Attached files
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
|
þ |
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
for the quarterly period ended September 30, 2009 or |
|
o |
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
for the transition period from____________________to ____________________ |
Commission file number 0-20488
USA REAL ESTATE INVESTMENT TRUST
(Exact Name of Registrant as Specified in Its Charter)
|
California |
68-0420085 | |
|
(State or Other Jurisdiction of Incorporation or |
(I.R.S. Employer Identification No.) | |
|
Organization) |
641 Fulton Avenue, Suite 200
Sacramento, CA 95825
(Address of Principal Executive Offices, Including Zip Code)
(916) 761-4992
(Registrant’s Telephone Number, Including Area Code)
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. oYes þ No
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 during the preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files).
o Yes o No
Indicate by check mark whether the 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. (Check one):
|
Large accelerated filer o
|
Accelerated filer o |
Non-accelerated filer o |
Smaller reporting company þ | |||
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes þ No
As of November 16, 2009, 18,007 shares of the registrant’s common stock were outstanding.
PART I. FINANCIAL INFORMATION
USA REAL ESTATE INVESTMENT TRUST
Balance Sheet
(Unaudited)
|
September 30, |
||||
|
2009 |
||||
|
Assets |
||||
|
Real estate owned |
$ | 5,782,922 | ||
|
Real estate loan |
600,000 | |||
|
Interest receivable |
37,184 | |||
|
Cash |
248,125 | |||
|
Total assets |
$ | 6,668,231 | ||
|
Liabilities and Shareholders' Equity |
||||
|
Liabilities: |
||||
|
Accounts payable |
$ | 168,723 | ||
|
Shareholders' equity: |
||||
|
Shares of beneficial interest, par value $1 per share;
62,500 shares authorized; 18,007 shares outstanding |
18,007 | |||
|
Additional paid-in capital |
26,355,335 | |||
|
Distributions in excess of cumulative net income |
( 19,873,834 | ) | ||
|
Total shareholders’ equity |
$ | 6,499,508 | ||
|
Total liabilities and shareholders’ equity |
$ | 6,668,231 | ||
See notes to financial statements.
Page 2 of 12
USA REAL ESTATE INVESTMENT TRUST
Statements of Income
(Unaudited)
|
Three Months Ended
September 30, |
||||||||
|
2009 |
2008 |
|||||||
|
|
||||||||
|
Revenues: |
||||||||
|
Interest income |
$ | 21,328 | $ | ( 90,381 | ) | |||
|
Expenses: |
||||||||
|
General and administrative expense |
113,886 | 70,680 | ||||||
|
Operating expense |
17,939 | -- | ||||||
| 131,825 | 70, 680 | |||||||
|
Net (loss) income |
$ | ( 110,497 | ) | $ | ( 161,061 | ) | ||
|
Net (loss) income per share |
$ | ( 6.14 | ) | $ | ( 8.94 | ) | ||
|
Weighted-average number of shares outstanding |
18,007 | 18,007 | ||||||
|
Distributions per share |
$ | 8.00 | $ | 16.00 | ||||
|
See notes to financial statements. |
||||||||
Page 3 of 12
USA REAL ESTATE INVESTMENT TRUST
Statements of Income
(Unaudited)
|
Nine Months Ended
September 30, |
||||||||
|
2009 |
2008 |
|||||||
|
|
||||||||
|
Revenues: |
||||||||
|
Interest income |
$ | 63,288 | $ | 766,562 | ||||
|
Expenses: |
||||||||
|
General and administrative expense |
347,438 | 216,635 | ||||||
|
Operating expense |
161,299 | -- | ||||||
| 508,737 | 216,635 | |||||||
|
Net (loss) income |
$ | ( 445,449 | ) | $ | 549,927 | |||
|
Net (loss) income per share |
$ | ( 24.74 | ) | $ | 30.54 | |||
|
Weighted-average number of shares outstanding |
18,007 | 18,007 | ||||||
|
Distributions per share |
$ | 8.00 | $ | 48.00 | ||||
|
See notes to financial statements. |
||||||||
Page 4 of 12
USA REAL ESTATE INVESTMENT TRUST
Statements of Cash Flows
(Unaudited)
|
Nine Months Ended
September 30, |
||||||||
|
2009 |
2008 |
|||||||
|
CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||
|
Net (loss) income |
$ | ( 445,449 | ) | $ | 549,927 | |||
|
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
|
Amortization of loan fees |
-- | (27,667 | ) | |||||
|
Changes in operating assets and liabilities: |
||||||||
|
Increase in interest receivable |
(30,050 | ) | (275,455 | ) | ||||
|
Decrease in other assets |
-- | 2,915 | ||||||
|
Increase in accounts payable |
85,087 | -- | ||||||
|
Net cash (used in) provided by operating activities |
( 390,412 | ) | 242,720 | |||||
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||||
|
Investments in real estate |
( 79,942 | ) | -- | |||||
|
Investments in real estate loans |
-- | (303,927 | ) | |||||
|
Collections on real estate loans |
-- | 1,991,161 | ||||||
|
Net cash (used in) provided by investing activities |
( 79,942 | ) | 1,687,234 | |||||
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||
|
Distributions paid |
( 144,058 | ) | ( 864,353 | ) | ||||
|
Net cash used in financing activities |
( 144,058 | ) | ( 864,353 | ) | ||||
|
NET (DECREASE) INCREASE IN CASH |
( 614,412 | ) | 1,072,602 | |||||
|
CASH AT BEGINNING OF PERIOD |
862,537 | 116,682 | ||||||
|
CASH AT END OF PERIOD |
$ | 248,125 | $ | 1,189,284 | ||||
|
See notes to financial statements. |
||||||||
Page 5 of 12
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, self-managed, real estate investment 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 consists solely of the one hundred and twenty-one acres of land the Trust acquired through foreclosure on January 6, 2009. Real estate owned is originally recorded at fair value less estimated selling costs. Fair value
was derived from a recent appraisal of the property which was reviewed by the Trust. The current market for comparable properties in southern Mississippi is weak and there are no recent sales of comparable properties. These conditions are not indicative of an active market. Appraised values in such markets are potentially subject to significant fluctuations if and when sales of comparable properties occur. The Trust monitors valuations in this market through discussions
with developers and others, plus its own assessments of the highest and best use for real estate owned.
REAL ESTATE LOANS: The Trust carries its real estate loans at their 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 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 the nine months ended September 30, 2009 and September 30, 2008, all material 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. Cash
receipts will be allocated to interest income except when the Trust believes the loan is not fully recoverable. Loan fees are recognized as interest income over the lives of the related real estate loans using the straight-line method.
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 the greater of 90% of its taxable income or 100% of its capital
gains.
Page 6 of 12
NET INCOME PER SHARE: Net income per share is computed based on the weighted-average number of shares outstanding.
RECLASSIFICATIONS: Certain items in the 2008 financial statements have been reclassified to conform to the 2009 presentation.
RECENTLY ADOPTED ACCOUNTING GUIDANCE: On September 30, 2009, the Trust adopted changes issued by the Financial Accounting Standards Board (FASB) to the authoritative hierarchy of GAAP. These changes establish the FASB Accounting Standards Codification TM (Codification)
as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with GAAP. Rules and interpretive releases of the Securities and Exchange Commission (SEC) under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. The FASB will no longer issue new standards in the form of Statements, FASB Staff Positions, or Emerging Issues Task Force Abstracts; instead the
FASB will issue Accounting Standards Updates. Accounting Standards Updates will not be authoritative in their own right as they will only serve to update the Codification. These changes and the Codification itself do not change GAAP. Other than the manner in which new accounting guidance is referenced, the adoption of these changes had no impact on the financial statements.
Fair Value Accounting. On June 30, 2009, the Trust adopted changes issued by the FASB to fair value disclosures of financial instruments. These changes require a publicly traded company to include disclosures about the fair value of its financial instruments whenever it issues summarized
financial information for interim reporting periods. Such disclosures include the fair value of all financial instruments, for which it is practicable to estimate that value, whether recognized or not recognized in the statement of financial position; the related carrying amount of these financial instruments; and the method(s) and significant assumptions used to estimate the fair value. Other than the required disclosures, the adoption of these changes had no impact on the financial statements.
On June 30, 2009, the Trust adopted changes issued by the FASB to fair value accounting. These changes provide additional guidance for estimating fair value when the volume and level of activity for an asset or liability have significantly decreased and includes guidance for identifying circumstances that indicate a transaction is not
orderly. This guidance is necessary to maintain the overall objective of fair value measurements, which is that fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. The adoption of these changes had no impact on the financial statements.
On June 30, 2009, the Trust adopted changes issued by the FASB to the recognition and presentation of other-than-temporary impairments. These changes amend existing other-than-temporary impairment guidance for debt securities to make the guidance more operational and to improve the presentation and disclosure of other-than-temporary
impairments on debt and equity securities. The adoption of these changes had no impact on the financial statements.
On January 1, 2009, the Trust adopted changes issued by the FASB to fair value accounting and reporting as it relates to nonfinancial assets and nonfinancial liabilities that are not recognized or disclosed at fair value in the financial statements on at least an annual basis. These changes define fair value, establish a framework for
measuring fair value in GAAP, and expand disclosures about fair value measurements. This guidance applies to other GAAP that require or permit fair value measurements and is to be applied prospectively with limited exceptions. The adoption of these changes, as it relates to nonfinancial assets and nonfinancial liabilities, had no impact on the financial statements. These provisions will be applied at such time a fair value measurement of a nonfinancial asset or nonfinancial liability is required, which may result
in a fair value that is materially different than would have been calculated prior to the adoption of these changes.
Page 7 of 12
Other. On June 30, 2009, the Trust adopted changes issued by the FASB to accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued, otherwise known as “subsequent events.”
Specifically, these changes set forth the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements, and the disclosures that an entity should make about events or transactions that occurred after the balance sheet date.
The adoption of these changes had no impact on the financial statements because the Trust already followed a similar approach prior to the adoption of this new guidance.
2. REAL ESTATE LOAN
As of September 30, 2009 the Trust had one $600,000 real estate loan 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, with the $600,000 principal balance due in August
2010.
The fair value of the $600,000 real estate loan approximated its carrying value as of September 30, 2009 due to current market rates of real estate loans and its near term maturity. The Trust has assessed the collectibility of the real estate loan and unpaid interest of $37,184, and believes them to be fully collectible at September
30, 2009.
3. SUBSEQUENT EVENT
On November 9, 2009 the Trust borrowed $300,000 under a promissory note collateralized by a deed of trust on the one hundred and twenty-one acres in Wiggins, Mississippi. The promissory note bears interest at 9% per annum with both the interest and principal due on January 31, 2012. The Trust evaluated subsequent events
for potential recognition and/or disclosure through November 16, 2009, the date the financial statements were issued. Other than the item noted above, no other subsequent events occurred.
Page 8 of 12
|
ITEM 2 |
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND |
|
RESULTS OF OPERATIONS |
CRITICAL ACCOUNTING ESTIMATES
REAL ESTATE OWNED: Real estate owned consists solely of the one hundred and twenty-one acres of land the Trust acquired through foreclosure on January 6, 2009. Real estate owned is originally recorded at fair value less estimated selling costs. Fair value
was derived from a recent appraisal of the property which was reviewed by the Trust. The current market for comparable properties in southern Mississippi is weak and there are no recent sales of comparable properties. These conditions are not indicative of an active market. Appraised values in such markets are potentially subject to significant fluctuations if and when sales of comparable properties occur. The Trust monitors valuations in this market through discussions
with developers and others, plus its own assessments of the highest and best use for real estate owned.
REAL ESTATE LOANS: The Trust carries its real estate loans at their 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 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
Interest revenues were lower in the nine months ended September 30, 2009 compared to the nine months ended September 30, 2008 primarily due to lower average real estate loan balances.
General and administrative expense increased in the nine months ended September 30, 2009 compared to the nine months ended September 30, 2008 primarily due to increased legal and professional fees related to the acquisition of the one hundred and twenty-one acres in Wiggins, Mississippi and unsuccessful efforts to sell the property.
When the Trust acquired the one hundred and twenty-one acres in Wiggins, Mississippi through foreclosure on January 6, 2009 it transferred the related real estate loan balance to real estate owned. All of the operating expense for the nine months ended September 30, 2009 relate to this property. The Trust had no real
estate owned or operating expense in the nine months ended September 30, 2008.
LIQUIDITY AND CAPITAL RESOURCES
The Trust expects to meet its short-term liquidity requirements from cash on hand, collections on its real estate loan, borrowings collateralized by real estate owned and the sale of real estate owned.
Currently, the Trust has no substantial income, but continuing expenses. As a result the Trustees have suspended distributions at this time.
|
ITEM 3 |
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Not applicable for smaller reporting companies.
Page 9 of 12
|
ITEM 4 |
CONTROLS AND PROCEDURES |
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURE
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated
to us to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, we recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and we necessarily were required to apply our judgment in evaluating the cost-benefit relationship of possible controls and procedures.
As required by Rule 13a-15(b) under the Securities and Exchange Act of 1934, we carried out an evaluation, under the supervision and with the participation of Gregory Crissman, the Trust's Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based
on the foregoing, Gregory Crissman concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective at the reasonable assurance level.
PART II. OTHER INFORMATION
|
ITEM 1 |
LEGAL PROCEEDINGS |
None.
|
ITEM 1A |
RISK FACTORS |
Not applicable for smaller reporting companies.
|
ITEM 2 |
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
None.
|
ITEM 3 |
DEFAULTS UPON SENIOR SECURITIES |
None.
|
ITEM 4 |
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS |
The Trust had no meetings in the third quarter.
|
ITEM 5 |
OTHER INFORMATION |
None.
Page 10 of 12
|
ITEM 6 |
EXHIBITS |
Exhibit 31.1 Certification of Chief Executive Officer and Chief Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Exhibit 32.1 Certification of Chief Executive Officer and Chief Financial Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Page 11 of 12
USA REAL ESTATE INVESTMENT TRUST
Signatures
Pursuant to the requirement 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.
|
November 16, 2009 |
/s/ Gregory Crissman |
|||
|
Date |
Gregory Crissman, |
|||
|
Chairman |
||||
|
November 16, 2009 |
/s/ Benjamin Diaz |
|||
|
Date |
Benjamin Diaz, |
|||
|
Trustee |
Page 12 of 12