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, 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 September 30, 2004 and
December 31, 2003 4
Statements of Operations for the three months
and nine months ended September 30, 2004
and 2003 5
Statements of Cash Flows for nine months
ended September 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 September 30, 2004 (unaudited) and
statements of operations for the three months and nine months ended September
30, 2004 and 2003 (unaudited) and statements of cash flows for the nine months
ended September 30, 2004 and 2003(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
September 30, December 31,
2004 2003
Assets
Cash $ 871,804 $ 757,636
Escrow deposits 70,741 18,477
Prepaid state taxes 12,514 -
Tenant receivables 79,802 6,111
Property and improvements, net of
accumulated depreciation of
$2,511,409 and $2,386,374,
respectively 3,118,474 3,219,610
Other assets 523,579 595,004
Total Assets $ 4,676,914 $ 4,596,838
Liabilities and Partnership Equity
Accounts payable $ 8,432 $ 15,373
Accrued expenses 74,338 32,405
Note payable 3,198,092 3,357,658
Total Liabilities 3,280,862 3,405,436
Minority partner's interest in
joint venture 207,927 121,240
Partnership equity
General partners, no units
authorized (71,970) (77,869)
Limited partners, 4,858 units
authorized, issued, and outstanding 1,260,095 1,148,031
Net Partnership Equity 1,188,125 1,070,162
Total Liabilities and Partnership
Equity $ 4,676,914 $ 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 Nine Months Ended
September 30, 2004 and 2003
Unaudited Unaudited Unaudited Unaudited
3 Months 3 Months 9 Months 9 Months
2004 2003 2004 2003
Revenues
Rental income $191,883 $182,064 $668,645 $659,100
Common area
maintenance 21,998 21,112 122,176 103,404
Interest income 1,027 1,288 2,900 4,674
214,908 204,464 793,721 767,178
Expenses
Interest 59,926 63,776 181,388 191,944
Professional fees 5,247 7,500 14,566 23,578
Depreciation 41,678 41,678 125,035 125,035
Amortization 18,049 18,049 54,146 54,146
Property taxes 19,005 19,005 57,015 57,015
State taxes 0 0 4,729 916
Leasing and
administrative31,387 31,416 90,631 78,485
Management fees 7,165 7,795 28,035 27,869
Repairs and
maintenance 6,891 5,539 18,199 20,080
Insurance 7,877 0 7,879 0
Utilities 1,916 2,284 7,448 7,104
199,141 197,042 589,071 586,172
Net income before
minority partner's
share of income 15,767 7,422 204,650 181,006
Minority partner's interest
in operating profit(13,424) (11,429) (86,687) (81,516)
Net Income (Loss) $ 2,343 $ (4,007) $ 117,963 $ 99,490
Net Income (Loss)
per Unit $ .46 $ (.78) $ 23.07 $ 19.46
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
9 Months 9 Months
Ending Ending
9/30/04 9/30/03
Cash Flows From Operating Activities
Net income from operations $ 117,963 $ 99,490
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Minority partner's interest in operating
profit of consolidated
partnership 86,687 81,516
Depreciation 125,035 125,035
Amortization 71,425 71,425
(Increase) decrease in:
Escrow deposits (52,264) (62,042)
Tenant receivables (73,691) (61,955)
Prepaid state tax (12,514) 0
Increase (decrease) in:
Accounts payable (6,941) (1,534)
Accrued expenses 41,933 52,315
Tenant deposits 0 1,000
Net cash provided by (used in)
operating activities 297,633 305,250
Cash Flows From Investing Activities
Purchase of property and improvements (23,899) (110,560)
Net cash used in
investing activities (23,899) (110,560)
Cash Flows From Financing Activities
Payments on mortgage note (159,566) (149,010)
Net cash used in
financing activities (159,566) (149,010)
Net increase in cash
and cash equivalents 114,168 45,680
Cash and cash equivalents at beginning
of period 757,636 814,043
Cash and cash equivalents at end
of period $ 871,804 $ 859,723
Supplemental Disclosures
Interest paid $ 181,388 $ 191,944
See Notes to Consolidated Financial Statements.
U.S. REALTY INCOME PARTNERS L.P.
(A Delaware Limited Partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
September 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:
Nine Months
Ended September 30,
2004 2003
Administrative expenses $ 36,000 $ 36,300
The Partnership believes the amounts paid to affiliates are
representative of amounts which would have been paid to independent
parties for similar services.
C. NET INCOME PER UNIT
In accordance with the partnership agreement, the limited
partners are allocated 95% of the net income of the partnership in
the relationship of units held to total units outstanding.
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
September 30, 2004, the Partnership had $871,804 in cash and cash
equivalents. This represents 17.9% 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 nine months ended September 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. In 2004,
$23,899 has been spent on capitalized roof repairs. The total cost
is expected to be $150,000.
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, 2004 are
summarized below.
Bellevue Partnership Total
Revenues $790,978 $ 2,742 $ 793,721
Operating expenses 178,168 50,333 228,502
Interest 181,388 - 181,388
Depreciation and amortization 171,361 7,820 179,181
530,917 58,153 589,071
Net income (loss) 260,061 ( 55,411) 204,650
Partnership share 66 2/3% 100%
Partnership net income (loss) $ 173,374 $( 55,411) $ 117,963
Partnership operation
cash flow $ 345,224 $( 47,590) $ 297,634
Operational results for the comparable nine month period
ended September 30, 2003 were:
Bellevue Partnership Total
Revenues $762,773 $ 4,405 $ 767,178
Operating expenses 154,922 60,124 215,046
Interest 191,944 - 191,944
Depreciation and amortization 171,361 7,821 179,182
518,227 67,945 586,172
Net income (loss) 244,546 (63,540) 181,006
Partnership share 66 2/3% 100%
Partnership net income (loss) $ 163,030 $ (63,540) $ 99,490
Partnership operating
cash flow $ 360,969 $ (55,719) $ 305,250
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
September 30, 2004 are as follows:
* The increase in cash of $114,168 is due to cash from
operations of $297,633 net of debt repayments of $159,566 and
capitalized improvements of $23,899.
* The decrease in property and improvements of $101,136 is
attributable to $125,035 of depreciation offset by capitalized
improvements of $23,899.
* The decrease in the note payable of $159,566 is the result
of the debt amortization.
* Partnership equity increased by the amount of earnings for
the nine month period of $117,963.
* The increase in the minority partner's interest of $86,687
occurred from the partner's proportionate share of earnings in
the joint venture since December 31, 2003.
* The increase in tenant receivables of $73,691 from December
31, 2003 to September 30, 2004, was attributable to the common
area maintenance billed in the second and third quarter
according to the lease agreements.
* Escrow deposits increased $52,264 from December 31, 2003 to
September 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 $71,425 from December 31, 2003 to September
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 nine months ended September 30, 2004
with the corresponding periods of 2003 are as follows:
* For the three months ended September 30, 2004 as compared to
the three months ended September 30, 2003, the following are
the most significant 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.
* 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 nine months ended September 30, 2004 as compared to
the nine months ended September 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 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
September 30, 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
November 5, 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___
November 5, 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
September 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: November 5, 2004
17