Item 1. Business
(a)	General Development of Business.
Union Square Hotel Partners L.P. (the "Partnership), formerly Shearson Union Square Associates L.P. (see Item 10. "Certain Matters Involving Affiliates"), is a Delaware limited partnership formed in June 1986. The general partner of the Partnership is Union Square/GP Corp., (the "General Partner"), formerly Shearson Union Square/GP Corp. (see Item 10. "Certain Matters Involving Affiliates"), a Delaware corporation and an affiliate of Lehman Brothers Inc. ("Lehman"), formerly Shearson Lehman Brothers Inc. (see Item 10. "Certain Matters Involving Affiliates"). The Partnership was formed to acquire the Hyatt on Union Square (the "Property" or "Hotel") located in San Francisco, California and operated under a long-term lease (the "Operating Lease") by California Hyatt Corporation ("California Hyatt"), a subsidiary of Hyatt Corporation ("Hyatt"). The Hotel was renamed the Grand Hyatt San Francisco on February 1, 1990. See Note 3 to the Financial Statements contained herein at Item 8 for additional information concerning the Hotel and the Operating Lease.
Between September 24, 1986, the date of the initial closing, and March 26, 1987, the date of the final closing, 7,174,100 depositary units of limited partnership interest ("Units", holders of Units are herein referred to as "Unitholders") were issued. The net proceeds of the offering, after payment of offering and organization costs and acquisition fees aggregated $67,650,091.
The Partnership commenced operation on August 29, 1986 with the acquisition of the Hotel for a purchase price of $127,727,472. The purchase price, related costs and establishment of initial reserve accounts were funded by the issuance of (1) a first mortgage loan (the "Mortgage Loan") for $70,000,000; (2) a loan payable secured by a second mortgage on the Hotel (the "Loan Payable") for $13,325,000; and (3) a note payable (the "Note Payable") for $55,000,000. The Note Payable was issued by an affiliate of the General Partner to enable the Partnership to consummate the purchase of the Hotel and was repaid in full on January 13, 1987 from the proceeds of the offering.
Renovation Plan. During 1988, the Partnership and California Hyatt mutually agreed upon a renovation program (the "Renovation Plan") which was to be effected for a cost not expected to exceed $20,000,000. During 1989 and early 1990, the Renovation Plan was completed. The Hotel was renamed The Grand Hyatt San Francisco and reopened on February 1, 1990. The total amount expended toward the Renovation Plan was $20,676,768, of which $1,886,383 came from the FF&E Reserve Fund, $1,874,379 was the California Hyatt's contribution and $16,916,006 was funded by the Partnership. For information regarding the financing of the Renovation Plan, please refer to Note 3 to the Financial Statements contained herein at Item 8.
The Restructuring. Due to the funding of the Renovation Plan and the downturn in operating results of the Hotel, the Partnership experienced decreasing levels of liquidity. As a result, the Partnership was not able to meet its January 2, 1992 debt-service payment with respect to the Mortgage Loan or the December 31, 1991 repayment of an unsecured note due to the Mortgage Lender with respect to the Renovation Plan (the "Unsecured Note"). Following the Partnership's receipt of a notice of default (the "Default Notice") and the acceleration of the Partnership's debt obligations, the Partnership consummated a restructuring of its financing and property leasing arrangements (the "Restructuring"). See Note 4 to the Financial Statements which is incorporated herein by reference thereto for information concerning the terms of the Restructuring.
(b)	Financial Information About Industry Segments. The Partnership's sole business is to own and lease the Hotel that is operated by California Hyatt, under the Operating Lease. All of the Partnership's revenues and assets relate solely to such industry segment.
(c)	Narrative Description of Business. The Partnership's principal objectives were to (i) provide quarterly cash distributions, a portion of which were anticipated to be non-taxable due to depreciation deductions, (ii) preserve and protect capital and (iii) achieve long-term appreciation in the value of the Property for distribution upon sale. However, due to the poor economic conditions in the hospitality industry and the resulting decline in the Hotel's operations, objective (i) has not been achieved and it is unlikely that objectives (ii) and (iii) can be achieved.
Competition. The Hotel operates in a highly competitive market. The Partnership has identified 21 existing first-class and luxury properties with a total of approximately 12,885 guest rooms which are competitive with the Hotel.
The Westin St. Francis, the Hyatt Regency, the Fairmont Hotel, the Ritz Carlton and the Sheraton Palace with a total of 3,485 guest rooms are considered by the Partnership to be primary competitors. These hotels are considered primary competitors due to their size, meeting facilities and market mix relative to the Hotel. The remaining sixteen properties, with a total of approximately 9,400 rooms, are secondary competitors which compete with the Hotel to a lesser degree.
Eight hotels, the Ritz Carlton, the Sheraton Palace, the Mandarin Hotel, the Pan Pacific Hotel (formerly the Portman Hotel), the Nikko Hotel, the Park Hyatt, the San Francisco Marriott and the Hyatt Fisherman's Wharf opened after the Partnership commenced operations. These hotels have a total of 4,110 rooms and compete in varying degrees with the Hotel. The continued introduction of new properties has exerted downward pressure on occupancy and room rates throughout the city.
Employees. The Partnership's business is managed by the General Partner and the Partnership has no employees. The Hotel's staff are employees of California Hyatt.
Item 2.
Item 2. The Property
The Hotel, which is located on Union Square at the center of San Francisco's downtown retail district, has 693 rooms, two restaurants, one lounge and 22,000 square feet of meeting and banquet facilities and four retail tenants. The 36-story Hotel encompasses approximately 660,000 total square feet on a 35,391 square foot site. It was built in 1973 and substantially refurbished in 1982 and 1989, at which time the Hotel was converted to a Grand Hyatt. See Note 3 to the Financial Statements incorporated herein by reference thereto for additional information regarding the Hotel.
Item 3.
Item 3. Legal Proceedings
See Note 8 to the Financial Statements, incorporated herein by reference thereto.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to the Unitholders for a vote during the fourth quarter of the Partnership's past fiscal year.
PART II
Item 5.
Item 5. Market for the Partnership's Limited Partnership interests and Security Holder Matters
(a) Market Information. The Partnership has issued no common stock. There is no established trading market for the units. The securities issued by the Partnership consist of units of Limited Partnership interest.
(b) Holders. The number of Unitholders as of December 31, 1994 was 5,773.
(c) Dividends. Beginning with the second quarter of 1988, the General Partner has deferred payment of distributions and will not resume payment until such time as the Hotel's cash flow reaches a sufficient level in excess of its debt service. The terms of the First Mortgage Loan provide that at the time of any cash distribution, a cash flow to debt service ratio of not less than 1.2:1 must have been met or exceeded for the four most recently completed quarters and that cash available for debt service immediately after such distributions must be not less than $3,500,000.
As of the end of the prior fiscal year, the cash flow to debt service ratio was 0.83:1, and the Partnership's cash generated by property operations available for debt service was $5,649,380. This ratio is determined based on the contract interest rate of 9.699%.
Pursuant to the settlement of class actions against the Partnership and others (the "Settlement"), Shearson paid cash distributions to class member Limited Partners, in the amount of $.40 per Unit on February 12, 1993, $.30 per Unit on February 14, 1992 and $.10 per Unit on March 8, 1991. See Note 8 to the Financial Statements incorporated herein by reference thereto for additional information concerning the Settlement.
Item 6.
Item 6. Selected Financial Data
For the Years ending December 31,
1994 1993 1992 1991 1990
Total Income $ 7,005,899 $ 5,412,650 $ 4,255,525 $ 2,841,245 $ 1,563,720
Net Loss (11,015,227) (12,404,566) (13,825,960) (15,257,829) (22,509,326)
Net Loss Per Unit(1) (1.52) (1.71) (1.91) (2.11) (3.11)
Long-term obligations(2) 130,684,497 126,508,947 122,783,001 111,644,711 102,851,341
Total Assets 106,774,719 109,887,083 115,656,493 120,254,329 125,999,197
Cash Distributions Per Unit (1) .00 .00 .40(3) .30(3) .10(3)
(1)	Based on 7,174,100 units outstanding.
(2) Accrued interest is not included in long-term obligations with the exception of interest accrued on the Loan Payable, which according to the original terms of this note, is not payable currently. In addition, pursuant to the Restructuring, past due interest on the Mortgage Loan is being deferred and will be due and payable upon maturity of the Mortgage Loan. Accordingly, such deferred interest is included as a long-term obligation.
(3)	Paid by Shearson pursuant to the Settlement.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Liquidity and Capital Resources
The Partnership's liquidity and capital resources have been substantially impacted by the funding of the Renovation Plan which was completed in January 1990 (the "Renovation Plan") and extensive borrowing subsequent to the initial offering. Combined with weak results from operations since 1989, these factors led to a default by the Partnership on its January 2, 1992 debt-service payment with respect to its $70 million first mortgage loan (the "Mortgage Loan"). This default created other defaults under the Partnership's subordinate financings. Effective June 30, 1992, a restructuring of the Partnership's indebtedness and property leasing arrangements (the "Restructuring") was successfully executed resulting in the waiver or cure of each of the Partnership's defaults. Please refer to Note 4 to the Financial Statements, which are incorporated herein by reference thereto for additional details regarding the Restructuring and the Mortgage Loan.
There can be no assurance that the Partnership's hotel (the "Hotel" or "Property") will generate sufficient cash flow to enable the Partnership to satisfy its debt service obligations. The Partnership made its quarterly debt service payments, due on January 2, 1994, April 2, 1994, July 5, 1994 and October 3, 1994, as well as the quarterly debt service payment, due on January 2, 1995 to the Bank of Nova Scotia ("BNS"), with cash flow from operations. In addition, on July 5, 1994 a payment of $405,083 was made to BNS representing the excess of rents received by the Partnership less disbursements for the period from July 1, 1993 through June 30, 1994, as required by the Amended and Restated Promissory Note Secured by the Deed of Trust dated June 30, 1992. This payment was applied toward reducing BNS's portion of the accrued interest on the Partnership's Mortgage Loan. While the General Partner currently expects that the Partnership's cash flow will be sufficient to meet the minimum pa yment on April 2, 1995 due under the restructured terms of the Mortgage Loan, there can be no assurance that cash flow will continue to be sufficient to satisfy future payments. The General Partner is prepared to request financial support from an affiliate, Lehman Brothers Holdings Inc. ("Lehman Brothers Holdings"), to supplement cash flow from the Hotel should the need arise. Lehman Brothers Holdings has indicated that it would evaluate the need for additional funding on a quarterly basis.
On April 27, 1993, Lehman Brothers Inc. elected not to renew the Guaranty of the minimum pay rate under the restructured Mortgage Loan for the year commencing July 4, 1993. The General Partner believes that this decision does not reflect a change of position by Lehman Brothers Inc., and that they will evaluate the future need for additional funding on a quarterly basis. The General Partner anticipates the need for continued interest accruals and deferrals pursuant to the Restructuring, for the foreseeable future. However, if the Partnership continues to remit only the minimum debt service payments, interest will continue to accrue. This accrual of interest may affect the Partnership's ability to refinance and/or sell the hotel property at a price which enables the repayment of the Partnership's restructured debt, including the accrued and deferred interest.
At December 31, 1994, the Partnership had cash, which is held in an interest bearing account, of $2,668,685 compared to $1,488,632 at December 31, 1993. The increase primarily is due to the increase in cash provided by operating activities.
Replacement reserve receivable decreased from $327,929 at December 31, 1993 to $89,506 at December 31, 1994, largely due to expenditures for furniture, fixtures and equipment ("FF&E") exceeding additions to the reserve. Rent receivable increased by $40,703 from December 31, 1993 to $194,244, due to the increase in rent from operations and the timing of payments.
California Hyatt was required to reimburse the Partnership $3,000,000 with respect to the installation of life safety systems at the Hotel (including sprinklers) and the necessary abatement of asbestos. The terms of this agreement required California Hyatt to make 36 monthly payments of principal plus interest beginning in January 1991, as a deduction from the Hotel's operating profit. Thus, the Partnership reduced building costs and established a receivable from California Hyatt in the amount of $600,000 at December 31, 1990, which represented management's estimate of the portion of such reimbursements in excess of normal lease payments otherwise anticipated to be received. As a result of the amendment to the Hotel lease, completed as part of the Restructuring, California Hyatt's effective commitment to reimburse the Partnership for the installation of life safety systems at the Hotel (including sprinklers) and the necessary abatement of asbestos, was reduced in 1992 by $187,500. Accordingly, this amount was added to the Partnership's cost of the life safety system. As a result of the final payment made March 31, 1994, "Receivable - Life Safety System" declined from $6,287 at December 31, 1993 to $0 at December 31, 1994.
Accounts payable and accrued expenses increased to $66,420 at December 31, 1994 compared with $44,718 at December 31, 1993, primarily due to the accrual of $18,400 for additional taxes due to the City of San Francisco for 1991, 1992 and 1993. Accrued interest increased to $11,580,105 at December 31, 1994 compared with $7,885,464 at December 31, 1993, which is the net of accrued interest expense for the period less the minimum interest payments and the payment from excess cash flow made on the Mortgage Loan. Deferred interest increased from $7,452,135 at December 31, 1993 to $8,020,283 at December 31, 1994 and Notes and Loans - Affiliate increased from $45,209,234 at December 31, 1993 to $48,891,636 at December 31, 1994. These accounts have increased due to compounding of interest on the principal balances.
Due to the downturn in operating results of the Hotel, the General Partner suspended payment of cash distributions starting with the second quarter of 1988. However, a cash distribution in the amount of $.40 per unit, which represents the third and final distribution pursuant to the Settlement, was paid to class member Limited Partners on February 12, 1993. See Note 8 to the Financial Statements contained herein at Item 8.
Item 8. Financial Statements and Supplementary Data
See Item 14 "Exhibits, Financial Statement Schedules, and Reports on Form 8-K" for a listing of the financial statements filed with this report.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
PART III
Item 10.
Item 10. Directors and Executive Officers of the Registrant
The Partnership has no officers or directors. The General Partner, Union Square/GP Corp., formerly Shearson Union Square/GP Corp., is an affiliate of Lehman, and has offices at the same location as the Partnership. The General Partner manages and controls substantially all of the Partnership's affairs and has general responsibility and ultimate authority in all matters affecting the Partnership business. All of the officers and directors of the General Partner are also officers and employees of Lehman.
Certain officers of the General Partner are now serving (or in the past have served) as officers or directors of entities which act as general partners of a number of real estate limited partnerships which have sought relief under the United States Bankruptcy Code. The partnerships which have filed bankruptcy petitions own real estate which has been adversely affected by the economic conditions in the markets in which that real estate is located and, consequently, the partnerships sought the protection of the bankruptcy laws primarily to protect the partnerships' assets from loss through foreclosure.
The Officers and/or Directors of the General Partner are as follows:
Name Office
	Jeffrey C. Carter	President, Director and Chief Financial Officer 	Rocco F. Andriola	Director and Vice President
There is no family relationship among any of the foregoing directors or officers. All of the foregoing directors have been elected to serve one year terms. The business experience during the past five years of each of the directors and officers of the General Partner of the Partnership is detailed below.
Jeffrey C. Carter, 49, is a Senior Vice President of Lehman Brothers in the Diversified Asset Group. Mr. Carter joined Lehman Brothers in September 1988. From 1972 to 1988, Mr. Carter held various positions with Helmsley-Spear Hospitality Services, Inc. and Stephen W. Brener Associates, Inc. including Director of Consulting Services at both firms. From 1982 through 1987, Mr. Carter was President of Keystone Hospitality Services, an independent hotel consulting and brokerage company. Mr. Carter received his B.S. degree in Hotel Administration from Cornell University and an M.B.A. degree from Columbia University.
Rocco F. Andriola, 36, is a Senior Vice President of Lehman Brothers in its Diversified Asset Group. Since joining Lehman Brothers in 1986, Mr. Andriola has been involved in a wide range of restructuring and asset management activities involving real estate and other direct investment transactions. From 1986-89, Mr. Andriola served as a Vice President in the Corporate Transactions Group of Shearson Lehman Brothers' office of the general counsel. Prior to joining Lehman Brothers, Mr. Andriola practiced corporate and securities law at Donovan Leisure Newton & Irvine in New York. Mr. Andriola received a B.A. degree from Fordham University, a J.D. degree from New York University School of Law, and an LL.M degree in Corporate Law from New York University's Graduate School of Law.
Certain Matters Involving Affiliates On July 31, 1993, Shearson Lehman Brothers Inc. ("Shearson") sold certain of its domestic retail brokerage and asset management businesses to Smith Barney, Harris Upham & Co. Incorporated ("Smith Barney"). Subsequent to this sale, Shearson changed its name to Lehman Brothers Inc. The transaction did not affect the ownership of the Partnership or the Partnership's General Partners. However, the assets acquired by Smith Barney included the name "Shearson." Consequently, effective October 21, 1993, the General Partner changed its name to Union Square/GP Corp., and effective December 29, 1993, the Partnership changed its name to Union Square Hotel Partners Limited Partnership to delete any reference to "Shearson."
Item 11.
Item 11. Executive Compensation
All of the directors and executive officers of the General Partner are employees of Lehman Brothers Inc. They do not receive any salaries or other compensation from the Partnership.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management
To the knowledge of the General Partner, no person owns more than 5% of the outstanding Units.
Item 13.
Item 13. Certain Relationships and Related Transactions
All of the officers and directors of the General Partner are employees of Lehman Brothers Inc. For information regarding transactions with affiliates, please refer to Note 6 to the Financial Statements incorporated herein by reference thereto.
PART IV Item 14.
Item 14. Exhibits, Financial Statements, and Reports on Form 8-K
(a) (1) and (2) UNION SQUARE HOTEL PARTNERS LIMITED PARTNERSHIP
Report of Independent Public Accountants
Financial Statements:
Balance Sheets - At December 31, 1994 and 1993
Statements of Operations - For the years ended December 31, 1994, 1993 and 1992
Statements of Changes in Partners' Capital (Deficit) - For the years ended December 31, 1994, 1993 and 1992
Statements of Cash Flows - For the years ended December 31, 1994, 1993 and 1992
Notes to Financial Statements
Independent Accountants' Report on Schedule III
Schedule III - Real Estate and Accumulated Depreciation
All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission have been omitted as (1) the information required is disclosed in the financial statements and notes thereto; (2) the schedules are not required under the related instructions; or (3) the schedules are inapplicable.
	Exhibit Index
(a)(3)	Exhibits
3.a Amended and restated Agreement of Limited Partnership of Shearson Union Square Associates dated August 18, 1986 (included in Amendment No. 2 to registration Statement No. 33-6678) incorporated by reference.
10.a Stipulation and Agreement of Compromise and Settlement filed in the Court of Chancery of the State of Delaware in and for New Castle County in June 8, 1990.
10.b Documents for Restructuring of Indebtedness Encumbering the Grand Hyatt Union Square Hotel among Shearson Union Square Associates Limited Partnership, as Borrower, and The Bank of Nova Scotia, as First Lien Holder, Capital Growth Mortgage Investors, L.P., as Second Lien Holder, Hyatt Corporation, as Third Lien Holder, and California Hyatt Corporation, as Hotel Manager dated June 30, 1992.
(b)		Reports on form 8-K filed in the fourth quarter of fiscal 1994.
		None.
SIGNATURES
Pursuant to the requirements 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.
					UNION SQUARE HOTEL PARTNERS, L.P.
					BY:	Union Square GP/Corp. 						General Partner
Date: March 30, 1995 BY: s/Jeffrey C. Carter/ Name: Jeffrey C. Carter Title: President, Director and Chief Financial Officer
Pursuant to the requirements 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.
					UNION SQUARE/GP CORP. 					General Partner
Date: March 30, 1995 BY: s/Jeffrey C. Carter/ Name: Jeffrey C. Carter Title: President, Director and Chief Financial Officer
Date: March 30, 1995 BY: s/Rocco F. Andriola/ Name: Rocco F. Andriola Title: Director and Vice President
Report of Independent Public Accountants
To the Partners of Union Square Hotel Partners, L.P.:
We have audited the accompanying balance sheets of Union Square Hotel Partners, L.P. (formerly Shearson Union Square Associates, L.P.), as of December 31, 1994 and 1993, and the related statements of operations, partners' deficit and cash flows for each of the three years in the period ended December 31, 1994. 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 management, as well as evaluating the overall financial statement presentation. We believe that our audits provides a reasonable basis for our opinion.
As discussed in Note 2 to the financial statements, the carrying value of the Partnership's real estate exceeds estimated fair value as of December 31, 1994 and 1993. The recovery of the carrying value of the Partnership's real estate is dependent upon the improvement of market conditions. The ultimate outcome of this matter cannot presently be determined. In accordance with generally accepted accounting principles, no provision for impairment is required. Accordingly, no provision for any asset impairment has been made in the accompanying financial statements.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Union Square Hotel Partners, L.P. as of December 31, 1994 and 1993, and the results of its operations and its cash flows for each of the years in the period ended December 31, 1994 in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the Partnership will continue as a going concern. As discussed in Note 4 to the financial statements, the Partnership has suffered recurring losses from operations and the guaranty of the Partnership's debt service payments by an affiliate of the General Partner expired during 1993, which raises substantial doubt about the Partnership's ability to continue as a going concern. The General Partner's plans in regard to these matters are also described in Note 4. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
COOPERS & LYBRAND L.L.P.
Hartford, Connecticut February 24, 1995
Balance Sheets December 31, 1994 and 1993
Assets 1994 1993
Real estate, at cost (Note 3): Land $ 32,231,229 $ 32,231,229 Building 80,121,007 80,060,478 Furniture, fixtures and equipment 28,749,108 27,423,641
141,101,344 139,715,348 Less-accumulated depreciation (38,235,817) (33,222,871)
102,865,527 106,492,477
Cash 2,668,685 1,488,632 Replacement reserve receivable (Note 3) 89,506 327,929 Rent receivable (Note 4) 194,244 153,541 Receivable-life safety system - 6,287 Deferred charges, net of accumulated amortization of $3,388,028 in 1994 and $2,926,568 in 1993 956,757 1,418,217
Total Assets $106,774,719 $109,887,083
Liabilities and Partners' Deficit
Liabilities: Accounts payable and accrued expenses $ 66,420 $ 44,718 Due to affiliates (Note 6) 28,342 17,372 Mortgage loan payable (Note 4) 70,000,000 70,000,000 Accrued interest 11,580,105 7,885,464 Deferred interest 8,020,283 7,452,135 Notes and Loans - Affiliate (Notes 4, 5, and 6) 48,891,636 45,209,234 Loan payable-Hyatt (Note 4) 3,772,578 3,847,578
Total Liabilities 142,359,364 134,456,501
Partners' Deficit: General Partner (1,039,066) (928,914) Limited Partners (34,545,579) (23,640,504)
Total Partners' Deficit (35,584,645) (24,569,418)
Total Liabilities and Partners' Deficit $106,774,719 $109,887,083
Statements of Operations For the years ended December 31, 1994, 1993 and 1992
Income 1994 1993 1992
Rental income (Notes 3 and 4): Operating income $ 5,816,107 $ 4,045,593 $ 3,155,626 Replacement escrow 1,147,573 1,080,728 1,031,793 Interest income 39,454 29,677 45,608 Miscellaneous income 2,765 256,652 22,498
Total Income 7,005,899 5,412,650 4,255,525
Expenses
Interest expense (Notes 4, 5 and 6) 12,337,774 11,453,674 11,130,646 Depreciation and amortization 5,474,406 6,165,463 6,513,409 General and administrative 208,946 198,079 460,717
Total Expenses 18,021,126 17,817,216 18,104,772
Net Loss before extraordinary item (11,015,227) (12,404,566) (13,849,247)
Extraordinary Item
Gain on restructuring, net (Note 4) - - 23,287
Net Loss $(11,015,227) $(12,404,566) $(13,825,960)
Net Loss Allocated (Note 2):
To the General Partner $ (110,152) $ (124,045) $ (138,260) To the Limited Partners (10,905,075) (12,280,521) (13,687,700)
$(11,015,227) $(12,404,566) $(13,825,960)
Per limited partnership unit (7,174,100 outstanding): Net Loss before extraordinary item $ (1.52) $ (1.71) $ (1.91)
Net Loss $ (1.52) $ (1.71) $ (1.91)
Statements of Partners' Capital (Deficit) For the years ended December 31, 1994, 1993 and 1992
Limited General Total Partners' Partner's Partners'
Balance at December 31, 1991 $ 2,327,717 $ (666,609) $ 1,661,108
Net loss (13,687,700) (138,260) (13,825,960)
Balance at December 31, 1992 (11,359,983) (804,869) (12,164,852)
Net loss (12,280,521) (124,045) (12,404,566)
Balance at December 31, 1993 (23,640,504) (928,914) (24,569,418)
Net loss (10,905,075) (110,152) (11,015,227)
Balance at December 31, 1994 $(34,545,579) $(1,039,066) $(35,584,645)
Statements of Cash Flows For the years ended December 31, 1994, 1993 and 1992
Cash Flows from Operating Activities:
1994 1993 1992
Net loss $(11,015,227) $(12,404,566) $(13,825,960) Adjustments to reconcile net loss to net cash provided by (used for) operating activities: Depreciation and amortization 5,474,406 6,165,463 6,513,409 Gain on restructuring - - (23,287) Rental income from replacement escrow (1,147,573) (1,080,728) (1,031,793) Increase in deferred interest on loan payable-affiliate 3,682,402 3,306,097 2,755,459 Increase (decrease) in cash arising from changes in operating assets and liabilities: Rent receivable (40,703) 140,518 (294,059) Due from Hyatt - 30,355 - Receivable - life safety system 6,287 68,713 137,500 Accounts payable and accrued expenses 21,702 (219,687) 145,552 Due to affiliates 10,970 (55,081) (18,154) Due to California Hyatt - - (678,063) Accrued and deferred interest 4,262,789 3,678,827 7,623,267
Net cash provided by (used for) operating activities 1,255,053 (370,089) 1,303,871
Cash Flows from Investing Activities:
Proceeds from replacement reserve receivable 1,385,996 1,410,987 513,076 Additions to real estate (1,385,996) (1,410,987) (513,076)
Net cash used for investing activities - - -
Cash Flows from Financing Activities:
Loan payable - Hyatt (75,000) (75,000) (250,000) Restructuring note payable - affiliate - - 1,000,000 Restructuring costs - - (1,018,085)
Net cash used for financing activities (75,000) (75,000) (268,085)
Net increase (decrease) in cash 1,180,053 (445,089) 1,035,786 Cash at beginning of period 1,488,632 1,933,721 897,935
Cash at end of period $ 2,668,685 $ 1,488,632 $ 1,933,721
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for interest $ 4,392,583 $ 4,468,750 $ 6,968
Notes to Financial Statements December 31, 1994, 1993 and 1992
1. Organization Union Square Hotel Partners L. P. (the "Partnership"), formerly Shearson Union Square Associates Limited Partnership (see below), was formed in June 1986 under the Delaware Revised Uniform Limited Partnership Act for the purpose of acquiring the Hyatt on Union Square (the "Hotel"), located in San Francisco, California, under a long-term operating lease.
Initial capital of $1,000 was contributed by Union Square/GP Corp. (the "General Partner"), formerly Shearson Union Square/GP Corp. (see below), a Delaware corporation and an affiliate of Lehman Brothers Inc. The agreement of limited partnership authorized the issuance of a maximum of 7,174,100 Depository Units (the "Units") which represent Partnership interests. At March 26, 1987, an aggregate of 7,174,100 units was issued, and the offering was terminated.
On July 31, 1993, Shearson Lehman Brothers Inc. sold certain of its domestic retail brokerage and asset management businesses to Smith Barney, Harris Upham & Co. Incorporated ("Smith Barney"). Subsequent to the sale, Shearson changed its name to Lehman Brothers Inc. ("Lehman"). The Transaction did not affect the ownership of the General Partner. However, the assets acquired by Smith Barney included the name "Shearson." Consequently, effective October 21, 1993, the General Partner changed its name to Union Square/GP Corp., and effective December 29, 1993, the Partnership changed its name to Union Square Hotel Partners Limited Partnership.
2. Significant Accounting Policies
Basis of Accounting. The accompanying financial statements of the Partnership have been prepared on the accrual basis of accounting.
Real Estate Depreciation. Real estate investments, which consist of land, building and personal property, are recorded at cost, less accumulated depreciation. Cost includes the initial purchase price of the property plus closing costs, acquisition and legal fees, and capital improvements. Depreciation is computed using the straight-line method based on the estimated useful life of 40 years. Depreciation of real property is computed over the remaining useful life of the building. Depreciation of the personal property is computed under the straight-line method over an estimated useful life of 7 years.
When building and personal property are sold or otherwise disposed of, when required, the asset account and related accumulated depreciation account are relieved, and any gain or loss is included in operations.
The current estimated market value of the hotel real estate investment as of December 31, 1994 continues to improve from that of prior years. However, while the property has not been appraised recently, management believes that the carrying value of the Partnership's real estate exceeds fair market value at December 31, 1994. The Partnership's hotel real estate investments is carried at cost, less accumulated depreciation. The Partnership's depreciated investment is exceeded by the amount of the outstanding nonrecourse indebtedness. Accordingly, no adjustment has been made to the carrying value. The ultimate outcome of this matter presently can not be determined. In accordance with generally accepted accounting principles, a provision for impairment is not required. Accordingly, no provision for any asset impairment has been made in the accompanying financial statements.
Deferred Charges. The following fees and costs have been capitalized and are amortized on a straight-line basis over the following periods:
Mortgage consent fee 7 years 	Mortgage and loan origination fee	10-1/3 years Mortgage loan placement fee 10-1/3 years Loan negotiation fee 10-1/3 years
An improvement program supervisory fee incurred in 1989 has been capitalized on a pro rata basis, based on annual improvement program expenditures in relation to the total expected expenditures during the term of the improvement program, and is depreciated using the applicable method and life.
Offering Costs. Offering costs are nonamortizable and have been deducted from the Limited Partners' capital.
Income Taxes. No income tax provision (benefit) has been recorded on the books of the Partnership, as the respective shares of taxable income (loss) are reportable by the partners on their individual tax returns.
Concentration of Credit Risk. Financial instruments which potentially subject the Partnership to a concentration of credit risk principally consist of cash in excess of the financial institutions' insurance limits. The Partnership invests available cash with high credit quality financial institutions.
Partnership Agreement. Pursuant to the terms of the Partnership Agreement, all profits and losses incurred prior to the month in which Unitholders were first admitted shall be allocated 99.99% to the General Partner and .01% to the Assignor Limited Partner. Thereafter, all income, profits and losses shall be allocated 99% to the Unitholders and 1% to the General Partner, except for the profits from the sale or other disposition of all or any substantial part of the Hotel.
Profits of the Partnership from the sale or other disposition of all or any substantial part of the Hotel shall be allocated to the General Partner in an amount equal to the greater of 1% of the profits or the amount distributable to the General Partner as sale or refinancing proceeds from such sale. All remaining profits shall be allocated among the Unitholders.
Net cash flow shall be distributed 99% to the Unitholders and 1% to the General Partner until each Unitholder has received an aggregate cumulative compounded distribution for each fiscal year equal to 12% of their capital investment ("Preferred Return"). Thereafter, distributions shall be allocated 90% to the Unitholders and 10% to the General Partner.
Sale or refinancing proceeds shall be distributed 99% to the Unitholders and 1% to the General Partner until such time as the Unitholders have received cumulative distributions of sale or refinancing proceeds in an amount equal to their unreturned original investment plus an aggregate amount of the net cash flow and sale or refinancing proceeds equal to their aggregate Preferred Return. Any remaining sale or refinancing proceeds shall first be applied to the payment to the General Partner of a subordinated disposition fee, if any, equal to 3% of sales proceeds and thereafter shall be allocated 90% to the Unitholders and 10% to the General Partner. In conjunction with the settlement agreement discussed in Note 8, the General Partner's share of the proceeds, in the event of a sale or refinancing of the property, will be reduced to 5%.
3. Real Estate The Partnership's real estate consists of a 693-room hotel known as the Grand Hyatt San Francisco (formerly "Hyatt on Union Square") located in Union Square in San Francisco, California. The Hotel was originally constructed in 1973 and was purchased by the Partnership on August 29, 1986.
The Hotel was purchased subject to an operating lease with California Hyatt Corporation ("California Hyatt"), a subsidiary of Hyatt Corporation ("Hyatt"), which provides for an initial term of 20 years expiring on December 31, 1994 and two 10-year renewal options. On August 19, 1986, the first 10-year renewal option was exercised, extending the lease term to December 31, 2004.
Rent payable under the lease has been modified by the restructuring agreement effective June 30, 1992 (see note 4). Pursuant to the terms of the operating lease, California Hyatt is required to maintain a reserve fund ("FF&E Reserve Fund") for the replacement of furnishings and equipment in the Hotel. This reserve is funded by the operating revenues of the Hotel and will be funded at 3% of the Hotel's gross receipts through 1997 and 4% thereafter. During 1988, the Partnership and California Hyatt mutually agreed upon a renovation program which was to be effected for a cost not expected to exceed $20,000,000. During 1989 and early 1990, the renovation program was completed. The Hotel was renamed The Grand Hyatt San Francisco and reopened on February 1, 1990. Other conditions of the renovation program provided that 70% of the 1990 replacement escrow was to be applied to the Partnerships liability to California Hyatt in 1990. From January 1, 1991 to June 30, 1992, 70% of replacement escrow income was to be applied to the outstanding balance of the loan payable - Hyatt. As of December 31, 1990, $20,676,768 related to the renovation program was
expended. In connection with the reopening of the Hotel in 1990, the Partnership recorded a write-down in carrying value of personal property which was replaced during the renovation, based on the original purchase price allocated to such property.
During 1991, the Partnership and California Hyatt reached an agreement on the revised terms of California Hyatt's contribution to the renovation program. This contribution was to be 10% of the total renovation costs, in excess of funds provided by the FF&E Reserve, up to a maximum of $2,000,000. As a result of the revised agreement, the total contribution from California Hyatt (which was fully funded at December 31, 1991) amounted to $1,874,379, and accordingly, a reduction in the renovation contribution in the amount of $125,621 was recorded. In addition, renovation costs in excess of $20,000,000 were to be assumed and capitalized by the Partnership.
At December 31, 1990, the Partnership recorded a receivable from California Hyatt in the amount of $600,000. This balance represented the net proceeds to be reimbursed to the Partnership under the second amendment to the lease relating to the costs incurred for the asbestos removal and installation of the life safety systems. Payments were to be received in 36 equal monthly installments, including interest at prime plus .5%. The balance due was reduced by $187,500 as a result of the Restructuring Agreement.
Asbestos was removed or abated where necessary, in conjunction with the installation of sprinklers and other life safety systems. As disclosed in the original prospectus, the Hotel contains asbestos in certain areas which have been determined to be nonhazardous and in conformity with all current statutes. This situation may or may not impact the future value of the property.
The following is summarized information with respect to the operations of the Hotel provided by the lessee for the years ended December 31, 1994, 1993 and 1992.
1994 1993 1992
Hotel revenues $ 38,252,425 $ 36,024,256 $ 34,392,536 Hotel expenses (26,698,442) (26,829,851) (26,026,302)
Gross operating profit 11,553,983 9,194,405 8,366,234
Less: Adjustments to gross operating profit: FF&E Reserve 1,147,573 1,080,728 1,031,793 Taxes 1,491,415 1,479,842 1,583,514 Other adjustments 2,213,762 2,908,545 2,013,034
4,852,750 5,469,115 4,628,341
Adjusted gross operating profit $ 6,701,233 $ 3,725,290 $ 3,737,893
Rental income to the Partnership $ 5,816,107 $ 4,045,593 $ 3,155,626
4. Restructuring Agreement Under the terms of the Mortgage Loan, a regular installment of interest in the amount of $3,394,650 was due on January 2, 1992. Under the terms of the Note Payable, $1 million in principal and $341,502 in accrued interest was due on December 31, 1991. None of the foregoing payments were made, and the Partnership did not have sufficient funds to make such payments. On January 9, 1992, the Partnership received a notice from the First Mortgagee that the Partnership was in default on its obligations with respect to the Mortgage Loan and Note Payable. Such defaults entitled the Mortgage Lender to accelerate the Mortgage Loan and Note Payable subject to any defenses available to the Partnership. On January 21, 1992, an affiliate of the General Partner, which guaranteed the Note Payable, fulfilled its commitment to repay the outstanding balance of the Note Payable. On March 3, 1992, the Partnership received a notice whereby the bank declared the entire principal and interest under the M ortgage Loan immediately due and payable. On March 9, 1992, the First Mortgagee recorded, with the San Francisco County Recorder, a Notice of Default and Election to Sell under Deed of Trust (the "Default Notice").
The default on the Mortgage Loan also constituted an event of default under the "Loan Payable - affiliate," the Supplemental Loan and the Hyatt Loan. On March 25, 1992, the Partnership received a notice of acceleration from the holder of the Loan Payable - affiliate, which declared the entire principal and accrued interest on the loan due and payable.
On June 30, 1992, Union Square Hotel Partners Limited Partnership (the "Partnership") consummated a restructuring of its financing and property leasing arrangements.
Mortgage Loan Payable - First Deed of Trust Note. Under the terms of the restructuring, the outstanding principal amount of the Note - $70,000,000 - will continue to accrue interest at the annual rate of 9.699%. Payments of interest will be limited, however, to the Partnership's cash flow from the Hotel. Minimum interest payments (the "Minimum Payments") must be made semi-annually and shall be computed on the principal balance of the First Deed of Trust, less a $15,000,000 principal participation purchased by Lehman Brothers Lending Corp, formerly Shearson Lending Corp, an affiliate of the General Partner. The par rate for the Minimum Payments are as follows: 6.5% through January 2, 1994; 7.5% through January 2, 1995; 8.5% through January 2, 1996; and 9.699% thereafter until maturity on January 2, 1997. The amount of any accrued and unpaid interest is to be added to the principal of the First Deed of Trust Note.
Lehman Brothers Holdings Inc. (the "Guarantor") formerly Shearson Lehman Brothers Holdings Inc., an affiliate of the General Partner, provided a payment guaranty (the "Guaranty") to the Bank with respect to the Minimum Payments required to be made through July 3, 1993. The Guarantor may, at its sole option, extend the Guaranty for successive one-year periods through the maturity date of the First Deed of Trust Note. In the event that the Guarantor does not elect to extend the Guaranty, the Partnership's interest payments thereafter will be due and payable quarterly, rather than semi-annually as previously provided. On April 27, 1993, Lehman Brothers Inc. elected not to renew the Guaranty of the minimum pay rate commencing July 4, 1993.
The Bank waived immediate repayment of the Past Due Interest, but the amount will accrue interest at a the Bank's "prime" rate plus one percent. The balance is due upon maturity of the note.
Loan Payable - Affiliate - Second Deed of Trust Note. Capital Growth Mortgage Investors, L.P. ("Capital Growth"), the holder of the second deed of trust in the Hotel, agreed to reduce the interest rate applicable to the note from 12.5% to 11%. The reduction of the interest rate is effective from and after January 2, 1992. Capital Growth also agreed to waive the mandatory prepayments on account of interest of $261,199, $1,014,379 and $1,996,457, otherwise required to be paid on January 2, 1995, January 2, 1996 and January 2, 1997, respectively. Capital Growth also agreed to waive any prepayment (or yield maintenance) charges in connection with the prepayment of all or any portion of the principal or accrued interest under the Second Deed of Trust Note.
Capital Growth also agreed to automatically extend the maturity date of the Second Deed of Trust Note to the same maturity date as the First Deed of Trust Note, so long as the maturity date is no later than January 2, 1999.
Loan Payable - Hyatt - Third Deed of Trust Note. Hyatt Corporation ("Hyatt") the holder of a third deed of trust note collateralized by the Hotel forgave $2,000,000 of the outstanding indebtedness under the Third Deed of Trust Note. Hyatt also reduced the interest rate from one percent above the prime rate to the lesser of (i) the prime rate or (ii) eight percent. Hyatt also agreed to a deferral of interest to the extent that the interest payments otherwise required to be paid under the note are not available from cash flow. Hyatt also agreed to extend the maturity date of the note to the maturity date of the First Deed of Trust Note-January 2, 1997. The Partnership made principal payments of $75,000 during 1994 and 1993 and $250,000 during 1992.
The effect of these concessions by Hyatt is a calculated amount of $1,041,372 for the Partnership resulting in a reduction of the Third Deed of Trust Note by such amount. The amount has been recorded as the extraordinary item, gain on restructuring for $23,287, net of restructuring expenses of $1,018,085.
Operating lease - California Hyatt Corporation. California Hyatt Corporation operates the Hotel under the terms of a lease agreement ("the Lease") with the Partnership. California Hyatt agreed to change the amount to be retained by California Hyatt under the terms of the lease effective July 1, 1992 through December 31, 1996, from an amount equal to 20% of the Hotel's net profit to an amount equal to (i) one percent of the Hotel's gross revenues plus (ii) 7.5% of the Hotel's net profit. California Hyatt agreed that after December 31, 1996 and until the First Deed of Trust Note matures, but in any event not after January 2, 1999, the amount to be retained by California Hyatt will be an amount equal to (i) one percent of the Hotel's gross revenues plus (ii) ten percent of the Hotel's net profit. Thereafter, the amount to be retained by California Hyatt will return to 20% of the Hotel's net profit as required by the Lease for periods prior to the restructuring. Amounts due to the Partne ship will be remitted 20 days after the end of each month.
Furthermore, California Hyatt agreed that the Partnership will have the unilateral right to terminate the Lease, without cause, at any time from the date of the restructuring through December 31, 1998, upon payment of a fee in a fixed amount ranging from $10,000,000 to $16,032,500, which amount increases with the passage of time. California Hyatt further agreed that upon payment of the Early Termination Fee, it would cause Hyatt to forgive the entire amount of indebtedness under the Third Deed of Trust Note.
In addition, California Hyatt agreed that the Partnership may terminate the Lease, without the payment of a termination fee, in the event that (i) the Hotel generates a deficit for any calendar year and (ii) the Partnership prepays all indebtedness due under the Third Deed of Trust Note. California Hyatt may, however, cure any such deficit and avoid a termination of the Lease by paying the amount of such deficit to the Partnership.
Restructuring expense note. In order to provide the Partnership with the funds to cover the costs of restructuring and ongoing administrative expenses, Lehman Lending Corp. has committed to lend the Partnership up to $1,000,000. Advances borrowed under this agreement will accrue interest at prime plus 1% and all principal and accrued interest will be due and payable on the maturity date of the Bank of Nova Scotia Note. The entire $1,000,000 is outstanding as of December 31, 1994 and 1993.
5. Note Payable In order to effect the renovation program, the Partnership has obtained the consent of the First Mortgagee for various modifications of the first Mortgage Loan which permits the use of substantially all of the Partnership's reserve funds for reinvesting into the Hotel and also permits Hyatt Corporation to provide financing to the Partnership. In consideration for such consent, the Partnership paid a fee of $1,000,000 to the First Mortgagee which is evidenced by a note, bearing interest at 9.699%, compounded annually, due either upon the sale of the Hotel or December 31, 1991, whichever occurs first (see Note 6). As a result of the Partnership's failure to pay the principal and accrued interest on December 31, 1991, the note was declared in default. The lender pursued its remedies under which, Lehman Holdings, Inc. ("LB Holdings"), formerly Shearson Lehman Holdings Inc., is required to make payment as guarantor of the note. LB Holdings fulfilled its commitment to repay the outstand ing balance in January 1992. The Partnership's obligation is included in Notes & Loans - Affiliates.
6. Transactions with Related Parties
Notes Payable. LB Holdings, an affiliate of the General Partner, has fulfilled it's guarantee of payment of the $1,000,000 plus interest thereon to the First Mortgagee (see Note 5). As a result, the Partnership is now obligated to LB Holdings in the amount of $1,341,502 in the form of a note which bears interest at 9.699% and becomes payable upon the sale of the property.
As required under the class action settlement, on March 4, 1991, an affiliate of the General Partner and the Partnership entered into the Settlement Loan up to a maximum of $10 million, bearing interest at an annual simple interest rate of 5%. Proceeds of the loan were to be used to the extent needed to fund operating and fixed expenses. On the effective date of the loan, $8,217,302 of the proceeds were used to retire an interim loan plus accrued interest. On July 12, 1991, the remaining proceeds of $1,782,698 were drawn and used to pay a portion of the interest with respect to the First Mortgage Loan indebtedness. As of December 31, 1994 and 1993, the full principal balance of $10,000,000 remains outstanding. The outstanding principal and accrued interest matures and becomes payable upon the sale of the property or upon a refinancing which provides proceeds sufficient to repay other existing indebtedness.
On July 12, 1991, a note was issued from an affiliate of the General Partner in the amount of $1,611,953 (the Supplemental Loan). The Supplemental Loan specifically provided for the proceeds to be used to pay a portion of the interest with respect to the First Mortgage Loan indebtedness. The note bears interest at an annual rate of prime plus 1%. The entire note balance remains outstanding at December 31, 1994 and 1993. The outstanding principal and accrued interest mature and become payable upon the sale of the Property or upon a refinancing which provides proceeds sufficient to repay other existing indebtedness.
The letter of default issued March 3, 1992 by the Bank of Nova Scotia also constituted an event of default under the Supplemental Loan. The default was cured through the restructuring of the Mortgage Loan Payable (see Note 4).
A summary of Notes and Loans - Affiliate is summarized as follows:
1994 1993
LB Holdings - Guarantee $ 1,606,702 $ 1,464,646 Settlement loan 10,000,000 10,000,000 Supplemental loan 2,047,071 1,899,667 Second Deed of Trust (Note 4) 34,237,863 30,844,921 Restructuring note (Note 4) 1,000,000 1,000,000
$48,891,636 $45,209,234
Fees and Compensation. The General Partner and its affiliates earned fees and compensation in connection with syndication and acquisition services rendered to the Partnership of approximately $10,000,000. Under the terms of the Partnership Agreement, the Partnership reimburses the General Partner, at cost, for the performance of certain administrative services provided by a third party. For the years ended December 31, 1994, 1993, and 1992, cost of such services were $37,325, $49,920, and $58,474 respectively. At December 31, 1994 and 1993, $28,342 and $17,372 were due to the General Partner for the performance of these services.
Cash. Cash reflected on the Partnership's balance sheet at December 31, 1994 was on deposit with an affiliate of the General Partner. Cash reflected on the Partnership's balance sheet at December 31, 1993 was on deposit with an unaffiliated party.
7. Reconciliation of Financial Statement Net Loss and Partners' Deficit to Federal Income Tax Basis Net Loss and Partners' Deficit
1994 1993 1992
Financial statement net loss $(11,015,227) $(12,404,566) $(13,825,960) Tax basis depreciation over financial statement deprecation (936,081) (842,152) (1,032,964) Tax basis amortization over financial statement amortization (291,450) (14,320) (14,320) Tax basis income from forgiveness of debt over financial statement income from forgiveness of debt - - 954,845 Financial statement replacement reserve income over tax basis income - (924,996) (862,498) Financial statement legal costs over tax basis legal costs - - 879,520 Other 1,033 10,878 309,964
Federal income tax basis net loss $(12,241,725) $(14,175,156) $(13,591,413)
Financial statement partners' deficit $(35,584,645) $(24,569,418) $(12,164,852) Current year financial statement net loss over federal income tax basis net loss (1,226,498) (1,770,590) 234,547 Cumulative financial statement net loss over federal income tax basis net loss (18,952,092) (17,181,502) (17,416,049)
Federal income tax basis partners' deficit $(55,763,235) $(43,521,510) $(29,346,354)
Because many types of transactions are susceptible to varying interpretations under Federal and state income tax laws and regulations, the amounts reported above may be subject to change at a later date upon final determination by the taxing authorities.
8. Litigation During 1989, two class actions were brought by Unitholders in the Court of Chancery of the State of Delaware (the Delaware Chancery Court) against the Partnership and others. In addition, during 1989, two class actions were filed by Unitholders in the United States District Court for the Northern District of California. Pursuant to a court order dated October 24, 1989, the Delaware Chancery Court actions were consolidated by the Delaware Chancery Court (the Consolidated Delaware Action). In all of the cases, the plaintiffs sought damages in an unspecified amount as well as attorneys' fees and costs.
On December 18, 1990, the Delaware Chancery Court approved a settlement of the Consolidated Delaware Action which became effective March 4, 1991. The terms of the settlement called for Shearson to provide Unitholders cash distributions, to the extent the Hotel did not generate sufficient cash flow, of 1%, 3% and 4% of class members' capital contributions in 1990, 1991 and 1992, respectively. On March 8, 1991, the first of these distributions was paid to class member Limited Partners in the amount of $.10 per $10 Unit, on February 14, 1992, the second distribution under the settlement was paid in the amount of $.30 per $10 Unit, and on February 12, 1993 the third and final cash distribution under the settlement was paid in the amount of $.40 per $10 Unit. Shearson also agreed to lend the Partnership up to a maximum of $10 million to cover debt service and other operating expenses through January 4, 1993, and to pay plaintiffs' attorneys' fees and expenses up to $1,350,000 and $50,000 , respectively. As of December 31, 1991, the Partnership had borrowed and expended the full $10 million available under the Shearson Loan.
Subsequent to the settlement of the Consolidated Delaware Action, the California complaints were dismissed pursuant to a stipulation on January 3, 1991.
Report of Independent Accountants
To the Partners of Union Square Hotel Partners, L.P.:
Our report on the financial statements of Union Square Hotel Partners, L.P. (formerly Shearson Union Square Associates, L.P.), a Delaware Limited Partnership, is included in this Form 10-K. In connection with our audit of such financial statements, we have also audited the related financial statement schedule listed in the index of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included herein.
COOPERS & LYBRAND L.L.P.
Hartford, Connecticut February 24, 1995
UNION SQUARE HOTEL PARTNERS, L.P. Schedule III - Real Estate and Accumulated Depreciation
December 31, 1994
Cost Capitalized Subsequent Initial Cost to Partnership To Acquisition ----------------------------- --------------- Buildings and Buildings and Description Encumbrances Land Improvements Improvements
Commercial Property: Partnership Owned:
Hotel Complex San Francisco, CA $124,991,222 $ 32,231,229 $ 95,496,243 $ 13,373,872
$124,991,222 $ 32,231,229 $ 95,496,243 $ 13,373,872
UNION SQUARE HOTEL PARTNERS, L.P. Schedule III - Real Estate and Accumulated Depreciation (cont.)
December 31, 1994
			Gross Amount at Which Carried at Close of Period
Buildings and Accumulated Description Land Improvements Total Depreciation
Commercial Property: Partnership Owned:
Hotel Complex San Francisco, CA $ 32,231,229 $108,870,115 $141,101,344 $ 38,235,817
$ 32,231,229 $108,870,115 $141,101,344 $ 38,235,817
(2) (1)
UNION SQUARE HOTEL PARTNERS, L.P. Schedule III - Real Estate and Accumulated Depreciation
December 31, 1994
Life on which Depreciation in Latest Date of Date Income Statements Description Construction Acquired is Computed
Commercial Property: Partnership Owned:
Hotel Complex San Francisco, CA 1973 1986 (3)
(1) For federal income tax purposes, the amount of accumulated depreciation is $66,772,934.
(2) For federal income tax purposes, the basis of land, building and personal property is $141,438,877.
(3) Buildings and improvements - 40 years; personal property - 7 years.
A reconciliation of the carrying amount of real estate and accumulated depreciation for the years ended December 31, 1994, 1993 and 1992:
Real Estate investments: 1994 1993 1992
Beginning of year $139,715,348 $138,304,361 $137,791,285 Acquisitions 1,385,996 1,410,987 513,076
End of year $141,101,344 $139,715,348 $138,304,361
Accumulated Depreciation:
Beginning of year $ 33,222,871 $ 27,519,175 $ 21,466,169 Depreciation expense 5,012,946 5,703,696 6,053,006
End of year $ 38,235,817 $ 33,222,871 $ 27,519,175