<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 1996
OR
[ ] 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 0-24594
WEST COAST REALTY INVESTORS INC.
(Exact name of registrant as specified in its charter)
CALIFORNIA 95-4246740
(State or other Jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5933 W. CENTURY BLVD., 9TH, FLOOR
LOS ANGELES, CALIFORNIA 90045
(Address of principal executive offices)
(Zip Code)
(310) 670-0800
(Registrant's telephone number, including area code)
(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 u No
APPLICABLE ONLY TO CORPORATE ISSUERS:
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S
CLASSES OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE.
1,448,836 SHARES OUTSTANDING AS OF AUGUST 14, 1996.
<PAGE>
WEST COAST REALTY INVESTORS, INC.
ITEM 1. FINANCIAL STATEMENTS
In the opinion of the Management of West Coast Realty Investors, Inc.
(the "Company"), all adjustments necessary for a fair presentation of the
Company's results for the six months ended June 30, 1996 and 1995, have been
made in the following financial statements which are normal and
recurring in nature. However, such financial statements are unaudited and
are subject to any year-end adjustments that may be necessary.
<TABLE>
WEST COAST REALTY INVESTORS, INC.
BALANCE SHEETS
JUNE 30, 1996 (UNAUDITED) AND DECEMBER 31, 1995
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
ASSETS
<S> <C> <C>
RENTAL REAL ESTATE, net of
accumulated depreciation (Note 2) $19,474,817 $19,650,165
CASH 2,382,735 1,450,022
ACCOUNTS RECEIVABLE 183,662 132,148
OTHER ASSETS (Note 3) 147,677 160,563
$22,188,891 $21,392,898
LIABILITIES AND STOCKHOLDERS' EQUITY
DUE TO RELATED PARTY $ 31,818 $ 167,314
DIVIDENDS PAYABLE 286,663 226,649
PREPAID RENT --- 19,709
SECURITY DEPOSITS 109,068 109,068
OTHER LIABILITIES 64,970 96,141
NOTES PAYABLE (Note 6) 9,453,297 9,539,180
TOTAL LIABILITIES 9,945,816 10,158,061
COMMITMENTS AND CONTINGENCIES (NOTE 1)
STOCKHOLDERS' EQUITY (Notes 1, 7 and 8):
Common Stock, $.01 par - shares authorized,
1,500,000; issued and outstanding 1,448,836
in 1996 and 1,322,404 in 1995 14,488 13,224
Additional paid-in capital 12,925,167 11,771,030
Deficit (696,580) (549,417)
TOTAL STOCKHOLDERS' EQUITY 12,243,075 11,234,837
$22,188,891 $ 21,392,898
</TABLE>
[FN]
See accompanying notes to financial statements.
<PAGE>
<TABLE>
WEST COAST REALTY INVESTORS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
<CAPTION>
ADDITIONAL
COMMON STOCK PAID-IN
SHARES AMOUNT CAPITAL DEFICIT
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1995 1,322,404 $13,224 $11,771,030 $(549,417)
Issuance of stock, net 126,432 1,264 1,154,137 ---
Net income --- --- --- 385,127
Dividends declared (Note 8) --- --- --- (532,290)
BALANCE, JUNE 30, 1996 1,448,836 $14,488 $12,925,167 $(696,580)
SIX MONTHS ENDED JUNE 30, 1995
(UNAUDITED)
ADDITIONAL
COMMON STOCK PAID-IN
SHARES AMOUNT CAPITAL DEFICIT
BALANCE, DECEMBER 31, 1994 911,986 $9,120 $8,141,447 $(394,427)
Issuance of stock, net 204,736 2,047 1,821,422 ---
Net income --- --- --- 294,474
Dividends declared (Note 8) --- --- --- (366,900)
BALANCE, JUNE 30, 1995 1,116,722 $11,167 $9,962,869 $(466,853)
</TABLE>
[FN]
See accompanying notes to financial statements.
<PAGE>
<TABLE>
WEST COAST REALTY INVESTORS, INC.
STATEMENTS OF INCOME
THREE AND SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED)
<CAPTION>
THREE MONTHS THREE MONTHS SIX MONTHS SIX MONTHS
ENDED ENDED ENDED ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
REVENUE:
Rental $564,777 $384,388 $1,154,381 $691,466
Interest 27,877 28,466 50,590 73,834
592,654 412,854 1,204,971 765,300
EXPENSES:
Operatin 42,445 21,391 72,763 48,334
Property taxes 18,259 10,801 37,398 21,603
Property management fees-
related party (Note 5(e)) 25,091 9,598 51,198 18,756
Interest 208,979 121,855 419,140 245,762
General & administrative 30,705 27,432 49,872 36,492
Depreciation & amortization 94,736 59,044 189,473 109,629
Realized (gain) from investment in
government securities --- (9,750) --- (9,750)
Change inn unrealized loss from investment
government securities --- 19,977 --- ---
420,215 260,348 819,844 470,826
NET INCOME $172,439 $152,506 $385,127 $294,474
NET INCOME
PER SHARE (NOTE 8) $.12 $.14 $.28 $.28
</TABLE>
[FN]
See accompanying notes to financial statements.
<PAGE>
<TABLE>
WEST COAST REALTY INVESTORS, INC.
STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED)
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, 1996 JUNE 30, 1995
<S> <C> <C>
Cash Flow from operating activities:
Net income $385,127 $294,474
Adjustment to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 189,473 109,629
Proceeds from sales (purchases)
of government securities --- 1,229,963
Realized gain investment in government --- (9,750)
Increase in unrealized loss from
investment - government securities --- 19,977
Increase (decrease) from changes in:
Accounts receivable (51,514) 69,364
Other assets 12,886 (63,129)
Account payable and other liabilities (166,667) 34,612
Prepaid rent and security deposit (19,709) 78,051
Net cash provided by operating activities 349,596 1,763,191
Cash flows from investing activities:
Additions to rental real estate --- (4,901,485)
Net cash (used in) investing activities --- (4,901,485)
Cash flows from financing activities:
Issuance of stock, net 921,924 1,823,469
Proceeds from notes payable --- 2,276,750
Repayments on notes payable (85,883) (25,107)
Dividends paid (312,938) (373,773)
Dividends payable 60,014 26,372
Net cash provided by financing activities 583,117 3,727,711
Net cash increase in cash and cash equivalents 932,713 589,417
Cash and cash equivalents at beginning of period 1,450,022 495,829
CASH AND CASH EQUIVALENTS AT END OF PERIOD $2,382,735 $1,085,246
</TABLE>
[FN]
See accompanying notes to financial statements.
<PAGE>
WEST COAST REALTY INVESTORS, INC.
SUMMARY OF ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying balance sheet as of June 30, 1996, the income statements
and statements of cash flow for the six months periods ended June 30, 1996,
and 1995 are unaudited, but in the opinion of management include all
adjustments, consisting only of normal recurring accruals, necessary for a
fair presentation of the financial position and results of operations for
the periods presented. The results of operations for the six month period
ended June 30, 1996, are not necessarily indicative of results to be
expected for the year ended December 31, 1996.
BUSINESS
West Coast Realty Investors, Inc. (the "Company"), is a corporation formed
on October 26, 1989 under the laws of the State of Delaware. The Company
exists as a Real Estate Investment Trust ("REIT") under Sections 856
to 860 of the Internal Revenue Code. The Company has complied with all
requirements imposed on REIT's for 1996 and 1995 tax years; however,
qualification as a REIT for future years is dependent upon future
operations of the Company. The Company was organized to acquire interests
in income-producing residential, industrial, retail or commercial properties
located primarily in California and the west coast of the United States.
The Company intends to acquire property for cash on a moderately leveraged
basis with aggregate mortgage indebtedness not to exceed fifty percent of
the purchase price of all properties on a combined basis, or eighty
percent individually and intends to own and operate such properties for
investment over an anticipated holding period of five to ten years.
RENTAL PROPERTIES AND DEPRECIATION
Assets are stated at lower of cost or net realizable value. Depreciation
is computed using the straight-line method over their estimated useful
lives of 31.5 to 39 years for financial and income tax reporting purposes.
In the event that facts and circumstances indicate that the cost of an asset
may be impaired, an evaluation of recoverability would be performed.
If an evaluation is required, the estimated future undiscounted cash flows
associated with the asset would be compared to the carrying amount to
determine if a write-down to market value is required.
<PAGE>
WEST COAST REALTY INVESTORS, INC.
SUMMARY OF ACCOUNTING POLICIES
(Continued)
LOAN ORIGINATION FEES
Loan origination fees are capitalized and amortized over the life of the loan.
RENTAL INCOME
Rental income is recognized on a straight-line basis to the extent that
rental income is deemed collectable. Where there is uncertainty of
collecting higher scheduled rental amounts, due to the tendency of tenants
to renegotiate their leases for lower amounts, rental income is
recognized as the amounts are collected.
CASH AND CASH EQUIVALENTS
The Company considers cash in the bank, liquid money market funds, and
all highly liquid certificates of deposits, with original maturities of three
months or less, to be cash and cash equivalents.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
RECLASSIFICATIONS
For comparative purposes, certain prior year amounts have been reclassified
to conform to the current year presentation.
<PAGE>
WEST COAST REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (UNAUDITED)
AND DECEMBER 31, 1995
NOTE 1 - GENERAL
On October 30, 1989, West Coast Realty Advisors, Inc. (the "Advisor"),
purchased 1,000 shares of the Company's common stock for $10,000. On
August 30, 1990, the Company reached its minimum initial offering funding
level of $1,000,000. On November 30, 1992, the Company reached its
secondary offering level of $250,000. On July 25, 1994, the Company
achieved its minimum third offering funding level of $250,000.
Sales commissions and wholesaling fees, representing 7% of the gross
proceeds from the sale of common shares, were paid to Associated
Securities Corp. ("ASC"), a member of the National Association of
Securities Dealers, Inc. and an affiliate of the Advisor.
Dividends are declared and accrued based approximately upon the
previous quarter's income from operations before depreciation and
amortization.
NOTE 2 - RENTAL PROPERTIES
The Company owns the following income-producing properties
ORIGINAL
LOCATION (PROPERTY NAME) DATE PURCHASED ACQUISITION
COST
Huntington Beach, California
(Blockbuster) February 26, 1991 $ 1,676,210
Fresno, California May 14, 1993 1,414,893
Huntington Beach, California
(OPTO-22) September 15, 1993 2,500,001
Brea, California March 4, 1994 2,248,343
Riverside, California November 29, 1994 3,655,500
Tustin, California
(Safeguard) May 22, 1995 4,862,094
Fremont, California
(Technology Drive) October 31, 1995 3,747,611
<PAGE>
WEST COAST REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (UNAUDITED)
AND DECEMBER 31, 1995 (Continued)
NOTE 2 - RENTAL PROPERTIES (CONTINUED)
The major categories of property are:
JUNE 30, 1996 DECEMBER 31, 1995
Land $ 6,586,920 $ 6,586,920
Buildingsand improvements 13,517,732 13,517,732
20,104,652 20,104,652
Less accumulated depreciation 629,835 454,487
Net rental properties $ 19,474,817 $ 19,650,165
A significant portion of the Company's rental revenue was earned from
tenants whose individual rents represented more than 10% of total
rental revenue. Specifically:
Four tenants accounted for 27%, 19%, 19% and 12%, respectively, in 1996;
Four tenants accounted for 24%, 20%, 15% and 10%, respectively, in 1995.
NOTE 3 - OTHER ASSETS
Other assets consists of the following:
JUNE 30, 1996 DECEMBER 31, 1995
Deposits and prepaid expenses $42,163 $40,923
Organization costs 14,330 14,330
Loan origination fees 139,056 139,056
195,549 194,309
Less accumulated amortization 47,872 33,746
Net other assets $147,677 $160,563
<PAGE>
WEST COAST REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (UNAUDITED)
AND DECEMBER 31, 1995 (Continued)
NOTE 4 - FUTURE MINIMUM RENTAL INCOME
As of June 30, 1996 and December 31, 1995, future minimum rental income
under the existing leases that have remaining noncancelable terms in
excess of one year are as follows:
JUNE 30, 1996 DECEMBER 31,1995
1996 .................................. $922,907 $2,046,963
1997 ..................................1,925,526 1,925,526
1998 ..................................1,841,270 1,841,270
1999 ..................................1,772,331 1,772,331
2000 ..................................1,645,181 1,645,181
Thereafter .......................... 10,166,258 10,166,258
Total $18,273,473 $19,397,529
Future minimum rental income does not include lease renewals or new leases
that may result after a noncancelable-lease expires.
NOTE 5 - RELATED PARTY TRANSACTIONS
The Advisor has an agreement with the Company to provide advice on
investments and to administer the day-to-day operations of the Company.
Property management services for the Company's properties are provided
by West Coast Realty Management, Inc. ("WCRM"), an affiliate of the
Advisor.
<PAGE>
WEST COAST REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED JUNE 30, 1996, AND 1995 (UNAUDITED)
AND DECEMBER 31, 1995 (Continued)
During the periods presented, the Company had the following related
party transactions:
(a) In accordance with the advisory agreement, compensation earned by,
or services reimbursed or reimbursable to the advisor, consisted
of the following:
SIX MONTHS ENDED FOR THE YEAR ENDED
JUNE 30, 1996 DECEMBER 31, 1995
Syndication fees $37,041 $150,429
Acquisition & financing fees --- 444,795
Overhead expenses 6,000 12,000
$43,041 $607,224
(b) At June 30, 1996 and December 31, 1995, the Advisor owned
22,505 shares of the issued and outstanding shares of the Company.
(c) Sales commissions paid in accordance with the selling agreement to
ASC totaled $84,496 for the six months ended June 30, 1996 and $151,954
for the six months ended June 30, 1995.
(d) A financing fee of $26,204 was paid in January 1995 in connection
with the refinancing of the notes on the Brea property (Note 6).
(e) Property management fees earned by WCRM totaled $25,091 and $9,598
for the three months ended June 30, 1996 and 1995, respectively. For
the six months ended June 30, 1996 and 1995, WCRM earned $51,198 and
$18,756, respectively in property management fees.
(f) The Corporation had related party accounts payable as follows:
JUNE 30, 1996 DECEMBER 31, 1995
Associated Financial Group $ --- $ 40,143
West Coast Realty Management 23,235 15,369
West Coast Realty Advisors 8,583 111,802
$31,818 $167,314
<PAGE>
WEST COAST REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED JUNE 30, 1996, AND 1995 (UNAUDITED)
AND DECEMBER 31, 1995 (Continued)
NOTE 6 - NOTES PAYABLE
Notes payable are made up of the following:
JUNE 30, DECEMBER 31,
1996 1995
8.25% promissory note secured by a Deed of Trust
on the Fresno Property, monthly principal and interest
payments are $5,244, due August 1, 2003 ................$ 633,883 $ 639,182
Variable rate promissory note secured by a Deed
of Trust on the OPTO-22 property, interest rate
adjustments are monthly and are based on the 11th
District cost of funds rate plus 3% (7.874% at
March 31, 1996), and may never go below 6.5%
or above 11.0%, monthly principal and interest
payments are $11,702, due October 1, 2003 ..............1,716,469 1,721,993
8.25% promissory note secured by a Deed of Trust on
the Blockbuster property, interest rate adjusts
to the 5-year Treasury rate plus 350 basis points
on February 1, 1999, monthly principal and interest
payments are $4,934, due February 1, 2004 .............. 575,115 579,923
9.25% promissory note secured by a Deed of Trust
on the Riverside property, monthly principal and
interest payments are $9,988, due November 8, 2004 .... 1,181,520 1,185,778
Variable rate promissory note secured by a Deed of Trust
on the Brea property, interest rate is 9.5% until March 1,
2000 (and each succeeding March 1st) when interest rate
adjusts to the Moody's corporate bond index daily rate
plus 0.125%, monthly principal and interest payments
vary depending upon interest rates and are currently
$8,737, due March 1, 2020 ......................... 986,989 992,379
<PAGE>
WEST COAST REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED JUNE 30, 1996, AND 1995 (UNAUDITED)
AND DECEMBER 31, 1995 (Continued)
NOTE 6 - NOTES PAYABLE (CONT.)
JUNE 30, DECEMBER 31,
1996 1995
9.625% promissory note secured by a Deed of Trust
on the Safeguard property, monthly principal and
interest payments are $24,191, due February 1,
2005 ................................... $2,195,845 $2,234,231
Variable rate promissory note secured by a Deed of Trust
on the Fremont property, interest rate equals the current
Treasury rate plus 1.65% (8.24% at March 31,1996),
monthly principal and interest payments vary depending
upon interest rates and are currently $18,898, due
August1,2015................................. 2,163,476 2,185,694
$9,453,297 $9,539,180
The carrying amount is a reasonable estimate of fair value of notes
payable because the interest rates approximate the borrowing rates
currently available for mortgage loans with similar terms and average
maturities.
The aggregate annual future maturities at June 30, 1996 and
December 31, 1995 are as follows:
YEAR ENDING JUNE 30, 1996 DECEMBER 31, 1995
1996 .................................. $918,437 $1,004,320
1997 ................................. 1,004,320 1,004,320
1998 .................................. 1,004,320 1,004,320
1999 .................................. 1,004,320 1,004,320
2000 .................................. 1,004,320 1,004,320
Thereafter ............................ 4,517,580 4,517,580
Total $9,453,297 $9,539,180
<PAGE>
WEST COAST REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED JUNE 30, 1996, AND 1995 (UNAUDITED)
AND DECEMBER 31, 1995 (Continued)
NOTE 7 - DIVIDEND REINVESTMENT PLAN
The Company has established a Dividend Reinvestment Plan (the "Plan")
whereby cash dividends will, upon election of the shareholders, be used
to purchase additional shares of the Company. The shareholders'
participation in the Plan may be terminated at any time.
NOTE 8 - NET INCOME AND DIVIDENDS PER SHARE
Net Income Per Share for the six months ended June 30, 1996 and 1995
was computed using the weighted average number of outstanding shares of
1,385,908 and 1,038,625, respectively.
Dividends declared during the first six months 1995 and 1996 were as follows:
OUTSTANDING AMOUNT TOTAL
RECORD DATE SHARES PER UNIT DIVIDEND
January 1, 1995 911,986 $ 0.060 $54,719
February 1, 1995 945,136 0.060 56,708
March 1, 1995 1,009,084 0.060 60,545
April 1, 1995 1,069,048 0.060 64,143
May 1, 1995 1,109,204 0.060 66,552
June 1, 1995 1,109,704 0.060 66,582
TOTAL $369,249
January 1, 1996 1,325,404 0.0600 $79,524
February 1, 1996 1,371,794 0.0600 82,308
March 1, 1996 1,401,664 0.0600 84,100
April 1, 1996 1,413,736 0.0666 94,155
May 1, 1996 1,445,236 0.0666 96,253
June 1, 1996 1,448,836 0.0666 96,492
TOTAL $532,832
<PAGE>
WEST COAST REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED JUNE 30, 1996, AND 1995 (UNAUDITED)
AND DECEMBER 31, 1995 (Continued)
NOTE 9 - NEW ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed of" (SFAS No. 121) issued by the Financial Accounting Standards
Board (FASB) is effective for financial statements for fiscal years
beginning after December 15, 1995. The new Standard establishes new
guidelines regarding when impairment losses on long-lived assets, which
include plant and equipment, and certain identifiable intangible assets,
should be recognized and how impairment losses should be measured. The
partnership elected adoption of SFAS No.121 on January 1, 1996. This
adoption had no effect on the statement of income for the six months ended
June 30, 1996, as there were no impairment amounts recorded during the
period.
Statements of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (SFAS No.123) issued by the Financial Accounting
Standards Board (FASB) is effective for specific transactions entered into
after December 15, 1995, while the disclosure requirements of SFAS No. 123
are effective for financial statements for fiscal years beginning after
December 15, 1995. The new standard establishes a fair value method
of accounting for stock-based compensation plans and for transactions in
which an entity acquires goods or services from nonemployees in exchange
for equity instruments. The Company does not currently provide stock based
compensation and adoption does not have a material effect on its
financial position or results of operations for the six months ended
June 30, 1996.
<PAGE>
WEST COAST REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED JUNE 30, 1996, AND 1995 (UNAUDITED)
AND DECEMBER 31, 1995 (Continued)
NOTE 10 - SUBSEQUENT EVENT
(a) In July 1996, the Company paid dividends totaling $286,900 ($0.0666
per share per monthly record date), payable to shareholders of record on
April 1, May 1, and June 1, 1996, respectively (Note 8).
(b) In August 1996, the Company acquired from unrelated parties, two
light industrial buildings located in Sacramento, California. The total
consideration paid by the Company includes $1,725,000 to be paid to the
Sellers, $17,000 in legal, appraisal and closing costs and $86,500 in
Acquisition Fees paid to the Advisor. There is financing on each
building of the Property that is being assumed by the Company. Financing
of approximately $339,000, on the first building provided by Business &
Professional Bank, was assumed at an annual fixed percentage rate of 10%,
due in November 2001, amortized over a twenty-five year period with monthly
principal and interest payments of approximately $3,413. Financing of
approximately $385,000, on the second building provided by Heller First
Capital Corp., was assumed at an annual fixed percentage rate of 8%, due in
June 2018, amortized over a twenty-five year period with monthly
principal and interest payments of approximately $3,126. The total amount
of financing/assumption fees that the Company is paying in connection
with the assumption of the above two loan is $3,814.
Thus in summary, the balance of the debt at the time of purchase
was approximately $724,000 with the remaining cost of acquisition,
including financing fees, being paid in cash ($1,108,000). The source of
cash was funds received in connection with the sale of the Company's shares.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
West Coast Realty Investors, Inc. is a Delaware corporation, formed
on October 26, 1989. The Company began offering for sale shares of Common Stock
on April 20, 1990. On August 30, 1990, the Company reached its minimum
initial offering funding level of $1,000,000. A secondary offering of shares
was begun on May 14, 1992. On November 30, 1992 the Company reached its
minimum secondary offering funding level of $250,000. A third offering of
shares was begun on June 3, 1994. On July 25, 1994, the Company reached its
minimum third offering funding level of $250,000. As of June 30, 1996,
the Company had raised $14,462,708 in gross proceeds from all four
offerings. A fourth offering of shares was began on May 6, 1996. As of
August 10, 1996 $495,000 had been raised from the sale of these shares;
however, no funds had been released from an escrow account yet.
The Company was organized for the purpose of investing in, improving,
holding, and managing equity interests in a diversified number of
commercial properties located in California and the West Coast, while
qualifying as a Real Estate Investment Trust. Properties will be
acquired for cash or on a moderately leveraged basis, with aggregate
indebtedness not to exceed 50% of the purchase price of all properties on
a combined basis. The Company intends to hold each property for
approximately seven to ten years.
The Company's principal investment objectives are to invest in rental
real estate properties which will:
(1) Preserve and protect the Company's invested capital;
(2) Provide shareholders with cash distributions; a portion of which will
not constitute taxable income.
(3) Provide capital gains through potential appreciation; and
(4) Provide market liquidity through transferable shares of stock.
The Company qualifies as a Real Estate Investment Trust (REIT) for federal
and state income tax purposes.
The ownership and operation of any income-producing real estate is subject
to those risks inherent in all real estate investments, including
national and local economic conditions, the supply and demand for
similar types of properties, competitive marketing conditions, zoning
changes, possible casualty losses, increases in real estate taxes,
assessments, and operating expenses, as well as others.
The Company has engaged West Coast Realty Advisors, Inc. ("WCRA") to act as
the Company's advisor. Pursuant to the terms of the advisory
agreement, WCRA provides investment and financial advice and conducts the
day-to-day operations of the Company. The Company, itself, has no employees.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
During the six months ended June 30, 1996 the Company declared
dividends totaling $532,290, compared to the six months ended June 30, 1995,
when the Company declared dividends totaling $366,900. Dividends are
determined by management based on cash flows and the liquidity position of
the Company. It is the intention of management to declare dividends, subject
to the maintenance of reasonable reserves.
During the six months ended June 30, 1996 the Company raised an
additional $921,924 in net proceeds as the result of the sale of shares
from its third public offering. The Company used the net proceeds
from this offering to purchase an additional income-producing property in
August 1996 and to add to the cash reserve balances of the Company as is
prudent given the amount of property now under ownership.
Management uses cash as its primary measure of the Company's liquidity.
The amount of cash that represents adequate liquidity for a real estate
investment company, is dependent on several factors. Among them are:
1. Relative risk of the Company's operations;
2. Condition of the Company's properties;
3. Stage in the Company's operating cycle (e.g., money-raising,
acquisition, operating or disposition phase); and
4. Shareholders dividends.
The Company is adequately liquid and management believes it has the ability
to generate sufficient cash to meet both short-term and long-term liquidity
need, based upon the above four points.
The first point refers to the risk of the Company's investments. At
June 30, 1996, the Company's excess funds were invested in a short-term
money market fund. The purchase of rental properties have been made
either entirely with cash or the use of moderate leverage. During the
six months ended June 30, 1996, notes payable pertaining to property
acquisitions by the Company did not increase, while cash used in principal
repayments of notes totaled $85,883. Although the notes are set up on an
amortization schedule allowing for the repayment of principal over time,
most of the principal on the notes is due in balloon payments that come
due in the years 2003 through 2005. The Company is aware that prior to
the time that these large payments come due, refinancing of the loans or
the sale of the property(ies) will be necessary in order to protect the
interests of the
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
Company's shareholders. Furthermore, most of the properties' tenants
are nationally known retailers or well-established business under long-term
leases.
As to the second point, the Company's properties are in good condition
without significant deferred maintenance obligations and are leased through
"triple-net" leases, which reduces the Company's risk pertaining to
excessive maintenance and operating costs.
As to the third point, the Company was liquid at June 30, 1996 since the
Company is still operating in the "money-raising" stage. Virtually all
funds raised were invested in a short-term money market fund. As of
June 30, 1996, the Company has allocated approximately $430,000 towards
a "reserve" fund (3% of gross funds raised, as disclosed in the Company's
latest prospectus), $287,000 of cash held pending distribution to
investors, $50,000 of cash to be used for current mortgage and accounts
payable commitments, $109,000 in tenant security deposits, and the
balance--$1,507,000-- expected to be invested in future property
acquisitions. The Company's operations generated $574,600 in net
operating cash flow in the six months ending June 30, 1996 (net income
plus depreciation expense). Thus, the Company is generating significant
amounts of cash flow currently and could choose to withhold payment of all
or a portion of dividends, if necessary, in order to rebuild cash balances.
Fourth, the amount of dividends to shareholders was made at a level
consistent with the amount of net income available after application of
expenses. The Advisor is careful not to make distributions in excess of
the income available. The Advisor expects to increase the level of
dividends as additional funds are raised, and overhead expenses are spread
over a large base of investors' funds.
Inflation and changing prices have not had a material effect on the
Company's operations.
The Company currently has no external sources of liquidity, other than
funds that potentially could be received from the sale of additional shares.
The Company currently has no material capital commitments.
The Tax Reform Acts of 1986 and 1987 and the Revenue Reconciliation Acts of
1990 and 1993 did not have a material impact on the Company's operations.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
In August 1996, the Company acquired from unrelated parties, two
light industrial buildings located in Sacramento, California. The total
consideration paid by the Company includes $1,725,000 to be paid to the
Sellers, $17,000 in legal, appraisal and closing costs and $86,500 in
Acquisition Fees paid to the Advisor. There is financing on each
building of the Property that is being assumed by the Company. Financing
of approximately $339,000, on the first building provided by Business &
Professional Bank, was assumed at an annual fixed percentage rate of 10%,
due in November 2001, amortized over a twenty-five year period with monthly
principal and interest payments of approximately $3,413. Financing of
approximately $385,000, on the second building provided by Heller First
Capital Corp., was assumed at an annual fixed percentage rate of 8%, due in
June 2018, amortized over a twenty-five year period with monthly
principal and interest payments of approximately $3,126. The total amount
of financing/assumption fees that the Company is paying in connection
with the assumption of the above two loan is $3,814.
Thus in summary, the balance of the debt at the time of purchase
was approximately $724,000 with the remaining cost of acquisition,
including financing fees, being paid in cash ($1,108,000). The source of
cash was funds received in connection with the sale of the Company's shares.
NEW ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assists to Be
Disposed of" (SFAS No.121) issued by the Financial Accounting Standards
Board (FASB) is effective for financial statements for fiscal years
beginning after December 15, 1995. The new standard establishes new
guidelines regarding when impairment losses on long-lived assets, which
include plant and equipment, and certain identifiable intangible assets,
should be recognized and how impairment losses should be measured. The
partnership elected adoption of SFAS No.121 on January 1, 1996. This
adoption had no effect on the statement of income for the six months
ended June 30, 1996, as there were no impairment amounts recorded during
the period.
Statements of Financial Accounting Standards No.123, "Accounting for
Stock-Based Compensation" (SFAS No. 123) issued by the Financial Accounting
Standards Board (FASB) is effective for specific transactions entered
into after December 15, 1995, while the disclosure requirements of SFAS
No. 123 are effective for financial statements for fiscal years beginning
no later than December 15, 1995. The new standard establishes a fair value
method of accounting for stock-based compensation plans and for transactions
in which an entity acquires goods or services from nonemployees in
exchange for equity instruments. The Company does not currently provide
stock based compensation and accordingly does not expect adoption to
have a material effect on its financial position or results of
operations for the six months ended June 30, 1996.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
RESULTS OF OPERATIONS
Operations for the six months ended June 30, 1996 represents a full six
months of rental operations for the Blockbuster Video Building, Fresno
Village Shopping Center, OPTO-22 Building, Riverside Marketplace, Brea,
Technology Drive and Safeguard Building properties.
The net income for the six months ended June 30, 1996 continued
to be significantly larger than the prior six months ended June 30, 1995
amount due to the raising of additional funds and investment of such funds
in a money market fund. The Company did not have any adverse events that
significantly impacted net income during the six months ending
June 30, 1996, and all properties that have been purchased by the
Company have operated at levels equal to expectations. All tenants
were current on their lease obligations.
For the six months ending June 30, 1996 rental revenue increased $462,915
(67%) due to a full six months ownership of the Technology Drive and
Safeguard Business Systems properties. Interest income decreased
$23,244 (32%) due primarily to lower cash and government securities
balances in the first six months of 1996 as compared to the first six
months of 1995.
Operating expenses increased $24,429 (51%) as a reflection of the
additional properties owned during the six months ending June 30, 1996.
Interest expense increased $173,378 (71%) as a reflection of the
additional debt taken on in connection with additional property
acquisition and refinancing activities. Despite the large debt amounts,
the Company is still below the maximum 50% debt maximum that is allowed by
the Company's by-laws (debt was 47% of property cost (as defined in the
by-laws) at June 30, 1996). General and administrative costs increased
$13,380 (37%) due to higher accounting, consulting fees, taxes and
general insurance expense costs related to the Company. Depreciation
and amortization expense increased $79,844 (73%) as the result of the
ownership of additional properties during the six months ending
June 30, 1996 as compared to the six months ending June 30, 1995. Net
income of $385,127 as of June 30, 1996 was $90,653 (31%) higher than the six
months ending June 30, 1995.
The weighted average number of shares outstanding at June 30, 1996 was
1,385,908 vs. 1,038,625 in 1995. Despite the greater number of shares
outstanding, the net income per share for the first six months of the year
remained unchanged at $.28 at June 30, 1996 and 1995. The Company did not
realize an improvement in net income per share due to a larger percentage
of the Company's assets being invested in relatively lower yielding money
market investments as opposed to income-producing real estate during the
second quarter of 1996, compared to the second quarter of 1995.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
During the six months ended June 30, 1996, the Company declared
dividends totaling $532,290, compared to dividends of $366,900 declared for
the six months ended June 30, 1995. Cash basis income for the six months
ended June 30, 1996 was $574,600. This was derived by adding depreciation
and amortization expense to net income. Thus, cash distributions this six
months ending June 30, 1996 were $42,310 less than cash basis net income.
In comparison, distributions in the six months ending June 30, 1995 were
$34,854 less than cash basis income. In either event, the Company
continued to qualify as a REIT in 1996, and liquidity of the Company
continues to be strong.
Cash resources increased $932,713 during the six months ending
June 30, 1996 compared to a $589,417 for the six months ending
June 30, 1995. This was the result of normal amounts of financing,
and operating activities that were expected to take place during the six
months ending June 30, 1996. For the six months ending June 30, 1996,
cash provided by operating activities increased $349,596 with the largest
contributors being $574,600 in cash basis income and $12,886 decrease in
other assets (primarily due to the write-off of prepaid insurance and
amortization of intangibles) offset by a $166,667 decrease in accounts
payable (primarily attributable to a decrease in normal trade payables) and
a $51,514 increase in accounts receivable (increase in rent receivable due
to recognition of rental income on a "straight-line" basis over the life
of tenant leases). In contrast, during the six months ending
June 30, 1995, $1,763,191 was provided by operating activities. This
resulted primarily from cash basis income of $404,103 (net income plus
depreciation expense), plus $1,229,963 in proceeds received in
liquidation of a government securities account. There were no investing
activities for the six months ending June 30, 1996. In contrast,
$4,901,485 was used in investing activities for the six months ending
June 30, 1995, resulting from the purchase of the Safeguard Building
in May 1995. For the six months ending June 30, 1996, financing
activities provided an additional $583,117 in cash resources to the Company
via the sale of additional shares in the Company ($921,924 in net
proceeds), less cash dividends paid and payable of $252,924 and $85,883
in repayments on notes payable. In contrast, $3,727,711 was provided by
financing activities for the six months ended June 30, 1995. This
resulted primarily from $2,276,750 in proceeds borrowed for the purchase
of the Safeguard Building in May 1995, plus $1,823,469 from the sale of
additional shares in the Company, offset by cash dividends paid and
payable of $347,401 and $25,107 in repayments on notes payable.
In summary then, the operating performance of the Company continued to
improve as additional funds were raised, additional property was
acquired, and all properties were operated profitably.
<PAGE>
WEST COAST REALTY INVESTORS, INC.
PART II
O T H E R I N F O R M A T I O N
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
None
ITEM 6. EXHIBIT AND REPORTS ON FORM 8-K
(a) Information required under this section has been included in the
financial statements.
(b) Reports on Form 8-K
None
<PAGE>
WEST COAST REALTY INVESTORS, INC.
S I G N A T U R E S
Pursuant to the require ments 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.
WEST COAST REALTY INVESTORS, INC.
(Registrant)
August 14, 1996 By: WEST COAST REALTY ADVISORS, INC.
A California Corporation,
Advisor
Neal E. Nakagiri
Vice President / Secretary
August 14, 1996
Michael G. Clark
Vice President / Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000858346
<NAME> WEST COAST REALTY INVESTORS, INC.
<S> <C>
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<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 2,382,735
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