quarterly Report on Form 10-Q of U.S.
Realty Income Partners, LP;
2) Based on my knowledge, this quarterly report does not contain
any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light
of the circumstances under which such statements were made,
not misleading with respect to the period covered by this
annual report;
3) Based on my knowledge, the financial statements and other
financial information included in this quarterly report,
fairly present in all material respects the financial
condition, results of operations and cash flows of the
Registrant as, and for, the periods presented in this
quarterly report;
4) I am responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-14 and 15d-14) for the Registrant and I have:
1. Designed such disclosure controls and procedures to
ensure that material information relating to the
Registrant is made known to us by others, particularly
during the period in which this quarterly report is
being prepared;
2. Evaluated the effectiveness of the Registrant?s
disclosure controls and procedures as of a date within
45 days prior to the filing date of this quarterly
report (?Evaluation Date?); and
3. Presented in this quarterly report my conclusions about
the effectiveness of the disclosure controls and
procedures based on my evaluation as of the Evaluation
Date;
5) I have disclosed, based on my most recent evaluation, to the
Registrant?s auditors:
1. All significant deficiencies in the design and
operation of internal controls which could adversely
affect the Registrant?s ability to record, process,
summarize and report financial data and have identified
for the Registrant?s auditors any material weaknesses
in internal controls; and
2. Any fraud, whether or not material, that involves
management or other employees who have a significant
role in the Registrant?s internal controls; and
6) I have indicated in this quarterly report whether or ot
there were significant changes in internal controls or in other
factors that could significantly affect internal controls
subsequent to the date of the most recent evaluation, including
any corrective actions with regard to significant deficiencies
and material weaknesses.
By: /s/Robert Bond Miller___
May 12, 2004 President, Director, Chief
Executive Officer, Chief
Financial Officer and Chief
Accounting Officer
EXHIBIT 32
Certification Pursuant to
18 USC Section 1350,
As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report of U.S. Realty Income
Partners, LP, (the ?Partnership?) on Form 10-Q for the period ending
March 31, 2004, as filed with the Securities and Exchange Commission
on the date hereof (the ?Report?), I, Robert B. Miller, President,
Director, Chief Executive Officer, Chief Financial Officer, and Chief
Accounting Officer of the Partnership, certify, pursuant to 18 USC
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002, that:
1. The Report fully complies with the requirements of section
13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in
all material respects, the financial condition and result of
operations of the Partnership.
Date: May 12, 2004 By: /s/ Robert B. Miller______
President, Director, Chief
Executive Officer, Chief
Financial Officer and Chief
Accounting Officer
1
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