UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended Commission file number 0-7589
December 31, 1995
USP REAL ESTATE INVESTMENT TRUST
(Exact name of registrant as specified in its charter)
Iowa 42-6149662
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4333 Edgewood Road N.E., Cedar 52499
Rapids, IA (Zip Code)
(Address of principal executive
offices)
Registrant's telephone number, including area code: (319) 398-8975
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Shares of Beneficial Interest, $1 Par Value
(Title of Class)
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 if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this
Form 10-K. [ X ]
The aggregate market value of the voting shares of the
registrant held by non-affiliates at March 1, 1996 was
$11,623,115.
The number of shares of beneficial interest of the registrant
outstanding at March 1, 1996 was 3,880,000.
DOCUMENTS INCORPORATED BY REFERENCE
None.
Part I.
Item I. Business
The Trust
USP Real Estate Investment Trust is an equity-oriented real
estate investment trust organized under the laws of the State of
Iowa pursuant to a Declaration of Trust as amended and restated
through April 23, 1984. The Trust was formed on March 10, 1970
to provide its shareholders with an opportunity to participate in
the benefits of real estate investment and at the same time enjoy
the liquidity and marketability resulting from the ownership of
securities which are publicly-traded.
USP has elected to qualify as a real estate investment trust
("REIT") under the Internal Revenue Code. As a result of this
election, the Trust is not taxed on the portion of its income
which is distributed to shareholders, provided it distributes at
least 95% of its taxable income, has at least 75% of its assets
in real estate investments and meets certain other requirements
for qualification as a real estate investment trust.
The Trust has no employees as all services necessary to conduct
the day-to-day operations are performed by AEGON USA Realty
Advisors, Inc. ("AEGON Realty Advisors") and its affiliates.
(See Note 5 to the Financial Statements.)
Investment Policy
The Trust's primary investment objective is to invest in real
estate which will provide the best available cash flow and offer
prospects for long-term appreciation in value. The Trust
selectively sells property when it is determined that a sales
transaction will economically benefit the Trust through the
realization of capital gains. The Trust does not acquire
property with a view to realizing appreciation from short-term
sales.
The Trust has sought to achieve its investment objectives by
investing principally in the direct ownership of real estate.
Short-term cash investments are made in high-quality commercial
paper, money market funds and certificates of deposit.
Source of Funds and Financing
The principal source of funds for investment by USP was $25
million in proceeds from its initial public offering of shares.
The Trust ceased the issuance of shares from this offering in
1978. The Trust completed a secondary offering of its shares in
1988, raising nearly $10 million. Since substantially all of the
Trust's net income must be distributed to shareholders in order
to qualify as a real estate investment trust, USP has relied
primarily on cash generated from operations and property sales in
excess of shareholder distributions, along with long-term
borrowings secured by mortgages on specific properties, to
finance real estate investments. Outstanding indebtedness of USP
may not, according to the Declaration of Trust, exceed four
hundred percent of the Trust's net assets (shareholders' equity
plus accumulated depreciation). The aggregate principal amount
of long-term mortgage indebtedness and net assets of the Trust as
of December 31, 1995 were $15,271,385 and $27,016,153,
respectively.
The Trust may finance future real estate investments through
additional borrowings secured by mortgages on the Trust's real
estate properties. USP currently has no commitments or
arrangements for any such financing and there can be no assurance
that suitable financing will be available on terms satisfactory
to the Trust in the future. A $500,000 bank line of credit is
available to the Trust on an uncommitted basis, draws against
which must be collateralized by securities or other assets.
Mortgage Loans Receivable
In December 1990, the Trust sold Hickory Hills Shopping Center in
Hillsville, Virginia and College Square Shopping Center in
Jefferson City, Tennessee. The Trust provided mortgage loan
financing for these sales in the amount of $525,000 for Hickory
Hills and $1,125,000 for College Square. The loans mature on
December 20, 1997 and yield 9.5% to the Trust.
Competition
USP's portfolio competes with other similar properties in its
respective markets, some of which are newer than the USP
properties. A strengthening U.S. economy, a low level of
commercial real estate construction, and strong leasing efforts
were factors resulting in improvement in the occupancy of Trust
properties during the past three years. Overall occupancy for
the entire portfolio was 96% at December 31, 1995, 96% at
December 31, 1994, and 95% at December 31, 1993.
Item 2. Properties
Real Estate Investments
The Trust has direct ownership of seven commercial real estate
properties. These real estate investments are diversified
geographically with 57% of the portfolio located in the
Southeast, 22% in the Southwest and 21% in the Great Lakes Region
based on the cost of the properties.
Properties owned by the Trust are leased to tenants either on a
managed basis or under net lease arrangements. As the owner of
managed property the Trust receives gross rentals and incurs
operating expenses, such as property taxes, insurance, repairs,
maintenance and common area utilities. Under net lease
arrangements, the tenant, rather than the Trust, pays all
operating expenses related to the leased premises. At December
31, 1995, six commercial properties were being leased on a
managed basis and one property was leased on a net lease basis.
The six managed commercial properties consisted of five shopping
centers and one business park. Managed commercial properties
comprised 95% of the Trust's investment portfolio in 1995, 1994,
and in 1993. Managed commercial properties provided 89% of USP's
annual revenue in 1995, compared to 91% in 1994 and 92% in 1993.
All managed properties have at least one tenant representing more
than 20% of the revenue from that property, and the Kroger
Company represents more than 11% of the total revenue of the
Trust under a lease expiring in April 2012.
The net leased property is an office/warehouse which represented
approximately 5% of the Trust's investment portfolio in 1995,
1994, and in 1993, and generated 6% of the Trust's annual revenue
in 1995, 1994, and 1993. Trust properties and operations are
summarized in the table on the next page.
The Trust's real estate investments are not expected to be
substantially affected by current federal, state or local laws
and regulations establishing ecological or environmental
restrictions on the development and operations of such property.
However, the enactment of new provisions or laws may reduce the
Trust's ability to fulfill its investment objectives.
<TABLE>
<CAPTION>
The Trust's properties and operations are summarized in the table
below:
Real Estate Cost at 1995 Revenue
December 31, 1995
<S> <C> <C> <C> <C>
Amount Percent Amount Percent
Managed
Kingsley Square
Orange Park, $4,970,114 12% $754,131 13%
Florida
First Tuesday Mall
Carrollton, 6,999,465 18 886,860 16
Georgia
Geneva Square
Lake Geneva, 6,213,974 16 1,049,884 19
Wisconsin
Mendenhall Commons
Memphis, 8,732,032 22 996,347 18
Tennessee
North Park Plaza
Phoenix, 8,651,735 22 1,027,506 18
Arizona
Presidential Drive
Atlanta, 1,886,309 5 277,308 5
Georgia
37,453,629 95 4,992,036 89
Net Leased
Yamaha Warehouse
Cudahy, 2,197,937 5 357,096 6
Wisconsin
2,197,937 5 357,096 6
Properties sold --- --- 166,285 3
Trust operations --- --- 102,597 2
$39,651,566 100% $5,618,014 100%
</TABLE>
<TABLE>
<CAPTION> Largest Tenant Percent of Percent of
<S> <C> <C> <C> <C> <C> <C>
Name of Lease Property Trust
Tenant Expiration Revenue Revenue Revenue
Managed
Kingsley Square
Orange Park, L. Luria & Sons* 2010 $163,806 22% 3%
Florida
First Tuesday Mall
Carrollton, Winn Dixie 2004 186,257 21 4
Georgia
Geneva Square
Lake Geneva, P.W. Enterprises** 2004 347,417 33 6
Wisconsin
Mendenhall Commons
Memphis, Kroger 2012 636,898 64 11
Tennessee
North Park Plaza
Phoenix, Safeway 2003 444,637 43 8
Arizona
Presidential Drive
Atlanta, Atlanta Dental 1999 64,449 23 1
Georgia
1,843,464 33
Net Leased
Yamaha Warehouse
Cudahy, Yamaha Motor Corp. 1997 357,096 100 6
Wisconsin
357,096 6
Properties sold
Trust operations
$2,200,560 39%
* L. Luria & Sons vacated their space in March 1995, however they
continue to honor their lease obligations.
** P.W. Enterprises filed a Chapter 11 reorganization plan in
1995 and vacated their space in January 1996.
</TABLE>
Recent Transactions
A mortgage loan on First Tuesday Mall in Carrollton, Georgia was
prepaid on January 31, 1995. The prepayment amount, including a
1% fee to the lender, was $1,147,526. The annual debt service on
this mortgage was $229,068, including interest at 10%.
On March 1, 1996 the Trust exercised an option to extend the loan
on Geneva Square in Lake Geneva, Wisconsin for eight years at
8.30%. The loan may be prepaid without penalty any time during
the first two years of the extended loan term. The annual debt
service is $260,295.
L. Luria and Sons (Luria's), a 23,587 square foot tenant at
Kingsley Square in Orange Park, Florida, discontinued operations
there in March 1995. Luria's has continued to pay rent and has
notified the Trust that it will honor its lease obligations which
run through March 2010. The Trust is cooperating with Luria's in
securing a new tenant to sublease this space.
P.W. Enterprises has filed a Chapter 11 reorganization plan and
closed its 63,146 square foot store at Geneva Square in Lake
Geneva, Wisconsin in January 1996. The Trust has filed a claim
as an unsecured creditor due to the tenant's rejection of its
lease through the bankruptcy proceedings. The amount of that
claim, limited to 15% of the amounts owed for the unexpired
balance of the lease term, was $514,000. The Trust subsequently
elected to accept 70% of that amount through a proposed
bankruptcy payout plan. Accordingly, a settlement distribution
of approximately $360,000 is expected from the bankruptcy
trustee. At this time it is still uncertain what amounts will
actually be received by the Trust through the bankruptcy
proceedings, and when those payments, if any, will be made.
Staples, Inc. at North Park Plaza in Phoenix, Arizona closed its
18,000 square foot store in February 1996 and moved to a new
center in the metro area. Staples has assigned their lease which
runs through July 2003, to the developer of the new center. The
Trust is cooperating with the developer in securing a new tenant
for the space.
The portfolio operating results in the forthcoming year will
greatly depend upon all tenants continuing to pay their rent and
the Trust's ability to renew expiring tenant leases and obtain
new leases at competitive rental rates.
On February 1, 1995, the Trust announced that it had begun
exploring strategic alternatives to maximize shareholder value.
The decision reflects the opinion of the Trust's board of
trustees that recent market prices for the Trust's shares have
not adequately reflected the value of the Trust. During 1995,
the Trust explored various alternatives and conducted discussions
with a number of prospective buyers but were unable to reach an
agreement on the terms and conditions of a specific transaction.
While the Trust will continue to consider other potential
transactions which will serve to maximize shareholder value,
there is no assurance any transaction will be consummated.
Item 3. Legal Proceedings
Legal Proceedings
The Trust is not a party to any pending legal proceedings which,
in the opinion of management, are material to the Trust's
financial position.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Part II.
Item 5. Market for Registrant's Common Equity and Related
Stockholders Matters
Distribution Information
The Trust is required to distribute at least 95% of its taxable
income to continue its qualification as a real estate investment
trust. Although the Trust expects to continue making
distributions to shareholders, there is no assurance of future
distributions, since they are dependent upon earnings, cash flow,
the financial condition of the Trust and other factors.
Identification of Market and Price Range
At March 1, 1996, the Trust had 3,880,000 shares of beneficial
interest issued and outstanding to 2,262 shareholders of record.
The Trust's shares of beneficial interest are traded over-the-
counter on the National Association of Securities Dealers
Automated Quotation (NASDAQ) System under the symbol USPTS. At
March 1, 1996, the Trust's per share bid and asked prices were
$4.125 and $4.625, respectively, as obtained from Wedbush/Morgan
Securities, Inc., Newport Beach, California, Stifel Nicolaus, St.
Louis, Missouri, Carr Securities, New York, New York,
Pennsylvania Merchant Group, Ltd., Radnor, Pennsylvania, and
Herzog, Heine, Geduld, Inc., New York, New York, the principal
market makers for shares of the Trust. These prices reflect
quotations between dealers without adjustment for retail mark-up,
mark-down or commission and do not necessarily represent actual
transactions.
<TABLE>
<CAPTION>
Market Price Range
Over-the-Counter Bid Price
<S> <C> <C> <C>
Quarter Ended High Low Close
1995
March 31 4 3/8 3 1/16 3 5/8
June 30 4 1/4 3 1/2 3 7/8
September 30 5 1/4 3 7/8 4 3/4
December 31 5 1/8 4 1/2 4 1/2
1994
March 31 3 3/8 3 3 1/8
June 30 3 1/8 2 3/4 3
September 30 3 3/8 3 3 1/4
December 31 3 1/4 2 7/8 3
</TABLE>
Income Tax Information
The percentages indicated below, multiplied by the amount of
distributions received or reinvested during the year, result in
the amount to be reported for income tax purposes. A Form 1099
is mailed to shareholders at the end of each year reflecting the
distributions paid by the Trust in that year.
<TABLE>
<CAPTION>
Dividend Character
<S> <C> <C> <C>
1995 1994 1993
Ordinary
income 100.00% 73.71% 78.03%
Capital
gains --- 26.29% ---
Return of
capital --- --- 21.97%
Total 100.00% 100.00% 100.00%
Distributions $.30 .25 .24
paid, per share
</TABLE>
Advisor
AEGON USA Realty Advisors, Inc.
Cedar Rapids, Iowa
Property Manager
AEGON USA Realty Management, Inc.
Cedar Rapids, Iowa
Stock Transfer and Dividend Reinvestment Agent
USP Real Estate Investment Trust
c/o Boston EquiServe, L.P.
P.O. Box 8200
Boston, MA 02266-8200
Telephone: 1-800-426-5523
Annual Meeting
The annual meeting of shareholders of USP Real Estate Investment
Trust will be held on Monday, April 29, 1996 at 11:30 a.m. at the
AEGON Financial Center, 4333 Edgewood Road N.E., Cedar Rapids,
Iowa.
10-K Information
The 1995 Form 10-K filed with the Securities and Exchange
Commission (exclusive of certain exhibits) is available without
charge upon written request to Roger L. Schulz, Controller, USP
Real Estate Investment Trust, 4333 Edgewood Road N.E., Cedar
Rapids, Iowa 52499.
<TABLE>
Item 6. Selected Financial Data
<S> <C> <C> <C> <C> <C>
Years Ended December 31 1995 1994 1993 1992 1991
Revenue $ 5,618,014 6,179,495 6,272,463 5,929,073 6,478,555
Earnings from Operations $ 1,100,149 934,605 715,746 282,401 627,661
Net Gain on Sale or Disposition of $ --- 788,588 --- 175,991 181,359
Property
Net Earnings $ 1,100,149 1,723,193 715,746 458,392 809,020
Distributions to Shareholders $ 1,202,800 1,008,800 931,200 1,241,600 2,134,000
Per Share*
Earnings from Operations $ .28 .24 .18 .07 .16
Net Earnings $ .28 .44 .18 .12 .21
Distributions to Shareholders $ .31 .26 .24 .32 .55
Real Estate and Mortgage
Loans Receivable $30,434,137 31,237,604 35,782,150 36,631,659 37,328,542
Total Assets $32,853,270 34,333,593 37,487,867 38,235,283 40,132,321
Mortgage Loans Payable $15,271,385 16,853,303 20,387,645 20,855,442 21,557,645
Total Liabilities $16,342,638 17,720,310 21,588,977 22,120,939 23,234,769
Shareholders' Equity $16,510,632 16,613,283 15,898,890 16,114,344 16,897,552
* Per share amounts for Earnings from Operations and Net
Earnings are based on the weighted average number of shares
outstanding for each period. Per share amounts for Distributions
to Shareholders are based on the actual number of shares
outstanding on the respective record dates.
</TABLE>
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
The discussion that follows should be read in the general context
of the discussion in "Item 1 Business" and "Item 2 Properties."
Results of Operations
Growth in the U.S. economy continued in 1995, with the Gross
Domestic Product gaining 4.2%. Job growth in the U.S. non-
agricultural employment increased by 1.7 million as of last
August compared to one year earlier. Retail sales in 1995 posted
a 5% increase over 1994. The Trust benefited from these positive
economic factors and experienced an improvement in the portfolio
operating results in 1995. In the foreseeable future, "outlet
megamalls" (giant retail facilities ranging from one to two
million square feet) have the potential of becoming more common
and thus compete with traditional centers for consumer
consumption.
A number of specific tenant situations may have an impact on the
Trust's operating results in 1996. Luria's, a 23,587 square foot
tenant at Kingsley Square in Orange Park, Florida, discontinued
operations there in March 1995. Luria's has continued to pay
rent and has notified the Trust that it intends to honor its
lease obligations, which run through March 2010. The Trust is
cooperating with Luria's in securing a new tenant to sublease
this space. P.W. Enterprises has filed a Chapter 11
reorganization plan and closed its 63,146 square foot store at
Geneva Square in Lake Geneva, Wisconsin in January 1996. The
Trust has filed a claim as an unsecured creditor due to the
tenant's rejection of its lease through the bankruptcy
proceedings. The amount of that claim, limited to 15% of the
amounts owed for the unexpired balance of the lease term, was
$514,000. The Trust subsequently elected to accept 70% of that
amount through a proposed bankruptcy payout plan. Accordingly, a
settlement distribution of approximately $360,000 is expected
from the bankruptcy trustee. At this time it is still uncertain
what amounts will actually be received by the Trust through the
bankruptcy proceedings, and when those payments, if any, will be
made. Staples, Inc. at North Park Plaza in Phoenix, Arizona
closed its 18,000 square foot store in February 1996 and moved to
a new center in the metro area. Staples has assigned their lease
which runs through July 2003, to the developer of the new center.
The Trust is cooperating with the developer in securing a new
tenant for the space. The portfolio operating results in the
forthcoming year will greatly depend upon these (and all other)
tenants to continue paying their rent and the Trust's ability to
renew expiring tenant leases and obtain new leases at competitive
rental rates.
It is the opinion of the Trust's board of trustees that the
recent market prices for the Trust's shares do not adequately
reflect the value of the Trust. During 1995, the Trust explored
various strategic alternatives, including a possible sale of the
Trust's assets, with the intent to maximize shareholder value.
There were discussions with a number of prospective buyers, but
the Trust was unable to reach an agreement on the terms and
conditions of a specific transaction. While the Trust will
continue to consider other potential transactions which will
serve to maximize shareholder value, there is no assurance that
any transaction will be consummated.
1995 compared to 1994
Rents and property expenses declined from 1994 to 1995 due to the
September 1994 sale of Midway Business Park, in Tucson, Arizona.
Rental income was $5,366,255 in 1995 compared to $5,960,114 in
1994 which represents a decrease of 10%. However, rental income
from properties owned throughout both years increased 3% from
$5,222,406 in 1994 to $5,366,255 in 1995 primarily due to an
increase of $125,000 in expense recoveries from tenants and
higher overage rents. Interest income was $251,759 in 1995
compared to $219,381 in 1994, an increase of 15%, due to higher
interest rates on the investable cash balances and the receipt of
$13,000 in interest on property tax refunds.
First Tuesday Mall in Carrollton, Georgia recorded higher rents
primarily due to the lease of a furniture store in mid-1994 which
occupies 23,040 square feet. North Park and Presidential Drive
Business Park in Atlanta, Georgia experienced a reduction in base
rents from 1994 as North Park set up a rent reserve for some
delinquent rents in 1995 and Presidential recovered delinquent
rents in 1994 which had been considered uncollectible. As stated
above, the largest increase in rents occurred due to an increase
of $125,000 in expense recoveries primarily from Kingsley Square,
First Tuesday and North Park. These three properties experienced
higher real estate taxes which, pursuant to the terms of tenant
leases, resulted in the Trust being able to collect this increase
in taxes from the tenants.
Property expenses before depreciation were $1,755,295 in 1995
compared to $1,928,502 in 1994 which represents 33% of rental
income for 1995 and 32% of rental income for 1994. The primary
reason for the decrease was the sale of Midway. On a same
property basis, property expenses increased to $1,755,295 in 1995
from $1,594,949 in 1994. Accounting for this change was the
increase in real estate taxes from Kingsley Square, North Park
and First Tuesday as First Tuesday received tax refunds in 1994.
All wages and salaries in 1994 were incurred in connection with
the operation of Midway, the sale of which resulted in a decrease
of $19,000 in this expense. Repairs and maintenance decreased
$19,000 due to the sale of Midway which incurred $78,000 in
repair and maintenance items in 1994. On a same property basis,
repairs and maintenance in 1995 increased $59,000 from 1994
primarily due to remodeling expenditures for an existing tenant
at Presidential Drive and improvements made to the exterior of
the building. Utilities decreased $35,000 from 1994 to 1995 due
to the sale of Midway. Insurance expense declined due to the
sale of Midway and lower insurance premiums. Other property
expenses were $13,000 lower primarily due to the sale of Midway,
which incurred $27,000 in 1994, offset by $15,000 in
environmental consulting on all of the properties in 1995.
Depreciation expense declined $139,000 in 1995 due primarily to
the sale of Midway. Interest expense decreased $390,000 due to
the prepayment of the loan on Midway upon sale, and the
prepayment of one of the mortgage loans on First Tuesday. The
prepayment on First Tuesday, including a 1% fee to the lender,
was $1,147,526 which was paid on January 31, 1995. The annual
debt service on this mortgage was $229,068, including interest at
10%. Administrative expense decreased $24,000 primarily due to
the sale of Midway, which resulted in lower administrative fees
of $17,000, and a $7,000 reduction in premium on directors and
officers insurance.
Earnings from operations were $1,100,149 in 1995 compared to
$934,605 in 1994, which represents an increase of 18% primarily
due to the significant decrease in interest expense as more fully
described above. Net earnings were $1,100,149 in 1995 compared
to $1,723,193 in 1994, the decrease primarily attributed to the
$788,588 gain on sale of Midway in 1994.
1994 compared to 1993
Rental income was $5,960,114 in 1994 compared to $6,077,305 in
1993 which represented a decrease of 2%. However, rental income
from properties owned throughout both years increased 3% from
$5,082,726 in 1993 to $5,222,406 in 1994 primarily due to higher
occupancy rates. Interest income was $219,381 in 1994 compared
to $195,158 in 1993, an increase of 12%, due to higher investable
cash balances and higher interest rates received on these
balances in 1994.
Kingsley Square in Orange Park, Florida recorded higher rents of
$50,000 (7% over 1993) as a result of increases in average
occupancy and rental rates. The Trust entered into a new lease
in 1994 with a furniture store for 23,040 square feet at First
Tuesday Mall in Carrollton, Georgia which was the primary reason
for a $42,000 or 5% increase in rents at this property. Rental
income at Mendenhall Commons in Memphis, Tennessee increased
$52,000 or 6% due primarily to increased tenant expense
recoveries. Presidential Drive in Atlanta, Georgia recorded a
revenue increase of $62,000 or 25% in 1994 due to increased
rental rates and recovery of delinquent rents which had been
considered uncollectible. Insurance proceeds covered the loss of
rents from several tenants which were displaced at this property
during a portion of 1994. North Park Plaza in Phoenix, Arizona
and Yamaha Warehouse in Cudahy, Wisconsin recorded moderate
revenue increases in 1994. Geneva Square in Lake Geneva,
Wisconsin was the only property showing a decline in revenues, as
rental income fell $91,000 or 8% due to a decrease in occupancy
from 1993, a year in which the property operated at 100%
occupancy for most of the year.
Property expenses before depreciation were $1,928,502 in 1994
compared to $1,957,429 in 1993 which represents 32% of rental
income for both years. The primary reason for the decrease was
the sale of Midway in September 1994. Midway's property expenses
before depreciation declined $106,000 in 1994 due to the partial
year of operation by the Trust. On a same property basis,
property expenses before depreciation increased to $1,594,949 in
1994 from $1,517,985 in 1993. Real estate taxes increased
$12,000 in 1994 as a result of an $82,000 increase at Mendenhall
Commons due to a tax refund received in 1993, which was partially
offset by tax decreases at First Tuesday, North Park, and Midway
(due to the partial year of operation). All wages and salaries
were incurred in connection with the operation of Midway, the
sale of which resulted in a $12,000 decrease in this expense.
Repairs and maintenance expense increased $28,000 as a result of
a $68,000 increase at First Tuesday due to higher remodeling
expenditures for new and existing tenants, which was partially
offset by a $42,000 decline at Midway due to the partial year of
operations. Other property expenses were $33,000 lower in 1994
because of a consulting fee paid in 1993 to obtain the tax refund
at Mendenhall and a reduction in advertising expense in 1994.
Depreciation expense declined $68,000 in 1994 due primarily to
the Midway sale. Interest expense decreased $244,000 as a result
of lower interest rates negotiated in connection with refinancing
the mortgage loans on Geneva Square and Midway in the first
quarter of 1994 and the payoff of the mortgage on Midway upon
sale of the property. Administrative expense increased $28,000
in 1994 as a result of increases in legal, mailing, and printing
costs.
Earnings from operation were $934,605 in 1994 compared to
$715,746 in 1993 which represents an increase of 31% primarily
due to the significant decline in total expenses, as more fully
described above. With the $788,588 gain recognized on the sale
of Midway, 1994 net earnings were $1,723,193 compared to 1993 net
earnings of $715,746.
Cash Flow and Funds from Operations
The Trust has for several years used "funds from operations" as a
measurement of operating performance. Funds from operations, as
used in this report, is defined as: net income (computed in
accordance with generally accepted accounting principles),
excluding gains (or losses) from debt restructuring and sales of
property, plus depreciation. The Trust has adopted this
definition of "funds from operations" as a more meaningful
measurement of the ongoing performance of a real estate entity
than either "net cash provided by operating activities,"
identified in the Statements of Cash Flows, or "earnings from
operations," identified in the Statements of Earnings.
Funds from operations takes into consideration the accrual of
revenue and expenses, which more appropriately reflects operating
performance. Net cash provided by operating activities
represents cash receipts and disbursements without regard to when
income was earned or expense incurred. Earnings from operations
considers the accrual of revenue and expenses, but is limited as
a measurement of the ongoing performance of a real estate entity
because it includes depreciation, a non-cash expense. The Trust
intends to continue using funds from operations as a measure of
operating performance.
Liquidity and Capital Resources
The Trust's capital resources consist of its current equity in
real estate investments and mortgage loans receivable. The Trust
maintains its properties in good condition and provides adequate
insurance coverage. Liquidity is represented by cash and cash
equivalents ($1,370,623 at December 31, 1995), a $500,000 line of
credit (see discussion under "Item 1 Business - Source of Funds
and Financing") and the continued operation of the Trust's real
estate portfolio. This liquidity is considered sufficient to
meet current obligations.
Net cash provided by operating activities, as shown in the
Statements of Cash Flows, was $2,000,023 for the year ended
December 31, 1995. Major applications of cash in 1995 included
$1,136,164 for prepayment of one of the mortgage loans on First
Tuesday Mall, $1,164,000 for distributions to shareholders, and
$452,695 in principal payments on mortgage loans payable. The
Trust's debt service commitments for mortgage loans payable are
described in Note 6 to the Financial Statements.
The Publix Supermarkets lease at Kingsley Square was extended
effective February 11, 1995 for a five-year term. The lease
extension requires the Trust to contribute up to $250,000 toward
remodeling costs at the Publix store. This amount is expected to
be paid in 1996. Capital expenditures at other properties of
approximately $240,000 are anticipated for 1996. As of December
31, 1995, there were no other material commitments.
The Board of Trustees continues to monitor occupancies, leasing
activity, overall Trust operations, liquidity, and financial
condition in determining quarterly distributions to shareholders.
Inflation
Low to moderate levels of inflation during the past few years
have favorably impacted the Company's operation by stabilizing
operating expenses. At the same time, low inflation has the
indirect effect of reducing the Company's ability to increase
tenant rents. The Trust's properties have tenants whose leases
include expense reimbursements and other provisions to minimize
the effect of inflation. These factors, in the long run, are
expected to result in more attractive returns from the Trust's
real estate portfolio as compared to short-term investment
vehicles.
Item 8. Financial Statements and Supplementary Data
<TABLE>
<CAPTION>
Balance Sheets
<S> <C> <C>
December 31,
1995 1994
Assets
Real estate
Land $ 9,666,409 $ 9,666,409
Buildings and improvements 29,985,157 29,985,157
39,651,566 39,651,566
Less accumulated depreciation (10,505,521) (9,726,767)
29,146,045 29,924,799
Mortgage loans receivable,
net of deferred gain 1,288,092 1,312,805
Real estate and mortgage loans 30,434,137 31,237,604
receivable
Cash and cash equivalents 1,370,623 2,086,511
Rents and other receivables 614,873 535,792
Prepaid and deferred expenses 290,859 316,921
Taxes held in escrow 142,778 156,765
Total Assets $ 32,853,270 $ 34,333,593
Liabilities and Shareholders' Equity
Liabilities
Mortgage loans payable $ 15,271,385 $ 16,853,303
Accounts payable and accrued expenses 664,733 494,922
Distribution declared 310,400 271,600
Tenant deposits 79,629 73,989
Other 16,491 26,496
Total Liabilities 16,342,638 17,720,310
Shareholders' Equity
Shares of beneficial interest, $1 par value,
20,000,000 shares authorized, 3,880,000
shares issued and outstanding 3,880,000 3,880,000
Additional paid-in capital, net of cumulative
distributions in excess of earnings
of $16,382,559 in 1995 and 1994 12,018,890 12,018,890
Undistributed net earnings 611,742 714,393
16,510,632 16,613,283
Total Liabilities & Shareholders' Equity $ 32,853,270 $ 34,333,593
See the accompanying notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statements of Earnings
Years Ended December 31,
<S> <C> <C> <C>
1995 1994 1993
Revenue
Rents $ 5,366,255 $ 5,960,114 $ 6,077,305
Interest 251,759 219,381 195,158
Total Revenue 5,618,014 6,179,495 6,272,463
Expenses
Property expenses:
Real estate taxes 754,144 800,921 789,315
Wages and salaries --- 19,354 31,618
Repairs and maintenance 486,679 505,915 477,718
Utilities 106,028 141,019 140,662
Management fee 250,601 277,945 287,608
Insurance 43,645 56,246 70,088
Other 114,198 127,102 160,420
Property expenses, excluding 1,755,295 1,928,502 1,957,429
depreciation
Depreciation 821,003 960,227 1,027,956
Total property expenses 2,576,298 2,888,729 2,985,385
Interest 1,562,864 1,953,117 2,196,729
Administrative expense 378,703 403,044 374,603
Total Expenses 4,517,865 5,244,890 5,556,717
Earnings from operations 1,100,149 934,605 715,746
Net gain on sale of property --- 788,588 ---
Net earnings $ 1,100,149 $ 1,723,193 $ 715,746
Net earnings per share $ .28 $ .44 $ .18
Distributions to shareholders $ 1,202,800 $ 1,008,800 $ 931,200
Distributions to shareholders per share $ .31 $ .26 $ .24
See the accompanying notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statements of Cash Flows
<S> <C> <C> <C> <C>
Years Ended December 31,
1995 1994 1993
Cash flows from operating activities:
Rents collected $ 5,240,756 $ 5,997,838 $ 5,996,819
Interest received 249,863 217,707 195,084
Payments for operating expenses (1,957,514) (2,716,513) (2,389,521)
Interest paid (1,533,082) (1,934,047) (2,165,600)
Net cash provided by operating activities 2,000,023 1,564,985 1,636,782
Cash flows from investing activities:
Proceeds from property sales, net of --- 4,641,420 ---
closing costs
Capital expenditures (42,249) (305,050) (212,959)
Principal collections on mortgage 24,713 22,482 20,452
loans receivable
Other, net 54,484 64,071 (297,224)
Net cash provided (used) by 36,948 4,422,923 (489,731)
investing activities
Cash flows from financing activities:
Principal portion of scheduled (452,695) (585,070) (495,561)
mortgage loan payments
Principal repayment on mortgage loans (1,136,164) (3,141,973) ---
payable
Net proceeds from refinancing --- 114,369 ---
Distributions paid to shareholders (1,164,000) (970,000) (931,200)
Net cash used by financing (2,752,859) (4,582,674) (1,426,761)
activities
Net increase (decrease) in cash and cash (715,888) 1,405,234 (279,710)
equivalents
Cash and cash equivalents at beginning of 2,086,511 681,277 960,987
year
Cash and cash equivalents at end of year $ 1,370,623 $ 2,086,511 $ 681,277
Reconciliation of net earnings to net cash
provided by operating activities:
Net earnings $ 1,100,149 $ 1,723,193 $ 715,746
Gain on sale of property --- (788,588) ---
Earnings from operations 1,100,149 934,605 715,746
Depreciation 821,003 960,227 1,027,956
Amortization 29,782 58,975 31,129
Decrease (increase) in rents and other (119,117) 38,571 (84,503)
receivables
Increase in prepaid and deferred expenses (7,314) (16,921) (32,199)
Decrease (increase) in taxes held in escrow 13,987 (105,713) (9,857)
Increase (decrease) in accounts 169,811 (302,238) (25,290)
payable and accrued expenses
Increase (decrease) in advance rents (8,278) (2,521) 13,800
Net cash provided by operating activities $ 2,000,023 $ 1,564,985 $ 1,636,782
See the accompanying notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
Statements of Shareholders' Equity
Years Ended December 31, 1995, 1994 and 1993
<S> <C> <C> <C> <C>
Shares of Additional Undistributed Total
Beneficial Paid-In Net Shareholders'
Interest Capital Earnings Equity
Balance at January 1, 1993 $ 3,880,000 $12,234,344 $ --- $ 16,114,344
Net earnings --- --- 715,746 715,746
Distributions to shareholders --- (215,454) (715,746) (931,200)
Balance at December 31, 1993 $ 3,880,000 $12,018,890 $ --- $ 15,898,890
Net earnings --- --- 1,723,193 1,723,193
Distributions to shareholders --- --- (1,008,800) (1,008,800)
Balance at December 31, 1994 $ 3,880,000 $12,018,890 $ 714,393 $16,613,283
Net earnings --- --- 1,100,149 1,100,149
Distributions to shareholders --- --- (1,202,800) (1,202,800)
Balance at December 31, 1995 $ 3,880,000 $12,018,890 $ 611,742 $16,510,632
See the accompanying notes to financial statements.
</TABLE>
Notes to Financial Statements
1. Accounting Policies
The Trust is predominantly in the business of investing in real
estate. Investments in real estate are stated at cost. The
Trust provides an allowance for valuation of real estate when it
is determined that the values have permanently declined below
recorded book value.
In March 1995, the Financial Accounting Standards Board issued
Statement No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of, which
requires impairment losses to be recorded on long-lived assets
used in operations when indicators of impairment are present and
the undiscounted cash flows estimated to be generated by those
assets are less than the assets' carrying amount. Statement No.
121 also addresses the accounting for long-lived assets that are
expected to be disposed of. The Trust's adoption of Statement
No. 121 in 1995 had no impact on the Trust's operations.
Expenditures for repairs and maintenance which do not add to the
value or extend the useful life of property are expensed when
incurred. Additions to existing properties, including
replacements, improvements and expenditures which do add to the
value or extend the useful life of property, are capitalized.
Depreciation is calculated using the straight-line method over
the estimated useful lives of the respective assets.
The Trust follows the operating method of accounting for leases,
whereby scheduled rental income is recognized on a straight-line
basis over the lease term. Contingent rental income is recognized
in the period in which it arises. Interest on mortgage loans
receivable and amortization of discounts are recognized as income
over the period the respective loans are outstanding. The Trust
provides for possible losses on mortgage loans, rents and other
receivables when it is determined that collection of such
receivables is doubtful. Rents and other receivables are stated
net of an allowance for uncollectible accounts of $143,991 in
1995 and $100,744 in 1994. Cash equivalents include investments
with original maturities of three months or less.
Gains on real estate sales are recognized for financial
accounting purposes in accordance with Financial Accounting
Standard No. 66, Accounting for Sales of Real Estate. Deferred
gains are recognized as income using the installment method. Net
earnings per share are computed using the weighted average number
of shares outstanding during the year.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported
in the financial statements and accompanying notes. The actual
results of the Trust could differ as a result of those estimates.
2. Real Estate
Investments in real estate consist entirely of managed and net
leased commercial property. Information regarding the Trust's
investment in each property is presented in the Schedule of Real
Estate and Accumulated Depreciation below:
<TABLE>
<CAPTION>
Schedule of Real Estate and Accumulated Depreciation
<S> <C> <C> <C> <C> <C> <C> <C>
Gross Amount at Which Carried
Initial Cost to Trust December 31, 1995
Subsequent
Amount of Buildings & Cost Buildings &
Property Description Encumbrance Land Improvements Capitalized Land Improvements Total
Managed
Kingsley Square $ 938,474 450,000 3,311,660 1,208,454 450,000 4,520,114 4,970,114
Orange Park, FL
First Tuesday Mall 656,797 595,000 4,347,697 2,056,768 600,392 6,399,073 6,999,465
Carrollton, GA
Geneva Square 2,879,727 477,166 4,965,000 771,808 477,166 5,736,808 6,213,974
Lake Geneva, WI
Mendenhall Commons 4,087,002 3,134,692 5,597,340 --- 3,134,692 5,597,340 8,732,032
Memphis, TN
North Park Plaza 4,096,303 4,635,147 4,018,353 (1,765) 4,633,382 4,018,353 8,651,735
Phoenix, AZ
Presidential Drive 799,174 344,582 1,424,300 117,427 344,582 1,541,727 1,886,309
Atlanta, GA 13,457,477 9,636,587 23,664,350 4,152,692 9,640,214 27,813,415 37,453,629
Net Leased
Yamaha Warehouse 1,449,811 26,195 755,756 1,415,986 26,195 2,171,742 2,197,937
Cudahy, WI
1,449,811 26,195 755,756 1,415,986 26,195 2,171,742 2,197,937
Total $14,907,288* 9,662,782 24,420,106 5,568,678 9,666,409 29,985,157 39,651,566
* Excludes encumbrance of $364,097 on wraparound mortgages receivable.
</TABLE>
<TABLE>
<CAPTION>
Life on Which
Depreciation
is computed
(in years)
<S> <C> <C> <C> <C>
Accumulated Date Date
Property Description Depreciation Built Acquired
Managed
Kingsley Square 2,269,855 1975-76 7/79 10-40
Orange Park, FL
First Tuesday Mall 3,191,661 1975-78 7/79 10-40
Carrollton, GA
Geneva Square 1,731,634 1981-82 2/84 10-40
Lake Geneva, WI
Mendenhall Commons 947,641 1987 2/89 10-40
Memphis, TN
North Park Plaza 671,896 1963 2/89 10-40
Phoenix, AZ
Presidential Drive 445,899 1980 12/84 10-35
Atlanta, GA 9,258,586
Net Leased
Yamaha Warehouse 1,246,935 1971 2/72 15-40
Cudahy, WI
1,246,935
Total 10,505,521
</TABLE>
The activity in real estate and related depreciation for the
three years ended December 31, 1995 is summarized below:
<TABLE>
<CAPTION>
Real Estate Years Ended December 31,
<S> <C> <C> <C>
1995 1994 1993
Cost
Beginning of year $ 39,651,566 44,115,186 44,057,866
Additions during year
Improvements --- 175,804 57,320
Deductions during year
Property sales or dispositions --- (4,639,424) --
End of year $ 39,651,566* 39,651,566 44,115,186
Accumulated Depreciation
Beginning of year $ 9,726,767 9,668,323 8,781,946
Additions during year
Depreciation expense 821,003 960,227 1,027,956
Deductions during year
Accumulated depreciation
on property sold --- (786,592) ---
Asset replacements charged
to accumulated depreciation (42,249) (115,191) (141,579)
End of year $ 10,505,521 9,726,767 9,668,323
*The aggregate cost for federal income tax purposes is $39,785,276.
</TABLE>
Wholly-owned managed properties with an aggregate cost of
$37,453,629 are leased to tenants pursuant to lease agreements
under which the Trust incurs normal real estate operating
expenses associated with ownership. Yamaha Warehouse, a wholly-
owned property with an aggregate cost of $2,197,937 is leased
under a net lease agreement which requires the lessee to pay cash
rental, property taxes and other expenses incurred in connection
with the operation of the property.
On September 16, 1994, the Trust sold Midway Business Park, a
181,320 square foot office park located in Tucson, Arizona. The
sale price was $4,800,000 from which the Trust paid selling
expenses of $158,580 and retired mortgage indebtedness on the
property of $3,141,973. Gain on the sale was $788,588.
3. Mortgage Loans Receivable
Mortgage loans receivable consist of notes received from
financing property sales and are secured by the properties sold,
subject to any underlying mortgage loans payable. Mortgage loans
are stated net of unamortized discounts and deferred gains. The
Trust received mortgage loans receivable of $1,650,000 as part of
the consideration for the sales of Hickory Hills and College
Square in 1990. Information regarding each mortgage is presented
in the Schedule of Mortgage Loans Receivable below:
<TABLE>
<CAPTION>
Schedule of Mortgage Loans Receivable
Periodic
Payment
Terms
Annual
Date Stated Final Principal
Property Description of Interest Maturity and Interest
Name and Location of Mortgage Rate Date
Property
<S> <C> <C> <C> <C>
Hickory Hills Shopping 12-21-90 9.5% 12-20-97 $ 55,043
Center
Hillsville, Virginia
College Square Shopping 12-21-90 9.5% 12-20-97 117,949
Center
Jefferson City, Tennessee
172,992
Deferred Gain ---
$172,992
</TABLE>
<TABLE>
<CAPTION>
Carrying
Face Amount of Amount of
Balloon Mortgage Mortgage
Property Description Paymnet at Receivable at December 31,
Name and Location of Maturity Aquisition 1995
Property
<S> <C> <C> <C>
Hickory Hills Shopping Center $ 474,726 $ 525,000 $ 492,774
Hillsville, Virginia
College Square Shopping Center 1,017,270 1,125,000 1,054,475
Jefferson City, Tennessee
1,491,996 1,650,000 1,547,249
Deferred Gain --- --- (259,157)
$1,491,996 $1,650,000 $1,288,092
</TABLE>
The estimated fair value of mortgage notes receivable at
December 31, 1995 was $1,616,938 compared to the carrying value
of $1,547,249. The estimated fair value is greater than the
carrying value as a result of the current interest rate applied
to discount the cash flows being lower than the stated rate of
the notes. The activity in mortgage loans receivable for the
three years ended December 31, 1995 is summarized in the table
below:
<TABLE>
<CAPTION>
Mortgage Loans Receivable
Years Ended December 31,
<S> <C> <C> <C>
1995 1994 1993
Principal
Beginning of year $ 1,571,962 1,594,444 1,614,896
Deductions during year
Principal collections (24,713) (22,482) (20,452)
Balance at end of year 1,547,249* 1,571,962 1,594,444
Deferred gain (259,157) (259,157) (259,157)
Balance, net of deferred $ 1,288,092 1,312,805 1,335,287
gain
*Represents the aggregate cost for federal income tax purposes.
</TABLE>
4. Cash and Cash Equivalents
Cash and cash equivalents consist of cash of $2,164, a money
market fund of $768,459, and commercial paper of $600,000.
Information regarding the investments at December 31, 1995 are
presented in the table below:
<TABLE>
<CAPTION>
Schedule of Cash and Cash Equivalents
<S> <C> <C> <C>
Cost at
Maturity Principal December 31,
Type of Issue and Name of Issuer Date Amount 1995*
Money Market
Fidelity Investments,
approximate average, 5.62% demand $768,459 $768,459
Commercial Paper
Heller Financial, Inc., 5.70% 1/25/96 $600,000 $600,000
* Represents the amount at which carried on the balance sheet
at December 31, 1995, which also
approximates the market value at that date.
</TABLE>
5. Transactions With Affiliates
The Trust has contracted with AEGON USA Realty Advisors, Inc.
("AEGON Realty Advisors") to provide administrative services for
a base fee of 5/8% of the average gross real estate investment
plus 1/4% of the monthly balance of mortgage loans receivable and
an incentive fee of 20% of annual adjusted cash flow from
operations in excess of $.72 per share. If the annual adjusted
cash flow from operations is less than $.72 per share, then the
payment of so much of the base fee is to be deferred so that
revised cash flow from operations will be equal to $.72 per
share; provided, however, in no event shall the amount deferred
exceed 20% of the previously determined base fee. Any deferred
fees may be paid in subsequent years (subject to certain limits).
Annual adjusted cash flow from operations, as defined for
purposes of the incentive fee, includes the net realized gain (or
loss) from the disposition of property, adjusted to exclude
accumulated depreciation (otherwise stated as gain in excess of
cost without reduction for allowable depreciation). The
administrative fee is limited to 1 1/2% of average quarterly net
invested assets. The administrative agreement is for a one-year
term, automatically renewed annually and cancellable by either
party upon 90 days written notice. Amounts paid to AEGON Realty
Advisors for administrative services were: $202,410 for 1995,
$219,982 for 1994, and $227,352 for 1993. No incentive fees were
paid in 1995, 1994 or 1993. Administrative fees of $50,603 in
1995, $54,995 in 1994, and $56,838 in 1993 were deferred, but may
become payable in subsequent years. Cumulative deferred
administrative fees were $458,509 as of December 31, 1995.
AEGON Realty Advisors also provides real estate acquisition and
disposition services for the Trust. A negotiated fee of 2% to 4%
of the cost is charged for properties acquired. No separate fee
is charged for property dispositions. There were no acquisition
fees paid in 1995, 1994 or 1993.
AEGON USA Realty Management, Inc. ("AEGON Realty Management"), a
wholly-owned subsidiary of AEGON Realty Advisors, provides
property management services to the Trust for a fee of 5% of the
gross income of each managed property. The property management
agreement is for a one-year term, automatically renewed annually
and cancellable upon a 30-day written notice from either party.
Amounts paid to AEGON Realty Management for property management
services were $250,601 for 1995, $277,945 for 1994, and $287,608
for 1993. Pursuant to the property management agreement, on-site
property management wages and salaries incurred by AEGON Realty
Management were reimbursed by the Trust as follows: $19,354 for
1994 and $31,618 for 1993. No wages and salaries were reimbursed
by the Trust for 1995.
AEGON Realty Advisors provides dividend disbursement, stock
certificate preparation, recordkeeping and other shareholder
services to the Company for a quarterly fee of $1.25 per
shareholder account, $.75 per shareholder account for
distributions processed, $.50 per shareholder account for proxy
tabulation, and such other compensation for services performed as
from time to time agreed to by the parties. The Trust paid AEGON
Realty Advisors $22,112, $23,000, and $23,871 in shareholder
service fees for 1995, 1994, and 1993, respectively. AEGON
Realty Advisors has subcontracted with Boston EquiServe, L.P., a
subsidiary of State Street Bank and Trust Company, for delivery
of these services.
On December 31, 1993, the mortgage loan on the Trust's
Presidential Drive property was acquired from the lender by AUSA
Life Insurance Company, Inc., an affiliate of AEGON Realty
Advisors, as part of a large transaction involving the transfer
of loans and securities. Interest paid on the mortgage was
$83,287 in 1995 and $85,646 in 1994. See Note 6 to the Financial
Statements for information on the refinancing in February 1994 of
the mortgage on Geneva Square with PFL Life Insurance Company
("PFL"), an affiliate of AEGON Realty Advisors which was extended
on March 1, 1996. Interest paid on the mortgage was $233,351 in
1995 and $208,444 in 1994.
AEGON Realty Advisors is an indirect wholly-owned subsidiary of
AEGON USA, Inc. which, through other wholly-owned subsidiaries,
beneficially owns approximately 31% of the outstanding shares of
the Trust at December 31, 1995.
6. Mortgage Loans Payable
Mortgage loan obligations, secured by the real estate owned,
carry annual interest rates ranging from 8% to 10.5%.
On January 31, 1995, the Trust prepaid one of the mortgage loans
on First Tuesday Mall. The prepayment amount, including a 1% fee
to the lender was $1,147,526. The annual debt service on this
mortgage was $229,068, including interest at 10%.
The mortgage loan on Geneva Square matured in February 1994 and
was refinanced with a mortgage loan of $3,000,000 from PFL. In
connection with the loan, a 1% origination fee ($30,000) was paid
to PFL. On March 1, 1996 the Trust exercised an option to extend
the loan for eight years at 8.30%. The loan may be prepaid
without penalty any time during the first two years of the
extended loan term. The annual debt service is $260,295.
Information regarding each mortgage is presented in the Schedule
of Mortgage Loans on Real Estate below:
<TABLE>
<CAPTION>
Schedule of Mortgage Loans on Real Estate
Periodic Payment Terms
<S> <C> <C> <C> <C> <S>
Stated Final Annual Balloon
Date of Interest Maturity Principal Payment at
Property Description Note Rate Date and Interest Maturity
Managed
Kingsley Square 2/77 10% 2/02 76,370 ---
Orange Park, FL
(two loans) 8/75 10% 8/00 163,650 ---
First Tuesday 4/79 9.25% 4/04 115,128 ---
Carrollton, GA
Geneva Square 2/94 8.0% 3/96 301,128 2,873,831
Lake Geneva, WI
Mendenhall Commons 2/89 10.25% 3/99 462,396 3,930,120
Memphis, TN
North Park Plaza 2/89 10.5% 3/99 472,008 3,944,537
Phoeniz, AZ
Presidential Drive 2/80 10.25% 2/10 107,604 ---
Atlanta, GA
1,698,284 10,748,488
Net Leased
Yamaha Warehouse 12/90 10.125% 1/01 159,627 1,366,721
Cudahy, WI
159,627 1,366,721
Sold***
College Square 12/75 9.375% 12/99 115,500 ---
Jefferson City, IN
115,500 ---
$1,973,411 12,115,209
</TABLE>
<TABLE>
<S> <C> <C> <C>
Carrying
Amount
of
Face Amount of Mortgage at
Prepayment Penalty Mortgage at Dec 31,
Property Description Provisions* Acquisition 1995
Managed
Kingsley Square 6.5% in 1996, declining 700,000 344,638
Orange Park, FL .5% per year to 4%
thereafter
(two loans) 5.0% 1,500,000 593,836
First Tuesday 1.0% 1,120,000 656,797
Carrollton, GA
Geneva Square no penalty 3,000,000 2,879,727**
Lake Geneva, WI
Mendenhall Commons 3% in 1996, declinging 4,300,000 4,087,002
Memphis, TN 1% per year thereafter
North Park Plaza 3% in 1996 4,300,000 4,096,303
Phoeniz, AZ declining 1% per year
thereafter
Presidential Drive 2.0% in 1996, declining 968,935 799,174
Atlanta, GA .5% per year to 1%
thereafter
15,888,935 13,457,477
Net Leased
Yamaha Warehouse excess of loan rate 1,500,000 1,449,811
Cudahy, WI over U.S. Treasury Bill
rate
1,500,000 1,449,811
Sold***
College Square 2.0% in 1996, declining 1,100,000 364,097
Jefferson City, IN .5% per year thereafter
1,100,000 364,097
18,488,935 $15,271,385
* Percentages are of the principal amount at time of
prepayment.
** The loan matured on March 1, 1996 and was extended for eight
years. See Note 6 for the details.
*** A wraparound mortgage loan receivable was received as part
of the consideration from sale; the Trust continues to
service the underlying mortgage payable.
</TABLE>
<TABLE>
<CAPTION>
The activity in mortgage loans payable for the three years ended
December 31, 1995 is summarized in the table below:
Mortgage Loans Payable
Years Ended December 31,
<S> <C> <C> <C>
1995 1994 1993
Principal
Beginning of year 16,860,244 20,422,351 20,917,912
Additions during year
New mortgage loan
on refinancing --- 3,000,000 ---
Deductions during year
Principal payments (452,695) (585,071) (495,561)
Prepayments and maturities (1,136,164) (2,835,063) ---
Balance of mortgage loan on
property sold - (3,141,973)
-- ---
Balance at end of year 15,271,385 16,860,244 20,422,351
Discount
Beginning of year (6,941) (34,706) (62,470)
Deductions during year
Amortization of discount 6,941 27,765 27,764
Balance at end of year - (6,941) (34,706)
--
Balance, net of discount 15,271,385 16,853,303 20,387,645
</TABLE>
The estimated fair value of mortgage notes payable at December
31, 1995 was $16,519,743 compared to the carrying value of
$15,271,385. The estimated fair value exceeds the carrying value
as a result of the current interest rate applied to discount the
cash flows being lower than the stated rate of the mortgage
notes.
Scheduled monthly payments will substantially amortize the
principal balances of the mortgage loans over their respective
terms with the exception of balloon payments at maturity.
Amortized payments on the outstanding balances due in the next
five years, including balloon repayments at maturity, are
summarized as follows:
<TABLE>
<C> <C> <C>
Amortized Payments
Year Payments at Maturity
1996 450,060 2,873,831*
1997 493,032 ---
1998 543,569 ---
1999 457,969 7,874,657
2000 322,972 ---
*Please see discussion on the previous page concerning the
extension of the Geneva Square mortgage loan.
</TABLE>
7. Leased Assets
The Trust is lessor of various properties as described in Note 2.
Certain properties are leased to tenants under long-term, non-
cancellable operating lease agreements. Future minimum lease
rentals to be received under the terms of these lease agreements
are as follows:
Year Amount
1996 3,975,810
1997 3,308,391
1998 2,614,548
1999 2,236,808
2000 1,946,963
2001-2012 11,424,535
Contingent rentals included in income received in connection with
operating leases were $106,458, $82,754, and $98,228 for the
years ended December 31, 1995, 1994 and 1993, respectively. Such
rentals are based principally on tenant sales in excess of
stipulated minimums. In 1995 and in 1994, the Trust derived 10%
or more of its revenue from the Kroger Company at Mendenhall
Commons. The revenue from this tenant was $636,898 in 1995 and
$647,180 in 1994. The Trust did not receive 10% or more of its
revenue from any one tenant in 1993.
In August 1994, Publix Supermarkets exercised an option to extend
their lease for 34,400 square feet in Kingsley Square. The lease
extension, effective February 11, 1995, has a term of five years
and requires the Trust to contribute up to $250,000 toward
remodeling costs at the Publix store. The Trust expects to incur
this cost in 1996.
8. Federal Income Taxes
The Trust conducts its operations so as to qualify as a real
estate investment trust under the Internal Revenue Code which
requires, among other things, that at least 95% of the Trust's
taxable income be distributed to shareholders. The Trust has
historically distributed all of its taxable income. Distributions
made in 1995 plus a portion of the Trust's first distribution in
1996 were used to meet the Internal Revenue Code distribution
requirements for 1995. Accordingly, no provision has been made
for federal income taxes since the Trust did not have taxable
income after the deductions allowed for distributions to
shareholders.
Certain property acquisitions have resulted in the basis of those
properties being determined differently for financial accounting
purposes than for income tax purposes. The differing methods of
determination of basis in these transactions has resulted in the
tax basis of certain properties being higher or lower than the
financial basis. At December 31, 1995 the tax basis of real
estate was $133,710 in excess of the financial basis.
9. Legal Proceedings
The Trust is not a party to any pending legal proceedings which,
in the opinion of management, are material to the Trust's
financial position.
10. Subsequent Events
P.W. Enterprises has filed a Chapter 11 reorganization plan and
closed its 63,146 square foot store at Geneva Square in Lake
Geneva, Wisconsin in January 1996. The Trust has filed a claim
as an unsecured creditor due to the tenant's rejection of its
lease through the bankruptcy proceedings. The amount of that
claim, limited to 15% of the amounts owed for the unexpired
balance of the lease term, was $514,000. The Trust subsequently
elected to accept 70% of that amount through a proposed
bankruptcy payout plan. Accordingly, a settlement distribution
of approximately $360,000 is expected from the bankruptcy
trustee. At this time it is still uncertain what amounts will
actually be received by the Trust through the bankruptcy
proceedings, and when those payments, if any, will be made.
Staples, Inc. at North Park Plaza in Phoenix, Arizona closed its
18,000 square foot store in February 1996 and moved to a new
center in the metro area. Staples has assigned their lease which
runs through July 2003, to the developer of the new center. The
Trust is cooperating with the developer in securing a new tenant
for the space.
11. Selected Quarterly Financial Data (Unaudited)
<TABLE>
<CAPTION> Quarter Ended Year
Ended
Year 3/31 6/30 9/30 12/31 12/31
1995
<S> <C> <C> <C> <C> <C>
Revenue $ 1,423,777 1,368,427 1,386,977 1,438,833 5,618,014
Earnings from operations $ 301,080 222,437 297,878 278,754 1,100,149
Net earnings $ 301,080 222,437 297,878 278,754 1,100,149
Net earnings per share $ .08 .06 .08 .07 .28
1994
Revenue $ 1,651,674 1,582,681 1,581,086 1,364,054 6,179,495
Earnings from operations $ 247,328 196,185 212,863 278,229 934,605
Net gain on disposition --- --- 788,588 --- 788,588
of property
Net earnings $ 247,328 196,185 1,001,451 278,229 1,723,193
Net earnings per share $ .06 .05 .26 .07 .44
1993
Revenue $ 1,500,105 1,580,646 1,520,981 1,670,731 6,272,463
Earnings from operations $ 148,098 148,667 138,010 280,971 715,746
Net earnings $ 148,098 148,667 138,010 280,971 715,746
Net earnings per share $ .04 .04 .04 .07 .18
</TABLE>
Report of Independent Auditors
The Board of Trustees and Shareholders
USP Real Estate Investment Trust
We have audited the accompanying balance sheets of USP Real
Estate Investment Trust as of December 31, 1995 and 1994, and the
related statements of earnings, shareholders' equity, and cash
flows for each of the three years in the period ended December
31, 1995. These financial statements are the responsibility of
the Trust'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 provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of USP Real Estate Investment Trust at December 31, 1995 and
1994, and the results of its operations and its cash flows for
each of the three years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles.
Ernst & Young LLP
Des Moines, Iowa
February 16, 1996
Item 9. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure
None.
Part III
Item 10. Directors and Executive Officers of the Registrant
Information About Directors (referred to herein as "Trustees")
Certain information about the nominees for Trustee appears below.
(See "Item 13 Certain Relationships and Related Transactions" for
a description of the Trust's relationship with AEGON USA Realty
Advisors, Inc. and other subsidiaries of AEGON USA, Inc.)
GARY A. DOWNING, age 37, has served as a Trustee of the Trust
since 1989. He is Managing Director of Raymond James &
Associates, Inc. (investment banking), St. Petersburg, Florida,
where he has been employed since 1984. Mr. Downing is a member
of the Audit Committee.
PATRICK E. FALCONIO, age 54, has served as Chairman of the Board
and a Trustee of the Trust since 1988. He is Executive Vice
President and Chief Investment Officer of AEGON USA, Inc.
(insurance and financial services), Cedar Rapids, Iowa, where he
has been employed since 1987. Mr. Falconio is a Director of
AEGON USA Realty Advisors, Inc. and various other subsidiaries of
AEGON USA, Inc. He is also Chairman of the Board of Directors of
Cedar Income Fund, Ltd. (real estate investment company) and a
Director of Firstar Bank Cedar Rapids, N.A. (commercial bank).
EDWIN L. INGRAHAM, age 69, has served as a Trustee of the Trust
since 1984, and as Vice Chairman of the Board of Trustees since
1990. He retired in 1988 as Executive Vice President, Treasurer
and Chief Investment Officer of AEGON USA, Inc., where he had
been employed since 1982. He is a Director of Cedar Income Fund,
Ltd. (real estate investment company). Mr. Ingraham is a member
of the Audit Committee.
SAMUEL L. KAPLAN, age 59, has served as a Trustee of the Trust
since 1983. He has been engaged in the practice of law in
Minneapolis, Minnesota as a member of the firm of Kaplan,
Strangis and Kaplan, P.A. since 1978. Mr. Kaplan is a member of
the Audit Committee.
Information About Executive Officers
Certain information about the executive officers of the Trust who
are not also nominees appears below. The term of office of each
executive officer will expire at the Annual Meeting of the Board
of Trustees which will follow the Annual Meeting of Shareholders.
(See "Item 13 Certain Relationships and Related Transactions" for
a description of the Trust's relationship with AEGON USA Realty
Advisors, Inc. and other subsidiaries of AEGON USA, Inc.)
DAVID L. BLANKENSHIP, age 45, has served as President of the
Trust since 1985. He has been employed by AEGON USA, Inc. since
1977 in various administrative and management positions related
to real estate investment activities and is Chairman of the Board
and President of AEGON USA Realty Advisors, Inc.
MAUREEN DEWALD, age 45, has served as Vice President of the Trust
since 1986 and Secretary since 1985. She has been employed by
AEGON USA, Inc. since 1983 as an attorney for real estate
investment activities and is Senior Vice President, Secretary and
General Counsel of AEGON USA Realty Advisors, Inc.
JEFFRY DIXON, age 42, has served as Director of Investor
Relations and Assistant Secretary of the Trust since 1994. He
has been employed by AEGON USA, Inc. since 1984 in real estate
acquisition and mortgage lending positions and is a Portfolio
Manager of AEGON USA Realty Advisors, Inc.
ALAN F. FLETCHER, age 46, has served as Treasurer of the Trust
since 1986, as Vice President since 1985, as Assistant Secretary
since 1982 and as principal financial officer since 1981. He has
been employed by AEGON USA, Inc. since 1981 in various financial
and administrative positions related to investment activities and
is Senior Vice President and Chief Financial Officer of AEGON USA
Realty Advisors, Inc.
ROGER L. SCHULZ, age 34, has served as Controller and Assistant
Secretary of the Trust since December, 1995. He has been
employed by AEGON USA, Inc. since 1985 in real estate accounting
and financial reporting positions and since November, 1995, as
Manager - Financial Reporting for AEGON USA Realty Advisors, Inc.
Item 11. Executive Compensation
During 1995, each Trustee, with the exception of Mr. Falconio,
received an annual fee of $6,000 plus $750 for each regular or
special meeting attended, as well as $400 per day for inspecting
properties owned by the Trust and $400 for attendance at each
committee meeting as a member, unless held in conjunction with a
meeting of the Board of Trustees. Mr. Falconio has waived all
fees for his services as a Trustee so long as he continues to be
affiliated as an officer or director of AEGON USA Realty
Advisors, Inc. (see "Item 10 Directors and Executive Officers of
the Registrant"). Total fees paid to all Trustees as a group
were $27,750 for 1995.
The executive officers of the Trust receive no cash or deferred
compensation in their capacities as such.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
Security Ownership of Certain Beneifical Owners
The following table sets forth information with respect to each
person and group (as that term is used in Section 13(d)(3) of the
Securities Exchange Act of 1934) known by the Trust to be the
beneficial owner of more than five percent (5%) of the
outstanding shares of the Trust as of March 1, 1996.
Name and Address Amount and Nature Percent
of Beneficial Owner of Beneficial Ownership of Class
AEGON USA, Inc. 1,197,260 30.86%
4333 Edgewood Road N.E.
Cedar Rapids, Iowa 52499
AEGON USA, Inc. is an indirect, wholly-owned subsidiary of AEGON
N.V., a holding company organized under the laws of The
Netherlands which is controlled by Vereninging AEGON, an
association organized under the laws of The Netherlands. AEGON
USA, Inc. has sole voting and investment powers with respect to
the above Shares.
The following table sets forth the number of Shares of the Trust
beneficially owned as of March 1, 1996 by each Trustee, nominee,
and officer and by all Trustees, nominees and officers as a group
(9 persons). Except as otherwise indicated by footnote, the
individuals have direct ownership of, and sole voting and
investment power with respect to, any Shares beneficially owned
by them.
Name of Amount and Nature Percent
Beneficial Owner of Beneficial Ownership
of Class
Gary A. Downing(1) 467 *
Patrick E. Falconio(2) 1,199,260 30.91%
Edwin L. Ingraham 1,500 *
Samuel L. Kaplan(3) 10,000 *
David L. Blankenship(4) 1,818 *
Maureen DeWald(5) 7,943 *
Jeffry Dixon 0 *
Alan F. Fletcher(6) 2,200 *
Roger L. Schulz 100 *
Trustees, nominees and officers as a group1,223,288 31.53%
(1) Mr. Downing is the beneficial owner of 467 Shares held in
an individual retirement account through the custodian of
which he has sole voting and investment powers with respect
to such Shares.
(2) Mr. Falconio may be deemed to be the beneficial owner of
1,197,260 Shares beneficially owned by AEGON USA, Inc. with
respect to which he shares voting and investment powers (see
"Item 10 Directors and Executive Officers of the Registrant"
and "Item 13 Certain Relationships and Related
Transactions"). Mr. Falconio disclaims beneficial ownership
of such Shares. He may also be deemed to be the beneficial
owner of 2,000 Shares owned by his wife.
(3) Mr. Kaplan may be deemed to be the beneficial owner of
1,500 Shares held in a profit sharing trust for his account.
Such Shares are included in the 10,000 Shares above.
(4) Mr. Blankenship may be deemed to be the beneficial owner of
1,818 Shares held in custodial accounts for his children for
which he has sole voting and investment powers.
(5) Ms. DeWald is the direct owner of 6,697 Shares for which
she has sole voting and investment powers and may be deemed
to be the beneficial owner of 1,246 Shares held in a
custodial account for her daughter for which she has sole
voting and investment powers.
(6) Mr. Fletcher is the direct owner of 600 Shares for which he
has sole voting and investment powers and is the beneficial
owner of 1,600 Shares held in an individual retirement
account for which he has sole voting and investment powers
through the custodian.
*Such holdings represent less than one percent of the
outstanding Shares.
Item 13. Certain Relationships and Related Transactions.
The Trust has no employees and has contracted with various
subsidiaries of AEGON USA, Inc. to provide administrative,
advisory, acquisition, divestiture, property management and
shareholder services to the Trust. A description of the
relationships between AEGON USA, Inc. and its various
subsidiaries and of such subsidiaries' agreements with the Trust
follows. The description of the agreements which follows is
qualified in its entirety by reference to the terms and
provisions of such agreements. (See "Item 12 Security Ownership
of Certain Beneficial Owners and Management" for a description of
the relationship between AEGON USA, Inc. and AEGON N.V.)
Administrative, Advisory and Acquisition Services
AEGON USA Realty Advisors, Inc. ("AEGON Advisors"), is a wholly-
owned subsidiary of AEGON USA, Inc. AEGON Advisors provides
administrative, advisory, acquisition and divestiture services to
the Trust pursuant to an Administrative Agreement. The term of
the Administrative Agreement is for one (1) year and is
automatically renewable each year for an additional year subject
to the right of either party to cancel the Agreement upon 90 days
written notice. The performance of AEGON Advisors' duties and
obligations under the Administrative Agreement has been
guaranteed by AEGON USA, Inc.
Under the Administrative Agreement, AEGON Advisors (a) provides
clerical, administrative and data processing services, office
space, equipment and other general office services necessary for
the Trust's day-to-day operations, (b) provides legal, tax and
accounting services to maintain all necessary books and records
of the Trust and to ensure Trust compliance with all applicable
federal, state and local laws, regulatory reporting requirements
and tax codes, (c) arranges financing for the Trust, including
but not limited to mortgage financing for property acquisition,
(d) obtains property management services for the Trust's
properties and supervises the activities of persons performing
such services, (e) provides monthly reports summarizing the
results of operations and financial conditions of the Trust, (f)
prepares and files all reports to shareholders and regulatory
authorities on behalf of the Trust, (h) prepares and files all
tax returns of the Trust and (i) provides the Trust with property
acquisition and divestiture services.
AEGON Advisors receives fees for its administrative and advisory
services as follows: (a) a base fee, payable monthly, equal to
5/8% per annum of the average monthly gross real estate
investments of the Trust plus 1/4% per annum of the monthly
outstanding principal balance of mortgage loans receivable; and
(b) an incentive fee, payable annually, equal to 20% of the
annual adjusted cash flow from operations in excess of $.72 per
share. If the annual adjusted cash flow from operations is less
than $.72 per share, then the payment of so much of the base fee
is to be deferred so that revised cash flow from operations will
be equal to $.72 per share; provided, however, in no event shall
the amount deferred exceed 20% of the previously determined base
fee. Any deferred fees may be paid in a subsequent year, up to a
maximum of 30% of that year's revised cash flow from operations
in excess of $.72 per share. Annual adjusted cash flow from
operations, as defined for purposes of the incentive fee,
includes the net realized gain (or loss) from the disposition of
property, adjusted to exclude accumulated depreciation (otherwise
stated as gain in excess of cost without reduction for allowable
depreciation). Notwithstanding the foregoing, the combined base
and incentive fees cannot exceed the amount permitted by the
limitation on operating expenses as provided in the Trust's
Declaration of Trust, which limitation is essentially 1 1/2% of
the Trust's average quarterly invested assets, net of
depreciation. In addition, AEGON Advisors is to be paid a
separately negotiated fee of not less than 2% nor more than 4% of
the cost of each property acquired by the Trust as compensation
for acquisition services furnished by it to the Trust.
Administrative fees paid to AEGON Advisors for 1995 were
$202,410. No acquisition fees were paid in 1995.
Management Services
AEGON USA Realty Management, Inc. ("AEGON Management"), is a
wholly-owned subsidiary of AEGON Advisors. AEGON Management
provides management services to the Trust pursuant to a Property
Management Agreement. The term of the Agreement is for one (1)
year and is automatically renewable each year for an additional
year subject to the right of either party to cancel the Agreement
upon 30 days written notice. Under the Management Agreement,
AEGON Management is obligated to (a) procure tenants and execute
leases with respect to Trust properties which are not leased
under net lease arrangements (the "Managed Properties"), (b)
maintain and repair (at the Trust's expense) the Managed
Properties, (c) maintain complete and accurate books and records
of the operations of the Managed Properties, (d) maintain the
Managed Properties in accordance with applicable government rules
and regulations, licensing requirements and building codes, (e)
collect all rents and (f) carry (at the Trust's expense) general
liability, accident, fire and other property damage insurance.
For these services, AEGON Management receives 5% of the gross
income derived from the operation of the Managed Properties.
Management fees paid to AEGON Management for 1995 were $250,601.
Shareholder Services
AEGON Advisors provides shareholder services to the Trust
pursuant to a Shareholder Services Agreement (the "Agreement").
Under the Agreement, AEGON Advisors is obligated to provide
dividend disbursement, stock certificate preparation,
recordkeeping and other shareholder services for which AEGON
Advisors receives the following fees: a quarterly fee of $1.25
per shareholder account based on the number of shareholder
accounts (minimum $1,000 per quarter), a fee of $.75 per
shareholder account for each dividend processed, a fee of $.50
per shareholder account for proxy tabulation, and such other
compensation as from time to time agreed upon by the Trust and
AEGON Advisors. Shareholder service fees paid to AEGON Advisors
for 1995 were $22,112. AEGON Advisors has subcontracted for
stock transfer and dividend disbursement services with Boston
EquiServe, L.P., a subsidiary of State Street Bank and Trust
Company.
Other
On December 31, 1993, the mortgage loan on the Trust's
Presidential Drive property was acquired from the lender by AUSA
Life Insurance Company, Inc., a wholly-owned subsidiary of AEGON
USA, Inc., as part of a large transaction involving the transfer
of loans and securities. The terms of the mortgage loan remained
the same. In February 1994, the Trust refinanced the existing
mortgage loan on its Geneva Square property with a new mortgage
loan from PFL Life Insurance Company ("PFL"), a wholly-owned
subsidiary of AEGON USA, Inc. This $3,000,000 loan was obtained
by the Trust on commercially competitive terms at a fixed
interest rate of 8% and a 1% origination fee ($30,000) was paid
to PFL in connection with the loan. The loan matured on March 1,
1996, and the Trust exercised an option to extend the loan for
eight years at 8.30% based on commercially competitive terms
offered for comparable loans by PFL. The loan may be prepaid
without penalty any time during the first two (2) years of the
extended term.
The aggregate principal amount of the two mortgage loans
described above as of December 31, 1995 was $3,678,901. The
maximum principal amount of such mortgage indebtedness
outstanding during 1995 was $3,770,996. The Trust paid $92,094
in principal and $316,638 in interest on such mortgage
indebtedness for 1995.
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K.
(a) List of Documents
The following financial statements are included in Item 8:
1. Financial Statements.
Balance Sheets, December 31, 1995 and 1994.
Statements of Earnings, Years Ended December 31, 1995, 1994, and
1993.
Statements of Cash Flows, Years Ended December 31, 1995, 1994,
and 1993.
Statements of Shareholders' Equity, Years Ended December 31,
1995, 1994, and 1993.
Notes to Financial Statements.
Report of Independent Auditors.
2. Financial Statement Schedules.
Financial Statement Schedules. (Included in Notes to Financial
Statements)
(III) Schedule of Real Estate and Accumulated Depreciation.Note
2
(IV) Schedule of Mortgage Loans on Real Estate. Note 3
All other schedules have been omitted because they are
not required, or because the required information, where
material, is included in the financial statements or
accompanying notes.
Part IV (continued)
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K (continued)
(a) List of Documents (continued)
3.Exhibits.
(3) Second Amended and Restated Declaration of Trust
currently in effect, dated October 5, 1972,
as amended December 18, 1972, March 3, 1975
and April 23, 1984, incorporated herein by
reference to Item 14(a)3, Exhibit (3) of
Form 10-K for the year ended December 31,1984.
(3.1) By-Laws currently in effect, dated January 28, 1992,
incorporated herein by reference to Item 14(a)3,
Exhibit (3.1) of Form 10-K for the year ended December 31, 1991.
(4) Articles II and III of the Second Amended and Restated
Declaration of Trust currently in effect, dated October 5, 1972,
as amended December 18, 1972, March 3, 1975 and April 23, 1984,
incorporated herein by reference to Item 14(a)3, Exhibit (3)
of Form 10-K for the year ended December 31, 1984.
(4.1) Article II of the By-Laws currently in effect, dated
January 28, 1992, incorporated herein by reference to
Item 14(a)3, Exhibit (4.1) of Form 10-K for the year ended
December 31, 1991.
(10) Administrative Agreement currently in effect, dated
January 1, 1984, incorporated herein by reference to Item 5,
Exhibit (28) of Form 8-K dated January 1, 1984.
(10.1)Property Management Agreement currently in effect,
dated July 1, 1981, as amended November 4,1982, incorporated
herein by reference to Item 14(a)3, Exhibit (10) of Form 10-K
for the year ended December 31, 1982.
(10.2)Shareholder Services Agreement, currently in effect, dated
January 1, 1991, as amended January 1, 1992 and assigned
January 28, 1992, incorporated herein by reference to
Item 14(a)3, Exhibit (10.2) of Form 10-K for
the year ended December 31, 1991.
(b) Reports on Form 8-K.
The Trust reported on a Form 8-K, dated December 18, 1995, a news
release dated December 18, 1995.
(c) The required exhibits applicable to this section are listed in
Item 14(a)3.
(d) There are no required financial statement schedules applicable
to this section.
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.
USP REAL ESTATE INVESTMENT TRUST
Patrick E. Falconio Alan F. Fletcher
Chairman of the Board Vice President and Treasurer
(principal executive (principal financial officer)
officer)
Roger L. Schulz
Controller
(principal accounting
officer)
March 25, 1996
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and as of the
date indicated.
Gary A. Downing Edwin L. Ingraham
Trustee Trustee
Patrick E. Falconio Samuel L. Kaplan
Trustee Trustee
March 25, 1996
EXHIBIT INDEX
Exhibit
Item Title or Description
(3) Second Amended and Restated Declaration of Trust
currently in effect, dated October 5,
1972, as amended December 18, 1972,
March 3, 1975 and April 23, 1984,
incorporated herein by reference to Item
14(a)3, Exhibit (3) of Form 10-K for the
year ended December 31, 1984.
(3.1) By-Laws currently in effect, dated January 28, 1992,
incorporated herein by reference to Item
14(a)3, Exhibit (3.1) of Form 10-K for
the year ended December 31, 1991.
(4) Articles II and III of the Second Amended and Restated
Declaration of Trust currently in effect,
dated October 5, 1972, as amended
December 18, 1972, March 3, 1975 and
April 23, 1984, incorporated herein by
reference to Item 14(a)3, Exhibit (3) of
Form 10-K for the year ended December 31,1984.
(4.1) Article II of the By-Laws currently in effect, dated
January 28, 1992, incorporated herein by
reference to Item 14(a)3, Exhibit (4.1)
of Form 10-K for the year ended December 31, 1991.
(10) Administrative Agreement currently in effect, dated
January 1, 1984, incorporated herein by
reference to Item 5, Exhibit (28) of Form
8-K dated January 1, 1984.
(10.1) Property Management Agreement currently in effect,
dated July 1, 1981, as amended November 4,
1982, incorporated herein by reference to
Item 14(a)3, Exhibit (10) of Form 10-K for
the year ended December 31, 1982.
(10.2) Shareholder Services Agreement dated January 1, 1991,
as amended January 1, 1992 and assigned January 28, 1992,
incorporated herein by reference to Item 14(a)3, Exhibit
(10.2) of Form 10-K for the year ended
December 31, 1991.
All Exhibit Items are omitted from this report, but a copy will
be furnished upon payment of $33.00, representing a charge of
fifty cents ($.50) per page, accompanying a written request to
Roger L. Schulz, Controller, USP Real Estate Investment Trust,
4333 Edgewood Road N.E., Cedar Rapids, IA 52499.
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000102438
<NAME> USP REAL ESTATE INTESTMENT TRUST
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 1,370,623
<SECURITIES> 0
<RECEIVABLES> 758,864
<ALLOWANCES> 143,991
<INVENTORY> 0
<CURRENT-ASSETS> 2,419,133
<PP&E> 39,651,566
<DEPRECIATION> 10,505,521
<TOTAL-ASSETS> 32,853,270
<CURRENT-LIABILITIES> 1,071,253
<BONDS> 15,271,385
0
0
<COMMON> 3,880,000
<OTHER-SE> 12,630,632
<TOTAL-LIABILITY-AND-EQUITY> 32,853,270
<SALES> 0
<TOTAL-REVENUES> 5,618,014
<CGS> 0
<TOTAL-COSTS> 2,576,298
<OTHER-EXPENSES> 378,703
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,562,864
<INCOME-PRETAX> 1,100,149
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,100,149
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,100,149
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</TABLE>
