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, 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 August 4, 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>
June 30, December 31,
1998 1997 1997
ASSETS
Real estate
Land, buildings and improvements at cost $ 40,722,496 40,493,090 40,694,216
Less accumulated depreciation (12,540,113) (11,722,681) (12,122,752)
28,182,383 28,770,409 28,571,464
Mortgage loans receiveable, net of deferred gain - 1,246,348 -
Real estate and mortgage loans receivable 28,182,383 30,016,757 28,571,464
Cash and cash equivalents 2,137,965 845,581 1,606,427
Rents and other receivables 260,827 298,664 421,637
Prepaid and deferred expenses 288,524 355,956 351,874
Taxes held in escrow 197,359 165,423 153,016
$ 31,067,058 31,682,381 31,104,418
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Mortgage loans payable $ 13,925,439 14,578,979 14,140,584
Accounts payable and accrued expenses 742,177 683,640 560,917
Due to affiliates 93,279 54,371 97,473
Distribution declared 310,400 310,400 310,400
Tenant deposits 81,457 76,473 80,818
Other 44,637 54,534 44,278
15,197,389 15,758,397 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 11,989,669 12,018,890 11,989,948
Undistributed net earnings - 25,094 -
15,869,669 15,923,984 15,869,948
$ 31,067,058 31,682,381 31,104,418
</TABLE>
USP REAL ESTATE INVESTMENT TRUST
Statements of Earnings
(Unaudited)
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Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
REVENUE
Rents $ 1,236,203 1,184,094 2,833,110 2,403,266
Interest 30,500 52,224 56,379 110,474
1,266,703 1,236,318 2,889,489 2,513,740
EXPENSES
Property expenses:
Real estate taxes 152,955 170,571 305,910 350,136
Repairs and maintenance 111,739 73,637 184,869 188,930
Utilities 22,617 33,440 49,302 69,005
Management fee 56,668 52,943 131,874 111,237
Insurance 10,757 11,129 22,797 22,982
Other 19,798 37,941 113,995 72,910
Property expenses, excluding depreciation 374,534 379,661 808,747 815,200
Depreciation 208,638 203,131 417,361 406,262
Total property expenses 583,172 582,792 1,226,108 1,221,462
Interest 346,425 362,431 695,499 727,709
Administrative fee 63,909 64,320 127,818 127,794
Other administrative 164,933 60,473 219,543 107,253
1,158,439 1,070,016 2,268,968 2,184,218
Net earnings $ 108,264 166,302 620,521 329,522
Basic and diluted net earnings per share $ .03 .04 .16 .08
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)
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Six Months Ended
June 30,
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Rents collected $ 2,994,176 2,542,813
Interest received 56,379 118,011
Payments for operating expenses (970,433) (1,168,889)
Interest paid (693,816) (726,026)
Net cash provided by operating activities 1,386,306 765,909
CASH FLOWS FROM INVESTING ACTIVITIES:
Principal collections on mortgage loans receivable - 14,578
Capital expenditures (28,280) (809,811)
Other, net 9,457 2,565
Net cash used by investing activities (18,823) (792,668)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal portion of scheduled
mortgage loan payments (215,145) (240,500)
Distributions paid to shareholders (620,800) (620,800)
Net cash used by financing activities (835,945) (861,300)
Net increase (decrease) in cash and cash equivalents 531,538 (888,059)
Cash and cash equivalents at beginning of period 1,606,427 1,733,640
Cash and cash equivalents at end of period $ 2,137,965 845,581
RECONCILIATION OF NET EARNINGS TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Net earnings $ 620,521 329,522
Add (deduct) reconciling adjustments:
Depreciation 417,361 406,262
Amortization 1,683 1,683
Decrease in rent and other receivables 160,707 148,120
Decrease (increase) in prepaid and deferred expenses 52,952 (107,510)
Increase in taxes held in escrow (44,343) (18,552)
Increase (decrease) in accounts payable
and accrued expenses 181,260 (505)
Increase (decrease) in due to affiliates (4,194) 7,925
Increase (decrease) in advance rents 359 (1,036)
Net cash provided by operating activities $ 1,386,306 765,909
</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 620,521
Dividends to shareholders (620,800)
Shareholders' equity, June 30, 1998 $ 15,869,669
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, 1998 were $108,264
($.03 per share) and $620,521 ($.16 per share), respectively,
compared to $166,302 ($.04 per share) and $329,522 ($.08 per
share) for the same periods in 1997. (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 for the first six months of 1998
increased by $430,000, or 18%, from the first six months 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 $132,000
due to the Trust's ability to secure OfficeMax as an anchor
tenant in 1997. Rents at First Tuesday in Carrollton, Georgia
decreased by $63,000 in 1998 primarily due to lack of
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 continued to pay
base rent. On July 30, 1998, this space was occupied by
Martin's Family Clothing, pursuant to a ten year lease. At
June 30, 1998, overall leased occupancy of the Trust's
portfolio was 81%. Interest income for the first six months
of 1998 was $54,000 less than 1997 due to lower average
interest rates and a lower average balance of funds available
for investment.
Total property expenses excluding depreciation, as a
percentage of rental income, decreased from 34% in 1997 to 29%
in 1998. Real estate taxes decreased by $44,000 from 1997
primarily due to the Trust's success in appealing the tax
assessments and reducing the assessed values at Geneva Square
and several of the other properties. Utilities decreased by
$20,000 during the first six months of 1998 primarily due to
the mild winter experienced at Geneva Square. Management fees
increased by 19% from 1997 due to the increase in rents as
mentioned above. Other property expenses increased by $41,000
primarily due to unamortized lease commissions at First
Tuesday (pertaining to Luria's, a former tenant) being written
off 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 $112,000 during the
first six months of 1998 compared to the same period last
year. The increase is due to legal expenses incurred during
the second quarter of 1998 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 now
expire in June 2000. Strong winds recently damaged a portion
of the building, but all repairs will be covered by the
tenant's insurance proceeds.
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
($2,137,965 at June 30, 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 Trust has begun an initiative to refinance the real estate
properties. The North Park Plaza and Mendenhall Commons
mortgages mature on March 1, 1999 and need to be refinanced.
Since the current interest rate environment is favorable and
prepayment penalties associated with most of the other
mortgage loans are relatively low, the Trustees believe it is
in the best interest of the shareholders to attempt a
refinancing at this time.
The Board of Trustees declared a second quarter distribution
of $.08 per share, payable August 17, 1998 to shareholders of
record August 4, 1998. Distributions to shareholders continue
to be dependent upon earnings, cash flow, financial condition
and other factors reviewed by the Board of Trustees.
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
At the Trust's annual meeting of shareholders on July 14,
1998, 81% of the Trust's outstanding shares were represented
(in person or by proxy). All four incumbent Trustees were re-
elected to the Board of Trustees, with each receiving at least
85% of the vote for the shares represented. The vote
tabulation for each Trustee was as follows:
Trustee Votes For Votes Withheld
Gary A. Downing 2,711,006 447,616
Patrick E. Falconio 2,713,272 445,350
Edwin L. Ingraham 2,711,531 447,091
Samuel L. Kaplan 2,712,531 446,091
Item 6. Exhibits and Reports on Form 8-K.
No reports on Form 8-K were filed during the second 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: August 4, 1998
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1998
<CASH> 2,137,965
<SECURITIES> 0
<RECEIVABLES> 480,026
<ALLOWANCES> 219,199
<INVENTORY> 0
<CURRENT-ASSETS> 485,883
<PP&E> 40,722,496
<DEPRECIATION> 12,540,113
<TOTAL-ASSETS> 31,067,058
<CURRENT-LIABILITIES> 1,271,950
<BONDS> 13,925,439
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<COMMON> 3,880,000
<OTHER-SE> 11,989,669
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<TOTAL-REVENUES> 2,889,489
<CGS> 0
<TOTAL-COSTS> 1,226,108
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<INCOME-PRETAX> 620,521
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<INCOME-CONTINUING> 620,521
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