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, 2000 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 15, 2000 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>
March 31, December 31,
2000 1999 1999
Assets
Real estate
Land, buildings and improvements at cost $ 34,663,342 34,508,522 34,617,710
Less accumulated depreciation (11,514,427) (10,855,106) (11,350,214)
23,148,915 23,653,416 23,267,496
Cash and cash equivalents 2,746,502 2,370,846 2,369,176
Rents and other receivables 504,867 468,335 499,810
Prepaid and deferred 212,070 248,537 243,659
$ 26,612,354 26,741,134 26,380,141
Liabilities and Shareholders' Equity
Liabilities
Mortgage loans payable $ 9,275,547 9,645,512 9,359,426
Accounts payable and accrued expenses 640,093 469,039 665,387
Due to affiliates 40,464 43,460 31,935
Distribution declared - 310,400 -
Tenant deposits 86,208 82,223 86,259
Other 27,953 41,217 6,353
10,070,265 10,591,851 10,149,360
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 11,989,948 11,989,948
Undistributed net earnings 672,141 279,335 360,833
16,542,089 16,149,283 16,230,781
$ 26,612,354 26,741,134 26,380,141
</TABLE>
<TABLE>
USP REAL ESTATE INVESTMENT TRUST
Statements of Earnings
(Unaudited)
<S> <C> <C>
Three Months Ended
March 31,
2000 1999
Revenue
Rents $ 1,072,582 1,200,527
Interest 35,028 35,164
1,107,610 1,235,691
Expenses
Property expenses:
Real estate taxes 124,431 116,801
Repairs and maintenance 82,718 104,620
Utilities 25,902 28,509
Management fee 50,486 57,187
Insurance 7,921 8,881
Other 7,716 26,223
Property expenses, excluding depreciation 299,174 342,221
Depreciation 164,213 163,443
Total property expenses 463,387 505,664
Interest 200,055 268,571
Administrative fee 54,414 54,243
Other administrative 78,446 48,135
796,302 876,613
Net earnings $ 311,308 359,078
Basic and diluted net earnings per share $ .08 .09
Distributions to shareholders $ - 310,400
Distributions to shareholders per share $ - .08
</TABLE>
<TABLE>
USP REAL ESTATE INVESTMENT TRUST
Statements of Cash Flows
(unaudited)
<S> <C> <C>
Three Months Ended
March 31,
2000 1999
Cash flows from operating activities:
Rents collected $ 1,090,512 1,151,329
Interest received 39,145 35,164
Payments for operating expenses (420,660) (424,997)
Interest paid (199,213) (267,729)
Net cash provided by operating activities 509,784 493,767
Cash flows from investing activities:
Capital expenditures (45,632) -
Other, net (2,947) 16,604
Net cash provided (used) by investing activities (48,579) 16,604
Cash flows from financing activities:
Principal portion of scheduled
mortgage loan payments (83,879) (82,294)
Principal repayment of mortgage loans - (1,170,127)
Distributions paid to shareholders - (310,400)
Net cash used by financing activities (83,879) (1,562,821)
Net increase (decrease) in cash and cash equivalents 377,326 (1,052,450)
Cash and cash equivalents at beginning of period 2,369,176 3,423,296
Cash and cash equivalents at end of period $ 2,746,502 2,370,846
Reconciliation of net earnings to net cash
provided by operating activities:
Net earnings $ 311,308 359,078
Add (deduct) reconciling adjustments:
Depreciation 164,213 163,443
Amortization 842 842
Decrease (increase) in rent and other receivables 447 (79,487)
Decrease in prepaid and deferred expenses 28,139 22,166
Decrease in taxes held in escrow - 18,863
Increase (decrease) in accounts payable
and accrued expenses (25,294) 50,835
Increase (decrease) in due to affiliates 8,529 (72,262)
Increase in advance rents 21,600 30,289
Net cash provided by operating activities $ 509,784 493,767
</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 1999 Annual Report.
Note 2: Shareholders' equity, December 31, 1999 $ 16,230,781
Net earnings 311,308
Shareholders' equity, March 31, 2000 $ 16,542,089
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
USP Real Estate Investment Trust had net earnings of $311,308
($.08 per share) for the three months ended March 31, 2000
compared o $359,078 ($.09 per share) for the same period in
1999. (All per share amounts are on a basic and diluted
basis.)
The Trust's rental income this year is $127,945 lower than the
first three months of 1999 primarily due to lower rents at
Kingsley Square in Jacksonville, Florida. The decrease in
rents at Kingsley Square was caused by OfficeMax exercising
their lease provision allowing them to pay rent based on sales
when Publix Super Markets, the former anchor tenant, vacated
its space in April 1999. As a result of Publix vacating their
space, the Trust will be receiving significantly less rent
from OfficeMax.
At March 31, 2000, overall leased occupancy of the portfolio
was 87%, but due to tenants vacating prior to lease
expiration, overall physical occupancy is slightly below 85%.
Winn Dixie has recently announced publicly that it will be
closing its store at First Tuesday Mall in Carrollton,
Georgia. While Winn Dixie will be obligated to pay rent
through lease expiration in 2004, their vacancy will reduce
overall physical occupancy of the Trust's portfolio to 79%.
Management continues to seek replacement tenants to fill
vacancies at Kingsley Square and First Tuesday Mall.
Total property expenses, excluding depreciation, decreased by
$43,047 from 1999 to 2000. As a percentage of rental income,
such expenses decreased from 29% in 1999 to 28% in 2000.
Repairs and maintenance decreased by $21,902 from 1999
primarily due to tenant remodeling expenses and electrical
repairs required in the first quarter of 1999. Management
fees decreased by $6,701 from 1999 due to lower rental income
in 2000. Other property expenses were $18,507 lower than
1999, primarily due to reduced lease commissions.
Interest expense decreased by $68,516 due to the Trust
prepaying the mortgage loans in February 1999 on Presidential
Drive Business Park in Atlanta, Georgia and First Tuesday Mall
and the March 1999 refinancing of the mortgage loans on North
Park Plaza in Phoenix, Arizona and Mendenhall Commons in
Memphis, Tennessee. Other administrative expenses increased
by $30,311 during the first three months of 2000 compared to
the same period last year. This increase is due to higher
legal expenses incurred in connection with the anticipated
transaction to sell all of the real estate assets to AEGON USA
Realty Advisors.
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
($2,746,502 at March 31, 2000) as well as cash flow from the
continued operation of the Trust's real estate portfolio,
which is considered sufficient to meet current obligations.
As previously announced, the Trust has signed a contract to
sell all of its real estate assets to AEGON USA Realty
Advisors, the Trust's advisor. The anticipated sale of assets
and proposed liquidation of the Trust are subject to, among
other things, shareholder approval. In order to obtain
shareholder approval, a special shareholder meeting has been
scheduled for June 13, 2000, for which a proxy statement is
being distributed in order to solicit shareholder votes. If
shareholders approve the proposed transaction and the
liquidation of the Trust on June 13, 2000, the sale of assets
will take place shortly thereafter and a liquidating
distribution currently expected to be in excess of $6.50 per
share will be paid to all shareholders. Due to the pending
transaction, regular quarterly distributions have been
suspended.
Forward Looking Information
This Form 10-Q Quarterly Report contains "forward-looking
statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. These forward-
looking statements represent our expectations or beliefs
relating to anticipated financial performance, business
prospects and our plans for future operations, which are
subject to various risks and uncertainties. When used in this
Form 10-Q and in future filings by the Trust with the
Securities and Exchange Commission, in our press releases,
presentations to securities analysts or investors, in oral
statements made by or with the approval of an executive
officer of the Trust, the words or phrases "believes," "may,"
"will," "expects," "should," "continue," "anticipates,"
"intends," "will likely result," "estimates," "projects," or
similar expressions and variations thereof are intended to
identify such forward-looking statements. The Private
Securities Litigation Reform Act of 1995 provides a safe
harbor for these types of statements. In order to comply with
the terms of the safe harbor, the Trust notes that a variety
of factors could cause the Trust's actual results and
experiences to differ materially from the anticipated results
or other expectations expressed in the Trust's forward-looking
statements. The risks and uncertainties that may affect the
operations, performance, results of the Trust's business, and
the potential sale of assets include but are not limited to
the following:
* The Trust's ability to renew expiring tenant leases
and obtain new leases at competitive rental rates.
* Changes in interest rates which will affect the amount
of interest paid on mortgage loans.
* The Trust's ability to refinance mortgage loans which
require balloon payments.
* The ability to complete the anticipated sale of real
estate assets to AEGON Advisors.
Item 3. Quantitative and Qualitative Disclosures About Market
Risk.
There have been no material changes in the market risks of our
financial instruments since December 31, 1999.
PART II OTHER INFORMATION
Item 5. Other Events.
On May 10, 2000, the Trust became aware of an unsolicited
offer from a company identified as Sutter Opportunity Fund,
LLC to purchase for cash up to 190,000 shares of the Trust
(approximately 4.9% of the toal outstanding) for $6.05 per
share less any distributions paid after May 1, 2000. USP
encouraged shareholders to reject the offer based on
comparison of the anticipated liquidating distribution with
the offer price. This event was reported in a news release
dated May 11, 2000. A copy of the news release is included
herein as an exhibit to this report.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
(99) News release dated May 11, 2000.
(b) Reports on Form 8-K.
The Trust reported on a Form 8-K, dated February 1, 2000,
that it had signed a contract to sell all of its assets
to AEGON USA Realty Advisors, the Trust's advisor. It
was also reported that due to the anticipated sale of the
real estate assets, regular quarterly distributions have
been suspended.
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 15, 2000
EXHIBIT INDEX
Exhibit Item Title or Description
99 News release dated May 11, 2000
EXHIBIT 99
CONTACT: Alan F. Fletcher
Vice President and Treasurer
(319) 398-8849
FOR IMMEDIATE RELEASE
USP ENCOURAGES SHAREHOLDERS TO REJECT OFFER
CEDAR RAPIDS, IOWA - May 11, 2000 - USP Real Estate Investment
Trust has recently become aware of an unsolicited offer from a
company identified as Sutter Opportunity Fund LLC to purchase for
cash up to 190,000 shares of USP for $6.05 per share less any
distributions paid after May 1, 2000. Total shares issued and
outstanding are 3,880,000.
Information obtained by USP indicates the offer commenced on or
about May 1, 2000, though USP did not learn of it until May 10,
2000. USP is not affiliated with Sutter Opportunity Fund and has
no other information about Sutter.
USP has previously announced that it has entered into an
agreement with its largest shareholder, AEGON USA Realty
Advisors, Inc., pursuant to which AEGON Advisors would purchase
all of USP's assets for cash and USP would liquidate and
distribute the cash to its shareholders. USP currently expects
the asset sale and liquidation to occur in June 2000, and to make
a liquidating distribution in excess of $6.50 per share. USP
encourages shareholders to reject the Sutter Opportunity Fund
offer based on a comparison of such anticipated liquidating
distribution with the offer price.
USP Real Estate Investment Trust is headquartered in Cedar
Rapids, Iowa. Shares are traded on the Nasdaq SmallCap Market
under the symbol USPTS.
####
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<CIK> 0000102438
<NAME> USP REAL ESTATE INVESTMENT TRUST
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-2000
<CASH> 2,746,502
<SECURITIES> 0
<RECEIVABLES> 717,981
<ALLOWANCES> 213,114
<INVENTORY> 0
<CURRENT-ASSETS> 3,463,439
<PP&E> 34,663,342
<DEPRECIATION> 11,514,427
<TOTAL-ASSETS> 26,612,354
<CURRENT-LIABILITIES> 794,718
<BONDS> 9,275,547
0
0
<COMMON> 3,880,000
<OTHER-SE> 12,662,089
<TOTAL-LIABILITY-AND-EQUITY> 26,612,354
<SALES> 0
<TOTAL-REVENUES> 1,107,610
<CGS> 0
<TOTAL-COSTS> 463,387
<OTHER-EXPENSES> 132,860
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 200,055
<INCOME-PRETAX> 311,308
<INCOME-TAX> 0
<INCOME-CONTINUING> 311,308
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 311,308
<EPS-BASIC> .08
<EPS-DILUTED> .08
</TABLE>
