<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 quarterly period ended June 30, 1995.
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
---- EXCHANGE ACT OF 1934
For the transition period from __________ to __________
COMMISSION FILE NUMBER 1-9639
REAL ESTATE INVESTMENT TRUST OF CALIFORNIA
(Exact name of Registrant as specified in its charter)
CALIFORNIA 95-2565432
(State or other jurisdiction of (I.R.S. Employer I.D. Number)
incorporation or organization)
12011 SAN VICENTE BLVD., SUITE 707
LOS ANGELES, CALIFORNIA 90049
(Address of principal executive offices) Zip Code
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (310) 476-7793
NOT APPLICABLE
Former Name, former address and former fiscal year, if changed since last report
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____.
Shares of Beneficial Interest outstanding
as of June 30, 1995 - 9,340,697
<PAGE>
REAL ESTATE INVESTMENT TRUST OF CALIFORNIA
PART I - FINANCIAL INFORMATION
Item 1: Consolidated Balance Sheets (Unaudited) (Note 1)
<TABLE>
<CAPTION>
June 30, Dec. 31,
1995 1994
-----------------------------
($ in thousands)
<S> <C> <C>
ASSETS
Investments in Rental Properties...............
Land......................................... $ 44,220 $ 44,213
Buildings and improvements................... 164,812 162,015
-------- --------
209,032 206,228
Less accumulated depreciation.............. (21,332) (18,889)
-------- --------
187,700 187,339
Investment in Unconsolidated Partnership....... 1,308 1,524
Notes Receivable Secured by Real Properties.... 5,381 7,437
Cash........................................... 486 867
Other Assets................................... 1,862 1,798
-------- --------
196,737 198,965
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Notes Payable Secured by Real Properties....... 87,047 88,675
Accounts Payable and Accrued Expenses.......... 2,064 1,901
Distributions Payable to Shareholders.......... 3,315 3,299
-------- --------
92,426 93,875
-------- --------
SHAREHOLDER' EQUITY
Shares of Beneficial Interest - no par value
- unlimited shares authorized; 9,340,697
shares in 1995 and 9,294,251 shares in 1994
issued and outstanding........................ 104,311 105,090
-------- --------
$196,737 $198,965
-------- --------
</TABLE>
See accompanying Notes to Financial Information
2
<PAGE>
REAL ESTATE INVESTMENT TRUST OF CALIFORNIA
PART I - FINANCIAL INFORMATION
Item 1: Consolidated Statements of Income (Unaudited) (Note 1)
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
June 30, June 30, June 30, June 30,
1995 1994 1995 1994
-------------------------------------------------------
(in thousands, except per-share data)
<S> <C> <C> <C> <C>
REVENUES
Rental........................ $8,058 $6,584 $16,124 $12,303
Interest/Other................ 403 328 754 618
------- ------- ------- -------
8,461 6,912 16,878 12,921
------- ------- ------- -------
REAL ESTATE EXPENSES
Depreciation.................... 1,338 1,060 2,660 1,911
Interest........................ 1,744 1,027 3,477 1,632
Property Taxes.................. 470 306 939 558
Repairs and Maintenance......... 416 371 851 656
Insurance....................... 47 44 106 75
Leasing Commissions and Payroll. 571 442 1,090 762
Utilities....................... 626 411 1,146 761
Other........................... 447 313 875 573
------- ------- ------- -------
5,659 3,974 11,144 6,928
------- ------- ------- -------
ADMINISTRATIVE EXPENSES
Trustees Fees................... 29 21 59 42
Professional Services........... 134 132 171 168
Salaries and Overhead........... 86 175 338 406
------- ------- ------- -------
249 328 568 616
------- ------- ------- -------
NET INCOME........................ $2,553 $2,610 $5,166 $5,377
------- ------- ------- -------
FUNDS FROM OPERATIONS............. $3,915 $3,693 $7,873 $7,329
------- ------- ------- -------
Weighted Average Shares
Outstanding (in thousands)....... 9,333 9,256 9,320 9,251
------- ------- ------- -------
Per Share Data
Net Income...................... $ .274 $ .282 $ .555 $ .581
------- ------- ------- -------
Cash Distributions.............. $ .355 $ .345 $ .710 $ .675
------- ------- ------- -------
</TABLE>
See accompanying Notes to Financial Information
3
<PAGE>
REAL ESTATE INVESTMENT TRUST OF CALIFORNIA
PART I - FINANCIAL INFORMATION
Item 1: Consolidated Statements of Cash Flows (Unaudited) (Note 1)
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
June 30, June 30, June 30, June 30,
1995 1994 1995 1994
-------------------------------------------------------
($ in thousands)
<S> <C> <C> <C> <C>
Cash Flow from operating
activities:
Net income.................... $ 2,553 $ 2,610 $ 5,166 $ 5,377
Adjustment to reconcile net
income to net cash provided by
operating activities:
Depreciation and
amortization................. 1,362 1,083 2,707 1,952
Decrease (increase) other
assets....................... (839) (677) 45 (936)
Increase (decrease) in
accounts payable............. 11 357 164 611
------- ------- ------- -------
Net cash provided by operating
activities..................... 3,087 3,373 8,082 7,004
------- ------- ------- -------
Cash flows from investing
activities:
Additions to buildings and
improvements................. (698) (1,704) (2,804) (2,020)
Purchases of rental
properties................... -0- (21,108) -0- (41,238)
Collections on notes
receivable................... 3 1,292 2,057 1,298
------- ------- ------- -------
Net Cash (used in) provided by
investing activities........... (695) (21,520) (747) (41,960)
------- ------- ------- -------
Cash flow from financing
activities:
Principal payments on notes
payable...................... (214) (-0-) (1,628) (32,750)
Distributions to shareholders. (3,310) (3,052) (6,609) (6,100)
Proceeds from short-term
unsecured borrowings......... -0- 19,500 -0- 19,500
Proceeds from long-term
unsecured borrowings......... -0- -0- -0- 55,000
Net proceeds from sale of
Shares of Beneficial
Interest..................... 256 185 521 356
------- ------- ------- -------
Net cash provided by (used in)
financing activities........... (3,268) 16,633 (7,716) 36,006
------- ------- ------- -------
Net increase (decrease) in cash. (876) (1,514) (381) 1,050
Cash at beginning of period..... 1,362 2,782 867 218
------- ------- ------- -------
Cash at end of period........... $ 486 $ 1,268 $ 486 $ 1,268
------- ------- ------- -------
</TABLE>
See accompanying Notes to Financial Information
4
<PAGE>
REAL ESTATE INVESTMENT TRUST OF CALIFORNIA
PART I - FINANCIAL INFORMATION (Unaudited)
Item 1: Notes to Financial Information
Note 1: Reference is made to Notes to Audited Consolidated Financial
Statements appearing in the Annual Report to Shareholders for the year ended
December 31, 1994.
Note 2: All adjustments (consisting only of normal recurring accruals)
which, in the opinion of management, are necessary for a fair statement of
the results for the interim periods shown are reflected therein.
Note 3: The consolidated financial statements include the accounts of
REIT-Santa Maria Properties, Ltd., a limited partnership in which the Trust
is general partner and has significantly all the partnership capital. The
accounts of the limited partnership have been consolidated with those of the
Trust as of April 15, 1981, the date when the partnership interest was
acquired.
Note 4: No provision has been made for income taxes as the Trust
believes that it qualified as a real estate investment trust under Sections
856-860 of the Internal Revenue Code and under similar state statutes.
Note 5: Funds from Operations are calculated by adding back the non-cash
depreciation and amortization of Direct Finance Lease charges to net income.
The Trust believes that Funds from Operations is an appropriate supplemental
measure of operating performance.
5
<PAGE>
REAL ESTATE INVESTMENT TRUST OF CALIFORNIA
PART I - FINANCIAL INFORMATION (Unaudited)
Item 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations
OVERVIEW
Real Estate Investment Trust of California is a regionally focused,
self-administered equity real estate investment trust which owns a
diversified portfolio of real estate investments. The Trust primarily
currently invests in apartment communities which offer attractive current
returns, solid potential for long-term appreciation and earnings growth. The
continuing policy of the Trust is to emphasize Funds from Operations (FFO)
rather than the realization of capital gains through property dispositions,
although in furtherance of the strategy emphasizing apartment investments,
the Trust is contemplating the possible disposition of certain shopping
center investments. Revenues of the Trust consist primarily of rental income
derived from its portfolio of income-producing properties and to a much
lesser extent interest income from secured notes receivable.
The Trust continues to focus on equity investments in apartment
communities in various diversified markets, including Northern and Southern
California, Arizona and Nevada. Market conditions have adjusted investment
yields of apartment communities more in line with the general real estate
market for investment grade real estate. In furtherance of this strategic
focus, during 1994 the Trust acquired nine apartment communities totaling
1,381 units. These and prior multi-family community acquisitions are the
basis of a major impact on the financial operations of the Trust. No
apartment communities were acquired in the first and second quarters of 1995,
as the Trust focused its activities on the management of its core portfolio
of assets and securing long-term financing.
The following table is a summary of apartment acquisitions of the Trust
since March of 1991:
<TABLE>
<CAPTION>
TOTAL AVERAGE % INVESTMENT
STATE # OF UNITS INVESTMENT UNIT COST BY STATE
---------- ---------- ---------- --------- ------------
<S> <C> <C> <C> <C>
CALIFORNIA 1,640 $82,395,000 $50,200 62%
ARIZONA 1,271 34,775,000 $27,400 26%
NEVADA 280 15,200,000 $54,300 12%
TOTAL: 3,191 $132,370,000 $41,000 100%
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1995, the Trust had lines of credit with Sanwa Bank
($29,000,000) and Union Bank ($7,500,000) for use in the acquisition of
income producing properties and general operating purposes, including the
payment of distributions to shareholders. Reference is made to the Notes to
the Trust's 1994 Annual Report to Shareholders for full details of the terms
of these lines of credit. As of June 30, 1995, the Trust had outstanding
balances on the lines of credit of $28,000,000. As of July, the Trust reduced
its line of credit with Sanwa Bank to $18,500,000 and has retired the Union
line. Outstanding balance as of July 31, 1995 on the Sanwa line is
$11,800,000.
In order to reduce exposure to variable rate debt on the Trust's
short-term bank lines of credit, the Trust obtained, in July 1995, an
$18-million, 10-year collaterized loan with The Prudential Insurance Company
of America. The fixed interest rate is 7.88%, with interest-only payments and
the opportunity to convert in the future to an unsecured loan. Proceeds of
this loan were used to reduce outstanding borrowings at Sanwa Bank and Union
Bank.
The Trust is actively marketing a number of its investments, that if
sold, would generate additional funds to be used to reduce short-term debt or
be reinvested in additional apartment communities. There can be no guarantee
that these properties can be sold on terms acceptable to the Trust. On
November 1, 1994, the Trust sold the La Verne Towne Center, La Verne,
California, for a net sales price of $13,300,000. The funds were used for
property acquisitions.
6
<PAGE>
REAL ESTATE INVESTMENT TRUST OF CALIFORNIA
As the owner of real estate, the Trust is subject to risks arising in
connection with the underlying real estate such as defaults or nonrenewal of
the leases, increased operating costs, environmental problems, financing
availability, changes in real estate and zoning laws and increases in real
property tax rates. The success of the Trust also depends upon trends of the
economy, including interest rates, income tax laws, governmental regulation
and legislation, and population changes.
CHANGES IN RESULTS OF OPERATIONS - FOR THE THREE AND SIX MONTHS ENDED JUNE 30,
1995 AND JUNE 30, 1994
The following table summarizes the financial comparison of the six
months ended June 30, 1995 and June 30, 1994 ($ in thousands, except per
share data).
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS SIX MONTHS SIX MONTHS
FOR THE THREE AND ENDED JUNE ENDED JUNE % ENDED JUNE ENDED JUNE %
SIX MONTHS ENDED 30, 1995 30, 1994 CHANGE 30, 1995 30, 1994 CHANGE
----------------------- ------------ ------------ ------ ---------- ---------- ------
<S> <C> <C> <C> <C> <C> <C>
Total revenues $8,461 $6,912 22.4% $16,124 $12,303 31.1%
Depreciation 1,338 1,060 26.2 2,660 1,911 39.2
Interest 1,744 1,027 69.8 3,477 1,632 113.1
Property operating costs 2,577 1,887 36.6 5,007 3,385 47.9
Administrative expenses 249 328 (24.1%) 568 616 (7.8)
Net Income $2,553 $2,610 (2.2%) $5,166 $5,377 (3.9%)
RECONCILIATION TO FUND
FROM OPERATIONS
Add:
Depreciation 1,338 1,060 2,660 1,911
Amortization of Direct
Finance Leases 24 23 47 41
FUNDS FROM OPERATIONS
(FFO) $3,915 $3,693 6.0% $7,873 $7,329 7.5%
Weighted Average Shares
Outstanding (000's) 9,333 9,256 9,320 9,251
PER SHARE FUNDS FROM
OPERATIONS $0.419 $0.399 5.0% $0.845 $0.792 6.7%
</TABLE>
The improved financial results of the Trust, as measured by increased
Funds from Operations, has primarily been effected by the acquisition of
apartment communities. Revenues, real estate expenses and Funds from
Operations have increased from June 30, 1994 to June 30, 1995 primarily due
to those acquisitions and improvements in occupancies and operating
performances of existing apartment investments. As new investments were
acquired, depreciation expense has increased. In March 1994, the Trust funded
the Prudential Insurance Company of America $55,000,000 unsecured note
payable. The interest on this borrowing is the major portion of the increase
in interest expense between the periods. These funds were used to fund 1994
property acquisitions. The operating costs increased due to the 1994 property
acquisitions totaling 1,381 apartment units.
Expenses related to apartment operations, which include payroll of
on-site personnel (such as resident managers, leasing staff, maintenance and
janitorial staff), utilities, advertising, direct office expenses and
management fees, have increased in direct relation to acquisitions of those
properties. All operating expenses for apartment complexes, including real
property taxes and insurance, but excluding depreciation, range from
approximately 35% to 40% of gross scheduled income. This compares to retail
and commercial properties, which are generally leased on a "net" basis with
the tenant paying operating expenses.
7
<PAGE>
REAL ESTATE INVESTMENT TRUST OF CALIFORNIA
The retail portfolio continues to experience weakness in rental rates
and occupancy due to the effects of the Southern California economy. Although
retail and commercial properties continue to present leasing problems, the
Trust increased revenues by approximately 5% when the first six months of
1995 is compared with the same period in 1994. New leases account for the
improved performance.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings - None
Item 2: Changes in Securities - None
Item 3: Defaults upon Senior Securities - None
Item 4: Submission of Matters to a Vote of Security Holders -
Information regarding Shareholder action at the April 19, 1995 Annual
Meeting of Shareholders was disclosed in the Trust's Form 10-Q for the
quarter ended March 31, 1995.
Item 5: Other Information - None
Item 6: Exhibits and Reports on Form 8-K - None
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 duly authorized.
REAL ESTATE INVESTMENT TRUST OF CALIFORNIA
Date: August 9, 1995 By: /s/ LEROY E. CARLSON
---------------- ---------------------------------------
LEROY E. CARLSON
Vice President, Secretary and
Treasurer (for the Registrant and as
Chief Accounting Officer)
8
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> US $
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<EXCHANGE-RATE> 1
<CASH> 486
<SECURITIES> 0
<RECEIVABLES> 5381
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 209032
<DEPRECIATION> 21332
<TOTAL-ASSETS> 196737
<CURRENT-LIABILITIES> 0
<BONDS> 87047
<COMMON> 104311
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 196737
<SALES> 0
<TOTAL-REVENUES> 16878
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 7667
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3477
<INCOME-PRETAX> 5166
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<NET-INCOME> 5166
<EPS-PRIMARY> .555
<EPS-DILUTED> .555
</TABLE>
