<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter ended JUNE 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 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 latest practicable date:
Shares of Beneficial Interest, No Par Value -
17,138,432 shares as of June 30, 1997
1
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WESTERN INVESTMENT REAL ESTATE TRUST
INDEX TO 10-Q
PART I. FINANCIAL INFORMATION Page
-----
Item 1. Financial Statements (unaudited).
Balance Sheets - June 30, 1997, and December 31, 1996. 3
Statements of Income - Three and six months ended
June 30, 1997, and 1996. 4
Statements of Shareholders' Equity - Six months ended
June 30, 1997, and year ended December 31, 1996. 5
Statements of Cash Flows - Six months ended June 30, 1997,
and 1996. 6
Notes to Financial Statements. 7 - 10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 11 - 13
Item 3. Quantitative and Qualitative Disclosures About Market Risk. 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. 14
Item 2. Changes in Securities. 14
Item 3. Defaults upon Senior Securities. 14
Item 4. Submission of Matters to a Vote of Security Holders. 14
Item 5. Other Information. 14
Item 6. Exhibits and Reports on Form 8-K. 15
SIGNATURE 16
2
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BALANCE SHEETS WESTERN INVESTMENT REAL ESTATE TRUST
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
ASSETS 1997 1996
-------------------------------
(in thousands, except share data)
<S> <C> <C>
Real estate investments:
Real estate properties . . . . . . . . . . . . . . . . $385,900 $384,550
Less accumulated depreciation and amortization . . . . (71,558) (66,271)
-------- --------
314,342 318,279
Real estate properties held for sale . . . . . . . . . 15,530 16,161
Less accumulated depreciation and amortization . . . . (5,101) (5,525)
-------- --------
10,429 10,636
-------- --------
Net real estate investments . . . . . . . . . . . . 324,771 328,915
Cash and cash equivalents . . . . . . . . . . . . . . . . 974 952
Accounts receivable and other assets. . . . . . . . . . . 8,596 7,551
Deferred long-term debt issuance costs, net . . . . . . . 2,082 2,211
-------- --------
$336,423 $339,629
-------- --------
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Bank line of credit . . . . . . . . . . . . . . . . . . . $ 32,750 $ 32,250
Convertible debentures. . . . . . . . . . . . . . . . . . 60,525 61,310
Senior notes, net . . . . . . . . . . . . . . . . . . . . 49,904 49,897
-------- --------
143,179 143,457
Interest payable. . . . . . . . . . . . . . . . . . . . . 1,477 1,477
Prepaid rents and security deposits . . . . . . . . . . . 1,574 1,554
Other liabilities . . . . . . . . . . . . . . . . . . . . 1,016 1,193
-------- --------
Total liabilities. . . . . . . . . . . . . . . . . . . 147,246 147,681
Shareholders' equity:
Preferred Stock, 2,000,000 shares authorized;
No shares issued or outstanding.
Shares of beneficial interest, no par value,
unlimited share authorization.
Issued and outstanding:
June 30, 1997 - 17,138,432;
December 31, 1996 - 17,138,432 shares . . . . . . . 242,054 242,054
Accumulated dividends in excess of net income. . . . . (52,877) (50,106)
-------- --------
Commitments and contingencies (Note C)
Total shareholders' equity . . . . . . . . . . . . . . 189,177 191,948
-------- --------
$336,423 $339,629
-------- --------
-------- --------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
3
<PAGE>
STATEMENTS OF INCOME WESTERN INVESTMENT REAL ESTATE TRUST
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- ------------------------
1997 1996 1997 1996
--------------------------------------------------------
(in thousands, except for per share and share data)
REVENUES:
<S> <C> <C> <C> <C>
Minimum rents . . . . . . . . . . . . . . . . . $ 9,570 $ 9,597 $ 18,940 $ 19,136
Percentage rents. . . . . . . . . . . . . . . . 160 186 327 340
Recoveries from tenants . . . . . . . . . . . . 2,154 2,029 3,478 3,312
Other income. . . . . . . . . . . . . . . . . . 207 214 312 409
----------- ----------- ---------- ---------
Total revenues . . . . . . . . . . . . . . . . . . 12,091 12,026 23,057 23,197
----------- ----------- ---------- ---------
EXPENSES:
Interest. . . . . . . . . . . . . . . . . . . . 2,861 2,817 5,677 5,660
Property operating costs. . . . . . . . . . . . 2,596 2,445 4,191 4,039
Depreciation and amortization . . . . . . . . . 2,773 2,820 5,500 5,567
Other operating expenses. . . . . . . . . . . . 545 646 1,102 1,339
General and administrative. . . . . . . . . . . 439 461 921 939
----------- ----------- ----------- ---------
Total expenses . . . . . . . . . . . . . . . . . . 9,214 9,189 17,391 17,544
----------- ----------- ----------- ---------
Income from operations. . . . . . . . . . . . . 2,877 2,837 5,666 5,653
----------- ----------- ----------- ---------
Gains on sales of real estate investments . . . . . 1,160 1,032 1,160 1,032
----------- ----------- ----------- ---------
Net income. . . . . . . . . . . . . . . . . . . $ 4,037 $ 3,869 $ 6,826 $ 6,685
----------- ----------- ----------- ---------
----------- ----------- ----------- ---------
Per share data:
Income from operations. . . . . . . . . . . . . $ 0.168 $ 0.167 $ 0.331 $ 0.333
----------- -------- ----------- ---------
Gains on sales of real estate investments . . . $ 0.068 $ 0.061 $ 0.068 $ 0.061
----------- -------- ----------- ---------
Net income. . . . . . . . . . . . . . . . . . . $ 0.236 $ 0.228 $ 0.398 $ 0.394
----------- -------- ----------- ---------
Cash dividends paid . . . . . . . . . . . . . . $ 0.28 $ 0.28 $ 0.56 $ 0.56
----------- -------- ----------- ---------
Weighted average number of shares outstanding . . . 17,138,432 16,972,496 17,138,432 16,972,496
----------- ---------- ---------- ----------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
4
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STATEMENTS OF SHAREHOLDERS' EQUITY WESTERN INVESTMENT REAL ESTATE TRUST
- -------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30, 1997,
AND YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
ACCUMULATED
SHARES OF DIVIDENDS TOTAL
BENEFICIAL INTEREST IN EXCESS OF SHARE-
---------------------- NET HOLDERS'
NUMBER AMOUNT INCOME EQUITY
---------- -------- ---------- ---------
<S> <C> <C> <C> <C>
Balance, January 1, 1996. . . . . . . . . . . . 16,972,496 $240,034 $ (43,235) $196,799
Debenture redemptions . . . . . . . . . . . . . 165,936 2,020 -- 2,020
Net income. . . . . . . . . . . . . . . . . . . -- -- 12,231 12,231
Cash dividends paid . . . . . . . . . . . . . . -- -- (19,102) (19,102)
---------- ------- ----------- ---------
Balance, December 31, 1996. . . . . . . . . . . 17,138,432 242,054 (50,106) 191,948
Net income. . . . . . . . . . . . . . . . . . . -- -- 6,826 6,826
Cash dividends paid . . . . . . . . . . . . . . -- -- (9,597) (9,597)
---------- ------- ----------- --------
BALANCE, JUNE 30, 1997. . . . . . . . . . . . . 17,138,432 $242,054 $ (52,877) $189,177
---------- -------- ----------- --------
---------- -------- ----------- --------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
5
<PAGE>
STATEMENTS OF CASH FLOWS WESTERN INVESTMENT REAL ESTATE TRUST
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED,
JUNE 30,
-----------------------
1997 1996
-------- --------
(in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . . . . $ 6,826 $ 6,685
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization . . . . . . . . . . . . . 5,501 5,567
Amortization of deferred debt issuance costs. . . . . . 195 190
Gains on sales of real estate investments . . . . . . . (1,160) (1,032)
Decrease in accounts receivable and other assets. . . . 440 527
Increase in deferred rent receivable. . . . . . . . . . (165) (320)
Decrease in interest payable. . . . . . . . . . . . . . -- (152)
(Decrease) increase in prepaid rents,
security deposits and other liabilities . . . . . . (157) 15
------ ------
Net cash provided by operating activities . . . . . . . 11,480 11,480
------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of real estate investments . . . . . . 1,346 1,262
Acquisitions of real estate investments. . . . . . . . . . (283) --
Funds escrowed pending acquisition . . . . . . . . . . . . (1,346) --
Improvements of real estate investments:
Build-to-suit developments. . . . . . . . . . . . . . . (212) (3,222)
New leases. . . . . . . . . . . . . . . . . . . . . . . (1,150) (739)
General . . . . . . . . . . . . . . . . . . . . . . . . (83) (71)
Recovery of investment in direct financing leases... . . . 152 131
------- -------
Net cash used in investing activities . . . . . . . . . (1,576) (2,639)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Advances on bank line of credit. . . . . . . . . . . . . . 16,450 21,368
Principal payments on bank line of credit. . . . . . . . . (15,950) (20,593)
Principal payments on real estate loan payable . . . . . . -- (37)
Redemption of convertible debentures . . . . . . . . . . . (785) (40)
Cash dividends paid. . . . . . . . . . . . . . . . . . . . (9,597) (9,505)
------- --------
Net cash used in financing activities . . . . . . . . . (9,882) (8,807)
------- --------
Net increase in cash and cash equivalents . . . . . . . 22 34
------- --------
Cash and cash equivalents, at beginning of period . . . . . . $ 952 $ 657
------- --------
Cash and cash equivalents, at end of period . . . . . . . . . $ 974 $ 691
------- --------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for interest. . . . . . . . . $ 5,484 $ 5,712
------- -------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
6
<PAGE>
WESTERN INVESTMENT REAL ESTATE TRUST
Notes to Financial Statements
June 30, 1997
(Unaudited)
Note A: THE COMPANY AND BASIS OF PRESENTATION
THE COMPANY
Western Investment Real Estate Trust, a self-administered and fully
integrated equity real estate investment trust (REIT), is a dominant owner of
neighborhood and community shopping centers in Northern California and
Northern Nevada. Western has continuously paid quarterly cash dividends to
its shareholders for 33 years. Its shares are listed on the American Stock
Exchange under the symbol WIR. The company was founded in 1962.
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.
These financial statements should 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.
The Trust will adopt Financial Accounting Standards Board Statement (FAS) 128:
"Earnings Per Share" after December 15, 1997, the effective date of FAS 128.
For the three and six months ended June 30, 1997, and 1996, the effect of
applying this Statement would not have been material.
Note B: REAL ESTATE INVESTMENTS
At June 30, 1997, the Trust owned 58 properties, totaling 4.8 million
leasable square feet. Included in this total are eight properties which are
being held for sale and total 260,000 leasable square feet.
During March, 1997, the Trust entered into an agreement to purchase a
shopping center with 70,483 leasable square feet located in Northern
California for $4.5 million. The Trust anticipates, subject to completion of
due diligence, completing this purchase during the third quarter of 1997,
using the proceeds from the recent sales of properties as well as an advance
on the Trust's bank line of credit.
During August, 1997, the Trust sold the Concord, California, property, a
single tenant retail property, for $1,700,000. In connection with the sale,
the Trust received a 10-year note for
7
<PAGE>
$1,300,000. For the first five year period, the note carries a fixed
interest rate of 8.5%, after which the interest rate is fixed at 9.0% for the
next five year period. The taxable gain from the sale of this property will
be recognized pursuant to installment sale rules.
Occupancy percentages for the Trust's portfolio are as follows:
JUNE 30, 1997 DECEMBER 31, 1996 JUNE 30, 1996
------------- ----------------- -------------
Retail 93.9% 93.9% 93.3%
Commercial 76.2% 86.0% 98.2%
Industrial 74.1% 100.0% 100.0%
Overall Occupancy 92.9% 93.7% 93.6%
Occupancy percentage is based on square footage leased as a percent of total
leasable square feet. Commercial and Industrial leasable square footage
represents 4% and 2%, respectively, of the Trust's total leasable square
footage.
During April 1997, the tenant of the Trust's Commerce City, Colorado property
teminated its lease. This property represents approximately 25% of the
Trust's industrial gross leasable area and the Commerce City vacancy is
reflected in the June 30, 1997 occupancy for the industrial and entire
portfolio. During July, 1997, the Trust re-leased the Commerce City
property. The effect of this lease is to increase industrial occupancy to
100% and overall occupancy to 93.3%.
Note C: CAPITAL EXPENDITURES
It is the Trust's practice to capitalize certain costs which exceed $4,000
and are associated with the improvement and rental of real estate investments.
Capitalized costs include leasing-related costs and property improvements.
Capital expenditures for the three and six months ended June 30, 1997, and
1996 are as follows:
<TABLE>
<CAPTION>
QUARTER ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1997 1996 1997 1996
-------------------------- --------------------------
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
"Build to Suit" capital improvements . . . . . $ 19 $1,728 $ 212 $3,222
Capitalized costs incurred in connection with
leasing previously UNLEASED space. . . . . 35 9 132 53
Capitalized costs incurred in connection with
leasing previously LEASED space. . . . . . 637 350 1,018 686
Capitalized costs which relate to
improvements to common areas . . . . . . . 72 69 83 71
------ ------ ------ ------
Total Capitalized expenditures . . . . . . . . $ 763 $2,156 $1,445 $4,032
------ ------ ------ ------
------ ------ ------ ------
Improvements . . . . . . . . . . . . . . . . . $ 619 $2,101 $1,176 $3,914
Leasing-related costs. . . . . . . . . . . . . 144 55 269 118
------ ------ ------ ------
Total Capitalized expenditures . . . . . . . . $ 763 $2,156 $1,445 $4,032
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
8
<PAGE>
During the three months ended June 30, 1997, the Trust entered into leases
that obligate the Trust to fund certain leasing commissions and property
improvements. These obligations relate entirely to new leases in the shopping
center and retail portfolio, a portion of which was paid and capitalized
during the quarter ended June 30, 1997, and is reflected in the preceding
table.
The aggregate and per-square-foot information representing all the leases the
Trust executed during the quarter is as follows:
<TABLE>
<CAPTION>
NEW LEASES
----------
TENANT LEASING
PROPERTY TYPE BUILD TO SUIT IMPROVEMENTS COMMISSIONS
- ------------- ------------------- ------------------- -----------------
PER PER PER
AGGREGATE SQUARE AGGREGATE SQUARE AGGREGATE SQUARE
AMOUNT FOOT AMOUNT FOOT AMOUNT FOOT
--------- ------ --------- ------ --------- ------
<S> <C> <C> <C> <C> <C> <C>
Shopping Centers &
Retail Properties $1,173,000 $118.00 $ 507,000 $10.78 $ 180,000 $3.58
</TABLE>
Note D: CONVERTIBLE DEBENTURES
On June 30, 1997, $785,000 of the Trust's convertible debentures were
redeemed in accordance with the limited mandatory redemption provisions of
the convertible debentures. The Trust elected to fund the redemptions with
cash.
Note E: FUNDS FROM OPERATIONS
The Trust considers Funds From Operations to be an alternate measure of an
equity REIT's performance since such measure does not recognize depreciation
and amortization of real estate assets as reductions of cash flow from
operations. Historical cost accounting for real estate assets implicitly
assumes that the value of real estate assets diminishes predictably over
time. Yet, since real estate values have historically risen or fallen with
market conditions, the Trust, along with most industry investors, has
considered presentation of operating results for real estate companies that
use historical cost accounting to be less than fully informative.
The National Association of Real Estate Investment Trusts (NAREIT) defines
Funds From Operations as net income plus depreciation and amortization of
assets uniquely significant to the real estate industry, reduced by gains and
increased by losses on sales of property. Funds From Operations does not
represent cash flows from operations as defined by generally accepted
accounting principles and should not be considered a substitute for net
income as an indicator of the Trust's operating performance, or for cash
flows as a measure of liquidity.
9
<PAGE>
Funds From Operations, calculated in accordance with NAREIT's 1995 guidelines,
for the three months and six months ended June 30, 1997, and 1996,
respectively, is as follows:
<TABLE>
<CAPTION>
QUARTER ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1997 1996 1997 1996
------------------ -----------------
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
Net Income. . . . . . . . . . . . . . . . . . . . . . $4,037 $3,869 $6,826 $6,685
Less: Gains on sales of real estate investments. . . (1,160) (1,032) (1,160) (1,032)
Plus: Real property depreciation. . . . . . . . . . 2,446 2,463 4,891 4,932
Amortization of tenant
improvement costs . . . . . . . . . . . . . 219 249 396 421
Amortization of leasing-related costs . . . . 84 83 161 162
------ ------ ------- -------
Funds From Operations . . . . . . . . . . . . . . . . $5,626 $5,632 $11,114 $11,168
------ ------ ------- -------
------ ------ ------- -------
</TABLE>
Note F: Recent Developments
During August, 1997, the Trust sold the Concord, California, property, a
single tenant retail property, for $1,700,000. In connection with the sale,
the Trust received a 10-year note for $1,300,000. For the first five year
period, the note carries a fixed interest rate of 8.5%, after which the
interest rate is fixed at 9.0% for the next five year period. The taxable
gain from the sale of this property will be recognized pursuant to
installment sale rules.
10
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Certain statements in Management's Discussion and Analysis of Financial
Condition and Results of Operations constitute "forward-looking" statements
within the meaning of the Private Securities Litigation Reform Act of 1995.
Such "forward-looking" statements are subject to known and unknown risks,
uncertainties, and other factors which may cause actual results, performance,
or achievements to be materially different from any future results,
performance, or achievements expressed or implied by such "forward-looking"
statements.
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 qualification requirements. Cash on hand, borrowings
under the existing bank line of credit, as well as other debt and equity
alternatives, will provide the necessary funds to achieve future growth.
The Trust's indenture executed in connection with the Trust's senior notes
and bank line of credit contain certain covenants (including minimum
shareholders' equity, maximum ratio of debt to net worth and income coverage
requirements) which impose certain limitations on the incurrence of debt and
other restrictions.
As of June 30, 1997, the Trust had approximately $12.3 million available
under its $45 million bank line of credit. This facility can be used to fund
acquisitions and other cash requirements. The interest rate under the
facility is LIBOR plus 1.6%. The bank line of credit expires May 31, 1998,
at which time the Trust intends to replace or renew it. The weighted average
interest rate on June 30, 1997, and 1996 was 7.5% and 7.2%, respectively.
During July, 1997, Standard and Poor's changed its rating and outlook on the
Trust's debt securities. Previously, the Trust's debt securities carried a
rating of "BBB" and an outlook of "negative." Now the Trust's debt
securities carries a rating of "BBB-" and an outlook of "stable." The impact
of this change could result in increased cost of capital.
On August 1, 1997, the Trust filed a universal shelf registration statement
which, when declared effective, can be used to issue debt, preferred shares or
shares of beneficial interest. As of August 6, 1997, this shelf has not
become effective. The Trust intends to use the net proceeds of any sale of
securities for general corporate purposes, which may include repayment of
debt, improvements, expansion or redevelopment of its properties, acquisition
or development of additional properties, and for working capital.
11
<PAGE>
COMMITMENTS AND CONTINGENCIES
During March, 1997, the Trust entered into an agreement to purchase a
shopping center with 70,483 leasable square feet located in Northern
California for $4.5 million. The Trust anticipates, subject to completion of
due diligence, completing this purchase during the third quarter of 1997,
using the proceeds from the recent sales of properties as well as an advance
on the Trust's bank line of credit.
As of June 30, 1997, the Trust had commitments under several new leases which
will result in expenditures of approximately $4.1 million in future real
estate improvements and leasing commissions. In addition, during the first
quarter of 1997, the Trust initiated a roof structure repair program on a
shopping center. It is estimated that the repair program will require up to
$550,000. These expenditures will be paid from operating cash flows and
borrowings under the line of credit.
In connection with the soil contamination previously reported at the Heritage
Place Shopping Center in Tulare, California, the Trust has been advised that
the County of Tulare has approved the remediation performed by the prior
owners at this site and has issued a closure letter on this matter.
FUNDS FROM OPERATIONS
As noted in Footnote E of the NOTES TO FINANCIAL STATEMENTS, the Trust considers
Funds From Operations to be an alternate measure of the performance of an equity
REIT.
Funds From Operations (1995 NAREIT definition) was $5,626,000 for the three
months ended June 30, 1997, compared to $5,632,000 reported for the
comparable quarter in 1996.
Funds From Operations for the six months ended June 30, 1997, was
$11,114,000 compared to $11,168,000 for the 1996 comparable six-month period.
RESULTS OF OPERATIONS
COMPARISON OF QUARTER ENDED JUNE 30, 1997 AND 1996
Net income for the three months ended June 30, 1997, was $4,037,000, a 4%
increase over $3,869,000 in the comparable period in 1996. On a per share
basis, net income increased from $0.23 in 1996 to $0.24 in 1997. The
components of this increase were increased gains from the sale of real estate
investments over that recognized in 1996 and decreased other operating
expenses partially offset by increased interest.
Interest expense increased from $2,817,000 for the quarter ended June 30,
1996 to $2,861,000 for the comparable quarter in 1997. This $44,000 increase
results from both an increased outstanding balance and higher interest rates
under the bank line of credit, partially offset by a decreased balance
outstanding under the convertible debentures.
Other operating expense for the quarter ended June 30, 1997, was $545,000, or
$101,000 less than the 1996 comparable quarter amount of $646,000. The most
significant factor in the 1997 second quarter's decrease over 1996 is a
decrease in leasing and property management expenses.
12
<PAGE>
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1997 AND 1996
Net income increased $141,000, or 2%, to $6,826,000 for the six month period
ended June 30, 1997 from $6,685,000 in the comparable period in 1996. On a
per share basis, net income increased to $0.40 in 1997 as compared with $0.39
in 1996. The major components of this increase were decreased other
operating expenses and increased gains from the sale of real estate
investments partially offset by decreased minimum rents and other income.
Minimum rents decreased $196,000 to $18,940,000 for the six month period ended
June 30, 1997 from $19,136,000 for the six month period ended June 30, 1996.
This decrease primarily reflects the vacancy of the Trust's commercial property
located in Petaluma, California.
Other income declined $97,000 to $312,000 for the six months ended June 30, 1997
from $409,000 for the comparable period in 1996. This decline is primarily due
to lower lease termination fees.
Other operating expense decreased $237,000 to $1,102,000 for the six month
period ended June 30, 1997 from $1,339,000 for the comparable period in 1996.
The most significant factor in the 1997 decrease over 1996 is a decrease in
leasing and property management expenses.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Trust does not have any derivative financial instruments or derivative
commodity instruments.
13
<PAGE>
PART II. OTHER INFORMATION
Item 1. None.
Item 2. Changes in Securities.
As indicated in Item 4, below, at the regular Annual Meeting of
Shareholders of Western Investment Real Estate Trust, held on May 8,
1997, the shareholders approved a proposal to amend the Declaration of
Trust to authorize issuance of preferred shares.
Item 3. None.
Item 4. Submission of Matters to a Vote of Security Holders
At the regular Annual Meeting of Shareholders of Western Investment
Real Estate Trust, held on May 8, 1997, the following were submitted
to a vote of security holders:
(a) The election of the following trustees to serve for a term of
three years expiring at the conclusion of the 1999 annual meeting
of shareholders: Chester R. MacPhee, Jr. and Reginald B. Oliver.
Chester R. MacPhee, Jr.: Approved - 16,260,357 shares were voted
in favor and 332,552 shares withheld authority to vote.
Reginald B. Oliver: Approved - 16,262,946 shares were voted in
favor and 329,963 shares withheld authority to vote.
(b) Approval to amend the Declaration of Trust to authorize issuance
of 2,000,000 preferred shares of beneficial interest without par
value and to establish the terms for issuance.
Approved - 11,435,154 shares were voted in favor. 845,234 shares
were voted against, 249,984 shares withheld authority to vote and
4,062,537 shares held by Brokers remained unvoted due to failure
of the beneficial holders to give specific voting instruction.
(c) Ratification of the appointment of KPMG Peat Marwick LLP,
independent certified public accounts, as the Trust's auditors
for the year ending December 31, 1997.
Approved - 16,401,320 shares were voted in favor. 55,243 shares
were voted against, and 136,346 shares abstained from voting.
Item 5. None
14
<PAGE>
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. 333-32721 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. 33-27016 and
incorporated herein by reference).
(10.2)* Trust's Trustee Emeritus Plan (filed as an Exhibit to Proxy
Statement dated March 25, 1986 and incorporated herein by
reference).
(b) Reports on Form 8-K.
None.
* Management contract or compensatory plan or arrangement.
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
Executive Vice President,
Chief Financial Officer
and Trustee
Dated: AUGUST 6, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S STATEMENT OF INCOME FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND
BALANCE SHEET AT JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 974
<SECURITIES> 0
<RECEIVABLES> 0<F1>
<ALLOWANCES> 0<F1>
<INVENTORY> 0
<CURRENT-ASSETS> 0<F2>
<PP&E> 385,900
<DEPRECIATION> 71,558
<TOTAL-ASSETS> 336,423
<CURRENT-LIABILITIES> 0<F2>
<BONDS> 143,179
0
0
<COMMON> 242,054
<OTHER-SE> (52,877)<F3>
<TOTAL-LIABILITY-AND-EQUITY> 336,423
<SALES> 0
<TOTAL-REVENUES> 23,057
<CGS> 0
<TOTAL-COSTS> 5293<F4>
<OTHER-EXPENSES> 6421<F5>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5677
<INCOME-PRETAX> 6826
<INCOME-TAX> 0
<INCOME-CONTINUING> 6826
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6826
<EPS-PRIMARY> 0.40
<EPS-DILUTED> 0.40<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 ($4,191) AND OTHER OPERATING
EXPENSES ($1,102).
<F5> AMOUNT COMPRISED OF DEPRECIATION EXPENSE ($5,500) AND GENERAL AND
ADMINISTRATIVE EXPENSES ($921).
<F6> EXERCISE OF THE OUTSTANDING STOCK OPTIONS WOULD NOT HAVE MATERIAL EFFECT
ON EARNINGS PER SHARE.
</FN>
</TABLE>
