1 UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K (Amended)
AMENDED ANNUAL REPORT PURSUANT TO SECTON 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
/X/ Amended Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended: December 31, 2000
/ / Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (No Fee Required)
For the transition period from:
Commission file number: 0-16508
Registrant: USA Real Estate Investment Trust
(Exact Name of Registrant as specified in its Charter)
California 68-0109347
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
PMB 314, P.O. Box 255427, Sacramento, California 95865-5427
(Address of registrant's principal executive offices) (Zip Code)
(800) 308-4532
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Shares of Beneficial Interests
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
/ X/ Yes / / No
The aggregate market value of the voting shares of beneficial interest
(the "shares") held by nonaffiliates of the registrant outstanding at December
31, 2000, was $15,033,566 (based solely on the book value as there is no
trading market in the shares).
DOCUMENTS INCORPORATED BY REFERENCE
None
2
USA REAL ESTATE INVESTMENT TRUST
Table of Contents
Page
PART I.
ITEM 1. Business ................................... 3
ITEM 2. Properties ................................. 6
ITEM 3. Legal Proceedings .......................... 6
ITEM 4. Submission of Matters to a Vote
of Security Holders ...................... 6
PART II.
ITEM 5. Market for Registrant's Equity Securities
and Related Security Holder Matters ...... 6
ITEM 6. Selected Financial Data .................... 7
ITEM 7. Management's Discussion and Analysis
of Financial Condition and Results
of Operations ............................ 8
ITEM 8. Financial Statements and Supplementary
Data ..................................... 12
ITEM 9. Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure ..................... 21
PART III.
ITEM 10. Directors and Executive Officers
of the Registrant ........................ 22
ITEM 11. Executive Compensation ..................... 23
ITEM 12. Security Ownership of Certain
Beneficial Owners and Management ......... 24
ITEM 13. Certain Relationships and
Related Transactions ..................... 24
PART IV.
ITEM 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K .................. 25
3 PART I.
ITEM 1. BUSINESS
GENERAL
USA Real Estate Investment Trust (the "Trust") is a California business
trust that was formed on October 7, 1986, for the primary purpose of engaging
in the business of acquiring, owning and financing real property investments.
The Trust commenced operations on October 19, 1987, upon the sale of the
minimum offering amount of shares of beneficial interest ("shares").
The purpose of the Trust is to provide investors with an opportunity to
own, through transferable shares, an interest in diversified real estate
investments. The Trust invests primarily in income producing real properties
in accordance with the investment objectives and policies of the Trust.
Through such investments, the Trust seeks to provide investors with an
opportunity to participate in a portfolio of professionally managed real
estate investments in the same way a mutual fund affords investors an
opportunity to invest in a professionally managed portfolio of stocks, bonds
and other securities.
The Trust has operated and intends to continue to operate in a manner
intended to qualify as a "real estate investment trust" (REIT) under Sections
856-860 of the Internal Revenue Code of 1986, as amended (the "Code"). A
qualified REIT is relieved, in part, from federal income taxes on ordinary
income and capital gains distributed to its shareholders. State tax benefits
also may accrue to a qualified REIT. Pursuant to Code requirements, the Trust
distributes to its shareholders at least 90 percent of its taxable income and
100 percent of the net capital gain from the sale of Trust properties.
The Trust will terminate 21 years after the death of the last survivor of
persons listed in the Trust's Declaration of Trust. The Trust may also be
terminated at any time by the majority vote or written consent of shareholders
or by a majority vote of the Trustees.
The office of the Trust is located at One Scripps Drive, in Sacramento,
California.
CURRENT DEVELOPMENTS
On August 31, 1994 the Trust became self-administered and 2000 is its
sixth year of operation as a self-administered, self-managed real estate
investment trust.
INVESTMENT OBJECTIVES
The Trust has acquired a diversified portfolio of income producing real
property investments. Subject to certain limitations, the Declaration of
Trust gives the Trustees discretion to allocate the Trust's investments
without the prior approval of shareholders.
4
INVESTMENT GUIDELINES
Acquisition Policies. The Trustees have adopted investment guidelines
for the purpose of selecting the Trust's investments. Pursuant to the
guidelines, the allocation of Trust assets among income producing real
property investments depends principally upon the following factors:
1. The number of properties available for acquisition which show current
income and potential for appreciation in value;
2. The availability of funds for investment;
3. The laws and regulations governing investment in and the subsequent
sale of real estate investments by a REIT; and
4. The applicable federal and state income tax, securities, and real
estate laws and regulations.
The guidelines may vary from time to time, at the sole discretion of the
Trustees, in order to adapt to changes in real estate markets, federal income
tax laws and regulations and general economic conditions. The Trustees also
have discretion to acquire an investment not meeting these guidelines if the
Trustees determine that other circumstances justify the acquisition in a
particular case.
Portfolio Turnover. The Trustees have set general guidelines for the
disposition of properties in its portfolio which take into consideration
certain regulatory restrictions and federal income tax laws regarding REIT
portfolio turnover. Income tax regulations preclude the Trust from holding
any property (other than foreclosure property) primarily for sale to customers
in the ordinary course of the Trust's trade or business, but provide a "safe
harbor" for property held for at least four years from the date of
acquisition. Portfolio turnover policy also depends on whether a favorable
sales price can be realized by the Trust, primarily a function of the
capitalization rate applied to similar types of property in similar markets.
The Trust may elect to hold property as long as is reasonably necessary to
provide an attractive sales price.
OTHER INFORMATION
The Trust has no employees. It is administered by its Trustees and by
its Chairman, and by independent contractors who work under the supervision
thereof as a self-administered real estate investment trust.
The Trust is involved in only one industry segment: acquiring, operating
and holding for investment income-producing real properties. Revenues, net
income and assets from this industry segment are included in the Trust's
financial statements which appear at Item 8 of Part II.
5
The Trust's results of operations will depend on the availability of
suitable opportunities for investment and the comparative yields available
from time to time on real estate and other investments, as well as market
conditions affecting leasing and sale of real estate in the areas in which the
Trust's investments are located. These factors, in turn, are influenced to a
large extent by the type of investment involved, financing available for real
estate investment, the nature and geographic location of the property,
competition and other factors, none of which can be predicted with certainty.
The real estate investment market is highly competitive. The Trust
competes for acceptable investments with other financial institutions,
including banks, insurance companies, savings and loan associations, pension
funds and other real estate investment trusts and partnerships. Many of
these competitors have greater resources than the Trust. The number of such
competitors and funds available for investment in properties of the type
suitable for investment by the Trust may increase, resulting in increased
competition for such investments and possibly increased costs and thus
reduced income for the Trust.
The rules and regulations adopted by various agencies of federal, state
or local governments relating to environmental controls and the development
and operation of real property may operate to reduce the number of investment
opportunities available to the Trust or may adversely affect the properties
currently owned by it. While the Trust does not believe environmental
controls have had a material impact on its activities, there can be no
assurance that the Trust will not be adversely affected thereby in the future.
TAX LEGISLATION
The Trust has elected to be treated as a real estate investment trust
under Sections 856-860 of the Internal Revenue Code of 1986, as amended (the
"Code"). The Trust expects to operate and to invest in a manner that will
maintain its qualification for real estate investment trust taxation. The
Code requirements for such qualification are complex. While no assurance can
be given that the Trust qualified for taxation as a real estate investment
trust for past taxable years, the Trust nevertheless believes that it has so
qualified and will endeavor to continue to qualify for its current year and
future years.
The business of the Trust is uniquely sensitive to tax legislation.
Changes in tax laws are made frequently. There is no way for the Trust to
anticipate when or what changes in the tax laws may be made in the future, or
how such changes might affect the Trust.
The Internal Revenue Service ("IRS") has not yet issued regulations to
carry out numerous provisions enacted as part of the tax legislation passed
since 1986. Nor has the IRS addressed the issues relating to the application
of some of the new tax rules to entities such as real estate investment
trusts. Until such regulations are issued by the IRS, it is difficult to
gauge what impact, if any, such new legislation may have on entities such as a
real estate investment trust.
6
ITEM 2. PROPERTIES
The Trust owns six properties all of which are located in California.
The Trustees believe that the properties are quality income producing
properties that are well suited for their current uses. Most of the
properties are leased under long term leases at competitive rates for the
areas in which they are located. The lease terms provide for rental
adjustments on a periodic basis.
Title insurance and liability and property damage insurance in amounts
deemed appropriate by the Trust have been obtained for the properties referred
to above. The Trust does not carry flood insurance on said properties.
Because of the high cost of premiums, excessive deductibles, and limited
coverage, the Trust does not carry earthquake insurance on said properties
except 19401 Parthenia Street in Northridge, California.
For additional information concerning the aforesaid properties, see Notes
1 and 3 of the Notes to Financial Statements and Schedule III.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Trust's security holders
during the last quarter of 2000.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S EQUITY SECURITIES AND RELATED SECURITY
HOLDER MATTERS
The Trust has one class of authorized and outstanding equity consisting
of shares of beneficial interest, par value $1.00 per share. The Trust
engaged in a continuous best efforts public offering from May 20, 1987, until
May 20, 1992. Since 1995 the Trust has repurchased 7,355 shares from 8,993
shareholders at a cost of $3,575,912. Repurchased shares revert to authorized
but unissued shares and result in closing shareholders' accounts.
The Trust executed a one-for-thirty reverse share split in 1998 and a one-
or-four share split in 2000. After each reverse share split the Trust
eliminated all fractional shares when the shareholder account held less than one
share. As of December 31, 2000, the Trust had 27,459 shares outstanding to
3,767 shareholders of record.
No public trading market presently exists for the shares of the Trust.
The Trust does not anticipate that a public trading market will exist within
the foreseeable future.
7
ITEM 6. SELECTED FINANCIAL DATA
The following represents selected financial data for the Trust for the
five years ended December 31, 2000. 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)
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
Operating Results:
Revenues $ 3,310 3,313 $ 3,290 $ 2,978 $ 2,677
Net income 1,062 1,176 1,314 1,181 918
Net cash provided by
operating activities 1,657 1,812 1,899 1,679 1,563
Total Assets 24,476 26,222 25,658 26,097 22,843
Long-term obligations 6,354 6,535 6,000 6,145 2,047
Net income
per share $ 36.76 $ 37.80 $ 40.29 $ 36.00 $ 27.60
Cash distributions
per share $ 63.36 $ 60.48 $ 56.40 $ 50.40 $ 45.60
Per share data has been restated to reflect the impact of the one-for-thirty
reverse share split which the Trust executed in 1998 and the one-for-four
reverse share split which the Trust executed in 2000.
8
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Operating expenses increased $24,893 or 8 percent in 2000 compared to 1999
primarily due to legal fees and other costs incurred at 19401 Parthenia Street
in Northridge, California.
Interest expense increased $175,581 or 30 percent in 2000 compared to 1999
and $48,104 or 9 percent in 1999 compared to 1998 due to higher average levels
of outstanding debt during 2000 and 1999.
Depreciation expense increased $71,775 or 11 percent in 2000 compared to
1999 and $36,288 or 6 percent in 1999 compared to 1998 due to the purchase of
845 Harbor Boulevard in West Sacramento, California in May 1999.
General and administrative decreased $39,263 or 15 percent in 2000 compared
to 1999 and $17,226 or 6 percent in 1999 compared to 1998.
The 2000 gain on the sale of properties was attributed to the sale of 3090
Sunrise Boulevard in Rancho Cordova, California.
The 1999 loss on the sale of properties was attributed to the sale of 170-
174 West Shaw Avenue in Clovis, California.
Net income was $1,061,966 or $36.76 per share in 2000, $1,175,630 or
$37.80 per share in 1999 and $1,314,307 or $40.29 per share in 1998.
The Trust paid distributions per share of $63.36, $60.48 and $56.40 in
2000, 1999 and 1998, respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Trust meets its liquidity requirements through net cash provided by
operating activities, along with traditional debt alternatives available to it
and proceeds from the sale of properties. Cash provided by operating
activities is distributed to shareholders in the form of dividends.
Accordingly, capital outlays for renovations, principal payments on long-term
notes payable and share repurchases require additional sources of capital.
The expected additional sources of capital are debt and proceeds from the
sale of properties.
In 2000 the Trust collected $851,000 on outstanding notes receivable and
sold 3090 Sunrise Boulevard in Rancho Cordova, California for $495,955. The
Trust used this capital plus draws on its lines of credits to fund share
repurchases, renovations and principal payments of long-term notes payable.
In 2000 the Trust extended the due date of one of its lines of credit
from June 2000 to June 2003 and applied for a new line of credit with another
bank with a similarly extended due date. In March 2001 the Trust obtained a
new line of credit that matures in March 2004.
9
The Trust's capital requirements in 2001 will depend upon the level of
improvements and redevelopment of its existing properties. The sources of
funding will be draws on its lines of credit, collection of the remaining
balance of notes receivable or additional debt. In addition, the Trust has
identified certain of its properties that may be sold as a source of funding,
if the Trust's sale prices are met.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Trust's primary financial market risk is the fluctuation in interest
rates. At December 31, 2000, the Trust had $3,030,000 of variable rate debt.
Based upon this balance of variable debt, if interest rates increased one
percent, the Trust's net income and cash flows would decrease by $30,030.
If interest rates decreased one percent, the Trust's net income and cash
flows would increase by $30,030. The Trust believes that the change in the
fair value of its financial instruments resulting from a foreseeable
fluctuation in interest rates would be immaterial to its assets and
liabilities.
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.
10
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page
Independent Auditors' Report .............................. 11
Balance Sheets
As of December 31, 2000 and 1999 ........................ 12
Statements of Income
Years Ended December 31, 2000, 1999 and 1998 ............ 13
Statements of Changes in Shareholders' Equity
Years Ended December 31, 2000, 1999 and 1998 ............ 14
Statements of Cash Flows
Years Ended December 31, 2000, 1999 and 1998 ............ 15-16
Notes to Financial Statements ............................. 17-21
Schedule III
Real Estate and Accumulated Depreciation ................ 26-30
11
INDEPENDENT AUDITORS' REPORT
To the Board of Trustees
USA Real Estate Investment Trust
We have audited the accompanying balance sheets of USA Real Estate Investment
Trust as of December 31, 2000 and 1999 and the related statements of income,
changes in shareholders' equity, and cash flows for the years ended
December 31, 2000, 1999 and 1998. In connection with our audits of the
financial statements, we also have audited the financial statement schedule
listed in the accompanying index. These financial statements and financial
statement schedule are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluation of the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of USA Real Estate Investment
Trust as of December 31, 2000 and 1999 and the results of its operations and
its cash flows for the years ended December 31, 2000, 1999 and 1998 in
conformity with generally accepted accounting principles. Also in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
Burnett + Company LLP
Rancho Cordova, California
January 18, 2001
12
USA REAL ESTATE INVESTMENT TRUST
Balance Sheets
December 31, December 31,
2000 1999
----------- -----------
ASSETS
Rental properties, less accumulated
depreciation of $4,109,853 and
$3,472,316 in 2000 and 1999,
respectively $ 23,774,370 $ 24,680,481
Notes receivable 225,000 1,076,000
---------- -----------
23,999,370 25,756,481
Cash and cash equivalents 90,600 71,679
Other assets 386,127 393,710
----------- -----------
Total assets $ 24,476,097 $ 26,221,870
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Long-term notes payable $ 6,354,029 $ 6,534,539
Lines of credit 3,030,000 2,341,000
Lease deposits 58,502 62,282
----------- -----------
Total liabilities 9,442,531 8,937,821
----------- -----------
Shareholders' Equity:
Shares of beneficial interest, par value
$1 a share; authorized 62,500 shares;
27,459 and 30,246 shares outstanding
in 2000 and 1999, respectively 27,459 30,246
Additional paid-in capital 31,110,030 32,589,103
Distributions in excess of net income (16,103,923) (15,335,300)
----------- -----------
Total shareholders' equity 15,033,566 17,284,049
----------- -----------
Total liabilities and shareholders' equity $ 24,476,097 $ 26,221,870
=========== ===========
See notes to financial statements.
13
USA REAL ESTATE INVESTMENT TRUST
Statements of Income
Years Ended December 31, 2000, 1999 and 1998
2000 1999 1998
----------- ----------- -----------
Revenues:
Rent $ 3,255,352 $ 3,233,365 $ 3,226,430
Interest 54,225 79,893 63,323
----------- ----------- -----------
3,309,577 3,313,258 3,289,753
----------- ----------- -----------
Expenses:
Operating expenses 322,366 297,473 297,837
Property taxes 222,686 216,062 205,934
Property management fees 52,800 52,800 51,200
Interest 753,752 578,171 530,067
Depreciation and amortization 718,879 647,124 610,836
General and administrative 223,083 262,346 279,572
----------- ----------- -----------
2,293,566 2,053,976 1,975,446
----------- ----------- -----------
Net income before gain or (loss)
on sale of rental properties 1,016,011 1,259,282 1,314,307
Gain (loss) on sale of rental
properties 45,955 (83,652) 0
----------- ----------- -----------
Net income $ 1,061,966 $ 1,175,630 $ 1,314,307
=========== =========== ===========
Net income per share of
beneficial interest $ 36.76 $ 37.80 $ 40.29
=========== =========== ===========
Weighted average number of shares 28,890 31,100 32,616
=========== =========== ===========
See notes to financial statements.
14
USA REAL ESTATE INVESTMENT TRUST
Statements of Changes in Shareholders' Equity
Years Ended December 31, 2000, 1999 and 1998
Distribu- Total
Shares of Additional tions in Share-
Beneficial Interest Paid-in Excess of holders'
Number Amount Capital Net Income Equity
--------- --------- ----------- ------------- -----------
December 31,
1997 3,960,855 $3,960,855 $29,998,871 $(14,105,189) $19,854,537
--------- --------- ---------- ----------- ----------
Repurchases
of shares (3,972) (3,972) (463,832) - (467,804)
Net income - - - 1,314,307 1,314,307
Distributions - - - (1,839,882) (1,839,882)
One-for-thirty
reverse share
split (3,828,827) (3,828,827) 3,828,827 - -
--------- --------- ---------- ----------- ----------
December 31,
1998 128,056 $ 128,056 $33,363,866 $(14,630,764) $18,861,158
Repurchases
of shares (7,072) (7,072) (865,501) - (872,573)
Net income - - - 1,175,630 1,175,630
Distributions - - - (1,880,166) (1,880,166)
--------- --------- ---------- ----------- ----------
December 31,
1999 120,984 $ 120,984 $32,498,365 $(15,335,300) $17,284,049
--------- --------- ---------- ----------- ----------
Repurchases
of shares (11,340) (11,340) (1,470,520) - (1,481,860)
One-for four
reverse
share split (82,185) (82,185) 82,185 - -
Net income - - - 1,061,966 1,061,966
Distributions - - - (1,830,589) (1,830,589)
--------- --------- ---------- ----------- ----------
December 31,
2000 27,459 $ 27,459 $31,110,030 $(16,103,923) $15,033,566
========= ========= ========== =========== ==========
See notes to financial statements.
15 USA REAL ESTATE INVESTMENT TRUST
Statements of Cash Flows
For the Years Ended December 31, 2000, 1999 and 1998
2000 1999 1998
OPERATING ACTIVITIES: ---------- ---------- ----------
Net income $ 1,061,966 $ 1,175,630 $ 1,314,307
---------- ---------- ----------
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation & amortization 712,906 647,124 610,835
Amortization of loan fees 5,973 3,934 4,290
(Gain)loss on sale of properties (45,955) 83,652 0
Changes in other assets & liabilities:
Increase in other assets (73,760) (92,476) 0
Decrease in accounts payable 0 (5,460) (25,228)
Decrease in lease deposits (3,781) 0 (4,875)
---------- ---------- ----------
Total adjustments to net income 595,383 636,774 585,022
---------- ---------- ----------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 1,657,349 1,812,404 1,899,329
---------- ---------- ----------
INVESTING ACTIVITIES:
Collections on notes receivable 851,000 0 0
Purchases and improvements to
properties (181,425) (1,174,541) (277,484)
Proceeds from the sale of properties 495,955 2,686,576 0
Increase in other assets 0 (70,074) (42,834)
---------- ---------- ----------
NET CASH PROVIDED BY (USED
IN)INVESTING ACTIVITIES 1,165,530 1,441,961 (320,318)
---------- ---------- ----------
FINANCING ACTIVITIES:
Borrowings on lines of credit, net 689,000 1,611,000 730,000
Redemption of shares (1,481,860) (872,573) (467,804)
Payments on long-term notes payable (180,509) (2,065,044) (145,464)
Distributions paid (1,830,589) (1,880,166) (1,839,882)
---------- ---------- ----------
NET CASH USED IN
FINANCING ACTIVITIES (2,803,958) (3,206,783) (1,723,150)
---------- ---------- ----------
NET INCREASE(DECREASE)IN CASH 18,921 47,582 (144,139)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR $ 71,679 $ 24,097 $ 168,236
---------- ---------- ----------
CASH AND CASH EQUIVALENTS AT
END OF YEAR $ 90,600 $ 71,679 $ 24,097
========== ========== ==========
INTEREST PAID $ 753,752 $ 574,237 $ 525,777
========== ========== ==========
(Continued on Page 16)
16
NON-CASH INVESTING AND FINANCING ACTIVITIES
During 1999 the Trust received a $350,000 promissory note as a portion of the
consideration received on the sale of 170-174 West Shaw Avenue in Clovis,
California, and purchased 845 Harbor Blvd. in West Sacramento, California,
utilizing debt of $2,600,000.
See notes to financial statements.
17
USA REAL ESTATE INVESTMENT TRUST
Notes to Financial Statements
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL: USA Real Estate Investment Trust (the "Trust") was organized
under the laws of the State of California pursuant to a Declaration of Trust
dated October 7, 1986. The Trust commenced operations on October 19, 1987,
upon the sale of the minimum offering amount of shares of beneficial interest.
Effective August 31, 1994, the Trust terminated its agreements with its former
advisor and its former property manager and became a self-administered real
estate investment trust. At the Trust's 1994 Annual Meeting of Shareholders
held on December 29, 1994, the Trust's shareholders approved an amendment to
the Trust's Declaration of Trust which changed the name of the Trust from
Commonwealth Equity Trust USA to its current name.
CASH EQUIVALENTS: For purposes of the statement of cash flows, all
certificates of deposit with original maturities of ninety days or less are
considered cash equivalents.
RENTAL PROPERTIES: The Trust carries its rental properties at
depreciated cost unless the asset is determined to be impaired. In
accordance with Statement of Financial Accounting Standards No. 121,
Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of, which was adopted by the Trust on January 1, 1997, the Trust
records impairment losses on long-lived assets used in operations when events
and circumstances indicate that the assets might be impaired and the expected
undiscounted cash flows estimated to be generated by those assets are less
than the related carrying amounts. If a rental property is determined to be
impaired, the impairment would be measured based upon the excess of the
asset's carrying value over the fair value.
Property improvements are capitalized while maintenance and repairs are
expensed as incurred. Depreciation of buildings and capital improvements is
computed using the straight-line method over forty years.
LEASING COSTS AND LOAN COSTS: Costs incurred in obtaining leases are
amortized on the straight-line method over the terms of the related leases.
Costs incurred in obtaining loans are amortized on the straight-line method
over the terms of the related debt.
DISTRIBUTIONS IN EXCESS OF NET INCOME: The Trust has a general policy of
distributing cash to its shareholders in an amount that approximates taxable
income plus noncash charges such as depreciation and amortization. As a
result, distributions to shareholders exceed cumulative net income.
REVENUE RECOGNITION: All the Trust's leases are classified as operating
leases. Minimum rents are recognized on a straight-line basis over the terms
of the related leases. Percentage rents, which represent additional rents
based on gross tenant sales, are recognized at the end of the lease year or
other period in which tenant sales' volumes have been reached and the
percentage rents are due. Property taxes, common area maintenance, and
insurance reimbursements are recognized on the accrual basis over the
periods in which the expenses occurred.
18
REVERSE SHARE SPLIT: The Trust executed a one-for-thirty reverse share
split in 1998 and a one-for-four reverse share split in 2000. All references
to the number of shares and per share amounts have been restated to reflect
the impact of said reverse share splits.
INCOME TAXES: The Trust has elected to be taxed as a real estate
investment trust. Accordingly, the Trust does not pay income tax on income
because income distributed to shareholders is at least equal to 90 percent of
its taxable income.
NET INCOME PER SHARE: The net income per share is computed based on the
weighted-average number of shares of 28,890, 31,100 and 32,616 during 2000,
1999 and 1998, respectively.
CONCENTRATION OF CREDIT RISK: The Trust operates in one industry
segment. The Trust's properties and the collateral for its note receivable
are all located in California.
USE OF ESTIMATES: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amount of assets,
liabilities, revenues and expenses and the disclosure of contingent assets
and liabilities. Actual results could differ from those estimates.
RECLASSIFICATION: Certain amounts in prior years' financial statements
have been reclassified to conform with the current year presentation.
2. NOTES RECEIVABLE
Notes receivable consisted of two notes of $726,000 and $350,000 at
December 31, 1999. The notes were collateralized by properties in California.
Both notes bore interest at 8 percent per annum and were payable in monthly
installments of interest only.
The $726,000 note was due in October 2000 and was collected in full in May
2000.
The $350,000 note was due December 31, 1999. In August 2000 the Trust
agreed to extend the balance in exchange for a $75,000 principal payment, an
increase in the interest rate to 10 percent, a change in the collateral and
personal guarantees of the principals of the maker of the note. Scheduled
principal payments plus monthly interest payments are to be made until the
note is paid in full in October 2001. A scheduled principal payment of
$50,000 was made in October 2000 and as a result the remaining balance at
December 31, 2000 was $225,000.
The fair market value of the notes approximate their carrying value at
December 31, 2000 and 1999.
3. LONG-TERM NOTES PAYABLE
Long-term notes payable are collateralized by two properties in
California. As of December 31, 2000, the long-term notes payable bear
interest at rates ranging from 7.0 percent to 8.6 percent and mature in 2014
19
and 2017. Principal payments during each of the next five years are as
follows: $195,329, $211,378, $228,761, $247,587 and $266,854, respectively,
and in aggregate $5,204,120, thereafter. The aggregate fair value of the
notes approximate their carrying value as of December 31, 2000 and 1999.
Rates currently available to the Trust for debt with similar terms and
maturity were used to estimate the fair value of the notes.
4. LINES OF CREDIT
The Trust has available two lines of credit with different financial
institutions, one with interest at prime plus 0.75 percent per annum, and the
other at prime, payable monthly. The credit lines are for $2,000,000 each and
one expires on March 31, 2001 and the other expires on June 30, 2003. Both
lines are secured by real property. At December 31, 2000 and December 31, 1999,
there were aggregate outstanding balances of $3,030,000 and $2,341,000,
respectively, on the lines of credit. The weighted-average interest rates
for the lines of credit were 9.87 percent and 9.25 percent for 2000 and 1999,
respectively.
5. DISTRIBUTIONS
Cash distributions per share of beneficial interest for federal income
tax purposes for the past three years were: 63 percent of the distributions
paid in 2000 were ordinary income and 34 percent were nontaxable and 3 percent
were capital gains; 36 percent of the distributions paid in 1999 were ordinary
income and 64 percent were nontaxable; 73 percent of the distributions paid in
1998 were ordinary income and 27 percent were nontaxable.
6. RENT UNDER OPERATING LEASES
The Trust is the lessor of real properties under operating leases
expiring in various years through 2017. Noncancelable operating leases
provide for minimum rent during each of the next five years of $2,784,321,
$1,829,375, $1,380,914, $1,094,793 and $1,027,980, respectively, and in
aggregate $11,149,734 thereafter. The above assumes that all leases which
expire are not renewed, therefore neither renewal rent nor rent from
replacement tenants is included.
7. QUARTERLY DATA (UNAUDITED)
The following is a summary of quarterly results of operations for 2000
and 1999:
20
Quarters Ended
March 31 June 30 Sept 30 Dec 31 Total
-------- -------- -------- -------- ----------
2000:
Revenue $848,007 $838,595 $811,055 $811,920 $3,309,577
Operating income 287,143 277,174 275,555 176,139 1,016,011
Net income:
Income 287,143 277,174 321,510 176,139 1,061,966
Income per share $ 9.94 $ 9.59 $ 11.13 $ 6.10 $ 36.76
1999:
Revenue $818,514 $821,930 $831,186 $841,628 $3,313,258
Operating income 302,089 329,770 316,152 311,271 1,259,282
Net income:
Income 209,531 329,770 316,152 320,177 1,175,630
Income per share $ 6.74 $ 10.60 $ 10.17 $ 10.29 $ 37.80
8. CREDIT RISK
One of the Trust's properties, which represents more than 20 percent of the
Trust's total assets, was occupied by a single tenant. The following is
condensed financial information of that tenant, which is a publicly held
company:
BALANCE SHEET INFORMATION
(in millions)
For the Year Ended
-----------------------------
Feb 1, 2001 Feb 3, 2000
----------- -----------
Current assets $ 4,300 $ 4,591
Noncurrent assets 11,778 11,128
------- -------
Total assets $ 16,078 $ 15,719
======= =======
Current liabilities $ 3,395 $ 4,069
Noncurrent liabilities 6,989 5,948
------- -------
Total liabilities $ 10,384 $ 10,017
Stockholders' equity $ 5,694 $ 5,702
------- -------
Total liabilities and
stockholders' equity $ 16,078 $ 15,719
======= =======
21
INCOME STATEMENT INFORMATION
(in millions)
For the Year Ended
-----------------------------------------------
Feb 1, 2001 Feb 3, 2000 Jan 28, 1999
----------- ----------- ------------
Sales $ 36,762 $ 37,478 $ 35,872
Cost of sales 26,336 27,164 26,156
------- ------- -------
Gross profit 10,426 10,314 9,716
======= ======= =======
Income before
extraordinary items $ 765 $ 427 $ 801
======= ======= =======
Net income $ 765 $ 404 $ 801
======= ======= =======
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
22
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
GENERAL
The Trust has no employees. It is administered by its Trustees
and by its Chairman, and by independent contractors who work under the
supervision thereof.
THE TRUSTEES
The trustees of the Trust are as follows:
Trustee
Name Age Since Office
---- --- ------- ------
Gregory E. Crissman 49 1986 Trustee and Chairman and
Chief Financial Officer
Benjamin A. Diaz 67 1988 Trustee and Secretary
Joyce A. Marks 64 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
23
of California Franchise Tax Board, dealing with large corporate unitary tax
audits, and with the California State Board of Equalization.
JOYCE A. MARKS. Ms. Marks has been employed by the Bank of America for
more than forty years. During her career with Bank of America, Ms. Marks had
extensive experience with land development and subdivision financing,
including construction and take-out financing for commercial properties. Ms.
Marks was for many years active in the Building Industry Association of
Sacramento and from 1976 to 1983 served as a board member of, and in 1983 as
President of, its Associate Counsel. Ms. Marks received Bank of America's
Award for Excellence in 1985. Her most recent positions include Senior Sales
Training Specialist, Marketing Officer, Branch Manager and Credit
Administrator at one of Bank of America's Regional Headquarters.
Trustees of the Trust are elected annually by the Trust's shareholders
and hold office until their successors are duly elected and qualified. No
family relationship exists between any Trustee and any other Trustee. No
arrangement exists or existed between any Trustee and any other person or
entity pursuant to which the Trustee was selected as a Trustee or nominee.
ITEM 11. EXECUTIVE COMPENSATION
COMPENSATION OF OFFICERS
During 2000, the Trust was managed by its Trustees as a self-
administered, self-managed real estate investment trust. The Trust has the
following officers: Chairman, Chief Financial Officer, and Secretary. No
officer except Gregory E. Crissman is compensated by the Trust in his
capacity as an officer. During 2000, none of the Trust's officers received
compensation in excess of $70,675.
Summary Compensation Table
Total Long-Term
Name and Officer Annual and other
Principal Position Year Compensation Compensation Compensation
- ----------------------------- ---- ------------ ------------ ------------
Gregory E. Crissman, Chairman 2000 $52,800 $70,675 (1) None
(1) Includes fees for each meeting of the Trustees attended for a
total of $17,875.
24
COMPENSATON OF TRUSTEES
Each Trustee receives $1,375 or $345 for each Trustees' meeting attended
plus direct expenses incurred in connection with such attendance. There are
currently no plans to alter this compensation schedule. No Trustee received
compensation under any other arrangement during 2000. 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
2000, the Trust had twelve regular meetings and one special meeting of its
Trustees. All Trustees attended all of the meetings.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of February 28, 2001, 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 46.000 .1687
2561 Fulton Square Lane, #55
Sacramento, CA 95821
All Trustees and officers as a group 46.000 .1687
During 2000, based upon a review of the Forms 3, 4 and 5 on file with the
Trust, it does not appear that any officer or trustee failed to file such a
required report on a timely basis.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
25 PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) FINANCIAL STATEMENTS Page
----
Independent Auditors' Report ...................... 10
Balance Sheets: December 31, 2000 and 1999 ....... 11
Statements of Income: Years Ended
December 31, 2000, 1999 and 1998 ................ 12
Statements of Changes in Shareholders' Equity:
Years Ended December 31, 2000, 1999 and 1998 .... 13
Statements of Cash Flows: Years Ended
December 31, 2000, 1999 and 1998 ................ 14-15
Notes to Financial Statements ..................... 16-18
(a)(2) FINANCIAL STATEMENT SCHEDULES
Schedule III - Real Estate and Accumulated
Depreciation .................................... 23-27
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.
26
USA REAL ESTATE INVESTMENT TRUST
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2000
Page 1, Part A
------------------ ------------ ---------------------------
Column A Column B Column C
------------------ ------------ ---------------------------
---Initial Cost to Trust--
Buildings
Improvements,
& Personal
Description Encumbrances Land Property
------------------ ------------ ------------ ------------
RETAIL:
7390 Greenback Lane,
Citrus Heights,
California - 533,000 179,333
19401 Parthenia
Street, Northridge,
California - 5,770,000 3,100,000
1590 Sycamore,
Hercules,
California 3,868,243 1,310,000 5,912,015
845 Harbor Blvd.,
West Sacramento,
California 2,485,786 770,000 2,816,391
------------ ------------ ------------
Total Retail 6,354,029 8,383,000 12,007,739
------------ ------------ ------------
INDUSTRIAL:
4350 Pell Drive,
Sacramento,
California - 1,500,000 2,213,325
------------ ------------ ------------
Total Industrial - 1,500,000 2,213,325
------------ ------------ ------------
OFFICE:
One Scripps Drive,
Sacramento,
California - 650,000 2,274,888
------------ ------------ ------------
Total Office - 650,000 2,274,888
------------ ------------ ------------
$ 6,354,029 $ 10,533,000 $ 16,495,952
============ ============ ============
27
USA REAL ESTATE INVESTMENT TRUST
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2000
Page 1, Part B
- ------------------ -----------------------------
Column A Column D
- ------------------ -----------------------------
Cost Capitalization
Subsequent to
---------Acquisition---------
Description Improvements Carrying Cost
- ------------------ ------------ -------------
RETAIL:
7390 Greenback Lane,
Citrus Heights,
California 5,957 -
19401 Parthenia
Street, Northridge,
California 2,522,645 -
1590 Sycamore,
Hercules,
California 28,761 -
845 Harbor Blvd.,
West Sacramento,
California 12,909 -
------------- -------------
Total Retail 2,570,272 -
------------- -------------
INDUSTRIAL:
4350 Pell Drive,
Sacramento,
California 963,414 -
------------- -------------
Total Industrial 963,414 -
------------- -------------
OFFICE:
One Scripps Drive,
Sacramento,
California 1,676,585 -
------------- -------------
Total Office 1,676,585 -
------------- -------------
$ 5,210,271 $ -
============= =============
28
USA REAL ESTATE INVESTMENT TRUST
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2000
Page 1, Part C
- ------------------ ---------------------------------------------------------
Column A Column E
- ------------------ ---------------------------------------------------------
Gross Amount at Which
----------------Carried at Close of Period---------------
Valuation
Buildings & Write
Description Land Improvements Down Total
- ------------------ ------------ ------------ ----------- ------------
RETAIL:
7390 Greenback Lane,
Citrus Heights,
California 533,000 185,290 102,000 616,290
19401 Parthenia
Street, Northridge,
California 5,770,000 5,622,645 3,483,000 7,909,645
1590 Sycamore,
Hercules,
California 1,310,000 5,940,776 - 7,250,776
845 Harbor Blvd.,
West Sacramento,
California 770,000 2,829,300 - 3,599,300
------------ ------------ ------------ ------------
Total Retail 8,383,000 14,578,011 3,585,000 19,376,011
------------ ------------ ------------ ------------
INDUSTRIAL:
4350 Pell Drive,
Sacramento,
California 1,500,000 3,176,739 - 4,676,739
------------ ------------ ------------ ------------
Total Industrial 1,500,000 3,176,739 - 4,676,739
------------ ------------ ------------ ------------
OFFICE:
One Scripps Drive,
Sacramento,
California 650,000 3,951,473 770,000 3,831,473
------------ ------------ ------------ ------------
Total Office 650,000 3,951,473 770,000 3,831,473
------------ ------------ ------------ ------------
$ 10,533,000 $ 21,706,223 $ 4,355,000 $ 27,884,223
============ ============ ============ ============
29 USA REAL ESTATE INVESTMENT TRUST
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2000
Page 1, Part D
- ------------------ ------------ ------------ ------------ ------------
Column A Column F Column G Column H Column I
- ------------------ ------------ ------------ ------------ ------------
Life
on Which
Depreciation
in Latest
Accumulated Date of Date Statement is
Description Depreciation Construction Acquired Computed
- ------------------ ------------ ------------ ----------- ------------
RETAIL:
7390 Greenback Lane,
Citrus Heights,
California 44,974 1980 08/90 40 years
19401 Parthenia
Street, Northridge,
California 1,810,054 1973 11/90 40 years
1590 Sycamore,
Hercules,
California 563,028 1989 05/97 40 years
845 Harbor Blvd.,
West Sacramento,
California 118,290 1999 05/99 40 years
------------
Total Retail 2,536,346
------------
INDUSTRIAL:
4350 Pell Drive,
Sacramento,
California 726,273 1975 09/92 40 years
------------
Total Industrial 726,273
------------
OFFICE:
One Scripps Drive,
Sacramento,
California 847,234 1972 09/92 40 years
------------
Total Office 847,234
------------
$ 4,109,853
============
30
Footnote to Schedule III
Balance at beginning of period $ 28,152,797
Additions during period:
Acquisitions through foreclosure $ 0
Other acquisitions 0
Improvements 181,426
Other 0
-----------
181,426
Deductions during period:
Cost of real estate sold 450,000
Other 0
-----------
450,000
-----------
Balance at end of period: $ 27,884,223
===========
31
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: July 9, 2001 USA Real Estate Investment Trust
--------------------
Gregory E. Crissman
By: -------------------------------
Gregory E. Crissman as
Chief Financial 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: July 9, 2001 Gregory E. Crissman
------------------- By: -------------------------------
Gregory E. Crissman
Chairman
Dated: July 9, 2001 Benjamin A. Diaz
------------------- By: -------------------------------
Benjamin A. Diaz
Trustee
Dated: July 9, 2001 Joyce A. Marks
------------------- By: -------------------------------
Joyce A. Marks
Trustee