SUPPLEMENT NO. 5 TO PROSPECTUS DATED MAY 7, 1996.
This supplement ("Supplement") to the Prospectus ("Prospectus") updates the
Prospectus of West Coast Realty Investors, Inc. (the "Company") dated May 7,
1996. This Supplement is part of and must accompany the Prospectus.
The date of this supplement is November 20, 1996.
This Supplement amends and supersedes the corresponding sections of the
Prospectus and Supplements Numbers 1, 2, 3, and 4 to such Prospectus; however,
subject to the qualification above, the Prospectus continues to control the
terms of the offering, and all provisions thereof not supplemented or amended
hereby remain pertinent to the offering and are incorporated herein by
reference. Accordingly, current subscribers and prospective investors should
read both the Prospectus and this Supplement No. 5 very carefully. All
capitalized items used in this Supplement have the same meaning ascribed to
them in the Prospectus unless otherwise indicated herein.
The following supplements the "Dividends" portion of INVESTMENT OBJECTIVES
AND POLICIES section of the Prospectus, beginning on page 23.
Dividends totaling $825,600 have been paid in 1996, for shareholders of record
in 1996. It is estimated that between 35% and 40% of these dividends will
constitute a return of capital when all of 1996 is completed. These 1996
dividends are summarized below:
Record Date Per Outstanding Total
Date Paid Share Shares Dividend
- ------ -------- ------- ---------------- -------------
01/01/96 4/15/96 $0.06 1,325,404 $79,524
02/01/96 4/15/96 0.06 1,371,794 82,308
03/01/96 4/15/96 0.06 1,401,664 84,100
04/01/96 7/15/96 0.0666 1,413,736 94,155
05/01/96 7/15/96 0.0666 1,445,236 96,253
06/01/96 7/15/96 0.0666 1,448,836 96,492
07/01/96 10/15/96 0.0666 1,448,836 96,492
08/01/96 10/15/96 0.0666 1,448,836 96,492
09/01/96 10/15/96 0.0666 1,498,246 99,784
The following supplements or amends the "MANAGEMENT'S DISCUSSION OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS" Section of the Prospectus, beginning on
page 37.
As of November 20, 1996, the Company has raised $14,462,708 in capital from
prior offerings and $1,017,066 from the current offering (which were released
from an escrow account on August 12, 1996 and November 4, 1996). An
additional, $477,223 has been raised from the sale of shares in the current
offering; these funds have been deposited into an escrow account, and shares
will be issued at a later date as provided for by the terms of this offering.
<PAGE>
RESULTS OF OPERATIONS -- NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO
NINE MONTHS ENDED SEPTEMBER 30, 1995
Operations for the nine months ended September 30, 1996 represent a full nine
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, and two months of rental operations
at the Sacramento (Java City) properties.
The net income for the nine months ended September 30, 1996 continued to be
significantly larger than the prior nine months ended September 30, 1995
amount due to the raising of additional funds and investment of such funds
in income producing rental real estate and in money market funds. The
Company did not have any adverse events that significantly impacted net
income during the nine months ending September 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 nine months ending September 30, 1996 rental revenue increased $619,817
(53.8%) due to a full nine months ownership of the Technology Drive and
Safeguard Business Systems properties and two months ownership of the Java
City properties. Interest income decreased $22,289 (24%) due primarily to
lower cash and government securities balances in the first nine months of
1996 as compared to the first nine months of 1995.
Operating expenses increased $7,711 (10.2%) as a reflection of the additional
properties owned during the nine months ending September 30, 1996. Interest
expense increased $224,971 (54.3%) 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
46% of property cost (as defined in the by-laws) at September 30, 1996).
General and administrative costs increased $36,193 (52.2%) due to higher
accounting, consulting fees, taxes and general insurance expense costs
related to the Company. Depreciation and amortization expense increased
$103,405 (56%) as the result of the ownership of additional properties
during the nine months ending September 30, 1996 as compared to the nine
months ending September 30, 1995. Net income of $556,807 as of
September 30, 1996 was $109,429 (24.5%) higher than the nine months ending
September 30, 1995.
The weighted average number of shares outstanding at September 30, 1996 was
1,430,333 vs. 1,084,878 in 1995. The net income per share for the first nine
months of the year decreased $.02 from September 30, 1995 to 1996. 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 nine months of 1996, compared to the nine months of 1995.
<PAGE>
During the nine months ended September 30, 1996, the Company declared dividends
totaling $825,059, compared to dividends of $577,617 declared for the nine
months ended September 30, 1995. Cash basis income for the nine months ended
September 30, 1996 was $845,044. This was derived by adding depreciation and
amortization expense to net income. Thus, cash distributions for the nine
months ending September 30, 1996 were $19,985 less than cash basis net income.
In comparison, distributions in the nine months ending September 30, 1995 were
$54,593 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 $229,912 during the nine months ending September 30,
1996 compared to $1,544,098 in cash resources for the nine months ending
September 30, 1995. This was the result of normal amounts of financing,
investing, and operating activities that were expected to take place during the
nine months ending September 30, 1996. For the nine months ending September 30,
1996, cash provided by operating activities increased $641,242 with the largest
contributors being $845,044 in cash basis income, offset by a $109,016 increase
in accounts receivable (increase in the deferred rent receivable due to
recognition of rental income on a "straight-line" basis over the life of tenant
leases), $78,462 decrease in accounts payable and accrued liabilities
(attributable to a decrease in normal trade payables), and $16,443 decrease in
security deposits and prepaid rents (due primarily to prepaid tenant rent
received prior to January 1, 1996 which was not received prior to October 1,
1996). In contrast, during the nine months ended September 30, 1995, $2,039,304
was provided by operating activities. This resulted primarily from cash basis
income of $632,210 (net income plus depreciation expense), plus $1,229,963 in
proceeds received in liquidation of a government securities account. Cash used
in investing activities totaled $1,828,500 for the nine months ended September
30, 1996, resulting from the acquisition of the Sacramento (Java City) property
in August 1996. In contrast, $4,901,485 was used in investing activities for
the nine months ended September 30, 1995 resulting from the acquisition of the
Safeguard Building in May 1995. For the nine months ended September 30, 1996,
financing activities provided an additional $1,417,170 in cash resources to the
Company via the sale of additional shares in the Company ($1,579,005 in net
proceeds), plus $724,465 in proceeds received from the lender in connection with
the Java City acquisition, less cash dividends paid and payable of $773,302 and
$133,910 in repayments on notes payable. In contrast, $4,406,279 was provided
by financing activities for the nine months ended September 30, 1995. This
resulted from $2,645,775 in proceeds received from the issuance of the Company
shares, plus $2,276,750 in proceeds received from the lender in connection with
the Safeguard Building acquisition, offset by cash dividends paid and payable of
$466,430 and $49,816 used in repayments to the existing 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>
The following supplements and amends the "Liquidity and Capital Resources"
Section of the Prospectus, beginning on page 40.
LIQUIDITY AND CAPITAL RESOURCES
During the nine months ended September 30, 1996 the Company declared dividends
totaling $825,059, compared to the nine months ended September 30, 1995, when
the Company declared dividends totaling $577,617. 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 nine months ended September 30, 1996 the Company raised an additional
$1,599,917 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 September
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 nine months ended September
30, 1996, notes payable pertaining to property acquisitions by the Company
increased $724,465 due to the purchase of an additional income - producing
property in August 1996, while cash used in principal repayments of notes
totaled $133,910. 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 2001 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 Company's shareholders. Furthermore, most
of the properties' tenants are nationally known retailers or well-established
business under long-term leases.
<PAGE>
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 September 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 September 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),
$293,000 of cash held pending distribution to investors, $159,000 of cash to be
used for current mortgage and accounts payable commitments, $112,000 in tenant
security deposits, and the balance--$686,000-- expected to be invested in future
property acquisitions. The Company's operations generated $845,044 in net
operating cash flow in the nine months ending September 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.
The following amends the "MANAGEMENT" section on pages 42 through 45 of the
Prospectus, concerning the Directors and Officers of West Coast Realty
Investors, Inc., West Coast Realty Advisors, and West Coast Realty Management.
(These changes are precipitated by the retirement of Mr. Haas, and the
resignation of Mr. McGaughey as Treasurer of West Coast Realty Management in
order to assume unrelated duties within Associated Financial Group).
<PAGE>
The Directors and Officers of the Company are:
NAME POSITION
Philip N. Gainsborough....................Director and Chairman of the Board
W. Thomas Maudlin, Jr. ...................Director and President
Neal E. Nakagiri..........................Secretary
Michael G. Clark..........................Vice President/Treasurer
James W. Coulter..........................Director (1)
George Young..............................Director (1)
Steve Bridges.............................Director (1)
(1) Independent Director
The principal executive officers, directors. and key employees of the Advisor
are as follows:
NAME POSITION
Philip N. Gainsborough...................Director and Chairman of the Board
W. Thomas Maudlin, Jr. ..................Director and President
Neal E. Nakagiri.........................Secretary
Michael G. Clark.........................Director and Treasurer
The principal executive officers, directors, and key employees of the Property
Manager are:
NAME POSITION
Philip N. Gainsborough.....................Director and Chairman of the Board
James E. Prock.............................Director and President
W. Thomas Maudlin, Jr. ....................Director (1)
Murli Sujanani.............................Secretary
David Vazquez..............................Treasurer
(1) AFG owns 75% and Mr. Maudlin owns 25% of the capital stock of West Coast
Realty Management, Inc.
Additional description of occupations of Messrs. Sujanani and Vazquez are noted
below:
Murli Sujanani (Born 1950) has served as Senior Vice President/Investment
Research for AFG since 1994, and has been employed by AFG since December, 1990.
From April 1990 to November 1990, Mr. Sujanani served as Vice President/Mortgage
Securities for GMAC-Residential Funding Corporation. From June, 1983 to March,
1990, Mr. Sujanani worked for Dain Bosworth, Inc. in the corporate finance
department as a Vice President where he was responsible for partnership
origination and due diligence work. Mr. Sujanani is a graduate of St. John's
University in Minnesota.
<PAGE>
David Vazquez (Born 1962) has served as Assistant Controller of AFG since April
1995. Prior to joining AFG, Mr. Vazquez served as an auditor for BDO Seidman
LLP in Los Angeles from January 1994 through April 1995, and as an accounting
supervisor for Biggs & Co., a Los Angeles CPA firm, from February 1991 through
January 1994. In addition, Mr. Vazquez served as a staff accountant for P.
Leiner N.P., a manufacturer and distributor of nutritional products, from June
1990 through February 1991. Mr. Vazquez has a Bachelor of Business
Administration degree from the California State University, Los Angeles.
The following supplements or amends the "PRIOR PERFORMANCE" section on pages 45
and 46 of the Prospectus, concerning Associated Planners Realty Growth Fund.
On August 16, 1996, the Partnership and the Lender executed a deed-in-lieu-of-
foreclosure, in connection with the Park Center Office Building. On November 1,
1996, the Partnership's 10% interest in the San Marcos Property was sold to
Associated Planners Realty Income Fund (an affiliate) for a gross purchase price
of $188,000. The sales price of the transaction was established by an
independent appraisal of the property. It is anticipated that Associated
Planners Realty Growth Fund will be dissolved in early December 1996, after
distribution of all available cash to limited partners in late November 1996.
The following supplements or amends the "ERISA CONSIDERATIONS" and "DESCRIPTION
OF COMMON STOCK" sections on pages 58 and 59 of the Prospectus.
As of November 20, 1996, there are 1,549,277 Shares of the Company outstanding,
held by Shareholders. In addition, $477,223 has been raised from the sale of
shares in the current offering to thirteen additional investors; these funds
have been deposited into an escrow account, and shares will be issued at a later
date as provided for by the terms of this offering.
The following supplements the Real Property Investments section on page 25 of
the Prospectus.
JAVA CITY PROPERTY, SACRAMENTO, CALIFORNIA
On August 2, 1996, the Company acquired the investment described below (the
"Java City Property" or the "Property"). The funds to acquire the Java City
property were available as the result of the sale of the Company's Shares in the
previous offering, and the receipt of proceeds from bank financing assumed in
connection with the acquisition.
Description. The Java City Property consists of two single story light
industrial buildings located in the Northgate Industrial Park in Sacramento,
California. The addresses of the two properties are 717 and 721 West Del Paso
Road. The building sites are in the northern part of Sacramento, with access
to Interstate 80, Interstate 5, and other major freeways.
<PAGE>
The buildings are located on a site of approximately 62,173 square feet. Total
building square footage for both buildings is approximately 20,000 square feet.
The subject lot is zoned M-1 industrial by the City of Sacramento. This zoning
allows for a variety of uses, including the existing use. 721 West Del Paso
Road consists of 8,964 total square feet and 717 West Del Paso Road consists of
11,035 total square feet. Per the provisions of the current lease, 721 West Del
Paso consists of 4,347 rentable square feet of warehouse space and 4,293
rentable square feet of office space. Per the provisions of the current lease,
717 West Del Paso consists of 5,398 rentable square feet of warehouse space and
5,802 of rentable square feet of office space. The properties were originally
constructed in 1988. The Company believes that there are no deferred
maintenance items that need to be corrected or addressed. The buildings are
constructed using concrete footings (foundation and slab), wood frame wall
designs, and flat/tar gravel roofs. The building has sprinklers for fire
prevention and safety. There is adequate parking in the general business park
area for cars that utilize the Property.
The primary tenant of the Property is Cucina Holdings, Inc. The company owns
and operates forty-one Java City Bakery Cafes and five La Petite Boulangerie
cafes. The Company is popularly known as "Java City". Java City outlets are
located in various areas of California and Arizona, and are generally in high-
visibility, high-traffic locations. These outlets sell high quality, specialty
coffees in a pleasant retail environment setting. In addition, these outlets
sell a selection of sandwiches and baked goods that compliment the sale of
coffee. Java City also operates a wholesale operation that serves approximately
seven hundred customer accounts located primarily in Northern California. The
Company's wholesale customers include supermarkets, gourmet shops, convenience
stores, restaurants, universities, airports, and offices, some of which resell
the coffee in whole bean form for home consumption, while others brew and sell
coffee beverages. Approximately 86% of the Company's sales are from its retail
cafe operations and 14% from its wholesale operations. The tenant was
effectively formed in 1993 when Cucina Holdings, a corporation formed by current
management and InterWest Partners (a Menlo Park Based venture capital firm),
purchased the assets of La Petite Boulangerie from a private investor group in
June 1993, and then purchased Java City in September 1993. Cucina Holdings and
Java City are privately held, and not publicly traded companies.
Java City leases 100% of the rentable square feet in the two buildings located
on the Property. Each building has a separate lease, and both leases are triple
net leases. Both leases expire on August 1, 2003 and there are no options for
extension or purchase of the Property. Java City operates its administrative
offices, coffee bean processing, warehousing facilities, and a Java City retail
outlet out of these two buildings.
<PAGE>
The lease payments due on 717 West Del Paso are noted below (rounded to the
nearest dollar):
August 1, 1996 to July 31, 1997 10,004/month
August 1, 1997 to July 31, 1998 10,405/month
August 1, 1998 to July 31, 1999 10,821/month
August 1, 1999 to July 31, 2000 11,254/month
August 1, 2000 to July 31, 2001 11,704/month
August 1, 2001 to July 31, 2002 12,172/month
August 1, 2002 to July 31, 2003 12,659/month
The lease payments due on 721 West Del Paso are noted below (rounded to the
nearest dollar):
August 1, 1996 to July 31, 1997 $5,671/month
August 1, 1997 to July 31, 1998 5,898/month
August 1, 1998 to July 31, 1999 6,134/month
August 1, 1999 to July 31, 2000 6,379/month
August 1, 2000 to July 31, 2001 6,635/month
August 1, 2001 to July 31, 2002 6,900/month
August 1 ,2002 to July 31, 2003 7,176/month
There are no provisions for consumer price increase adjustments in either lease.
The overall initial rent per square foot is approximately $.76, and this
increases 4% on each lease anniversary date.
The Property was acquired from unrelated third parties--Thomas Weborg and Sandra
Singer--husband and wife (90% ownership), and David and Karen Ewing--husband and
wife (10% ownership)(collectively known as the "Sellers"). Mr. Weborg is
President and Chief Executive Officer of Cucina Holdings, Inc.--the tenant of
the Property. Several methods of economic analysis were used to determine the
propriety of the purchase price, and economic feasibility of the property, prior
to acquisition. A review of rental rates for similar size and style buildings
and uses in the same general area revealed rates ranging from $.41 to $.81 per
square foot for triple net leases. The current monthly rent on these buildings
is $.76 per square foot, meaning that the Property currently rents near the
highest rate available in this market. However, considering the good condition
of the property, the quality of the tenant, and the long-term lease in place,
this property at this price is considered to be desirable. Comparable market
listing and sales activity were also reviewed by the Advisor. These revealed
that the price per square foot for similar buildings in the area range from
$40.00 to $97.50. Several of the buildings that were sold in the lower range
were older and of lower quality, and lacked amenities that are present in the
Property, including fire prevention sprinklers. The $86.25 per square foot that
the Company is paying for the Property is considered reasonable given the recent
positive movements of price in the market, the favorable seven year lease term,
and the credit quality of the tenant (this number does not include acquisition
costs and expenses).
<PAGE>
In the opinion of the Advisor, the purchase price of $1,725,000 that the
Company is paying the Sellers for this property is reasonable.
Property Operations. The Java City Property is managed by West Coast Realty
Management Inc.(" WCRM"), an affiliate of the Company. WCRM charges the Company
3% of the gross rents collected as a management fee for managing the Property,
as allowed by the Property Management Agreement. In the opinion of the Advisor,
the Java City Property is adequately insured. Although the tenant is obligated
to pay property taxes, property tax in the first year is estimated to be $18,000
(approximately 1% of the sales price).
Terms of Purchase. Total consideration paid by the Company for the Java City
property was $1,828,500. The total acquisition cost included $1,725,000 paid to
the Sellers, $25,323 in legal, appraisal, and closing costs, and $78,177 in
Acquisition Fees paid to the Advisor.
There is financing on each building of the Property that is being assumed by the
Company. The financing on the 717 West Del Paso Road building is as follows:
Lender: Business & Professional Bank, Sacramento, CA
Original Loan Amount: $350,000 Payment: $3,413.36/month
Interest Rate: 10% fixed rate Amortization: 25 years
Due Date: November, 2001 Assumption Fee: $3,814
Projected Balance of Debt at time of Purchase: $338,977
Other: Nonrecourse loan; no prepayment penalty
The financing on the 721 West Del Paso Road building is as follows:
Lender: Heller First Capital Corp., Chicago, IL
Original Loan Amount: $405,000 Payment: $3,126/month
Interest Rate: 8% fixed rate Amortization: 25 years
Due Date: June, 2018 Assumption Fee: None
Projected Balance of Debt at Time of Purchase: $385,488
Other: Nonrecourse; no prepayment penalty
Thus, in summary, the total amount of financing/assumption fees that the Company
is paying in connection with the assumption of the above two loans is $3,814.
The balance of the debt at time of purchase was $724,465 with the remaining cost
of acquisition--including financing fees--being paid in cash ($1,107,849). The
source of cash was funds received in connection with the sale of the Company's
shares through April 30, 1996.
The purchase price was arrived at through arms-length negotiations with the
Sellers.
General. The computation of depreciation for the Java City Property is based on
the cost of the property, including Acquisition Fees and Acquisition Expenses.
The allocation of the cost of the Property to various asset categories is
estimated, based on allocations in the appraisal report. Depreciation is
computed on a straight-line basis over the component useful life of the assets.
<PAGE>
The following amends the Index to Financial Statements on p. 74.
Unaudited Financial Statements
Balance Sheet as of September 30, 1996 and December 31,
1995...........................................................F-30
Statement Of Stockholders' Equity for the nine months
ended September 30, 1996 and 1995 .............................F-31
Statements of Income of the nine months ended September 30,
1996 and 1995..................................................F-32
Statement of Cash Flows for the nine months ended
September 30, 1996 and 1995...................................F-33
Summary of Accounting Policies.................................F-34
Notes to Financial Statements..................................F-36
Java City Property
Report of Independent Certified
Public Accountants.............................................F-45
Summary of Historical Information
Relating to Operating Revenues
and Specified Expenses.........................................F-46
Notes to Summary of Historical Information Relating
to Operating Revenues
and Specified Expenses.........................................F-47
Estimated Twelve Month Pro Forma Statement of Taxable
Operating Income (unaudited)...................................F-48
Estimated Twelve Month Pro Forma Statement of Cash
Available from Operations (unaudited)..........................F-48
Notes to Pro Forma Statements..................................F-49
West Coast Realty Investors, Inc.
Pro Forma Statement of Income for the nine months
ended September 30, 1996 (unaudited)...........................F-51
Notes to Pro Forma Financial Statement for the nine
months ended September 30, 1996 (unaudited)....................F-52
Pro Forma Statement of Income for the year ended
December 31, 1995 (unaudited)..................................F-53
Notes to Pro Forma Income Statement for year
ended December 31, 1995 (unaudited)............................F-54
<PAGE>
<TABLE>
WEST COAST REALTY INVESTORS, INC.
BALANCE SHEETS
SEPTEMBER 30, 1996 (UNAUDITED) AND DECEMBER 31, 1995
<CAPTION>
September 30, December 31,
1996 1995
<S> <C> <C>
ASSETS
RENTAL REAL ESTATE, net of
accumulated depreciation (Notes 2 & 4) $21,211,737 $19,650,165
CASH AND CASH EQUIVALENTS 1,679,934 1,450,022
ACCOUNTS RECEIVABLE 241,164 132,148
OTHER ASSETS (Note 3) 160,444 160,563
$23,293,279 $21,392,898
LIABILITIES AND STOCKHOLDERS' EQUITY
DUE TO RELATED PARTY (Note 5 (f)) $26,437 $167,314
DIVIDENDS PAYABLE 292,531 226,649
PREPAID RENT --- 19,709
SECURITY DEPOSITS 112,334 109,068
OTHER LIABILITIES 158,556 96,141
NOTES PAYABLE (Note 6) 10,129,735 9,539,180
TOTAL LIABILITIES 10,719,593 10,158,061
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (Notes 1, 7 and 8):
Common Stock, $.01 par-shares authorized,
5,000,000; issued and outstanding; 1,550,607
outstanding in 1996, and 1,322,404 outstanding
in 1995 15,007 13,224
Additional paid-in capital 13,376,348 11,771,030
Distributions in excess of earnings (817,669) (549,417)
TOTAL STOCKHOLDERS' EQUITY $23,293,279 $21,392,898
</TABLE>
[FN]
See accompanying notes to financial statements.
F-30
<PAGE>
<TABLE>
WEST COAST REALTY INVESTORS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
<CAPTION>
ADDITIONAL
PAID - IN
COMMON STOCK CAPITAL DEFICIT
SHARES AMOUNT
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1995 1,322,404 $13,224 $11,771,030 $(549,417)
Issuance of stock, net 178,342 1,783 1,584,406 ---
Equity contribution by Affiliates
through expense reimbursement ---- ---- 20,912 ---
Net income ---- ---- ---- 556,807
Dividends declared (Note 8) ---- ---- ---- (825,059)
BALANCE, SEPTEMBER 30, 1996 1,500,746 $15,007 $13,376,348 $(817,669)
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1995
(UNAUDITED)
ADDITIONAL
PAID - IN
COMMON STOCK CAPITAL DEFICIT
SHARES AMOUNT
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1994 911,986 $9,120 $8,141,447 $(394,427)
Issuance of stock, net 310,926 3,109 2,723,256 ---
Net income ---- ---- ---- 447,378
Dividends declared (Note 8) ---- ---- ---- (577,617)
BALANCE, SEPTEMBER 30, 1995 1,222,912 $12,229 $10,864,703 $(524,666)
</TABLE>
[FN]
See accompanying notes to financial statements.
F-31
<PAGE>
<TABLE>
WEST COAST REALTY INVESTORS, INC.
STATEMENTS OF INCOME
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
<CAPTION>
THREE THREE NINE MONTHS NINE MONTHS
MONTHS MONTHS ENDED ENDED
ENDED ENDED SEPTEMBER SEPTEMBER
SEPTEMBER SEPTEMBER 30, 1996 30, 1995
30, 1996 30, 1995
<S> <C> <C> <C> <C>
REVENUES:
Rental $618,081 $461,178 $1,772,462 $1,152,645
Interest 19,974 19,019 70,564 92,853
638,055 480,197 1,843,026 1,245,498
COSTS AND EXPENSES:
Operating 40,405 38,857 83,061 75,350
Property taxes 18,528 10,801 55,927 32,404
Property management
fees-related party (Note 5 (e)) 27,015 12,823 78,213 31,579
Interest 220,187 168,594 639,327 414,356
General and administrative 25,563 21,015 105,542 69,349
Depreciation and amortization 98,764 75,203 288,237 184,832
Advisory fees 35,912 --- 35,912 ---
Realized (gain) from investment
in government securities --- --- --- (9,750)
466,375 327,293 1,286,219 798,120
NET INCOME $171,679 $152,904 $556,807 $447,378
NET INCOME PER SHARE (NOTE 8) $.12 $.13 $.39 $.41
</TABLE>
[FN]
See accompanying notes to financial statements.
F-32
<PAGE>
<TABLE>
WEST COAST REALTY INVESTORS, INC.
STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net income $556,807 $447,378
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 288,237 184,832
Proceeds from sales of government
securities account ---- 1,229,963
Realized (gain) from investment in
government securities ---- (9,750)
Increase in unrealized loss from
investment in government securities ---- 19,977
Increase (decrease) from changes in:
Accounts receivable (109,016) (38,534)
Other assets 119 10,624
Accounts payable and other liabilities (78,462) 126,342
Security deposits and prepaid rents (16,443) 68,472
Net cash provided by operating activities 641,242 2,039,304
Cash flows from investing activities:
Additions to rental real estate (1,828,500) (4,901,485)
Cash (used in) investing activities (1,828,500) (4,901,485)
Cash flows from financing activities:
Issuance of stock, net 1,579,005 2,645,775
Proceeds from notes payable 724,465 2,276,750
Equity contribution by Affiliates
through expense reimbursements 20,912 ---
Repayment of notes payable (133,910) (49,816)
Dividends payable 65,882 41,142
Dividends paid (839,184) (507,572)
Net cash provided by financing activities 1,417,170 4,406,279
Net increase in cash and cash equivalents 229,912 1,544,098
Cash and cash equivalents at beginning
of period 1,450,022 495,829
CASH AND CASH EQUIVALENTS AT END OF
PERIOD $1,679,934 $2,039,927
</TABLE>
[FN]
See accompanying notes to financial statements.
F-33
<PAGE>
WEST COAST REALTY INVESTORS, INC.
SUMMARY OF ACCOUNTING POLICIES
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED)
AND DECEMBER 31, 1995
BASIS OF PRESENTATION
The accompanying balance sheet as of September 30, 1996, the income statements
and statements of cash flow for the nine months periods ended September 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 nine month period ended September
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.
F-34
<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.
F-35
<PAGE>
WEST COAST REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED SEPTEMBER 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
Sacramento, California
(Java City) August 2, 1996 1,828,500
F-36
<PAGE>
WEST COAST REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED)
AND DECEMBER 31, 1995 (Continued)
NOTE 2 - RENTAL PROPERTIES (CONTINUED)
The major categories of property are:
SEPTEMBER 30, 1996 DECEMBER 31, 1995
Land $ 7,401,126 $ 6,586,920
Buildings and improvements 14,532,025 13,517,732
21,933,151 20,104,652
Less accumulated depreciation 721,414 454,487
Net rental properties $ 21,211,737 $ 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:
SEPTEMBER 30, 1996 DECEMBER 31, 1995
Deposits and prepaid expenses $58,300 $40,923
Organization costs 14,330 14,330
Loan origination fees 142,870 139,056
215,500 194,309
Less accumulated amortization 55,056 33,746
Net other assets $160,444 $160,563
F-37
<PAGE>
WEST COAST REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED)
AND DECEMBER 31, 1995 (Continued)
NOTE 4 - FUTURE MINIMUM RENTAL INCOME
As of September 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:
SEPTEMBER 30, 1996 DECEMBER 31,1995
1996 .................................. $379,048 $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 $17,729,614 $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.
F-38
<PAGE>
WEST COAST REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED SEPTEMBER 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:
NINE MONTHS ENDED FOR THE YEAR
SEPTEMBER 30, 1996 ENDED
DECEMBER 31, 1995
Syndication fees $56,805 $150,429
Acquisition & financing fees 78,177 444,795
Advisory fees 35,912 ----
Overhead expenses 9,000 12,000
$179,894 $607,224
(b) At September 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 $119,083 for the nine months ended September 30, 1996 and
$233,929 for the nine months ended September 30, 1995. Monitoring fees
payable to ASC, in accordance with the provisions of the current offering
which was effective May 7, 1996, totaled $93.
(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 $27,015 and
$12,823 for the three months ended September 30, 1996 and 1995,
respectively. For the nine months ended September 30, 1996 and 1995, WCRM
earned $78,213 and $31,579, respectively in property management fees.
(f) The Corporation had related party accounts payable (receivable)
as follows:
SEPTEMBER 30, DECEMBER 31, 1995
1996
Associated Financial Group $ --- $ 40,143
Associated Securities Corp. 93 ---
West Coast Realty Management 27,015 15,369
West Coast Realty Advisors (671) 111,802
$26,437 $167,314
F-39
<PAGE>
WEST COAST REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1996, AND 1995 (UNAUDITED)
AND DECEMBER 31, 1995 (Continued)
NOTE 6 - NOTES PAYABLE
Notes payable are made up of the following:
SEPTEMBER 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 .............. $ 630,852 $ 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% (7.819% at
September 30, 1996), and may never go below 6.5%
or above 11.0%, monthly principal and interest
payments are $12,429, due October 1, 2003 .......... 1,712,734 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 ............ 572,154 579,923
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 .. 1,179,464 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 ........................... 984,197 992,379
F-40
<PAGE>
WEST COAST REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1996, AND 1995 (UNAUDITED)
AND DECEMBER 31, 1995 (Continued)
NOTE 6 - NOTES PAYABLE (CONT.)
SEPTEMBER 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.......................................... $2,175,951 $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 September 30,1996),
monthly principal and interest payments vary depending
upon interest rates and are currently $18,898, due
August 1, 2015................................. 2,152,258 2,185,694
10% promissory note secured by a Deed of Trust on the
Java City property, monthly principal and interest payments
are $3,413, due November 1, 2018........ 337,989 ---
8% promissory note secured by a Deed of Trust on the
Java City property, monthly principal and interest payments
are $3,126, due June 1, 2018................... 384,136 ---
$10,129,735 $9,539,180
F-41
<PAGE>
WEST COAST REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1996, AND 1995 (UNAUDITED)
AND DECEMBER 31, 1995 (Continued)
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 September 30, 1996 and December 31,
1995 are as follows:
YEAR ENDING SEPTEMBER 30, 1996 DECEMBER 31, 1995
1996 ............................... $878,491 $1,004,320
1997 ............................... 1,019,011 1,004,320
1998 .................................. 1,020,397 1,004,320
1999 .................................. 1,021,915 1,004,320
2000 .................................. 1,023,579 1,004,320
Thereafter ............................ 5,166,342 4,517,580
Total $10,129,735 $9,539,180
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.
F-42
<PAGE>
WEST COAST REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1996, AND 1995 (UNAUDITED)
AND DECEMBER 31, 1995 (Continued)
NOTE 8 - NET INCOME AND DIVIDENDS PER SHARE
Net Income Per Share for the nine months ended September 30, 1996 and 1995
was computed using the weighted average number of outstanding shares of
1,430,333 and 1,084,878, respectively.
Dividends declared during the first nine 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
July 1, 1995 1,116,721 0.060 67,003
August 1, 1995 1,151,742 0.060 69,104
September 1, 1995 1,204,347 0.060 72,260
TOTAL $577,616
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
July 1, 1996 1,448,836 0.0666 96,492
August 1, 1996 1,448,836 0.0666 96,492
September 1, 1996 1,498,246 0.0666 99,784
TOTAL $825,600
F-43
<PAGE>
WEST COAST REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED SEPTEMBER 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 nine months
ended September 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 nine months ended
September 30, 1996.
NOTE 10 - SUBSEQUENT EVENT
(a) In October 1996, the Company paid dividends totaling $292,768 ($0.0666
per share per monthly record date), payable to shareholders of record on
July 1, August 1, and September 1, 1996, respectively (Note 8).
F-44
<PAGE>
INDEPENDENT AUDITORS' REPORT
Shareholders
West Coast Realty Investors, Inc.
We have audited the accompanying summary of historical information relating
to operating revenues and specified expenses of 717 and 721 West Del Paso
Road (the Property) for the three months ended March 31, 1996 and for the
year ended December 31, 1995. These financial statements are the
responsibility of 717 and 721 West Del Paso's management. Our responsibility
is to express an opinion on these financial statements based upon our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the summary of historical
information relating to operating revenues and specified expenses is free of
material misstatement. An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the summary of historical
information relating to operating revenues and specified expenses. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall summary
relating to operating revenues and specified expenses presentation. We
believe our audits provide a reasonable basis for our opinion.
The accompanying summary of historical information relating to operating
revenues and specified expenses was prepared for the purpose of complying
with the rules and regulations of the Securities and Exchange Commission and
excludes certain material expenses, described in Note 2, that would not be
comparable to those resulting from the proposed future operations of the
Property.
In our opinion, the summary of historical information relating to operating
revenues and specified expenses referred to above presents fairly, in all
material respects, the operating revenues and specified expenses, exclusive
of expenses described in Note 2, of the Property for the three months ended
March 31, 1996 and the year ended December 31, 1995 in conformity with
generally accepted accounting principles.
HUNNICUTT OKAMOTO & ASSOCIATES
May 21, 1996
Woodland Hills, California
F-45
<PAGE>
<TABLE>
717 AND 721 WEST DEL PASO ROAD
SUMMARY OF HISTORICAL INFORMATION RELATING TO
OPERATING REVENUES AND SPECIFIED EXPENSES
For the Three Months Ended March 31, 1996
and
Year Ended December 31, 1995
<CAPTION>
Three
Months Year
Ended Eended
March 31, December 31,
1996 1995
------------ ------------
<S> <C> <C>
Operating Revenues:
Rental income $ 45,219 $ 176,815
Total operating revenue 45,219 176,815
Specified Expenses:
Operating expenses 2,700 170
Interest expense 15,985 63,931
Total specified expenses 18,685 64,101
Excess of operating revenues
over specified expenses $ 26,534 $112,714
</TABLE>
[FN]
See accompanying notes to summary of
historical information
F-46
<PAGE>
717 and 721 WEST DEL PASO ROAD
NOTES TO SUMMARY OF HISTORICAL INFORMATION RELATING TO
OPERATING REVENUES AND SPECIFIED EXPENSES
NOTE 1 - THE PROPERTY
717 and 721 West Del Paso Road (the Property) is comprised of two adjacent
single story light industrial buildings located in the city of Sacramento,
California. The two properties are located in the same industrial park. The
717 West Del Paso Road property has a rental area approximating 11,200
square feet. The 721 West Del Paso Road property has a rental area
approximating 8,640 square feet. Both properties are currently leased to
Java City, a California corporation. The owners of the Property are also
shareholders of the corporate tenant. Both leases have lease terms expiring
in 2003. The lease agreements provide that specified expenses including
insurance, repairs and maintenance and property taxes of the Property are
paid by the lessee. However, the lease of 721 West Del Paso Road provides
that the lessor shall keep the foundation, roof and structural portions of
the exterior walls in good order, condition and repair. During the three
months ended March 31, 1996 and the year ended December 31, 1995 the lessor
incurred $2,700 and $170, respectively in roof repairs to the 721 West Del
Paso Road property. These specified expenses incurred by the Property are
included as operating expenses in the accompanying summary.
Minimum rental income, under the existing leases, is $183,800, $191,200,
$198,800, $206,800, $215,100, $223,700 for the years ended December 31, 1996
through December 31, 2001 and $371,500 for years thereafter.
The Property is expected to be acquired by West Coast Realty Investors, Inc.
in July 1996. The property is expected to be acquired subject to the
assumption of two promissory notes. The first note has an outstanding
balance of approximately $341,800 as of March 31, 1996 and is due in 2001.
The note rate is 10%. Interest expense incurred during the three months
ended March 31, 1996 and the year ended December 31, 1995 and during was
$8,654 and $33,640, respectively.
The second note has an outstanding balance of approximately $387,900 as of
March 31, 1996 and is due in 2018. The note rate is 8%. Interest expense
incurred during the three months ended March 31, 1996 and during the year
ended December 31, 1995 was $7,331 and $30,291, respectively.
NOTE 2 - BASIS OF PRESENTATION
The summary of historical information relating to operating revenues and
specified expenses of the Property excludes the following items, which are
not comparable to the future operations of the Property under the ownership
of West Coast Realty Investors, Inc.
(a) Depreciation of buildings, improvements and equipment
(b) Nonrecurring income and expenses
Rental income is recognized when earned and expenses are recognized when
incurred.
F-47
<PAGE>
<TABLE>
WEST COAST REALTY INVESTORS, INC.
ESTIMATED TWELVE MONTH PRO FORMA STATEMENT OF
TAXABLE OPERATING INCOME (NOTE 1)
BASED ON ACQUISITION OF JAVA CITY PROPERTY
<CAPTION>
Java City Property Audited
Historical Financial
Operating Results
Results for for the period Estimated
WCRI ended Pro Forma Pro Pro
December 31, December 31, Adjustments (note 2) Forma
1995 1995 Results
<S> <C> <C> <C> <C>
REVENUE:
Rental Income $1,692,176 $176,815 $35,433 (a) $1,904,424
Interest Income 120,950 - (55,000) (b) 65,950
1,813,126 176,815 (19,567) 1,970,374
COSTS AND EXPENSES:
Operating 169,679 170 6,367 (c) 176,216
Interest 620,031 63,931 683,962
General and
Administrative 117,667 117,667
Depreciation and
amortization 256,144 - 26,008 (d) 282,152
1,163,521 64,101 32,375 1,259,997
Taxable Operating $649,605 $112,714 ($51,942) $710,377
Income
WEST COAST REALTY INVESTORS, INC.
STATEMENT OF CASH AVAILABLE FROM OPERATIONS (NOTE 1)
Pro Forma Taxable Net Operating Income $710,377
Add: Depreciation 282,152
Pro Forma Cash Available from Operations $992,529
</TABLE>
[FN]
See accompanying notes to pro forma financial statements
F-48
<PAGE>
WEST COAST REALTY INVESTORS, INC.
JAVA CITY PROPERTY
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 -- BASIS OF PRESENTATION
The preceding unaudited pro forma statements are based on information obtained
from the lease and Agreement to Purchase documents pertaining to the property
located at 717 and 721 West Del Paso Road, Sacramento, California (the "Java
City Property" or the "Property").
The pro forma statements use the audited financial statements for the year
ended December 31, 1995 as a base for preparing the estimated pro forma
operations for the Property during its first full year of operations. The
Property's current tenant, Cucina Holdings, Inc. (doing business as Java
City), leases the space in the two separate buildings. The leases on both
buildings expire October 31, 2003. The leases are triple net in nature.
The pro forma results reflect a full year of operations for the Property
assuming that it was acquired January 1, 1995. They contain certain
adjustments which are expected to be incurred in the Property's first year
of operations.
There can be no assurance that the foregoing results will be obtained.
The Company acquired the property from a party who is also the President of
Cucina Holdings, Inc. The Company is unaware of any material factors which
would cause the reported financial information not to be indicative of future
operating results.
NOTE 2 - PRO FORMA ADJUSTMENTS
The significant pro forma adjustments are as follows:
(a) To reflect a full year's worth of rental income per provisions of the
lease with the Property's tenant. In calculating the amount, the total
remaining minimum monthly rent from January 1, 1995 to October 31, 2003 is
recognized on a straight-line basis in accordance with generally accepted
accounting principles.
(b) To eliminate interest income not earned due to assumed application of
funds toward purchase of Java City Property.
(c) To reflect approximate property management fees of 3% of rental income
in the first year of the lease.
F-49
<PAGE>
West Coast Realty Investors, Inc.
Java City Property
Notes to Pro Forma Financial Statements
(unaudited)
(d) The computation of depreciation is based on the cost of the Property
including estimated Acquisition Fees and Expenses, and is for the initial
twelve months subsequent to the purchase. The allocation of the cost of the
property to the various asset categories and lives is based on the allocations
contained in the final appraisal report for the Property. Depreciation has
been computed on a straight-line basis over the component useful life of
the assets.
DEPRECIABLE LIFE COST DEPRECIATION
Building&Improvements 39 $944,104 $24,208
Site Improvements 39 70,190 1,800
Land ---- 814,206 ----
1,828,500 $26,008
F-50
<PAGE>
<TABLE>
WEST COAST REALTY INVESTORS
PRO FORMA STATEMENT OF INCOME
For the Nine Months Ended September 30, 1996
INTRODUCTION
The following unaudited pro forma financial statement is presented to
illustrate the effect of the acquisition of the Java City Property, as
described elsewhere in this Offering, on the results of operations of the
Company.
The unaudited pro forma statement of income has been prepared as if
the Java City Property had been acquired and occupied by its respective
tenant on January 1, 1996.
The unaudited pro forma financial statement is not necessarily indicative
of the Company's future operations and should be read in conjunction with
the other financial statements and notes thereto included elsewhere in this
prospectus.
<CAPTION>
Java City
Audited
Results
3 months Pro
Historical ended Forma
September 30, March 31, Adjustments Pro Forma
1996 1996
<S> <C> <C> <C> <C>
Revenues:
Rent $1,772,462 $45,219 $67,404 (1) 1,885,085
Interest 70,564 -- (60,000) (2) 10,564
1,843,026 45,219 7,404 1,895,649
Expenses:
Operating 83,061 2,700 85,761
Property Taxes 55,927 55,927
Property Management
Fees-related party 78,213 3,379 (3) 81,592
Interest 639,327 15,985 21,313 (4) 676,625
General and
Administrative 105,542 105,542
Depreciation and
amortization 288,237 19,506 (5) 307,743
Advisory Fees 35,912 6,462 (6) 42,374
1,250,307 18,685 44,198 1,313,190
NET INCOME $592,719 $26,534 (36,794) $582,459
NET INCOME PER SHARE $0.41 $0.41
Weighted Average Shares 1,430,333 1,430,333
Outstanding
</TABLE>
F-51
<PAGE>
WEST COAST REALTY INVESTORS, INC.
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The pro forma statements of income reflects operations for the Company
assuming that the Java City Property was acquired on January 1, 1996.
This statement contains certain adjustments which are expected to be
incurred in that property's first year of operations, with a full nine
month's worth of operations reflected in the Statement of Income for
the nine months ended September 30, 1996.
There can be no assurance that the foregoing results will be obtained.
2. PRO FORMA ADJUSTMENTS
The adjustments to the pro forma statement of income are as follows:
(1) To reflect rental income from January 1, 1996 to August 1, 1996.
(2) To eliminate interest income on funds used to purchase the Java
City Property from January 1, 1996 to August 1, 1996.
(3) To reflect property management fees from January 1, 1996 to
August 1, 1996.
(4) To reflect added interest expense from the Java City property from
January 1, 1996 to August 1, 1996.
(5) To reflect depreciation expense on the Java City Property from January 1
to August 1, 1996.
(6) To reflect approximate additional advisory fees payable to the Advisor
as a result of ownership of the Java City Property from January 1, 1996 to
August 1, 1996. It should be noted that of the $35,912 in Advisory Fees
actually incurred during the nine months ended September 30, 1996, $20,912
(58%) were waived by the Advisor, and the amount waived was treated as an
equity contribution into the Company. In addition, Advisory fees were
incurred for the quarter ended September 30, 1996, only.
F-52
<PAGE>
<TABLE>
WEST COAST REALTY INVESTORS, INC.
PRO FORMA STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995
INTRODUCTION
The following unaudited pro forma financial statement is presented to
illustrate the acquisition of the Safeguard Building, Technology Drive, and
Java City Properties, as described in this offering on the results of
operations of the Company.
The unaudited pro forma statement of income has been prepared as if all the
aforementioned properties had been acquired and occupied by their respective
tenants on January 1, 1995.
The unaudited pro forma financial statements are not necessarily indicative
of the Company's future operations and should be read in conjunction with the
other financial statements and notes thereto included elsewhere in this
Prospectus.
<CAPTION>
Pro Forma
Historical SafeguardTechnology Java Condensed
December Building Drive City Adjustments December 31,
31, 1995 (I) (II) (III) 1995
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Rental $1,692,176 $680,457 $236,039 $176,815 ($437,744)(a) $2,403,921
20,745 (b)
35,433 (c)
Interest 120,950 - - - (120,000)(d) 950
1,813,126 680,457 236,039 176,815 (501,566) 2,404,871
Expenses:
Operating 169,679 5,862 170 11,148(e) $200,930
7,704(f)
6,367(g)
Interest 620,031 38,246 63,931 84,130(h) 820,016
13,678(i)
Depreciation and
amortization 256,144 38,492(j) 376,872
56,228(k)
26,008(l)
General and 117,667 117,667
administrative
1,045,854 44,108 64,101 243,755 1,515,485
Net Income $649,605 $680,457 $191,931 $112,714 (745,321) $889,386
Net Income Per Share $0.58 Net Income Per Share $0.55
Weighted Average Shares Weighted Average Shares Used For Pro
Used for Historical Forma Calculation (Note 3) 1,607,494
calculation 1,117,494
- ------------------
(I) Year ended December 31, 1994 (audited)
(II) Nine months ended September 30, 1995 (audited)
(III) Year ended December 31, 1995 (audited)
</TABLE>
F-53
<PAGE>
WEST COAST REALTY INVESTORS, INC.
NOTES TO PRO FORMA STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995 (UNAUDITED)
BASIS OF PRESENTATION
The pro forma Statements of Income reflects operations for the Company
assuming that the Safeguard Building, Technology Drive, and Java City
properties were acquired on January 1, 1995. This statement contains
certain adjustments which are expected to be incurred in those properties'
first year of operations, reflected in the Statement of Income for the year
ended December 31, 1995.
There can be no assurance that the foregoing results will be obtained.
1. PRO FORMA ADJUSTMENTS
The adjustments to the pro forma statement of income are as follows:
a. To adjust historical Safeguard Building information to reflect rental
income from January 1, 1995 to May 22, 1995 (date of acquisition).
b. To record rental income for Technology Drive property from October 1 to
October 31, 1995 (date of acquisition), reflecting leases in effect during
1995.
c. To adjust rental income for the Java City property to recognize rental
income on a straight-line basis for 1995 using lease rates in effect from
January 1, 1995 to August 1, 2003.
d. To eliminate interest income to reflect funds used for the acquisition
of properties.
e. To reflect additional property management fees for the Safeguard
Building for the entire year.
f. To reflect additional property management fees for the Technology Drive
property for the entire year.
g. To reflect additional property management fees for the Java City
property.
h. To reflect interest expense on the Safeguard Building for calendar 1995.
i. To reflect interest expense on Technology Drive for calendar 1995.
j. To reflect additional depreciation expense on the Safeguard Building for
calendar 1995.
k. To reflect additional depreciation expense on the Technology Drive
property for calendar 1995.
l. To reflect depreciation expense on the Java City Property for 1995.
F-54
<PAGE>
WEST COAST REALTY INVESTORS, INC.
NOTES TO PRO FORMA STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995 (UNAUDITED)
(CONTINUED)
2. PER SHARE AMOUNTS
The pro forma income statement assumes that the Technology Drive, Safeguard
Building and Java City properties were owned as of January 1, 1995. The
Company used approximately $5.2 million in cash to acquire these properties.
However, as of January 1, 1995, the Company actually had approximately
$1.4 million available for the acquisition of additional properties. The
properties were acquired primarily using funds raised subsequent to
January 1, 1995. Therefore, the weighted average shares outstanding as of
December 31, 1995, was calculated assuming that an additional $4.9 million
in shares (490,000 shares) were outstanding as of January 1, 1995, and
that no additional shares were issued throughout the year. This is
assumed to be the minimum number of shares that would be sold given the
offering expenses and reserves that are allocated against shares sold.
F-55
