Attached files
| file | filename |
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| EX-32.1 - EXHIBIT 32.1 - USA REAL ESTATE INVESTMENT TRUST /CA | ex32-1.htm |
| EX-31.1 - EXHIBIT 31.1 - USA REAL ESTATE INVESTMENT TRUST /CA | ex31-1.htm |
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
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þ
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Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
for the quarterly period ended September 30, 2010 or
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o
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Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
for the transition period from____________________to ____________________
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Commission file number 0-20488
USA REAL ESTATE INVESTMENT TRUST
(Exact Name of Registrant as Specified in Its Charter)
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California
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68-0420085
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(State or Other Jurisdiction of Incorporation or
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(I.R.S. Employer Identification No.)
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Organization)
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1066 Vanderbilt Way,
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. þYes o 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):
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Large accelerated filer o
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Accelerated filer o
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Non-accelerated filer o
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Smaller reporting company þ
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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 8, 2010, 18,007 shares of beneficial interest of the registrant were outstanding.
Page 1 of 12
PART I. FINANCIAL INFORMATION
USA REAL ESTATE INVESTMENT TRUST
Balance Sheets
(Unaudited)
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September 30,
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December 31,
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|||||
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2010
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2009
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Assets
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||||||
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Real estate owned
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$
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6,053,951
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$
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5,971,336
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||
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Real estate loan
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580,800
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600,000
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Interest receivable
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0
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40,800
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||||
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Cash
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110,566
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217,309
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Total assets
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$
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6,745,317
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$
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6,829,445
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Liabilities and Shareholders' Equity
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||||||
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Liabilities:
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||||||
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Accounts payable
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$
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197,906
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$
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122,791
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Notes payable
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400,000
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300,000
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Total liabilities
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597,906
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422,791
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Commitments and contingencies (Note 5)
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Shareholders' equity:
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Shares of beneficial interest, par value $1 per share;
62,500 shares authorized; 18,007 shares outstanding
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18,007
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18,007
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Additional paid-in capital
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26,355,335
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26,355,335
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Distributions in excess of cumulative net income
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( 20,225,931
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)
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( 19,966,688
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)
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Total shareholders’ equity
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6,147,411
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6,406,654
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Total liabilities and shareholders’ equity
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$
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6,745,317
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$
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6,829,445
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See notes to financial statements.
Page 2 of 12
USA REAL ESTATE INVESTMENT TRUST
Statements of Operations
(Unaudited)
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Three Months Ended
September 30,
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2010
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2009
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Revenues:
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Interest income
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$
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--
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$
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21,328
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Expenses:
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General and administrative expenses
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59,702
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113,886
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Operating expense
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18,242
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17,939
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77,944
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131,825
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Net loss
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$
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( 77,944
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)
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$
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( 110,497
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)
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Net loss per share
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$
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( 4.33
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)
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$
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( 6.14
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)
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Weighted-average number of shares outstanding
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18,007
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18,007
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Distributions per share
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$
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0.00
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$
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8.00
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See notes to financial statements.
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Page 3 of 12
USA REAL ESTATE INVESTMENT TRUST
Statements of Operations
(Unaudited)
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Nine Months Ended
September 30,
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2010
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2009
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Revenues:
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Interest income
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$
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--
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$
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63,288
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Expenses:
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General and administrative expense
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225,260
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347,438
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Operating expense
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33,983
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161,299
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259,243
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508,737
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Net loss
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$
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( 259,243
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)
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$
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( 445,449
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)
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Net loss per share
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$
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( 14.40
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)
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$
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( 24.74
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)
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Weighted-average number of shares outstanding
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18,007
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18,007
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Distributions per share
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$
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0.00
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$
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8.00
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See notes to financial statements.
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Page 4 of 12
USA REAL ESTATE INVESTMENT TRUST
Statements of Cash Flows
(Unaudited)
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Nine Months Ended
September 30,
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2010
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2009
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CASH FLOWS FROM OPERATING ACTIVITIES:
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Net loss
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$
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( 259,243
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)
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$
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( 445,449
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)
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Changes in operating assets and liabilities:
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||||||
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Decrease (increase) in interest receivable
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40,800
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( 30,050
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)
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Increase in accounts payable
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75,115
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85,087
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Net cash used in operating activities
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( 143,328
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)
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( 390,412
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)
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CASH FLOWS FROM INVESTING ACTIVITIES:
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Investments in real estate owned
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( 82,615
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)
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( 79,742
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)
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Collections on real estate loans
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19,200
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--
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Net cash used in investing activities
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( 63,415
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)
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( 35,276
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)
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CASH FLOWS FROM FINANCING ACTIVITIES:
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Distributions paid
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--
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( 144,058
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)
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Increase in notes payable
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100,000
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--
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Net cash provided by (used in) financing activities
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100,000
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( 144,058
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)
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NET DECREASE IN CASH
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( 106,743
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)
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( 614,412
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)
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CASH AT BEGINNING OF PERIOD
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217,309
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862,537
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CASH AT END OF PERIOD
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$
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110,566
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$
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248,125
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See notes to financial statements.
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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.
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. If the amount expected to be collected on 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. Please refer to Note 3, Real Estate Loan, for additional information.
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, 2010 and September 30, 2009, 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. 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 2009 financial statements have been reclassified to conform to the 2010 presentation.
RECENTLY ISSUED ACCOUNTING GUIDANCE: In January 2010, the FASB issued changes to disclosure requirements for fair value measurements. Specifically, the changes require a reporting entity to disclose, in the reconciliation of fair value measurements using significant unobservable inputs (Level 3), separate information about purchases, sales, issuances, and settlements (that is, on a gross basis rather than as one net number). These changes become effective for the Trust beginning January 1, 2011. The Trust has determined these changes will have no impact on the financial statements.
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2. REAL ESTATE OWNED
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As of September 30, 2010 the Trust owned one hundred and twenty-one acres of land valued at $6,053,951. The Trust acquired this land through foreclosure on January 6, 2009. During the nine months ended September 30, 2010, the Trust incurred $82,615 of costs that were capitalized to the value of the land. No events or changes in circumstances have occurred which indicate that the carrying value of the land may not be recoverable.
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3. REAL ESTATE LOAN
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As of September 30, 2010 the Trust had one $580,800 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. The $580,800 principal balance was due August 31, 2010.
The fair value of the $580,800 real estate loan approximated its carrying value at September 30, 2010 due to current market rates of real estate loans and it’s near term maturity. 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 on September 10, 2010. As such, the real estate loan is considered impaired, but there is no measurable impairment at September 30, 2010. The Trust suspended income recognition on the real estate loan during the nine months ended September 30, 2010 and all future payments will be accounted for as a reduction of principal until the principal is fully recovered. Interest income not recognized on the real estate loan during the nine months ended September 30, 2010 was $62,827.
4. NOTES PAYABLE
As of September 30, 2010 the Trust had notes payable collateralized by its real estate owned. The promissory notes bear interest at 9% per annum with both the interest and principal due on January 31, 2012. The aggregate fair value of the notes approximates their carrying value as of September 30, 2010.
5. COMMITMENTS AND CONTINGENCIES
The Trust is involved in claims and legal proceedings and it may become involved in other 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. Except as indicated below, 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. The Trust currently is a party to the legal proceedings described below. Attorney fees related to legal matters are expensed as incurred.
Page 7 of 12
USA Real Estate Investment Trust vs. Frank J. Ferris and Collie Christensen
On December 30, 2009, the Trust filed an action in the Superior Court of the State of California, County of Sacramento to enforce the guarantees of Frank J. Ferris and Collie Christensen of a loan made on February 28, 2007, to CFG, LLC, a Mississippi limited liability company, in the sum of $6,800,000. The loan was secured by a deed of trust on real property located in Wiggins, Mississippi, which was foreclosed on January 6, 2009. The Trust foreclosed against the real property collateral bidding $2,500,000 of the indebtedness. The Trust seeks to recover the deficiency from the guarantors with interest thereon at the rate of 25% per annum from January 6, 2009, until paid. There are no known defenses to this action.
On March 5, 2010, a default was entered against Frank J. Ferris. Collie Christensen filed an answer on March 5, 2010, and discovery is proceeding. Although numerous defenses were raised in the answer, the Trust is aware of no factual basis for any of the asserted defenses.
USA Real Estate Investment Trust v. The Security Title Guarantee Corporation of Baltimore, Patrick A. Sheehan, Esquire, John Does 1-10, and Corporations W, X, Y and Z
On September 23, 2009, the Trust filed an action involving several irregularities, inadequacies and negligent acts by the named defendants pertaining to the closing of a commercial real estate loan transaction by Patrick A. Sheehan wherein title insurance was issued by The Security Title Guarantee Corporation of Baltimore. The Trust is seeking both compensatory and punitive damages from the defendants.
6. SUBSEQUENT EVENT
On October 5, 2010 the Trust borrowed $100,000 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.
Page 8 of 12
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ITEM 2
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
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RESULTS OF OPERATIONS
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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. In January 2011, the Trust intends to obtain an appraisal of the property as of December 31, 2010.
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. If the amount expected to be collected on 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 income decreased $63,288 or 100% during the nine months ended September 30, 2010 compared to the same period in 2009 primarily because the Trust suspended income recognition on the real estate loan during the nine months ended September 30, 2010. Income recognition will not be resumed until the real estate loan becomes contractually current and performance is demonstrated to be resumed.
Operating expenses decreased $127,316 or 79% during the nine months ended September 30, 2010 compared to the same period in 2009 primarily due to decreased erosion control expenses during the nine months ended September 30, 2010 compared to the same period in 2009.
The Trust will not generate net income until it either sells its real estate owned or prevails in its legal proceedings.
FINANCIAL POSITION
The Trust’s operating performance will be substantially based upon its ability to sell its real estate owned. The Trust has made improvements to its real estate owned to make it more marketable. The Trust has had discussions with various parties to identify potential buyers. However, the Trust’s real estate owned is not currently under a contract for sale.
LIQUIDITY AND CAPITAL RESOURCES
Overview
Currently, the Trust has no substantial income, but 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, collections on its real estate loan, borrowings collateralized by real estate owned and the sale of real estate owned.
Page 9 of 12
Operating Activities
The Trust used $143,328 in operating activities during the nine months ended September 30, 2010 primarily for general and administrative expenses.
Investing Activities
The Trust used $63,415 in investing activities to make improvements to its real estate owned.
Financing Activities
The Trust’s cash used in financing activities decreased by $44,058 during the nine months ended September 30, 2010 compared to the nine months ended September 30, 2009, as a result of the suspension of distributions.
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ITEM 3
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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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Not applicable for smaller reporting companies.
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ITEM 4
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CONTROLS AND PROCEDURES
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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.
Page 10 of 12
PART II. OTHER INFORMATION
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ITEM 1
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LEGAL PROCEEDINGS
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Please refer to Note 5, Commitments and Contingencies, of the Notes to Financial Statements included with the Financial Statements of this Quarterly Report on Form 10-Q for information regarding the Trust’s legal proceedings, which are incorporated herein by reference.
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ITEM 1A
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RISK FACTORS
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Not applicable for smaller reporting companies.
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ITEM 6
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EXHIBITS
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Exhibit 31.1 Section 302 Certifications filed by the Chief Executive Officer and Chief Financial Officer pursuant to SEC Release No. 33-8212 and 34-37551.
Exhibit 32 Section 906 Certifications as furnished by the Chief Executive Officer and the Chief Financial Officer pursuant to SEC Release No. 33-8212 and 34-47551.
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.
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November 8, 2010
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/s/ Gregory Crissman
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Date
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Gregory Crissman,
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Chairman
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November 8, 2010
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/s/ Benjamin Diaz
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Date
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Benjamin Diaz,
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Trustee
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Page 12 of 12