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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter ended March 31, 1994 Commission File No. 0-2809
WESTERN INVESTMENT REAL ESTATE TRUST
- - -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
CALIFORNIA 94-6100058
- - ------------------------------------------------ ---------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3450 CALIFORNIA STREET, SAN FRANCISCO, CA 94118
- - ------------------------------------------------ ---------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number,
including area code (415) 929-0211
---------------------------
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. Yes X No .
-------- ---------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the end of the period covered by this report.
Shares of Beneficial Interest, No Par Value - 16,663,015
1
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WESTERN INVESTMENT REAL ESTATE TRUST
INDEX TO 10-Q
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements 3
Balance Sheets - March 31, 1994 and December 31, 1993 4
Statements of Income - Three months ended March 31, 1994
and 1993 5
Statements of Shareholders' Equity - Three months ended
March 31, 1994 and year ended December 31, 1993 6
Statements of Cash Flows - Three months ended March 31,
1994 and 1993 7
Notes to Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II. OTHER INFORMATION 12
Item 6. Exhibits 13
SIGNATURE 14
2
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
STATEMENT
The financial statements included herein have been prepared by the Trust,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. The information furnished reflects all adjustments which
are, in the opinion of management, necessary to a fair presentation of results
of operations for the interim periods. Such adjustments are of a normal
recurring nature. These financial statements should be read in conjunction with
the notes to financial statements appearing in the annual report to shareholders
for the year ended December 31, 1993.
3
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WESTERN INVESTMENT REAL ESTATE TRUST
Balance Sheets
<TABLE>
<CAPTION>
(Unaudited)
March 31, December 31,
1994 1993
----------------------------
ASSETS (In thousands)
<S> <C> <C>
Real estate investments:
Property subject to operating leases . . . . . . . . $332,316 $342,578
Less accumulated depreciation and amortization . . . (45,921) (45,635)
-------- --------
286,395 296,943
Property subject to direct financing leases, net . . 2,461 2,510
Mortgage loans . . . . . . . . . . . . . . . . . . . 2,809 2,809
-------- --------
Net real estate investments. . . . . . . . . . . . 291,665 302,262
Cash and cash equivalents. . . . . . . . . . . . . . . 30,244 328
Deferred long-term debt issuance costs, net. . . . . . 2,858 2,515
Accounts receivable and other assets . . . . . . . . . 4,183 4,240
-------- --------
$328,950 $309,345
-------- --------
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Bank line of credit. . . . . . . . . . . . . . . . . . -- 33,244
Real estate loans payable. . . . . . . . . . . . . . . 1,498 1,516
Interest payable . . . . . . . . . . . . . . . . . . . 1,814 1,322
Accounts payable and accrued liabilities . . . . . . . 539 238
Prepaid rents and security deposits. . . . . . . . . . 1,666 1,483
Other liabilities. . . . . . . . . . . . . . . . . . . 573 528
-------- --------
6,090 38,331
Convertible debentures . . . . . . . . . . . . . . . . 66,076 66,076
Senior notes, net. . . . . . . . . . . . . . . . . . . 49,857 --
Shareholders' equity:
Shares of beneficial interest, no par value,
unlimited share authorization
Issued and outstanding:
December 31, 1993 - 16,645,791 shares;
March 31, 1994 - 16,663,015 shares . . . . . . . . 236,420 236,178
Accumulated dividends in excess of Trust net income . (29,493) (31,240)
-------- --------
Total shareholders' equity . . . . . . . . . . . 206,927 204,938
-------- --------
$328,950 $309,345
-------- --------
-------- --------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
4
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WESTERN INVESTMENT REAL ESTATE TRUST
Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------
1994 1993
----------------------------
(In thousands, except for
per share and share data)
<S> <C> <C>
INCOME FROM REAL ESTATE OPERATIONS:
Operating revenues:
Rental income. . . . . . . . . . . . . . . . . . . $8,444 $8,275
Direct financing lease income. . . . . . . . . . . 69 75
Interest on mortgage loans . . . . . . . . . . . . 84 86
-------- -------
8,597 8,436
-------- -------
Operating expenses:
Property management. . . . . . . . . . . . . . . . 534 478
Repairs, maintenance and other . . . . . . . . . . 625 385
-------- -------
1,159 863
-------- -------
Depreciation and amortization. . . . . . . . . . . . 2,271 2,243
-------- -------
Income from real estate operations . . . . . . . 5,167 5,330
-------- -------
Long-term debt interest expense and amortization . . . 1,768 1,403
Other interest expense . . . . . . . . . . . . . . . . 305 574
-------- -------
2,073 1,977
-------- -------
Interest and other income. . . . . . . . . . . . . . . 120 5
-------- -------
Administrative expenses:
Salaries and trustees' fees. . . . . . . . . . . . . 201 220
Professional services. . . . . . . . . . . . . . . . 20 206
Office and other expenses. . . . . . . . . . . . . . 214 55
-------- -------
435 481
-------- -------
Income before gain on sale
of real estate investment. . . . . . . . . . . . 2,779 2,877
Gain on sale of real estate investment. . . . . . . . 3,629 --
-------- -------
Net income . . . . . . . . . . . . . . . . . . . . . . $6,408 $2,877
-------- -------
-------- -------
Per Share:
Income before gain on sale
of real estate investment. . . . . . . . . . . . . . $0.167 $0.175
-------- -------
-------- -------
Gain on sale of real estate investment . . . . . . . $0.218 --
-------- -------
-------- -------
Net income . . . . . . . . . . . . . . . . . . . . . $0.385 $0.175
-------- -------
-------- -------
Dividends paid . . . . . . . . . . . . . . . . . . . $0.28 $0.28
-------- -------
-------- -------
Weighted average number of shares. . . . . . . . . . . 16,648,662 16,468,355
---------- ----------
---------- ----------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
5
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WESTERN INVESTMENT REAL ESTATE TRUST
Statements of Shareholders' Equity
Three Months Ended March 31, 1994 (Unaudited) and
Year Ended December 31, 1993
<TABLE>
<CAPTION>
Accumulated
Shares of Dividends Total
Beneficial Interest in Excess of Share-
------------------- Trust Net holders'
Number Amount Income Equity
-----------------------------------------------------------
(In thousands, except share data)
<S> <C> <C> <C> <C>
Balance, January 1, 1993 . . . . . . . . 16,466,048 $233,648 $(24,303) $209,345
Net proceeds from issuance of shares . . 65,614 935 -- 935
Debenture redemption and conversion. . . 114,129 1,595 -- 1,595
Net income . . . . . . . . . . . . . . . -- -- 11,594 11,594
Cash dividends paid. . . . . . . . . . . -- -- (18,531) (18,531)
---------- ------- ------- -------
Balance, December 31, 1993. . . . . . 16,645,791 $236,178 $(31,240) $204,938
Net proceeds from issuance of shares . . 17,224 242 -- 242
Net income . . . . . . . . . . . . . . . -- -- 6,408 6,408
Cash dividends paid. . . . . . . . . . . -- -- (4,661) (4,661)
---------- ------- ------- -------
Balance, March 31, 1994 . . . . . . . 16,663,015 $236,420 $(29,493) $206,927
---------- ------- ------- -------
---------- ------- ------- -------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
6
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WESTERN INVESTMENT REAL ESTATE TRUST
Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------
1994 1993
---------------------------
(In thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . $6,408 $2,877
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization. . . . . . . . . . . . . . . 2,271 2,243
Amortization of deferred debt issuance cost. . . . . . . . 49 44
Gain on sale of real estate investment . . . . . . . . . . (3,629) --
(Increase) decrease in accounts receivable and other assets 91 (772)
Increase in deferred rent receivable . . . . . . . . . . . (138) (153)
Increase in interest payable . . . . . . . . . . . . . . . 492 1,358
Increase in accounts payable and accrued liabilities . . . 301 1,433
Increase in other liabilities. . . . . . . . . . . . . . . 228 20
------- -------
Net cash provided by operating activities. . . . . . . . . 6,073 7,050
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of real estate investment . . . . . . . 12,398 --
Acquisition and improvements of real estate investments. . (388) (160)
Recovery of investment in direct financing leases. . . . . 49 42
------- -------
Net cash provided (used) in investing activities . . . . . 12,059 (118)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances on line of credit . . . . . . . . . . . . . . . . 7,900 4,500
Principal payments on line of credit . . . . . . . . . . . (41,144) ( 8,000)
Principal payments on real estate loans payable. . . . . . (18) (21)
Redemption of convertible debentures . . . . . . . . . . . -- (41)
Proceeds from issuance of shares, net. . . . . . . . . . . 242 230
Proceeds from senior note offering . . . . . . . . . . . . 49,855 --
Senior note issuance costs . . . . . . . . . . . . . . . . (390) --
Cash dividends paid. . . . . . . . . . . . . . . . . . . . (4,661) (4,610)
------- -------
Net cash provided (used) in financing activities . . . . . 11,784 (7,942)
------- -------
Net increase (decrease) in cash and cash equivalents . . . 29,916 (1,010)
Cash and cash equivalents, at beginning of period. . . . . 328 1,028
-------- --------
Cash and cash equivalents, at end of period. . . . . . . . $ 30,244 $ 18
--------- ---------
--------- ---------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest . . . . . . . . . $ 3,417 $ 1,933
--------- ---------
--------- ---------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
7
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WESTERN INVESTMENT REAL ESTATE TRUST
Notes to Financial Statements
March 31, 1994
(Unaudited)
(1) BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with the instructions to Form 10-Q and therefore do not include
all information and footnotes necessary for a fair presentation of
financial condition, results of operations and cash flows in conformity
with generally accepted accounting principles.
When necessary, reclassifications have been made to prior period balances
to conform to current period presentation.
In compliance with FASB 13, the Trust has recognized deferred rental income
in the amount of $138,000 for the quarter ended March 31, 1994.
(2) DIVIDEND REINVESTMENT PLAN
In accordance with the Trust's Dividend Reinvestment Plan, the Trust
received $242,000 and issued 17,224 shares of beneficial interest during
the quarter ended March 31, 1994.
(3) RECENT DEVELOPMENTS
The Trust is continuing its review to determine the best use for the
Oakland, California property which is subject to a lease with Safeway
expiring September 30, 1994. The Trust, in coordination with Safeway,
is conducting a Phase II environmental study of this property.
The Trust has contracted to sell at a gain its interest in the Mid-
Peninsula Plaza property and the adjoining Marshall's property located in
Redwood City, California. Both transactions are scheduled to close in the
second quarter of 1994.
The Trust has entered into a contract to purchase a community shopping
center in Hanford, California. The center, which is located approximately
30 miles south of Fresno, will complement the Trust's portfolio of
properties in the Central Valley area of California. It is anticipated
that the closing of the purchase will be within 45 days.
8
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
OPERATING REVENUES
Operating revenues for the three months ended March 31, 1994 increased $161,000,
or 2%, to $8,597,000 from $8,436,000 in the comparable period in 1993. The
increase is principally due to increased rental income of $169,000. Rental
income increased 2% from $8,275,000 in 1993 to $8,444,000 in 1994. The increase
in rental income is principally due to $196,000 from increased rental rates and
$208,000 of cash payments received from lease terminations offset by $235,000 of
reduced rental income resulting from the January 27, 1994 sale of the Marin
General Hospital property, in Larkspur, California.
OPERATING EXPENSES
Operating expenses increased $296,000, or 34%, to $1,159,000 in the three months
ended March 31, 1994 from $863,000 in the comparable period in 1993. Property
management expense increased $56,000 for the quarter primarily due to $128,000
of increased costs associated with internal asset management capabilities which
included leasing, marketing and property management, partially offset by $99,000
of reduced allocation of administrative expense. Repairs, maintenance and other
expense increased $240,000 primarily due to the timing of the recognition of
certain CAM income and property tax.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expense increased $28,000 to $2,271,000 for the
quarter ended March 31, 1994 from $2,243,000 for the 1993 period. The increase
is due to additional depreciation from improvements on properties made in 1993
and 1994.
INTEREST EXPENSE
Interest expense consists of interest on balances outstanding under the Trust's
line of credit, the 7 7/8% senior notes due February 15, 2004, and the 8%
convertible debentures due June 30, 2008. Interest expense increased $96,000,
or 5%, to $2,073,000 for the three months ended March 31, 1994 from $1,977,000
for the comparable period in 1993, primarily due to the issuance of senior notes
in February 1994.
ADMINISTRATIVE EXPENSES
Administrative expenses decreased $46,000, or 10%, to $435,000 for the three
months ended March 31, 1994 from $481,000 for the comparable period in 1993.
The decrease was primarily due to reduced legal fees of $171,000 partially
offset by reduced allocation to property management expense of $99,000.
9
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NET INCOME
Net income before gain on sale of real estate investment for the quarter ended
March 31, 1994 was $2,779,000, or $0.167 per share, compared to $2,877,000, or
$0.175 per share, for the comparable period in 1993, a decrease of $98,000, or
3%. Gain on sale of real estate investment for the quarter ended March 31, 1994
was $3,629,000, or $0.218 per share. The resulting net income for the quarter
ended March 31, 1994 was $6,408,000 compared to $2,877,000 for the comparable
period in 1993. Net income per share for the quarter ended March 31, 1994
increased to $0.385 from $0.175 for the same period in 1993.
LIQUIDITY AND CAPITAL RESOURCES
On February 24, 1994, the Trust issued $50,000,000 of 7 7/8% senior notes due
February 15, 2004. Proceeds from the sale of senior notes were used in part to
pay the outstanding balance on the line of credit of $17,644,598. The remaining
proceeds will be used to acquire properties as suitable opportunities arise and
to expand and improve existing properties. The senior notes contain certain
covenants which impose limitations on the incurrence of debt and other
restrictions.
The Trust has a $35,000,000 line of credit on which there was no outstanding
balance due at March 31, 1994. Interest is paid on funds drawn at a rate not
greater than the banks' reference rate plus one quarter of one percent (6.50% at
3/31/94). This line of credit expires May 31, 1994 and the Trust intends to
renew it.
The Trust believes that its current sources of funds will be sufficient to meet
its existing capital commitments and operating requirements. If needed,
additional funds should be readily available to the Trust in the form of
mortgage debt on one or more of the Trust's 57 properties, 54 of which currently
are not encumbered by debt, subject to the limitations on the incurrence of debt
imposed by the Indenture executed in connection with the senior note offering.
IMPACT OF THE ECONOMY
Occupancy rates of the Trust's investments remained stable at 90% for the
quarter ended March 31, 1994.
In spite of a sluggish California economy and some related tenant fall-out, the
Trust has continued to lease space to sustain its occupancy levels. The Trust
is positioned to benefit from a general economic improvement which should result
in increased occupancy. As occupancy increases, the Trust's rental income
should increase and expenses should decrease, as more tenants assume
responsibility for operating expenses presently absorbed by the Trust.
Given the current level of inflation, the Trust believes the effect of inflation
on its result of operations is inconsequential. Future increases in inflation
would likely increase Trust rental income by increasing tenant revenues upon
which percentage rents are based, increasing rents subject to CPI-based
escalation clauses and permitting an increase in base rents on new leases.
10
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DIVIDENDS
On March 15, 1994, the Trust paid its 120th consecutive quarterly dividend since
it commenced real estate operations in 1964. Dividends paid to shareholders
totaled $18,531,000 in 1993. The Trust declares and pays quarterly dividends
based on income and funds from operations and the Trust's anticipated ability to
maintain or increase such dividends in future years.
As previously reported, 28.55% of 1993 dividends were a non-taxable return of
capital. The sale of the Marin General Hospital property produced a taxable
capital gain. As a result, the Trust anticipates that the 1994 dividend will
have a lower percentage of non-taxable return of capital. The taxable portion
of the 1994 dividend will consist of capital gain and ordinary income.
11
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PART II OTHER INFORMATION
Items 1 to 5 in Part II are omitted because they are not applicable.
12
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Item 6. Exhibits.
4.1 *Form of Indenture relating to the Trust's senior notes due 2004,
between the Trust and Boatmen's Trust Company.
4.2 *Form of Notes
4.3 *Declaration of Trust
* Incorporated by reference herein from the Trust's
Registration Statement (No. 33-71270) on Form S-3 filed with
the Securities and Exchange Commission on November 8, 1993.
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SIGNATURE
Pursuant to the requirements 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.
WESTERN INVESTMENT REAL ESTATE TRUST
(Registrant)
By: s/Dennis D. Ryan
------------------------------------
Dennis D. Ryan
Vice President and
Chief Financial Officer
Dated: May 10, 1994
