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, 1999 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 12, 1999 was 3,880,000.
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements.
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USP REAL ESTATE INVESTMENT TRUST
Balance Sheets
(unaudited)
<S> <C> <C> <C>
June 30, December 31,
1999 1998 1998
Assets
Real estate
Land, buildings and improvements at cost $ 34,523,996 40,722,496 34,508,522
Less accumulated depreciation (11,023,335) (12,540,113) (10,691,663)
23,500,661 28,182,383 23,816,859
Cash and cash equivalents 2,622,069 2,137,965 3,423,296
Rents and other receivables 290,926 260,827 397,822
Prepaid and deferred expenses 243,922 288,524 275,653
Taxes held in escrow - 197,359 18,863
$ 26,657,578 31,067,058 27,932,493
Liabilities and Shareholders' Equity
Liabilities
Mortgage loans payable $ 9,546,389 13,925,439 10,897,933
Accounts payable and accrued expenses 499,385 742,177 418,204
Due to affiliates 52,173 93,279 115,722
Distribution declared 310,400 310,400 310,400
Tenant deposits 82,484 81,457 78,701
Other 41,507 44,637 10,928
10,532,338 15,197,389 11,831,888
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 11,989,669 11,989,948
Undistributed net earnings 255,292 - 230,657
16,125,240 15,869,669 16,100,605
$ 26,657,578 31,067,058 27,932,493
</TABLE>
<TABLE>
USP REAL ESTATE INVESTMENT TRUST
Statements of Earnings
(Unaudited)
<S> <C> <C> <C> <C>
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
Revenue
Rents $ 1,114,221 1,236,203 2,314,748 2,833,110
Interest 30,833 30,500 65,997 56,379
1,145,054 1,266,703 2,380,745 2,889,489
Expenses
Property expenses:
Real estate taxes 118,364 152,955 235,165 305,910
Repairs and maintenance 144,971 111,739 249,591 184,869
Utilities 29,143 22,617 57,652 49,302
Management fee 59,974 56,668 117,161 131,874
Insurance 7,027 10,757 15,908 22,797
Other 29,183 19,798 55,406 113,995
Property expenses, excluding depreciation 388,662 374,534 730,883 808,747
Depreciation 168,229 208,638 331,672 417,361
Total property expenses 556,891 583,172 1,062,555 1,226,108
Interest 184,824 346,425 453,395 695,499
Administrative fee 54,243 63,909 108,486 127,818
Other administrative 62,739 164,933 110,874 219,543
858,697 1,158,439 1,735,310 2,268,968
Net earnings $ 286,357 108,264 645,435 620,521
Basic and diluted net earnings per share $ .07 .03 .17 .16
Distributions to shareholders $ 310,400 310,400 620,800 620,800
Distributions to shareholders per share $ .08 .08 .16 .16
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<TABLE>
USP REAL ESTATE INVESTMENT TRUST
Statements of Cash Flows
(unaudited)
<S> <C> <C>
Six Months Ended
June 30,
1999 1998
Cash flows from operating activities:
Rents collected $ 2,442,241 2,994,176
Interest received 65,997 56,379
Payments for operating expenses (888,917) (970,433)
Interest paid (451,712) (693,816)
Net cash provided by operating activities 1,167,609 1,386,306
Cash flows from investing activities:
Capital expenditures (15,474) (28,280)
Other, net 18,982 9,457
Net cash provided (used) by investing activities 3,508 (18,823)
Cash flows from financing activities:
Principal portion of scheduled
mortgage loan payments (181,417) (215,145)
Principal repayment of mortgage loans (1,170,127) -
Distributions paid to shareholders (620,800) (620,800)
Net cash used by financing activities (1,972,344) (835,945)
Net increase (decrease) in cash and cash equivalents (801,227) 531,538
Cash and cash equivalents at beginning of period 3,423,296 1,606,427
Cash and cash equivalents at end of period $ 2,622,069 2,137,965
Reconciliation of net earnings to net cash
provided by operating activities:
Net earnings $ 645,435 620,521
Add (deduct) reconciling adjustments:
Depreciation 331,672 417,361
Amortization 1,683 1,683
Decrease in rent and other receivables 96,914 160,707
Decrease in prepaid and deferred expenses 24,831 52,952
Decrease (increase) in taxes held in escrow 18,863 (44,343)
Increase in accounts payable
and accrued expenses 81,181 181,260
Decrease in due to affiliates (63,549) (4,194)
Increase in advance rents 30,579 359
Net cash provided by operating activities $ 1,167,609 1,386,306
</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 1998 Annual Report.
Note 2: Shareholders' equity, December 31, 1998 $ 16,100,605
Net earnings 645,435
Distributions to shareholders (620,800)
Shareholders' equity, June 30, 1999 $ 16,125,240
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, 1999 were $286,357 ($.07
per share) and $645,435 ($.17 per share), respectively,
compared to $108,264 ($.03 per share) and $620,521 ($.16 per
share) for the same periods in 1998. (All per share amounts
are on a basic and diluted basis.)
The Trust's rental income so far this year is $518,362 lower
than the first six months of 1998. This decrease is
attributed to Geneva Square Shopping Center, which was sold
in December 1998. Rental income for properties owned in
both years increased by $81,478 due to a lease termination
fee and an increase in expense recoveries (additional
rents). At June 30, 1999, overall leased occupancy of the
portfolio was 95%. Total property expenses, excluding
depreciation, decreased by $77,864 from 1998 to 1999. As a
percentage of rental income, such expenses increased from
29% in 1998 to 32% in 1999, primarily because rents declined
more than expenses.
Real estate taxes decreased by $70,745 from 1998 primarily
due to the sale of Geneva Square. Repairs and maintenance
increased by $64,722 from 1998 primarily due to an increase
in tenant remodeling expenses and parking lot repairs in
1999. Utilities increased by $8,350 from 1998 primarily due
to an increase in water usage at Presidential Drive Business
Park in Atlanta, Georgia. These charges are paid by the
Trust and billed back to tenants as additional rent.
Management fees decreased by $14,713 from 1998 due to lower
revenue in 1999 as a result of the sale of Geneva Square.
Other property expenses decreased by $58,589 compared to
1998. This decrease is primarily due to a reduction in
lease commission expense at Kinglsey Square in Orange Park,
Florida where unamortized lease commissions (pertaining to
Luria's, a former tenant) in the amount of $46,000 were
written off in the first quarter of 1998 and due to
insurance claims which decreased by $15,627 from 1998 of
which $11,893 pertained to Geneva Square.
In 1999, depreciation expense and the administrative fee
each decreased from 1998 due to the sale of Geneva Square.
Interest expense decreased by $242,104 due to the sale of
Geneva Square and due to the Trust prepaying the mortgage
loans in February 1999 on Presidential Drive Business Park
in Atlanta, Georgia and First Tuesday Mall in Carrollton,
Georgia. The prepayment of these two loans, along with the
March 1999 refinancing of the mortgage loans on North Park
Plaza in Phoenix, Arizona and Mendenhall Commons in Memphis,
Tennessee, will reduce the Trust's debt service (and
increase cash flow) by approximately $358,000 in 1999
compared to 1998.
Other administrative expenses decreased by $108,669 during
the first six months of 1999 compared to the same period
last year. This decrease is due to legal expenses incurred
during the second quarter of 1998 in connection with the
Trust's efforts to maximize shareholder value.
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
($2,622,069 at June 30, 1999) 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 second quarter distribution
of $.08 per share, payable August 16, 1999 to shareholders
of record August 6, 1999. Distributions to shareholders
continue to be dependent upon earnings, cash flow, financial
condition and other factors reviewed by the Board of
Trustees.
YEAR 2000 ISSUE
Management of the Trust is well aware of the issues and
concerns surrounding the potential problems associated with
computer systems that may not be able to distinguish the
year 2000 from the year 1900, typically referred to as "the
year 2000 issue." The Trust does not own or use any
information technology directly, because all services
necessary to conduct the day-to-day operations of the Trust
are performed by AEGON USA Realty Advisors, Inc. and its
affiliates (the Advisor). Nevertheless, the Trust could be
adversely affected if computer systems, as well as certain
embedded technology, used by the Advisor, tenants, vendors,
financial institutions and other third parties do not
properly process and calculate date-related information and
data from and after January 1, 2000.
The most significant risks associated with year 2000 issues
that could negatively impact the Trust include failure of
tenants to pay rent, failure by the Trust to pay its own
obligations, failure of various building systems at the
Trust's real estate properties, failure of any and all third
parties to provide services and failure of any and all
information, accounting and recordkeeping systems or
processes. The reasons for such failures could range from a
simple inability to process electronic information in a
timely manner to a total business failure somehow related
to, or the result of, the year 2000 issue.
The Advisor has developed plans to modify, upgrade and/or
replace portions of its information technology to ensure
that its computer systems will function properly in the year
2000 and thereafter, and is in process of obtaining
reasonable assurances that comparable steps are being taken
by the Trust's' other major service providers. As of
December 31, 1998, substantially all of the Advisor's
mission critical systems were year 2000 compliant. The
Advisor will continue conducting revalidation testing of its
systems throughout 1999, including the development, review,
and revision of business resumption and continuity plans.
The Trust is not expected to incur any direct costs
associated with year 2000 issues. Based on these efforts to
date, management of the Trust is not aware of any
consequence of the year 2000 issue that it believes would
have a material effect on the Trust's business, results of
operations or financial condition. There can be no
assurance, however, that these efforts will be sufficient to
avoid any adverse impact to the Trust.
FORWARD LOOKING STATEMENTS
The discussion in this report concerning prepayment and
refinancing of mortgage loans and the potential impact on
debt service and cash flow contains forward-looking
statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Actual results and the timing of
certain events could differ materially from those stated in
the forward-looking statements.
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
No reports on Form 8-K were filed during the second quarter of 1999.
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 12, 1999
<TABLE> <S> <C>
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<CIK> 0000102438
<NAME> USP REAL ESTATE INVESTMENT TRUST
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1999
<CASH> 2,622,069
<SECURITIES> 0
<RECEIVABLES> 477,737
<ALLOWANCES> 186,811
<INVENTORY> 0
<CURRENT-ASSETS> 3,156,917
<PP&E> 34,523,996
<DEPRECIATION> 11,023,335
<TOTAL-ASSETS> 26,657,578
<CURRENT-LIABILITIES> 985,949
<BONDS> 9,546,389
0
0
<COMMON> 3,880,000
<OTHER-SE> 12,245,240
<TOTAL-LIABILITY-AND-EQUITY> 26,657,578
<SALES> 0
<TOTAL-REVENUES> 2,380,745
<CGS> 0
<TOTAL-COSTS> 1,062,555
<OTHER-EXPENSES> 219,360
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 453,395
<INCOME-PRETAX> 645,435
<INCOME-TAX> 0
<INCOME-CONTINUING> 645,435
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 645,435
<EPS-BASIC> .17
<EPS-DILUTED> .17
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