<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 March 31, 1995 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 - 16,758,603
1
<PAGE>
WESTERN INVESTMENT REAL ESTATE TRUST
INDEX TO 10-Q
PART I. FINANCIAL INFORMATION Page
----
Item 1. Financial Statements
Balance Sheets - March 31, 1995 (unaudited) and December 31, 1994 3
Statements of Income - Three months ended March 31, 1995 and
1994 (unaudited) 4
Statements of Shareholders' Equity - Three months ended
March 31, 1995 (unaudited) and year ended December 31, 1994 5
Statements of Cash Flows - Three months ended March 31, 1995
and 1994 (unaudited) 6
Notes to Financial Statements (unaudited) 7-10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11-12
PART II. OTHER INFORMATION 13
SIGNATURE 14
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
WESTERN INVESTMENT REAL ESTATE TRUST
Balance Sheets
<TABLE>
<CAPTION>
(Unaudited)
ASSETS March 31, December 31,
1995 1994
---------------------------
(In thousands)
<S> <C> <C>
Real estate investments:
Real estate owned................................ $392,952 $389,094
Less accumulated depreciation and amortization... (53,371) (50,802)
--------- --------
Net real estate investments................ 339,581 338,292
Cash and cash equivalents............................. 599 648
Deferred long-term debt issuance costs, net........... 2,733 2,794
Accounts receivable and other assets.................. 5,176 5,438
-------- --------
$348,089 $347,172
-------- --------
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Bank line of credit................................... 27,050 23,645
Convertible debentures................................ 65,599 65,731
Senior notes, net..................................... 49,871 49,868
Real estate loan payable.............................. 1,346 1,362
-------- --------
143,866 140,606
Interest payable...................................... 492 1,497
Prepaid rents and security deposits................... 1,790 1,272
Other liabilities..................................... 1,490 1,113
-------- --------
Total liabilities.................................. 147,638 144,488
Shareholders' equity:
Shares of beneficial interest, no par value,
unlimited share authorization.
Issued and outstanding:
March 31, 1995 - 16,758,603 shares;
December 31, 1994 - 16,734,532 shares...... 237,634 237,341
Accumulated dividends in excess of net income... (37,183) (34,657)
-------- --------
Commitments and contingencies (notes E and F)
Total shareholders' equity........................... 200,451 202,684
-------- --------
$348,089 $347,172
-------- --------
-------- --------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
3
<PAGE>
WESTERN INVESTMENT REAL ESTATE TRUST
Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------
1995 1994
---------------------------------------------
(In thousands, except share and per share data)
<S> <C> <C>
REVENUES:
Minimum rents.............................. $ 8,982 $ 8,065
Percentage rents........................... 138 156
Recoveries from tenants.................... 1,183 819
Other income............................... 187 465
---------- ----------
Total revenues.................................. 10,490 9,505
---------- ----------
EXPENSES:
Interest................................... 2,899 2,073
Property operating costs................... 1,611 1,282
Depreciation and amortization.............. 2,681 2,271
Other operating expenses................... 706 695
General and administrative................. 432 405
---------- ----------
Total expenses.................................. 8,329 6,726
---------- ----------
Income from operations..................... 2,161 2,779
---------- ----------
Gain on sale of real estate investment.......... -- 3,629
---------- ----------
Net income................................. $ 2,161 $ 6,408
---------- ----------
---------- ----------
Per share data:
Income from operations.................. $ 0.129 $ 0.167
---------- ----------
Gain on sale of real estate investment.. $ -- $ 0.218
---------- ----------
Net income.............................. $ 0.129 $ 0.385
---------- ----------
Cash dividends paid..................... $ 0.28 $ 0.28
---------- ----------
Weighted average number of shares outstanding.. 16,742,965 16,648,662
---------- ----------
---------- ----------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
4
<PAGE>
WESTERN INVESTMENT REAL ESTATE TRUST
Statements of Shareholders' Equity
Three Months Ended March 31, 1995 (Unaudited) and
Year Ended December 31, 1994
(In thousands, except share data)
<TABLE>
<CAPTION>
Accumulated
Shares of Dividends Total
Beneficial Interest in Excess Share-
------------------- of Net holders'
Number Amount Income Equity
----------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, January 1, 1994.......................... 16,645,791 $236,178 $(31,240) $204,938
Net proceeds from issuance of shares.............. 63,740 834 -- 834
Debenture redemptions............................. 25,001 329 -- 329
Net income........................................ -- -- 15,266 15,266
Cash dividends paid............................... -- -- (18,683) (18,683)
---------- -------- -------- --------
Balance, December 31, 1994........................ 16,734,532 237,341 (34,657) 202,684
Net proceeds from issuance of shares.............. 13,577 166 -- 166
Debenture redemptions............................. 10,494 127 -- 127
Net income........................................ -- -- 2,161 2,161
Cash dividends paid............................... -- -- (4,687) (4,687)
---------- -------- -------- --------
BALANCE, MARCH 31, 1995 16 758,603 $237,634 $(37,183) $200,451
---------- -------- -------- --------
---------- -------- -------- --------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
5
<PAGE>
WESTERN INVESTMENT REAL ESTATE TRUST
Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------
1995 1994
---------------------------
(In thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................................ $ 2,161 $ 6,408
Adjustments to reconcile net income to net cash
provided by operating activities:............................
Depreciation and amortization.................................. 2,681 2,271
Amortization of deferred debt issuance costs................... 100 49
Gain on sale of real estate investment......................... -- (3,629)
Decrease in accounts receivable and other assets............... 356 91
Increase in deferred rent receivable........................... (174) (138)
(Decrease) increase in interest payable........................ (1,005) 492
Increase in prepaid rents and security deposits
and other liabilities........................................ 895 529
-------- --------
Net cash provided by operating activities...................... 5,014 6,073
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of real estate investment...................... -- 12,398
Acquisition of real estate investment............................. (3,005) --
Improvements of real estate investments........................... (982) (388)
Recovery of investment in direct financing leases................. 56 49
-------- --------
Net cash (used in) provided by investing activities........... (3,931) 12,059
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances on bank line of credit................................... 11,700 7,900
Principal payments on bank line of credit......................... (8,295) (41,144)
Principal payments on real estate loan payable.................... (16) (18)
Net proceeds from issuance of shares.............................. 166 242
Proceeds from senior notes offering............................... -- 49,855
Senior notes issuance costs....................................... -- (390)
Cash dividends paid............................................... (4,687) (4,661)
-------- ---------
Net cash (used in) provided by financing activities............ (1,132) 11,784
-------- --------
Net (decrease) increase in cash and cash equivalents........... (49) 29,916
Cash and cash equivalents, at the beginning of the period.............. $ 648 $ 328
-------- --------
-------- --------
Cash and cash equivalents, at the end of the period $ 599 $ 30,244
-------- --------
-------- --------
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS
INFORMATION:
Cash paid during the year for interest............................ $ 3,804 $ 3,417
-------- --------
-------- --------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
6
<PAGE>
WESTERN INVESTMENT REAL ESTATE TRUST
Notes to Financial Statements
March 31, 1995
(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. 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.
Note B: PROPERTY ACQUISITION
On February 16, 1995, the Trust acquired a Nob Hill Foods Store with a gross
leasable area of 33,033 square feet for $3.1 million. Nob Hill General Store,
Inc. signed a 25-year lease for this property, located in Newman, California.
During the quarter ended March 31, 1995, the Trust received $58,000 of
guaranteed lease payments relating to properties acquired in 1994. In
accordance with EITF 85-27 and EITF 84-37, the Trust has treated these payments
as a reduction of the property basis.
At March 31, 1995, the Trust owned 62 income producing properties, totaling 4.75
million gross leasable square feet.
Note C: CAPITAL EXPENDITURES
It is the Trust's practice to capitalize certain costs which exceed $4,000 and
are associated with improvement and rental of real estate investments.
Capitalized costs include third party leasing commissions, tenant improvements
and common area improvements. For the three months ended March 31, 1995, the
Trust capitalized $982,000 of such expenditures. This amount is comprised of
$209,000 of "Build to Suit" capital improvements; $17,000 of capitalized costs
incurred in connection with the leasing of previously unleased space; $663,000
of capitalized costs incurred in connection with previously leased space; and
$93,000 of capitalized costs which relate to improvements to common areas.
The Trust's in-house leasing department costs, including related legal and
accounting costs, are expensed as incurred.
7
<PAGE>
Leasing Commissions and Tenant Improvements capitalized during the three months
ended March 31, 1995, were comprised of the following:
<TABLE>
<CAPTION>
Property Type New Leases Renewed Leases
- ----------------------------------------------------------------------------------------------------
Aggregate Per square Aggregate Per Square
Amount Foot Amount Foot
------ ---- ------ ----
<S> <C> <C> <C> <C> <C>
Shopping Leasing
Centers & Commissions $ 73,895 $0.99 $ -0- $ -0-
Retail Properties
Tenant
Improvements 185,068 2.47 -0- -0-
Industrial Tenant
Improvements -0- -0- 242,687(1) 15.48
-------- ----- -------- ------
Total Leasing
Commissions $ 73,895 $0.99 $ -0- $ -0-
-------- ----- -------- ------
-------- ----- -------- ------
Tenant
Improvements $185,068 $2.47 $242,687 $15.48
-------- ----- -------- ------
-------- ----- -------- ------
<FN>
(1) Relates to renewal and expansion of our Colorado property leased to Merchants Trucking.
Expansion increases gross leasable area by 4,620 square feet.
</TABLE>
Note D: DEFERRED RENTAL RECEIVABLE
In compliance with FASB 13, the Trust has recognized deferred rental receivable
in the amounts of $174,000 and $138,000 for the quarter ended March 31, 1995 and
1994, respectively.
Note E: BANK LINE OF CREDIT
On May 31, 1994, the Trust obtained a two-year unsecured $60 million line of
credit. The interest rate was the London Interbank Offered Rate (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.
In March 1995, the Trust successfully negotiated a reduction of the margin over
LIBOR on its unsecured bank line of credit. The amended $60 million credit
facility now provides for an interest rate of LIBOR plus 1.6%, compared to the
previous rate of LIBOR plus 2.0%.
At March 31, 1995, the Trust had an outstanding balance of $27,050,000 under the
$60 million bank line of credit.
8
<PAGE>
Note F: CONVERTIBLE DEBENTURES
During the quarter ended March 31, 1995, $132,000 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 these
debentures for 10,494 shares of beneficial interest. Net of the convertible
debentures deferred issuance costs of $5,000, shareholders' equity increased by
$127,000 as a result of the redemption.
Note G: DIVIDEND REINVESTMENT PLAN
In accordance with the Trust's Dividend Reinvestment Plan, the Trust received
$166,000 and issued 13,577 shares of beneficial interest during the quarter
ended March 31, 1995 and received $242,000 and issued 17,224 shares of
beneficial interest during the quarter ended March 31, 1994.
Note H: FUNDS FROM OPERATIONS
In 1991, the National Association of Real Estate Investment Trusts (NAREIT)
adopted a definition of Funds From Operations (FFO) in order to promote an
industry-wide standard measure of REIT operating performance. The 1991
definition is as follows: "FUNDS FROM OPERATIONS means net income (computed in
accordance with generally accepted accounting principles), excluding gains (or
losses) from debt restructuring and sales of property, plus depreciation and
amortization, and after adjustments for unconsolidated partnerships and joint
ventures. Adjustments for unconsolidated partnerships and joint ventures will
be calculated to reflect funds from operations on the same basis."
In accordance with the 1991 definition, Western calculates FFO for the three
months ended March 31, 1995 and 1994, respectively, as follows:
<TABLE>
<CAPTION>
Three months Three months
ended ended
March 31, 1995 March 31, 1994
-------------- --------------
<S> <C> <C>
Net income $ 2,161 $ 6,408
Less: Gain on sale of real estate investment -- (3,629)
Plus: Real property depreciation 2,428 2,069
Amortization of tenant improvements costs 142 108
Amortization of leasing commissions costs 69 53
Personal property depreciation 42 41
Amortization of deferred debt issuance costs 100 49
-------- --------
Funds From Operations $ 4,942 $ 5,099
-------- --------
-------- --------
</TABLE>
9
<PAGE>
Note I: RECENT DEVELOPMENTS
During March 1995, the Trust entered into a lease with Heald Colleges of
California for 34,800 square feet at its Milpitas, California office property.
This ten-year triple-net lease provides for an annual rent of $375,500. Rental
payments are scheduled to commence in the third quarter of 1995.
During April 1995, the Trust entered into a twenty-year triple-net lease with
Ernst Home Center for a 46,700 square foot store to be constructed on a parcel
of land adjacent to the Trust's Elko Junction Shopping Center in Nevada. The
Trust estimates the cost of this improvement to be approximately $3 million and
anticipates completion of the store by the end of 1995. The lease provides for
an initial annual rent of $359,000.
Overall occupancy for the Trust's 62 properties at March 31, 1995, was 92.7%, a
1% increase from the December 31, 1994 occupancy rate of 91.7%. For the Trust's
portfolio of fifty retail properties at March 31, 1995, the occupancy rate was
92.6%. Occupancy for the Trust's ten commercial properties was 93.1% at March
31, 1995. The Trust's two industrial properties remained at 100% occupancy.
10
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
LIQUIDITY AND CAPITAL RESOURCES
The Trust anticipates that cash flows provided by operations and other sources
available to the Trust 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 bank line of
credit, as well as other debt and equity alternatives, will provide the
necessary funds to achieve future growth. The Trust has only one loan secured
by one of its properties. Additionally, the Trust jointly owns one property
where the co-owner is obligated under a note that is secured by the property.
Any incurrence of additional debt would be subject to limitations imposed by the
Indenture executed in connection with the senior notes and the Trust's bank line
of credit.
As of March 31, 1995, the Trust had approximately $33 million available under
its $60 million bank line of credit. This facility, which has certain covenants
(including minimum shareholders' equity, maximum ratio of debt to net worth and
income coverage requirements), could be used to fund acquisitions and other cash
requirements. The bank line of credit's interest rate is either LIBOR plus 1.6%
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.
As of March 31, 1995, the Trust has entered into several new leases which call
for approximately $1.5 million in future tenant improvements and leasing
commissions. These expenditures will be paid from operating cash flows or
borrowings under the line of credit.
RESULTS OF OPERATIONS
COMPARISON OF QUARTER ENDED MARCH 31, 1995 AND 1994
Funds From Operations (1991 NAREIT definition) decreased $157,000, or 3%, to
$4,942,000 for the three months ended March 31, 1995, from $5,099,000 for the
comparable period in 1994. The Trust, along with most industry analysts,
considers Funds From Operations to be an appropriate supplemental measure of the
operating performance of an equity REIT. Funds From Operations does not replace
net income as a measure of performance or net cash provided by operating
activities as a measure of liquidity.
Minimum rents increased $917,000, or 11%, to $8,982,000 for the three months
ended March 31, 1995, from $8,065,000 for the comparable period in 1994. This
increase reflects increases achieved from the Trust's seven acquisitions during
1995 and 1994, offset by reduced minimum rents resulting from four 1994 property
dispositions.
11
<PAGE>
Other income decreased $278,000 to $187,000 from $465,000. The contributing
factors to this decrease were (i) investment income from the senior notes
proceeds earned in 1994 prior to the use of these proceeds for several 1994
acquisitions and (ii) mortgage interest income earned on a note retired during
the second quarter of 1994.
Interest expense increased $826,000 to $2,899,000 for the quarter ended March
31, 1995, from $2,073,000 for the comparable period in 1994. This 39.8%
increase is due to the Trust's increased borrowings to fund property
acquisitions and higher interest rates. On February 24, 1994, the Trust issued
$50 million of 7 7/8% senior notes due February 15, 2004. Additionally, on May
31, 1994, the Trust obtained a two-year unsecured $60 million bank line of
credit (replacing the previous $35 million bank line of credit), which the Trust
has drawn upon. For the three months ended March 31, 1995 and 1994, the daily
weighted average amount owing to the bank under the line of credit was $22.5
million and $15.8 million, respectively. The weighted average interest rate
during these periods was 8.32% and 6.25%, respectively.
Depreciation and amortization expense increased $410,000 to $2,681,000 for the
three months ended March 31, 1995, from $2,271,000 for the three months ended
March 31, 1994. The increase results from an overall increase in the
depreciable basis of the Trust's portfolio of real estate investments due to the
net additions made by the Trust since the beginning of 1994.
Income from operations decreased $618,000, or 22% to $2,161,000 or $0.129 per
share, from $2,779,000 or $0.167 per share for the first quarter. The major
components of this decrease are increased interest and depreciation expense
offset, in part, by increased rental revenue.
12
<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)
(3) Declaration of Trust, as amended (filed as Exhibit 3.1 to
Registration Statement on Form S-3 No. 33-22893 and
incorporated herein by reference).
(4.1) Form of Indenture relating to the 8% Convertible Debentures
(filed as Exhibit 4.1 to Registration Statement on Form S-3
No. 33-22893 and incorporated herein by reference).
(4.2) Form of Indenture relating to the Senior Notes (filed as
Exhibit 4.1 to Registration Statement on Form S-3 No. 33-
71270 and incorporated herein by reference).
(4.3) Form of Senior Notes (filed as Exhibit 4.2 to Registration
Statement on Form S-3 No. 33-71270 and incorporated herein by
reference).
(10.1)* Trust's Nonqualified Stock Option Plan (filed as Exhibit 4.2
to Registration Statement on Form S-8 No. 33-22893 and
incorporated herein by reference).
(10.2)* Trust's Trustee Emeritus Plan (filed as an Exhibit to Proxy
dated Statement dated March 25, 1986 and incorporated herein
by reference).
(27) Financial Data Schedule.
(b) Reports on Form 8-K.
None.
_____________
* Management contract or compensatory plan or arrangement.
13
<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,
Chief Financial Officer
and Trustee
Dated: May 10, 1995
----------------------
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Registrant's statements of income for the three months ended March 31, 1995 and
Balance Sheet at March 31, 1995 and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 599
<SECURITIES> 0
<RECEIVABLES> 0<F1>
<ALLOWANCES> 0<F1>
<INVENTORY> 0
<CURRENT-ASSETS> 0<F2>
<PP&E> 392952
<DEPRECIATION> 53371
<TOTAL-ASSETS> 348089
<CURRENT-LIABILITIES> 0<F2>
<BONDS> 143866
<COMMON> 237634
0
0
<OTHER-SE> (37183)<F3>
<TOTAL-LIABILITY-AND-EQUITY> 348089
<SALES> 0
<TOTAL-REVENUES> 10490
<CGS> 0
<TOTAL-COSTS> 2317<F4>
<OTHER-EXPENSES> 3113<F5>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2899
<INCOME-PRETAX> 2161
<INCOME-TAX> 0
<INCOME-CONTINUING> 2161
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2161
<EPS-PRIMARY> 0.13
<EPS-DILUTED> 0.13<F6>
<FN>
<F1>Amount insignificant
<F2>Balance sheet is not classified.
<F3>Amount represents accumulated dividends in excess of net income.
<F4>Amount comprised of Property operating costs ($1,611) and Other Operating
Expenses ($706).
<F5>Amount comprised of Depreciation expense ($2,681) and General and
Administrative expense ($432).
<F6>Exercise of the outstanding stock options would not have material dilutive
effect on earnings per share.
</FN>
</TABLE>
