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. However, a real estate investment trust is not a mutual fund and is not subject to the same regulations as a mutual fund.
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 1995 is its first year of operation as a self-administered real estate investment trust.
In May, 1995 the Trust sold 1450 Hatch Road in Ceres, California.
Beginning September 15, 1995 and ending February 29, 1996, the Trust made an offer to repurchase all of their shares from shareholders who owned 50 or fewer shares for the cash price of $3.50 per share. Pursuant to said offer, the Trust repurchased 36,577 shares from 1,791 shareholders at a cost of $137,060.
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 future 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 due to increases in rental income;
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. 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 programs. The Trust also competes with other lessors and sellers of real property. 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 qualificaton 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 a real estate investment trusts.
GENERAL
ITEM 2.
ITEM 2. PROPERTIES
The Trust owns nine properties all of which are located in California except one which is located in Reno, Nevada. 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 area 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.
For additional information concerning the aforesaid properties, see Notes 1 and 3 of the Notes to Financial Statements and Schedule III.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4.
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 1995.
PART II
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SECURITY HOLDER MATTERS
The Trust has one class of authorized and outstanding equity consisting of common 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, 1995, the Trust had 4,120,430 shares outstanding to about 12,000 shareholders of record. There is no trading market for the shares of the Trust. Beginning September 15, 1995 and ending February 29, 1996 the Trust made an offer to repurchase all of their shares from shareholders who owned 50 or fewer shares for the cash price of $3.50 per share. Pursuant to said offer the Trust repurchased 36,577 shares from 1,791 shareholders at a cost of $137,060.
The Trust pays quarterly cash dividends to shareholders aggregating at least 95 percent of the Trust's taxable income. However, as a matter of policy, the amount of the dividends depends upon the Trustees' evaluation of the general financial condition of the Trust, cash flow, and other factors. The Trustees expect the Trust to continue making future dividends in accordance with the policy stated above.
In 1995 the Trust paid dividends of 32 cents per share as compared to 26 cents per share in 1994.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
The following represents selected financial data for the Trust for the five years ended December 31, 1995. 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)
1995 1994 1993 1992 1991 -------- -------- -------- -------- --------
Operating Results:
Revenues $ 2,858 $ 2,978 $ 2,896 $ 2,839 $ 2,980
Net income (loss) (1) 753 (1,443) (2,507) (2,567) 423
Total Assets 23,802 25,924 29,333 34,207 32,775
Long-term obligations 2,099 3,345 3,268 4,969 none
Net income (loss) per share $ 0.18 $ (0.35) $ (0.60) $ (0.61) $ 0.10
Cash distributions per share $ 0.32 $ 0.26 $ 0.12 $ 0.39 $ 0.58
(1) Includes valuation losses of $124,000; $839,000; $2,060,000; $3,162,030 and $1,240,000 for 1995, 1994, 1993, 1992 and 1991, respectively.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Trust anticipates that operating income, proceeds from the sale of rental properties, collections on notes receivable, and borrowings collateralized by specific properties will provide for its future liquidity and capital resource needs.
RESULTS OF OPERATIONS
Comparison of 1995 to 1994
Effective August 31, 1994, the Trust terminated its agreements with its former advisor and property manager and became self-administered. 1995 was the first full year the Trust was self-administered.
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 December, 1994.
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 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 $331,570 in 1995 compared to 1994 due to significantly lower outstanding indebtedness at significantly lower interest rates.
General and administrative expense decreased $265,248 in 1995 compared to 1994 primarily as a result of fewer legal fees in 1995. General and administrative expense is expected to be less than $400,000 in 1996.
The legal settlement referred to on the statement of income (operations) was for the settlement of all litigation with the former advisor of the Trust. The Trust is not currently engaged in litigation in any court with any party.
The gain on sale of properties was attributed to the sale of 1450 Hatch Road in Ceres, California in May, 1995.
Net income was $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 $1,372,241 or 33 cents per share in 1995 compared to $333,603 or 8 cents per share in 1994.
The Trust paid distributions per share of 32 cents and 26 cents in 1995 and 1994, respectively.
Comparison of 1994 to 1993
Rent decreased $11,841 in 1994 compared to 1993. Rent in 1994 includes an insurance recovery of $67,668 for the loss of rent due to the January, 1994, Northridge, California, earthquake. The rent for 1994 would have been $186,701 greater than 1993 had it not been for the earthquake.
Operating expenses increased $311,685 in 1994 compared to 1993 primarily due to $373,464 in the cost to repair uninsured earthquake damage to property owned by the Trust located at 19401 Parthenia Street in Northridge, California.
Depreciation and amortization increased $71,142 in 1994 compared to 1993 primarily due to the amortization of leasing commissions. General and administrative expenses increased $147,950 in 1994 compared to 1993 due primarily to legal fees incurred with respect to nonrecurring matters.
In 1994, funds from operations were $333,603. Absent the earthquake, funds from operations would have been $893,768.
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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page
Independent Auditors' Report .............................. 11
Balance Sheets As of December 31, 1995 and 1994 ........................ 12
Statements of Income (Operations) Years Ended December 31, 1995, 1994 and 1993 ............ 13
Statements of Changes in Shareholders' Equity Years Ended December 31, 1995, 1994 and 1993 ............ 14
Statements of Cash Flows Years Ended December 31, 1995, 1994 and 1993 ............ 15
Notes to Financial Statements ............................. 16
Schedule III Real Estate and Accumulated Depreciation ................ 23-26
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees and Shareholders of USA Real Estate Investment Trust
We have audited the accompanying balance sheets of USA Real Estate Investment Trust as of December 31, 1995 and 1994 and the related statements of income (operations), changes in shareholders' equity, and cash flows for the years ended December 31, 1995, 1994 and 1993. 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 this financial statement schedule are the responsibility of the Trust's management. Our responsibility is to express an opinion on these financial statements and this financial statement schedule based on our audit.
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, 1995 and 1994 and the results of its operations and its cash flows for the years ended December 31, 1995, 1994 and 1993 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, present fairly, in all material respects, the information set forth therein.
Burnett, Umphress & Kilgour
Rancho Cordova, California January 25, 1996
USA REAL ESTATE INVESTMENT TRUST Balance Sheets
December 31, December 31, 1995 1994 ----------- ----------- ASSETS
Rental properties, less accumulated depreciation of $2,218,805 and $1,903,027 in 1995 and 1994, respectively and valuation allowances of $5,837,000 and $6,051,000 in 1995 and 1994, respectively $ 21,153,860 $ 23,983,095 Notes receivable 818,869 966,047 ---------- ----------- 21,972,729 24,949,142
Cash and cash equivalents 1,487,661 378,411 Other assets 341,333 596,319 ----------- ----------- Total assets $ 23,801,723 $ 25,923,872 =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities: Long-term notes payable $ 2,098,919 $ 3,344,907 Accounts payable 35,320 133,003 Lease deposits 70,371 73,658 ----------- ----------- Total liabilities 2,204,610 3,551,568 ----------- ----------- Shareholders' Equity: Shares of beneficial interest, par value $1 a share; authorized 7,500,000 shares; 4,120,430 and 4,177,723 shares outstanding in 1995 and 1994, respectively $ 4,120,430 $ 4,177,723 Additional paid-in capital 30,395,534 30,535,678 Distributions in excess of net income (12,918,851) (12,341,097) ----------- ----------- Total shareholders' equity 21,597,113 22,372,304 ----------- ----------- Total liabilities and shareholders' equity $ 23,801,723 $ 25,923,872 =========== ===========
See accompanying notes to financial statements.
USA REAL ESTATE INVESTMENT TRUST Statements of Income (Operations) Years Ended December 31, 1995, 1994 and 1993
1995 1994 1993 ----------- ----------- -----------
Revenues: Rent $ 2,706,483 $ 2,734,558 $ 2,746,399 Interest 151,851 242,950 149,272 ----------- ----------- -----------
2,858,334 2,977,508 2,895,671 ----------- ----------- -----------
Expenses: Operating expenses 307,968 806,084 494,399 Property taxes 225,342 218,835 275,614 Property management fees 54,000 122,385 144,104 Interest 270,069 601,639 642,745 Depreciation and amortization 655,597 687,478 616,336 General and administative 629,714 894,962 747,012 Legal settlement 250,000 0 0 Valuation loss 124,000 839,000 2,060,000 ----------- ----------- -----------
2,516,690 4,170,383 4,980,210 ----------- ----------- -----------
Net income (loss) before gain (loss) on sale of rental properties and disposition of promissory note 341,644 (1,192,875) (2,084,539)
Gain (loss) on sale of rental properties and disposition of promissory note 411,254 (250,000) (422,096) ----------- ----------- -----------
Net income (loss) $ 752,898 $(1,442,875) $(2,506,635) =========== =========== ===========
Net income (loss) per share of beneficial interest $ 0.18 $ (0.35) $ ( 0.60) =========== =========== ===========
Weighted average number of shares $ 4,153,717 $ 4,177,723 $ 4,177,723 =========== =========== ===========
See accompanying notes to financial statements.
USA REAL ESTATE INVESTMENT TRUST Statements of Changes in Shareholders' Equity Years Ended December 31, 1995, 1994 and 1993
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, 1992 4,177,723 $4,177,723 $30,535,678 $ (6,792,748) $27,920,653
Net loss - - - (2,506,635) (2,506,635) Distributions - - - (502,114) (502,114) --------- --------- ---------- ----------- ---------- 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 ========= ========= ========== =========== ==========
See accompanying notes to financial statements.
15 USA REAL ESTATE INVESTMENT TRUST Statements of Cash Flows For the Years Ended December 31, 1995, 1994 and 1993
1995 1994 1993 ---------- ---------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 752,898 $(1,442,875) $(2,506,635) ---------- ---------- ---------- Adjustments to reconcile net income(loss)to net cash provided by operating activities: Depreciation & amortization 655,597 687,478 616,336 Amortization of loan fees 4,290 21,500 6,750 Valuation loss 124,000 839,000 2,060,000 (Gain)loss on sale of properties & disposition of promissory note (411,254) 250,000 422,096 Bad debt expense 0 75,519 0 Changes in other assets & liabilities: Decrease(increase)in other assets 180,222 (276,484) 473,051 Decrease in accounts payable (97,683) (35,988) (212,807) Decrease(increase)in lease deposits (3,287) (10,658) 49,013 Total adjustments to net ---------- ---------- ---------- income(loss) 451,885 1,550,367 3,414,439 ---------- ---------- ---------- Net cash provided by operating activities 1,204,783 107,492 907,804 ---------- ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases & improvement of properties (1,269,097) (198,338) (347,579) Proceeds from the sale of properties 3,800,463 0 1,172,021 Collections on notes receivable 147,178 1,376,624 1,408,873 ---------- ---------- ---------- Net cash provided by investing activities 2,678,544 1,178,286 2,233,315 ---------- ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Redemption of shares (197,437) 0 0 Proceeds from long-term notes payable 0 2,145,000 0 Payments on long-term notes payable (1,245,988) (2,068,236) (1,700,491) Payments on line of credit 0 (900,000) 0 Distributions paid (1,330,652) (1,096,725) (502,114) ---------- ---------- ---------- Net cash used in financing activities (2,774,077) (1,919,961) (2,202,605) ---------- ---------- ---------- Net increase (decrease) in cash 1,109,250 (634,183) 938,514
Cash and cash equivalents at beginning of year 378,411 1,012,594 74,080 ---------- ---------- ---------- Cash and cash equivalents at end of year $ 1,487,661 $ 378,411 $ 1,012,594 ========== ========== ==========
See accompanying notes to financial statements. 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. The cost of tenant improvements are amortized on a straight-line basis over the life of the lease.
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 as long as income distributed to shareholders is at least equal to ninety five percent of its real estate investment trust taxable income.
Net income (loss) per share: The net income (loss) per share is computed based on the weighted-average number of shares outstanding during each year.
Reclassifications: Certain items in the 1994 and 1993 financial statements have been reclassified to conform to the 1995 presentation.
Concentration of credit risk: The Trust operates in one industry segment. The Trust's rental properties and the collateral for its notes receivable are located in California except for one property which is located in Reno, Nevada.
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 recorded amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the recorded amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.
(2) RELATED PARTY TRANSACTIONS
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 30, 1994, the Trust terminated its agreements with B&B and B&B Property Investments, Inc. In November, 1994 B&B and related parties filed legal actions against the Trust and related parties. 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 and $560,137 in 1994 and 1993, respectively.
(3) ALLOWANCE FOR VALUATION LOSSES
The Trust recorded allowances for valuation losses on rental properties of $124,000, $839,000 and $1,460,000 in 1995, 1994 and 1993, respectively. In 1995 the Trust charged $338,000 against the valuation allowance in connection with the sale of a property in 1995 and $600,000 in connection with the disposition of a note receivable in 1994.
(4) NOTES RECEIVABLE
As of December 31, 1995 and 1994, the Trust had two notes receivable collateralized by deeds of trust on properties in California. The aggregate amount of both notes was $818,869 at December 31, 1995 and $996,047 at December 31, 1994. As of December 31, 1995, one note bears interest at 8 percent per annum and the other note bears interest at 10 percent per annum. Scheduled aggregate principal collections over the next five years are as follows: $92,869 in 1996, zero in 1997, 1998 and 1999, and $726,000 in 2000. The aggregate fair value of the notes receivable approximates the carrying value as of December 31, 1995 and 1994.
(5) LONG-TERM NOTES PAYABLE
As of December 31, 1995 and 1994, the Trust had long-term notes payable collateralized by deeds of trust on properties in California. The aggregate amount of the notes was $2,098,919 at December 31, 1995 and $3,344,907 at December 31, 1994. As of December 31, 1995, the long-term note payable bears interest at 7 5/8 percent. As of December 31, 1994, long term notes payable bear interest rates of between 16 and 8 3/4 percent, having a weighted average interest rate of 11 1/4 percent. Scheduled principal payments over the next four years are as follows: $51,612, $55,688, $60,086 and $1,931,533, respectively. The fair value of notes payable approximates the carrying value as of December 31, 1995 and 1994. Rates currently available to the Trust for debt with similar terms and maturity were used to estimate the fair value of the existing debt.
(6) DISTRIBUTIONS
Cash distributions per share of beneficial interest for Federal income tax purposes for the past three years were: 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 and 1993 were a return of capital.
(7) RENT UNDER OPERATING LEASES
Noncancelable operating leases provide for minimum rent during each of the next five years of $2,208,915; $2,027,745; $1,472,443; $1,190,845; and $890,905, respectively, and in aggregate $2,314,726 thereafter. The above assumes that all leases which expire are not renewed, therefore neither renewal rent nor rent from replacement tenants is included.
(8) STATEMENTS OF CASH FLOWS SUPPLEMENTAL INFORMATION
In 1995, the Trust sold one property for $4,050,000. The Trust received $3,800,463 in cash.
In 1993, the Trust sold two properties for $2,523,021. The Trust received $1,172,021 in cash and took back $1,151,000 in notes receivable. The combined cost of the properties sold was $2,784,405.
Interest paid on the Trust's outstanding debt for 1995, 1994 and 1993 was $270,069, $618,666 and $592,005, respectively.
ITEM 9:
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III.
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
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 44 1986 Trustee and Chairman and Chief Financial Officer Benjamin A. Diaz 62 1988 Trustee and Secretary William M. Gallagher 76 1992 Trustee Joyce A. Marks 61 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, 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.
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 1995 $24,000 $44,939 (1) None
(1) Includes fees of $1,250 or $313 for each meeting of the Trustees attended.
COMPENSATON OF TRUSTEES
During 1995 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 1995. 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 1995, the Trust had twelve regular and six special meetings of its Trustees. No Trustee attended less than 75 percent of the meetings held by the Trustees.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of February 29, 1996, 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 .00034 2561 Fulton Square Lane, #55 Sacramento, CA 95821
All Trustees and officers as a group 1,400 .00034
During 1995, 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.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV.
ITEM 14.
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, 1995 and 1994 ....... 12
Statements of Income (Operations): Years Ended December 31, 1995, 1994 and 1993 ................ 13
Statements of Shareholders' Equity: Years Ended December 31, 1995, 1994 and 1993 .......... 14
Statements of Cash Flows: Years Ended December 31, 1995, 1994 and 1993 ................ 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. USA REAL ESTATE INVESTMENT TRUST SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 1995
Page 1, Part A __________________ ____________ ___________________________ Column A Column B Column C __________________ ____________ ___________________________
---Initital Cost to Trust--
Buildings Improvements, & Personal Decription Encumbrances Land Property __________________ ____________ ____________ ____________ RETAIL: Keystone Square, Reno, Nevada $ - $ 708,774 $ 2,208,000 170-174 West Shaw Avenue, Clovis, California 2,098,919 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 1630 Industrial Park Street, Redlands, California - 441,873 679,818 1056 Harbor Blvd., West Sacramento, California - 716,500 - ____________ ____________ ____________ Total Retail 2,098,919 10,310,147 8,709,683 ____________ ____________ ____________ 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 ____________ ____________ ____________ $ 2,098,919 $ 12,460,147 $ 13,197,896 ============ ============ ============
USA REAL ESTATE INVESTMENT TRUST SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 1995
Page 1, Part B __________________ _____________________________ Column A Column D __________________ _____________________________ Cost Capitalization Subsequent to ---------Acquisition---------
Description Improvements Carrying Cost __________________ _____________ _____________ RETAIL: Keystone Square, Reno, Nevada $ 365,281 $ - 170-174 West Shaw Avenue, Clovis, California 6,000 - 7390 Greenback Lane, Citrus Heights, California 3,457 - 3090 Sunrise Blvd., Rancho Cordova, California - - 19401 Parthenia Street, Northridge, California 2,292,494 - 1630 Industrial Park Street, Redlands, California 8,352 - 1056 Harbor Blvd., West Sacramento, California - - _____________ _____________ Total Retail 2,675,584 - _____________ _____________ INDUSTRIAL: 4350 Pell Drive, Sacramento, California 38,606 - _____________ _____________ Total Industrial 38,606 - _____________ _____________ OFFICE: One Scripps Drive, Sacramento, California 837,432 - _____________ _____________ Total Office 837,432 - _____________ _____________ $ 3,551,622 $ - ============= =============
USA REAL ESTATE INVESTMENT TRUST SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 1995
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: Keystone Square, Reno, Nevada $ 708,774 $ 2,573,281 $ - $ 3,282,055 170-174 West Shaw Avenue, Clovis, California 1,690,000 2,548,532 590,000 3,648,532 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 5,392,494 3,483,000 7,679,494 1630 Industrial Park Street, Redlands, California 441,873 688,170 777,000 353,043 1056 Harbor Blvd., West Sacramento, California 716,500 - 115,000 601,500 ____________ ____________ ____________ ____________ Total Retail 10,310,147 11,385,267 5,067,000 16,628,414 ____________ ____________ ____________ ____________ INDUSTRIAL: 4350 Pell Drive, Sacramento, California 1,500,000 2,251,931 - 3,751,931 ____________ ____________ ____________ ____________ Total Industrial 1,500,000 2,251,931 - 3,751,931 ____________ ____________ ____________ ____________ OFFICE: One Scripps Drive, Sacramento, California 650,000 3,112,320 770,000 2,992,320 ____________ ____________ ____________ ____________ Total Office 650,000 3,112,320 770,000 2,992,320 ____________ ____________ ____________ ____________ $ 12,460,147 $ 16,749,518 $ 5,837,000 $ 23,372,665 ============ ============ ============ ============
26 USA REAL ESTTE INVESTMENT TRUST SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 1995
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: Keystone Square, Reno, Nevada $ 369,406 1962 06/89 40 years 170-174 West Shaw Avenue, Clovis, California 354,302 1985 05/90 40 years 7390 Greenback Lane, Citrus Heights, California 23,993 1980 08/90 40 years 3090 Sunrise Blvd., Rancho Cordova, California - N/A 10/90 N/A 19401 Parthenia Street, Northridge, California 982,048 1973 11/90 40 years 1630 Industrial Park Street, Redlands, California 84,986 1965/1977 01/91 40 years 1056 Harbor Blvd., West Sacramento, California - N/A 12/92 N/A ____________ Total Retail 1,814,735 ____________ INDUSTRIAL: 4350 Pell Drive, Sacramento, California 199,648 1975 09/92 40 years ____________ Total Industrial 199,648 ____________ OFFICE: One Scripps Drive, Sacramento, California 204,422 40 years ____________ Total Office 204,422 ____________ $ 2,218,805 ============
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, 1996 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, 1996 Gregory E. Crissman ------------------- By: ------------------------------- Gregory E. Crissman Chairman
Dated: March 25, 1996 Benjamin A. Diaz ------------------- By: ------------------------------- Benjamin A. Diaz Trustee
Dated: March 25, 1996 William M. Gallagher ------------------- By: ------------------------------- William M. Gallagher Trustee
Dated: March 25, 1996 Joyce A. Marks ------------------- By: ------------------------------- Joyce A. Marks Trustee EXHIBIT INDEX
Exhibit No. Description - ----------- -----------
27 Financial Data Schedule