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 March 31, 1998 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 Identification No.)
incorporation or organization)
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 May 8, 1998 was 3,880,000.
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements.
USP REAL ESTATE INVESTMENT TRUST
Balance Sheets
(unaudited)
<TABLE>
<S> <C> <C> <C>
March 31, December 31,
1998 1997 1997
ASSETS
Real estate
Land, buildings and improvements at cost $ 40,694,216 40,055,926 40,694,216
Less accumulated depreciation (12,331,475) (11,519,550) (12,122,752)
28,362,741 28,536,376 28,571,464
Mortgage loans receiveable, net of deferred gain - 1,253,723 -
Real estate and mortgage loans receivable 28,362,741 29,790,099 28,571,464
Cash and cash equivalents 2,185,978 1,184,663 1,606,427
Rents and other receivables 500,203 487,282 421,637
Prepaid and deferred 284,699 329,386 351,874
Taxes held in escrow 141,502 109,335 153,016
$ 31,475,123 31,900,765 31,104,418
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Mortgage loans payable $ 14,034,337 14,700,695 14,140,584
Accounts payable and accrued expenses 573,106 619,689 560,917
Due to affiliates 327,379 55,352 97,473
Distribution declared 310,400 310,400 310,400
Tenant deposits 83,000 76,387 80,818
Other 75,096 70,160 44,278
15,403,318 15,832,683 15,234,470
Shareholders' Equity
Shares of beneficial interest,
$1 par value, 20,000,000
shares authorized, 3,880,000
shares issued and outstanding 3,880,000 3,880,000 3,880,000
Additional paid-in capital 11,989,948 12,018,890 11,989,948
Undistributed net earnings 201,857 169,192 -
16,071,805 16,068,082 15,869,948
$ 31,475,123 31,900,765 31,104,418
</TABLE>
USP REAL ESTATE INVESTMENT TRUST
Statements of Earnings
(Unaudited)
<TABLE>
<S> <C> <C>
Three Months Ended
March 31,
1998 1997
REVENUE
Rents $ 1,596,907 1,219,172
Interest 25,879 58,250
1,622,786 1,277,422
EXPENSES
Property expenses:
Real estate taxes 152,955 179,565
Repairs and maintenance 73,130 115,293
Utilities 26,685 35,565
Management fee 75,206 58,294
Insurance 12,040 11,853
Other 94,197 34,971
Property expenses, excluding depreciation 434,213 435,541
Depreciation 208,723 203,131
Total property expenses 642,936 638,672
Interest 349,074 365,278
Administrative fee 63,909 63,474
Other administrative 54,610 46,778
1,110,529 1,114,202
Net earnings $ 512,257 163,220
Basic and diluted net earnings per share $ .13 .04
Distributions to shareholders $ 310,400 310,400
Distributions to shareholders per share $ .08 .08
</TABLE>
USP REAL ESTATE INVESTMENT TRUST
Statements of Cash Flows
(unaudited)
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<S> <C> <C>
Three Months Ended
March 31,
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Rents collected $ 1,551,533 1,193,461
Interest received 25,879 65,787
Payments for operating expenses (237,147) (641,012)
Interest paid (348,232) (364,436)
Net cash provided by operating activities 992,033 253,800
CASH FLOWS FROM INVESTING ACTIVITIES:
Principal collections on mortgage loans receivable - 7,203
Capital expenditures - (372,647)
Other, net 4,165 (8,149)
Net cash provided (used) by investing activities 4,165 (373,593)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal portion of scheduled
mortgage loan payments (106,247) (118,784)
Distributions paid to shareholders (310,400) (310,400)
Net cash used by financing activities (416,647) (429,184)
Net increase (decrease) in cash and cash equivalents 579,551 (548,977)
Cash and cash equivalents at beginning of period 1,606,427 1,733,640
Cash and cash equivalents at end of period $ 2,185,978 1,184,663
RECONCILIATION OF NET EARNINGS TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:
Net earnings $ 512,257 163,220
Add (deduct) reconciling adjustments:
Depreciation 208,723 203,131
Amortization 842 842
Increase in rent and other receivables (76,192) (39,816)
Decrease (increase) in prepaid and deferred expenses 61,976 (77,205)
Decrease in taxes held in escrow 11,514 37,536
Increase (decrease) in accounts payable
and accrued expenses 12,189 (64,456)
Increase in due to affiliates 229,906 8,906
Increase in advance rents 30,818 21,642
Net cash provided by operating activities $ 992,033 253,800
</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 1997 Annual Report.
Note 2: Shareholders' equity, December 31, 1997 $ 15,869,948
Net earnings 512,257
Dividends to shareholders (310,400)
Shareholders' equity, March 31, 1998 $ 16,071,805
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
USP Real Estate Investment Trust had net earnings of
$512,257 ($.13 per share) for the three months ended March
31, 1998 compared to $163,220 ($.04 per share) for the same
period a year ago. (All per share amounts are on a basic
and diluted basis.) The increase in net earnings from 1997
to 1998 is due primarily to higher revenue.
The Trust's rental income increased by $378,000, or 31%,
from the first quarter of 1997. Rents at Geneva Square in
Lake Geneva, Wisconsin increased significantly due to the
receipt of settlements totaling $333,000, previously
reserved as uncollectible, from P.W. Enterprises and MMM
Foods, both former tenants. Rents at Kingsley Square in
Orange Park, Florida increased by $82,000 due to the Trust's
ability to secure OfficeMax as an anchor tenant in 1997.
Rents at First Tuesday in Carrollton, Georgia decreased by
$44,000 primarily due to percentage rents (additional rents
based on tenant sales) received from Belk Rhodes in 1997.
Belk Rhodes vacated 49,836 square feet of space in July
1997, though continues to pay rent. Recently, the Trust was
successful in leasing this space to Martin's Family Clothing
pursuant to a ten year lease. At March 31, 1998, overall
leased occupancy of the Trust's portfolio was 87%.
Total property expenses excluding depreciation, as a
percentage of rental income, decreased from 36% in 1997 to
27% in 1998. Real estate taxes decreased by $27,000 from
1997 primarily due to the Trust's success in appealing the
tax assessments and reducing the assessed values at
Mendenhall Commons in Memphis, Tennessee and Geneva Square.
Repairs and maintenance decreased by $42,000 from 1997 due
primarily to tenant remodeling expenses and roof repairs
incurred in 1997 that were not required in 1998. Utilities
decreased by 25% during the first quarter of 1998 primarily
due to the mild winter experienced at Geneva Square.
Management fees increased by 29% from 1997 due to the
increase in rents as mentioned above. Other property
expenses increased by $59,000 primarily due to unamortized
lease commissions at First Tuesday (pertaining to Luria's, a
former tenant) being written off in the amount of $46,000 in
1998 and due to various insurance claims totaling $12,000
being paid in the first quarter of 1998 at Geneva Square.
Other administrative expenses increased by $8,000 during the
first quarter of 1998 compared to last year, due to legal
expenses incurred in connection with the Trust's efforts to
maximize shareholder value. 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.
Yamaha Motor Corporation, the sole tenant at Yamaha
Warehouse in Cudahy, Wisconsin, has notified the Trust of
their intent to exercise both of their remaining one year
options in order to renew their lease for two more years.
The lease will expire in June 2000.
Capital resources of the Trust consist of equity in real
estate investments. Properties are maintained in good
condition and adequate insurance coverage is provided.
Liquidity is represented by cash and cash equivalents
($2,185,978 at March 31, 1998) as well as cash flow from the
continued operation of the Trust's real estate portfolio,
which is considered sufficient to meet current obligations.
The Board of Trustees declared a first quarter distribution
of $.08 per share, payable May 18, 1998 to shareholders of
record May 7, 1998. Distributions to shareholders continue
to be dependent upon earnings, cash flow, financial
condition and other factors reviewed by the Board of
Trustees.
USP Real Estate Investment Trust's Annual Shareholder
Meeting will be held on Tuesday, July 14, 1998 in Cedar
Rapids, Iowa.
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
No reports on Form 8-K were filed during the first quarter of 1998.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly
authorized.
USP REAL ESTATE INVESTMENT TRUST
/s/ Alan F. Fletcher
Alan F. Fletcher
Vice President and Treasurer
(principal financial officer)
/s/ Roger L. Schulz
Roger L. Schulz
Controller
(principal accounting officer)
Dated: May 8, 1998
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<NAME> USP REAL ESTATE INVESTMENT TRUST
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1998
<CASH> 2,185,978
<SECURITIES> 0
<RECEIVABLES> 729,119
<ALLOWANCES> 228,916
<INVENTORY> 0
<CURRENT-ASSETS> 426,201
<PP&E> 40,694,216
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<TOTAL-ASSETS> 31,475,123
<CURRENT-LIABILITIES> 1,368,981
<BONDS> 14,034,337
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<COMMON> 3,880,000
<OTHER-SE> 12,191,805
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<TOTAL-REVENUES> 1,622,786
<CGS> 0
<TOTAL-COSTS> 642,936
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<INTEREST-EXPENSE> 349,074
<INCOME-PRETAX> 512,257
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<INCOME-CONTINUING> 512,257
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