<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 SEPTEMBER 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 September 30, 1995 - 9,357,736
<PAGE>
REAL ESTATE INVESTMENT TRUST OF CALIFORNIA
PART I - FINANCIAL INFORMATION
ITEM 1: CONSOLIDATED BALANCE SHEETS (UNAUDITED) (NOTE 1)
<TABLE>
<CAPTION>
SEPT. 30, DEC. 31,
1995 1994
---------------------
($ in thousands)
<S> <C> <C>
ASSETS
Investments in Rental Properties.................
Land........................................... $ 44,220 $ 44,213
Buildings and improvements..................... 165,340 162,015
-------- --------
209,560 206,228
Less accumulated depreciation............... (22,592) (18,889)
-------- --------
186,968 187,339
Investment in Unconsolidated Partnership......... 1,200 1,524
Notes Receivable Secured by Real Properties...... 1,791 7,437
Cash............................................. 1,655 867
Other Assets..................................... 1,364 1,798
-------- --------
$192,978 $198,965
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Notes Payable Secured by Real Properties......... $ 83,832 $ 88,675
Accounts Payable and Accrued Expenses............ 2,007 1,901
Distributions Payable to Shareholders............ 3,322 3,299
-------- --------
89,161 93,875
-------- --------
SHAREHOLDERS' EQUITY
Shares of Beneficial Interest - no par value -
unlimited shares authorized; 9,357,736 shares
in 1995 and 9,294,251 shares in 1994 issued
and outstanding................................ 103,817 105,090
-------- --------
$192,978 $198,965
-------- --------
</TABLE>
See accompanying Notes to Financial Information
2
<PAGE>
REAL ESTATE INVESTMENT TRUST OF CALIFORNIA
PART I - FINANCIAL INFORMATION
ITEM 1: CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (NOTE 1)
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
1995 1994 1995 1994
-------------------------------------------------------
($ in thousands, except per-share data)
<S> <C> <C> <C> <C>
REVENUES
Rental.......................................... $8,188 $7,179 $24,312 $19,482
Interest........................................ 403 581 1,157 1,199
------ ------ ------- -------
8,591 7,760 25,469 20,681
------ ------ ------- -------
REAL ESTATE EXPENSES
Depreciation.................................... 1,367 1,132 4,027 3,043
Interest........................................ 1,744 1,452 5,221 3,084
Property Taxes.................................. 493 409 1,432 967
Repairs and Maintenance......................... 499 462 1,350 1,118
Insurance....................................... 47 53 153 128
Leasing Commissions and Payroll................. 542 462 1,632 1,224
Utilities....................................... 682 615 1,828 1,376
Other........................................... 427 397 1,302 970
------ ------ ------- -------
5,801 4,982 16,945 11,910
------ ------ ------- -------
ADMINISTRATIVE EXPENSES
Trustees Fees................................... 30 21 89 63
Professional Services........................... 47 20 218 188
Salaries and Overhead........................... 157 186 495 592
------ ------ ------- -------
234 227 802 843
------ ------ ------- -------
NET INCOME $2,556 $2,551 $7,722 $7,928
------ ------ ------- -------
------ ------ ------- -------
Weighted Average Shares Outstanding (in thousands) 9,354 9,273 9,331 9,258
------ ------ ------- -------
------ ------ ------- -------
Per Share Data
Net Income...................................... $ .27 $ .28 $ .83 $ .86
------ ------ ------- -------
------ ------ ------- -------
Cash Distributions.............................. $ .355 $ .345 $ 1.065 $ 1.020
------ ------ ------- -------
------ ------ ------- -------
</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 Nine Months Ended
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
1995 1994 1995 1994
-------------------------------------------------------
($ in thousands)
<S> <C> <C> <C> <C>
Cash Flow from operating activities:
Net income.................................... $2,556 $2,551 $7,722 $7,928
Adjustment to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization.................. 1,479 1,173 4,186 3,125
Decrease (increase) other assets............... 389 524 434 (412)
Increase (decrease) in accounts payable........ (58) 9 106 620
------ ------- ------- --------
Net cash provided by operating activities........ 4,366 4,257 12,448 11,261
------ ------- ------- --------
Cash flows from investing activities:
Additions to buildings and improvements, net... (528) (576) (3,332) (2,596)
Purchases of rental properties................. -0- (7,730) -0- (48,968)
Collections on notes receivable................ 3,589 (1) 5,646 1,297
------ ------- ------ --------
Net Cash (used in) provided by
investing activities........................... 3,061 (8,307) 2,314 (50,267)
------ ------- ------ --------
Cash flow from financing activities:
Principal payments on notes payable............ (3,214) -0- (4,842) (32,750)
Distributions to shareholders.................. (3,316) (3,194) (9,925) (9,294)
Proceeds from short-term unsecured borrowings -0- 2,400 -0- 21,900
Proceeds from long-term secured borrowings..... -0- 4,291 -0- 4,291
Proceeds from long-term unsecured borrowings. -0- -0- -0- 55,000
Net proceeds from sale of Shares of Beneficial
Interest.................................... 272 309 793 665
------ ------- ------- --------
Net cash provided by (used in) financing
activities..................................... (6,258) 3,806 (13,974) 39,812
------ ------- ------- --------
Net increase (decrease) in cash.................. 1,169 (244) 788 806
Cash at beginning of period...................... 486 1,268 867 218
------ ------- ------ --------
Cash at end of period............................ $ 1,655 $ 1,024 $ 1,655 $ 1,024
------ ------- ------ --------
------ ------- ------ --------
</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 Trust's Annual Report on Form 10-K, as amended,
for the year ended December 31, 1994.
Note 2: The accompanying unaudited consolidated financial statements
are prepared in accordance with instructions to Form 10-Q and in the opinion
of management, include all material adjustments (consisting only of normal
recurring accruals) which are necessary for a fair presentation of the
results for the interim periods shown. The results for the nine month period
ended September 30, 1995 are not necessarily indicative of the results to be
expected for the full year.
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.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
On October 11, 1995, Real Estate Investment Trust of California and BRE
Properties, Inc. announced the execution of a definitive agreement in which
the two companies will be merged, forming one of the largest multifamily real
estate investment trusts in the Western United States. BRE Properties will
be the surviving entity.
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 currently
invests primarily 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 current returns, rather than
the realization of capital gains through property dispositions. 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 during the first three quarters of 1995,
as the Trust focused its activities on the management of its portfolio
of assets and securing long-term financing.
In addition, on November 1, 1995, the Trust purchased the 173 unit
Canterbury Downs Apartments (built in 1993) in Rocklin, California (near
metro Sacramento) for $9,400,000. The 173 unit, Ocotillo Apartments (built
in 1972), located in Phoenix, Arizona, is scheduled to be sold on November
28, 1995 for $3,650,000. See Part II, Item 5, Other Information.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1995, the Trust had a line of credit with Sanwa
Bank ($18,500,000) 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 of the Trust's 1994 Annual
Report on Form 10-K, as amended, for full details of the terms of this line
of credit. As of September 30, 1995, the Trust had an outstanding balance on
5
<PAGE>
the line of credit of $6,600,000. On November 1, 1995, the Trust borrowed
an additional $9,000,000 on its line of credit to complete the purchase of
the Canterbury Downs Apartments.
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 on the Trust's lines
of credit outstanding at that time.
In September 1995, the Trust received payment in full of a note
receivable secured by real estate in the amount of $3,580,000. Proceeds of
the payoff were used to reduce the outstanding balance on the Trust's line of
credit.
The Trust is marketing some 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.
The following table quantifies cash flows from operating, investing and
financing activities using information from the Consolidated Statements of
Cash Flows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
-------------------- --------------------
September September September September
For the Three and Nine Months Ended 30, 1995 30, 1994 30, 1995 30, 1994
------------------------------------------
<S> <C> <C> <C> <C>
Net cash provided by operating activities........... $ 4,366 $ 4,257 $ 12,448 $ 11,261
Net cash provided by (used in) investing activities. 3,589 (8,307) 2,314 (50,267)
Net cash provided by (used in) financing activities (6,258) 3,806 (13,974) 39,812
Net increase (decrease) in cash..................... $ 1,169 $ (244) $ 788 $ 806
Cash at end of period............................... $ 1,655 $ 1,024 $ 1,655 $ 1,024
</TABLE>
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 NINE MONTHS ENDED SEPTEMBER
30, 1995 AND SEPTEMBER 30, 1994
The following table summarizes the financial comparison of the three and
nine months ended September 30, 1995 and September 30, 1994 ($ in thousands,
except per share data).
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
---------------------------- -----------------------------
FOR THE THREE AND SEPTEMBER SEPTEMBER % SEPTEMBER SEPTEMBER %
NINE MONTHS ENDED 30, 1995 30, 1994 CHANGE 30, 1995 30, 1994 CHANGE
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total revenues $ 8,591 $ 7,760 10.7% $25,469 $20,681 23.2%
Depreciation 1,367 1,132 20.8 4,027 3,043 32.3
Interest expense 1,744 1,452 20.1 5,221 3,084 69.3
Property operating costs 2,690 2,398 12.2 7,697 5,793 32.9
Administrative expenses 234 227 3.1 802 843 (4.9)
NET INCOME $ 2,556 $ 2,551 0.2% $ 7,722 $ 7,928 (2.6)%
Weighted Average
Shares Outstanding 9,354 9,273 9,331 9,258
</TABLE>
6
<PAGE>
Revenues and real estate expenses increased from September 30, 1994 to
September 30, 1995 primarily due to 1994 acquisitions and improvements in
occupancies and operating performances of existing apartment investments.
Approximately 75% of this increase was attributed to 1994 property
acquisitions and 25% to prior acquisitions and improved occupancies and
rental increases. 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.
The retail portfolio continues to experience weakness in rental rates
and occupancy due to the effects of the Southern California economy. Retail
and commercial properties continue to present leasing and occupancy problems
with results relatively unchanged from prior periods.
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 - None
Item 5: Other Information
ACQUISITION OR DISPOSITION OF ASSETS
On November 1, 1995, the Trust acquired Canterbury Downs Apartments, a
garden apartment community ("Project") in Rocklin, California (near metro
Sacramento) for approximately $9,400,000 plus related acquisition costs. The
Project, completed in October 1993, consists of approximately 8.6 acres of
land improved with 173 apartment units (72 one bedroom units, 100 two bedroom
units and 1 three bedroom unit) totaling approximately 133,272 net rentable
square feet. There are 16 frame and stucco structures, a clubhouse/leasing
office and a pool and gym building. The seller was Canterbury Downs
Associates Limited Partnership, not related to the Trust or its Trustees or
Officers.
The following data was derived from information supplied to the Trust by
the seller:
The occupancy rate and average effective rental per square foot of the
property during the period from completion (October 1993) to December 31, 1994
are as follows:
<TABLE>
<CAPTION>
1993(1) 1994
------- -----
<S> <C> <C>
Occupancy rate n/a 84.6%
Average rent per square foot n/a $9.06
</TABLE>
(1) Project was in lease up during 1993 and 1994. The occupancy rate as of
December 31, 1994 was 92.2%.
7
<PAGE>
As of November 1, 1995, the project was approximately 97% occupied.
All leases to tenants are for terms of one year or less, with rentals ranging
from approximately $605 to $895 depending on unit type and location. The
property is in excellent physical condition and only minor improvements are
planned. The project competes for tenants with many similar properties in
the area. On November 1, 1995, the Trust added the property to coverage
under its master insurance policy which management has determined to be
adequate.
The 1994-1995 real property taxes were $89,751 at a rate of $104.10 per
$100 of assessed value. The 1995-1996 real property taxes are $89,586 at a
rate of $102.70 per $100 of assessed value.
The sources of funds used to acquire the project were as follows:
1. $9,000,000 was borrowed under the Trust's line of credit with Sanwa
Bank California.
2. The balance of the funds were from general operating cash held by the
Trust.
On August 1, 1995, the Trust entered into an agreement to sell the 173
unit Ocotillo Apartments (built in 1972) located in Phoenix, Arizona for
$3,650,000. The sale is expected to close on approximately November 28, 1995.
The book value of the investment at September 30, 1995 is approximately
$2,589,000 and the gain on sale will be approximately $900,000 after selling
and closing costs. The buyer is not related to the Trust, its Trustees or
Officers. The Trust's plan is to reinvest this funds in additional apartment
communities built after 1985 or to reduce outstanding balances on the line of
credit.
8
<PAGE>
REAL ESTATE INVESTMENT TRUST OF CALIFORNIA
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.
REAL ESTATE INVESTMENT TRUST OF CALIFORNIA
Date: November 20, 1995 By: /s/ LeRoy E. Carlson
-------------------------------------
LEROY E. CARLSON
Vice President, Secretary and Treasurer
(For the Registrant and as Chief
Accounting Officer)
9
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 1,655
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 209,560
<DEPRECIATION> (22,592)
<TOTAL-ASSETS> 192,978
<CURRENT-LIABILITIES> 0
<BONDS> 83,832
<COMMON> 103,817
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 192,978
<SALES> 0
<TOTAL-REVENUES> 25,969
<CGS> 0
<TOTAL-COSTS> 11,724
<OTHER-EXPENSES> 802
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,221
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,722
<EPS-PRIMARY> .83
<EPS-DILUTED> .83
</TABLE>
