<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter ended September 30, 1994 Commission File No. 0-2809
WESTERN INVESTMENT REAL ESTATE TRUST
- - --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
California 94-6100058
- - -------------------------------------- ---------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3450 California Street, San Francisco, CA 94118
- - ----------------------------------------- -------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number,
including area code (415) 929-0211
-------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
---- ----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the end of the period covered by this report.
Shares of Beneficial Interest, No Par Value - 16,713,522
<PAGE>
WESTERN INVESTMENT REAL ESTATE TRUST
INDEX TO 10-Q
<TABLE>
<CAPTION>
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets - September 30, 1994 (unaudited) and December 31, 1993 3
Statements of Income - Three and nine months ended September 30, 1994
and 1993 (unaudited) 4
Statements of Shareholders' Equity - Nine months ended September 30,
1994 (unaudited) and year ended December 31, 1993 5
Statements of Cash Flows - Nine months ended September 30, 1994
and 1993 (unaudited) 6
Notes to Financial Statements (unaudited) 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
PART II. OTHER INFORMATION 15
SIGNATURE 16
</TABLE>
2
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
WESTERN INVESTMENT REAL ESTATE TRUST
Balance Sheets
<TABLE>
<CAPTION>
(Unaudited)
ASSETS September 30, December 31,
1994 1993
---------------------------
(In thousands)
<S> <C> <C>
Real estate investments:
Property subject to operating leases $382,753 $342,578
Less accumulated depreciation and
amortization . . . . . . . . . . (49,674) (45,635)
--------- ---------
333,079 296,943
Property subject to direct financing
leases, net . . . . . . . . . . . 2,359 2,510
Mortgage loans . . . . . . . . . . -- 2,809
Net real estate investments . . 335,438 302,262
Cash and cash equivalents . . . . . . 697 328
Deferred long-term debt issuance costs,
net . . . . . . . . . . . . . . . . 2,853 2,515
Accounts receivable and other assets. 9,441 4,240
--------- ---------
$348,429 $309,345
--------- ---------
--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Bank line of credit . . . . . . . . . 22,270 33,244
Real estate loans payable . . . . . . 1,461 1,516
Interest payable . . . . . . . . . . 494 1,322
Accounts payable and accrued
liabilities . . . . . . . . . . . . . 565 238
Prepaid rents and security deposits . 1,829 1,483
Other liabilities . . . . . . . . . . 1,430 528
--------- ---------
28,049 38,331
Convertible debentures . . . . . . . 65,790 66,076
Senior notes, net . . . . . . . . . . 49,864 --
Shareholders' equity:
Shares of beneficial interest, no
par value,
unlimited share authorization .
Issued and outstanding:
December 31, 1993-16,645,791
shares;
September 30, 1994 -16,713,522
shares . . . . . . . . . . . . 237,095 236,178
Accumulated dividends in excess of
Trust net income . . . . . . . . (32,369) (31,240)
--------- ---------
Total shareholders' equity . 204,726 204,938
--------- ---------
$348,429 $309,345
--------- ---------
--------- ---------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
3
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WESTERN INVESTMENT REAL ESTATE TRUST
Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------- ---------------
1994 1993 1994 1993
-------------------- -------------------
(In thousands, except for per share and share data)
<S> <C> <C> <C> <C>
INCOME FROM REAL ESTATE OPERATIONS:
Operating revenues:
Rental income . . . . . . . . . . . . $9,259 $8,294 $26,616 $24,957
Direct financing lease income . . . . 65 72 201 221
Interest on mortgage loans. . . . . . -- 86 150 257
--------- --------- --------- ---------
9,324 8,452 26,967 25,435
--------- --------- --------- ---------
Operating expenses:
Property management . . . . . . . . . 490 468 1,498 1,384
Repairs, maintenance and other. . . . 584 762 1,691 1,640
--------- --------- --------- ---------
1,074 1,230 3,189 3,024
--------- --------- --------- ---------
Depreciation and amortization. . . . . . 2,642 2,288 7,250 6,752
--------- --------- --------- ---------
Income from real estate operations. . 5,608 4,934 16,528 15,659
--------- --------- --------- ---------
Long-term debt interest expense and
amortization . . . . . . . . . . . . . . . 2,362 1,365 6,495 4,172
Other interest expense. . . . . . . . . . . 363 560 757 1,697
--------- --------- --------- ---------
2,725 1,925 7,252 5,869
--------- --------- --------- ---------
Interest and other income . . . . . . . . . 8 9 362 19
--------- --------- --------- ---------
Administrative expenses:
Salaries and trustees' fees. . . . . . . 182 122 567 588
Professional services. . . . . . . . . . 34 86 90 230
Office and other expenses. . . . . . . . 184 153 560 292
--------- --------- --------- ---------
400 361 1,217 1,110
--------- --------- --------- ---------
Provision for loss on
real estate investment . . . . . . . . . . 996 -- 996 --
--------- --------- --------- ---------
Income before gains on sale of
real estate investments . . . . . . . . 1,495 2,657 7,425 8,699
Gains on sale of real estate investments. . 70 -- 5,448 --
--------- --------- --------- ---------
Net income. . . . . . . .. . . . . . . . . . $1,565 $2,657 $12,873 $8,699
--------- --------- --------- ---------
--------- --------- --------- ---------
INCOME PER SHARE:
Before gains on sale of real estate
investments. . . . . . . . . . . . . . $0.090 $0.160 $0.445 $0.527
Gains on sale of real estate investments 0.004 -- 0.327 --
--------- --------- --------- ---------
Net income. . . . . . . . . . . . . . $0.094 $0.160 $0.772 $0.527
--------- --------- --------- ---------
--------- --------- --------- ---------
DIVIDENDS PAID PER SHARE. . . . . . . . . . $0.280 $0.280 $0.840 $0.840
--------- --------- --------- ---------
--------- --------- --------- ---------
WEIGHTED AVERAGE NUMBER OF SHARES . . . . . 16,697,659 16,612,784 16,670,568 16,521,242
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
4
<PAGE>
WESTERN INVESTMENT REAL ESTATE TRUST
Statements of Shareholders' Equity
Nine Months Ended September 30, 1994 (Unaudited) and
Year Ended December 31, 1993
(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, 1993 . . . . . 16,466,048 $233,648 $(24,303) $209,345
Net proceeds from issuance of shares . . . . 65,614 935 -- 935
Debenture redemption and conversion. . . . . 114,129 1,595 -- 1,595
Net income . . . . . . . . . . . . . . . . . -- -- 11,594 11,594
Cash dividends paid. . . . . . . . . . . . . -- -- (18,531) (18,531)
----------- ----------- ----------- -----------
BALANCE, DECEMBER 31, 1993 . . . . 16,645,791 $236,178 $(31,240) 204,938
----------- ----------- ----------- -----------
Net proceeds from issuance of shares . . . . 47,551 645 -- 645
Debenture redemption and conversion. . . . . 20,180 272 -- 272
Net income . . . . . . . . . . . . . . . . . -- -- 12,873 12,873
Cash dividends paid. . . . . . . . . . . . . -- -- (14,002) (14,002)
----------- ----------- ----------- -----------
BALANCE, SEPTEMBER 30, 1994 . . . . 16,713,522 $237,095 $(32,369) $204,726
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
5
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WESTERN INVESTMENT REAL ESTATE TRUST
Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------
1994 1993
---------------------------
(In thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 12,873 $ 8,699
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization. . . . . . . . . . . . . . . . . . . 7,250 6,752
Amortization of deferred debt issuance cost. . . . . . . . . . . . 221 138
Gains on sale of real estate investments . . . . . . . . . . . . . (5,448) --
(Increase) Decrease in accounts receivable
and other assets. . . . . . . . . . . . . . . . . . . . . . . . (291) 212
Increase in deferred rent receivable . . . . . . . . . . . . . . . (497) (459)
Increase (Decrease) in interest payable. . . . . . . . . . . . . . (828) 1,321
Increase in accounts payable
and accrued liabilities . . . . . . . . . . . . . . . . . . . . 327 988
Increase (Decrease) in prepaid rents, security deposits
and other liabilities . . . . . . . . . . . . . . . . . . . . . 715 (18)
Provision for loss on real estate investment . . . . . . . . . . . 996 --
--------- ---------
Net cash provided by operating activities. . . . . . . . . . . . . 15,318 17,633
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of real estate investments . . . . . . . . . . . . . 23,960 --
Acquisitions of real estate investments . . . . . . . . . . . . . . . . (60,185) --
Funds escrowed pending acquisition. . . . . . . . . . . . . . . . . . . (4,466) --
Improvements of real estate investments . . . . . . . . . . . . . . . . (2,174) (1,545)
Recovery of investment in direct financing leases . . . . . . . . . . . 151 131
Proceeds from payoff (acquisition) of mortgage loans. . . . . . . . . . 2,809 (46)
--------- ---------
Net cash used in investing activities. . . . . . . . . . . . . . . (39,905) (1,460)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances on line of credit. . . . . . . . . . . . . . . . . . . . . . . 38,756 17,651
Principal payments on line of credit. . . . . . . . . . . . . . . . . . (49,730) (21,385)
Principal payments on real estate loans payable . . . . . . . . . . . . (55) (54)
Redemption of convertible debentures. . . . . . . . . . . . . . . . . . (4) (216)
Proceeds from issuance of shares, net . . . . . . . . . . . . . . . . . 645 679
Proceeds from senior note offering. . . . . . . . . . . . . . . . . . . 49,855 --
Senior note issuance costs. . . . . . . . . . . . . . . . . . . . . . . (509) --
Cash dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . (14,002) (13,876)
--------- ---------
Net cash provided by (used in) financing activities. . . . . . . . 24,956 (17,201)
--------- ---------
Net Increase (Decrease) in cash and cash equivalents . . . . . . . 369 (1,028)
Cash and cash equivalents, at beginning of period. . . . . . . . . . . . 328 1,028
--------- ---------
Cash and cash equivalents, at end of period. . . . . . . . . . . . . . . $ 697 $ 0
--------- ---------
--------- ---------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest. . . . . . . . . . . . . . . . . . . . . . . . . $ 7,858 $ 4,410
--------- ---------
--------- ---------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
6
<PAGE>
WESTERN INVESTMENT REAL ESTATE TRUST
Notes to Financial Statements
September 30, 1994
(Unaudited)
Note A: BASIS OF PRESENTATION
The financial statements included in this report have been prepared pursuant to
the rules of the Securities and Exchange Commission ("SEC"). Certain
information and footnote disclosure normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules. Interim results are not
necessarily indicative of results for a full year.
It is suggested that these financial statements be read in conjunction with the
audited financial statements and notes thereto included in the Trust's latest
annual report on Form 10-K. When necessary, reclassifications have been made to
prior period balances to conform to current period presentation.
In compliance with FASB 13, the Trust has recognized deferred rental receivable
for the quarter and nine months ended September 30, 1994, in the amounts of
$221,000 and $497,000, respectively.
Note B: INVESTMENTS IN MORTGAGE LOANS
In May 1994, the $2.809 million note held by the Trust and secured by the Mid-
Peninsula Plaza property was paid in full upon the sale of that property.
Note C: BANK LINE OF CREDIT
On May 31, 1994, the Trust obtained a two year unsecured $60 million line of
credit. The interest rate is LIBOR plus 2.0% or the participating banks'
reference rate, at the Trust's election. In addition, the Trust pays an annual
fee of $140,000. At September 30, 1994, the Trust had an outstanding balance of
$22,270,000 under the line of credit. This facility replaced the Trust's
previous $35 million line of credit, which expired on May 31, 1994. The
interest rate on the previous facility was the banks' reference rate plus one-
quarter of one percent plus an annual fee of one-quarter of one percent of the
commitment.
Note D: DIVIDEND REINVESTMENT PLAN
In accordance with the Trust's Dividend Reinvestment Plan, the Trust received
$200,000 and issued 15,880 shares of beneficial interest during the quarter and
received $643,000 and issued 47,391 shares during the nine months ended
September 30, 1994.
7
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Note E: STOCK OPTION PLAN
During the quarter ended September 30, 1994, 160 shares were issued at $11.44 a
share as a result of the exercise of stock options.
Note F: CONVERTIBLE DEBENTURES
During the quarter ended September 30, 1994, $74,000 of the Trust's convertible
debentures were redeemed in accordance with the limited mandatory redemption
provisions of the convertible debentures. The Trust elected to exchange $70,000
of debentures for 4,964 shares at $13.60 per share for the convertible
debentures. Net of deferred issuance costs of $2,000, shareholders' equity
increased by $68,000. The Trust redeemed the additional $4,000 of convertible
debentures in cash.
Note G: PROPERTY ACQUISITIONS AND DISPOSITIONS
On June 6, 1994, the Trust completed the acquisition of Mission Ridge Plaza,
Northridge Plaza and Laguna 99 Plaza. Had these transactions taken place as of
January 1, 1994, certain pro forma effects would have been reflected in the
statement of income of the Trust for the nine months ended September 30, 1994.
Operating revenues would have been increased by $1,127,000; depreciation expense
would have been increased by $384,000; operating expenses would have been
increased by $131,000; other interest expense would have been increased by
$354,000; and interest and other income would have been decreased by $362,000.
Net income reported for that period would have been decreased by $104,000. Net
income per share for the nine-month period ended September 30, 1994 of $0.772
would have decreased by $0.006 to $0.766 based on 16,670,568 weighted average
number of shares outstanding.
The pro forma information referred to above is based upon audited 1993 gross
income and direct operating expenses. These numbers reflect occupancy levels in
effect during 1993. Mission Ridge Plaza and Laguna 99 Plaza were constructed in
1992 and lease-up took place during 1992 and 1993. Accordingly, the 1993
operating income is less than the annual operating income generated from the
properties at the time of the property acquisitions and as of the date of this
report. The occupancy rate at September 30, 1994, for Mission Ridge Plaza was
100%, Northridge Plaza was 96% and Laguna 99 Plaza was 98%. These occupancy
rates are higher than the rates during 1993.
During the quarter, the Trust acquired a 127,870 square foot portion of
Centennial Plaza in Hanford, California for approximately $11 million. The
acquisition was funded from a portion of the $60 million line of credit. Major
tenants at the Trust's portion of this property include Food-4-Less, Fashion Bug
and Lyon's Restaurant.
8
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Also during the quarter, pursuant to a tax-deferred exchange, the Trust sold at
a gain of $70,000 land located in Rocklin, California. This property was
previously leased to Raley's. The sale proceeds of $4,466,000 are held in an
exchange account pending the closing of a future acquisition and are included in
other receivables in the accompanying balance sheet.
At September 30, 1994, the Trust owned 59 income producing properties, totaling
4.775 million gross leasable square feet.
Note H: CAPITAL EXPENDITURES
It is the Trust's practice to capitalize certain costs associated with
improvement of real estate investments which exceed $4,000. Capitalized costs
include third party leasing commissions, tenant improvements and capital
expenditures. For the nine months ended September 30, 1994, the Trust
capitalized $2.2 million in such expenditures. This amount is comprised of
$875,000 of "Build to Suit" capital improvements; $86,000 of capitalized costs
incurred in connection with the leasing of previously unleased space; $850,000
of capitalized costs incurred in connection with previously leased space; and
$363,000 of capitalized costs which relate to general improvements to common
areas.
The Trust's in-house leasing department costs, as well as legal and accounting
costs associated with leasing, are expensed as incurred.
Note I: RECENT DEVELOPMENTS
The lease with Safeway on the Oakland, California property expired on October 1,
1994. The Trust plans to sell the property and has determined, based on an
independent appraisal, that the net realizable value of the property is less
than the carrying value. Accordingly, and consistent with the information
previously communicated, the Trust reduced the carrying value by $463,000, from
$1,393,000 to $930,000.
The Trust is continuing the investigation of the environmental contamination at
the Oakland property. The Trust has been advised by its environmental
consultants that the probable minimum investigation and remediation cost before
recovery from third parties is estimated to be $533,000. Accordingly, the Trust
has recorded a provision of $533,000. Since it is difficult to estimate the
timing and ultimate amount of environmental costs, the actual costs could prove
higher than this initial estimate. The Trust is pursuing recoveries from third
parties while remediation efforts continue.
The Trust has entered into a contract to purchase a 47,915 square foot
supermarket, located within a shopping center in Hollister, California, for a
price of $4.6 million. This property will be the Trust's sixth acquisition this
year and will complement the Trust's portfolio of properties in the coastal area
of central California.
9
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Overall occupancy for the Trust's fifty-nine properties at September 30, 1994
was 91%, a slight increase from the December 31, 1993 occupancy rate of 90%.
For the Trust's portfolio of forty-six retail properties at September 30, 1994,
the occupancy rate was 92%. Occupancy for the Trust's ten commercial properties
was 79% at September 30, 1994. The Trust's three industrial properties have
remained at 100% occupancy. On October 1, 1994 the Safeway lease on the Oakland
industrial property expired. Accordingly, occupancy of industrial properties is
39% and the overall portfolio's occupancy is 89% as of October 1, 1994.
10
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
LIQUIDITY AND CAPITAL RESOURCES
The Trust anticipates that cash flows from operating activities will continue to
provide adequate funds for all current principal and interest payments as well
as dividend payments in accordance with REIT requirements. Cash on hand,
borrowings under its existing line of credit, as well as other debt and equity
alternatives, will provide the necessary funds to achieve future growth. All
but two of the Trust's properties are currently free of debt, thereby providing
a collateral base for future borrowings. Any incurrence of debt on the
properties would be subject to limitations imposed by the Indenture executed in
connection with the senior notes and the Trust's $60 million line of credit.
As of September 30, 1994, the Trust had approximately $37.7 million available
under its $60 million line of credit. This facility, which has certain
covenants (including minimum shareholders' equity, maximum ratio of debt to net
worth and income coverage requirements), will be used to fund acquisitions and
other cash requirements. The line of credit's interest rate is either LIBOR
plus 2.0% or the participating banks' reference rate, at the Trust's election.
This facility expires May 31, 1996, at which time the Trust intends to renew it.
In February 1994, the Trust raised $50 million through a senior note offering.
These funds, as well as the proceeds from the sale of three properties and funds
available under the line of credit, were used to acquire interests in five
shopping centers and to reduce borrowings under a previous line of credit. Sales
proceeds from the sale of a fourth property are being held in an exchange
account pending the completion of a future acquisition.
The Trust has entered into two new leases which call for approximately $1.4
million in future tenant improvements. These expenditures will be paid from
borrowings on the line of credit or from other sources. These leases will
expand the Trust's gross leasable area by 17,000 square feet, improve 30,000
square feet of existing gross leasable area and increase rental income.
11
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RESULTS OF OPERATIONS
QUARTER ENDED SEPTEMBER 30, 1994 AND 1993
FUNDS FROM OPERATIONS decreased $282,000, or 5.7% to $4,708,000 for the quarter
ended September 30, 1994, from $4,990,000 in the prior year's comparable three
month period. The major components of this decrease are the loss resulting from
a provision for environmental costs related to the Oakland, California property
(See Note I) and increased interest expense offset by increased operating
revenue and decreased operating expenses. Funds From Operations for the three
month period ended September 30, 1994 was calculated by reducing net income of
$1,565,000 by the gain on sale of real estate investment ($70,000), adding back
the Oakland property write-down of $463,000 (See Note I), depreciation and
amortization costs ($2,642,000) and amortization of deferred debt issuance costs
($108,000). The Trust, along with most industry analysts, considers Funds From
Operations (defined by NAREIT as net income plus depreciation and amortization,
excluding gains or losses from debt restructuring and sales of properties) to
be the most appropriate measure of the performance of an equity REIT.
OPERATING REVENUES increased $872,000 to $9,324,000 for the three month period
ended September 30, 1994, from $8,452,000 for the prior year's comparable
period. This 10.3% increase is principally the result of $1.4 million of
revenue resulting from 1994 acquisitions offset by $0.6 million of reduced
revenue due to sales which occurred earlier in the year.
OPERATING EXPENSES decreased $156,000, or 12.7% to $1,074,000 for the quarter
ended September 30, 1994. For the same quarter in 1993, operating expenses were
$1,230,000. The decrease is principally due to increased property expenses in
1993 which resulted from timing differences between the expense and the
recognition of the reimbursement.
DEPRECIATION AND AMORTIZATION increased $354,000 to $2,642,000 for the three
month period ended September 30, 1994, from $2,288,000 for the comparable period
in 1993, principally due to the acquisition of new properties, partially offset
by the reduction due to property dispositions.
INTEREST EXPENSE consists of interest on the Trust's line of credit, the 7 7/8%
senior notes due February 15, 2004, and the 8% convertible debentures due June
30, 2008. Interest expense increased $800,000 or 41.6% to $2,725,000 for the
quarter ended September 30, 1994, from $1,925,000 for the same period in 1993,
as a result of the Trust's increased borrowings and as a result of higher
interest rates.
ADMINISTRATIVE EXPENSES increased $39,000 to $400,000 for the quarter ended
September 30, 1994. This is a 10.8% increase from $361,000 for the same period
in 1993. The primary reason for the increase is a reduction in the allocation
of administrative expenses to property management expenses.
12
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INCOME before gain on sale of real estate investment for the three months ended
September 30, 1994, was $1,495,000, or $0.090 per share, compared to $2,657,000,
or $0.160 per share, for the comparable period in 1993, a decrease of
$1,162,000, or 43.7% primarily as a result of the $996,000 provision for loss
relating to the Oakland, California property, recorded in September of 1994 (See
Note I). Gain on sale of real estate investment for the quarter ended September
30, 1994, was $70,000, or $0.004 per share. The resulting net income for the
quarter ended September 30, 1994, was $1,565,000 compared to $2,657,000 for the
comparable period in 1993. Net income per share for the quarter ended September
30, 1994, decreased $0.066 to $0.094 from $0.160 for the same period in 1993.
NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1993
FUNDS FROM OPERATIONS for the nine months ended September 30, 1994, decreased
1.5% or $230,000 to $15,359,000 from $15,589,000 in the prior year's comparable
nine month period. Funds From Operations for the nine months ending September
30, 1994 was calculated by reducing net income of $12,873,000 by the gains on
sales of real estate investments ($5,448,000), adding back the Oakland property
write-down of $463,000 (See Note I), depreciation and amortization costs
($7,250,000) and amortization of deferred debt issuance costs ($221,000).
OPERATING REVENUES increased $1,532,000 to $26,967,000 for the nine month period
ended September 30, 1994, from $25,435,000 for the prior year's comparable
period. This 6.0% increase is principally due to the recognition of a $600,000
lease termination fee, as previously disclosed, increased rental income of $1.8
million resulting from 1994 acquisitions offset by $1.2 million reduced revenue
due to property dispositions which occurred earlier in the year.
OPERATING EXPENSES increased $165,000 or 5.5% to $3,189,000 for the nine months
ended September 30, 1994. For the same period in 1993, operating expenses were
$3,024,000. Property management expense increased $114,000 for nine months
ended September 30, 1994, primarily due to increased costs associated with
internal asset management capabilities which include leasing, marketing and
property management. For the nine months ended September 30, 1994, repairs,
maintenance and other expense increased $51,000 or 3.1%.
DEPRECIATION AND AMORTIZATION increased $498,000 to $7,250,000 for the nine
months ended September 30, 1994, from $6,752,000 for the comparable period ended
September 30, 1993. This 7.4% increase is due to 1994 acquisitions, partially
offset by the reduction due to property dispositions.
INTEREST EXPENSE increased $1,383,000 or 23.6% to $7,252,000 for the nine months
ended September 30, 1994, from $5,869,000 for the same period in 1993. This
increase is a result of the Trust's increased borrowings and as a result of
higher interest rates.
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ADMINISTRATIVE EXPENSES increased $107,000 to $1,217,000 for the nine months
ended September 30, 1994. This is a 9.6% increase from $1,110,000 for the same
period in 1993. The primary reason for the increase is a reduction in the
allocation of administrative expenses to property management expenses.
INCOME before gain on sale of real estate investments for the nine months ended
September 30, 1994, was $7,425,000, or $0.445 per share, compared to $8,699,000,
or $0.527 per share, for the comparable period in 1993, a decrease of
$1,274,000, or 14.6%, primarily as a result of the $996,000 provision for loss
relating to the Oakland, California property recorded in September of 1994 (See
Note I). Gain on sale of real estate investments for the nine months ended
September 30, 1994, was $5,448,000, or $0.327 per share. The resulting net
income for the nine months ended September 30, 1994, was $12,873,000 compared to
$8,699,000 for the comparable period in 1993. Net income per share for the nine
months ended September 30, 1994, increased to $0.772 from $0.527 for the same
period in 1993.
14
<PAGE>
PART II. OTHER INFORMATION
ITEMS 1. THROUGH 5. None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(numbered in accordance with Item 601 of Regulation S-K)
4. Instruments defining the rights of security-holders,
including indentures.
4.1 *Form of Indenture relating to the Trust's senior notes
due 2004, between the Trust and Boatmen's Trust
Company.
4.2 *Form of Notes
4.3 *Declaration of Trust
*Incorporated by reference herein from the Trust's
Registration Statement (No. 33-71270) on Form S-3 filed
with the Securities and Exchange Commission on November
8, 1993.
(b) Reports on Form 8-K
During the period covered by this report the Trust filed the
following Current Reports:
Form 8-K dated June 7, 1994.
The Form 8-K filing summarized the acquisition of certain assets.
15
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WESTERN INVESTMENT REAL ESTATE TRUST
----------------------------------------
(Registrant)
By: s/ Dennis D. Ryan
-------------------------------------
Dennis D. Ryan
Vice President and
Chief Financial Officer
Dated: November 10, 1994
-----------------
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> SEP-30-1994
<CASH> 697
<SECURITIES> 0
<RECEIVABLES> 0<F1>
<ALLOWANCES> 0<F1>
<INVENTORY> 0
<CURRENT-ASSETS> 0<F2>
<PP&E> 382,753
<DEPRECIATION> 49,674
<TOTAL-ASSETS> 348,429
<CURRENT-LIABILITIES> 0<F2>
<BONDS> 137,924
<COMMON> 237,095
0
0
<OTHER-SE> (32,369)<F5>
<TOTAL-LIABILITY-AND-EQUITY> 348,429
<SALES> 0
<TOTAL-REVENUES> 26,967
<CGS> 0
<TOTAL-COSTS> 3,189
<OTHER-EXPENSES> 8,246<F3>
<LOSS-PROVISION> 0<F1>
<INTEREST-EXPENSE> 7,252
<INCOME-PRETAX> 7,425<F4>
<INCOME-TAX> 0
<INCOME-CONTINUING> 12,873
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,873
<EPS-PRIMARY> 0.772
<EPS-DILUTED> 0.772
<FN>
<F1>Amount insignificant
<F2>Balance sheet is not classified
<F3>Amount comprised of Depreciation expense ($7,250) and provision for loss on
real estate ($996).
<F4>Income before gains on sales of real estate investments ($5,448).
<F5>Amount represents accumulated dividends in excess of Trust net income.
</FN>
</TABLE>
