UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarter ended September 30, 1997 Commission file number 0-7589
USP REAL ESTATE INVESTMENT TRUST
(Exact name of registrant as specified in its charter)
Iowa 42-6149662
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
4333 Edgewood Road N.E., Cedar Rapids, IA 52499
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (319) 398-8975
N/A
(Former name, address and fiscal year, if changed since last report)
Indicate by check-mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
The number of shares of beneficial interest of the registrant
outstanding at November 13, 1997 was 3,880,000
PART I FINANCIAL INFORMATION
Item 1. Financial Statements.
USP REAL ESTATE INVESTMENT TRUST
Balance Sheets
(unaudited)
<TABLE>
<S> <C> <C> <C>
September 30, December 31,
1997 1996 1996
ASSETS
Real estate
Land, buildings and improvements at cost $ 40,695,104 39,654,127 39,683,279
Less accumulated depreciation (11,922,726) (11,113,764) (11,316,419)
28,772,378 28,540,363 28,366,860
Mortgage loans receivable, net of deferred gain 1,238,796 1,267,960 1,260,926
Real estate and mortgage loans receivable 30,011,174 29,808,323 29,627,786
Cash and cash equivalents 502,324 1,837,689 1,733,640
Rent and other receivables 371,494 497,077 443,800
Prepaid and deferred expenses 340,302 245,416 255,631
Taxes held in escrow 97,160 95,134 146,871
Total Assets $ 31,322,454 32,483,639 32,207,728
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Mortgage loans payable $ 14,454,257 14,935,400 14,819,479
Accounts payable and accrued expenses 698,118 757,226 684,145
Due to affiliates 43,954 69,212 46,446
Distribution declared 310,400 310,400 310,400
Tenant deposits 71,235 77,232 74,217
Other 64,801 36,422 57,779
Total Liabilities 15,642,765 16,185,892 15,992,466
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 3,880,000
Additional paid-in capital 11,799,689 12,018,890 12,018,890
Undistributed net earnings --- 398,857 316,372
Total Shareholders' Equity 15,679,689 16,297,747 16,215,262
Total Liabilities and Shareholders' Equity $ 31,322,454 32,483,639 32,207,728
</TABLE>
USP Real Estate Investment Trust
Statements of Earnings
(Unaudited)
<TABLE>
<S> <C> <C> <C> <C>
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
REVENUE
Rents $ 1,200,960 1,302,684 3,604,226 3,865,761
Interest 49,495 68,285 159,969 188,994
Total Revenue 1,250,455 1,370,969 3,764,195 4,054,755
EXPENSES
Property expenses:
Real estate taxes 170,150 168,775 520,286 554,676
Repairs and maintenance 191,353 128,782 380,283 263,513
Utilities 25,963 32,145 94,968 89,761
Management fee 55,980 60,633 167,217 179,538
Insurance 12,039 11,922 35,021 34,556
Other 35,277 88,557 108,187 169,590
Property expenses, excluding depreciation 490,762 490,814 1,305,962 1,291,634
Depreciation 200,045 202,654 606,307 608,243
Total property expenses 690,807 693,468 1,912,269 1,899,877
Interest 359,525 371,173 1,087,234 1,123,276
Administrative fees 64,536 63,238 192,330 189,723
Other administrative 69,482 37,038 176,735 123,564
Total Expenses 1,184,350 1,164,917 3,368,568 3,336,440
Net earnings $ 66,105 206,052 395,627 718,315
Net earnings per share $ .02 .05 .10 .19
Distributions to shareholders $ 310,400 310,400 931,200 931,200
Distributions to shareholders per share $ .08 .08 .24 .24
</TABLE>
USP Real Estate Investment Trust
Statements of Cash Flows
(unaudited)
<TABLE>
<S> <C> <C>
Nine Months Ended
September 30,
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Rents collected $ 3,675,732 3,976,232
Interest received 167,506 192,370
Payments for operating expenses (1,677,658) (1,365,146)
Interest paid (1,084,710) (1,117,506)
Net cash provided by operating activities 1,080,870 1,685,950
CASH FLOWS FROM INVESTING ACTIVITIES:
Principal collections on mortgage loans receivable 22,130 20,132
Capital expenditures (1,011,825) (2,561)
Other, net (26,069) 30,730
Net cash provided (used) by investing activities (1,015,764) 48,301
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on mortgage loans payable (365,222) (335,985)
Distributions paid to shareholders (931,200) (931,200)
Net cash used by financing activities (1,296,422) (1,267,185)
Net increase (decrease) in cash and cash equivalents (1,231,316) 467,066
Cash and cash equivalents at beginning of period 1,733,640 1,370,623
Cash and cash equivalents at end of period $ 502,324 1,837,689
RECONCILIATION OF NET EARNINGS TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:
Net earnings $ 395,627 718,315
Depreciation 606,307 608,243
Amortization 2,524 5,770
Decrease in rent and other receivables 76,965 115,244
Decrease (increase) in prepaid and deferred expenses (63,823) 30,426
Decrease in taxes held in escrow 49,711 47,644
Increase in operating accounts payable
and accrued expenses 13,973 130,771
Increase (decrease) in due to affiliates (2,492) 30,934
Increase (decrease) in advance rents 2,078 (1,397)
Net cash provided by operating activities $ 1,080,870 1,685,950
</TABLE>
NOTES TO FINANCIAL STATEMENTS
Note 1: The unaudited interim financial statements are prepared
in accordance with generally accepted accounting principles and
include all adjustments of a normal recurring nature necessary
for a fair presentation of the financial position and quarterly
results. Interim reports should be read in conjunction with the
audited financial statements and related notes included in the
1996 Annual Report.
<TABLE>
<S> <C>
Note 2: Shareholders' equity, December 31, 1996 $ 16,215,262
Net earnings 395,627
Distributions to shareholders (931,200)
Shareholders' equity, September 30, 1997 $ 15,679,689
</TABLE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
USP Real Estate Investment Trust's net earnings for the three and
nine months ended September 30, 1997 were $66,105 ($.02 per
share) and $395,627 ($.10 per share), respectively, compared to
$206,052 ($.05 per share) and $718,315 ($.19 per share) for the
same periods in 1996. The decline in net earnings from 1996 to
1997 is due primarily to lower revenue and higher repairs and
maintenance expenses.
The Trust's rental income for the first nine months of 1997 was
$262,000 lower than the first nine months of 1996. Rents at
Geneva Square in Lake Geneva, Wisconsin decreased by $145,000
mainly due to P.W. Enterprises vacating their space in January
1996 and MMM Foods discontinuing their land lease rental payments
in October 1996. Rents decreased by $151,000 at Kingsley Square
in Orange Park, Florida primarily due to Luria's discontinuing
their rent payments at the end of August 1996. The Trust has
leased the space formerly occupied by Luria's to OfficeMax, which
is now moved in and beginning to pay rent. Rental income at
Presidential Drive in Atlanta, Georgia increased by $35,000 due
to a cash settlement pertaining to delinquent rents received from
a tenant in the third quarter of 1997. The decrease in interest
income is due to a lower balance of funds available for
investment.
Total property expenses excluding depreciation, as a percentage
of rental income, increased from 33% in 1996 to 36% in 1997.
Repairs and maintenance increased by $117,000 from 1996 due
primarily to tenant remodeling expenses along with parking lot
and roof repairs. The increase in repairs and maintenance was
partially offset by a decrease in real estate taxes for all of
the Trust's properties. Other administrative expenses increased
due to legal and consulting expenses related to the effort to
explore strategic alternatives for the Trust.
Capital expenditures through September 30, 1997 were $1,012,000
which primarily included $771,000 to move in OfficeMax at
Kingsley Square and $177,000 for parking lot and sidewalk
improvements at First Tuesday Mall in Carrollton, Georgia and at
Presidential Drive.
As reported in the 1996 annual report, Staples closed their store
at North Park in Phoenix, Arizona in February 1996 and assigned
their lease to the developer of the new center where Staples
relocated. Safeway, the anchor tenant at North Park, has
accepted assignment of the Staples lease and is studying the
feasibility of expanding into the space. As previously reported,
Yamaha Motor Corporation, the sole tenant at Yamaha Warehouse in
Cudahy, Wisconsin, exercised an option to renew their lease for
one year. The one year lease option expires June 1998. Yamaha
has two additional one-year lease options. Belk Rhodes, an
anchor tenant at First Tuesday recently vacated their space but
is expected to continue paying rent until their lease expires in
September 1998.
Capital resources of the Trust consist of equity in real estate
investments and mortgage loans receivable. Properties are
maintained in good condition and adequate insurance coverage is
provided. Liquidity is represented by cash and cash equivalents
($502,324 at September 30, 1997) as well as cash flow from the
continued operation of the Trust's real estate portfolio,
considered sufficient to meet current obligations which include
capital expenditures.
As previously reported, the Board of Trustees has been exploring
various strategic alternatives with the intent to maximize
shareholder value. Raymond James & Associates, Inc. has been
engaged as financial advisor to assist the Trust with these
ongoing efforts.
The Board of Trustees declared a third quarter distribution of
$.08 per share, payable November 17, 1997 to shareholders of
record November 7, 1997. Distributions to shareholders continue
to be dependent upon earnings, cash flow, financial condition and
other factors reviewed by the Board of Trustees. The recent
declines in occupancy, rents, earnings, and cash flow are being
closely monitored for their impact on the Trust's liquidity,
financial condition and quarterly distributions.
SIGNATURE
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.
USP REAL ESTATE INVESTMENT TRUST
/s/ Alan F. Fletcher
Alan F. Fletcher
Vice President and Treasurer
(principal financial officer)
/s/ Roger L. Schulz
Roger L. Schulz
Controller
(principal accounting officer)
Dated: November 13, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000102438
<NAME> USP REAL ESTATE INVESTMENT TRUST
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1997
<CASH> 502,324
<SECURITIES> 0
<RECEIVABLES> 663,210
<ALLOWANCES> 291,716
<INVENTORY> 0
<CURRENT-ASSETS> 1,311,280
<PP&E> 40,695,104
<DEPRECIATION> 11,922,726
<TOTAL-ASSETS> 31,322,454
<CURRENT-LIABILITIES> 1,188,508
<BONDS> 14,454,257
0
0
<COMMON> 3,880,000
<OTHER-SE> 11,799,689
<TOTAL-LIABILITY-AND-EQUITY> 31,322,454
<SALES> 0
<TOTAL-REVENUES> 3,764,195
<CGS> 0
<TOTAL-COSTS> 1,912,269
<OTHER-EXPENSES> 369,065
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,087,234
<INCOME-PRETAX> 395,627
<INCOME-TAX> 0
<INCOME-CONTINUING> 395,627
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 395,627
<EPS-PRIMARY> .10
<EPS-DILUTED> .10
</TABLE>