<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, 1999
/ / 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)
PMB 314, P.O. Box 255427, Sacramento, California 95865-5427
(Address of registrant's principal executive offices) (Zip Code)
(800) 308-4532
(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 Beneficial 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 December
31, 1999, was $17,284,049 (based solely on the book value 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 ................................. 5
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 ...... 6
ITEM 6. Selected Financial Data .................... 6
ITEM 7. Management's Discussion and Analysis
of Financial Condition and Results
of Operations ............................ 7
ITEM 8. Financial Statements and Supplementary
Data ..................................... 9
ITEM 9. Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure ..................... 17
PART III.
ITEM 10. Directors and Executive Officers
of the Registrant ........................ 17
ITEM 11. Executive Compensation ..................... 18
ITEM 12. Security Ownership of Certain
Beneficial Owners and Management ......... 19
ITEM 13. Certain Relationships and
Related Transactions ..................... 19
PART IV.
ITEM 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K .................. 20
<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 office of the Trust is located at One Scripps Drive, in Sacramento,
California.
CURRENT DEVELOPMENTS
On August 31, 1994 the Trust became self-administered and 1999 is its
fifth year of operation as a self-administered, self-managed real estate
investment trust.
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.
<PAGE> 4
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.
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.
<PAGE> 5
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.
ITEM 2. PROPERTIES
The Trust owns seven properties all of which are located in California.
The Trustees believe that 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
<PAGE> 6
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 1999.
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. Since 1995 the Trust has repurchased 18,273 shares from 6,318
shareholders at a cost of $2,094,055 which is an average cost of $115 per
share. Repurchased shares revert to authorized but unissued shares and result
in closing shareholders' accounts. Closing these accounts reduces annual
servicing expenses and increases the book value of shares for the remaining
shareholders.
Effective July 1, 1998, the Trust executed a one-for-thirty reverse
share split and a concurrent elimination of all fractional shares when the
shareholder account held less than one share. As of December 31, 1999, the
Trust had 120,984 shares outstanding to 6,676 shareholders of record.
No public trading market presently exists for the shares of the Trust.
The Trust does not anticipate that a public trading market will exist within
the foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA
The following represents selected financial data for the Trust for the
five years ended December 31, 1999. The data should be read in conjunction
with the financial statements and related notes included elsewhere herein.
<PAGE> 7
Years Ended December 31
(Amounts in thousands, except for per share data)
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
Operating Results:
Revenues $ 3,313 $ 3,290 $ 2,978 $ 2,677 $ 2,858
Net income (loss) 1,176 1,314 1,181 918 753
Net cash provided by
operating activities 1,812 1,899 1,679 1,563 1,205
Total Assets 26,222 25,658 26,097 22,843 23,802
Long-term obligations 6,535 6,000 6,145 2,047 2,099
Net income (loss)
per share $ 9.45 $ 10.07 $ 9.00 $ 6.90 $ 5.40
Cash distributions
per share $ 15.12 $ 14.10 $ 12.60 $ 11.40 $ 9.60
Per share data has been restated to reflect the impact of the one-for-thirty
reverse share split, effective July 1, 1998.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Comparison of 1999 to 1998 and 1998 to 1997
Effective August 31, 1994, the Trust terminated its agreements with its
former advisor and property manager and became self-administered and self-
managed. 1999 was the fifth full year the Trust was self-adminsitered
and self-managed.
Rent revenues increased $386,834 or 14 percent in 1998 compared to 1997
primarily due to the purchase of 1590 Sycamore Drive in Hercules, California
in May, 1997.
Although rent revenues increased in both 1999 and 1998, operating
expenses decreased slightly in both years.
Property taxes increased $10,128 or 5 percent in 1999 compared to 1998
primarily due to the expiration of certain temporary assessment reductions.
Interest expense increased $48,104 or 9 percent in 1999 compared to 1998
and $144,137 or 37 percent in 1998 compared to 1997 due to higher average
levels of outstanding debt during 1999 and 1998.
General and administrative expense decreased $17,226 or 6 percent in 1999
compared to 1998 and $30,211 or 10 percent in 1998 compared to 1997.
The Trust recognized no valuation losses in 1999, 1998 and 1997.
<PAGE> 8
The 1999 loss on sale of properties was attributed to the sale of 170-174
West Shaw Avenue in Clovis, California in March 1999.
The 1997 gain on sale of properties was attributed to the sale of 1056
Harbor Boulevard in West Sacramento, California in August 1997.
Net income was $1,175,630 or $9.45 per share in 1999, $1,314,307 or
$10.07 per share in 1998 and $1,180,730 or $9.00 per share in 1997.
The Trust paid distributions per share of $15.12, $14.10 and $12.60 in
1999,1998 and 1997, respectively.
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.
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.
<PAGE> 9
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page
Independent Auditors' Report .............................. 10
Balance Sheets
As of December 31, 1999 and 1998 ........................ 11
Statements of Income
Years Ended December 31, 1999, 1998 and 1997 ............ 12
Statements of Changes in Shareholders' Equity
Years Ended December 31, 1999, 1998 and 1997 ............ 13
Statements of Cash Flows
Years Ended December 31, 1999, 1998 and 1997 ............ 14
Notes to Financial Statements ............................. 15
Schedule III
Real Estate and Accumulated Depreciation ................ 21-25
<PAGE> 10
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, 1999 and 1998 and the related statements of income,
changes in shareholders' equity, and cash flows for the years ended
December 31, 1999, 1998 and 1997. In connection with our audits of the
financial statements, we also have audited the financial statement schedule
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, 1999 and 1998 and the results of its operations and
its cash flows for the years ended December 31, 1999, 1998 and 1997 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 + Company LLP
Rancho Cordova, California
January 14, 2000
<PAGE> 11
USA REAL ESTATE INVESTMENT TRUST
Balance Sheets
December 31, December 31,
1999 1998
----------- -----------
ASSETS
Rental properties, less accumulated
depreciation of $3,472,316 and
$3,421,976 in 1999 and 1998,
respectively and a valuation allowance
of $4,355,000 and $4,945,000 in 1999
and 1998, respectively $ 24,680,481 $ 24,606,111
Notes receivable 1,076,000 726,000
---------- -----------
25,756,481 25,332,111
Cash and cash equivalents 71,679 24,097
Other assets 393,710 302,272
----------- -----------
Total assets $ 26,221,870 $ 25,658,480
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Long-term notes payable $ 6,534,539 $ 5,999,580
Lines of credit 2,341,000 730,000
Accounts payable 0 5,460
Lease deposits 62,282 62,282
----------- -----------
Total liabilities 8,937,821 6,797,322
----------- -----------
Shareholders' Equity:
Shares of beneficial interest, par value
$1 a share; authorized 250,000 shares;
120,984 and 128,056 shares outstanding
in 1999 and 1998, respectively $ 120,984 $ 128,056
Additional paid-in capital 32,498,365 33,363,866
Distributions in excess of net income (15,335,300) (14,630,764)
----------- -----------
Total shareholders' equity 17,284,049 18,861,158
----------- -----------
Total liabilities and shareholders' equity $ 26,221,870 $ 25,658,480
=========== ===========
See notes to financial statements.
<PAGE> 12
USA REAL ESTATE INVESTMENT TRUST
Statements of Income
Years Ended December 31, 1999, 1998 and 1997
1999 1998 1997
----------- ----------- -----------
Revenues:
Rent $ 3,233,365 $ 3,226,430 $ 2,839,596
Interest 79,893 63,323 138,177
----------- ----------- -----------
3,313,258 3,289,753 2,977,773
----------- ----------- -----------
Expenses:
Operating expenses 297,473 297,837 305,907
Property taxes 216,062 205,934 201,433
Property management fees 52,800 51,200 48,000
Interest 578,171 530,067 385,930
Depreciation and amortization 647,124 610,836 649,936
General and administative 262,346 279,572 309,783
----------- ----------- -----------
2,053,976 1,975,446 1,900,989
----------- ----------- -----------
Net income before gain or (loss)
on sale of rental properties 1,259,282 1,314,307 1,076,784
Gain or (loss) on sale of rental
properties (83,652) 0 103,946
----------- ----------- -----------
Net income $ 1,175,630 $ 1,314,307 $ 1,180,730
=========== =========== ===========
Net income per share of
beneficial interest $ 9.45 $ 10.07 $ 9.00
=========== =========== ===========
Weighted average number of shares $ 124,400 $ 130,465 $ 131,192
=========== =========== ===========
See notes to financial statements.
<PAGE> 13
USA REAL ESTATE INVESTMENT TRUST
Statements of Changes in Shareholders' Equity
Years Ended December 31, 1999, 1998 and 1997
Distribu- Total
Shares of Additional tions in Share-
Beneficial Interest Paid-in Excess of holders'
Number Amount Capital Net Income Equity
--------- --------- ----------- ------------- -----------
December 31,
1996 4,042,904 $4,042,904 $30,202,139 $(13,599,183) $20,645,860
Repurchases
of shares (82,049) (82,049) (203,268) - (285,317)
Net Income - - - 1,180,730 1,180,730
Distributions - - - (1,686,736) (1,686,736)
--------- --------- ---------- ----------- ----------
December 31,
1997 3,960,855 $3,960,855 $29,998,871 $(14,105,189) $19,854,537
--------- --------- ---------- ----------- ----------
Repurchases
of shares (3,972) (3,972) (463,832) - (467,804)
Net income - - - 1,314,307 1,314,307
Distributions - - - (1,839,882) (1,839,882)
One-for-thirty
reverse share
split (3,828,827) (3,828,827) 3,828,827 - -
--------- --------- ---------- ----------- ----------
December 31,
1998 128,056 $ 128,056 $33,363,866 $(14,630,764) $18,861,158
Repurchases
of shares (7,072) (7,072) (865,501) - (872,573)
Net income - - - 1,175,630 1,175,630
Distributions - - - (1,880,166) (1,880,166)
--------- --------- ---------- ----------- ----------
December 31,
1999 120,984 $ 120,984 $32,498,365 $(15,335,300) $17,284,049
========= ========= ========== =========== ==========
See notes to financial statements.
<PAGE> 14 USA REAL ESTATE INVESTMENT TRUST
Statements of Cash Flows
For the Years Ended December 31, 1999, 1998 and 1997
1999 1998 1997
OPERATING ACTIVITIES: ---------- ---------- ----------
Net income $ 1,175,630 $ 1,314,307 $ 1,180,730
---------- ---------- ----------
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation & amortization 647,124 610,835 649,936
Amortization of loan fees 3,934 4,290 4,285
(Gain)loss on sale of properties 83,652 0 (103,946)
Changes in other assets & liabilities:
Increase in other assets (92,476) 0 0
Decrease in accounts payable (5,460) (25,228) (59,367)
(Increase)decrease in lease deposits 0 (4,875) 7,312
---------- ---------- ----------
Total adjustments to net income 636,774 585,022 498,220
---------- ---------- ----------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 1,812,404 1,899,329 1,678,950
---------- ---------- ----------
INVESTING ACTIVITIES:
Purchases and improvements to
properties (1,174,541) (277,484) (4,133,378)
Proceeds from the sale of properties 2,686,576 0 787,341
Increase in other assets (70,074) (42,834) 0
---------- ---------- ----------
NET CASH PROVIDED BY (USED
IN)INVESTING ACTIVITIES 1,441,961 (320,318) (3,346,037)
---------- ---------- ----------
FINANCING ACTIVITIES:
Borowings on lines of credit 1,611,000 730,000 0
Redemption of shares (872,573) (467,804) (285,317)
Payments on long-term notes payable (2,065,044) (145,464) (102,289)
Distributions paid (1,880,166) (1,839,882) (1,686,736)
---------- ---------- ----------
NET CASH USED IN
FINANCING ACTIVITIES (3,206,783) (1,723,150) (2,074,342)
---------- ---------- ----------
NET INCREASE(DECREASE)IN CASH 47,582 (144,139) (3,741,429)
Cash and cash equivalents at
beginning of year $ 24,097 $ 168,236 $ 3,909,665
---------- ---------- ----------
CASH AND CASH EQUIVALENTS AT
END OF YEAR $ 71,679 $ 24,097 $ 168,236
========== ========== ==========
INTEREST PAID $ 574,237 $ 525,777 $ 381,644
========== ========== ==========
NON-CASH INVESTING AND FINANCING ACTIVITIES
During 1999 the Trust received a $350,000 promissory note as a portion of the
consideration received on the sale of 170-174 West Shaw Avenue in Clovis,
California, and purchased 845 Harbor Blvd. in West Sacramento, California,
utilizing debt of $2,600,000.
See notes to financial statements.
<PAGE> 15 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: The Trust carries its rental properties at
depreciated cost unless the asset is determined to be impaired. In
accordance with Statement of Financial Accounting Standards No. 121,
Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of, which was adopted by the Trust on January 1, 1996, the Trust
records impairment losses on long-lived assets used in operations when events
and circumstances indicate that the assets might be impaired and the expected
undiscounted cash flows estimated to be generated by those assets are less
than the related carrying amounts. If a rental property is determined to be
impaired, the impairment would be measured based upon the excess of the
asset's carrying value over the fair value.
Property improvements are capitalized while maintenance and repairs are
expensed as incurred. Depreciation of buildings and capital improvements is
computed using the straight-line method over forty years.
LEASING COSTS AND LOAN COSTS: Costs incurred in obtaining leases are
amortized on the straight-line method over the terms of the related leases.
Costs incurred in obtaining loans are amortized on the straight-line method
over the terms of the related debt.
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.
REVERSE SHARE SPLIT: Effective July 1, 1998, the Trust executed a one
for thirty reverse share split of its shares of beneficial interest. All
references to the number of shares and per share amounts have been restated
to reflect the impact of said reverse share split.
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 PER SHARE: The net income per share is computed based on the
weighted-average number of shares of 124,400, 130,465 and 131,192 during
1999, 1998 and 1997, respectively.
<PAGE 16>
CONCENTRATION OF CREDIT RISK: The Trust operates in one industry
segment. The Trust's properties and the collateral for its note 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.
RECLASSIFICATION: Certain amounts in prior years' financial statements
have been reclassified to conform with the current year presentation.
2. NOTES RECEIVABLE
Notes receivable consists of two notes of $726,000 and $350,000 at
December 31, 1999 and one note of $726,000 at December 31, 1998. The notes
are collateralized by properties in California. Both notes bear interest at
8 percent per annum and are payable in monthly installments of interest only.
The $726,000 note is due in October 2000. The $350,000 note was due December
31, 1999 and negotiations in regards to payment of part of the principal and
extension of the remaining balance are ongoing. The fair market value of the
notes approximates their carrying value at December 31, 1999 and 1998.
3. LONG-TERM NOTES PAYABLE
Long-term notes payable are collateralized by two properties in
California. As of December 31, 1999, the long-term notes payable bear
interest at rates ranging from 7.0 percent to 8.6 percent and mature in 2014
and 2017. Principal payments during each of the next five years are as
follows: $180,509, $195,329, $211,378, $228,761 and $247,587,respectively,
and in aggregrate $5,470,975, thereafter. The aggregate fair value of the
notes approximates their carrying value as of December 31, 1999 and 1998
the Trust for debt with similar terms and maturity were used to estimate the
fair value of the notes.
4. LINES OF CREDIT
The Trust has available two lines of credit with different financial
institutions, with interest at prime plus 0.75 percent per annum, payable
monthly. The credit lines are for $2,000,000 each and expire on March 31,
2000 and June 30, 2000. Both lines are secured by real property. At
December 31, 1999, there was an aggregate outstanding balance of $2,341,000
on the lines of credit.
5. DISTRIBUTIONS
Cash distributions per share of beneficial interest for Federal income
tax purposes for the past three years were: 36 percent of the distributions
paid in 1999 were ordinary income and 64 percent were nontaxable; 73 percent
of the distributions paid in 1998 were ordinary income and 27 percent were
nontaxable; 27 percent of the distributions paid in 1997 were ordinary income
and 73 percent were nontaxable.
<PAGE 17>
6. RENT UNDER OPERATING LEASES
Noncancelable operating leases provide for minimum rent during each of
the next five years of $2,892,661, $2,394,773, $1,895,833, $1,421,055 and
$1,134,307, respectively, and in aggregate $12,620,052 thereafter. The
above assumes that all leases which expire are not renewed, therefore
neither renewal rent nor rent from replacement tenants is included.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III.
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 48 1986 Trustee and Chairman and
Chief Financial Officer
Benjamin A. Diaz 66 1988 Trustee and Secretary
Joyce A. Marks 65 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.
<PAGE 18>
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,
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.
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 1999, the Trust was managed by its Trustees as a self-
administered, self- managed 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 an officer. During 1999, none of the Trust's officers received
compensation in excess of $71,706.
Summary Compensation Table
Total Long-Term
Name and Officer Annual and other
Principal Position Year Compensation Compensation Compensation
- ----------------------------- ---- ------------ ------------ ------------
Gregory E. Crissman, Chairman 1999 $52,800 $71,706 (1) None
(1) Includes fees for each meeting of the Trustees attended for a
total of $18,906.
<PAGE 19>
COMPENSATON OF TRUSTEES
Each Trustee receives $1,375 or $345 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 1999. 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
1999, the Trust had twelve regular and four special meetings of its Trustees.
All Trustees attended all of the meetings.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of February 29, 2000, 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 184.5666 .1546
2561 Fulton Square Lane, #55
Sacramento, CA 95821
All Trustees and officers as a group 184.5666 .1546
During 1999, 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.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
<PAGE 20>
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) FINANCIAL STATEMENTS Page
----
Independent Auditors' Report ...................... 10
Balance Sheets: December 31, 1999 and 1998 ....... 11
Statements of Income: Years Ended
December 31, 1999, 1998 and 1997 ................ 12
Statements of Changes in Shareholders' Equity:
Years Ended December 31, 1999, 1998 and 1997 .... 13
Statements of Cash Flows: Years Ended
December 31, 1999, 1998 and 1997 ................ 14
Notes to Financial Statements ..................... 15-16
(a)(2) FINANCIAL STATEMENT SCHEDULES
Schedule III - Real Estate and Accumulated
Depreciation .................................... 21-25
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> 21
USA REAL ESTATE INVESTMENT TRUST
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1999
Page 1, Part A
------------------ ------------ ---------------------------
Column A Column B Column C
------------------ ------------ ---------------------------
---Initital Cost to Trust--
Buildings
Improvements,
& Personal
Decription Encumbrances Land Property
------------------ ------------ ------------ ------------
RETAIL:
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
1590 Sycamore,
Hercules,
California 3,971,289 1,310,000 5,912,015
845 Harbor Blvd.,
West Sacramento,
California 2,563,250 770,000 2,816,391
------------ ------------ ------------
Total Retail 6,534,539 8,833,000 12,007,739
------------ ------------ ------------
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
------------ ------------ ------------
$ 6,534,539 $ 10,983,000 $ 16,495,952
============ ============ ============
<PAGE> 22
USA REAL ESTATE INVESTMENT TRUST
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1999
Page 1, Part B
- ------------------ -----------------------------
Column A Column D
- ------------------ -----------------------------
Cost Capitalization
Subsequent to
---------Acquisition---------
Description Improvements Carrying Cost
- ------------------ ------------ -------------
RETAIL:
7390 Greenback Lane,
Citrus Heights,
California 5,957 -
3090 Sunrise Blvd.,
Rancho Cordova,
California - -
19401 Parthenia
Street, Northridge,
California 2,492,020 -
1590 Sycamore,
Hercules,
California 28,761 -
845 Harbor Blvd.,
West Sacramento,
California 2,038 -
------------- -------------
Total Retail 2,528,776 -
------------- -------------
INDUSTRIAL:
4350 Pell Drive,
Sacramento,
California 906,537 -
------------- -------------
Total Industrial 906,537 -
------------- -------------
OFFICE:
One Scripps Drive,
Sacramento,
California 1,593,532 -
------------- -------------
Total Office 1,593,532 -
------------- -------------
$ 5,028,845 $ -
============= =============
<PAGE> 23
USA REAL ESTATE INVESTMENT TRUST
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1999
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:
7390 Greenback Lane,
Citrus Heights,
California 533,000 185,290 102,000 616,290
3090 Sunrise Blvd.,
Rancho Cordova,
California 450,000 - - 450,000
19401 Parthenia
Street, Northridge,
California 5,770,000 5,592,020 3,483,000 7,879,020
1590 Sycamore,
Hercules,
California 1,310,000 5,940,776 - 7,250,776
845 Harbor Blvd.,
West Sacramento,
California 770,000 2,818,429 - 3,588,429
------------ ------------ ------------ ------------
Total Retail 8,833,000 14,536,515 3,585,000 19,784,515
------------ ------------ ------------ ------------
INDUSTRIAL:
4350 Pell Drive,
Sacramento,
California 1,500,000 3,119,862 - 4,619,862
------------ ------------ ------------ ------------
Total Industrial 1,500,000 3,119,862 - 4,619,862
------------ ------------ ------------ ------------
OFFICE:
One Scripps Drive,
Sacramento,
California 650,000 3,868,420 770,000 3,748,420
------------ ------------ ------------ ------------
Total Office 650,000 3,868,420 770,000 3,748,420
------------ ------------ ------------ ------------
$ 10,983,000 $ 21,524,797 $ 4,355,000 $ 28,152,797
============ ============ ============ ============
<PAGE> 24
USA REAL ESTATE INVESTMENT TRUST
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1999
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:
7390 Greenback Lane,
Citrus Heights,
California 40,670 1980 08/90 40 years
3090 Sunrise Blvd.,
Rancho Cordova,
California - N/A 10/90 N/A
19401 Parthenia
Street, Northridge,
California 1,723,179 1973 11/90 40 years
1590 Sycamore,
Hercules,
California 409,475 1989 05/97 40 years
845 Harbor Blvd.,
West Sacramento,
California 47,110 1999 05/99 40 years
------------
Total Retail 2,220,434
------------
INDUSTRIAL:
4350 Pell Drive,
Sacramento,
California 578,154 1975 09/92 40 years
------------
Total Industrial 578,154
------------
OFFICE:
One Scripps Drive,
Sacramento,
California 673,728 1972 09/92 40 years
------------
Total Office 673,728
------------
$ 3,472,316
============
<PAGE> 25
Footnote to Schedule III
Balance at beginning of period $ 28,028,087
Additions during period:
Acquisitions through foreclosure $ 0
Other acquisitions 3,588,429
Improvements 186,113
Other 0
-----------
3,774,542
Deductions during period:
Cost of real estate sold (net of
valuation allowance of $590,000) 3,649,832
Other 0
-----------
3,649,832
-----------
Balance at end of period: $ 28,152,797
===========
<PAGE> 26
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 27, 1999 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 27, 1999 Gregory E. Crissman
------------------- By: -------------------------------
Gregory E. Crissman
Chairman
Dated: March 27, 1999 Benjamin A. Diaz
------------------- By: -------------------------------
Benjamin A. Diaz
Trustee
Dated: March 27, 1999 Joyce A. Marks
------------------- By: -------------------------------
Joyce A. Marks
Trustee
<PAGE> 27
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, 1999 and the Statement
of Income for the fiscal year ended December 31, 1999 and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 71,679
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 71,679
<PP&E> 28,152,797
<DEPRECIATION> 3,472,316
<TOTAL-ASSETS> 26,221,870
<CURRENT-LIABILITIES> 62,282
<BONDS> 0
<COMMON> 120,984
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 26,221,870
<SALES> 3,229,606
<TOTAL-REVENUES> 3,229,606
<CGS> 0
<TOTAL-COSTS> 2,053,976
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 578,171
<INCOME-PRETAX> 1,259,282
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,259,282
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,175,630
<EPS-BASIC> 9.450
<EPS-DILUTED> 9.450
</TABLE>
