<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1993 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
----------------------------
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
8% Convertible Debentures Due 2008 American Stock Exchange
- ----------------------------------------- -----------------------------------
Securities registered pursuant to Section 12(g) of the Act:
Shares of beneficial interest, without par value
- --------------------------------------------------------------------------------
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K 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]
1
<PAGE>
The aggregate market value of the voting shares held by nonaffiliates of the
registrant on March 14, 1994, based on the reported closing sales price of the
Trust's shares of beneficial interest on the American Stock Exchange on such
date was $232,932,000.
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
Shares of Beneficial Interest, No Par Value - 16,645,791
shares as of March 14, 1994.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Trust's proxy statement with respect to its 1994 Annual Meeting
of Shareholders which will be filed with the Commission regarding the fiscal
year covered by this Form 10-K are incorporated by reference in Part III, Items
10, 11, 12 and 13.
WESTERN INVESTMENT REAL ESTATE TRUST
INDEX TO 10-K
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
PART I
Item 1 Business 3 to 8
Item 2 Properties 9 to 11
Item 3 Legal Proceedings 12
Item 4 Submission of Matters to a Vote of Security Holders N/A
PART II
Item 5 Market for Registrant's Common Equity and Related Stockholder Matters 13
Item 6 Selected Financial Data 14
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operation 15 to 18
Item 8 Financial Statements 19 to 33
Financial Statement Schedules 34 to 39
Item 9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 40
PART III
Item 10 Directors and Executive Officers of the Registrant 40
Item 11 Executive Compensation 40
Item 12 Security Ownership of Certain Beneficial
Owners and Management 40
Item 13 Certain Relationships and Related Transactions 40
PART IV
Item 14 Exhibits, Financial Statement Schedules
and Reports on Form 8-K 40
Signatures 42
</TABLE>
2
<PAGE>
PART I
Item 1. Business
GENERAL DEVELOPMENT OF BUSINESS
Western Investment Real Estate Trust is a real estate investment trust ("REIT")
and qualifies as such under Sections 856 and 960 of the Internal Revenue Code.
The Trust was organized under the laws of the State of California in 1962 and
commenced real estate operations in 1964.
In order that the Trust may continue to qualify as a real estate investment
trust: (i) more than 75% of the Trust's total assets must be invested in real
estate, cash, cash items or government securities, (ii) at least 75% of the
Trust's gross income must be derived from real estate assets, (iii) the Trust
can hold no property primarily for sale to customers in the ordinary course of
business, (iv) beneficial ownership of the Trust must be held by more than 100
persons during at least 335 days of each taxable year, and (v) the Trust must
distribute annually to its shareholders an amount equal to or exceeding 95% of
its real estate investment trust taxable income. Under the terms of its
Declaration of Trust, the Trust is permitted to invest its funds in ownership of
real estate, mortgages, deeds of trust and certain financial instruments as
permitted by law. Substantially all of the Trust's funds have been invested in
the ownership of real estate.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The Trust is not engaged in different segments of a business nor is the Trust
engaged in more than one line of business.
NARRATIVE DESCRIPTION OF BUSINESS
The Trust, which at December 31, 1993 employed 43 people, is a self-administered
and fully integrated equity REIT, which invests in a diversified portfolio of
income-producing properties located principally in Northern and Central
California and Nevada. At December 31, 1993, the Trust had investments in 58
income-producing properties. These properties contain, in the aggregate,
approximately 4.4 million rentable square feet of improvements and approximately
19.8 million square feet of land. At year end, the occupancy rate of the
Trust's properties was 90%. Of the amounts invested by the Trust at December
31, 1993, 88% is in shopping centers and retail properties with the balance in
commercial and industrial properties. The Trust has not invested in residential
income properties.
3
<PAGE>
The following table indicates the composition of the Trust's real estate
investments as of December 31, 1993 by type based on amounts invested by the
Trust.
Portfolio Summary
DECEMBER 31, 1993
Portfolio Distribution by Type of Real Estate Investment
<TABLE>
<CAPTION>
Number of Amount of
Investments Investment Percentage
----------- ---------- ----------
<S> <C> <C> <C>
Shopping Center/Retail 44 $305,714,000 88%
Commercial 11 36,587,000 10%
Industrial 3 5,696,000 2%
--- ------------ ----
58 $347,997,000 100%
--- ------------ ----
--- ------------ ----
<CAPTION>
Portfolio Distribution by Type of Ownership
Number of Amount of
Investments (1) Investment Percentage
----------- ---------- ----------
<S> <C> <C> <C>
Equity ownership (subject
to operating leases) 57 $342,578,000 98%
Direct financing leases 2 2,510,000 1%
Mortgages 2 2,909,000 1%
--- ------------ ----
61 $347,997,000 100%
--- ------------ ----
--- ------------ ----
<FN>
(1) Two properties are included in two types of ownership. The Mid-Peninsula
Plaza Shopping Center is included in property subject to operating leases
to the extent of the Trust's co-tenancy interest of $3,672,000 and is
included in mortgage loans to the extent of the Trust's $2,809,000 secured
note. Viking Freight System Truck Terminal is included in equity ownership
to the extent of the Trust's land investment of $548,000 and is included in
direct financing leases to the extent of $1,444,000. The Trust holds a
mortgage loan in the amount of $100,000, secured by land in Reno, Nevada,
which is included in the Shopping Center/Retail line in the upper half of
the schedule above. This $100,000 mortgage loan is not accounted for in
the 58 number of investments (above) as a separate investment.
</TABLE>
4
<PAGE>
Major Revenue Producers
1993 OPERATING REVENUES
<TABLE>
<CAPTION>
% of Total
Operating Number of
Tenant Revenue Revenues Locations
------ ------- --------- ---------
<S> <C> <C> <C>
1) Raley's Supermarkets $7,770,000 23.0 19
2) Coast Federal Bank 1,662,000 4.9 6
3) Save Mart Supermarkets 1,408,000 4.2 7
4) Marin General Hospital (1) 1,325,000 3.9 1
5) PayLess Drugs 862,000 2.5 5
6) Safeway 638,000 1.9 2
7) K-Mart 609,000 1.8 2
8) Lucky's 598,000 1.8 3
9) Scolari's 442,000 1.3 1
10) Ross Stores 420,000 1.2 3
----------- -----
$15,734,000 46.5%
----------- -----
----------- -----
<FN>
(1) On January 27, 1994 the Trust sold its Marin General Hospital property
in Larkspur, California, for $12,412,000 pursuant to a purchase
option.
</TABLE>
In spite of a sluggish California economy, the Trust's occupancy rate at year-
end was stable at 90% in 1993 and 1992. The Trust believes that it was unable
to increase occupancy above this rate during this period due to the economy
coupled with overbuilding in certain areas in which Trust properties are
located. The smaller retail and service tenants at the Trust's community
shopping centers, which tend to be more dependent on discretionary spending,
have been more negatively impacted by the economy than the Trust's anchor
tenants. The anchor tenants consist primarily of supermarkets and/or super
drugstores. In the Trust's experience, these businesses tend to be impacted
less by economic downturns than other types of retailers.
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 common area and other expenses presently absorbed by
the Trust. Increased tenants' sales at its community shopping centers should
also increase rental income by generating greater percentage rents under some
leases.
During the past several years, volume discount retailers, such as Wal-Mart and
Costco, have entered certain areas of California and Nevada where Trust
community shopping center properties are located. The Trust expects that these
discounters may positively or negatively affect certain of the Trust's shopping
center tenants. The Trust believes that its tenants could benefit if these
discounters attract additional customers to nearby Trust properties and thereby
generate increased sales for Trust tenants. Conversely, the Trust's tenants
could be negatively affected if discounters draw customers away from the Trust's
properties. The Trust believes that to date the trend has had no measurable
impact on the Trust's results of operations.
The Trust's principal shopping center and retail tenants include substantial,
well-recognized businesses such as Kmart, Lucky Stores, Marshall's, J.C. Penney,
Raley's, Ross Stores, Save Mart and Thrifty. The Trust's commercial tenants
include Coast Federal Bank and Fireman's Fund.
5
<PAGE>
No single property investment accounted for more than 5% of operating revenues
in 1993. However, at December 31, 1993, Raley's, a supermarket and super drug
retailer, was a tenant in nineteen of the Trust's investments. Raley's, a
privately owned company, currently operates 85 stores in Northern California and
Nevada. The Raley's organization has released information indicating that its
sales exceeded $1.58 billion in its most recently reported fiscal year ended
June 26, 1993. The Trust receives sales and other information on a monthly,
quarterly or annual basis from its retail tenants, including Raley's, whose
leases provide for such reports. The Trust uses this information to monitor the
payment of percentage rents. Virtually all of the Trust's existing leases
include at least one of the following provisions for payment of additional rent:
(1) scheduled and/or market rate increases, (2) percentage participation in
tenants'gross sales, (3) or CPI based escalation clauses. The Trust endeavors
to structure leases on a triple net basis with the lessees being responsible for
most operating expenses, such as real estate taxes, certain types of insurance,
utilities, normal repairs and maintenance. To the extent such provisions cannot
be negotiated and in regard to vacant space, the Trust pays such expenses from
current operating income. Most of the Trust's leases require the tenant to
carry liability insurance coverage on their leased premises. The Trust monitors
tenant compliance with insurance coverage requirements. While the Trust
believes its properties are adequately insured, the Trust does not carry
earthquake or flood coverage. Most of the Trust's properties are located in
areas of California and Nevada where earthquakes have been known to occur.
The Trust will consider future investments in existing or proposed shopping
centers, industrial and commercial buildings and office buildings, as well as
other kinds of income-producing properties which meet the Trust's return on
investment, appreciation and risk criteria. The Trust may enter into
development agreements and development mortgage loans in order to obtain future
equity interests in properties. As of December 31, 1993, no such loans were
outstanding. Although there may be attendant risks in such investments, the
Trust seeks to minimize these risks by evaluating the financial substance and
experience of developers and by obtaining construction, pre-leasing or other
guarantees from the developer or other parties to the transaction. If a
developer of a project under construction defaults or fails to complete the
project, the Trust may incur substantial additional expense to complete
construction.
The Trust's investment focus has been in the Northern and Central areas of
California and Nevada, generally outside of major cities in areas which are
experiencing population growth. All but one of the Trust's properties are in
this geographic area. The Trust's geographic focus and its experience in real
estate investments in Northern California and Nevada allow for efficient asset
management. The Trust has made and will consider making investments in other
geographic locations if such investments have attractive returns, appreciation
potential and can be effectively managed.
The Trust competes for quality properties with other investors and engages in a
continuing effort to identify desirable properties for acquisition. Management
believes that the Trust can continue to compete effectively in the current real
estate environment because of its experience in real estate investment, tenant
selection and lease negotiation.
The Trust plans to make additional investments in real properties, which will
provide attractive yields to the Trust. The Trust has raised approximately
$127.5 million during the five year period ending March 31, 1994 through the
sale of additional shares and the issuance of senior notes, and will endeavor to
raise additional capital, either debt or equity, to fund future purchases. The
cost of debt or equity capital will be weighed against the anticipated yields of
the investments which could be acquired with those funds.
6
<PAGE>
POTENTIAL ENVIRONMENTAL RISKS
Investments in real property create a potential for environmental liability on
the part of the owner of such real property. If hazardous substances are
discovered on or emanating from any of the Trust's properties, the Trust and/or
others may be held strictly liable for all costs and liabilities relating to the
clean-up of such hazardous substances.
The Trust, as far as it is aware, owns only four properties which presently
contain underground storage tanks. The Trust has no knowledge of any leakage or
contamination resulting from these tanks. There are, however, reported low
levels of soil contamination from underground storage tanks removed from the
Heritage Place Shopping center in Tulare, California prior to its acquisition by
the Trust. In addition, there is a potential for contamination from reported
off-site leaking petroleum underground storage tanks located on properties
adjacent to certain Trust properties.
In order to mitigate environmental risks, in 1989 the Trust adopted a policy of
requesting at least a Phase I environmental study (a preliminary site assessment
which does not include environmental sampling, monitoring or laboratory
analysis) on each property it seeks to acquire. No independent environmental
analysis has been implemented by the Trust with respect to any of the properties
which the Trust acquired prior to 1989. Although the Trust has no knowledge
that any material environmental contamination has occurred, no assurance can be
given that hazardous substances are not located under any of the properties.
The Trust carries no express insurance coverage for the type of environmental
risk described above.
The Trust assesses on an ongoing basis measures necessary to comply with
environmental laws and regulations. The probable overall costs of these
measures cannot be determined at this time due to uncertainty about the extent
of environmental risks and the Trust's responsibility, the complexity of
environmental laws and regulations and the selection of alternative compliance
approaches. However, the Trust is not aware of any environmental conditions
which will have a material impact on its financial position or results of
operations.
ASSET MANAGEMENT
The Trust is a fully integrated REIT which directly provides full asset
management services to all but three of its properties. Asset management
includes property management, leasing, marketing, accounting and legal support.
Internal management provides for regular interaction between the Trust and its
tenants and close supervision of properties, while permitting the Trust to
provide its tenants with a range of value added services.
The Trust directly manages 55 of its 58 properties. In order to facilitate its
present and future asset management activities the Trust has significantly
expanded its asset management staff, improved its systems and controls, and
opened two branch offices which are centrally located to the properties. The
offices are located at the Trust's Country Gables shopping center in Granite
Bay, California and at the Victorian Walk shopping center in Fresno, California.
As part of its improved systems and controls, the Trust has implemented a state
of the art computerized management information system which is capable of
providing the Trust with real time access to all property accounting, lease
administration and property related information.
7
<PAGE>
Internal management permits the Trust to provide value added services to its
tenants. For example, the Trust's marketing staff works with the Trust's
tenants on promotional and advertising activities to draw consumers to the
shopping centers. These activities help the Trust attract and retain the
national, regional, and local retail tenants which serve the Northern and
Central California and Nevada markets. In addition, the Trust believes that
over time the costs of internal property management and leasing should prove
less expensive than employing independent property management and leasing firms
due to lower commissions and fees and certain economies of scale.
Three of the 58 properties are managed by independent property managers. G & W
Management Co. continues to provide management services for the property leased
to Fireman's Fund Insurance Company, in Petaluma, California, for fees equal to
3.5% of gross receipts. The Trust's property is a part of a larger office park
which is managed in total by G & W Management Co. Commercial Real Estate
Service (CRES) provides management services with respect to Serra Center,
located in Colma, California, for fees equal to 4% of gross receipts
attributable to the Trust's 30% interest in the center. CRES is an affiliate of
the co-owner of the Serra Center and has been managing the property for
approximately 20 years. The Trust and its co-owner have authorized the
employment of Terranomics Management Services to manage Mid-Peninsula Plaza, in
Redwood City, California for a fee equal to 6% of gross receipts. The cost of
management services does not affect the Trust's priority return on this
property. None of the above named property managers are affiliated with the
Trust, its trustees, officers or any shareholder owning 5% or more of the
Trust's shares. Repairs and maintenance of the Trust's properties not
undertaken by tenants under the terms of the Trust's triple net leases are
performed by independent contractors not affiliated with the Trust, its trustees
or officers, or any shareholder owning 5% or more of the Trust's shares.
8
<PAGE>
Item 2: Properties
<TABLE>
<CAPTION>
12/31/93
Name Location Occupancy (1) 1993 1992
---- -------- ------------- ---- ----
(in thousands)
<S> <C> <C> <C> <C>
I. Rental Income
SHOPPING CENTER/RETAIL
Lucky Stores El Cerrito, CA 100% 241 241
San Antonio Center Mountain View, CA 81 524 500
Kmart, Lucky Stores Napa, CA 100 158 133
Lucky Stores Santa Maria, CA 100 145 174
Denny's Redwood City, CA 100 66 65
Carpeteria Concord, CA 100 221 187
Kwik Stop Santa Rosa, CA 100 45 57
Acapulco Y Los Arcos Restaurantes Fresno, CA 100 140 72
Serra Center (30% Int.) Colma, CA 100 405 352
Dodge Center Fallon, NV 100 (2) 293 289
West Town Plaza Winnemucca, NV 100 462 462
Nob Hill General Stores Watsonville, CA 100 296 305
Mid-Peninsula Plaza (50% Int.) (3) Redwood City, CA 100 (2) 428 432
Eastridge Plaza Shopping Center Porterville, CA 78 478 507
Angels Camp Towne Center Angels Camp, CA 96 548 554
Heritage Place Town Center Tulare, CA 99 969 986
Marshall's (3) Redwood City, CA 100 268 268
Raley's Shopping Center Yuba City, CA 93 732 838
Canal Farms Shopping Center Los Banos, CA 89 790 680
Kmart Shopping Center Sacramento, CA 88 400 436
Park Place Shopping Center Vallejo, CA 93 1,362 1,127
Blossom Valley Plaza Shopping Center Turlock, CA 99 1,096 1,064
Coalinga Shopping Center Coalinga, CA 77 377 342
Commonwealth Square Shopping Center Folsom, CA 92 1,557 1,405
Country Gables Shopping Center Granite Bay, CA 85 1,205 1,228
Heritage Oak Shopping Center Gridley, CA 73 450 490
Belle Mill Shopping Center Red Bluff, CA 86 (2) 678 724
Anderson Square Shopping Center Anderson, CA 90 290 393
North Hills Shopping Center Reno, NV 90 784 760
Cobblestone Shopping Center Redding, CA 88 927 898
Victorian Walk Shopping Center Fresno, CA 90 748 780
Elko Junction Shopping Center Elko, NV 97 749 768
Skypark Plaza Shopping Center Chico, CA 90 1,286 1,310
Heritage Park Shopping Center Suisun City, CA 84 1,294 1,162
Pinecreek Shopping Center (50% Int.) Grass Valley, CA 86 891 822
Eagle Station Shopping Center Carson City, NV 94 908 903
Currier Square Shopping Center Oroville, CA 89 932 918
Yreka Junction Shopping Center Yreka, CA 95 746 685
Ukiah Crossroads Shopping Center Ukiah, CA 86 877 874
Raley's Supermarket Fallon, NV 100 401 401
Caughlin Ranch Shopping Center Reno, NV 74 788 591
Mercantile Row Shopping Center Dinuba, CA 93 733 826
Elverta Crossing Shopping Center Sacramento, CA 90 1,079 622
-------- --------
Sub-total - Shopping Center/Retail $27,767 $26,631
-------- --------
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
12/31/93
Name Location Occupancy (1) 1993 1992
---- -------- ------------- ---- ----
(in thousands)
<S> <C> <C> <C> <C>
UNDEVELOPED LEASED SHOPPING CENTER SITE
Raley's Willowrock Shopping Center (4) Rocklin, CA N/A $369 $225
---- ----
Sub-total Undeveloped Leased Shopping Center Site $369 $225
-------- --------
COMMERCIAL
U. S. Postal Service Boulder Creek, CA 100% 25 25
Coast Federal Bank Cupertino, CA 100 190 190
Coast Federal Bank (Taraval) San Francisco, CA 100 306 306
Coast Federal Bank Monterey, CA 100 421 421
Coast Federal Bank (Market) San Francisco, CA 100 272 272
Coast Federal Bank Santa Cruz, CA 100 173 166
Coast Federal Bank Salinas, CA 100 300 283
Marin General Hospital (5) Larkspur, CA 100 1,385 1,307
3450 California Street San Francisco, CA 100 211 195
Crystal Lake Office Building Milpitas, CA 18 23 0
Redwood Business Park II Petaluma, CA 100 619 616
-------- --------
Sub-total - Commercial $3,925 $3,781
-------- --------
INDUSTRIAL
Viking Freight Systems Santa Clara, CA 100% $389 $358
Safeway Stores, Inc. (6) Oakland, CA 100(2) 546 546
Merchants, Inc. Commerce City, CO 100 183 175
-------- --------
Sub-total - Industrial $1,118 $1,079
-------- --------
Total Rental Income $33,179 $31,716
-------- --------
II. Direct Financing Lease Income
Shopping Center/Retail
and Industrial
---------------------------
Kmart, Lucky Stores Napa, CA 100% $170 $187
Viking Freight Systems Santa Clara, CA 100 122 128
-------- --------
Total Direct Financing Lease Income $292 $315
-------- --------
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
Interest
Name Location Rate 1993 1992
---- -------- ------- ---- ----
(in thousands)
<S> <C> <C> <C> <C>
III. Interest Income (7)
SHOPPING CENTER/RETAIL
Mid-Peninsula Plaza (3) Redwood City, CA 12% $342 $343
CDI Mortgage Loans (8) Elko & North Reno, NV 10% 0 505
-------- --------
Total Interest Income $342 $848
-------- --------
Total Operating Revenues $33,813 $32,879
-------- --------
-------- --------
<FN>
(1) Once a space is subject to an executed lease, the space is then included in
occupied space. A space continues to be incorporated in our occupancy
percentage until: 1) the related lease expires and the tenant is no longer
in legal possession, or 2) the related lease is formally terminated and the
tenant is no longer in legal possession.
(2) The occupancy of these properties includes space which is currently
partially or wholly vacant but on which the Trust receives rental payments
under leases or other guarantees.
(3) Agreements for the sale of the Trust's interests in the Mid-Peninsula Plaza
shopping center and the Marshall's property in Redwood City have been
executed. However, there is no assurance that any such sales transaction
will be completed.
(4) Property consists of unimproved land currently under lease to Raley's which
has an option to purchase expiring in November 1995. Raley's has given the
Trust written notice of their exercise of said option conditionally upon
Raley's completing a sale to a third party. There is no guarantee that the
purchase will be consummated.
(5) Property sold in January 1994.
(6) Safeway has notified the Trust that it will terminate its lease with
respect to the Oakland, California property as of September 30, 1994.
Although Safeway will continue to pay rent on this property through
September, it has vacated the premises and the Trust has initiated efforts
to re-lease or sell the property. The Trust believes that it is unlikely
that it will be able to re-lease the property on terms as favorable as the
terms with Safeway. Furthermore, depending on the eventual use of the
property, the Trust could be required to take a write down of up to $1.5
million (book value).
(7) See Note 4 of the Financial Statements.
(8) Investment converted to equity ownership through a deed in lieu of
foreclosure in 1993.
</TABLE>
11
<PAGE>
Item 3. Legal Proceedings
The Trust was named a defendant in two (2) lawsuits filed in the Second Judicial
District Court for the State of Nevada, County of Washoe. One action was a
class action (Gomer vs. Realm Development Corp. et al., No. CV90-6108) and the
other was brought by 33 individuals (Bautista vs. Shaver Construction Co., Inc.,
No. CV92-01464). Plaintiffs in both lawsuits alleged that they suffered
personal injury and/or property damage as the result of excessive dust generated
from construction of the Caughlin Ranch development in Reno, Nevada. The Trust
has reached a settlement in regard to these lawsuits involving a payment of
$25,000 to the plaintiffs.
On January 11, 1993, a complaint was filed by the United States against the
Trust and other defendants with regard to an alleged disturbance of the wetlands
at the Park Place shopping center in Vallejo, California (U.S. vs. Connolly
Development Inc., et al., U.S. District Court, E.D. Cal No. S-93-044, WBS-GGH).
The complaint sought implementation of a restoration plan, assessment of civil
penalties, a permanent injunction prohibiting the discharge of fill materials
into the wetlands, and the government's costs of suit and disbursements. This
lawsuit has been settled by the execution of a consent decree under which the
developer of the property is primarily liable for penalties and costs of
restoration, and the action was dismissed against the Trust on February 11,
1994. However, the Trust has agreed to guarantee the performance of the
restoration by, and to provide a loan to, the developer. In the event of a
default by the developer, the Trust's exposure could be as much as $250,000.
12
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters.
Principal Market:
The shares of beneficial interest, without par value, of the Trust are listed on
the American Stock Exchange under the symbol "WIR". The following table sets
forth the high and low sales prices of the shares as reported by the American
Stock Exchange:
<TABLE>
<CAPTION>
Quarter Ended High Low Dividends
------------- ---- --- ---------
<S> <C> <C> <C>
March 31, 1992 14 1/4 11 1/8 .28
June 30, 1992 13 7/8 12 1/4 .28
September 30, 1992 13 1/8 11 7/8 .28
December 31, 1992 13 1/4 11 7/8 .28
March 31, 1993 17 1/4 12 1/4 .28
June 30, 1993 17 1/8 13 1/2 .28
September 30, 1993 14 7/8 13 3/4 .28
December 31, 1993 14 1/4 12 1/2 .28
Through
March 14, 1994 15 1/8 12 1/4 .28 (1)
<FN>
(1) Paid March 15, 1994.
</TABLE>
Approximate number of equity security holders:
Title of Class Number of Record Holders
-------------- ------------------------
(as of December 31, 1993)
Shares of Beneficial Interest, without par value 2,688
The Trust estimates that there were over 18,000 beneficial owners of
shares, including owners whose shares were held in brokerage and trust
accounts.
13
<PAGE>
Item 6. Selected Financial Data
<TABLE>
<CAPTION>
Year Ended December 31, 1993 1992 1991 1990 1989
- -------------------------------------------------------------------------------------------------------
(in thousands, except for per share and share data)
<S> <C> <C> <C> <C> <C>
OPERATING DATA
Operating revenues . . . . . . . . . . . $33,813 $32,879 $32,591 $31,295 $27,575
Net income . . . . . . . . . . . . . . . 11,594 11,323 14,653 17,902(1) 14,578(1)
Funds from operations(2) . . . . . . . . 20,854 20,305 22,801 24,380 19,433
Cash dividends paid. . . . . . . . . . . 18,531 18,316 20,855 23,161 17,616
PER SHARE DATA
Net income . . . . . . . . . . . . . . . $.70 $.69 $.91 $1.12(1) $1.12(1)
Cash dividends paid. . . . . . . . . . . 1.12 1.12 1.29 1.445 1.355
Average shares outstanding . . . . . . . 16,548,198 16,356,462 16,177,460 16,028,557 13,024,855
BALANCE SHEET DATA
Real estate investments, at cost . . . . $349,936 $347,959 $343,606 $316,254 $274,328
Total assets . . . . . . . . . . . . . . 309,345 316,622 318,941 302,014 299,816
Convertible debentures . . . . . . . . . 66,076 67,949 70,251 72,543 74,865
Real estate loans payable. . . . . . . . 1,516 1,581 1,637 1,693 1,754
Shareholders' equity . . . . . . . . . . 204,938 209,345 213,851 217,497 220,125
Book value per share(3). . . . . . . . . 12.31 12.71 13.15 13.51 13.78
<FN>
(1) Excludes gains on sales of real estate investments of $526,000 or $.03 per
share in 1990 and $236,000 or $.02 per share in 1989.
(2) Industry analysts generally consider funds from operations to be an
appropriate measure of the performance of an equity REIT. Funds from
operations as defined by the National Association of Real Estate Investment
Trusts are: net income excluding gains or losses from debt restructuring
and sales of property, plus depreciation and amortization, and after
adjustments for unconsolidated joint ventures. Funds from operations does
not represent cash flow from operations as defined by generally accepted
accounting principles (GAAP), is not necessarily indicative of cash
available to fund all cash needs and should not be considered as a
substitute for net income under GAAP as an indicator of operating
performance.
(3) Determined by dividing shareholders' equity at such year end by the number
of actual shares outstanding at such year end.
</TABLE>
14
<PAGE>
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
OPERATING REVENUES
YEARS ENDED DECEMBER 31, 1993 AND 1992
Rental income increased 5% to $33,179,000 from $31,716,000. The increase
consists of additional rental income of $851,000 from increased rental rates and
collection of prior year rents and $612,000 of deferred rent receivable.
Operating revenues increased 3% to $33,813,000 from $32,879,000 as a result of
increased rental income of $1,463,000 (5%), partially offset by decreased
interest income on mortgage loans of $506,000 (-2%) and decreased direct
financing lease income of $23,000.
YEARS ENDED DECEMBER 31, 1992 AND 1991
Rental income increased 2% to $31,716,000 from $31,220,000. The increase
consists of $1,149,000 (5%) in rental income generated from properties acquired
in 1991, $443,000 (2%) in rental income generated from the conversion of a loan
on a property in 1991, and increased rental income of $405,000 (1%) due to
increased rents and other income and collections from bankruptcy settlements of
two previous tenants, offset by a decrease of $1,344,000 (-5%) in rental income
due to the restructuring of master leases covering 17 of the Trust's shopping
center properties and a decrease of $157,000 (-1%) due to the increase in the
allowance for uncollectible accounts.
Operating revenues increased 1% to $32,879,000 from $32,591,000 as a result of
increased rental income of $496,000 (2%), partially offset by decreased interest
income on participating convertible and other mortgage loans of $188,000 (-1%)
and decreased direct financing lease income of $20,000.
OPERATING EXPENSES
YEARS ENDED DECEMBER 31, 1993 AND 1992
Operating expenses increased 17% to $3,936,000 from $3,357,000. The increase
consists of $19,000 of increased repair, maintenance and other operating
expenses and increased property management expense of $560,000 (17%) due
primarily to the increase in allocated administrative expense and the
development of internal asset management capabilities which include leasing,
marketing and property management.
YEARS ENDED DECEMBER 31, 1992 AND 1991
Operating expenses increased 85% to $3,357,000 from $1,810,000. The increase
consists of $905,000 (50%) of increased repair, maintenance, and other operating
expenses and increased property management expense of $642,000 (35%) due
primarily to the restructuring of master leases covering 17 of the Trust's
shopping center properties and the reclassification of certain administrative
expenses to operating expenses in 1992.
15
<PAGE>
DEPRECIATION AND AMORTIZATION
YEARS ENDED DECEMBER 31, 1993 AND 1992
Depreciation and amortization expense increased 5% to $9,078,000 from $8,610,000
due to additional depreciation from property improvements made in 1993 and a
full year's depreciation from property improvements made in 1992.
YEARS ENDED DECEMBER 31, 1992 AND 1991
Depreciation and amortization expense increased 9% to $8,610,000 from $7,880,000
due to additional depreciation from improvements on properties in 1992 and a
full year's depreciation on properties purchased in 1991.
DEBENTURE AND OTHER INTEREST EXPENSE
YEARS ENDED DECEMBER 31, 1993 AND 1992
Debenture and other interest expense decreased $146,000 (-2%) primarily due to
debenture redemptions during 1993.
YEARS ENDED DECEMBER 31, 1992 AND 1991
Debenture and other interest expense increased $1,155,000 (17%) primarily due to
decreased capitalization of interest costs for projects under development in
1992 and increased levels of bank borrowings in 1992 as compared to 1991 offset
in part by debenture redemptions.
ADMINISTRATIVE EXPENSES
YEARS ENDED DECEMBER 31, 1993 AND 1992
The Trust's administrative expenses decreased 14% to $1,449,000 from $1,681,000.
The decrease is principally due to substantially lower legal fees and to the
allocation of certain administrative expenses to property management expenses.
YEARS ENDED DECEMBER 31, 1992 AND 1991
The Trust's administrative expenses increased 11% to $1,681,000 from $1,510,000
primarily as the result of increased legal fees and other expenses, offset in
part by a reallocation of certain administrative expenses to property management
expenses.
NET INCOME
YEARS ENDED DECEMBER 31, 1993 AND 1992
Net income was $11,594,000 in 1993 compared to $11,323,000 in 1992, an increase
of $271,000 (2%). The significant components of this change include increased
rental income ($1,463,000), offset by decreased interest on mortgage loans
(-$506,000), and increased property management expense (-$560,000). Additional
significant components affecting net income are reduced legal fees ($218,000)
and increased depreciation and amortization expense (-$468,000).
16
<PAGE>
Net income per share for the year ended December 31, 1993 increased to $0.70 on
average outstanding shares of 16,548,198 from $.69 on average outstanding shares
of 16,356,462 in 1992.
YEARS ENDED DECEMBER 31, 1992 AND 1991
Net income was $11,323,000 in 1992 compared to $14,653,000 for the comparable
period in 1991, a decrease of $3,330,000 (-23%). The significant components of
this change include increased rental income ($496,000), offset by increased
property operating expense (-$1,547,000), interest expense (-$1,155,000),
depreciation expense (-$730,000), administrative expenses (-$171,000), and
decreased mortgage interest and other income (-$223,000).
Net income per share for the year ended December 31, 1992 decreased to $.69
from $.91 in 1991.
LIQUIDITY AND CAPITAL RESOURCES
The Trust has a $35,000,000 unsecured line of credit on which there was an
outstanding balance of $33,244,000 as of December 31, 1993. On January 27,
1994, the Trust sold its Marin General Hospital property, located in Larkspur,
California, for $12,412,000. The sales proceeds were used to reduce the
outstanding balance on the line of credit.
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 to pay the
remaining 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.
Funds from operations (FFO), as defined by the National Association of Real
Estate Investment Trusts, were $20,854,000 in 1993. Dividends paid in 1993
totaled $18,531,000, resulting in a payout ratio of 88.9% of FFO.
The Trust believes that its current sources of funds will be sufficient to meet
its existing capital commitments and operating requirements. The Trust's
unsecured $35 million line of credit expires May 31, 1994 and it intends to
renew or replace it.
As noted above, the entire amount of the line of credit is currently available.
Additionally, the Trust could borrow additional funds using its 55 properties
which do not have mortgage debt. However, senior note borrowing limitations
impose a cap on total borrowings of 55% of undepreciated real estate assets.
IMPACT OF THE ECONOMY
Occupancy rates of the Trust's investments remained stable at year-end at 90%.
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.
17
<PAGE>
During the last several years, high-volume discount retailers, such as Wal-Mart
and Costco, entered certain areas of California and Nevada where Trust community
shopping center properties are located. The Trust expects that these
discounters may positively or negatively affect certain of the Trust's shopping
center tenants. The Trust believes that its tenants could benefit if these
discounters attract additional customers to nearby Trust properties and thereby
generate increased sales for Trust tenants. Conversely, the Trust's tenants
could be negatively affected if discounters draw customers away from the Trust's
tenants. The Trust believes that to date this trend has had no measurable
impact on the Trust's results of operations.
Given the current level of inflation, the Trust believes the effect of inflation
on its results 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.
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. Since the 1993 distributions exceeded current and
accumulated earnings and profits, 28.55% is non-taxable and constitutes a return
of capital to shareholders. 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.
RECENT DEVELOPMENTS
In February 1994, the Trust successfully completed a public offering of
$50,000,000 in senior notes with a coupon rate of 7 7/8%. On January 27, 1994
the Trust sold its Marin General Hospital property in Larkspur, California, for
$12,412,000 resulting in a gain on sale of $3,629,000. Additionally, the Trust
has executed agreements for the sale of its interests in the Mid-Peninsula Plaza
Shopping center and the Marshall's property in Redwood City, California. The
aggregate book value of these three investments at December 31, 1993 was
$16,972,000. Interest rates for the short-term investment of the proceeds from
these property sales and the senior debt offering are substantially less than
the previous yields on these properties and the cost of the senior notes. The
Trust will benefit as new properties are acquired with yields substantially
greater than yields on short-term investments.
18
<PAGE>
WESTERN INVESTMENT REAL ESTATE TRUST
Financial Statements
Form 10-K Item 8
December 31, 1993
19
<PAGE>
WESTERN INVESTMENT REAL ESTATE TRUST
INDEX TO FINANCIAL STATEMENTS
Page
----
Report of Independent Certified Public Accountants 21
Balance Sheets - December 31, 1993 and December 31, 1992 22
Statements of Income - For the Years Ended
December 31, 1993, 1992 and 1991 23
Statements of Shareholders' Equity - For the Years Ended
December 31, 1993, 1992 and 1991 24
Statements of Cash Flows - For the Years Ended
December 31, 1993, 1992 and 1991 25
Notes to Financial Statements 26 to 33
Financial Statement Schedules 34 to 39
20
<PAGE>
Report of Independent Certified Public Accountants
To the Trustees and Shareholders
Western Investment Real Estate Trust:
We have audited the financial statements of Western Investment Real Estate Trust
(a California real estate investment trust) as listed in the accompanying index.
In connection with our audits of the financial statements, we also have audited
the financial statement schedules as listed in the accompanying index. These
financial statements and financial statement schedules are the responsibility of
the Trust's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as 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 Western Investment Real Estate
Trust as of December 31, 1993 and 1992, and the results of its operations and
its cash flows for each of the years in the three-year period ended December 31,
1993, in conformity with generally accepted accounting principles. Also in our
opinion, the related financial statement schedules, when considered in relation
to the basic financial statements taken as a whole, present fairly, in all
material respects, the information set forth therein.
San Francisco, California KPMG PEAT MARWICK
February 7, 1994
(except as to Note 14, which
is of February 24, 1994)
21
<PAGE>
WESTERN INVESTMENT REAL ESTATE TRUST
Balance Sheets
<TABLE>
<CAPTION>
December 31,
------------
ASSETS 1993 1992
-------------------
(In thousands)
<S> <C> <C>
Real estate investments:
Property subject to operating leases. . . . . . . . . .$342,578 $335,016
Less accumulated depreciation and amortization. . . . . (45,635) (36,954)
-------- --------
296,943 298,062
Property subject to direct financing leases, net. . . . 2,510 2,687
Mortgage loans. . . . . . . . . . . . . . . . . . . . . 2,909 8,494
-------- --------
Net real estate investments. . . . . . . . . . . . 302,362 309,243
Cash and cash equivalents. . . . . . . . . . . . . . . . . . 328 1,028
Deferred debenture issuance costs, net . . . . . . . . . . . 2,515 2,637
Accounts receivable and other assets . . . . . . . . . . . . 4,140 3,714
-------- --------
$309,345 $316,622
-------- --------
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Note payable . . . . . . . . . . . . . . . . . . . . . . . . $33,244 $35,902
Real estate loans payable. . . . . . . . . . . . . . . . . . 1,516 1,581
Debenture interest payable . . . . . . . . . . . . . . . . . 1,322 ---
Accounts payable and accrued liabilities . . . . . . . . . . 238 91
Other liabilities. . . . . . . . . . . . . . . . . . . . . . 2,011 1,754
-------- --------
38,331 39,328
Convertible debentures . . . . . . . . . . . . . . . . . . . 66,076 67,949
Commitments and contingencies (Notes 7, 9 and 13)
Shareholders' equity:
Shares of beneficial interest, no par value,
unlimited share authorization.
Issued and outstanding:
December 31, 1992-16,466,048 shares;
December 31, 1993-16,645,791 shares; . . . . . . . 236,178 233,648
Accumulated dividends in excess of Trust net income . . (31,240) (24,303)
-------- --------
Total shareholders' equity. . . . . . . . . . 204,938 209,345
-------- --------
$309,345 $316,622
-------- --------
-------- --------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
22
<PAGE>
WESTERN INVESTMENT REAL ESTATE TRUST
Statements of Income
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1993 1992 1991
------------------------------
(In thousands, except for per share and share data)
<S> <C> <C> <C>
INCOME FROM REAL ESTATE OPERATIONS:
Operating revenues:
Rental income. . . . . . . . . . . . . . . . . . . $ 33,179 $ 31,716 $ 31,220
Direct financing lease income. . . . . . . . . . . 292 315 335
Interest on mortgage loans . . . . . . . . . . . . 342 848 1,036
---------- ---------- ----------
33,813 32,879 32,591
---------- ---------- ----------
Operating expenses:
Property management. . . . . . . . . . . . . . . . 1,834 1,274 632
Repairs, maintenance and other . . . . . . . . . . 2,102 2,083 1,178
---------- ---------- ----------
3,936 3,357 1,810
---------- ---------- ----------
Depreciation and amortization. . . . . . . . . . . . 9,078 8,610 7,880
---------- ---------- ----------
Income from real estate operations . . . . . . . 20,799 20,912 22,901
---------- ---------- ----------
Debenture interest expense and amortization. . . . . . 5,538 5,679 5,096
Other interest expense . . . . . . . . . . . . . . . . 2,241 2,246 1,674
---------- ---------- ----------
7,779 7,925 6,770
---------- ---------- ----------
Interest and other income. . . . . . . . . . . . . . . 23 17 32
---------- ---------- ----------
Administrative expenses:
Trustees' fees and salaries. . . . . . . . . . . . . 793 823 861
Professional services. . . . . . . . . . . . . . . . 293 511 127
Office and other expenses. . . . . . . . . . . . . . 363 347 522
---------- ---------- ----------
1,449 1,681 1,510
---------- ---------- ----------
Net income . . . . . . . . . . . . . . . . . . . . $11,594 $11,323 $14,653
---------- ---------- ----------
---------- ---------- ----------
Net income per share . . . . . . . . . . . . . . . $.70 $.69 $.91
---------- ---------- ----------
---------- ---------- ----------
DIVIDENDS PAID PER SHARE . . . . . . . . . . . . . . . $1.12 $1.12 $1.29
---------- ---------- ----------
---------- ---------- ----------
WEIGHTED AVERAGE NUMBER OF SHARES. . . . . . . . . . . 16,548,198 16,356,462 16,177,460
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
23
<PAGE>
WESTERN INVESTMENT REAL ESTATE TRUST
Statements of Shareholders' Equity
Years Ended December 31, 1993, 1992 and 1991
(In thousands, except share data)
<TABLE>
<CAPTION>
Accumulated
Shares of Dividends Total
Beneficial Interest in Excess of Share-
-------------------- Trust Net holders'
Number Amount Income Equity
--------------------------------------------------
<S> <C> <C> <C> <C>
Balance, January 1, 1991 . . . . . . . . . . . . . . 16,103,977 $228,638 $(11,141) $217,497
Net proceeds from issuance of shares . . . . . . . . 57,620 815 -- 815
Debenture redemption . . . . . . . . . . . . . . . . 103,147 1,708 -- 1,708
Net income . . . . . . . . . . . . . . . . . . . . . -- -- 14,653 14,653
Cash dividends paid. . . . . . . . . . . . . . . . . -- -- (20,855) (20,855)
Recovery of unrealized loss on marketable
securities . . . . . . . . . . . . . . . . . . . . -- -- 33 33
---------- -------- -------- --------
Balance, December 31, 1991 . . . . . . . . . . . . . 16,264,744 231,161 (17,310) 213,851
Net proceeds from issuance of shares . . . . . . . . 70,997 898 -- 898
Debenture redemption . . . . . . . . . . . . . . . . 130,307 1,589 -- 1,589
Net income . . . . . . . . . . . . . . . . . . . . . -- -- 11,323 11,323
Cash dividends paid. . . . . . . . . . . . . . . . . -- -- (18,316) (18,316)
---------- -------- -------- --------
Balance, December 31, 1992 . . . . . . . . . . . . . 16,466,048 233,648 (24,303) 209,345
Net proceeds from issuance of shares . . . . . . . . 65,614 935 -- 935
Debenture redemption . . . . . . . . . . . . . . . . 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
---------- -------- -------- --------
---------- -------- -------- --------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
24
<PAGE>
WESTERN INVESTMENT REAL ESTATE TRUST
Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1993 1992 1991
---- ---- ----
(In thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . $11,594 $11,323 $14,653
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization. . . . . . . . . . . . . . . . . 9,078 8,610 7,880
Debenture expense amortization . . . . . . . . . . . . . . . . 182 199 200
Decrease (increase) in accounts receivable
and other assets . . . . . . . . . . . . . . . . . . . . . . (59) (1,505) 922
Increase in deferred rent receivable . . . . . . . . . . . . . (612) -- --
Increase (decrease) in debenture interest payable. . . . . . . 1,322 (1,405) (46)
Increase (decrease) in accounts payable and
accrued liabilities. . . . . . . . . . . . . . . . . . . . . 147 (1,356) 968
Increase (decrease) in other liabilities . . . . . . . . . . . 257 21 (519)
------- ------- -------
Net cash provided by operating activities. . . . . . . . . . . 21,909 15,887 24,058
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition and improvements of real estate investments. . . . (2,083) (3,784) (22,530)
Recovery of investment in direct financing leases... . . . . . 177 154 134
Acquisition of mortgage loans. . . . . . . . . . . . . . . . . (46) (569) (4,787)
------- ------- -------
Net cash used in investing activities. . . . . . . . . . . . . (1,952) (4,199) (27,183)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from note payable . . . . . . . . . . . . . . . . . . 25,927 30,285 73,894
Principal payments on note payable . . . . . . . . . . . . . . (28,585) (23,000) (51,295)
Principal payments on real estate loans payable. . . . . . . . (65) (57) (56)
Redemption of convertible debentures . . . . . . . . . . . . . (216) (646) (508)
Proceeds from issuance of shares, net. . . . . . . . . . . . . 935 898 815
Capitalized senior note costs. . . . . . . . . . . . . . . . . (122) -- --
Cash dividends paid. . . . . . . . . . . . . . . . . . . . . . (18,531) (18,316) (20,855)
------- ------- -------
Net cash provided by (used in) financing activities. . . . . (20,657) (10,836) 1,995
------- ------- -------
Net increase (decrease) in cash and cash equivalents . . . . (700) 852 (1,130)
Cash and cash equivalents, at beginning of year. . . . . . . . . 1,028 176 1,306
------- ------- -------
Cash and cash equivalents, at end of year. . . . . . . . . . . . $ 328 $ 1,028 $ 176
------- ------- -------
------- ------- -------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for interest . . . . . . . . . . . $ 6,247 $ 9,143 $ 6,649
------- ------- -------
------- ------- -------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
25
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Note 1: Significant Accounting Policies
(A) Properties
Properties comprising real estate investments are stated at cost. Depreciation
and amortization are provided primarily using the straight-line method over the
estimated useful lives of the properties as follows:
<TABLE>
<CAPTION>
Property Type Years
- --------------------------------------------------------------------------------
<S> <C>
Buildings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20 to 45
Improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 to 25
</TABLE>
Interest and fee income relating to loans on property under development for
acquisition by the Trust are recorded as reductions of the Trust's investment in
those properties. Interest cost is capitalized on projects under development in
accordance with Financial Accounting Standards Board Statement No. 34. During
1993, no interest was capitalized. In 1992, interest cost of $46,000 was
capitalized.
(B) Federal Income Tax Reporting
For Federal income tax reporting purposes, the Trust has elected to use a 15-
year straight-line accelerated cost recovery as provided by the Economic
Recovery Tax Act of 1981 for properties acquired after 1981, and for properties
acquired after March 1984, a 35-year, straight-line accelerated cost recovery as
provided by the Deficit Reduction Act of 1984. Properties acquired after
December 1986 use a 31.5-year, straight-line method as provided by the 1986 Tax
Act. Properties acquired after 1989 are depreciated using a 40-year, straight-
line method. Depreciation for financial statement reporting purposes is based
on the estimated economic useful life of the property.
(C) Cash and Cash Equivalents
Cash equivalents are comprised of certain highly liquid investments with a
maturity of less than three months.
(D) Direct Financing Leases
The net investment in direct financing leases consists of the aggregate minimum
lease payments to be received over the terms of the leases, plus an estimated
residual value, less unearned income. Unearned income, representing the
difference between the minimum lease payments and estimated residual value, less
the costs of the leased property, is recognized over the life of the lease using
the interest rate implicit in the lease, which provides a level rate of return
on the net investment in the property.
(E) Rental Income
The Trust accrues base rental income (minimum contractual lease payments) as
earned. Certain of the Trust's leases provide for additional rent based on
specified percentages of the lessee's revenues. Such percentage-based rental
income is recognized during the year based on estimates. Beginning in 1993, the
Trust has begun recognizing income from deferred rental receivables in
accordance with Financial Accounting Standards Board Statement No. 13. During
1993, $612,000 of deferred rent receivable was recognized as income.
26
<PAGE>
(F) Deferred Debt Issuance Costs
The costs incurred in connection with the issuance of debt are amortized over
the term of the debt instruments.
(G) Income Per Share
Income per share has been computed using the weighted average number of shares
outstanding during each year. There were no common stock equivalents that on
conversion or exercise would dilute income per share.
(H) Impairment Accounting Policy
When the Trust concludes that recovery of the carrying value of a real estate
investment is permanently impaired, it reduces such carrying value to amounts
deemed recoverable.
(I) Reclassification
Certain of the 1992 and 1991 financial statement amounts have been reclassified
to conform to the 1993 presentation.
Note 2: Real Estate Investments
The following is a reconciliation of real estate investments and the related
accumulated depreciation and amortization:
<TABLE>
<CAPTION>
Year Ended December 31, 1993 1992 1991
- -------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Real estate investments:
Balance at beginning of year . . . . . . . . . . $335,016 $331,232 $296,517
Additions: Acquisitions and improvements. . . . 1,932 3,784 34,715
Conversion of secured loans. . . . . 5,630 --- ---
-------- -------- --------
Balance at end of year . . . . . . . . . . . . . $342,578 $335,016 $331,232
-------- -------- --------
-------- -------- --------
Accumulated depreciation and amortization:
Balance at beginning of year . . . . . . . . . . $ 36,954 $ 28,433 $ 20,588
Additions charged to operations. . . . . . . . . 8,681 8,521 7,845
-------- -------- --------
Balance at end of year . . . . . . . . . . . . . $ 45,635 $ 36,954 $ 28,433
-------- -------- --------
-------- -------- --------
</TABLE>
Safeway has notified the Trust that it will terminate its lease with respect to
the Oakland, California property as of September 30, 1994. Although Safeway
will continue to pay rent on this property through September, it has vacated the
premises and the Trust has initiated efforts to re-lease or sell the property.
The Trust believes that it is unlikely that it will be able to release the
property on terms as favorable as the terms with Safeway. Furthermore, depending
on the eventual use of the property, the Trust could be required to take a
write down of up to $1.5 million (book value).
With respect to the Trust's property in Rocklin, California, Raley's has an
option to purchase that expires in November of 1995. Raley's has given the
Trust written notice of their exercise of said option conditionally upon Raley's
completing a sale to a third party. There is no guarantee that the purchase
will be consummated.
27
<PAGE>
The Trust sold its Marin General Hospital property in Larkspur, California, on
January 27, 1994. The sales price was $12,412,000, resulting in a gain of
$3,629,000. The Trust used the net proceeds of the sale to reduce the
outstanding balance on its line of credit.
Additionally, the Trust has executed agreements for the sale of its interests in
the Mid-Peninsula Plaza shopping center and the adjoining Marshall's property in
Redwood City, California. If the sale occurs it will result in the Trust
receiving payment in full on the related mortgage loan (see Note 4).
Note 3: Leases
Two of the Trust's investment properties are accounted for as direct financing
leases. All other leases are accounted for as operating leases. The following
is a schedule of future minimum lease payments under direct financing and
operating leases that have initial or remaining noncancellable lease terms in
excess of one year as of December 31, 1993:
<TABLE>
<CAPTION>
Real Estate Investments Under
-----------------------------
Direct
Financing Operating
Lease Lease
- ------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
MINIMUM LEASE PAYMENTS:
1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $469 $28,494
1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 469 26,979
1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 469 25,836
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 469 24,906
1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 469 23,191
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 924 242,658
------ --------
Total minimum lease payments . . . . . . . . . . . . . . . . . . . . 3,269 $372,064
--------
--------
Estimated residual value . . . . . . . . . . . . . . . . . . . . . . 383
------
3,652
Less unearned income . . . . . . . . . . . . . . . . . . . . . . . . 1,142
------
Investment in direct financing leases. . . . . . . . . . . . . . . $2,510
------
------
Original cost of properties subject to direct financing leases . . . $4,449
------
------
</TABLE>
Included in rental income is percentage rent income of $530,149, $755,554 and
$801,635 in 1993, 1992 and 1991, respectively.
28
<PAGE>
Note 4: Investments in Mortgage Loans
<TABLE>
<CAPTION>
Loan Balance
------------ Interest
1993 1992 Rate
- --------------------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Loan on a shopping center in Redwood City, California, secured
by a first deed of trust on the property. Interest only is payable
monthly. Mortgage is due June 2004. . . . . . . . . . . . . . . . . . . . $2,809 $2,809 12.00%
Loans secured by first deeds of trust on properties in Elko and
Reno, Nevada. The loans were converted to equity ownership in
August 1993. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . --- 5,585 10.00%
Loan secured by first deed of trust on property in Reno, Nevada.
Mortgage is due May 1995 . . . . . . . . . . . . . . . . . . . . . . . . . 100 100 10.00%
------ ------
$2,909 $8,494
------ ------
------ ------
</TABLE>
Note 5: Major Tenants
Rental income attributable to leases with Raley's, our most significant tenant,
was $7,770,000, $7,734,000 and $7,393,000 in 1993, 1992 and 1991, respectively.
Note 6: Note and Real Estate Loans Payable
The Trust has a $35,000,000 line of credit as of December 31, 1993. Interest on
funds drawn under this line of credit is at a rate no greater than the bank's
reference rate plus one quarter of one percent (6 1/4% at December 31, 1993) and
is payable monthly on any outstanding balance. In addition, the Trust pays an
annual fee of one quarter of one percent of the commitment. The Trust is not
required to pledge any assets or maintain compensating balances for this line of
credit although the Trust has agreed not to further encumber any of its
properties or to sell or convey any of them except as permitted by the terms of
the line of credit. Additionally, if amounts due under the line of credit are
not paid at maturity, the lender, at its option, can require the Trust to
provide security interests in Trust properties. At December 31, 1993, the Trust
had borrowed $33,244,000 under this line of credit which, if not renewed,
expires May 31, 1994. At December 31, 1992, the Trust had a $40 million line of
credit with an outstanding balance of $35,902,000.
The Trust has one real estate mortgage loan and one property subject to an
assessment bond aggregating $1,516,000 and $1,581,000 at December 31, 1993 and
1992, respectively. Aggregate principal maturities for the five years following
December 31, 1993 are: 1994 -- $74,000; 1995 -- $81,000; 1996 -- $88,000; 1997 -
- - $97,000; 1998 -- $107,000; thereafter -- $1,069,000. Additionally, the Trust
owns a 50% interest in one property that is encumbered by a note and deed of
trust under which the co-owner is the borrower.
29
<PAGE>
Note 7: Convertible Debentures
In August, 1988 the Trust issued $75,000,000 of 8% convertible debentures (the
"debentures"), due 2008. The debentures are convertible prior to maturity,
unless previously redeemed, at a conversion price equal to $22.23 per share.
The debentures are subject to limited mandatory redemption at 100% of their
principal amount plus accrued interest (i) on June 30 in any year, with the
consent of any holder thereof, or (ii) at any time within 60 days after the
receipt of a consent on behalf of a deceased holder. The Trust has the option
either to redeem debentures for cash or to exchange its shares in an amount
equal to 100% of the principal amount of such debentures. Such redemption
obligations are limited to an annual, non-cumulative maximum principal amount of
$25,000 per holder and $2,250,000 in the aggregate, with priority being given to
consents on behalf of deceased holders. The Trust may redeem debentures
tendered in excess of the above limitations. In addition, the Trust has the
option to redeem the debentures without the consent of the holders, in whole or
in part, at redemption prices declining from 102% of the principal balance of
the debentures until June 30, 1994, 101% until June 30, 1995, and at par
thereafter.
On June 30, 1993 and 1992, respectively, $1,657,000 and $1,656,000 of debentures
were presented for limited mandatory redemption. The Trust elected to exchange
114,129 and 130,307 shares at $14.50 and $12.70, respectively, for the
debentures. During 1993 and 1992, respectively, an additional $216,000 and
$646,000 of debentures were presented for mandatory redemption on behalf of
deceased debenture holders which at the Trust's option were paid in cash.
Note 8: Disclosure about Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value:
Cash - The carrying amount approximates fair value because of the liquidity of
this asset.
Loans Receivable - The Redwood City loan receivable has a fair value equal to
the carrying amount as the Trust expects to receive payment in full in 1994.
The face value of the Reno loan approximates its fair value.
Marketable Securities - The fair value of marketable securities is based on
quoted market prices.
Note Payable - The carrying amount approximates fair value because of the short
maturity of this liability.
Convertible Debenture - The fair value of convertible debentures is based on
quoted market prices.
Mortgage Payable - The carrying value of this asset approximates fair value.
The estimated fair values of the Trust's financial instruments for years ended
December 31, 1993 and 1992 are (in thousands):
<TABLE>
<CAPTION>
1993 1992
---- ----
Carrying Fair Carrying Fair
Amount Value Amount Value
---------------------- --------------------
<S> <C> <C> <C> <C>
Cash . . . . . . . . . . . . . $ 328 $ 328 $ 1,028 $1,028
Loans receivable . . . . . . . 2,909 2,909 8,494 8,552
Marketable securities. . . . . 159 184 159 159
Note payable . . . . . . . . . 33,244 33,244 35,902 35,902
Convertible debenture. . . . . 66,076 66,654 67,949 64,552
Mortgage payable . . . . . . . 1,424 1,424 1,480 1,480
</TABLE>
30
<PAGE>
Note 9: Trustee and Officer Compensation
Trustee Emeritus, Death and Disability Programs
Under the Trustee Emeritus Program, Chester R. MacPhee, O. A. Talmage, Bernard
Etcheverry, and Chester R. MacPhee, Jr. are eligible to become a Trustee
Emeritus after reaching age 65. A Trustee Emeritus shall serve the Trust in an
advisory capacity and will be compensated accordingly, up to a maximum of
$60,000 annually ($75,000 for one trustee). Mr. Etcheverry elected to become
Trustee Emeritus on January 1, 1993 and Mr. MacPhee elected to become Trustee
Emeritus on January 1, 1991.
Chester R. MacPhee, O. A. Talmage, Bernard Etcheverry, and Chester R. MacPhee,
Jr. are eligible to participate in the Death and Disability Program. The Trust
will pay an annual death or disability benefit under the program based on a
percentage of the participant's average annual compensation for his 36 months of
service as a trustee during which his compensation was the greatest up to a
maximum of $60,000 annually ($75,000 for one trustee).
Stock Option Plan
On May 12, 1988, the Trust instituted a non-qualified stock option plan (the
"Plan"). The purchase price of shares of beneficial interest purchased pursuant
to the Plan is to be not less than the fair market value of the shares on the
date of grant. Options granted under the Plan, which expire six years from the
grant date if not exercised, vest and become exercisable at a rate of 20% per
year from the date of grant until completely vested. A total of 300,000 shares
of beneficial interest have been authorized under the Plan.
The following options have been issued and are outstanding as of December 31,
1993:
<TABLE>
<CAPTION>
OPTION PRICE PERCENT
GRANT DATE SHARES PER SHARE VESTED
<S> <C> <C> <C>
May 18, 1988 141,000 $17.350 100%
November 20, 1989 38,500 18.000 80%
November 18, 1991 35,700 11.440 40%
November 23, 1992 15,400 12.625 20%
November 11, 1993 67,000 13.810 0%
</TABLE>
None of the options had been exercised through December 31, 1993.
Note 10: Dividend Reinvestment Plan
In accordance with the Dividend Reinvestment and Share Purchase Plan adopted by
the Trust in 1990, the Trust received $935,000 and $898,000 net of issuance
costs and issued 65,614 and 70,997 shares of beneficial interest in 1993 and
1992, respectively.
31
<PAGE>
Note 11: Quarterly Results of Operations
The following is a summary of quarterly financial information for the last two
years:
<TABLE>
<CAPTION>
Quarters
Unaudited ---------------------------------------------------
(In thousands, except for per share and share data) First Second Third Fourth
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1993
Operating revenues and interest income . . . $8,441 $8,552 $8,461 $8,382
----- ----- ----- -----
----- ----- ----- -----
Net income . . . . . . . . . . . . . . . . . $2,877 $3,165 $2,657 $2,895
----- ----- ----- -----
----- ----- ----- -----
Per share:
Net income . . . . . . . . . . . . . . . . . $.18 $.19 $.16 $.17
Dividends. . . . . . . . . . . . . . . . . . $.28 $.28 $.28 $.28
Weighted average number of shares. . . . . . 16,468,355 16,482,586 16,612,784 16,629,068
1992
Operating revenues and interest income . . . $8,168 $8,143 $8,241 $8,344
----- ----- ----- -----
----- ----- ----- -----
Net income . . . . . . . . . . . . . . . . . $2,775 $2,931 $2,862 $2,755
----- ----- ----- -----
----- ----- ----- -----
Per share:
Net income . . . . . . . . . . . . . . . . . $.17 $.18 $.17 $.17
Dividends. . . . . . . . . . . . . . . . . . $.28 $.28 $.28 $.28
Weighted average number of shares. . . . . . 16,267,154 16,281,819 16,428,475 16,448,400
</TABLE>
Note 12: Income Tax Status of Trust
The Trust has qualified, and intends to continue to qualify, as a real estate
investment trust under the applicable provisions of the Internal Revenue Code
and the comparable California statutes. Under such provisions, the Trust will
not be taxed on that portion of its taxable income distributed currently to
shareholders, provided that at least 95% of its real estate investment trust
taxable income is distributed. As the Trust intends to distribute all of its
income currently, no provision has been made for federal or state income taxes.
Federal taxable income of the Trust prior to the dividend-paid deductions for
the three years ended December 31, 1993 is: 1993 -- $12,351,000; 1992 --
$11,368,000; 1991 -- $15,588,000. The difference between net income for
financial reporting purposes and taxable income results primarily from different
methods of accounting for leases, depreciation of investment properties and
gains on property dispositions.
The taxable and nontaxable portions to shareholders for federal income tax
purposes in 1993 are as follows:
<TABLE>
<CAPTION>
Percentages
Distribution ------------------------
Dates Paid Paid Per Share Taxable Non-taxable
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
March 15, 1993 $.28 71.45% 28.55%
June 15, 1993 $.28 71.45% 28.55%
September 15, 1993 $.28 71.45% 28.55%
December 15, 1993 $.28 71.45% 28.55%
</TABLE>
32
<PAGE>
Note 13: Commitments and Contingencies
The Trust identifies and evaluates prospective investments on a continuous
basis. In connection therewith, the Trust initiates letters of interest and
extends offers on a regular basis. At December 31, 1993, the Trust was not
committed to fund any acquisition.
The Trust is involved as plaintiff or defendant in various legal actions arising
in the normal course of business. At December 31, 1993, one case involves
allegations that there was a disturbance of wetlands during the construction of
the Trust's Vallejo shopping center. This lawsuit has been settled by the
execution of a consent decree under which the developer of the property is
primarily liable for penalties and costs of restoration. However, the Trust has
agreed to guarantee the performance of the restoration by, and to provide a loan
to, the developer. In the event of a default by the developer, the Trust's
exposure could be as much as $250,000. The Trust has also reached settlement in
regard to two lawsuits alleging the generation of excessive dust during
construction of our Caughlin Ranch shopping center, for a payment of $25,000
payable to the plaintiffs.
Note 14: Subsequent Events
On February 24, 1994, the Trust completed a $50 million senior note offering.
The unsecured senior notes mature February 15, 2004, and carry a coupon of
7 7/8%. Proceeds from the offering were used to pay off the line of credit of
approximately $17.6 million and the balance will be used to acquire properties
as suitable opportunities arise and to expand and improve existing properties.
33
<PAGE>
Western Investment Real Estate Trust
Schedule IX - Short-term Borrowings
<TABLE>
<CAPTION>
Weighted Maximum Average
average Balance month-end month-end
Category of interest at end of balance balance
Borrowing rate period during period during period (1)
- ---------- ---- ------ ------------- -------------
<S> <C> <C> <C> <C>
1993
- ----
Line of Credit 6.25% $33,244,000 $33,244,000 $31,618,000
1992
- ----
Line of Credit 6.50% $35,902,000 $35,902,000 $30,190,000
<FN>
(1) Average month-end balance during period was calculated by summing the
month-end balances for the period, then dividing by 12.
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
Western Investment Real Estate Trust
Schedule XI - Real Estate and Accumulated Depreciation
December 31, 1993 Cost Capitalized
(In thousands except for depreciable lives) after Gross Amounts at which
Initial Cost to Trust Acquisitions Carried at Close of Period(6)
--------------------- ------------ -----------------------------
Buildings Buildings
Encum- and and
Descriptions brances Land Improvements Improvements Land Improvements Total
- ------------ ------- ---- ------------ ------------ ---- ------------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
RETAIL / SHOPPING CENTER
Lucky Store
El Cerrito, CA . . . . . . . . . . . . $250 $450 $625 $250 $1,075 $1,325
San Antonio Center
Mountain View, CA. . . . . . . . . . . 310 534 4,394 310 4,928 5,238
Lucky Stores
Santa Maria, CA. . . . . . . . . . . . 77 273 164 77 437 514
Denny's
Redwood City, CA . . . . . . . . . . . 101 137 101 137 238
Carpeteria
Concord, CA. . . . . . . . . . . . . . 794 249 142 794 391 1,185
Kwik Stop
Santa Rosa, CA . . . . . . . . . . . . 20 54 20 54 74
Acapulco Y Los Arcos Rest
Fresno, CA . . . . . . . . . . . . . . 163 382 163 382 545
Serra Center (30% Int.)
Colma, CA. . . . . . . . . . . . . . . 433 914 32 433 946 1,379
Dodge Center
Fallon, NV . . . . . . . . . . . . . . 405 1,595 32 405 1,627 2,032
West Town Plaza
Winnemucca, NV . . . . . . . . . . . . 131 3,386 131 3,386 3,517
Nob Hill General Stores
Watsonville, CA. . . . . . . . . . . . 416 1,084 416 1,084 1,500
Mid-Peninsula Plaza (50% Int.) (1)
Redwood City, CA . . . . . . . . . . . 905 2,680 87 905 2,767 3,672
Eastridge Plaza Shopping Center
Porterville, CA. . . . . . . . . . . . 939 4,390 18 939 4,408 5,347
Angels Camp Towne Center
Angels Camp, CA. . . . . . . . . . . . 580 4,447 8 580 4,455 5,035
Heritage Place Town Center
Tulare, CA . . . . . . . . . . . . . . 1,427 7,117 200 1,427 7,317 8,744
Marshall's (1)
Redwood City, CA . . . . . . . . . . . 1,265 1,410 1,265 1,410 2,675
Raley's Shopping Center
Yuba City, CA. . . . . . . . . . . . . 2,101 5,151 688 2,101 5,839 7,940
Canal Farms Shopping Center. . . . . . . 1,180 6,904 235 1,180 7,139 8,319
Los Banos, CA. . . . . . . . . . . . .
<CAPTION>
Accumulated
Depreciation Depreciable
and Date of Date Lives
Descriptions Amortization Construction Acquired in Years
- ------------ ------------ ------------ -------- -----------
<S> <C> <C> <C> <C>
RETAIL / SHOPPING CENTER
Lucky Store
El Cerrito, CA . . . . . . . . . . . . 668 1964/1983 1964 31
San Antonio Center
Mountain View, CA. . . . . . . . . . . 1,323 1959/1990 1965 10 to 31
Lucky Stores
Santa Maria, CA. . . . . . . . . . . . 348 1962 1967 28
Denny's
Redwood City, CA . . . . . . . . . . . 114 1968 1968 45
Carpeteria
Concord, CA. . . . . . . . . . . . . . 261 1963 1969 20 to 30
Kwik Stop
Santa Rosa, CA . . . . . . . . . . . . 51 1970 1970 25
Acapulco Y Los Arcos Rest
Fresno, CA . . . . . . . . . . . . . . 328 1972 1972 28
Serra Center (30% Int.)
Colma, CA. . . . . . . . . . . . . . . 588 1972 1973/1988 23 to 31
Dodge Center
Fallon, NV . . . . . . . . . . . . . . 1,021 1978 1977 24
West Town Plaza
Winnemucca, NV . . . . . . . . . . . . 1,260 1978/1991 1978 25 to 31
Nob Hill General Stores
Watsonville, CA. . . . . . . . . . . . 491 1982 1982 25
Mid-Peninsula Plaza (50% Int.) (1)
Redwood City, CA . . . . . . . . . . . 639 1986 1985 10 to 31
Eastridge Plaza Shopping Center
Porterville, CA. . . . . . . . . . . . 1,078 1985 1985 5 to 35
Angels Camp Towne Center
Angels Camp, CA. . . . . . . . . . . . 1,007 1986 1985 31
Heritage Place Town Center
Tulare, CA . . . . . . . . . . . . . . 1,567 1986 1987 10 to 31
Marshall's (1)
Redwood City, CA . . . . . . . . . . . 322 1985 1985 35
Raley's Shopping Center
Yuba City, CA. . . . . . . . . . . . . 1,109 1963/1984 1986 5 to 40
Canal Farms Shopping Center. . . . . . . 1,207 1988 1986 31
Los Banos, CA. . . . . . . . . . . . .
</TABLE>
(Continued next page)
35
<PAGE>
<TABLE>
<CAPTION>
Western Investment Real Estate Trust
Schedule XI - Real Estate and Accumulated Depreciation
December 31, 1993 Cost Capitalized
(In thousands except for depreciable lives) after Gross Amounts at which
Initial Cost to Trust Acquisitions Carried at Close of Period(6)
--------------------- ------------ -----------------------------
Buildings Buildings
Encum- and and
Descriptions brances Land Improvements Improvements Land Improvements Total
- ------------ ------- ---- ------------ ------------ ---- ------------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
RETAIL / SHOPPING CENTER (CONTINUED)
Kmart Shopping Center. . . . . . . . . . 1,875 3,116 83 1,875 3,199 5,074
Sacramento, CA
Park Place Shopping Center . . . . . . . 3,850 11,291 431 3,850 11,722 15,572
Vallejo, CA
Blossom Valley Plaza . . . . . . . . . . 2,448 8,315 366 2,448 8,681 11,129
Turlock, CA
Coalinga Shopping Center
Coalinga, CA . . . . . . . . . . . . . 1,424 816 2,144 731 816 2,875 3,691
Commonwealth Square
Folsom, CA . . . . . . . . . . . . . . 3,312 13,022 83 3,312 13,105 16,417
Country Gables Shopping Center
Granite Bay, CA. . . . . . . . . . . . 2,704 12,684 271 2,704 12,955 15,659
Heritage Oak Shopping Center
Gridley, CA . . . . . . . . . . . . . . 1,603 3,597 51 1,603 3,648 5,251
Belle Mill Shopping Center
Red Bluff, CA . . . . . . . . . . . . . 2,247 6,043 102 2,247 6,145 8,392
Anderson Square Shopping Center
Anderson, CA. . . . . . . . . . . . . . 1,145 2,125 127 1,145 2,252 3,397
North Hills Shopping Center
Reno, NV. . . . . . . . . . . . . . . . 5,406 6,911 24 5,406 6,935 12,341
Cobblestone Shopping Center
Redding, CA. . . . . . . . . . . . . . 2,375 7,969 84 2,375 8,053 10,428
Victorian Walk Shopping Center
Fresno, CA . . . . . . . . . . . . . . 1,120 7,356 128 1,120 7,484 8,604
Elko Junction Shopping Center
Elko, NV . . . . . . . . . . . . . . . 2,516 7,631 646 2,516 8,277 10,793
Skypark Plaza Shopping Center
Chico, CA. . . . . . . . . . . . . . . 2,854 10,454 1,236 2,854 11,690 14,544
Heritage Park Shopping Center. . . . . .
Suisun City, CA. . . . . . . . . . . . 3,575 12,187 119 3,575 12,306 15,881
Pinecreek Center (50% Int.) (2)
Grass Valley, CA . . . . . . . . . . . 2,725 7,966 43 2,725 8,009 10,734
Eagle Station Shopping Center
Carson City, NV. . . . . . . . . . . . 1,735 7,585 54 1,735 7,639 9,374
Currier Square Shopping Center
Oroville, CA . . . . . . . . . . . . . 2,025 7,203 560 2,025 7,763 9,788
Yreka Junction Shopping Center
Yreka, CA. . . . . . . . . . . . . . . 1,350 5,846 267 1,350 6,113 7,463
<CAPTION>
Accumulated
Depreciation Depreciable
and Date of Date Lives
Descriptions Amortization Construction Acquired in Years
- ------------ ------------ ------------ -------- -----------
<S> <C> <C> <C> <C>
RETAIL / SHOPPING CENTER (CONTINUED)
Kmart Shopping Center. . . . . . . . . . 756 1964/1986 1986 5 to 30
Sacramento, CA
Park Place Shopping Center . . . . . . . 1,319 1987 1990 10 to 31
Vallejo, CA
Blossom Valley Plaza . . . . . . . . . . 946 1988/1991 1990 31
Turlock, CA
Coalinga Shopping Center
Coalinga, CA . . . . . . . . . . . . . 643 1977 1987 10 to 30
Commonwealth Square
Folsom, CA . . . . . . . . . . . . . . 1,484 1988 1990 31
Country Gables Shopping Center
Granite Bay, CA. . . . . . . . . . . . 1,116 1988 1991 31
Heritage Oak Shopping Center . . . . . .
Gridley, CA . . . . . . . . . . . . . . 763 1981 1987 5 to 31
Belle Mill Shopping Center
Red Bluff, CA . . . . . . . . . . . . . 1,288 1982/1987 1987 5 to 31
Anderson Square Shopping Center
Anderson, CA. . . . . . . . . . . . . . 480 1979 1987 10 to 31
North Hills Shopping Center
Reno, NV. . . . . . . . . . . . . . . . 1,256 1986 1988 31
Cobblestone Shopping Center
Redding, CA. . . . . . . . . . . . . . 1,425 1988 1988 31
Victorian Walk Shopping Center
Fresno, CA . . . . . . . . . . . . . . 1,196 1988 1988 31
Elko Junction Shopping Center
Elko, NV . . . . . . . . . . . . . . . 1,184 1986/1991 1988 31
Skypark Plaza Shopping Center. . . . . .
Chico, CA. . . . . . . . . . . . . . . 1,810 1985/1991 1988 28 to 31
Heritage Park Shopping Center
Suisun City, CA. . . . . . . . . . . . 1,405 1989 1990 31
Pinecreek Center (50% Int.) (2)
Grass Valley, CA . . . . . . . . . . . 1,270 1988 1989 10 to 31
Eagle Station Shopping Center
Carson City, NV. . . . . . . . . . . . 1,046 1982 1989 31
Currier Square Shopping Center
Oroville, CA . . . . . . . . . . . . . 1,055 1969/1989 1989 5 to 31
Yreka Junction Shopping Center
Yreka, CA. . . . . . . . . . . . . . . 782 1989 1990 31
</TABLE>
(Continued next page)
36
<PAGE>
<TABLE>
<CAPTION>
Western Investment Real Estate Trust
Schedule XI - Real Estate and Accumulated Depreciation
December 31, 1993 Cost Capitalized
(In thousands except for depreciable lives) after Gross Amounts at which
Initial Cost to Trust Acquisitions Carried at Close of Period(6)
--------------------- ------------ -----------------------------
Buildings Buildings
Encum- and and
Descriptions brances Land Improvements Improvements Land Improvements Total
- ------------ ------- ---- ------------ ------------ ---- ------------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
RETAIL / SHOPPING CENTER (CONTINUED)
Ukiah Crossroads Shopping Center
Ukiah, CA. . . . . . . . . . . . . . . 1,925 8,119 310 1,925 8,429 10,354
Raley's Supermarket
Fallon, NV . . . . . . . . . . . . . . 1,000 3,220 1,000 3,220 4,220
Caughlin Ranch Shopping Center
Reno, NV . . . . . . . . . . . . . . . 2,950 7,123 114 2,950 7,237 10,187
Mercantile Row Shopping Center
Dinuba, CA . . . . . . . . . . . . . . 1,440 6,208 (25) 1,440 6,183 7,623
Raley's Willowrock Shopping Center (3)
Rocklin, CA. . . . . . . . . . . . . . 4,212 109 81 4,212 190 4,402
Elverta Crossing Shopping Center
Sacramento, CA . . . . . . . . . . . . 3,370 7,477 295 3,370 7,772 11,142
------ ------- -------- ------- ------- -------- --------
Sub-total - Retail / Shopping Center $1,424 $72,075 $216,858 $12,806 $72,075 $229,664 $301,739
------ ------- -------- ------- ------- -------- --------
COMMERCIAL
U S Postal Service
Boulder Creek, CA. . . . . . . . . . . $8 $38 $31 $8 $69 $77
Coast Federal Bank
Cupertino, CA. . . . . . . . . . . . . 615 845 615 845 1,460
Coast Federal Bank (Taraval)
San Francisco, CA. . . . . . . . . . . 366 1,824 366 1,824 2,190
Coast Federal Bank
Monterey, CA . . . . . . . . . . . . . 911 2,189 911 2,189 3,100
Coast Federal Bank (Market)
San Francisco, CA. . . . . . . . . . . 873 1,068 873 1,068 1,941
Coast Federal Bank
Santa Cruz, CA . . . . . . . . . . . . 205 823 205 823 1,028
Coast Federal Bank
Salinas, CA. . . . . . . . . . . . . . 516 1,632 516 1,632 2,148
Marin General Hospital (4)
Larkspur, CA . . . . . . . . . . . . . 2,343 8,307 2,343 8,307 10,650
3450 California Street
San Francisco, CA. . . . . . . . . . . 1,450 1,159 278 1,450 1,437 2,887
Redwood Business Park II
Petaluma, CA . . . . . . . . . . . . . 92 1,017 3,052 1,017 3,052 4,069
Crystal Lake Office Building
Milpitas, CA . . . . . . . . . . . . . 979 6,020 38 979 6,058 7,037
------ ------- -------- ------- ------- -------- --------
Sub-total - Commercial . . . . . . . $92 $9,283 $26,957 $347 $9,283 $27,304 $36,587
------ ------- -------- ------- ------- -------- --------
<CAPTION>
Accumulated
Depreciation Depreciable
and Date of Date Lives
Descriptions Amortization Construction Acquired in Years
- ------------ ------------ ------------ -------- -----------
<S> <C> <C> <C> <C>
RETAIL / SHOPPING CENTER (CONTINUED)
Ukiah Crossroads Shopping Center
Ukiah, CA. . . . . . . . . . . . . . . 1,085 1986 1989 31
Raley's Supermarket
Fallon, NV . . . . . . . . . . . . . . 303 1991 1991 31
Caughlin Ranch Shopping Center
Reno, NV . . . . . . . . . . . . . . . 565 1990/1991 1990 10 to 31
Mercantile Row Shopping Center
Dinuba, CA . . . . . . . . . . . . . . 600 1990 1990 31
Raley's Willowrock Shopping Center (3)
Rocklin, CA. . . . . . . . . . . . . . 0 N/A 1990 N/A
Elverta Crossing Shopping Center
Sacramento, CA . . . . . . . . . . . . 531 1991 1990 31
-------
Sub-total - Retail / Shopping Center $37,690
-------
COMMERCIAL
U S Postal Service
Boulder Creek, CA. . . . . . . . . . . $ 39 1959 1969 10 to 30
Coast Federal Bank
Cupertino, CA. . . . . . . . . . . . . 278 1980 1985 25
Coast Federal Bank (Taraval)
San Francisco, CA. . . . . . . . . . . 584 1975 1985 25
Coast Federal Bank
Monterey, CA . . . . . . . . . . . . . 700 1963 1985 25
Coast Federal Bank (Market)
San Francisco, CA. . . . . . . . . . . 342 1964 1986 25
Coast Federal Bank
Santa Cruz, CA . . . . . . . . . . . . 156 1980 1986 40
Coast Federal Bank
Salinas, CA. . . . . . . . . . . . . . 306 1937 1986 40
Marin General Hospital (4)
Larkspur, CA . . . . . . . . . . . . . 1,873 1969/1986 1986 31
3450 California Street
San Francisco, CA. . . . . . . . . . . 480 1957 1987 5 to 31
Redwood Business Park II
Petaluma, CA . . . . . . . . . . . . . 476 1985 1989 31
Crystal Lake Office Building
Milpitas, CA . . . . . . . . . . . . . 1,249 1987 1987 10 to 31
-------
Sub-total - Commercial . . . . . . . $6,483
-------
</TABLE>
(Continued next page)
37
<PAGE>
<TABLE>
<CAPTION>
Western Investment Real Estate Trust
Schedule XI - Real Estate and Accumulated Depreciation
December 31, 1993 Cost Capitalized
(In thousands except for depreciable lives) after Gross Amounts at which
Initial Cost to Trust Acquisitions Carried at Close of Period(6)
--------------------- ------------ -----------------------------
Buildings Buildings
Encum- and and
Descriptions brances Land Improvements Improvements Land Improvements Total
- ------------ ------- ---- ------------ ------------ ---- ------------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
Industrial
Viking Freight Systems
Santa Clara, CA. . . . . . . . . . . . 548 0 0 548 0 548
Safeway Stores, Inc. (5)
Oakland, CA. . . . . . . . . . . . . . 489 2,144 145 489 2,289 2,778
Merchants, Inc.
Commerce City, CO. . . . . . . . . . . 278 648 278 648 926
------ ------- -------- ------- ------- -------- --------
Sub-total - Industrial . . . . . . . $0 $1,315 $2,792 $145 $1,315 $2,937 $4,252
------ ------- -------- ------- ------- -------- --------
Total. . . . . . . . . . . . . . . $1,516 $82,673 $246,607 $13,298 $82,673 $259,905 $342,578
------ ------- -------- ------- ------- -------- --------
------ ------- -------- ------- ------- -------- --------
<CAPTION>
Accumulated
Depreciation Depreciable
and Date of Date Lives
Descriptions Amortization Construction Acquired in Years
- ------------ ------------ ------------ -------- -----------
<S> <C> <C> <C> <C>
Industrial
Viking Freight Systems
Santa Clara, CA. . . . . . . . . . . . N/A N/A 1978 N/A
Safeway Stores, Inc. (5)
Oakland, CA. . . . . . . . . . . . . . 1,289 1930 1983 5 to 19
Merchants, Inc.
Commerce City, CO. . . . . . . . . . . 173 1984 1984 35
-------
Sub-total - Industrial . . . . . . . $1,462
-------
Total. . . . . . . . . . . . . . . $45,635
-------
-------
<FN>
(1) Agreements for the sale of the Trust's interest in the Mid-Peninsula Plaza
shopping center and the Marshall's property in Redwood City have been
executed. However, there is no assurance that any such sales transaction
will be completed.
(2) Pinecreek is encumbered by a note and deed of trust under which the 50%
co-owner is the borrower.
(3) Property consists of unimproved land currently under lease to Raley's which
has an option to purchase expiring in November 1995. Raley's has given the
Trust written notice of its exercise of said option conditionally upon
Raley's completing a sale to a third party. There is no guarantee that the
purchase will be consummated.
(4) Property sold January 1994.
(5) Safeway has notified the Trust that it will terminate its lease with
respect to the Oakland, California property as of September 30, 1994.
Although Safeway will continue to pay rent on this property through
September, it has vacated the premises and the Trust has initiated efforts
to re-lease or sell the property. The Trust believes that it is unlikely
that it will be able to re-lease the property on terms as favorable as the
terms with Safeway. Furthermore, depending on the eventual use of the
property, the Trust could be required to take a write down of up to $1.5
million (book value).
(6) The aggregate cost or adjusted basis of rental property for federal income
tax purposes reconciles to the amount reflected in the financial statements
at December 31, 1993 as follows:
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Basis for federal income tax purposes. . . . . . . . . . . . . . . . . . . 343,084
Direct financing leases capitalized for financial reporting purposes . . . (3,153)
Reduction in tax basis for deferred gains on condemnation and
other sales and discharge of indebtedness. . . . . . . . . . . . . . . . 2,647
--------
Financial statement reporting basis. . . . . . . . . . . . . . . . . . . . $342,578
--------
--------
</TABLE>
38
<PAGE>
WESTERN INVESTMENT REAL ESTATE TRUST
1993 LAND, BUILDING IMPROVEMENT, AND LEASE COMMISSION ADDITIONS
<TABLE>
<CAPTION>
LAND, BUILDING LEASING
NAME LOCATION AND IMPROVEMENTS COMMISSIONS
- ---- -------- ---------------- -----------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C>
SHOPPING CENTER
SERRA CENTER (30%) COLMA, CA. $ 23 $ 17
EASTRIDGE PLAZA PORTERVILLE, CA. (19) --
ANGELS CAMP TOWNE CENTER ANGELS CAMP, CA. 8 --
HERITAGE PLACE TULARE, CA. 45 19
RALEY'S CENTER YUBA CITY, CA. 187 120
CANAL FARMS LOS BANOS, CA. 235 28
KMART CENTER SACRAMENTO, CA. 46 7
PARK PLACE VALLEJO, CA. 370 116
BLOSSOM VALLEY PLAZA TURLOCK, CA. 5 9
COALINGA SHOPPING CENTER COALINGA, CA. 7 --
COMMONWEALTH SQUARE FOLSOM, CA. -- 6
COUNTRY GABLES GRANITE BAY, CA. 78 10
HERITAGE OAK GRIDLEY, CA. 13 --
BELLE MILL LANDING RED BLUFF, CA. 47 --
ANDERSON SQUARE ANDERSON, CA. 67 --
NORTH HILLS RENO, NV. 3,711 (1) 2
COBBLESTONE REDDING, CA. -- 9
VICTORIAN WALK FRESNO, CA. 16 --
ELKO JUNCTION RENO, NV. 2,149 (1) 93
SKYPARK PLAZA CHICO, CA. 85 17
HERITAGE PARK SUISUN, CA. 41 22
PINECREEK (50%) GRASS VALLEY, CA. (33) (33)
EAGLE STATION CARSON CITY, CA 14 10
CURRIER SQUARE OROVILLE, CA. (12) --
YREKA JUNCTION YREKA, CA. 46 --
CROSSROADS UKIAH, CA. 264 22
CAUGHLIN RANCH RENO, NV. 88 6
MERCANTILE ROW DINUBA, CA. (25) 7
ELVERTA CROSSING SACRAMENTO, CA. 76 64
------- -----
SUB-TOTAL - SHOPPING CENTER 7,532 551
COMMERCIAL
----------
U.S. POSTAL SERVICE BOULDER CREEK, CA. 15 --
3450 CALIFORNIA STREET SAN FRANCISCO, CA. 15 --
------- -----
SUB-TOTAL - COMMERCIAL 30 0
------- -----
TOTAL $ 7,562 $ 551
<FN>
(1) Of these additions, $3,699 and $1,931 for North Hills and Elko Junction,
respectively, relate to the conversion to equity ownership from first deeds of
trust in August, 1993. See footnote 4 of the financial statements.
</TABLE>
39
<PAGE>
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosures.
None
PART III
Items 10, 11, 12 and 13 are incorporated by reference from the definitive proxy
statement relating to the Annual Meeting of Shareholders to be held on May 12,
1994.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) 1. Financial Statements - Included in Item 8 Page
----
Report of Independent Certified Public Accountants 21
Balance Sheets - December 31, 1993 and 1992 22
Financial Statements for the Years Ended
December 31, 1993, 1992 and 1991:
Statements of Income 23
Statements of Shareholders' Equity 24
Statements of Cash Flows 25
Notes to Financial Statements 26 to 33
2. Financial Statement Schedules 34 to 39
3. Exhibits
Consent of Independent Certified Public Accountants 41
Incorporated by reference hereto is the
Indenture Agreement which was filed as
Exhibit 4.1 to Amendment No. 1 to
Registration Statement No. 33-22893 filed on
July 28, 1988 and the Declaration of Trust
which was filed as Exhibit 3.1 to said
registration statement.
40
<PAGE>
Consent of Independent Certified Public Accountants
The Trustees
Western Investment Real Estate Trust:
We consent to incorporation by reference in the registration statement (No.
33-27016) on Form S-8 of Western Investment Real Estate Trust of our report
dated February 7, 1994, except as to Note 14 which is as of February 24, 1994,
relating to the balance sheets of Western Investment Real Estate Trust as of
December 31, 1993 and 1992, and the related statements of income, shareholders'
equity and cash flows for each of the years in the three-year period ended
December 31, 1993, and the related financial statement schedules as of December
31, 1993, which report appears in the December 31, 1993 annual report on Form
10-K of Western Investment Real Estate Trust.
San Francisco, California KPMG PEAT MARWICK
March 29, 1994
41
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 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 there unto duly authorized.
WESTERN INVESTMENT REAL ESTATE TRUST
------------------------------------
(Registrant)
By: s/ Dennis D. Ryan
------------------------------
Dennis D. Ryan
Vice President and
Dated: March 29, 1994 Chief Financial Officer
------------------
Pursuant to the requirements of the Security 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.
Signature Title Date
- --------- ----- ----
s/ O.A. Talmage Chairman of the March 29, 1994
_______________________________ Board, President,
O. A. Talmage Chief Executive
Officer and Trustee
s/Dennis D. Ryan Vice President and March 29, 1994
_______________________________ Chief Financial
Dennis D. Ryan Officer
s/ William A. Talmage Trustee March 29, 1994
_______________________________
William A. Talmage
s/ Chester R. MacPhee, Jr. Trustee March 29, 1994
_______________________________
Chester R. MacPhee, Jr.
s/ Reginald B. Oliver Trustee March 29, 1994
_______________________________
Reginald B. Oliver
s/ James L. Stell Trustee March 29, 1994
_______________________________
James L. Stell
s/ John R. Beckett Trustee March 29, 1994
_______________________________
John R. Beckett
42
