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 June 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 (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
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 August 1, 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>
June 30, December 31,
1997 1996 1996
ASSETS
Real Estate
Land, buildings and improvements at cost $ 40,493,090 39,654,127 39,683,279
Less accumulated depreciation (11,722,681) (10,911,110) (11,316,419)
Net book value 28,770,409 28,743,017 28,366,860
Mortgage loans receivable, net of deferred gain 1,246,348 1,274,830 1,260,926
Real estate and mortgage loans receivable 30,016,757 30,017,847 29,627,786
Cash and cash equivalents 845,581 1,906,079 1,733,640
Rents and other receivables 298,664 364,283 443,800
Prepaid and deferred expenses 355,956 273,391 255,631
Taxes held in escrow 165,423 156,911 146,871
Total Assets $ 31,682,381 32,718,511 32,207,728
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Mortgage loans payable $ 14,578,979 15,048,529 14,819,479
Accounts payable and accrued expenses 683,640 777,385 684,145
Due to affiliates 54,371 58,928 46,446
Distibution declared 310,400 310,400 310,400
Tenant deposits 76,473 85,808 74,217
Other 54,534 35,366 57,779
Total Liabilities 15,758,397 16,316,416 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 12,018,890 12,018,890 12,018,890
Undistributed net earnings 25,094 503,205 316,372
Total Shareholders Equity 15,923,984 16,402,095 16,215,262
Total Liabilities & Shareholders' Equity $ 31,682,381 32,718,511 32,207,728
</TABLE>
USP REAL ESTATE INVESTMENT TRUST
Statements of Earnings
(unaudited)
<TABLE>
<S> <C> <C> <C> <C>
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
REVENUE
Rents $1,184,094 1,249,922 2,403,266 2,563,077
Interest 52,224 62,108 110,474 120,709
Total revenue 1,236,318 1,312,030 2,513,740 2,683,786
EXPENSES
Property expenses:
Real estate taxes 170,571 190,808 350,136 385,901
Repairs and maintenance 73,637 72,632 188,930 134,731
Utilities 33,440 28,984 69,005 57,616
Management fee 52,943 57,732 111,237 118,905
Insurance 11,129 11,867 22,982 22,634
Other 37,941 48,402 72,910 81,033
Property expenses,
excluding depreciation 379,661 410,425 815,200 800,820
Depreciation 203,131 202,721 406,262 405,589
Total property expenses 582,792 613,146 1,221,462 1,206,409
Interest 362,431 373,895 727,709 752,103
Administrative fee 64,320 63,242 127,794 126,485
Other administrative 60,473 44,123 107,253 86,526
Total expenses 1,070,016 1,094,406 2,184,218 2,171,523
Net earnings $ 166,302 217,624 329,522 512,263
Net earnings per share $ .04 .06 .08 .13
Distributions to shareholders $ 310,400 310,400 620,800 620,800
Distributions to shareholders per share $ .08 .08 .16 .16
</TABLE>
USP REAL ESTATE INVESTMENT TRUST
Statements of Cash Flows
(unaudited)
<TABLE>
<S> <C> <C>
Six Months Ended
June 30,
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Rents collected $ 2,542,813 2,807,075
Interest received 118,011 123,172
Payments for operating expenses (1,168,889) (840,040)
Interest paid (726,026) (747,175)
Net cash provided by operating activities 765,909 1,343,032
CASH FLOWS FROM INVESTING ACTIVITIES:
Principal collections on mortgage loans receivable 14,578 13,262
Capital expenditures (809,811) (2,561)
Other, net 2,565 25,379
Net cash provided (used) by investing activities (792,668) 36,080
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on mortgage loans payable (240,500) (222,856)
Distributions paid to shareholders (620,800) (620,800)
Net cash used by financing activities (861,300) (843,656)
Net increase (decrease) in cash and cash equivalents (888,059) 535,456
Cash and cash equivalents at beginning of period 1,733,640 1,370,623
Cash and cash equivalents at end of period $ 845,581 1,906,079
RECONCILIATION OF NET EARNINGS TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Net earnings $ 329,522 512,263
Depreciation 406,262 405,589
Amortization 1,683 4,928
Decrease in rents and other receivables 148,120 241,706
Decrease (increase) in prepaid and deferred expenses (107,510) 16,344
Increase in taxes held in escrow (18,552) (14,133)
Increase (decrease) in accounts payable
and accrued expenses (505) 219,556
Increase (decrease) in due to affiliates 7,925 (47,976)
Increase (decrease) in advance rents (1,036) 4,755
Net cash provided by operating activities $ 765,909 1,343,032
</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.
Note 2: Shareholders' equity, December 31, 1996 $16,215,262
Net earnings 329,522
Distribution to shareholders (620,800)
Shareholders' equity, June 30, 1997 $15,923,984
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
six months ended June 30, 1997 were $166,302 ($.04 per share) and
$329,522 ($.08 per share), respectively, compared to $217,624
($.06 per share) and $512,263 ($.13 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 six months of 1997 was
$160,000 lower than the first six months of 1996. Rents at
Geneva Square in Lake Geneva, Wisconsin decreased by $96,000
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 $115,000 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.
Rental income at North Park Plaza in Phoenix, Arizona increased
by $38,000 primarily due to percentage rents received in 1997 and
a slight increase in occupancy.
Total property expenses excluding depreciation, as a percentage
of rental income, increased from 31% in 1996 to 34% in 1997.
Repairs and maintenance increased by $54,000 from 1996 due
primarily to tenant remodeling expenses and roof repairs.
Utilities have increased by 20% because the Trust is now
responsible for the cost of utilities previously paid by P.W.
Enterprises at Geneva Square. The increase in repairs and
maintenance and utilities was partially offset by a decrease in
real estate taxes at 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 June 30, 1997 were $773,000 to move
in OfficeMax at Kingsley Square and nearly $37,000 for parking
lot improvements at Presidential Drive Business Park in Atlanta,
Georgia. These projects will be completed in the third quarter
of 1997 with an estimated additional cost of $8,000. Other
proposed capital projects of approximately $200,000 have not yet
been started.
As reported in the 1996 annual report, Staples closed their store
at North Park 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 which is adjacent to their existing space. 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 Mall in Carrollton, Georgia, 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
($845,581 at June 30, 1997) as well as cash flow from 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 second quarter distribution of
$.08 per share, payable August 18, 1997 to shareholders of record
August 5, 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
Senior Vice President and Treasurer
(chief financial officer)
/s/ Roger L. Schulz
Roger L. Schulz
Controller
(principal accounting officer)
Dated: August 1, 1997
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<CIK> 0000102438
<NAME> USP REAL ESTATE INTESTMENT TRUST
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1997
<CASH> 845,581
<SECURITIES> 0
<RECEIVABLES> 586,687
<ALLOWANCES> 288,023
<INVENTORY> 0
<CURRENT-ASSETS> 1,665,624
<PP&E> 40,493,090
<DEPRECIATION> 11,722,681
<TOTAL-ASSETS> 31,682,381
<CURRENT-LIABILITIES> 1,179,418
<BONDS> 14,578,979
0
0
<COMMON> 3,880,000
<OTHER-SE> 12,043,984
<TOTAL-LIABILITY-AND-EQUITY> 31,682,381
<SALES> 0
<TOTAL-REVENUES> 2,513,740
<CGS> 0
<TOTAL-COSTS> 1,221,462
<OTHER-EXPENSES> 235,047
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 727,709
<INCOME-PRETAX> 329,522
<INCOME-TAX> 0
<INCOME-CONTINUING> 329,522
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 329,522
<EPS-PRIMARY> .08
<EPS-DILUTED> .08
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