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, 1996
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 Rapids, IA 52499
(Address of principal executive offices) (Zip Code)
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. [ ]
The aggregate market value of the voting shares of the
registrant held by non-affiliates at March 3, 1997 was
$11,539,928.
The number of shares of beneficial interest of the registrant
outstanding at March 3, 1997 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, 1996 were $14,819,479 and $27,531,681,
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. Upon the payoff
of these loans in December 1997, the Trust will consider
prepayment of the underlying mortgage loan on College Square
which matures in December 1999.
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 a strong occupancy of Trust properties
during the last three years. Overall leased occupancy for the
entire portfolio was 88% at December 31, 1996, compared to 96% at
December 31, 1995 and December 31, 1994.
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, 1996, 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 1996, 1995,
and in 1994. Managed commercial properties provided 88% of USP's
annual revenue in 1996, compared to 89% in 1995 and 91% in 1994.
All managed properties have at least one tenant representing more
than 17% of the revenue from that property, and the Kroger
Company represents approximately 12% 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 1996,
1995, and in 1994, and generated 7% of the Trust's annual revenue
in 1996, compared to 6% in 1995 and 1994. 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.
The Trust's properties and operations are summarized in the table
below.
<TABLE>
<S> <C> <C> <C> <C>
Real Estate Cost
at December 31, 1996 1996 Revenue
Amount Percent Amount Percent
Managed
Kingsley Square
Orange Park, Florida $4,973,232 12% $702,358 14%
First Tuesday Mall
Carrollton, Georgia 6,999,465 18 886,368 17
Geneva Square
Lake Geneva, Wisconsin 6,213,974 16 681,379 13
Mendenhall Commons
Memphis, Tennessee 8,732,032 22 951,282 18
North Park Plaza
Phoenix, Arizona 8,680,330 22 1,059,300 20
Presidential Drive
Atlanta, Georgia 1,886,309 5 320,217 6
37,485,342 95 4,600,904 88
Net Leased
Yamaha Warehouse
Cudahy, Wisconsin 2,197,937 5 355,696 7
2,197,937 5 355,696 7
Trust operations --- --- 260,713 5
$39,683,279 100% $5,217,313 100%
Table Cont. Largest Tenant
Percent of Percent of
Name of Lease Property Trust
Tenant Expiration Revenue Revenue Revenue
Managed
Kingsley Square
Orange Park, Florida L. Luria & Sons* 2010* $126,307 18% 3%
First Tuesday Mall
Carrollton, Georgia Winn Dixie 2004 193,602 22 4
Geneva Square
Lake Geneva, Wisconsin Roundy's 2001 246,488 36 5
Mendenhall Commons
Memphis, Tennessee Kroger 2012 646,844 68 12
North Park Plaza
Phoenix, Arizona Safeway 2003 433,707 41 8
Presidential Drive
Atlanta, Georgia Atlanta Dental 1999 70,256 22 1
1,717,204 33
Net Leased
Yamaha Warehouse
Cudahy, Wisconsin Yamaha Motor Corp. 1997 355,696 100 7
355,696 7
Trust operations
$2,072,900 40%
</TABLE>
*L. Luria & Sons vacated their space in March 1995. However,
they continued to honor their lease obligations through August
1996. (See "Recent Transactions")
Recent Transactions
L. Luria and Sons (Luria's) had occupied 23,587 square feet at
Kingsley Square in Orange Park, Florida until it discontinued
operations there in March 1995. Luria's continued to honor its
lease obligations, which expire in March 2010; however, after
paying the August 1996 rent, they discontinued making further
rent payments. Accordingly, the Trust took legal steps to
terminate Luria's right to possession of the premises and has
since been successful in locating a replacement tenant for the
Luria's space. While the Trust pursues legal remedy from
Luria's, OfficeMax has signed a fifteen year lease with four,
five-year options. In 1997, the Trust anticipates incurring
lease commissions and tenant improvements of approximately
$750,000 in order to place OfficeMax in this space.
The Trust previously reported that P.W. Enterprises 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 filed a claim as an unsecured creditor, limited by law
to 15% of the rents owed for the unexpired lease term, and agreed
to accept a 70% payout in order to gain priority within our
creditor class. As a result, the Trust is entitled to receive
$255,000 as soon as funds are available to pay the claim. At
this time it is not known when payment, if any, will be made.
The Lake Geneva real estate market remains relatively soft,
creating some difficulty in locating a replacement tenant for
this vacant space.
It was reported in the 1995 Annual Report that 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 assigned their lease, which runs through
July 2003, to the developer of the new center. The Trust and the
developer have been attempting to secure a new tenant for this
space.
At First Tuesday Mall in Carrollton, Georgia, the Trust has a
lease with Belk Rhodes Co. for 49,836 square feet, which lease
expires in September 1998. Although no formal notice has been
received from Belk Rhodes, the Trust does not expect them to
renew their lease. It may be very difficult to find a
replacement tenant because there is currently very little
economic development activity in First Tuesday's location.
The Yamaha Warehouse facility in Cudahy, Wisconsin has a lease
with Yamaha Motor Corporation (Yamaha), its sole tenant, which
expires in June 1997. Yamaha has options to extend the lease for
three additional one-year periods by giving the Trust ninety days
written notice. At the time of this report, Yamaha indicated
their intent to renew for one year. The Trust expects to receive
written confirmation by the end of March 1997.
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.
As previously reported, the Board of Trustees has been exploring
various strategic alternatives with the intent to maximize
shareholder value. While a number of possibilities are being
considered, 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 3, 1997, the Trust had 3,880,000 shares of beneficial
interest issued and outstanding to 2,107 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 3, 1997, the Trust's per share bid and asked prices were
$4.25 and $4.4375, 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.
Market Price Range
Over-the-Counter Bid Price
<TABLE>
<C> <C> <C> <C>
Quarter Ended High Low Close
1996
March 31 4 5/8 3 5/8 3 3/4
June 30 4 3 3/8 3/34
September 30 4 3 1/2 3 7/8
December 31 4 1/2 3 3/4 4 3/16
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
</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.
Dividend Character
<TABLE>
<S> <C> <C> <C>
1996 1995 1994
Ordinary
Income 86.10% 100.00% 73.71%
Capital
gains --- --- 26.29%
Return of
capital 13.90% --- ---
Total 100.00% 100.00% 100.00%
Distributions paid,
per share $.32 $.30 $.25
</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 28, 1997 at 1:30 p.m. at the
AEGON Financial Center, 4333 Edgewood Road N.E., Cedar Rapids,
Iowa.
10-K Information
The 1996 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 52499-5441.
Item 6. Selected Financial Data
<TABLE>
<S> <C> <C> <C> <C> <C>
Years Ended December 31 1996 1995 1994 1993 1992
Revenue $ 5,217,313 5,618,014 6,179,495 6,272,463 5,929,073
Earnings from Operations $ 946,230 1,100,149 934,605 715,746 282,401
Net Gain on Sale or Disposition $ --- --- 788,588 --- 175,991
of Property
Net Earnings $ 946,230 1,100,149 1,723,193 715,746 458,392
Distributions to Shareholders $ 1,241,600 1,202,800 1,008,800 931,200 1,241,600
Per Share*
Earnings from Operations $ .24 .28 .24 .18 .07
Net Earnings $ .24 .28 .44 .18 .12
Distributions to Shareholders $ .32 .31 .26 .24 .32
Real Estate and Mortgage
Loans Receivable $ 29,627,786 30,434,137 31,237,604 35,782,150 36,631,659
Total Assets $ 32,207,728 32,853,270 34,333,593 37,487,867 38,235,283
Mortgage Loans Payable $ 14,819,479 15,271,385 16,853,303 20,387,645 20,855,442
Total Liabilities $ 15,992,466 16,342,638 17,720,310 21,588,977 22,120,939
Shareholders' Equity $ 16,215,262 16,510,632 16,613,283 15,898,890 16,114,344
</TABLE>
*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.
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
The United States had another "above trend" year for job
generation in 1996, although the momentum of growth is slowing.
Non-agricultural employment advanced at a year-over-year rate of
1.9 million, about the same as 1995 and down from 1994's superb
performance. The retail market continues to expand as there has
been 316 million square feet of shopping center starts in the
last five years. Despite the increased supply of retail
properties in the nation, total retail sales (excluding
automobiles) were up 5% for the first eight months of 1996
compared to 6% for the comparable timeframe in 1995. The Trust
owns shopping centers, an office park and an office warehouse
facility in seven U.S. cities. The Trust's properties continue
to compete with centers and office buildings of similar size,
tenant mix and location. As of December 31, 1996, the combined
leased occupancy of the Trust's seven properties was 88%.
Operating results in the forthcoming year will be influenced by
the ability of current tenants to continue paying rent, and the
Trust's ability to renew expiring tenant leases and obtain new
leases at competitive rental rates.
1996 compared to 1995
The Trust's net earnings for the year ended December 31, 1996
were $946,230 ($.24 per share) compared to $1,100,149 ($.28 per
share) for the year ended December 31, 1995. The decrease in net
earnings was due to lower rental income, partially offset by
lower property expenses, interest expense and administrative
expenses.
Rental income was $4,965,259 in 1996 compared to $5,366,255 in
1995. This decline in rents of $401,000 was primarily due to
P.W. Enterprises filing a Chapter 11 reorganization plan and
closing its 63,146 square foot store at Geneva Square in Lake
Geneva, Wisconsin in January 1996. P.W. Enterprises contributed
rents of $37,000 in 1996 compared to $346,000 in 1995. In
addition, Luria's a 23,587 square foot tenant at Kingsley Square
in Orange Park, Florida discontinued paying their rent in August
1996. As a result, rents contributed from Luria's declined by
$47,000 from 1995 to 1996. In addition, expense recoveries
(additional rents) from tenants decreased from 1995 to 1996
primarily due to lower real estate taxes at several properties.
The decline in rents from these items was partially offset by a
$60,000 rent settlement the Trust received from Eaglesons, a
former tenant at North Park Plaza in Phoenix, Arizona.
Property expenses before depreciation were $1,609,749 in 1996
compared to $1,755,295 in 1995 which represents 32% of rental
income for 1996 and 33% of rental income for 1995. Real estate
taxes decreased by $159,000 or 21% from 1996 to 1995 as a result
of reduction in assessed values due to appeals and reduction in
tax rates. Repairs and maintenance declined by $108,000 or 22%
due to tenant remodeling, painting, and other improvements made
in 1995. Other property expenses increased by $122,000 primarily
due to legal fees related to the bankruptcy of P.W. Enterprises,
litigation with former tenants, property appraisals, and various
consulting expenses.
Interest expense declined due to the normal amortization of
mortgage loans payable.
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, 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 higher overage rents and
expense recoveries from tenants. Interest income was $251,759 in
1995 compared to $219,381 in 1994, an increase of 15%, due to
higher interest rates on 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 both experienced a reduction in
base rents from 1994. North Park reserved some delinquent rents
in 1995 and Presidential recovered delinquent rents in 1994 which
had been considered uncollectible. The largest increase in rents
occurred due to $125,000 in expense recoveries, primarily from
Kingsley Square, North Park, and First Tuesday. 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. Wages and salaries in 1994 were incurred in
connection with the operation of Midway, the sale of which
resulted in elimination of this expense. Repairs and maintenance
decreased $19,000 due to the sale of Midway, which incurred
$78,000 in repair and maintenance 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 repayment 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 (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.
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 ($1,733,640 at December 31, 1996), a $500,000 line of
credit 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 $2,043,926 for the year ended
December 31, 1996. Major applications of cash in 1996 included
$1,241,600 for distributions to shareholders and $451,906 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. Since Publix has not yet
remodeled their store, it is unknown when, if at all, this amount
will be paid.
Capital expenditures of approximately $945,000 are anticipated
for 1997. As of December 31, 1996, 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
Balance Sheets
<TABLE>
<S> <C> <C>
December 31,
1996 1995
Assets
Real estate
Land $ 9,666,409 9,666,409
Buildings and improvements 30,016,870 29,985,157
39,683,279 39,651,566
Less accumulated depreciation (11,316,419) (10,505,521)
28,366,860 29,146,045
Mortgage loans receivable,
net of deferred gain 1,260,926 1,288,092
Real estate and mortgage loans receivable 29,627,786 30,434,137
Cash and cash equivalents 1,733,640 1,370,623
Rents and other receivables 443,800 614,873
Prepaid and deferred expenses 255,631 290,859
Taxes held in escrow 146,871 142,778
$32,207,728 32,853,270
Liabilities and Shareholders' Equity
Liabilities
Mortgage loans payable $14,819,479 15,271,385
Accounts payable and accrued expenses 730,591 664,733
Distribution declared 310,400 310,400
Tenant deposits 74,217 79,629
Other 57,779 16,491
15,992,466 16,342,638
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 1996 and 1995 12,018,890 12,018,890
Undistributed net earnings 316,372 611,742
16,215,262 16,510,632
$32,207,728 32,853,270
</TABLE>
See the accompanying notes to financial statements.
Statements of Earnings
<TABLE>
<S> <C> <C> <C>
Years Ended December 31,
1996 1995 1994
Revenue
Rents $ 4,965,259 5,366,255 5,960,114
Interest 252,054 251,759 219,381
5,217,313 5,618,014 6,179,495
Expenses
Property expenses:
Real estate taxes 595,318 754,144 800,921
Wages and salaries --- --- 19,354
Repairs and maintenance 378,432 486,679 505,915
Utilities 123,585 106,028 141,019
Management fee 230,045 250,601 277,945
Insurance 46,411 43,645 56,246
Other 235,958 114,198 127,102
Property expenses, excluding depreciation 1,609,749 1,755,295 1,928,502
depreciation
Depreciation 810,898 821,003 960,227
Total property expenses 2,420,647 2,576,298 2,888,729
Interest 1,491,534 1,562,864 1,953,117
Administrative expense 358,902 378,703 403,044
4,271,083 4,517,865 5,244,890
Earnings from operations 946,230 1,100,149 934,605
Net gain on sale of property --- --- 788,588
Net earnings $ 946,230 1,100,149 1,723,193
Net earnings per share $ .24 .28 .44
Distributions to shareholders $ 1,241,600 1,202,800 1,008,800
Distributions to shareholders per share $ .32 .31 .26
</TABLE>
See the accompanying notes to financial statements.
Statements of Cash Flows
<TABLE>
<S> <C> <C> <C>
Years Ended December 31,
1996 1995 1994
Cash flows from operating activities:
Rents collected $ 5,167,812 5,240,756 5,997,838
Interest received 250,878 249,863 217,707
Payments for operating expenses (1,889,840) (1,957,514) (2,716,513)
Interest paid (1,484,924) (1,533,082) (1,934,047)
Net cash provided by operating activities 2,043,926 2,000,023 1,564,985
Cash flows from investing activities:
Proceeds from property sales, net of closing costs --- --- 4,641,420
Capital expenditures (31,713) (42,249) (305,050)
Principal collections on mortgage loans receivable 27,166 24,713 22,482
Other, net 17,144 54,484 64,071
Net cash provided by investing activities 12,597 36,948 4,422,923
Cash flows from financing activities:
Principal portion of scheduled mortgage loan (451,906) (452,695) (585,070)
payments
Principal repayment on mortgage loans payable --- (1,136,164) (3,141,973)
Net proceeds from refinancing --- --- 114,369
Distributions paid to shareholders (1,241,600) (1,164,000) (970,000)
Net cash used by financing activities (1,693,506) (2,752,859) (4,582,674)
Net increase (decrease) in cash and cash equivalents 363,017 (715,888) 1,405,234
Cash and cash equivalents at beginning of year 1,370,623 2,086,511 681,277
Cash and cash equivalents at end of year $ 1,733,640 1,370,623 2,086,511
Reconciliation of net earnings to net cash
provided by operating activities:
Net earnings $ 946,230 1,100,149 1,723,193
Gain on sale of property --- --- (788,588)
Earnings from operations 946,230 1,100,149 934,605
Depreciation 810,898 821,003 960,227
Amortization 6,610 29,782 58,975
Decrease (increase) in rents and other receivable 171,497 (119,117) 38,571
Decrease (increase) in prepaid and deferred 17,046 (7,314) (16,921)
expenses
Decrease (increase) in taxes held in escrow (4,093) 13,987 (105,713)
Increase (decrease) in accounts payable and accrued 65,858 169,811 (302,238)
expenses
Increase (decrease) in advance rents 29,880 (8,278) (2,521)
Net cash provided by operating activities $ 2,043,926 2,000,023 1,564,985
</TABLE>
See the accompanying notes to financial statements.
Statements of Shareholders' Equity
<TABLE>
<S> <C> <C> <C> <C>
Years Ended December 31, 1996, 1995 and 1994
Shares of Additional Undistributed Total
Beneficial Paid-In Net Shareholders'
Interest Capital Earnings Equity
Balance at January 1, 1994 $ 3,880,000 12,018,890 --- 15,898,890
Net earnings --- --- 1,723,193 1,723,193
Distributions to --- --- (1,008,800) (1,008,800)
shareholders
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 --- --- (1,202,800) (1,202,800)
shareholders
Balance at December 31, 1995 $ 3,880,000 12,018,890 611,742 16,510,632
Net earnings --- --- 946,230 946,230
Distribution to Shareholders --- --- (1,241,600) (1,241,600)
Balance at December 31, 1996 $ 3,880,000 12,018,890 316,372 16,215,262
</TABLE>
See the accompanying notes to financial statements.
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.
Statement of Financial Accounting Standards (SFAS) No. 107,
Disclosures about Fair Value of Financial Instruments, requires
disclosure of fair value information about financial instruments.
The methods and assumptions used by the Trust in estimating its
fair value disclosures are described in Notes 3, 4, and 6.
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 in 1995
or 1996.
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 $213,347 in
1996 and $143,991 in 1995. 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.
Schedule of Real Estate and Accumulated Depreciation
<TABLE>
<S> <C> <C> <C>
Initial Cost to Trust
Amount of Buildings &
Property Description Encumbrance Land Improvements
Managed
Kingsley Square $ 785,412 450,000 3,311,660
Orange Park, FL
First Tuesday Mall 600,057 595,000 4,347,697
Carrollton, GA
Geneva Square 2,852,507 477,166 4,965,000
Lake Geneva, WI
Mendenhall Commons 4,041,421 3,134,692 5,597,340
Memphis, TN
North Park Plaza 4,052,331 4,635,147 4,018,353
Phoenix, AZ
Presidential Drive 772,244 344,582 1,424,300
Atlanta, GA
13,103,972 9,636,587 23,664,350
Net Leased
Yamaha Warehouse 1,436,365 26,195 755,756
Cudahy, WI
1,436,365 26,195 755,756
Total $14,540,337* 9,662,782 24,420,106
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
Gross Amount at Which Carried
December 31, 1996
Subsequent
Cost Buildings &
Property Description Capitalized Land Improvements Total
Managed
Kingsley Square 1,211,572 450,000 4,523,232 4,973,232
Orange Park, FL
First Tuesday Mall 2,056,768 600,392 6,399,073 6,999,465
Carrollton, GA
Geneva Square 771,808 477,166 5,736,808 6,213,974
Lake Geneva, WI
Mendenhall Commons --- 3,134,692 5,597,340 8,732,032
Memphis, TN
North Park Plaza 26,830 4,633,382 4,046,948 8,680,330
Phoenix, AZ
Presidential Drive 117,427 344,582 1,541,727 1,886,309
Atlanta, GA
4,184,405 9,640,214 27,845,128 37,485,342
Net Leased
Yamaha Warehouse 1,415,986 26,195 2,171,742 2,197,937
Cudahy, WI
1,415,986 26,195 2,171,742 2,197,937
Total 5,600,391 9,666,409 30,016,870 39,683,279
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
Life on
Which
Depreciation
Accumulated Date Date is computed
Property Description Depreciation Built Acquired (in years)
Managed
Kingsley Square 2,377,433 1975-76 7/79 10-40
Orange Park, FL
First Tuesday Mall 3,354,268 1975-78 7/79 10-40
Carrollton, GA
Geneva Square 1,909,414 1981-82 2/84 10-40
Lake Geneva, WI
Mendenhall Commons 1,091,398 1987 2/89 10-40
Memphis, TN
North Park Plaza 775,390 1963 2/89 10-40
Phoenix, AZ
Presidential Drive 509,152 1980 12/84 10-35
Atlanta, GA
10,017,055
Net Leased
Yamaha Warehouse 1,299,364 1971 2/72 15-40
Cudahy, WI
1,299,304
Total 11,316,419
</TABLE>
* Excludes encumbrance of $279,142 on wraparound mortgages
receivable.
The activity in real estate and related depreciation for the
three years ended December 31, 1996 is summarized in the table
below.
<TABLE>
<S> <C> <C> <C>
Real Estate Years Ended December 31,
1996 1995 1994
Cost
Beginning of year $ 39,651,566 39,651,566 44,115,186
Additions during year
Improvements 31,713 --- 175,804
Deductions during year
Property sales or dispositions --- --- (4,639,424)
End of year $ 39,683,279* 39,651,566 39,651,566
Accumulated Depreciation
Beginning of year $ 10,505,521 9,726,767 9,668,323
Additions during year
Depreciation expense 810,898 821,003 960,227
Deductions during year
Accumulated depreciation
on property sold --- --- (786,592)
Asset replacements charged
to accumulated depreciation --- (42,249) (115,191)
End of year $ 11,316,419 10,505,521 9,726,767
</TABLE>
*The aggregate cost for federal income tax purposes is
$39,816,989.
Wholly-owned managed properties with an aggregate cost of
$37,485,342 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>
<S> <C> <C> <C> <C> <C> <C> <C>
Schedule of Mortgage Loans Receivable
Periodic Payment Terms
Annual Face Amount Carrying
Date Stated Final Principal Balloon of Mortgage Amount of
Property Description of Interest Maturity and Interest Payment Receivable Mortgage
Name and Location of Mortgage Rate Date at at December 31,
Property Maturity Acquisition 1996
Hickory Hills Shopping Center 12-21-90 9.5% 12-20-97 $ 55,043 $ 474,726 $ 525,000 $ 484,177
Hillsville, Virginia
College Square Shopping Center 12-21-90 9.5% 12-20-97 117,949 1,017,270 1,125,000 1,035,906
Jefferson City, Tennessee
172,992 1,491,996 1,650,000 1,520,083
Deferred Gain --- --- --- (259,157)
$172,992 $1,491,996 $1,650,000 $1,260,926
</TABLE>
The estimated fair value of mortgage notes receivable at December
31, 1996 was $1,552,397 compared to the carrying value of
$1,520,083. 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 fair values for mortgage loans receivable are estimated
utilizing discounted cash flow analysis, using interest rates
reflective of current market conditions and the risk
characteristics of the loans. 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, 1996 is
summarized in the table below.
<TABLE>
<S> <C> <C> <C>
Mortgage Loans Receivable
Years Ended December 31,
1996 1995 1994
Principal
Beginning of year $ 1,547,249 1,571,962 1,594,444
Deductions during year
Principal collections 27,166 (24,713) (22,482)
Balance at end of year 1,520,083* 1,547,249 1,571,962
Deferred gain (259,157) (259,157) (259,157)
Balance, net of deferred gain $ 1,260,926 1,288,092 1,312,805
</TABLE>
*Represents the aggregate cost for federal income tax purposes.
4. Cash and Cash Equivalents
Cash and cash equivalents consist of cash of $116,280, a money
market fund of $617,360, and commercial paper of $1,000,000.
Information regarding the investments at December 31, 1996 are
presented in the table below. The amount carried on the balance
sheet approximates the market value. At December 31, 1995, cash
and cash equivalents were $1,370,623 which also approximated the
market value at that date.
<TABLE>
<S> <C> <C> <C>
Schedule of Cash and Cash Equivalents
Cost at
Maturity Principal December 31,
Type of Issue and Name of Issuer Date Amount 1996
Money Market
Fidelity Investments,
approximate average, 5.40% demand $ 617,360 $ 617,360
Commercial Paper
Prudential Funding Corp., 5.31% 1/14/97 $1,000,000 $1,000,000
</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: $202,378 for 1996,
$202,410 for 1995, and $219,982 for 1994. No incentive fees were
paid in 1996, 1995 or 1994. Administrative fees of $50,595 in
1996, $50,603 in 1995, and $54,995 in 1994 were deferred, but may
become payable in subsequent years. Cumulative deferred
administrative fees were $509,104 as of
December 31, 1996.
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 1996, 1995 or 1994.
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 $230,045 for 1996, $250,601 for 1995, and $277,945
for 1994. 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. No wages and salaries were reimbursed by the Trust for
1996 or 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 $21,904, $22,112 and $23,000 in shareholder
service fees for 1996, 1995, and 1994, 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
$80,674 in 1996, $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 $236,477 in 1996, $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, 1996.
6. Mortgage Loans Payable
Mortgage loan obligations, secured by the real estate owned,
carry annual interest rates ranging from 8.3% 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 prior to March 1, 1998 with yield
maintenance required thereafter. The annual debt service is
$260,295. Information regarding each mortgage is presented in
the Schedule of Mortgage Loans on Real Estate below.
<TABLE>
<S> <C> <C> <C>
Schedule of Mortgage Loans on Real Estate
Stated Final
Date of Interest Maturity
Property Description Note Rate Date
Managed
Kingsley Square 2/77 10% 2/02
Orange Park, FL
(two loans)
8/75 10% 8/00
First Tuesday 4/79 9.25% 4/04
Carrollton, GA
Geneva Square 2/94 8.3% 3/04
Lake Geneva, WI
Mendenhall Commons 2/89 10.25% 3/99
Memphis, TN
North Park Plaza 2/89 10.5% 3/99
Phoeniz, AZ
Presidential Drive 2/80 10.25% 2/10
Atlanta, GA
Net Leased
Yamaha Warehouse 12/90 10.125% 1/01
Cudahy, WI
Sold**
College Square 12/75 9.375% 12/99
Jefferson City, IN
</TABLE>
<TABLE>
<S> <C> <C> <C>
Periodic Payment Terms
Annual Balloon
Principal Payment Prepayment Penalty
and Interest at Maturity Provisions*
Property Description
Managed
Kingsley Square $ 76,370 $ --- Feb. 96 to Feb. 97 penalty is
Orange Park, FL 6.5%, declining .5% per year
(two loans) to 4% thereafter
163,650 --- 5.0%
First Tuesday 115,128 --- 1.0%
Carrollton, GA
Geneva Square 260,295 2,626,612 no penalty until 3/98,
Lake Geneva, WI thereafter, yield maintenance
Mendenhall Commons 462,396 3,930,120 Feb. 96 to Feb. 97 penalty is
Memphis, TN 3%, declining 1% per year
thereafter
North Park Plaza 472,008 3,944,537 Feb. 96 to Feb. 97 penalty is
Phoeniz, AZ 3%, declining 1% per year
thereafter
Presidential Drive 107,604 --- Feb. 96 to Feb. 97 penalty is
Atlanta, GA 2.0%, declining .5% per year
to 1% thereafter
1,657,451 10,501,269
Net Leased
Yamaha Warehouse 159,627 1,366,721 excess of loan rate over U.S.
Cudahy, WI Treasury Bill rate
159,627 1,366,721
Sold**
College Square 115,500 --- 1%
Jefferson City, IN
115,500 ---
$1,932,578 $11,867,990
</TABLE>
<TABLE>
<S> <C> <C>
Carrying Amount of
Face Amount Mortgage at
of Mortgage Dec. 31,
Property Description at Acquisition 1996
Managed
Kingsley Square $ 700,000 $ 300,757
Orange Park, FL
(two loans)
1,500,000 484,655
First Tuesday 1,120,000 600,057
Carrollton, GA
Geneva Square 3,000,000 2,852,507
Lake Geneva, WI
Mendenhall Commons 4,300,000 4,041,421
Memphis, TN
North Park Plaza 4,300,000 4,052,331
Phoeniz, AZ
Presidential Drive 968,935 772,244
Atlanta, GA
15,888,935 13,103,972
Net Leased
Yamaha Warehouse 1,500,000 1,436,365
Cudahy, WI
1,500,000 1,436,365
Sold**
College Square 1,100,000 279,142
Jefferson City, IN
1,100,000 279,142
$18,488,935 $14,819,479
</TABLE>
* Percentages are of the principal amount at time of prepayment.
** A wraparound mortgage loan receivable was received as part of
the consideration from sale; the Trust continues to service
the underlying mortgage payable.
The activity in mortgage loans payable for the three years ended
December 31, 1996 is summarized in the table below.
<TABLE>
<S> <C> <C> <C>
Mortgage Loans Payable
Years Ended December 31,
1996 1995 1994
Principal
Beginning of year $15,271,385 16,860,244 20,422,351
Additions during year
New mortgage loan
on refinancing --- --- 3,000,000
Deductions during year
Principal payments (451,906) (452,695) (585,070)
Prepayments and maturities --- (1,136,164) (2,835,064)
Balance of mortgage loan on
property sold --- --- (3,141,973)
Balance at end of year 14,819,479 15,271,385 16,860,244
Discount
Beginning of year --- (6,941) (34,706)
Deductions during year
Amortization of discount --- 6,941 27,765
Balance at end of year --- --- (6,941)
Balance, net of discount $14,819,479 15,271,385 16,853,303
</TABLE>
The estimated fair value of mortgage notes payable at December
31, 1996 was $15,590,221 compared to the carrying value of
$14,819,479. 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 fair values for mortgage loans payable
are estimated utilizing discounted cash flow analysis, using
interest rates reflective of current market conditions and the
risk characteristics of the loans. 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
1997 $ 493,032 $ ---
1998 543,569 ---
1999 457,969 7,874,657
2000 322,972 ---
2001 241,048 1,366,721
</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:
<TABLE>
<C> <C>
Year Amount
1997 $ 3,572,390
1998 2,879,860
1999 2,487,310
2000 2,121,019
2001 1,938,043
2002-2012 8,382,546
</TABLE>
Contingent rentals included in income received in connection with
operating leases were $101,446, $106,458, and $82,754 for the
years ended December 31, 1996, 1995 and 1994, respectively. Such
rentals are based principally on tenant sales in excess of
stipulated minimums. In 1996, 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 $646,844 in
1996, $636,898 in 1995, and $647,180 in 1994.
In January 1996, P.W. Enterprises filed a Chapter 11
reorganization plan and closed its 63,146 square foot store at
Geneva Square. The Trust filed a claim as an unsecured creditor
for rents owned on the unexpired lease, and is entitled to
receive approximately $255,000 as soon as funds are available to
pay the claim. Due to the uncertainty of when or if anything
might eventually be received by the Trust, nothing has been
recorded in the accompanying financial statements.
In August 1994, Publix Supermarkets exercised an option to extend
their lease for 34,400 square feet at 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. Since Publix has not yet
remodeled their store, it is unknown when, if at all, this amount
will be paid and nothing concerning this payment has been
recorded in the accompanying financial statements.
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, and did so in
1996 as well. 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, 1996 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. Selected Quarterly Financial Data (Unaudited)
<TABLE>
<S> <C> <C> <C> <C> <C>
Quarter Ended Year Ended
Year 3/31 6/30 9/30 12/31 12/31
1996
Revenue $ 1,371,756 1,312,030 1,370,969 1,162,558 5,217,313
Earnings from operations $ 294,639 217,624 206,052 227,915 946,230
Net earnings $ 294,639 217,624 206,052 227,915 946,230
Net earnings per share $ .08 .06 .05 .06 .24
1995
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 of property --- --- 788,588 --- 788,588
Net earnings $ 247,328 196,185 1,001,451 278,229 1,723,193
Net earnings per share $ .06 .05 .26 .07 .44
</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, 1996 and 1995, and the
related statements of earnings, shareholders' equity, and cash
flows for each of the three years in the period ended December
31, 1996. 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, 1996 and
1995, and the results of its operations and its cash flows for
each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
Ernst & Young LLP
Des Moines, Iowa
February 19, 1997
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 38, 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 55, 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 70, 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 60, 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 46, 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 46, 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 43, 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 activities and is a Portfolio
Manager of AEGON USA Realty Advisors, Inc.
ALAN F. FLETCHER, age 47, 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 35, has served as Controller and Assistant
Secretary of the Trust since 1995. He has been employed by AEGON
USA, Inc. since 1985 in real estate accounting and financial
reporting activities and is Manager - Financial Reporting for
AEGON USA Realty Advisors, Inc.
Item 11. Executive Compensation
During 1996, 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, Inc. (see
"Item 10. Directors and Executive Officers of the Registrant").
Total fees paid to all Trustees as a group were $29,250 for 1996.
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 Beneficial 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 3, 1997.
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.
Security Ownership of Management
The following table sets forth the number of Shares of the Trust
beneficially owned as of March 3, 1997 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. Under rules adopted by the Securities and Exchange
Commission, transactions in Shares of the Trust are reportable by
Trustees and officers on specified forms, and the Trust is
required to disclose any known delinquent filings. A report on
Form 5 was filed late for Mr. Downing, reporting 38 Shares
acquired through the Trust's distribution reinvestment plan.
<TABLE>
<S> <C> <C>
Name of Amount and Nature Percent
Beneficial Owner of Beneficial Ownership
of Class
Gary A. Downing(1) 505 *
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 group1,223,326 31.53%
</TABLE>
(1) Mr. Downing is the beneficial owner of 505 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"). 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 1996 were
$202,378. No acquisition fees were paid in 1996.
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 1996 were $230,045.
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 1996 were $21,904. 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 prior to March 1, 1998, yield
maintenance is required thereafter.
The aggregate principal amount of the two mortgage loans
described above as of December 31, 1996 was $3,624,751. The
maximum principal amount of such mortgage indebtedness
outstanding during 1996 was $3,678,901. The Trust paid $54,151
in principal and $317,151 in interest on such mortgage
indebtedness for 1996.
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, 1996 and 1995.
Statements of Earnings, Years Ended December 31, 1996, 1995, and 1994
Statements of Cash Flows, Years Ended December 31, 1996, 1995, and 1994
Statements of Shareholders' Equity, Years Ended December 31,
1996, 1995, and 1994.
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 6
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) No reports on Form 8-K were filed during the fourth quarter
of 1996.
(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
/s/ Patrick E. Falconio /s/ Alan F. Fletcher
Patrick E. Falconio Alan F. Fletcher
Chairman of the Board Vice President and Treasurer
(principal executive (principal financial officer)
officer)
/s/ Roger L. Schulz
Roger L. Schulz
Controller
(principal accounting officer)
March 26, 1997
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.
/s/ Gary A. Downing /s/ Edwin L. Ingraham
Gary A. Downing Edwin L. Ingraham
Trustee Trustee
/s/ Patrick E. Falconio /s/ Samuel L. Kaplan
Patrick E. Falconio Samuel L. Kaplan
Trustee Trustee
March 26, 1997
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-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,733,640
<SECURITIES> 0
<RECEIVABLES> 657,147
<ALLOWANCES> 213,347
<INVENTORY> 0
<CURRENT-ASSETS> 2,579,942
<PP&E> 39,683,279
<DEPRECIATION> 11,316,419
<TOTAL-ASSETS> 32,207,728
<CURRENT-LIABILITIES> 1,172,987
<BONDS> 14,819,479
0
0
<COMMON> 3,880,000
<OTHER-SE> 12,335,262
<TOTAL-LIABILITY-AND-EQUITY> 32,207,728
<SALES> 0
<TOTAL-REVENUES> 5,217,313
<CGS> 0
<TOTAL-COSTS> 1,609,749
<OTHER-EXPENSES> 358,902
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,491,534
<INCOME-PRETAX> 946,230
<INCOME-TAX> 0
<INCOME-CONTINUING> 946,230
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 946,230
<EPS-PRIMARY> .24
<EPS-DILUTED> .24
</TABLE>
