FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-24594
WEST COAST REALTY INVESTORS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 95-4246740
(State or other Jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5933 W. CENTURY BLVD., 9TH, FLOOR
LOS ANGELES, CALIFORNIA 90045
(Address of principal executive offices)
(Zip Code)
(310) 670-0800
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
APPLICABLE ONLY TO CORPORATE ISSUERS:
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES
OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE. 1,448,764 SHARES
OUTSTANDING AS OF MAY 13, 1996.
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
In the opinion of the Management of West Coast Realty Investors, Inc. (the
"Company"), all adjustments necessary for a fair presentation of the Company's
results for the three months ended March 31, 1996 and 1995, have been made in
the following financial statements which are of normal recurring entries in
nature. However, such financial statements are unaudited and are subject to any
year-end adjustments that may be necessary.
<TABLE>
WEST COAST REALTY INVESTORS, INC.
BALANCE SHEETS
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.
<PAGE>
<TABLE>
WEST COAST REALTY INVESTORS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 1996
(UNAUDITED)
<CAPTION>
ADDITIONAL
COMMON STOCK PAID-IN
SHARES AMOUNT CAPITAL DEFICIT
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1995 1,322,404 $13,224 $11,771,030 $(549,417)
Issuance of stock, net 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.
<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 managementfees-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.
<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.
<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.
<PAGE>
WEST COAST REALTY INVESTORS, INC.
SUMMARY OF ACCOUNTING POLICIES
(Continued)
LOAN ORIGINATION FEES
Loan origination fees are capitalized and amortized over the life of the loan.
RENTAL INCOME
Rental income is recognized on a straight-line basis to the extent that rental
income is deemed collectable. Where there is uncertainty of collecting higher
scheduled rental amounts, due to the tendency of tenants to renegotiate their
leases for lower amounts, rental income is recognized as the amounts are
collected.
CASH AND CASH EQUIVALENTS
The Company considers cash in the bank, liquid money market funds, and all
highly liquid certificates of deposits, with original maturities of three months
or less, to be cash and cash equivalents.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
RECLASSIFICATIONS
For comparative purposes, certain prior year amounts have been reclassified to
conform to the current year presentation.
<PAGE>
WEST COAST REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
THREE 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 February 26, 1991 $ 1,676,210
(Blockbuster)
Fresno, California May 14, 1993 1,414,893
Huntington Beach,
California September 15, 1993 2,500,001
(OPTO-22) March 4, 1994 2,248,343
Brea, California
Riverside, California November 29, 1994 3,655,500
Tustin, California
(Safeguard) May 22, 1995 4,862,094
Fremont, California
(Technology Drive) October 31, 1995 3,747,611
<PAGE>
WEST COAST REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
THREE 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
<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.
<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
Acquisition & 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
<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
<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
<PAGE>
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
<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).
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
West Coast Realty Investors, Inc. is a Delaware corporation, formed on
October 26, 1989. The Company began offering for sale shares of Common Stock on
April 20, 1990. On August 30, 1990, the Company reached its minimum initial
offering funding level of $1,000,000. A secondary offering of shares was begun
on May 14, 1992. On November 30, 1992 the Company reached its minimum secondary
offering funding level of $250,000. A third offering of shares was begun on
June 3, 1994. On July 25, 1994, the Company reached its minimum third offering
funding level of $250,000. As of March 31, 1996, the Company had raised
$14,110,985 in gross proceeds from all three offerings.
The Company was organized for the purpose of investing in, improving, holding,
and managing equity interests in a diversified number of commercial properties
located in California and the West Coast, while qualifying as a Real Estate
Investment Trust. Properties will be acquired for cash or on a moderately
leveraged basis, with aggregate indebtedness not to exceed 50% of the purchase
price of all properties on a combined basis. The Company intends to hold each
property for approximately seven to ten years.
The Company's principal investment objectives are to invest in rental real
estate properties which will:
(1) Preserve and protect the Company's invested capital;
(2) Provide shareholders with cash distributions; a portion of which will not
constitute taxable income.
(3) Provide capital gains through potential appreciation; and
(4) Provide market liquidity through transferable shares of stock.
The Company qualifies as a Real Estate Investment Trust (REIT) for federal and
state income tax purposes.
The ownership and operation of any income-producing real estate is subject to
those risks inherent in all real estate investments, including national and
local economic conditions, the supply and demand for similar types of
properties, competitive marketing conditions, zoning changes, possible casualty
losses, increases in real estate taxes, assessments, and operating expenses, as
well as others.
The Company has engaged West Coast Realty Advisors, Inc. ("WCRA") to act as the
Company's advisor. Pursuant to the terms of the advisory agreement, WCRA
provides investment and financial advice and conducts the day-to-day operations
of the Company. The Company, itself, has no employees.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
During the quarter ended March 31, 1996 the Company declared dividends totaling
$245,932 compared to the quarter ended March 31, 1995, 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.
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
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
Company's shareholders. Furthermore, most of the properties' tenants are
nationally known retailers or well-established business under long-term leases.
As to the second point, the Company's properties are in good condition without
significant deferred maintenance obligations and are leased through "triple-net"
leases, which reduces the Company's risk pertaining to excessive maintenance and
operating costs.
As to the third point, the Company was liquid at 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.
Inflation and changing prices have not had a material effect on the Company's
operations.
The Company currently has no external sources of liquidity, other than funds
that potentially could be received from the sale of additional shares.
The Company currently has no material capital commitments.
The Tax Reform Acts of 1986 and 1987 and the Revenue Reconciliation Acts of 1990
and 1993 did not have a material impact on the Company's operations.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
NEW ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assists to Be Disposed of"
(SFAS No.121) issued by the Financial Accounting Standards Board (FASB) is
effective for financial statements for fiscal years beginning after December 15,
1995. The new standard establishes new guidelines regarding when impairment
losses on long-lived assets, which include plant and equipment, and certain
identifiable intangible assets, should be recognized and how impairment losses
should be measured. 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 no later than December 15, 1995.
The new standard establishes a fair value method of accounting for stock-based
compensation plans and for transactions in which an entity acquires goods or
services from nonemployees in exchange for equity instruments. The Company does
not currently provide stock based compensation and accordingly does not expect
adoption to have a material effect on its financial position or results of
operations for the quarter ended March 31, 1996.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
RESULTS OF OPERATIONS
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.
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.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
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.
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 (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 were operated profitably.
<PAGE>
WEST COAST REALTY INVESTORS, INC.
PART II
O T H E R I N F O R M A T I O N
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBIT AND REPORTS ON FORM 8-K
(a) Information required under this section has been included in the
financial statements.
(b) Reports on Form 8-K
None
<PAGE>
WEST COAST REALTY INVESTORS, INC.
S I G N A T U R E S
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WEST COAST REALTY INVESTORS, INC.
(Registrant)
May 15, 1996 By: WEST COAST REALTY ADVISORS, INC.
A California Corporation,
Advisor
William T. Haas
Director and Executive Vice President / Secretary
May 15, 1996
Michael G. Clark
Vice President / Treasurer
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<NAME> WEST COAST REALTY INVESTORS, INC.
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