SUPPLEMENT NO. 2 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 July 10, 1996.
This Supplement amends and supersedes the corresponding sections of the
Prospectus and Supplement No. 1 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. 2 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 $245,932 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
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 July 10, 1996, the Company has raised $14,462,708 in capital from
prior offerings. In addition, $274,500 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.
RESULTS OF OPERATIONS -- THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THREE
MONTHS ENDED MARCH 31, 1995
Operations for the quarter ended March 31, 1996 represented a full quarter
of rental operations for the Blockbuster Video Building, Fresno Village
Shopping Center, OPTO-22 Building, Riverside Marketplace, Brea, Technology
Drive and Safeguard Building properties.
<PAGE>
The net income for the quarter continued to be significantly larger than the
prior quarter's 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 quarter, 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.
Rental revenue increased $284,826 (93%) due to a full quarter ownership of
the Technology Drive and Safeguard Business Systems properties. Interest income
decreased $22,655 (50%) due primarily to lower cash and government securities
balances in the first quarter of 1996 as compared to the first quarter of 1995.
Operating expenses increased $18,236 (151%) as a reflection of the
additional properties owned during the quarter. Interest expense increased
$86,254 (70%) 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, a
maximum that is allowed by the Company's by-laws (debt was 49% of property
cost (as defined in the by-laws) at March 31, 1996). General and
administrative costs decreased $4,734 (20%) due to lower accounting, taxes,
and general insurance expense costs related to the Company. Depreciation
and amortization expense increased $44,151 (87%) as the result of the
ownership of additional properties during 1996 as compared to 1995. Net
income of $210,831 for 1996 was $71,142 (51%) higher than 1995.
The average number of shares outstanding during 1996 was 1,378,132 vs.
982,179 in 1995. Despite the greater number of shares outstanding, the net
income per share increased from $.14 in 1995 to $.15 in 1996. The improvement
in results is attributable to a larger percentage of the Company's assets being
invested in income-producing real estate in 1996 than in 1995, as opposed to
investments in relatively lower yielding money market investments.
During the quarter ended March 31, 1996, the Company declared dividends
totaling $245,932, compared to dividends of $171,972 declared for the quarter
ended March 31, 1995. Cash basis income for the quarter ended March 31, 1996
was $305,567. This was derived by adding depreciation and amortization expense
to net income. Thus, cash distributions this quarter were $59,635 less than
cash basis net income. In comparison, distributions in 1995 were $18,368 less
than cash basis income. In either event, the Company continued to qualify as a
REIT in 1995, and liquidity of the Company continues to be strong.
<PAGE>
Cash resources increased $810,163 during 1996 compared to a $1,452,926 in
1995. This was the result of normal amounts of financing, and operating
activities that were expected to take place during the quarter. Cash provided
by operating activities increased $284,318 with the largest contributors being
$305,567 in cash basis income and $17,698 decrease in other assets (primarily
due to the write-off of prepaid insurance and amortization of intangibles)
offset by a $30,326 increase in accounts receivable (primarily due to an
increase in rent receivable due to recognition of rental income on a "straight-
line" basis over the life of tenant leases) and a $8,621 decrease in accounts
payable (primarily attributable to a decrease in normal trade payables).
Financing activities provided an additional $525,845 in cash resources to the
Company via the sale of additional shares in the Company ($794,326 in net
proceeds), less cash dividends paid and payable of $226,886 and $41,505 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 continued to operate profitably.
LIQUIDITY AND CAPITAL RESOURCES
During the quarter ended March 31, 1996 the Company declared dividends
totaling $245,932 compared to the quarter ended March 31, 1995, when the
Company declared dividends totaling $171,972. 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 quarter ended March 31, 1996 the Company raised an additional
$794,236 in net proceeds as the result of the sale of shares from its third
public offering. The Company has used the net proceeds from these offerings to
purchase additional income-producing properties and to add to the cash reserve
balances of the Company as is prudent given the amount of property now under
ownership. All proceeds received during the first quarter of 1996 were added
to cash balances, pending identification of additional properties expected to
be purchased.
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.
<PAGE>
The first point refers to the risk of the Company's investments. At
March 31, 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 quarter ended
March 31, 1996, notes payable pertaining to property acquisitions by the
Company did not increase, while cash used in principal repayments of notes
totaled $41,505. 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 investors.
As to the second point, the Company's acquisition activities have been
directed towards properties that are relatively new, and in very good
condition. Thus the Company currently does not have any deferred maintenance
contingencies that would require the withholding of distributions in order
to fund the cost of repairs or improvements.
As to the third point, the Company was liquid at quarter-end since the
Company is still operating in the "money-raising" stage. Virtually all funds
raised were invested in a short-term money market fund. At quarter-end, the
Company has allocated approximately $430,000 towards a "reserve" fund (3% of
gross funds raised, as disclosed in the Company's latest prospectus), $163,000
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--$1,508,000-- expected to be invested in future
property acquisitions. The Company's operations generated $305,567 in net
operating cash flow in the quarter ended March 31, 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.
<PAGE>
At March 31, 1996, the Company's excess funds were invested in a short-term
money market fund. A managed fund, which consisted of short-term U.S.
government securities, was fully liquidated in May 1995 in connection with the
purchase of the Safeguard Business Systems Property.
**************
Fees paid to the Advisor and Property Manager in the current year are as
follows:
Advisor WCRM Total
Three Months Ended March 31, 1996 $40,041 $27,964 $68,005
***************
As to point three, the Company was liquid at March 31, 1996, as it is in the
money raising stage. During the three months ended March 31, 1996, the
Company's cash reserves increased by approximately $810,000, primarily due to
the sale of the Company's shares ($794,000). In addition to the Company's
existing reserves, the Company's operations generated approximately $306,000 in
cash flow during the first three months of 1996, while $246,000 was paid out in
dividends to shareholders. This difference between cash flow and dividends
paid also contributed to the net increase in cash balances.
The following amends the "MANAGEMENT" section on pages 42 and 44 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
assumption of unrelated duties by Mr. McGaughey within Associated Financial
Group).
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.
<PAGE>
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.
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 page
46 of the Prospectus, concerning Associated Planners Realty Growth Fund.
The Partnership anticipates that the Lender and the Partnership will execute
a deed-in-lieu-of-foreclosure, in connection with the ParkCenter Office
Building, if the Partnership and Lender can come to an agreement regarding the
terms of such transaction. It is anticipated that the ParkCenter Office
Building will be conveyed to the lender in the third calendar quarter of 1996.
The following supplements or amends the "ERISA CONSIDERATIONS" and
"DESCRIPTION OF COMMON STOCK" sections on page 59 of the Prospectus.
As of July 10, 1996, there are 1,448,764 Shares of the Company outstanding,
held by 705 Shareholders. All these shares were the result of sales of previous
offering of the Company. In addition, $274,500 has been raised from the sale
of shares in the current offering to fifteen 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.
<PAGE>
JAVA CITY PROPERTY, SACRAMENTO, CALIFORNIA
On approximately July 18, 1996, the Company intends to acquire 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.
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. Upon purchase, 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.
<PAGE>
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.
The lease payments due on 717 West Del Paso are noted below (rounded to the
nearest dollar):
July 1, 1996 to August 1, 1996 $9,620/month
August 1, 1996 to August 1, 1997 10,004/month
August 1, 1997 to August 1, 1998 10,405/month
August 1, 1998 to August 1, 1999 10,821/month
August 1, 1999 to August 1, 2000 11,254/month
August 1, 2000 to August 1, 2001 11,704/month
August 1, 2001 to August 1, 2002 12,172/month
August 1, 2002 to August 1, 2003 12,659/month
The lease payments due on 721 West Del Paso are noted below (rounded to the
nearest dollar):
July 1, 1996 to August 1, 1997 $5,671/month
August 1, 1997 to August 1, 1998 5,898/month
August 1, 1998 to August 1, 1999 6,134/month
August 1, 1999 to August 1, 2000 6,379/month
August 1, 2000 to August 1, 2001 6,635/month
August 1, 2001 to August 1, 2002 6,900/month
August 1 ,2002 to August 1, 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.
<PAGE>
The Property will be acquired from unrelated third parties--Thomas Weborg
and Sandra Singer, who are husband and wife (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 was 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 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).
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 will be managed by West Coast
Realty Management Inc.(" WCRM"), an affiliate of the Company. WCRM will charge
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 to be paid by the Company for the
Java City property is approximately $1,828,500. The total acquisition cost
includes $1,725,000 to be paid to the Sellers, $17,000 in estimated legal,
appraisal, and closing costs, and approximately $86,500 in Acquisition Fees to
be paid to the Advisor.
<PAGE>
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: .5% ($1,750)
Projected Balance of Debt at time of Purchase: $341,000
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: 1% ($4,050)
Projected Balance of Debt at Time of Purchase: $392,000
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
$5,800. The balance of the debt at time of purchase is expected to be $733,000
with the remaining cost of acquisition ($1,095,500) being paid in cash. 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 March 31, 1996 and December 31,
1995..................................................F-30
Statement Of Stockholders' Equity for the three months
ended March 31, 1996 and 1995 ........................F-31
Statements of Income of the three months ended March
31, 1996 and 1995.....................................F-32
Statement of Cash Flows for the three months ended
March 31, 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-44
Summary of Historical Information Relating to
Operating Revenues and Specified Expenses.............F-45
Notes to Summary of Historical Information Relating
to Operating Revenues and Specified Expenses..........F-46
Estimated Twelve Month Pro Forma Statement of Taxable
Operating Income (unaudited)..........................F-47
Estimated Twelve Month Pro Forma Statement of Cash
Available from Operations (unaudited).................F-47
Notes to Pro Forma Statements..........................F-48
West Coast Realty Investors, Inc.
Pro Forma Balance Sheet as of March 31, 1996
(unaudited)...........................................F-50
Pro Forma Statement of Income for the three months
ended March 31, 1996 (unaudited)......................F-51
Notes to Pro Forma Financial Statements for the three
months ended March 31, 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
MARCH 31, 1996 (UNAUDITED) AND DECEMBER 31, 1995
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
<S> <C> <C>
ASSETS
RENTAL REAL ESTATE, net of
accumulated depreciation (Notes 2 & 5) $19,562,491 $19,650,165
CASH 2,260,185 1,450,022
ACCOUNTS RECEIVABLE 162,474 132,148
OTHER ASSETS (Note 3) 142,865 160,563
$22,128,015 $21,392,898
LIABILITIES AND STOCKHOLDERS' EQUITY
DUE TO RELATED PARTY $ 173,807 $ 167,314
DIVIDENDS PAYABLE 162,705 226,649
PREPAID RENT 19,709 19,709
SECURITY DEPOSITS 109,068 109,068
OTHER LIABILITIES 81,027 96,141
NOTES PAYABLE (Note 6) 9,497,675 9,539,180
TOTAL LIABILITIES 10,043,991 10,158,061
COMMITMENTS AND (NOTE 1)
STOCKHOLDERS' EQUITY (Notes 1, 7 and 8):
Common Stock, $.01 par - shares authorized,
1,500,000; issued and outstanding 1,413,664
in 1996 and 1,322,404 in 1995 14,137 13,224
Additional paid-in capital 12,654,405 11,771,030
Deficit (584,518) (549,417)
TOTAL STOCKHOLDERS' EQUITY 12,084,024 11,234,837
$22,128,015 $21,392,898
</TABLE>
[FN]
See accompanying notes to financial statements.
F-30
<PAGE>
<TABLE>
WEST COAST REALTY INVESTORS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 1996
(UNAUDITED)
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 91,260 913 883,375 ---
Net income --- --- --- 210,831
Dividends declared (Note 8) --- --- --- (245,932)
BALANCE, MARCH 31, 1996 1,413,664 $14,137 $12,654,405 $(584,518)
THREE MONTHS ENDED MARCH 31, 1995
(UNAUDITED)
<CAPTION>
ADDITIONAL
COMMON STOCK PAID-IN
SHARES AMOUNT CAPITAL DEFICIT
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1994 911,986 $9,120 $8,141,447 $(394,427)
Issuance of stock, net 153,157 1,531 1,400,622 ---
Net income --- --- --- 139,689
Dividends declared (Note 8) --- --- --- (171,972)
BALANCE, MARCH 31, 1995 1,065,143 $10,651 $9,542,069 $(426,710)
</TABLE>
[FN]
See accompanying notes to financial statements.
F-31
<PAGE>
<TABLE>
WEST COAST REALTY INVESTORS, INC.
STATEMENTS OF INCOME
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(UNAUDITED)
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, MARCH 31,
1996 1995
<S> <C> <C>
REVENUES:
Rental $589,604 $304,778
Interest 22,713 45,368
612,317 350,146
COSTS AND EXPENSES:
Operating 30,317 12,081
Property taxes 19,140 10,801
Property management fees-
-related party (Note 5(e)) 27,964 9,158
Interest 210,161 123,907
General and administrative 19,168 23,902
Depreciation and amortization 94,736 50,585
Unrealized (gain) loss from investment in
government securities account ---- (19,977)
401,486 210,457
NET INCOME $210,831 $139,689
NET INCOME PER SHARE (NOTE 8) $.15 $.14
</TABLE>
[FN]
See accompanying notes to financial statements.
F-32
<PAGE>
<TABLE>
WEST COAST REALTY INVESTORS, INC.
STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1995 AND 1994
(UNAUDITED)
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, 1996 MARCH 31, 1995
<S> <C> <C>
Cash Flow from operating activities:
Net income $210,831 $139,689
Adjustment to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 94,736 50,585
Proceeds from sales (purchases)
of government securities --- (28,441)
Unrealized loss (gain) investment
in government securities --- (19,977)
Increase (decrease) from changes in:
Accounts receivable (30,326) 48,844
Other assets 17,698 (61,204)
Account payable and other liabilities (8,621) 67,738
Prepaid rent and security deposit --- 35,168
Net cash provided by operating activities 284,318 232,402
Cash flows from financing activities:
Issuance of stock, net 794,236 1,402,153
Repayments on notes payable (41,505) (13,482)
Dividends paid (162,942) (174,223)
Dividends payable (63,944) 6,076
Net cash provided by financing activities 525,845 1,220,524
Net cash increase in cash and cash
equivalents 810,163 1,452,926
Cash and cash equivalents at beginning of
period 1,450,022 495,829
CASH AND CASH EQUIVALENTS AT END OF PERIOD $2,260,185 $1,948,755
</TABLE>
[FN]
See accompanying notes to financial statements.
F-33
<PAGE>
WEST COAST REALTY INVESTORS, INC.
SUMMARY OF ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying balance sheet as of March 31, 1996, the income statements
and statements of cash flow for the three month periods ended
March 31, 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
three month period ended March 31, 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 MONTHS ENDED MARCH 31, 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 accrued based upon the previous quarter's income from
operations before depreciation and amortization.
NOTE 2 - RENTAL PROPERTIES
The Company owns the following income-producing properties
ACQUISITION
LOCATION (PROPERTY NAME) DATE PURCHASED 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
F-36
<PAGE>
WEST COAST REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1996 AND 1995 (UNAUDITED) AND DECEMBER 31, 1995
(Continued)
NOTE 2 - RENTAL PROPERTIES (CONTINUED)
The major categories of property are:
MARCH 31, 1996 DECEMBER 31, 1995
Land $ 6,586,920 $ 6,586,920
Buildings and improvements 13,517,732 13,517,732
20,104,652 20,104,652
Less accumulated depreciation 542,161 454,487
Net rental properties $ 19,562,491 $ 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% in 1996;
Four tenants accounted for 24%, 20%, 15% and 10% in 1995.
NOTE 3 - OTHER ASSETS
Other assets consists of the following:
MARCH 31, 1996 DECEMBER 31, 1995
Deposits and prepaid expenses $30,288 $40,923
Organization costs 14,330 14,330
Loan origination fees 139,056 139,056
183,674 194,309
Less accumulated amortization 40,809 33,746
Net other assets $142,865 $160,563
F-37
<PAGE>
WEST COAST REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1996 AND 1995 (UNAUDITED) AND DECEMBER 31, 1995
(Continued)
NOTE 4 - FUTURE MINIMUM RENTAL INCOME
As of March 31, 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:
MARCH 31, 1996 DECEMBER 31,1995
1996 .................................. $1,487,684 $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 $18,838,250 $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 MONTHS ENDED MARCH 31, 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:
THREE MONTHS ENDED FOR THE YEAR ENDED
MARCH 31, 1996 DECEMBER 31, 1995
Syndication fees $37,041 $150,429
Aquisition & financing fees --- 444,795
Overhead expenses 3,000 12,000
$40,041 $607,224
(b) At March 31, 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 $63,741 for the three months ended March 31, 1996 and $109,594
for the three months ended March 31, 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 $27,964 and $9,158
for the three months ended March 31, 1996 and 1995, respectively.
(f) The Corporation had related party accounts payable as follows:
MARCH 31, 1996 DECEMBER 31, 1995
Associated Financial Group $ --- $ 40,143
West Coast Realty Management 27,964 15,369
West Coast Realty Advisors 145,843 111,802
$173,807 $167,314
F-39
<PAGE>
WEST COAST REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1996, AND 1995 (UNAUDITED) AND DECEMBER 31, 1995
(Continued)
NOTE 6 - NOTES PAYABLE
Notes payable are made up of the following:
MARCH 31, 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 .............. $ 637,142 $ 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 ............ 1,719,552 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 ........... 578,015 579,923
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 . 1,183,525 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 ............................ 989,716 992,379
F-40
<PAGE>
WEST COAST REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1996, AND 1995 (UNAUDITED) AND DECEMBER 31, 1995
(Continued)
NOTE 6 - NOTES PAYABLE (CONT.)
MARCH 31, 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 ................................ $2,215,268 $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
August 1, 2015 ................................. 2,174,457 2,185,694
$9,497,675 $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 March 31, 1996 and December 31,
1995 are as follows:
YEAR ENDING MARCH 31, 1996 DECEMBER 31, 1995
1996 .................................. $962,815 $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 $9,497,675 $9,539,180
F-41
<PAGE>
WEST COAST REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 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 three months ended March 31, 1996 and 1995
was computed using the weighted average number of outstanding shares of
1,378,132 and 982,179, respectively.
Dividends declared during the first quarter 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
TOTAL $171,972
January 1, 1996 1,325,404 0.060 $79,524
February 1, 1996 1,371,794 0.060 82,308
March 1, 1996 1,401,664 0.060 84,100
TOTAL $245,932
F-42
<PAGE>
WEST COAST REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 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. This
adoption had no effect on the statement of income for the quarter ended
March 31, 1996.
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 quarter
ended March 31, 1996.
NOTE 10 - SUBSEQUENT EVENT
(a) In April 1996, the Company paid dividends totaling $245,932 ($0.06
per share per period), payable to shareholders of record on January 1,
February 1, and March 1, 1996, respectively (Note 8).
F-43
<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.
May 21, 1996
Woodland Hills, California
F-44
<PAGE>
<TABLE>
717 and 721 WEST DEL PASO ROAD
SUMMARY OF HISTORICAL INFORMATION RELATING TO
OPERATING REVENUES AND SPECIFIED EXPENSES
<CAPTION>
Three
Months Year
Ended Ended
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-45
<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-46
<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
Histocial Audited
Operating Financial Results
Results for for the period
WCRI ended Pro Forma Estimated Pro
December 31, December 31, 1995 Adjustments Forma Results
1995 (note 2)
<S> <C> <C> <C> <C>
REVENUE:
Rental Income $1,692,176 $176,815 $29,173(a) $1,898,164
Interest Income 120,950 (55,000)(b) 65,950
1,813,126 176,815 (25,827) 1,964,114
COSTS AND EXPENSES:
Operating 169,679 170 6,180(c) 176,029
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 32,188 1,259,810
Taxable Operating Income $649,605 $112,714 ($58,015) $704,304
</TABLE>
<TABLE>
WEST COAST REALTY INVESTORS, INC.
STATEMENT OF CASH AVAILABLE FROM OPERATIONS (NOTE 1)
<CAPTION>
<S> <C>
Pro Forma Taxable Net Operating Income $704,304
Add: Depreciation 282,152
Pro Forma Cash Available from Operations $986,456
</TABLE>
[FN]
See accompanying notes to pro forma financial statements
F-47
<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-48
<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-49
<PAGE>
WEST COAST REALTY INVESTORS, INC.
PRO FORMA
BALANCE SHEET
MARCH 31, 1996
INTRODUCTION
The following unaudited pro forma financial statement is presented to
illustrate the effect of the acquistion of the Java City Property, as
described elsewhere in this Offering, on the financial position of the
Company.
West Coast Realty Investors expects to acquire the Java City Property from
Tom Weborg and Sandra Singer (co-owners and husband & wife) on July 18, 1996.
Total consideration to be paid for the property is approximately $1,828,500,
with $733,000 of the cost being paid through the assumption of financing with
a bank, and the balance ($1,095,500) paid in cash. The pro-forma balance
sheet below presents the financial condition of the Company as of
December 31, 1995, as if the transaction had taken place on that date.
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.
<TABLE>
WEST COAST REALTY INVESTORS, INC.
PRO FORMA BALANCE SHEET
March 31, 1996
(unaudited)
<CAPTION>
Historical Pro Forma Pro Forma
March 31, 1996 Adjustments March 31, 1996
<S> <C> <C> <C>
ASSETS:
Rental Properties, net $19,562,491 $1,828,500 (1) $21,390,991
Cash and Cash Equivalents 2,260,185 (1,101,300) (1) 1,158,885
Accounts Receivable 162,474 162,474
Other Assets 142,865 5,800 (1) 148,665
$22,128,015 $733,000 $22,861,015
LIABILITIES & STOCKHOLDERS' EQUITY
Due to Related Party $173,807 $173,807
Prepaid Rent 19,709 19,709
Dividends Payable 162,705 162,705
Security Deposits 109,068 109,068
Other Liabilites 81,027 81,027
Notes Payable 9,497,675 733,000 (1) 10,230,675
10,043,991 733,000 10,776,991
Stockholders Equity 12,084,024 12,084,024
$22,128,015 $1,466,000 $22,861,015
</TABLE>
[FN]
Notes
(1) To record acquisition of Java City Property, and record related
assumption of debt, and payment of cash for the property and financing fees
pertaining to the assumption of the debt.
F-50
<PAGE>
<TABLE>
WEST COAST REALTY INVESTORS
PRO FORMA STATEMENT OF INCOME
For the Three Months Ended March 31, 1996
INTRODUCTION
The following unaudited pro forma financial statement is presented to
illustrate the effect of the acquistion 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 Pro
Historical 3 months ended Forma
March 31, 1995 March 31, 1996 Adjustments Pro Forma
<S> <C> <C> <C> <C>
Revenues:
Rent $589,604 $45,219 $6,278 (1) 641,101
Interest 22,713 (13,750) (2) 8,963
612,317 45,219 (7,472) 650,064
Expenses:
Operating 30,317 2,700 33,017
Property Taxes 19,140 19,140
Property Management Fees-related party 27,964 1,545 (3) 29,509
Interest 210,161 15,985 226,146
General and Administrative 19,168 19,168
Depreciation and amortization 94,736 8,669 (4) 103,405
401,486 18,685 10,214 430,385
NET INCOME $210,831 $26,534 (17,686) $219,679
NET INCOME PER SHARE $0.15 $0.16
Weighted Average Shares Outstanding 1,378,132 1,378,132
</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
quarter's worth of operations reflected in the Statement of Income for the
three months ended March 31, 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 March 31, 1996.
(2) To eliminate interest income on funds used to purchase the Java
City Property from January 1, 1996 to March 31, 1996.
(3) To reflect property management fees and other property operating costs
from January 1, 1996 to March 31, 1996.
(4) To reflect depreciation expense on the Java City Property from
January 1, 1996 to March 31, 1996.
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 Safguard 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
elswhere in this Prospectus.
<CAPTION>
Pro Forma
Historical Safeguard Technology Java Condensed
December 31, 1995 Building (I) Drive (II) City (III) Adjustments December 31, 1995
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Rental $1,692,176 $680,457 $236,039 $176,815 ($437,744) (a) $2,220,846
20,745 (b)
29,173 (c)
Interest 120,950 (120,000) (d) 950
1,813,126 680,457 236,039 176,815 (507,826) 2,221,796
Expenses:
Operating 169,679 5,862 170 11,148 (e) 199,867
7,704 (f)
5,304 (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 administrative 117,667 117,667
1,163,521 44,108 64,101 242,692 1,514,422
Net Income $649,605 $680,457 $191,931 $112,714 (750,518) $707,374
Net Income Per Share $0.58 Net Income Per Share $0.44
Weighted Average Shares Weighted Average Shares Used
Used for Historical calculation 1,117,494 For Pro Forma Calculation (Note 3) 1,607,494
</TABLE>
[FN]
- -------------------------------
(I) Year ended December 31, 1994 (audited)
(II) Nine months ended September 30, 1995 (audited)
(III) Year ended December 31, 1995 (audited)
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.
F-54
<PAGE>
WEST COAST REALTY INVESTORS, INC.
NOTES TO PRO FORMA STATEMENT OF INCOME
For the Year Ended December 31, 1995 (Unaudited)
(CONTINUED)
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.
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
<PAGE>
