UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
x ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2012
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission file number 0-16508
USA REAL ESTATE INVESTMENT TRUST
(Exact Name of Small Business Issuer as specified in its Charter)
| California | 68-0420085 |
| (State or other jurisdiction of | (I.R.S. Employer Identification No.) |
| incorporation or organization) | |
650 Howe Avenue, Suite 730
Sacramento, California 95825
(Address of principal executive offices) (Zip Code)
(916) 761-4992
(Issuer's telephone number, including area code)
Securities registered under Section 12(b) of the Exchange Act:
Securities registered under Section 12(g) of the Exchange Act:
| | Shares of Beneficial Interest | |
| | (Title of class) | |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yeso Nox
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yeso Nox
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesx Noo
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yesx Noo
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
Indicate by check mark if Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o | Accelerated filer o |
| | |
Non-accelerated filer o (Do not check if a smaller reporting company) | Smaller reporting company x |
Indicate by check mark whether the Registrant is a shell company (as defined under Rule 12b-2 of the Securities Exchange Act of 1934). Yeso Nox
The aggregate market value of the registrant’s voting shares held by non-affiliates: no established market exists for the registrant’s shares of beneficial interest.
The number of shares of beneficial interest outstanding at August 9, 2013 was 15,788.
USA REAL ESTATE INVESTMENT TRUST
Table of Contents
| | | | Page |
| PART I. | ITEM 1. | Business | 4 |
| | ITEM 1A. | Risk Factors | 5 |
| | ITEM 1B. | Unresolved Staff Comments | 5 |
| | ITEM 2. | Properties | 5 |
| | ITEM 3. | Legal Proceedings | 5 |
| | ITEM 4. | Mine Safety Disclosures | 5 |
| | | | |
| PART II. | ITEM 5. | Market for the Registrant’s Common Equity and Related ShareholderMatters and Issuer Purchases of Equity Securities | 6 |
| | ITEM 6. | Selected Financial Data | 6 |
| | ITEM 7. | Management's Discussion and Analysis of Financial Condition andResults of Operations | 6 |
| | ITEM 7A. | Quantitative and Qualitative Disclosures About Market Risk | 7 |
| | ITEM 8. | Financial Statements and Supplementary Data | 8 |
| | ITEM 9. | Changes in and Disagreements with Accountants on Accountingand Financial Disclosure | 18 |
| | ITEM 9A(T). | Controls and Procedures | 18 |
| | ITEM 9B. | Other Information | 19 |
| | | | |
| PART III. | ITEM 10. | Directors, Executive Officers and Corporate Governance | 19 |
| | ITEM 11. | Executive Compensation | 20 |
| | ITEM 12. | Security Ownership of Certain Beneficial Owners andManagement and Related Shareholder Matters | 21 |
| | ITEM 13. | Certain Relationships and Related Transactions andDirector Independence | 21 |
| | ITEM 14. | Principal Accounting Fees and Services | 21 |
| | | | |
| PART IV | ITEM 15. | Exhibits and Financial Statement Schedules | 23 |
Forward-Looking Statements
This Annual Report on Form 10-K of USA Real Estate Investment Trust (the "Trust"), contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such statements are based on assumptions and expectations which may not be realized and are inherently subject to risks, uncertainties and other factors, many of which cannot be predicted with accuracy and some of which might not even be anticipated. Future events and actual results, performance, transactions or achievements, financial and otherwise, may differ materially from the results, performance, transactions or achievements expressed or implied by the forward-looking statements. Risks, uncertainties and other factors that might cause such differences, some of which could be material, include, but are not limited to: changes in the global political environment; national and local economic, business and real estate and other market conditions; the competitive environment in which the Trust operates; property management risks; financing risks, such as the inability to obtain debt or equity financing on favorable terms; possible future downgrades in the Trust's credit rating; the level of volatility of interest rates; financial stability of tenants, including the ability of tenants to pay rent, the decision of tenants to close stores and the effect of bankruptcy laws; the rate of revenue increases versus expense increases; governmental approvals, actions and initiatives; environmental/safety requirements and costs; risks of real estate acquisition and development, including the failure of acquisitions to close and pending developments and redevelopments to be completed on time and within budget; risks of disposition strategies, including the failure to complete sales on a timely basis and the failure to reinvest sale proceeds in a manner that generates favorable returns; risks of joint venture activities; as well as other risks identified in this Annual Report on Form 10-K and, from time to time, in the other reports the Trust files with the Securities and Exchange Commission or in other documents that the Trust publicly disseminates. The Trust undertakes no obligation to publicly update or revise these forward-looking statements, whether as a result of new information, future events or otherwise.
PART I.
ITEM 1. BUSINESS.
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, operating and financing real estate investments. The Trust commenced operations on October 19, 1987, upon the sale of the minimum offering amount of shares of beneficial interest.
The purpose of the Trust is to provide investors with an opportunity to own, through transferable shares, an interest in diversified real estate investments. 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.
From 1987 through 2011 the Trust was organized and operated in a manner that enabled it to be taxed as a real estate investment trust rather than a regular corporation. In 2012 the Trust was unable to maintain its status as a real estate investment trust. Accordingly, in 2012 and subsequent years the Trust will be taxed as a regular corporation.
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 its shareholders.
The office of the Trust is located at 650 Howe Avenue, Suite 730 in Sacramento, California.
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 and self-managed California business 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.
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.
ITEM 1A. RISK FACTORS.
Not applicable to smaller reporting companies.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
Not applicable to smaller reporting companies.
ITEM 2. PROPERTIES.
As December 31, 2011, the Trust owned one hundred and twenty one acres of land in Wiggins, Mississippi valued at $1,786,000. The Trust acquired this land through foreclosure on January 6, 2009. On May 11, 2012, the Trust sold the one hundred and twenty-one acres of land in Wiggins, Mississippi.
ITEM 3. LEGAL PROCEEDINGS.
None.
ITEM 4. MINE SAFETY DISCLOSURES.
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT’SCOMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
The Trust has one class of authorized and outstanding equity consisting of shares of beneficial interest with a par value of $1 per share. The Trust engaged in a continuous best efforts public offering from May 20, 1987 until May 20, 1992. As of August 9, 2013, the Trust had 15,788 shares outstanding to 2,013 shareholders of record.
No active public trading market presently exists for the shares of the Trust. Occasional trades in the shares of the Trust take place without the participation of the Trust on the Over-the-Counter Bulletin Board.
The Trust paid no distributions in 2012 or 2011. Currently, the Trust has no continuing income, but continuing expenses. As a result the Trustees have suspended distributions at this time.
In December 2012, the Trust repurchased 200 of its shares of beneficial interest for $16,660 or $83.30 per share in a privately-negotiated transaction.
ITEM 6. SELECTED FINANCIAL DATA.
Not applicable to smaller reporting companies.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
CRITICAL ACCOUNTING ESTIMATES
REAL ESTATE OWNED: Real estate owned is originally recorded at fair value less estimated selling costs. Subsequent to acquisition, real estate owned is carried at the lower of carrying amount or current fair value less selling costs. Decreases in the carrying amount of real estate owned are recorded as an impairment charge in the statements of operations.
REAL ESTATE LOAN: The Trust carries its real estate loans at its unpaid principal balances net of unamortized loan fees unless they are impaired. A loan is considered impaired when the Trust determines that it is probable that it will be unable to collect all amounts due including principal and interest, according to the contractual terms of the loan agreement. The Trust measures impairment of a loan based upon the fair value of the collateral. If the measurement of impairment for the loan is less than the recorded investment in the loan, the shortfall is charged off with a corresponding charge to the provision for loan losses.
RESULTS OF OPERATIONS
As of December 31, 2012, the Trust has advanced $817,282 to West Coast Realty Trust, Inc. (“WCRT”), a related party, in connection with WCRT’s formation and proposed initial public offering. WCRT’s proposed initial public offering has been delayed and collection of the advance is uncertain. As such, the Trust recorded a $587,282 impairment charge in the 2012 statement of operations.
Effective January 1, 2010, the Trust suspended income recognition on the real estate loan. Accordingly, no interest income was recognized in 2012 or 2011. The Trust recorded a $150,800 provision for loan loss to establish the loan loss reserve against the real estate loan in September 2011.
FINANCIAL POSITION
During 2012, the Trust advanced $738,782 to WCRT. As of December 31, 2012, the Trust has advanced a total of $817,282 to WCRT in connection with WCRT’s formation and proposed initial public offering and is expected to be repaid without interest at the closing of WCRT’s proposed initial public offering. Of this advance, $230,000 relates to fees paid to Aviva Life and Annuity Company for a planned mortgage refinance. The mortgage refinance was completed subsequent to December 31, 2012 and WCRT remitted $230,000 to the Trust in June 2013. WCRT’s proposed initial public offering has been delayed and collection of the advance is uncertain. As such, the Trust recorded a $587,282 impairment charge in the 2012 statement of operations. The advance is reflected as “Other assets” on the accompanying balance sheet and recorded at $230,000 and $78,500 at December 31, 2012 and 2011.
LIQUIDITY AND CAPITAL RESOURCES
The Trust has no continuing operating income, but has continuing expenses. As a result, the Trustees have suspended distributions at this time. The Trust expects to meet its short-term liquidity requirements from cash on hand.
On May 11, 2012, the Trust sold the 121 acres of land in Wiggins, Mississippi held by the Trust. As a result of the sale, the Trust had $1,200,089 of additional cash after paying the broker commission and the principal and accrued interest on the note payable collateralized by the land.
In 2012, the Trust repurchased 2,209 of its shares of beneficial interest for $184,010 or $83.30 per share in privately-negotiated transactions.
OFF-BALANCE SHEET ARRANGEMENTS
The Trust has no off-balance sheet arrangements.
IMPACT OF INFLATION
The Trust's operations have not been materially affected by inflation. The rate of inflation has been relatively low since the Trust commenced operations in October 1987.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable to smaller reporting companies.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
| | Page |
| | |
| Report of Independent Registered Public Accounting Firm | 9 |
| | |
| Balance Sheets | |
| As of December 31, 2012 and 2011 | 10 |
| | |
| Statements of Operations | |
| Years Ended December 31, 2012 and 2011 | 11 |
| | |
| Statements of Changes in Shareholders' Equity | |
| Years Ended December 31, 2012 and 2011 | 12 |
| | |
| Statements of Cash Flows | |
| Years Ended December 31, 2012 and 2011 | 13 |
| | |
| Notes to Financial Statements | 14 |
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Trustees and Shareholders
USA Real Estate Investment Trust
We have audited the accompanying balance sheets of USA Real Estate Investment Trust as of December 31, 2012 and 2011, and the related statements of operations, shareholders' equity, and cash flows for the years then ended. These financial statements are the responsibility of the Trust's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Trust is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Trust's internal control over financial reporting. Accordingly, we express no such opinion. 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 evaluating 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, 2012 and 2011, and the results of its operations and its cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.
/s/ Crowe Horwath LLP
Sacramento, California
August 9, 2013
USA REAL ESTATE INVESTMENT TRUST
Balance Sheets
| | | | | | | |
| | | | | | | |
| Assets | | | | | | |
| | | | | | | |
| Real estate owned | | $ | -- | | | $ | 1,786,000 | |
| Real estate loan, net | | | -- | | | | -- | |
| Cash | | | 788,469 | | | | 718,198 | |
| Other assets | | | 230,000 | | | | 78,500 | |
| Total assets | | $ | 1,018,469 | | | $ | 2,582,698 | |
| | | | | | | | | |
| | | | | | | | | |
| Liabilities and Shareholders' Equity | | | | | | | | |
| | | | | | | | | |
| Liabilities: | | | | | | | | |
| Accounts payable | | $ | 1,303 | | | $ | 102,052 | |
| Note payable | | | -- | | | | 500,000 | |
| Total liabilities | | | 1,303 | | | | 602,052 | |
| | | | | | | | | |
| Commitments and Contingencies | | | | | | | | |
| | | | | | | | | |
| Shareholders' Equity: | | | | | | | | |
| Shares of beneficial interest, par value $1 per share; 62,500 shares authorized; 15,798 and 18,007shares outstanding at December 31, 2012 and 2011, respectively | | | 15,798 | | | | 18,007 | |
| Additional paid-in capital | | | 26,173,534 | | | | 26,355,335 | |
| Distributions in excess of cumulative net income | | | (25,172,166 | ) | | | (24,392,696 | ) |
| Total shareholders' equity | | | 1,017,166 | | | | 1,980,646 | |
| | | | | | | | | |
| Total liabilities and shareholders' equity | | $ | 1,018,469 | | | $ | 2,582,698 | |
See notes to financial statements.
USA REAL ESTATE INVESTMENT TRUST
Statements of Operations
Years Ended December 31, 2012 and 2011
| | | 2012 | | | 2011 | |
| | | | | | | |
| Revenues: | | | | | | |
| Interest income | | $ | 1,542 | | | $ | -- | |
| | | | | | | | | |
| Expenses: | | | | | | | | |
| Operating | | | 4,745 | | | | 74,916 | |
| Impairment of receivables | | | 587,282 | | | | 964,800 | |
| General and administrative | | | 188,985 | | | | 226,277 | |
| | | | 781,012 | | | | 1,265,993 | |
| | | | | | | | | |
| Other income, legal settlement | | | -- | | | | 653,580 | |
| | | | | | | | | |
| | | | | | | | | |
| Net loss | | $ | (779,470 | ) | | $ | (612,413 | ) |
| | | | | | | | | |
| | | | | | | | | |
| Loss per share | | $ | (46.35 | ) | | $ | (34.01 | ) |
| | | | | | | | | |
| | | | | | | | | |
| Weighted-average number of shares | | | 16,818 | | | | 18,007 | |
| | | | | | | | | |
| | | | | | | | | |
| Distributions per share | | $ | 0.00 | | | $ | 0.00 | |
See notes to financial statements.
USA REAL ESTATE INVESTMENT TRUST
Statements of Changes in Shareholders' Equity
Years Ended December 31, 2012 and 2011
| | | Shares of Beneficial Interest | | | Additional Paid-in | | | Distributions in Excess of Cumulative | | | Total Shareholders' | |
| | | Number | | | Amount | | | Capital | | | Net Income | | | Equity | |
| | | | | | | | | | | | | | | | |
| December 31, 2010 | | | 18,007 | | | $ | 18,007 | | | $ | 26,355,335 | | | $ | (23,780,283 | ) | | $ | 2,593,059 | |
| | | | | | | | | | | | | | | | | | | | | |
| Net loss | | | | | | | | | | | | | | | (612,413 | ) | | | (612,413 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| December 31, 2011 | | | 18,007 | | | | 18,007 | | | | 26,355,335 | | | | (24,392,696 | ) | | | 1,980,646 | |
| | | | | | | | | | | | | | | | | | | | | |
| Net loss | | | | | | | | | | | | | | | (779,470 | ) | | | (779,470 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| | | (2,209 | ) | | | (2,209 | ) | | | (181,801 | ) | | | | | | | (184,010 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| December 31, 2012 | | | 15,798 | | | $ | 15,798 | | | $ | 26,173,534 | | | $ | (25,172,166 | ) | | $ | 1,017,166 | |
See notes to financial statements.
USA REAL ESTATE INVESTMENT TRUST
Statements of Cash Flows
For the Years Ended December 31, 2012 and 2011
| | | 2012 | | | 2011 | |
| | | | | | | |
| CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | |
| Net loss | | $ | (779,470 | ) | | $ | (612,413 | ) |
| Adjustments to reconcile net loss to net cash ( used in) provided by operating activities: | | | | | | | | |
| Impairment charge | | | 587,282 | | | | 964,800 | |
| Changes in operating assets and liabilities: | | | | | | | | |
| Decrease in accounts payable | | | (100,749 | ) | | | (101,208 | ) |
| | | | | | | | | |
| Net cash (used in) provided by operating activities | | | (292,937 | ) | | | 251,179 | |
| | | | | | | | | |
| CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | | | |
| Net proceeds from the sale of real estate | | | 1,786,000 | | | | -- | |
| Advance to related party | | | (738,782 | ) | | | (78,500 | ) |
| Collections on real estate loan | | | -- | | | | 405,000 | |
| | | | | | | | | |
| Net cash provided by investing activities | | | 1,047,218 | | | | 326,500 | |
| | | | | | | | | |
| CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | | |
| Payment of note payable | | | (500,000 | ) | | | -- | |
| Repurchase of shares of beneficial interest | | | (184,010 | ) | | | -- | |
| Net cash used in financing activities | | | (684,010 | ) | | | -- | |
| | | | | | | | | |
| NET INCREASE IN CASH | | | 70,271 | | | | 577,679 | |
| | | | | | | | | |
| CASH AT BEGINNING OF PERIOD | | | 718,198 | | | | 140,519 | |
| | | | | | | | | |
| CASH AT END OF PERIOD | | $ | 788,469 | | | $ | 718,198 | |
| | | | | | | | | |
| Supplemental cash flow disclosures: | | | | | | | | |
| Cash paid for interest | | $ | 85,911 | | | | -- | |
See notes to financial statements.
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. The Trust is a self-administered and self-managed California business trust.
USE OF ESTIMATES: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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.
REAL ESTATE OWNED: Real estate owned is originally recorded at fair value less estimated selling costs. Subsequent to acquisition, real estate owned is carried at the lower of carrying amount or current fair value less selling costs. Decreases in the carrying amount of real estate owned are recorded as an impairment charge in the statements of operations.
REAL ESTATE LOAN: The Trust carries its real estate loans at its unpaid principal balances net of unamortized loan fees unless they are impaired. A loan is considered impaired when the Trust determines that it is probable that it will be unable to collect all amounts due including principal and interest, according to the contractual terms of the loan agreement. The Trust measures impairment of a loan based upon the fair value of the collateral. If the measurement of impairment for the loan is less than the recorded investment in the loan, the shortfall is charged off with a corresponding charge to the provision for loan losses.
CASH: Cash consists of demand deposits with financial institutions. Cash balances periodically exceeded the insurable amounts.
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.
SEGMENT POLICY: The Trust operates in one business segment. For 2012 and 2011, all revenues have been derived from domestic operations.
REVENUE RECOGNITION: Interest income is accrued on the outstanding principal amounts of the real estate loans. When the Trust determines that a loan is impaired, income recognition is suspended if full recovery of interest and principal appears uncertain. Loan fees are recognized as interest income over the lives of the related real estate loans using the straight-line method.
INCOME TAXES: From 1987 through 2011 the Trust was organized and operated in a manner that enabled it to be taxed as a real estate investment trust rather than a regular corporation. In 2012 the Trust was unable to maintain its status as a real estate investment trust. Accordingly, in 2012 and subsequent years the Trust will be taxed as a regular corporation.
NET INCOME PER SHARE: Net income per share is computed based on the weighted-average number of shares outstanding.
RECENTLY ISSUED AND ADOPTED ACCOUNTING GUIDANCE: In May 2011, the Financial Accounting Standards Board (“FASB”) issued an amendment to achieve common fair value measurement and disclosure requirements between U.S. and International accounting principles. Overall, the guidance is consistent with existing U.S. accounting principles; however, there are some amendments that change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements. Other than the additional disclosure requirements, the adoption of this guidance had no impact on the financial statements.
In June 2011, the FASB amended existing guidance and eliminated the option to present the components of other comprehensive income as part of the statement of changes in shareholders' equity. The amendment requires that comprehensive income be presented in either a single continuous statement or in two separate consecutive statements. The adoption of this guidance had no impact on the financial statements or disclosure as the Trust had no components of comprehensive income at December 31, 2012 or 2011.
2. REAL ESTATE OWNED
As of December 31, 2011 the Trust owned one hundred and twenty-one acres of land in Wiggins, Mississippi recorded at $1,786,000 which is after an impairment charge of $814,000 was taken. Prior to impairment the recorded amount was $2,600,000. The Trust acquired this land through foreclosure on January 6, 2009. On May 11, 2012, the Trust sold the one hundred and twenty-one acres of land in Wiggins, Mississippi for $1,900,000 in cash. In connection with the sale the Trust paid a real estate commission of $114,000 to its broker. The net proceeds received of $1,786,000 resulted in no gain or loss.
3. REAL ESTATE LOAN
As of December 31, 2012 and 2011 the Trust had one real estate loan with a recorded amount of $0, which is net of a $150,800 allowance, collateralized by property in Sacramento, California and personally guaranteed by the principal members of the borrower. The loan bears interest at 10% per annum, payable in monthly installments of interest only. The principal balance was due August 31, 2010.
The Trust’s motion for summary judgment in the lawsuit the Trust filed to enforce the guarantees of the guarantors of the real estate loan was granted and judgment entered in September 2010. The Trust received a $400,000 settlement payment from one of the guarantors in September 2011. The Trust intends to pursue collection of the remaining $150,800 balance from the remaining guarantor. As such, the remaining $150,800 balance is considered impaired and the Trust recorded a $150,800 provision for loan loss to establish a loan loss reserve in September 2011.
Effective January 1, 2010, the Trust suspended income recognition on the real estate loan. Interest income forgone on the real estate loan during 2012 and 2011 was $15,080 and $41,239, respectively.
4. NOTE PAYABLE
As of December 31, 2011, the Trust had a $500,000 note payable collateralized by 121 acres of land in Wiggins, Mississippi owned by the Trust. On May 11, 2012, the Trust sold the 121 acres of land in Wiggins, Mississippi for $1,786,000 in cash. In connection with the sale, the Trust paid in full the $585,911 of outstanding principal and accrued interest on the note.
5. SHAREHOLDERS' EQUITY
The Trust paid no distributions in 2012 or 2011. In 2012, the Trust repurchased 2,209 of its shares of beneficial interest for $184,010 or $83.30 per share in privately-negotiated transactions.
6. COMMITMENTS AND CONTINGENCIES
The Trust may become involved in claims and legal matters arising in the ordinary course of business. The Trust evaluates these claims and legal matters on a case-by-case basis to make a determination as to the impact, if any, on its business, liquidity, results of operations, financial condition or cash flows. The Trust currently believes that the ultimate outcome of these claims and proceedings, individually and in the aggregate, will not have a material adverse impact on its financial position, results of operations or cash flows. The Trust’s evaluation of the potential impact of these claims and legal proceedings on its business, liquidity, results of operations, financial condition and cash flows could change in the future.
7. FAIR VALUE MEASUREMENTS AND OTHER FINANCIAL MEASUREMENTS
The Trust has no assets or liabilities accounted for at fair value on a recurring or non-recurring basis. Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values:
Level 1 – Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity can access as of the measurement date.
Level 2 – Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
Level 3 – Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.
The carrying values and fair values of the Trust’s financial instruments were as follows:
| | | | December 31, 2012 | | | December 31, 2011 | |
| | Level | | Carrying value | | | Fair value | | | Carrying value | | | Fair value | |
| Cash | 1 | | $ | 788,469 | | | $ | | | | $ | 718,198 | | | $ | 718,198 | |
| Accounts payable | 2 | | | 1,303 | | | | 1,303 | | | | 102,052 | | | | 102,052 | |
| Note payable due within one year | 2 | | | -- | | | | -- | | | | 500,000 | | | | 500,000 | |
There were no transfers between Level 1 and Level 2 during 2012 or 2011.
Cash, Accounts payable and Note payable due within one year. The carrying amounts approximate fair value because of the short maturity of the instruments.
8. RELATED PARTY
In 2011 the Trust paid Benjamin A. Diaz, a Trustee and Secretary of the Trust, $44,000 for legal services provided in connection with certain settlements entered into by the Trust.
During 2012, the Trust advanced $738,782 to WCRT. As of December 31, 2012, the Trust has advanced a total of $817,282 to WCRT in connection with WCRT’s formation and proposed initial public offering and is expected to be repaid without interest at the closing of WCRT’s proposed initial public offering. Of this advance, $230,000 relates to fees paid to Aviva Life and Annuity Company for a planned mortgage refinance. The mortgage refinance was completed subsequent to December 31, 2012 and WCRT remitted $230,000 to the Trust in June 2013. WCRT’s proposed initial public offering has been delayed and collection of the advance is uncertain. As such, the Trust recorded a $587,282 impairment charge in the 2012 statement of operations. The advance is reflected as “Other assets” on the accompanying balance sheet and recorded at $230,000 and $78,500 at December 31, 2012 and 2011.
9. INCOME TAXES
Losses before income taxes amounted to $779,470 for the year ended December 31, 2012. Because of the net operating losses and a valuation allowance on deferred tax assets, there was no provision for income taxes recorded in the financial statements for the year ended December 31, 2012.
A reconciliation of the federal statutory income tax rate of 34% and the Trust's effective income tax rates is as follows:
In thousands of dollars:
| | | 2012 | | | | |
| | | | | | | |
| Statutory federal income tax benefit | | | 241,864 | | | | 31 | % |
| State income tax, net of federal benefit | | | 68,905 | | | | 9 | % |
| Valuation allowance | | | (310,769 | ) | | | (40 | ) % |
| Effective income tax | | $ | - | | | | 0 | % |
The components of the deferred tax assets (liabilities) consisted of the following as of December 31, 2012:
In thousands of dollars:
| | | 2012 | |
| Deferred tax assets: | | | |
| Net operating loss carry forwards | | $ | 310,497 | |
| State taxes | | | 272 | |
| Valuation allowance | | | (310,769 | ) |
| Total deferred tax assets, net | | $ | - | |
The Trust has no interest or penalties related to unrecognized tax benefits at December 31, 2012. The Trust has no material uncertain tax positions. The net operating loss carry-forwards of $779,470 as of December 31, 2012 will expire in 20 years.
Based on the historical taxable income and projections for future taxable income over the periods in which the deferred income tax assets become deductible, management believes it more likely than not that the Trust will not realize benefits of these deductible differences as of December 31, 2012. Management has, therefore, established a full valuation allowance against its net deferred income tax assets as of December 31, 2012.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
ITEM 9A(T). CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
The Trust's management, including its Chief Executive Officer and Chief Financial Officer conducted an evaluation of the effectiveness of the Trust's disclosure controls and procedures as of December 31, 2012. Based on that evaluation, they concluded that the Trust's disclosure controls and procedures were effective as of December 31, 2012 to provide reasonable assurance that information the Trust is required to disclose in reports that it submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Controls over Financial Reporting
There have been no changes in the Trust’s internal controls over financial reporting that occurred during the quarter ended December 31, 2012, that have materially affected, or are reasonably likely to materially affect, the Trust’s internal control over financial reporting.
Limitations on Effectiveness of Controls and Procedures
In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Management’s Report on Internal Control over Financial Reporting
Management of the Trust is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) of the Exchange Act. Management assessed the effectiveness of the Trust’s internal control over financial reporting based on criteria for effective internal control over financial reporting described in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on its assessment, management concluded that the Trust’s internal control over financial reporting was effective as of December 31, 2012.
This annual report does not include an attestation report of the Trust’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Trust’s independent registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Trust to provide only management’s report in this annual report.
ITEM 9B. OTHER INFORMATION.
None.
PART III.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CORPORATE GOVERNANCE.
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:
| Name | | Age | | | | | Office |
| | | | | | | | |
| Jeffrey B. Berger | | | 60 | | | 2010 | | | Trustee, Chairman and Chief Executive Officer |
| | | | | | | | | | |
| Gregory E. Crissman | | | 62 | | | 1986 | | | Trustee and Chief Financial Officer |
| | | | | | | | | | |
| Benjamin A. Diaz | | | 79 | | | 1988 | | | Trustee and Secretary |
The following is a brief description of the background and business experience of each Trustee.
JEFFREY B. BERGER. Mr. Berger was elected as a Trustee in December 2010 and has served as Chief Executive Officer and Chairman since April 2011. Mr. Berger is president of University Capital Management, Inc. University Capital Management, Inc. is a full-service real estate company engaged principally in the ownership and development, acquisition and management of commercial and residential real estate throughout California, Nevada, Hawaii and Oregon. Mr. Berger earned his Bachelor of Arts from the University of California in Davis, California in 1974 and his Juris Doctor degree from Thomas Jefferson School of Law in 1978. He is a member of The State Bar of California and the American Bar Association.
GREGORY E. CRISSMAN. Mr. Crissman is a Trustee and the Chief Financial Officer of the Trust. He has over 30 years of experience in real estate, accounting, auditing, and taxation. Mr. Crissman earned a Bachelor of Science in Business Administration from California State University in Sacramento, California in 1976. He is a Certified Public Accountant and a member of both the California Society of Certified Public Accountants and the American Institute of Certified Public Accountants.
BENJAMIN A. DIAZ. Mr. Diaz is a Trustee and the Secretary of the Trust. Mr. 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 engaged in private practice in Sacramento, California from 1986 to December 1991 specializing in real estate transactions, general practice, litigation, business law, and personal injury matters. From January 1992 to the present, Judge Diaz has been engaged in private judging, arbitration, mediation and consulting services. Mr. Diaz received his Juris Doctor degree from the University of Pacific, McGeorge School of Law in Sacramento, California in 1966.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Trustees, executive officers, and holders of more than 10% of the Trust’s shares of beneficial interest to file with the SEC reports regarding their ownership and changes in ownership of the Trust’s shares. The Trust believes that during 2012, the Trustees, executive officers, and any 10% shareholders complied with all Section 16(a) filing requirements.
In making these statements, the Trust relied upon examination of the copies of Forms 3, 4, and 5, and amendments to these forms, provided to it and the written representations of the Trustees, executive officers, and any 10% shareholders.
The Trustees have adopted a code of ethics that applies to its Trustees and officers. The Trust filed a copy of its code of ethics as an exhibit to its annual report on Form 10-K.
AUDIT COMMITTEE
The Trustees have established an Audit Committee, comprised of Mr. Diaz. Mr. Diaz serves as chairman of the Audit Committee. The Trustees have determined that Mr. Diaz is an “audit committee financial expert” as defined in Item 407(d)(5)(ii) of Regulation S-K.
The Trustees do not maintain a nominating or compensation committee or any other standing committee except for the audit committee.
ITEM 11. EXECUTIVE COMPENSATION.
COMPENSATION OF OFFICERS
During 2012, the Trust was a self-administered, self-managed California business trust. The Trust has the following officers: Chairman, Chief Executive Officer, Chief Financial Officer, and Secretary. No officer except Gregory E. Crissman was compensated by the Trust in his capacity as an officer. During 2012, none of the Trust's officers received compensation in excess of $19,250.
Name and Principal Position | | Year | | | | | Total | |
| | | | | | | | | |
| Gregory E. Crissman, Chief Financial Officer | | 2012 | | $ | 19,250 | (1) | | $ | 19,250 | |
| | | | | | | | | | | |
| Gregory E. Crissman, Chief Financial Officer | | 2011 | | $ | 18,425 | (2) | | $ | 18,425 | |
(1) Includes fees for each meeting of the Trustees attended for a total of $19,250.
(2) Includes fees for each meeting of the Trustees attended for a total of $9,625.
COMPENSATION OF TRUSTEES
Each Trustee receives $1,375 for each Trustee’s meeting attended plus reimbursement of 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 2012. The Trustees do not maintain a nominating or compensation committee or any other standing committee except for an audit committee. The audit committee consists of Benjamin A. Diaz who serves without additional compensation. The Trustees have authority to establish committees and to compensate members as appropriate for their service. During 2012, the Trustees had fourteen meetings. All Trustees attended all meetings.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS.
As of March 31, 2013, no person known to the Trust owns beneficially more than 5% of its outstanding shares. This percentage of ownership is based on the number of shares of beneficial interest on such date. No Trustee beneficially owns any shares of the Trust except as set forth below:
| Name and Address of Beneficial Owner | | Amount and Nature of Beneficial Ownership | | | | |
| | | | | | | |
| | | | | | | |
Gregory E. Crissman, Trustee and Chief Financial Officer1066 Vanderbilt Way Sacramento, CA 95825 | | | 46 | | | | 0.2912 | |
| | | | | | | | | |
Jeffrey B. Berger. Trustee, Chairman and Chief Executive Officer2443 Fair Oaks Boulevard, #368 Sacramento, CA 95825 | | | 1 | | | | 0.0063 | |
| | | | | | | | | |
Benjamin A. Diaz, Trustee and SecretaryP.O. Box 2008 Folsom, CA 95763 | | | 0 | | | | 0.0000 | |
| | | | | | | | | |
| All Trustees and officers as a group | | | 47 | | | | 0.2975 | |
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE.
During 2012, the Trust advanced $738,782 to West Coast Realty Trust, Inc. (“WCRT”), a related party. As of December 31, 2012, the Trust has advanced a total of $817,282 to WCRT in connection with WCRT’s formation and proposed initial public offering and is expected to be repaid without interest at the closing of WCRT’s proposed initial public offering. Of this advance, $230,000 relates to fees paid to Aviva Life and Annuity Company for a planned mortgage refinance. The mortgage refinance was completed subsequent to December 31, 2012 and WCRT remitted $230,000 to the Trust in June 2013. WCRT’s proposed initial public offering has been delayed and collection of the advance is uncertain. As such, the Trust recorded a $587,282 impairment charge in the 2012 statement of operations. The advance is reflected as “Other assets” on the accompanying balance sheet and recorded at $230,000 and $78,500 at December 31, 2012 and 2011.
WCRT was formed in March 2012 and intends to acquire and own necessity-based retail properties, including community and neighborhood shopping centers located in densely populated, middle and upper income markets in the Western United States. WCRT intends to elect to be taxed and to operate in a manner that will allow it to qualify as a real estate investment trust for federal income tax purposes commencing with its taxable year ending December 31, 2013. Jeffrey B. Berger, a trustee of the Trust and also the Chief Executive Officer and Chairman of the Trust, serves as President and Chief Executive Officer of WCRT, and Benjamin A. Diaz, a trustee of the Trust and the Trust’s Secretary, is expected to be named to the board of directors of WCRT upon consummation of the IPO.
Crowe Horwath, LLP the Trust’s current independent registered accounting firm was appointed as of November 1, 2011.
| | | 2012 | | | 2011 | |
| | | | | | | |
| Audit Fees | | $ | 17,000 | | | $ | 8,000 | |
| Audit-Related Fees | | | -- | | | | -- | |
| Tax Fees | | | -- | | | | -- | |
| All Other Fees | | | -- | | | | -- | |
| | | $ | 17,000 | | | $ | 8,000 | |
Perry-Smith LLP was the Trust’s independent registered accounting firm until October 31, 2011.
| | | 2012 | | | 2011 | |
| | | | | | | |
| Audit Fees | | $ | -- | | | $ | 9,000 | |
| Audit-Related Fees | | | -- | | | | -- | |
| Tax Fees | | | -- | | | | -- | |
| All Other Fees | | | -- | | | | -- | |
| | | $ | -- | | | $ | 9,000 | |
Pre-Approval Policy for Accounting Services. In 2005, the Audit Committee and the Trustees adopted a formal pre-approval policy for accounting services and fees. The policy requires that all audit services, audit related services, tax fees and all other fees of the Trust's independent auditor be pre-approved by the Audit Committee and the Trustees. The Audit Committee and the Trustees approved the audit and audit related fees provided by the independent auditor during 2012 and 2011.
Audit Fees
Audit Fees relate to services related to the audit of the Trust’s financial statements, review of the financial statements included in the Trust’s quarterly reports on Form 10-Q and consents and assistance in connection with other filings.
Audit-Related Fees
Audit-Related Fees consist of fees for assurance and related services that were reasonably related to the performance of the audit or review of the Trust’s financial statements and are reported under “Audit Fees.” There were no such fees in 2012 or 2011.
Tax Fees
Tax Fees include fees for services rendered in connection with the preparation of federal, state and foreign tax returns and other filings and tax consultation services. There were no such fees in 2012 or 2011.
All Other Fees
There were no other fees in 2012 or 2011.
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
| 3.1 | | Amended and Restated Declaration of Trust of USA Real Estate Investment Trust (included as Exhibit 3.2 to Form S-11 (File No. 33-9315) and incorporated herein by reference). |
| | | |
| 3.2 | | Bylaws of the Trust (included as Exhibit 3.2 to Form S-11 (File No. 33-9315) and incorporated herein by reference). |
| 3.4 | | 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 USA Real Estate Investment Trust (included at Exhibit 3.4 to Form 10-K for the year ended December 31, 1987 and incorporated herein by reference). |
| | | |
| 4.1 | | Article VIII of Exhibit 3.1(included as Exhibit 4.1 to Form S-11 (File No. 33-9315) and incorporated herein by reference). |
| | | |
| 4.2 | | Form of Share Certificate (included as Exhibit 4.2 to Form S-11 (File No. 33-9315) and incorporated herein by reference). |
| | | |
| 14.1 | | Code of Ethics (included as Exhibit 14.1 to Form 10-K filed on March 14, 2004 and incorporated herein by reference). |
| | | |
| 31.1 | | Section 302 Certification of the Chief Executive Officer Pursuant to Rule 13-14(a) of the Securities Exchange Act of 1934. |
| 31.2 | | Section 302 Certification of the Chief Financial Officer Pursuant to Rule 13-14(a) of the Securities Exchange Act of 1934. |
| 32.1 | | Section 906 Certifications filed by the Chief Executive Officer and the Chief Financial |
| | | Officer Pursuant to 18 U.S.C. Section 1350. |
| | | |
| 101.INS | * | XBRL Instance |
| | | |
| 101.SCH | * | XBRL Taxonomy Extension Schema |
| | | |
| 101.CAL | * | XBRL Taxonomy Extension Calculation |
| | | |
| 101.DEF | * | XBRL Taxonomy Extension Definition |
| | | |
| 101.LAB | * | XBRL Taxonomy Extension Labels |
| | | |
| 101.PRE | * | XBRL Taxonomy Extension Presentation |
| * | XBRL information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections. |
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: | August 9, 2013 | | USA Real Estate Investment Trust | |
| | Date | | | |
| | | By: | /s/ Jeffrey B. Berger | |
| | | | Jeffrey B. Berger | |
| | | | Chief Executive Officer | |
| | | | | |
| | | | | |
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: | | By: | /s/ Jeffrey B. Berger | |
| | | | Jeffrey B. Berger, Trustee, Chairman | |
| | | | and Chief Executive Officer | |
| | | | | |
| Dated: | | By: | /s/ Gregory E. Crissman | |
| | Date | | Gregory E. Crissman, Trustee | |
| | | | and Chief Financial Officer | |
| | | | | |
| | | | | |
| Dated: | | By: | /s/ Benjamin Diaz | |
| | Date | | Benjamin Diaz, | |
| | | | Trustee and Secretary | |
| | | | | |
