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 June 30, 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 June 30, 2004 and
December 31, 2003 4
Statements of Operations for the three months
and six months ended June 30, 2004 and 2003 5
Statements of Cash Flows for six months
ended June 30, 2004 and 2003 6
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-11
Item 3. Quantitative and Qualitative Disclosures
about Market Risk 12
Item 4. Controls and Procedures 12
PART II Other Information
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Default Upon Senior Securities 13
Item 4. Submissions of Matters to a Vote of
Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
Certification of Principal Executive Officer
and Chief Financial Officer under Securities
Exchange Act Rules 13a-14 and 15d-14 15-17
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
The following balance sheet at June 30, 2004 (unaudited)
and statements of operations, partnership equity, and cash flows for
the three months and six months ended June 30, 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 Audited
June 30, December 31,
2004 2003
Assets
Cash $ 874,413 $ 757,636
Escrow deposits 53,319 18,477
Prepaid state taxes 12,514 -
Tenant receivables 64,018 6,111
Property and improvements, net of
accumulated depreciation of
$2,469,731 and $2,386,374,
respectively 3,136,253 3,219,610
Other assets 547,388 595,004
Total Assets $ 4,687,905 $ 4,596,838
Liabilities and Partnership Equity
Accounts payable $ 469 $ 15,373
Accrued expenses 55,334 32,405
Note payable 3,251,818 3,357,658
Total Liabilities 3,307,621 3,405,436
Minority partner's interest in
joint venture 194,502 121,240
Partnership equity
General partners, no units
authorized (72,088) (77,869)
Limited partners, 4,858 units
authorized,issued, and outstanding 1,257,870 1,148,031
Net Partnership Equity 1,185,782 1,070,162
Total Liabilities and Partnership
Equity $ 4,687,905 $ 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 and Six Months Ended
June 30, 2004 and 2003
Unaudited Unaudited Unaudited Unaudited
3 Months 3 Months 6 Months 6 Months
2004 2003 2004 2003
Revenues
Rental income $180,733 $186,549 $476,763 $475,992
Common area maintenance 78,180 61,738 100,178 83,336
Interest income 908 1,754 1,872 3,369
259,821 250,041 578,813 562,697
Expenses
Interest 60,248 63,987 121,462 128,168
Professional fees 4,316 0 9,319 16,078
Depreciation 41,678 41,678 83,357 83,357
Amortization 18,049 18,049 36,098 36,098
Property taxes 19,005 19,005 38,010 38,010
State taxes 200 100 4,729 916
Leasing and administrative 18,010 13,432 59,244 47,069
Management fees 8,109 7,706 20,871 20,074
Repairs and maintenance 6,173 5,970 11,308 14,541
Utilities 2,551 2,249 5,532 4,819
178,339 172,176 389,930 389,130
Net income before
minority partner's
share of income 81,482 77,865 188,883 173,567
Minority partner's interest
in operating profit (28,641) (26,307) (73,263) (70,087)
Income from operations 52,841 51,558 115,620 103,480
Net Income $ 52,841 $ 51,558 $ 115,620 $ 103,480
Net Income per Unit $ 10.33 $ 10.08 $ 22.61 $ 20.24
Weighted Average Number of Units 4,858 4,858 4,858 4,858
See Notes to Consolidated Financial Statements.
U.S. Realty Income Partners L.P.
(A Delaware Limited Partnership)
Consolidated Statements of Cash Flows
Unaudited Unaudited
6 Months 6 Months
Ending Ending
6/30/04 6/30/03
Cash Flows From Operating Activities
Net income from operations $ 115,620 $ 103,480
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Minority partner's interest in operating
profit of consolidated
partnership 73,263 70,087
Depreciation 83,357 83,357
Amortization 36,098 36,098
(Increase) decrease in:
Escrow deposits (34,842) (41,453)
Tenant receivables (57,907) (56,010)
Prepaid state tax (12,514) 0
Other assets 11,518 11,518
Increase (decrease) in:
Accounts payable (14,904) 6,340
Accrued expenses 22,928 33,309
Net cash provided by (used in)
operating activities 222,617 246,726
Cash Flows From Investing Activities
Purchase of property and improvement 0 (110,560)
Net cash provided by (used in)
investing activities 0 (110,560)
Cash Flows From Financing Activities
Payments on mortgage note (105,840) (99,135)
Net cash provided by (used in)
financing activities (105,840) (99,135)
Net increase (decrease) in cash
and cash equivalents 116,777 37,031
Cash and cash equivalents at beginning
of period 757,636 814,043
Cash and cash equivalents at end of period $ 874,413$ 851,074
Supplemental Disclosures
Interest paid $ 121,462$ 128,168
See Notes to Consolidated Financial Statements.
U.S. REALTY INCOME PARTNERS L.P.
(A Delaware Limited Partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
June 30, 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:
Six Months
Ended June 30,
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
June 30, 2004, the Partnership had $874,413 in cash and cash
equivalents. This represents 18.0% 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 six months ended June 30, 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 $37,884. The loan
fully amortizes over 15 years. After paying off the previous debt,
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 six months ending June 30, 2004 are summarized
below.
Bellevue Partnership Total
Revenues $576,981 $ 1,832 $ 578,813
Operating expenses 121,531 27,482 149,013
Interest 121,462 - 121,462
Depreciation and amortization 114,240 5,215 119,455
357,233 32,697 389,930
Net income (loss) 219,748 ( 30,865) 188,883
Partnership share 66 2/3% 100%
Partnership net income (loss) $ 146,485 $( 30,865) $ 115,620
Partnership operation
cash flow $ 248,268 $( 25,650) $ 222,618
Operational results for the comparable six month period
ended June 30, 2003 were:
Bellevue Partnership Total
Revenues $559,553 $ 3,144 $ 562,697
Operating expenses 106,885 34,622 141,507
Interest 128,168 - 128,168
Depreciation and amortization 114,240 5,215 119,455
349,293 39,837 389,130
Net income (loss) 210,260 (36,693) 173,567
Partnership share 66 2/3% 100%
Partnership net income (loss) $ 140,173 $ (36,693) $ 103,480
Partnership operating
cash flow $ 285,204 $ (31,478) $ 253,726
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
June 30, 2004 are as follows:
* The increase in cash of $116,777 is due to cash from
operations of $222,617 net of debt repayments of $105,840.
* The decrease in property and improvements of $83,357 is
attributable to depreciation.
* The decrease in the note payable of $105,840 is the result
of the debt amortization.
* Partnership equity increased by the amount of earnings for
the six month period of $115,620.
* The increase in the minority partner's interest of $73,262
occurred from the partner's proportionate share of earnings in
the joint venture since December 31, 2003.
* The increase in tenant receivables of $57,907 from December
31, 2003 to June 30, 2004, was attributable to the common area
maintenance billed in the second quarter according to the lease
agreements.
* Escrow deposits increased $34,842 from December 31, 2003 to
June 30, 2004 as tenant payments for escrow items occur monthly
and the primary disbursements for escrow items occur in the
last quarter of the calendar year.
* A decrease of $47,616 from December 31, 2003 to June 30,
2004 for other assets occurred as the result of periodic
amortization of capitalized lease related costs.
Results of Operations
The more significant changes in the results of operations when
comparing the three months and six months ended June 30, 2004 with
the corresponding period of 2003 are as follows:
* For the three months ended June 30, 2004 as compared to the
three months ended June 30, 2003, the following are the most
signicant changes in the results of operations:
* Rental income decreased $5,816 or 3% as a result of a
credit given to one of the tenants for rent charged in
error.
* Common area maintenance revenue increased in the
second quarter over the corresponding quarter for 2003 by
$16,442 or 27%. This increase was due in part to
increased billings related to the recovery of additional
outlays for real property taxes and site maintenance in
accordance with the lease terms.
* The change in expenses for the current three month
period to that of the previous years three month period
was an increase of $6,163 or 4% and was primarily related
to increased professional fees and leasing and
administrative costs while being offset by a decline in
interest expense due to reduced borrowing levels from
continued debt amortization.
* For the six months ended June 30, 2004 as compared to the
six months ended June 30, 2003, the following is the most
significant change in the results of operations:
* Common area maintenance revenue increased in the first
half of 2004 over the corresponding period for 2003 by
$16,842 or 20%. This increase was due in part to
increased billings related to recovery of additional
outlays for real property taxes and site maintenance in
accordance with the lease terms.
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
August 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___
August 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
June 30, 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.
By: /s/ Robert B. Miller______
President, Director, Chief
Executive Officer, Chief
Financial Officer and Chief
Accounting Officer
Date: August 12, 2004
17