<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTON 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
/X/ Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (Fee Required)
For the fiscal year ended: December 31, 1996
/ / Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (No Fee Required)
For the transition period from:
Commission file number: 0-16508
Registrant: USA Real Estate Investment Trust
(Exact Name of Registrant as specified in its Charter)
California 68-0109347
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
One Scripps Drive, Suite 201, Sacramento, California 95825
(Address of registrant's principal executive offices) (Zip Code)
(916) 564-4532
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Shares of Benefieical Interests
(Title of Class)
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, and (2) has been subject to such filing
requirements for the past 90 days.
/ X/ Yes / / No
The aggregate market value of the voting shares of beneficial interest
(the "shares") held by nonaffiliates of the registrant outstanding at February
28, 1997, was $40,429,040 (based solely on the original offering price as
there is no trading market in the shares).
DOCUMENTS INCORPORATED BY REFERENCE
None
<PAGE> 2
USA REAL ESTATE INVESTMENT TRUST
Table of Contents
Page
PART I.
ITEM 1. Business ................................... 3
ITEM 2. Properties ................................. 6
ITEM 3. Legal Proceedings .......................... 6
ITEM 4. Submission of Matters to a Vote
of Security Holders ...................... 6
PART II.
ITEM 5. Market for Registrant's Equity Securities
and Related Security Holder Matters ...... 7
ITEM 6. Selected Financial Data .................... 8
ITEM 7. Management's Discussion and Analysis
of Financial Condition and Results
of Operations ............................ 8
ITEM 8. Financial Statements and Supplementary
Data ..................................... 10
ITEM 9. Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure ..................... 18
PART III.
ITEM 10. Directors and Executive Officers
of the Registrant ........................ 19
ITEM 11. Executive Compensation ..................... 20
ITEM 12. Security Ownership of Certain
Beneficial Owners and Management ......... 21
ITEM 13. Certain Relationships and
Related Transactions ..................... 21
PART IV.
ITEM 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K .................. 22
<PAGE> 3
PART I.
ITEM 1. BUSINESS
GENERAL
USA Real Estate Investment Trust (the "Trust") is a California business
trust that was formed on October 7, 1986, for the primary purpose of engaging
in the business of acquiring, owning and financing real property investments.
The Trust commenced operations on October 19, 1987, upon the sale of the
minimum offering amount of shares of beneficial interest ("shares").
The purpose of the Trust is to provide investors with an opportunity to
own, through transferable shares, an interest in diversified real estate
investments. The Trust invests primarily in income producing real properties
in accordance with the investment objectives and policies of the Trust.
Through such investments, the Trust seeks to provide investors with an
opportunity to participate in a portfolio of professionally managed real
estate investments in the same way a mutual fund affords investors an
opportunity to invest in a professionally managed portfolio of stocks, bonds
and other securities.
The Trust has operated and intends to continue to operate in a manner
intended to qualify as a "real estate investment trust" (REIT) under Sections
856-860 of the Internal Revenue Code of 1986, as amended (the "Code"). A
qualified REIT is relieved, in part, from federal income taxes on ordinary
income and capital gains distributed to its shareholders. State tax benefits
also may accrue to a qualified REIT. Pursuant to Code requirements, the Trust
distributes to its shareholders at least 95 percent of its taxable income and
100 percent of the net capital gain from the sale of Trust properties.
The Trust will terminate 21 years after the death of the last survivor of
persons listed in the Trust's Declaration of Trust. The Trust may also be
terminated at any time by the majority vote or written consent of shareholders
or by a majority vote of the Trustees.
The principal offices of the Trust are located at One Scripps Drive,
Suite 201, Sacramento, California 95825.
CURRENT DEVELOPMENTS
On August 31, 1994 the Trust became self-administered and 1996 is its
second year of operation as a self-administered real estate investment trust.
In April, 1996 the Trust sold its property located at 1630 Industrial
Park Street in Redlands, California and in August, 1996 sold its property
located on Keystone Avenue in Reno, Nevada.
<PAGE> 4
INVESTMENT OBJECTIVES
The Trust has acquired a diversified portfolio of income producing real
property investments. Subject to certain limitations, the Declaration of
Trust gives the Trustees discretion to allocate the Trust's investments
without the prior approval of shareholders.
INVESTMENT GUIDELINES
Acquisition Policies. The Trustees have adopted investment guidelines
for the purpose of selecting the Trust's investments. Pursuant to the
guidelines, the allocation of Trust assets among income producing real
property investments depends principally upon the following factors:
1. The number of properties available for acquisition which show current
income and potential for appreciation in value;
2. The availability of funds for investment;
3. The laws and regulations governing investment in and the subsequent
sale of real estate investments by a REIT; and
4. The applicable federal and state income tax, securities, and real
estate laws and regulations.
The guidelines may vary from time to time, at the sole discretion of the
Trustees, in order to adapt to changes in real estate markets, federal income
tax laws and regulations and general economic conditions. The Trustees also
have discretion to acquire an investment not meeting these guidelines if the
Trustees determine that other circumstances justify the acquisition in a
particular case.
Portfolio Turnover. The Trustees have set general guidelines for the
disposition of properties in its portfolio which take into consideration
certain regulatory restrictions and federal income tax laws regarding REIT
portfolio turnover. Income tax regulations preclude the Trust from holding
any property (other than foreclosure property) primarily for sale to customers
in the ordinary course of the Trust's trade or business, but provide a "safe
harbor" for property held for at least four years from the date of
acquisition. Portfolio turnover policy also depends on whether a favorable
sales price can be realized by the Trust, primarily a function of the
capitalization rate applied to similar types of property in similar markets.
The Trust may elect to hold property as long as is reasonably necessary to
provide an attractive sales price.
OTHER INFORMATION
The Trust has no employees. It is administered by its Trustees and by
its Chairman, and by independent contractors who work under the supervision
thereof as a self-administered real estate investment trust.
<PAGE> 5
The Trust is involved in only one industry segment: acquiring, operating
and holding for investment income-producing real properties. Revenues, net
income and assets from this industry segment are included in the Trust's
financial statements which appear at Item 8 of Part II.
The Trust's results of operations will depend on the availability of
suitable opportunities for investment and the comparative yields available
from time to time on real estate and other investments, as well as market
conditions affecting leasing and sale of real estate in the areas in which the
Trust's investments are located. These factors, in turn, are influenced to a
large extent by the type of investment involved, financing available for real
estate investment, the nature and geographic location of the property,
competition and other factors, none of which can be predicted with certainty.
The real estate investment market is highly competitive. The Trust competes
for acceptable investments with other financial institutions, including banks,
insurance companies, savings and loan associations, pension funds and other
real estate investment trusts and partnerships. Many of these competitors
have greater resources than the Trust. The number of such competitors and
funds available for investment in properties of the type suitable for
investment by the Trust may increase, resulting in increased competition
for such investments and possibly increased costs and thus reduced income for
the Trust.
The rules and regulations adopted by various agencies of federal, state
or local governments relating to environmental controls and the development
and operation of real property may operate to reduce the number of investment
opportunities available to the Trust or may adversely affect the properties
currently owned by it. While the Trust does not believe environmental
controls have had a material impact on its activities, there can be no
assurance that the trust will not be adversely affected thereby in the future.
TAX LEGISLATION
The Trust has elected to be treated as a real estate investment trust
under Sections 856-860 of the Internal Revenue Code of 1986, as amended (the
"Code"). The Trust expects to operate and to invest in a manner that will
maintain its qualification for real estate investment trust taxation. The
Code requirements for such qualification are complex. While no assurance can
be given that the Trust qualified for taxation as a real estate investment
trust for past taxable years, the Trust nevertheless believes that it has so
qualified and will endeavor to continue to qualify for its current year and
future years.
The business of the Trust is uniquely sensitive to tax legislation.
Changes in tax laws are made frequently. There is no way for the Trust to
anticipate when or what changes in the tax laws may be made in the future, or
how such changes might affect the Trust.
The Internal Revenue Service ("IRS") has not yet issued regulations to
carry out numerous provisions enacted as part of the tax legislation passed
since 1986. Nor has the IRS addressed the issues relating to the application
of some of the new tax rules to entities such as real estate investment
trusts. Until such regulations are issued by the IRS, it is difficult to
gauge what impact, if any, such new legislaton may have on entities such as a
real estate investment trust.
<PAGE> 6
ITEM 2. PROPERTIES
The Trust owns seven properties all of which are located in California.
The Trustees believe that most of the properties are quality income producing
properties that are well suited for their current uses. Most of the
properties are leased under long term leases at competitive rates for the
areas in which they are located. The lease terms provide for rental
adjustments on a periodic basis.
Title insurance and liability and property damage insurance in amounts
deemed appropriate by the Trust have been obtained for the properties referred
to above. The Trust does not carry flood insurance on said properties.
Because of the high cost of premiums, excessive deductibles, and limited
coverage, the Trust does not carry earthquake insurance on said properties
except 19401 Parthenia Street in Northridge, California.
For additional information concerning the aforesaid properties, see Notes
1 and 3 of the Notes to Financial Statements and Schedule III.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Trust's security holders
during the last quarter of 1996.
<PAGE> 7
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S EQUITY SECURITIES AND RELATED SECURITY
HOLDER MATTERS
The Trust has one class of authorized and outstanding equity consisting
of shares of beneficial interest, par value $1.00 per share. The Trust
engaged in a continuous best efforts public offering from May 20, 1987, until
May 20, 1992. As of December 31, 1996, the Trust had 4,042,904 shares
outstanding to about 10,643 shareholders of record. There is no trading
market for the shares of the Trust.
Pursuant to the Trust's offers in 1996 and 1995 to shareholders who
owned fewer than 100 shares, the Trust repurchased 92,419 shares from 2,918
shareholders at a cost of $332,507.
In 1996, the Trust received unsolicited offers from other shareholders
to sell their shares to the Trust, and accepted offers at or below $3.50 per
share. Accordingly, the Trust repurchased 18,446 shares from 78 shareholders
at a cost of $61,643.
Closing these accounts reduces annual servicing expenses and increases
the book value for the remaining shareholders.
<PAGE > 8
ITEM 6. SELECTED FINANCIAL DATA
The following represents selected financial data for the Trust for the
five years ended December 31, 1996. The data should be read in conjunction
with the financial statements and related notes included elsewhere herein.
Years Ended December 31
(Amounts in thousands, except for per share data)
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
Operating Results:
Revenues $ 2,677 $ 2,858 $ 2,978 $ 2,896 $ 2,839
Net income (loss) 918 753 (1,443) (2,507) (2,567)
Total Assets 22,843 23,802 25,924 29,333 34,207
Long-term obligations 2,047 2,099 3,345 3,268 4,969
Net income (loss)
per share $ 0.23 $ 0.18 $ (0.35) $ (0.60) $ (0.61)
Cash distributions
per share $ 0.38 $ 0.32 $ 0.26 $ 0.12 $ 0.39
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Trust expects that income, cash in the bank, proceeds from the sale
of properties, and borrowings collateralized by properties will adequately
meet its liquidity and capital resource requirements in the future.
<PAGE> 9
RESULTS OF OPERATIONS
Comparison of 1996 to 1995 and 1995 to 1994
Effective August 31, 1994, the Trust terminated its agreements with its
former advisor and property manager and became self-administered. 1996 was
the second full year the Trust was self-administered.
Rent revenues decreased $214,497 in 1996 compared to 1995 due to the sale
of 1450 Hatch Road in Ceres, California, in May, 1995, and the sale of
Keystone Square in Reno, Nevada, in August, 1996.
Interest revenues decreased $91,099 in 1995 compared to 1994 primarily
due to the collection of the $940,000 note receivable collateralized by 151
and 175 Opportunity Street in Sacramento, California, in December, 1994.
A decrease in operating expenses of $24,110 or 8 percent in 1996
compared to 1995 was offset by the purchase of earthquake insurance for
19401 Parthenia in Northridge, California in the amount of $24,602, so that
total operating expenses increased by $492.
Operating expenses decreased $498,116 in 1995 compared to 1994. $373,464
of this decrease is due to the cost to repair uninsured earthquake damage at
19401 Parthenia in Northridge, California, incurred in 1994 and $124,652 is
due to our focus on cutting expenses.
Property management fees decreased $68,385 or 56 percent in 1995 compared
to 1994 because of the termination of the former property management agreement
and the hiring of new property managers who provided better service for less
money.
Interest expense decreased $102,292 or 38 percent in 1996 compared to
1995 and $331,570 or 55 percent in 1995 compared to 1994 because of lower
interest rates and lower outstanding indebtedness.
General and administrative expense decreased $260,057 or 41 percent in
1996 compared to 1995 and $265,248 or 30 percent in 1995 compared to 1994.
These decreases were primarily the result of fewer professional fees in 1996
and 1995.
The legal settlement was for the settlement of all litigation with the
former advisor of the Trust. The Trust is not now engaged in litigation in
any court with any party.
The 1995 gain on sale of properties was attributed to the sale of 1450
Hatch Road in Ceres California, in May, 1995.
Net income was $918,269 or 23 cents per share in 1996 and $752,898 or
18 cents per share in 1995 compared to a net loss of $(1,442,875) or 35 cents
per share in 1994.
Funds from operations were $1,555,265 or 38 cents per share in 1996,
$1,371,241 or 33 cents per share in 1995 and $333,603 or 8 cents per share in
1994.
The Trust paid distributions per share of 38 cents, 32 cents and 26 cents
in 1996, 1995 and 1994, respectively.
<PAGE> 10
IMPACT OF INFLATION
The Trust's operations have not been materially affected by inflation.
While the rate of inflation has been relatively low since the Trust commenced
operations in October, 1987, even if the rate of inflation were to rise, the
Trust anticipates that it would be able to offset most of the impact of higher
operating expenses through rent escalation clauses and lease clauses that pass
on most of the operating expenses to tenants.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page
Independent Auditors' Report .............................. 11
Balance Sheets
As of December 31, 1996 and 1995 ........................ 12
Statements of Income (Operations)
Years Ended December 31, 1996, 1995 and 1994 ............ 13
Statements of Changes in Shareholders' Equity
Years Ended December 31, 1996, 1995 and 1994 ............ 14
Statements of Cash Flows
Years Ended December 31, 1996, 1995 and 1994 ............ 15
Notes to Financial Statements ............................. 16
Schedule III
Real Estate and Accumulated Depreciation ................ 23-26
<PAGE> 11
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees
USA Real Estate Investment Trust
We have audited the accompanying balance sheets of USA Real Estate Investment
Trust as of December 31, 1996 and 1995 and the related statements of income
(operations), changes in shareholders' equity, and cash flows for the years
ended December 31, 1996, 1995 and 1994. In connection with our audits of the
financial statements, we also have audited the financial statement schedule
as listed in the accompanying index. These financial statements and
financial statement schedule are the responsibility of the Trust's management.
Our responsibility is to express an opinion on these financial statements
and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluation of the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of USA Real Estate Investment
Trust as of December 31, 1996 and 1995 and the results of its operations and
its cash flows for the years ended December 31, 1996, 1995 and 1994 in
conformity with generally accepted accounting principles. Also in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
Burnett, Umphress & Kilgour
Rancho Cordova, California
January 23, 1997
<PAGE> 12
USA REAL ESTATE INVESTMENT TRUST
Balance Sheets
December 31, December 31,
1996 1995
----------- -----------
ASSETS
Rental properties, less accumulated
depreciation of $2,271,650 and
$2,218,805 in 1996 and 1995,
respectively and valuation allowances
of $5,060,000 and $5,837,000 in 1996
and 1995, respectively $ 17,939,415 $ 21,153,860
Notes receivable 726,000 818,869
---------- -----------
18,665,415 21,972,729
Cash and cash equivalents 3,909,665 1,487,661
Other assets 268,013 341,333
----------- -----------
Total assets $ 22,843,093 $ 23,801,723
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Long-term notes payable $ 2,047,333 $ 2,098,919
Accounts payable 40,638 35,320
Lease deposits 59,845 70,371
----------- -----------
Total liabilities 2,147,816 2,204,610
----------- -----------
Shareholders' Equity:
Shares of beneficial interest, par value
$1 a share; authorized 7,500,000 shares;
4,042,904 and 4,120,430 shares outstanding
in 1996 and 1995, respectively $ 4,042,904 $ 4,120,430
Additional paid-in capital 30,202,139 30,395,534
Distributions in excess of net income (13,549,766) (12,918,851)
----------- -----------
Total shareholders' equity 20,695,277 21,597,113
----------- -----------
Total liabilities and shareholders' equity $ 22,843,093 $ 23,801,723
=========== ===========
See accompanying notes to financial statements.
<PAGE> 13
USA REAL ESTATE INVESTMENT TRUST
Statements of Income (Operations)
Years Ended December 31, 1996, 1995 and 1994
1996 1995 1994
----------- ----------- -----------
Revenues:
Rent $ 2,491,986 $ 2,706,483 $ 2,734,558
Interest 184,869 151,851 242,950
----------- ----------- -----------
2,676,855 2,858,334 2,977,508
----------- ----------- -----------
Expenses:
Operating expenses 308,460 307,968 806,084
Property taxes 227,696 225,342 218,835
Property management fees 48,000 54,000 122,385
Interest 167,777 270,069 601,639
Depreciation and amortization 636,996 655,597 687,478
General and administative 369,657 629,714 894,962
Legal settlement 0 250,000 0
Valuation loss 0 124,000 839,000
----------- ----------- -----------
1,758,586 2,516,690 4,170,383
----------- ----------- -----------
Net income (loss) before gain (loss)
on sale of rental properties and
disposition of promissory note 918,269 341,644 (1,192,875)
Gain (loss) on sale of rental properties
and disposition of promissory note 0 411,254 (250,000)
----------- ----------- -----------
Net income (loss) $ 918,269 $752,898 $(1,442,875)
=========== =========== ===========
Net income (loss) per share of
beneficial interest $ 0.23 $ 0.18 $ (0.35)
=========== =========== ===========
Weighted average number of shares $ 4,068,623 $ 4,153,717 $ 4,177,723
=========== =========== ===========
See accompanying notes to financial statements.
<PAGE> 14
USA REAL ESTATE INVESTMENT TRUST
Statements of Changes in Shareholders' Equity
Years Ended December 31, 1996, 1995 and 1994
Distribu- Total
Shares of Additional tions in Share-
Beneficial Interest Paid-in Excess of holders'
Number Amount Capital Net Income Equity
--------- --------- ----------- ------------- -----------
Balance at
December 31,
1993 4,177,723 $4,177,723 $30,535,678 $(9,801,497) $24,911,904
--------- --------- ---------- ----------- ----------
Net loss - - - (1,442,875) (1,442,875)
Distributions - - - (1,096,725) (1,096,725)
--------- --------- ---------- ----------- ----------
Balance at
December 31,
1994 4,177,723 4,177,723 30,535,678 (12,341,097) 22,372,304
--------- --------- ---------- ----------- ----------
Redemption of
shares (57,293) (57,293) (140,144) - (197,437)
Net income - - - 752,898 752,898
Distributions - - - (1,330,652) (1,330,652)
--------- --------- ---------- ----------- ----------
Balance at
December 31,
1995 4,120,430 4,120,430 30,395,534 (12,918,851) 21,597,113
_________ _________ __________ ___________ __________
Redemption of
shares (77,526) (77,526) (193,395) - (270,921)
Net income - - - 918,269 918,269
Distributions - - - (1,549,184) (1,549,184)
_________ _________ __________ __________ __________
Balance at
December 31,
1996 4,042,904 $4,042,904 $30,202,139 $(13,549,766) $20,695,277
========= ========= ========== ========== ==========
See accompanying notes to financial statements.
<PAGE> 15 USA REAL ESTATE INVESTMENT TRUST
Statements of Cash Flows
For the Years Ended December 31, 1996, 1995 and 1994
1996 1995 1994
---------- ---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 918,269 $ 752,898 $(1,442,875)
---------- ---------- ----------
Adjustments to reconcile net
income(loss)to net cash provided
by operating activities:
Depreciation & amortization 636,996 655,597 687,478
Amortization of loan fees 4,290 4,290 21,500
Valuation loss 0 124,000 839,000
(Gain)loss on sale of properties
& disposition of promissory note 0 (411,254) 250,000
Bad debt expense 0 0 75,519
Changes in other assets &
liabilities:
Decrease(increase)in other assets 8,383 180,222 (276,484)
Increase(decrease)in accounts payable 5,318 (97,683) (35,988)
Decrease in lease deposits (10,526) (3,287) (10,658)
Total adjustments to net ---------- ---------- ----------
income(loss) 644,461 451,885 1,550,367
---------- ---------- ----------
Net cash provided by
operating activities 1,562,730 1,204,783 107,492
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases & improvement of properties (501,586) (1,269,097) (198,338)
Proceeds from the sale of properties 3,139,682 3,800,463 0
Collections on notes receivable 92,869 147,178 1,376,624
---------- ---------- ----------
Net cash provided by
investing activities 2,730,965 2,678,544 1,178,286
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Redemption of shares (270,921) (197,437) 0
Proceeds from long-term notes payable 0 0 2,145,000
Payments on long-term notes payable (51,586) (1,245,988) (2,068,236)
Payments on line of credit 0 0 (900,000)
Distributions paid (1,549,184) (1,330,652) (1,096,725)
---------- ---------- ----------
Net cash used in
financing activities (1,871,691) (2,774,077) (1,919,961)
---------- ---------- ----------
Net increase (decrease) in cash 2,422,004 1,109,250 (634,183)
Cash and cash equivalents at
beginning of year 1,487,661 378,411 1,012,594
---------- ---------- ----------
Cash and cash equivalents at
end of year $ 3,909,665 $ 1,487,661 $ 378,411
========== ========== ==========
Interest paid $ 163,487 $ 270,069 $ 618,666
========== ========== ==========
See accompanying notes to financial statements.
<PAGE> 16
USA REAL ESTATE INVESTMENT TRUST
Notes to Financial Statements
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General: USA Real Estate Investment Trust (the "Trust") was organized under
the laws of the State of California pursuant to a Declaration of Trust dated
October 7, 1986. The Trust commenced operations on October 19, 1987, upon the
sale of the minimum offering amount of shares of beneficial interest.
Effective August 31, 1994, the Trust terminated its agreements with its former
advisor and its former property manager and became a self-administered real
estate investment trust. At the Trust's 1994 Annual Meeting of Shareholders
held on December 29, 1994, the Trust's shareholders approved an amendment to
the Trust's Declaration of Trust which changed the name of the Trust from
Commonwealth Equity Trust USA to its current name.
Cash Equivalents: For purposes of the statement of cash flows, all
certificates of deposit with original maturities of ninety days or less are
considered cash equivalents.
Rental Properties: Rental properties are carried at cost, net of accumulated
depreciation and less an allowance for possible valuation loss. An allowance
for possible investment losses is recognized when the carrying value of
individual properties exceeds their appraised value or estimated net
realizable value. A gain or loss will be recorded to the extent that the
amounts ultimately realized from property sales differ from those currently
estimated.
The cost of buildings and improvements is depreciated on a straight-line basis
over estimated useful lives of 40 years.
Distributions in Excess of Net Income: The Trust has a general policy of
distributing cash to its shareholders in an amount that approximates taxable
income plus noncash charges such as depreciation and amortization. As a
result, distributions to shareholders exceed cumulative net income.
Income Taxes: The Trust has elected to be taxed as a real estate investment
trust. Accordingly, the Trust does not pay income tax on income because
income distributed to shareholders is at least equal to 95 percent of its
taxable income.
Net Income (Loss) Per Share: The net income (loss) per share is computed
based on the weighted-average number of shares of 4,068,623, 4,153,717, and
4,177,723 during 1996, 1995 and 1994, respectively.
Concentration of Credit Risk: The Trust operates in one industry segment.
The Trust's properties and the collateral for its notes receivable are
all located in California.
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amount of assets, liabilities,
revenues and expenses and the disclosure of contingent assets and liabilities.
Actual results could differ from those estimates.
<PAGE> 17
(2) TRANSACTIONS WITH FORMERLY AFFILIATED PARTIES
B&B Property Investment, Development and Management Company, Inc. ("B&B")
served as advisor to the Trust, and B&B Property Investments, Inc., a wholly
owned subsidiary of B&B, served as property manager for the Trust from
inception through August 30, 1994. Effective August 31, 1994, the Trust
terminated its agreements with B&B and B&B Property Investments, Inc. In
June, 1995, the Trust settled all claims and cross claims between the Trust
and B&B and its related parties by the payment to the principal of B&B,
Jeffrey Berger, of $250,000.
Compensation and reimbursement to B&B and B&B Property Investments, Inc. was
$153,042 in 1994, of which $129,587 was for property management fees and
$23,455 was for leasing commissions.
(3) ALLOWANCE FOR VALUATION LOSSES
The Trust recorded allowances for valuation losses on rental properties of
$124,000 and $839,000 in 1995 and 1994, respectively. The Trust charged
$777,000 and $338,000 against the valuation allowance in connection with the
sale of properties in 1996 and 1995 and $600,000 in connection with the
disposition of a note receivable in 1994.
(4) NOTES RECEIVABLE
Notes receivable consist of one note as of December 31, 1996 and two notes
as of December 31, 1995, all collateralized by properties in California. As
of December 31, 1996, the $726,000 note bears interest at 8 percent per annum
and is payable in monthly installments of interest only until October 8, 2000,
when the entire note is due. The aggregate fair value of the notes receivable
approximates the carrying value as of December 31, 1996 and December 31, 1995.
(5) LONG-TERM NOTES PAYABLE
As of December 31, 1996 and 1995, the Trust had a long-term note payable
collateralized by a property in California. The amount of the note was
$2,047,333 at December 31, 1996, and $2,098,919 at December 31, 1995. As of
December 31, 1996, the long-term note payable bears interest at 7 5/8 percent.
Scheduled principal payments over the next three years are as follows:
$55,374, $59,780 and $1,932,179, respectively. The fair value of the note
approximates the carrying value as of December 31, 1996 and 1995. Rates
currently available to the Trust for debt with similar terms and maturity were
used to estimate the fair value of the note.
(6) DISTRIBUTIONS
Cash distributions per share of beneficial interest for Federal income tax
purposes for the past three years were: 1 percent of the distributions paid
in 1996 were capital gains, 13 percent were ordinary income and 86 percent
were return of capital; 6 percent of the distributions paid in 1995 were
capital gains, 37 percent were ordinary income and 57 percent were return
of capital; 100 percent of the distributions paid in 1994 were a return of
capital.
<PAGE 18>
(7) RENT UNDER OPERATING LEASES
Noncancelable operating leases provide for minimum rent during each of the
next five years of $1,866,857, $1,305,676, $1,128,952, $855,224, and
$748,187, respectively, and in aggregate $1,519,828 thereafter. The above
assumes that all leases which expire are not renewed, therefore neither
renewal rent nor rent from replacement tenants is included.
<PAGE> 19 PART III.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
GENERAL
The Trust has no employees. It is administered by its Trustees
and by its Chairman, and by independent contractors who work under the
supervision thereof.
THE TRUSTEES
The trustees of the Trust are as follows:
Trustee
Name Age Since Office
---- --- ------- ------
Gregory E. Crissman 45 1986 Trustee and Chairman and
Chief Financial Officer
Benjamin A. Diaz 63 1988 Trustee and Secretary
William M. Gallagher 77 1992 Trustee
Joyce A. Marks 62 1986 Trustee
The following is a brief description of the background and business
experience of each Trustee.
GREGORY E. CRISSMAN. Mr. Crissman is the Chairman and Chief Financial
Officer of the Trust. He has over 20 years of experience in real estate,
accounting, auditing, and taxation. He also served as Chairman of the Board
of California Real Estate Investment Trust, a New York Stock Exchange listed
real estate investment trust, and was its Chief Financial Officer from 1989
until 1993. Mr. Crissman was an Executive Vice President of B&B Property
Investment, Development and Management Company, Inc. ("B&B"), from 1983 until
1990 and from 1992 until 1993. In addition, Mr. Crissman was a director of
B&B and was President of B&B from 1990 until 1992. From 1976 to 1979 Mr.
Crissman worked at Bowman & Company, an accounting firm in Stockton,
California. In 1976 Mr. Crissman received his BS degree with honors from the
California State University at Sacramento and is a Certified Public
Accountant. Mr. Crissman is also a member of the American Institute of
Certified Public Accountants.
BENJAMIN A. DIAZ. The Honorable Benjamin A. Diaz is a retired judge of
the Superior Court of California. He served as a judge of the Sacramento
County Superior Court from April, 1976, to May, 1986. He has been engaged in
private practice in Sacramento, California, as a partner in the law firm of
Grossfield and Diaz from June, 1986, to September, 1987, and in the law firm
of Diaz & Gebers, specializing in real estate transactions, general practice,
litigation, business law, and personal injury matters from October, 1987 to
December, 1991. From January, 1992, to the present, Judge Diaz has been
engaged in pro tem judging, arbitration, mediation and consulting services.
Mr. Diaz received his Juris Doctor degree from the University of Pacific,
<PAGE> 20
McGeorge School of Law, Sacramento, California, in 1966. Prior to serving on
the bench, Mr. Diaz had extensive tax and auditing experience with the State
of California Franchise Tax Board, dealing with large corporate unitary tax
audits, and with the California State Board of Equalization.
WILLIAM M. GALLAGHER. The Honorable William M. Gallagher is a retired
judge of the Superior Court of California. He served as a judge of the
Sacramento County Superior Court from 1964 until 1980, and of the Sacramento
Municipal Court from 1961 to 1964. Mr. Gallagher received his Juris Doctor
degree from Hastings College of the Law in San Francisco. After 1980, Mr.
Gallagher was engaged in private practice as a partner in the law firm of
Hefner, Stark & Marois in Sacramento, California, specializing in Chapter 11
bankruptcy, lender liability litigation and real estate related transactions.
JOYCE A. MARKS. Ms. Marks has been employed by the Bank of America for
more than forty years. During her career with Bank of America, Ms. Marks had
extensive experience with land development and subdivision financing,
including construction and take-out financing for commercial properties. Ms.
Marks was for many years active in the Building Industry Association of
Sacramento and from 1976 to 1983 served as a board member of, and in 1983 as
President of, its Associate Counsel. Ms. Marks received Bank of America's
Award for Excellence in 1985. Her most recent positions include Senior Sales
Training Specialist, Marketing Officer, Branch Manager and Credit
Administrator at one of Bank of America's Regional Headquarters.
Trustees of the Trust are elected annually by the Trust's shareholders
and hold office until their successors are duly elected and qualified. No
family relationship exists between any Trustee and any other Trustee. No
arrangement exists or existed between any Trustee and any other person or
entity pursuant to which the Trustee was selected as a Trustee or nominee.
ITEM 11. EXECUTIVE COMPENSATION
COMPENSATION OF OFFICERS
During 1995, the Trust was managed by its Trustees as a self-administered
real estate investment trust. The Trust has the following officers:
Chairman, Chief Financial Officer, and Secretary. No officer except Gregory
E. Crissman is compensated by the Trust in his capacity as a officer. During
1995, none of the Trust's officers received compensation in excess of $24,000.
Summary Compensation Table
Total Long-Term
Name and Officer Annual and other
Principal Position Year Compensation Compensation Compensation
- ----------------------------- ---- ------------ ------------ ------------
Gregory E. Crissman, Chairman 1996 $48,000 $67,063 (1) None
(1) Includes fees of $1,250 or $313 for each meeting of the Trustees
attended.
<PAGE> 21
COMPENSATON OF TRUSTEES
During 1996 and currently, the Trustees receive $1,250 or $313 for each
Trustees' meeting attended plus direct expenses incurred in connection with
such attendance. There are currently no plans to alter this compensation
schedule. No Trustee received compensation under any other arrangement during
1996. The Trust does not maintain a nominating or compensation committee or
any other standing committee. However, the Trustees have authority to
establish such committees and to compensate committee members as appropriate
for their service. During 1996, the Trust had twelve regular and four special
meetings of its Trustees. No Trustee attended less than 75 percent of the
meetings held by the Trustees.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of February 28, 1997, the number of
Shares owned by each person who is known by the Trust to own beneficially more
than 5 percent of its outstanding Shares and the Trustees and officers of the
Trust as a group. No Trustee beneficially owns any shares of the Trust except
as set forth below. The Trust has been advised that all of such Shares are
beneficially owned and the sole investment and voting power is held by the
persons named:
Amount and Nature of Percent
Name and Address of Beneficial Owner Beneficial Ownership of Class
------------------------------------ -------------------- --------
Gregory E. Crissman, Chairman and Trustee 1,400 .00035
2561 Fulton Square Lane, #55
Sacramento, CA 95821
All Trustees and officers as a group 1,400 .00035
During 1996, based upon a review of the Forms 3, 4 and 5 on file with the
Trust, it does not appear that any officer or trustee failed to file such a
required report on a timely basis.
No person is known to the Trust to hold 10 percent or more of the Trust's
outstanding Shares.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
<PAGE> 22
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) FINANCIAL STATEMENTS Page
----
Independent Auditors' Report ...................... 11
Balance Sheets: December 31, 1996 and 1995 ....... 12
Statements of Income (Operations): Years Ended
December 31, 1996, 1995 and 1994 ................ 13
Statements of Changes in Shareholders' Equity:
Years Ended December 31, 1996, 1995 and 1994 .... 14
Statements of Cash Flows: Years Ended
December 31, 1996, 1995 and 1994 ................ 15
Notes to Financial Statements ..................... 16-18
(a)(2) FINANCIAL STATEMENT SCHEDULES
Schedule III - Real Estate and Accumulated
Depreciation .................................... 23-26
The statements and schedules referred to above should be read in
conjunction with the financial statements and notes thereto included in Part
II of this Form 10-K. Schedules not included in this item have been omitted
because they are not applicable or because the required information is
presented in the financial statements or notes thereto.
(a)(3) LIST OF EXHIBITS
3.1(1) Form of Amended and Restated Declaration of Trust of
Commonwealth Equity Trust USA
3.2(1) Form of Bylaws of the Board of Trustees
3.4(2) Amendments to Sections 2.3.1, 2.3.7, 2.3.8, 2.4.2 and
2.4.3 of the Amended and Restated Declaration of Trust
of Commonwealth Equity Trust USA (adopted on August 29,
1988 at the 1988 Annual Meeting)
4.1(1) Article VIII of Exhibit 3.1
4.2(1) Form of Share Certificate
(b) REPORTS ON FORM 8-K
None.
<PAGE> 23
USA REAL ESTATE INVESTMENT TRUST
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1996
Page 1, Part A
__________________ ____________ ___________________________
Column A Column B Column C
__________________ ____________ ___________________________
---Initital Cost to Trust--
Buildings
Improvements,
& Personal
Decription Encumbrances Land Property
__________________ ____________ ____________ ____________
RETAIL:
170-174 West Shaw
Avenue, Clovis,
California $ 2,047,333 $ 1,690,000 $ 2,542,532
7390 Greenback Lane,
Citrus Heights,
California - 533,000 179,333
3090 Sunrise Blvd.,
Rancho Cordova,
California - 450,000 -
19401 Parthenia
Street, Northridge,
California - 5,770,000 3,100,000
1056 Harbor Blvd.,
West Sacramento,
California - 716,500 -
____________ ____________ ____________
Total Retail 2,047,333 9,159,500 5,821,865
____________ ____________ ____________
INDUSTRIAL:
4350 Pell Drive,
Sacramento,
California - 1,500,000 2,213,325
____________ ____________ ____________
Total Industrial - 1,500,000 2,213,325
____________ ____________ ____________
OFFICE:
One Scripps Drive,
Sacramento,
California - 650,000 2,274,888
____________ ____________ ____________
Total Office - 650,000 2,274,888
____________ ____________ ____________
$ 2,047,333 $ 11,309,500 $ 10,310,078
============ ============ ============
<PAGE> 24
USA REAL ESTATE INVESTMENT TRUST
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1996
Page 1, Part B
__________________ _____________________________
Column A Column D
__________________ _____________________________
Cost Capitalization
Subsequent to
---------Acquisition---------
Description Improvements Carrying Cost
__________________ _____________ _____________
RETAIL:
170-174 West Shaw
Avenue, Clovis,
California $ 7,300 $ -
7390 Greenback Lane,
Citrus Heights,
California 3,457 -
3090 Sunrise Blvd.,
Rancho Cordova,
California - -
19401 Parthenia
Street, Northridge,
California 2,412,355 -
1056 Harbor Blvd.,
West Sacramento,
California 6,087 -
_____________ _____________
Total Retail 2,429,199 -
_____________ _____________
INDUSTRIAL:
4350 Pell Drive,
Sacramento,
California 96,657 -
_____________ _____________
Total Industrial 96,657 -
_____________ _____________
OFFICE:
One Scripps Drive,
Sacramento,
California 1,125,631 -
_____________ _____________
Total Office 1,125,631 -
_____________ _____________
$ 3,651,487 $ -
============= =============
<PAGE> 25
USA REAL ESTATE INVESTMENT TRUST
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1996
Page 1, Part C
__________________ _________________________________________________________
Column A Column E
__________________ _________________________________________________________
Gross Amount at Which
----------------Carried at Close of Period---------------
Valuation
Buildings & Write
Description Land Improvements Down Total
__________________ ____________ ____________ ____________ ____________
RETAIL:
170-174 West Shaw
Avenue, Clovis,
California $ 1,690,000 $ 2,549,832 $ 590,000 $ 3,649,832
7390 Greenback Lane,
Citrus Heights,
California 533,000 182,790 102,000 613,790
3090 Sunrise Blvd.,
Rancho Cordova,
California 450,000 - - 450,000
19401 Parthenia
Street, Northridge,
California 5,770,000 5,512,355 3,483,000 7,799,355
1056 Harbor Blvd.,
West Sacramento,
California 716,500 6,087 115,000 607,587
____________ ____________ ____________ ____________
Total Retail 9,159,500 8,251,064 4,290,000 13,120,564
____________ ____________ ____________ ____________
INDUSTRIAL:
4350 Pell Drive,
Sacramento,
California 1,500,000 2,309,982 - 3,809,982
____________ ____________ ____________ ____________
Total Industrial 1,500,000 2,309,982 - 3,809,982
____________ ____________ ____________ ____________
OFFICE:
One Scripps Drive,
Sacramento,
California 650,000 3,400,519 770,000 3,280,519
____________ ____________ ____________ ____________
Total Office 650,000 3,400,519 770,000 3,280,519
____________ ____________ ____________ ____________
$ 11,309,500 $ 13,961,565 $ 5,060,000 $ 20,211,065
============ ============ ============ ============
<PAGE> 26
USA REAL ESTTE INVESTMENT TRUST
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1996
Page 1, Part D
__________________ ____________ ____________ ____________ ____________
Column A Column F Column G Column H Column I
__________________ ____________ ____________ ____________ ____________
Life
on Which
Depreciation
in Latest
Accumulated Date of Date Statement is
Description Depreciation Construction Acquired Computed
__________________ ____________ ____________ ____________ ____________
RETAIL:
170-174 West Shaw
Avenue, Clovis,
California $ 417,744 1985 05/90 40 years
7390 Greenback Lane,
Citrus Heights,
California 28,565 1980 08/90 40 years
3090 Sunrise Blvd.,
Rancho Cordova,
California - N/A 10/90 N/A
19401 Parthenia
Street, Northridge,
California 1,275,142 1973 11/90 40 years
1056 Harbor Blvd.,
West Sacramento,
California 63 N/A 12/92 N/A
____________
Total Retail 1,721,514
____________
INDUSTRIAL:
4350 Pell Drive,
Sacramento,
California 261,181 1975 09/92 40 years
____________
Total Industrial 261,181
____________
OFFICE:
One Scripps Drive,
Sacramento,
California 288,955 40 years
____________
Total Office 288,955
____________
$ 2,271,650
============
<PAGE> 27
USA REAL ESTATE INVESTMENT TRUST
Signatures
Pursuant to the requirements of Section 13 of 15(d) 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.
Dated: March 25, 1997 USA Real Estate Investment Trust
--------------------
Gregory E. Crissman
By: -------------------------------
Gregory E. Crissman as
Chief Financial Offficer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:
Dated: March 25, 1997 Gregory E. Crissman
------------------- By: -------------------------------
Gregory E. Crissman
Chairman
Dated: March 25, 1997 Benjamin A. Diaz
------------------- By: -------------------------------
Benjamin A. Diaz
Trustee
Dated: March 25, 1997 William M. Gallagher
------------------- By: -------------------------------
William M. Gallagher
Trustee
Dated: March 25, 1997 Joyce A. Marks
------------------- By: -------------------------------
Joyce A. Marks
Trustee
<PAGE> 28
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Statement of Financial Condition at December 31, 1996 and the Statement
of Income for the fiscal year ended December 31, 1996 and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 3,909,665
<SECURITIES> 0
<RECEIVABLES> 59,556
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,177,678
<PP&E> 25,271,065
<DEPRECIATION> 2,271,650
<TOTAL-ASSETS> 22,843,093
<CURRENT-LIABILITIES> 100,483
<BONDS> 0
<COMMON> 4,042,904
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 22,843,093
<SALES> 2,676,855
<TOTAL-REVENUES> 2,676,855
<CGS> 0
<TOTAL-COSTS> 1,758,586
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 167,777
<INCOME-PRETAX> 918,269
<INCOME-TAX> 0
<INCOME-CONTINUING> 918,269
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 918,269
<EPS-PRIMARY> 0.230
<EPS-DILUTED> 0.230
</TABLE>
