Attached files
| file | filename |
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| EX-31.1 - USA REIT 12-31-08 EXHIBIT 31.1 - USA REAL ESTATE INVESTMENT TRUST /CA | ex31_1.htm |
| EX-32.1 - USA REIT 12-31-08 EXHIBIT 32.1 - USA REAL ESTATE INVESTMENT TRUST /CA | ex32_1.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
x ANNUAL REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2008
o TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission file number 0-16508
USA REAL ESTATE INVESTMENT TRUST
(Exact Name of Small Business Issuer as specified in its Charter)
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California |
68-0420085 |
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(State or other jurisdiction of |
(I.R.S. Employer Identification No.) |
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incorporation or organization) |
641 Fulton Avenue, Suite 200, Sacramento, California 95825
(Address of principal executive offices) (Zip Code)
(916) 761-4992
(Issuer's telephone number, including area code)
Securities registered under Section 12(b) of the Exchange Act:
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Title of each class |
Name of each exchange on which registered |
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None |
Securities registered under Section 12(g) of the Exchange Act:
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Shares of Beneficial Interest |
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(Title of class) |
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(Title of class) |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yeso Nox
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yeso Nox
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yeso Nox
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment
to this Form 10-K. x
Indicate by check mark if Registrant is a large 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.
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Large accelerated filer o |
Accelerated filer o |
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Non-accelerated filer o (Do not check if a smaller reporting company) |
Smaller reporting company x |
Indicate by check mark whether the Registrant is a shell company (as defined under Rule 12b-2 of the Securities Exchange Act of 1934). Yeso Nox
The aggregate market value of the registrant’s voting shares held by non-affiliates: no established market exists for the registrant’s shares of beneficial interest.
The number of shares of beneficial interest outstanding at October 13, 2009 was 18,007.
DOCUMENTS INCORPORATED BY REFERENCE
None.
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USA REAL ESTATE INVESTMENT TRUST
Table of Contents
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Page | |||
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PART I. |
ITEM 1. |
Business .................................................................................................... |
4 |
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ITEM 1A. |
Risk Factors .............................................................................................. |
6 | |
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ITEM 1B. |
Unresolved Staff Comments .................................................................... |
6 | |
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ITEM 2. |
Properties .................................................................................................. |
7 | |
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ITEM 3. |
Legal Proceedings ..................................................................................... |
7 | |
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ITEM 4. |
Submission of Matters to a Vote of Security Holders .............................. |
7 | |
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PART II. |
ITEM 5. |
Market for the Common Equity and Related Shareholder Matters and |
7 |
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Issuer Purchases of Equity Securities …................................……... |
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ITEM 6. |
Selected Financial Data ........................................................................... |
7 | |
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ITEM 7. |
Management's Discussion and Analysis of Financial Condition and |
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Results of Operations ........................................................................ |
7 | ||
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ITEM 7A. |
Quantitative and Qualitative Disclosures About Market Risk ................ |
8 | |
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ITEM 8. |
Financial Statements and Supplementary Data ........................................ |
9 | |
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ITEM 9. |
Changes in and Disagreements with Accountants on Accounting |
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and Financial Disclosure ................................................................... |
18 | ||
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ITEM 9A(T). |
Controls and Procedures .......................................................................... |
18 | |
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ITEM 9B. |
Other Information .................................................................................... |
18 | |
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PART III. |
ITEM 10. |
Directors, Executive Officers and Corporate Governance ...................... |
19 |
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ITEM 11. |
Executive Compensation ......................................................................... |
20 | |
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ITEM 12. |
Security Ownership of Certain Beneficial Owners and |
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Management and Related Shareholder Matters ................................ |
20 | ||
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ITEM 13. |
Certain Relationships and Related Transactions and |
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Director Independence ...………………………………………...... |
21 | ||
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ITEM 14. |
Principal Accountant Fees and Services ................................................. |
21 | |
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PART IV |
ITEM 15. |
Exhibits and Financial Statement Schedules ........................................... |
22 |
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PART I.
Forward-Looking Statements
This Annual Report on Form 10-K, together with other statements and information publicly disseminated by USA Real Estate Investment Trust (the "Trust"), contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such statements
are based on assumptions and expectations which may not be realized and are inherently subject to risks, uncertainties and other factors, many of which cannot be predicted with accuracy and some of which might not even be anticipated. Future events and actual results, performance, transactions or achievements, financial and otherwise, may differ materially from the results, performance, transactions or achievements expressed or implied by the forward-looking statements. Risks, uncertainties
and other factors that might cause such differences, some of which could be material, include, but are not limited to: changes in the global political environment; national and local economic, business and real estate and other market conditions; the competitive environment in which the Trust operates; property management risks; financing risks, such as the inability to obtain debt or equity financing on favorable terms; possible future downgrades in the Trust's credit rating; the level of volatility of interest
rates; financial stability of tenants, including the ability of tenants to pay rent, the decision of tenants to close stores and the effect of bankruptcy laws; the rate of revenue increases versus expense increases; the ability to maintain the Trust's status as a real estate investment trust ("REIT") for federal income tax purposes; governmental approvals, actions and initiatives; environmental/safety requirements and costs; risks of real estate acquisition and development, including the failure of acquisitions
to close and pending developments and redevelopments to be completed on time and within budget; risks of disposition strategies, including the failure to complete sales on a timely basis and the failure to reinvest sale proceeds in a manner that generates favorable returns; risks of joint venture activities; as well as other risks identified in this Annual Report on Form 10-KSB and, from time to time, in the other reports the Trust files with the Securities and Exchange Commission or in other documents that the
Trust publicly disseminates. The Trust undertakes no obligation to publicly update or revise these forward-looking statements, whether as a result of new information, future events or otherwise.
ITEM 1. BUSINESS.
GENERAL
The Trust is a California business trust that was formed on October 7, 1986, for the primary purpose of engaging in the business of acquiring, owning, operating and financing real estate investments. The Trust commenced operations on October 19, 1987, upon the sale of the minimum offering amount of shares of beneficial interest.
The purpose of the Trust is to provide investors with an opportunity to own, through transferable shares, an interest in diversified real estate investments. Through such investments, the Trust seeks to provide investors with an opportunity to participate in a portfolio of professionally managed real estate investments in the same
way a mutual fund affords investors an opportunity to invest in a professionally managed portfolio of stocks, bonds and other securities.
The Trust has operated and intends to continue to operate in a manner intended to qualify as a 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.
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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.
The office of the Trust is located at 641 Fulton Avenue, Suite 200, in Sacramento, California.
INVESTMENT OBJECTIVES
The Trust seeks to invest in real estate investments in order to produce income.
Subject to certain limitations, the Declaration of Trust gives the Trustees discretion to allocate the Trust's investments without the prior approval of shareholders.
INVESTMENT GUIDELINES
Acquisition Policies. The Trustees have adopted investment guidelines for the purpose of selecting the Trust's investments. Pursuant to the guidelines, the allocation of Trust assets depends principally upon the following factors:
1. The number of real estate investments available for acquisition which show current income or 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, holding for investment and disposing of real estate investments. Revenues, net income and assets from this industry segment are included in the Trust's financial statements which appear at Item 7 of Part II.
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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 predict what impact, if any, such new legislation may have on entities such as a real estate investment trust.
ITEM 1A. RISK FACTORS.
Not applicable to smaller reporting companies.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
Not applicable to smaller reporting companies.
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ITEM 2. PROPERTIES.
None.
ITEM 3. LEGAL PROCEEDINGS.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Trust had no meetings in the fourth quarter.
PART II
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ITEM 5. MARKET FOR THE COMMON EQUITY AND RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. |
The Trust has one class of authorized and outstanding equity consisting of shares of beneficial interest with a par value of $1 per share. The Trust engaged in a continuous best efforts public offering from May 20, 1987 until May 20, 1992. As of October 13, 2009, the Trust had 18,007 shares outstanding to 2,118 shareholders
of record.
No active public trading market presently exists for the shares of the Trust. The Trust does not anticipate that an active public trading market will exist within the foreseeable future. Occasional trades in the shares of the Trust take place without the participation of the Trust on the Over-the- Counter Bulletin Board.
In 2008, the Trust paid four distributions of $16, $16, $16 and $8 per share to shareholders of record on March 1, 2008, June 1, 2008, September 1, 2008 and December 1, 2008, respectively. In 2007, the Trust paid four distributions of $8, $12, $16 and $16 per share to shareholders of record on May 1, 2007, June 1, 2007, September
1, 2007 and December 1, 2007, respectively.
ITEM 6. SELECTED FINANCIAL DATA.
Not applicable to smaller reporting companies.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. |
CRITICAL ACCOUNTING ESTIMATES
REAL ESTATE LOANS: The Trust carries its real estate loans at their unpaid principal balances net of unamortized loan fees unless it is probable that 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, a valuation allowance is established with a corresponding charge to a provision for loan losses.
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FINANCIAL CONDITION
The Trust acquired one hundred and twenty-one acres of land in Wiggins, Mississippi through foreclosure on January 6, 2009. Wiggins, Mississippi is located thirty one miles north of Gulfport, Mississippi on Highway 49.
The Trust has no maturing debt to refinance in this period of decreased availability of financing and decreased demand for real estate. The only outstanding debt the Trust has is accounts payable.
RESULTS OF OPERATIONS
In August 2008, the $2,591,161 loan made by the Trust and collateralized by the marina located at 4350 Riverside Boulevard in Sacramento, California was paid in full. Payment consisted of cash in the sum of $1,991,161 and a new loan in the principal sum of $600,000. The new $600,000 loan is secured by a deed of trust
and security agreement against the property located at 4350 Riverside Boulevard in Sacramento, California, subordinate to another loan on the same property and is also personally guaranteed by the principal members of the borrower. The new $600,000 loan bears interest at 10% per annum, payable in monthly installments of interest only, with the $600,000 principal balance due August 2010.
Interest income decreased significantly in 2008 compared to 2007 primarily because the Trust recognized no interest income in 2008 on the $6,800,000 real estate loan that was collateralized by the one hundred and twenty one acres in Wiggins, Mississippi that the Trust acquired through foreclosure in January 2009.
The Trust recognized an impairment charge of $2,015,364 in 2008 compared to none in 2007. This write-down resulted from declining real estate values which adversely impacted the value of the one hundred and twenty one acres in Wiggins, Mississippi that the Trust acquired through foreclosure in January 2009.
LIQUIDITY AND CAPITAL RESOURCES
The Trust expects to meet its short-term liquidity requirements through cash on hand, net cash provided by operations, proceeds from the sale of real estate, collections on real estate loans and borrowings collateralized by real estate owned. The Trust expects it will have sufficient liquidity and cash resources to meet its capital
requirements in 2009.
OFF-BALANCE SHEET ARRANGEMENTS
The Trust has no off-balance sheet arrangements.
IMPACT OF INFLATION
The Trust's operations have not been materially affected by inflation. The rate of inflation has been relatively low since the Trust commenced operations in October 1987.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable to smaller reporting companies.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
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Page | ||
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Report of Independent Registered Public Accounting Firm ..................................... |
10 | |
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Balance Sheet |
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As of December 31, 2008 and 2007 ..................................................................... |
11 | |
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Statements of Operations |
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Years Ended December 31, 2008 and 2007 .......................................................... |
12 | |
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Statements of Changes in Shareholders' Equity |
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Years Ended December 31, 2008 and 2007 .......................................................... |
13 | |
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Statements of Cash Flows |
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Years Ended December 31, 2008 and 2007 .......................................................... |
14 | |
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Notes to Financial Statements .................................................................................... |
15 | |
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REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
To the Trustees of
USA Real Estate Investment Trust
We have audited the accompanying balance sheets of USA Real Estate Investment Trust as of December 31, 2008 and 2007 and the related statements of income, changes in shareholders' equity, and cash flows for the years then ended. These financial statements are the responsibility of the Trust's management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the auditing standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of USA Real Estate Investment Trust as of December 31, 2008 and 2007 and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United
States of America.
Perry-Smith LLP
Sacramento, California
October 7, 2009
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USA REAL ESTATE INVESTMENT TRUST
Balance Sheet
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December 31, |
December 31, |
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2008 |
2007 |
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Assets |
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Real estate loans, net |
$ | 6,302,980 | $ | 9,045,401 | ||||
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Interest receivable |
7,134 | 969,428 | ||||||
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Cash |
862,537 | 119,597 | ||||||
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Total assets |
$ | 7,172,651 | $ | 10,134,426 | ||||
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Liabilities and Shareholders' Equity |
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Liabilities: |
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Accounts payable |
$ | 83,636 | $ | -- | ||||
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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 |
$ | 18,007 | $ | 18,007 | ||||
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Additional paid-in capital |
26,355,335 | 26,355,335 | ||||||
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Distributions in excess of cumulative net income |
(19,284,327 | ) | (16,238,916 | ) | ||||
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Total shareholders' equity |
7,089,015 | 10,134,426 | ||||||
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Total liabilities and shareholders' equity |
$ | 7,172,651 | $ | 10,134,426 | ||||
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See notes to financial statements. |
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USA REAL ESTATE INVESTMENT TRUST
Statements of Operations
Years Ended December 31, 2008 and 2007
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2008 |
2007 |
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Revenues: |
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Interest income |
$ | 272,068 | $ | 1,476,501 | ||||
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Expenses: |
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General and administrative |
293,705 | 245,077 | ||||||
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Impairment charge |
2,015,364 | -- | ||||||
| 2,309,069 | 245,077 | |||||||
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Net (loss) income |
$ | ( 2,037,001 | ) | $ | 1,231,424 | |||
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Net (loss) income per share |
$ | ( 113.12 | ) | $ | 63.26 | |||
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Weighted-average number of shares |
18,007 | 19,465 | ||||||
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Distributions per share |
$ | 56.00 | $ | 52.00 | ||||
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See notes to financial statements. |
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USA REAL ESTATE INVESTMENT TRUST
Statements of Changes in Shareholders' Equity
Years Ended December 31, 2008 and 2007
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Shares of Beneficial |
Additional |
Distributions |
Total |
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Interest |
Paid-in |
in Excess of |
Shareholders' |
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Number |
Amount |
Capital |
Net Income |
Equity |
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December 31, 2006 |
23,369 | $ | 23,369 | $ | 29,234,993 | $ | (16,509,652 | ) | $ | 12,748,710 | ||||||||||
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Repurchases |
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of shares |
(5,362 | ) | (5,362 | ) | (2,879,658 | ) | (2,885,020 | ) | ||||||||||||
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Net income |
1,231,424 | 1,231,424 | ||||||||||||||||||
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Distributions |
(960,688 | ) | (960,688 | ) | ||||||||||||||||
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December 31, 2007 |
18,007 | 18,007 | 26,355,335 | ( 16,238,916 | ) | 10,134,426 | ||||||||||||||
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Net loss |
( 2,037,001 | ) | ( 2,037,001 | ) | ||||||||||||||||
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Distributions |
(1,008,410 | ) | (1,008,410 | ) | ||||||||||||||||
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December 31, 2008 |
18,007 | $ | 18,007 | $ | 26,355,335 | $ | ( 19,284,327 | ) | $ | 7,089,015 | ||||||||||
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See notes to financial statements. |
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USA REAL ESTATE INVESTMENT TRUST
Statements of Cash Flows
For the Years Ended December 31, 2008 and 2007
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2008 |
2007 |
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CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net (loss) income |
$ | ( 2,037,001 | ) | $ | 1,231,424 | |||
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Adjustments to reconcile net (loss) income to net cash provided by operating activities: |
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Impairment charge |
2,015,364 | -- | ||||||
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Amortization of loan fees |
(36,167 | ) | (52,167 | ) | ||||
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Changes in operating assets and liabilities: |
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Decrease (increase) in interest receivable |
270,011 | ( 969,428 | ) | |||||
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Decrease in rent receivable |
-- | 5,014 | ||||||
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Increase (decrease) in accounts payable |
83,636 | (6,108 | ) | |||||
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Net cash provided by operating activities |
295,843 | 208,735 | ||||||
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CASH FLOWS FROM INVESTING ACTIVITIES: |
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Investments in real estate loans |
(535,654 | ) | (8,337,234 | ) | ||||
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Receipt of loan fees |
-- | 94,000 | ||||||
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Collections on real estate loans |
1,991,161 | -- | ||||||
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Net cash provided by (used in) investing activities |
1,455,507 | (8,243,234 | ) | |||||
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CASH FLOWS FROM FINANCING ACTIVITIES: |
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Redemption of shares |
-- | (2,885,020 | ) | |||||
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Distributions paid |
(1,008,410 | ) | (960,688 | ) | ||||
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Net cash used in financing activities |
(1,008,410 | ) | (3,845,708 | ) | ||||
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NET INCREASE (DECREASE) IN CASH |
742,940 | (11,880,207 | ) | |||||
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CASH AT BEGINNING OF PERIOD |
119,597 | 11,999,804 | ||||||
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CASH AT END OF PERIOD |
$ | 862,537 | $ | 119,597 | ||||
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See notes to financial statements. |
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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 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 years ended December 31, 2008 and December 31, 2007, 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.
NET INCOME PER SHARE: Net income per share is computed based on the weighted-average number of shares of 18,007 and 19,465 during 2008 and 2007, respectively.
RECLASSIFICATIONS: Certain items in the 2007 financial statements have been reclassified to conform to the 2008 presentation.
NEW ACCOUNTING PRONOUNCEMENTS: In February 2007, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 159, The Fair Value Option for Financial Assets and Financial Liabilities-Including Amendment of FASB Statement No. 115.
This standard permits entities to choose to measure many financial instruments and certain other items at fair value and is effective for the first fiscal year beginning after November 15, 2007. The Trust adopted Statement of Financial Accounting Standards No. 159 on January 1, 2008, but did not elect the fair value option.
In April, 2009, the Financial Accounting Standards Board (FASB) issued FASB Staff Position (FSP) No. FAS 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly,” (FSP FAS 157-4). FSP FAS 157-4 provides additional
guidance for estimating fair value in accordance with SFAS 157 when the volume and level of activity for the 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. FSP FAS 157-4 becomes effective for the Trust on April 1, 2009. Management has determined that the adoption of FSP FAS 157-4 will not have an impact on the financial statements.
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In May, 2009, the Financial Accounting Standards Board (FASB) issued SFAS 165, “Subsequent Events,” (SFAS 165). SFAS 165 establishes general standards of 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. Specifically, SFAS 165
sets 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. SFAS 165 becomes effective
for the Trust on April 1, 2009. Management has determined that the adoption of SFAS 165 will not have an impact on the financial statements.
In June, 2009, the Financial Accounting Standards Board (FASB) issued SFAS 168, “The FASB Accounting Standards Codification TM and the Hierarchy of Generally Accepted Accounting Principles—a replacement of FASB Statement No. 162,” (SFAS 168). SFAS 168 The FASB Accounting Standards CodificationTM (“Codification”)
will become the source of authoritative U.S. generally accepted accounting principles (“GAAP”) recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. On the effective date of SFAS 168, the Codification will supersede all then-existing non-SEC accounting and reporting standards. All other nongrandfathered non-SEC accounting literature not included
in the Codification will become nonauthoritative. SFAS 168 becomes effective for the Trust on July 1, 2009. Management has determined that the adoption of SFAS 168 will not have an impact on the Financial Statements.
2. REAL ESTATE LOANS
At December 31, 2008, the Trust had two real estate loans totaling $6,302,980. At December 31, 2007, the Trust had two real estate loans, net totaling $9,045,401, which consisted of gross real estate loans of $9,087,234 less unamortized loan fees of $41,833.
At December 31, 2008, the Trust’s $600,000 real estate loan had an interest rate of 10.00% and matures in August 2010. The Trust’s other loan was impaired at December 31, 2008 and was subsequently foreclosed upon on January 6, 2009.
At December 31, 2008, the Trust’s $600,000 real estate loan was collateralized by property in California. At December 31, 2007, 74.74% and 25.26% of the outstanding balance of the Trust real estate loans were collateralized by properties in Mississippi and California, respectively.
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In December 2008, the Trust commenced foreclosure proceedings on its loan collateralized by one hundred and twenty-one acres of land in Wiggins, Mississippi and completed the foreclosure on January 6, 2009. As this event provides additional information about conditions that existed at December 31, 2008, its effects have been recognized
in the financial statements through an impairment charge of $2,015,364. This impairment charge was determined by obtaining an updated appraisal on the property and reducing this value by estimated costs to sell.
The fair market value of the Trust’s $600,000 real estate loan approximated its carrying value at December 31, 2008 due to current market rates of real estate loans and its near term maturity.
3. DISTRIBUTIONS
For federal income tax purposes: 51% of the distributions paid in 2008 were ordinary income and 49% were nontaxable. 100% of the distributions paid in 2007 were ordinary income.
4. SUBSEQUENT EVENT
On March 17, 2009 the Trust paid a distribution of $8.00 per share to shareholders of record on March 1, 2009.
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|
|
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. |
None.
ITEM 9A(T). CONTROLS AND PROCEDURES.
The Trust's Chairman, Chief Executive Officer and Chief Financial Officer, Gregory Crissman, conducted an evaluation of the effectiveness of the Trust's disclosure controls and procedures. Based on that valuation, he concluded that the Trust's disclosure controls and procedures were effective as of December 31, 2008. Additionally,
there have been no significant changes in the Trust's internal controls or in other factors that could significantly affect these controls subsequent to December 31, 2008, including any corrective actions with regard to significant deficiencies and material weaknesses.
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER
FINANCIAL REPORTING
Management of USA Real Estate Investment Trust is responsible for establishing and maintaining adequate internal control over financial reporting.
Management assessed the effectiveness of the Trust’s internal control over financial reporting based on criteria for effective internal control over financial reporting described in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Based on its assessment, management concluded that the Trust maintained effective internal control over financial reporting as of December 31, 2008.
This annual report does not include an attestation report of the Trust’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Trust’s independent registered public accounting firm pursuant to temporary rules of the Securities
and Exchange Commission that permit the Trust to provide only management’s report in this annual report.
ITEM 9B. OTHER INFORMATION.
None.
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PART III.
|
|
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT. |
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 |
57 |
1986 |
Trustee and Chairman, Chief Executive | |||
|
Officer and Chief Financial Officer | ||||||
|
Benjamin A. Diaz |
75 |
1988 |
Trustee and Secretary | |||
|
Joyce A. Marks |
74 |
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, Chief Executive Officer 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. Mr. Diaz is the Secretary of the Trust. Mr. Diaz is a retired judge of the Superior Court of California. He served as a judge of the Sacramento County Superior Court from April 1976 to May 1986. He has engaged in private practice
in Sacramento, California, as a partner in the law firm of Grossfield and Diaz from June 1986 to September 1987 and in the law firm of Diaz & Gebers, specializing in real estate transactions, general practice, litigation, business law, and personal injury matters from October 1987 to December 1991. From January 1992 to the present, Judge Diaz has been engaged in pro tem judging, arbitration, mediation and consulting services. Mr. Diaz received his Juris Doctor degree from the University
of Pacific, McGeorge School of Law, Sacramento, California in 1966. Prior to serving on the bench, Mr. Diaz had extensive tax and auditing experience with the State of California Franchise Tax Board, dealing with large corporate unitary tax audits, and with the California State Board of Equalization.
JOYCE A. MARKS. Ms. Marks was employed by 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.
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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 2008, the Trust was a self-administered, self-managed real estate investment trust. The Trust has the following officers: Chairman, Chief Executive Officer, Chief Financial Officer, and Secretary. No officer except Gregory E. Crissman is compensated by the Trust in his capacity as an officer. During
2008, none of the Trust's officers received compensation in excess of $65,175.
|
Total |
Long-Term | ||||||||
|
Name and |
Officer |
Annual |
and other | ||||||
|
Principal Position |
Year |
Compensation |
Compensation |
Compensation | |||||
|
Gregory E. Crissman, Chairman |
2008 |
$52,800 |
$65,175 |
(1) |
None | ||||
|
(1) Includes fees for each meeting of the Trustees attended for a total of $12,375. | |||||||||
COMPENSATION OF TRUSTEES
Each Trustee receives $1,375 for each Trustees' meeting attended plus reimbursement of direct expenses incurred in connection with such attendance. There are currently no plans to alter this compensation schedule. No Trustee received compensation under any other arrangement during 2008 except Gregory E. Crissman who
received compensation as an officer for work performed. The Trustees do not maintain a nominating or compensation committee or any other standing committee except for an audit committee. The audit committee consists of Benjamin A. Diaz who serves without additional compensation. The Trustees have authority to establish committees and to compensate members as appropriate for their service. During 2008, the Trustees had ten regular meetings. All Trustees attended
all meetings.
|
|
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS. |
The following table sets forth as of October 13, 2009, the number of shares owned by each person who is known by the Trust to own beneficially more than 5% 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:
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|
Amount and Nature of |
Percent | |||
|
Name and Address of Beneficial Owner |
Beneficial Ownership |
of Class | ||
|
Gregory E. Crissman, Chairman, Chief Executive Officer, |
||||
|
Chief Financial Officer, Principal Accounting Officer and Trustee |
46 |
0.2555 | ||
|
1066 Vanderbilt Way |
||||
|
Sacramento, CA 95825 |
||||
|
All Trustees and officers as a group |
46 |
0.2555 |
During 2008, 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 AND DIRECTOR INDEPENDENCE. |
None.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
The following table represents aggregate fees billed to the Trust for 2008 and 2007 by Perry-Smith LLP, the Trust's principal accounting firm.
|
2008 |
2007 |
|||||||
|
Audit fees |
$ | 42,000 | $ | 40,700 | ||||
|
Audit related fees |
-- | -- | ||||||
|
Tax fees |
-- | -- | ||||||
|
All other fees |
-- | -- | ||||||
| $ | 42,000 | $ | 40,700 | |||||
Pre-Approval Policy for Accounting Services. In 2005, the Audit Committee and the Trustees adopted a formal pre-approval policy for accounting services and fees. The policy requires that all audit services, audit related services, tax fees and all other fees of the Trust's independent auditor be pre-approved by the Audit
Committee and the Trustees. The Audit Committee and the Trustees approved the audit and audit related fees provided by the independent auditor during 2008 and 2007.
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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
|
3.1 |
Amended and Restated Declaration of Trust of Commonwealth Equity Trust USA | |
|
3.2 |
Bylaws of the Trust | |
|
3.3 |
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 | ||
|
the1988 Annual Meeting) | ||
|
4.1 |
Article VIII of Exhibit 3.1 | |
|
4.2 |
Form of Share Certificate | |
|
14.1 |
Code of Ethics | |
|
31.1 |
Section 302 Certifications as filed by the Chief Executive Officer and the Chief Financial | |
|
Officer pursuant to SEC Release No. 33-8212 and 34-47551 | ||
|
32.1 |
Section 906 Certifications as filed by the Chief Executive Officer and the Chief Financial | |
|
Officer pursuant to SEC Release No. 33-8212 and 34-47551 |
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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: |
October 13, 2009 |
USA Real Estate Investment Trust |
||
|
Date |
||||
|
By: |
/s/ Gregory E. Crissman |
|||
|
Gregory E. Crissman as |
||||
|
Chief Executive Officer |
||||
|
and Principal 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: |
October 13, 2009 |
USA Real Estate Investment Trust |
||
|
Date |
||||
|
By: |
/s/ Gregory E. Crissman |
|||
|
Gregory E. Crissman as |
||||
|
Chief Executive Officer |
||||
|
and Principal Financial Officer |
||||
|
Dated: |
October 13, 2009 |
By: |
/s/ Benjamin Diaz |
|
|
Date |
Benjamin Diaz, |
|||
|
Trustee |
||||
|
Dated: |
October 13, 2009 |
By: |
/s/ Joyce A. Marks |
|
|
Joyce A. Marks |
||||
|
Trustee |
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