FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 (Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-24594
WEST COAST REALTY INVESTORS INC.
(Exact name of registrant as specified in its charter)
CALIFORNIA 95-4246740
(State or other Jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5933 W. CENTURY BLVD., 9TH, FLOOR
LOS ANGELES, CALIFORNIA 90045
(Address of principal executive offices)
(Zip Code)
(310) 670-0800
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes 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. 1,550,607
SHARES OUTSTANDING AS OF NOVEMBER 7, 1996.
<PAGE>
WEST COAST REALTY INVESTORS, INC.
ITEM 1. FINANCIAL STATEMENTS
In the opinion of the Management of West Coast Realty Investors, Inc.
(the "Company"), all adjustments necessary for a fair presentation of the
Company's results for the three and nine months ended September 30, 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>
BALANCE SHEETS
SEPTEMBER 30, 1996 (UNAUDITED) AND DECEMBER 31, 1995
<CAPTION>
September 30, December 31,
1996 1995
<S> <C> <C>
ASSETS
RENTAL REAL ESTATE, net of
accumulated depreciation (Notes 2 & 4) $21,211,737 $19,650,165
CASH AND CASH EQUIVALENTS 1,679,934 1,450,022
ACCOUNTS RECEIVABLE 241,164 132,148
OTHER ASSETS (Note 3) 160,444 160,563
$23,293,279 $21,392,898
LIABILITIES AND STOCKHOLDERS' EQUITY
DUE TO RELATED PARTY (Note 5 (f)) $26,437 $167,314
DIVIDENDS PAYABLE 292,531 226,649
PREPAID RENT --- 19,709
SECURITY DEPOSITS 112,334 109,068
OTHER LIABILITIES 158,556 96,141
NOTES PAYABLE (Note 6) 10,129,735 9,539,180
TOTAL LIABILITIES 10,719,593 10,158,061
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (Notes 1, 7 and 8):
Common Stock, $.01par-shares autorized, 5,000,000;
issued and outstanding; 1,222,912 outstanding
in 1995, and 911,986 outstanding in 1994 15,007 13,224
Additional paid-in capital 13,376,348 11,771,030
Distributions in excess of earnings (817,669) (549,417)
TOTAL STOCKHOLDERS' EQUITY 12,573,686 11,234,837
$23,293,279 $21,392,898
</TABLE>
[FN]
See accompanying notes to financial statements.
<PAGE>
<TABLE>
WEST COAST REALTY INVESTORS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
<CAPTION>
ADDITIONAL
COMMON STOCK PAID - IN
SHARES AMOUNT CAPITAL DEFICIT
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1995 1,322,404 $13,224 $11,771,030 $(549,417)
Issuance of stock, net 178,342 1,783 1,584,406 ----
Equity contribution by Affiliate
through expense reimbursement ---- ---- 20,912 ----
Net income ---- ---- ---- 556,807
Dividends declared (Note 8) ---- ---- ---- (825,059)
BALANCE, SEPTEMBER 30, 1996 1,500,746 $15,007 $13,376,348 $(817,669)
NINE MONTHS ENDED SEPTEMBER 30, 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 310,926 3,109 2,723,256 ----
Net income ---- ---- ---- 447,378
Dividends declared (Note 8) ---- ---- ---- (577,617)
BALANCE,SEPTEMBER 30, 1995 1,222,912 $12,229 $10,864,703 $(524,666)
</TABLE>
[FN]
See accompanying notes to financial statements.
<PAGE>
<TABLE>
WEST COAST REALTY INVESTORS, INC.
STATEMENTS OF INCOME
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
<CAPTION>
THREE THREE NINE NINE
MONTHS MONTHS MONTHS MONTHS
ENDED ENDED ENDED ENDED
SEPTEMBER SEPTEMBER SEPTEMBER SEPTEMBER
30, 1996 30, 1995 30, 1996 30, 1995
<S> <C> <C> <C> <C>
REVENUES:
Rental $618,081 $461,178 $1,772,462 $1,152,645
Interest 19,974 19,019 70,564 92,853
638,055 480,197 1,843,026 1,245,498
COSTS AND EXPENSES:
Operating 40,405 38,857 83,061 75,350
Property taxes 18,528 10,801 55,927 32,404
Property management fees-
-related party (Note 5 (e)) 27,015 12,823 78,213 31,579
Interest 220,187 168,594 639,327 414,356
General and administrative 25,563 21,015 105,542 69,349
Depreciation and amortization 98,764 75,203 288,237 184,832
Advisory fees 35,912 ---- 35,912 ----
Realized (gain) from investment
in government securities ---- ---- ---- (9,750)
466,375 327,293 1,286,219 798,120
NET INCOME $171,679 $152,904 $556,807 $447,378
NET INCOME PER SHARE (NOTE 8) $.12 $.13 $.39 $.41
</TABLE>
[FN]
See accompanying notes to financial statements.
<PAGE>
<TABLE>
WEST COAST REALTY INVESTORS, INC.
STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net income $556,807 $447,378
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 288,237 184,832
Proceeds from sales of government
securities account ---- 1,229,963
Realized (gain) from investment in
government securities ---- (9,750)
Increase in unrealized loss from
investment in government securities ---- 19,977
Increase (decrease) from changes in:
Accounts receivable (109,016) (38,534)
Other assets 119 10,624
Accounts payable and other liabilities (78,462) 126,342
Security deposits and prepaid rents (16,443) 68,472
Net cash provided by operating activities 641,242 2,039,304
Cash flows from investing activities:
Additions to rental real estate (1,828,500) (4,901,485)
Cash (used in) investing activities (1,828,500) (4,901,485)
Cash flows from financing activities:
Issuance of stock, net 1,579,005 2,645,775
Proceeds from notes payable 724,465 2,276,750
Equity contribution by Affiliates
through expense reimbursements 20,912 ----
Repayment of notes payable (133,910) (49,816)
Dividends payable 65,882 41,142
Dividends paid (839,184) (507,572)
Net cash provided by financing activities 1,417,170 4,406,279
Net increase in cash and cash equivalents 229,912 1,544,098
Cash and cash equivalents at beginning
of period 1,450,022 495,829
CASH AND CASH EQUIVALENTS AT END OF
PERIOD $1,679,934 $2,039,927
</TABLE>
[FN]
See accompanying notes to financial statements.
<PAGE>
WEST COAST REALTY INVESTORS, INC.
SUMMARY OF ACCOUNTING POLICIES
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED)
AND DECEMBER 31, 1995
BASIS OF PRESENTATION
The accompanying balance sheet as of September 30, 1996, the income statements
and statements of cash flow for the nine months periods ended September 30,
1996, and 1995 are unaudited, but in the opinion of management include all
adjustments, consisting only of normal recurring accruals, necessary for a
fair presentation of the financial position and results of operations for the
periods presented. The results of operations for the nine month period ended
September 30, 1996, are not necessarily indicative of results to be expected
for the year ended December 31, 1996.
BUSINESS
West Coast Realty Investors, Inc. (the "Company"), is a corporation formed on
October 26, 1989 under the laws of the State of Delaware. The Company exists
as a Real Estate Investment Trust ("REIT") under Sections 856 to 860
of the Internal Revenue Code. The Company has complied with all
requirements imposed on REIT's for 1996 and 1995 tax years; however,
qualification as a REIT for future years is dependent upon future
operations of the Company. The Company was organized to acquire interests
in income-producing residential, industrial, retail or commercial properties
located primarily in California and the west coast of the United States.
The Company intends to acquire property for cash on a moderately leveraged
basis with aggregate mortgage indebtedness not to exceed fifty percent of
the purchase price of all properties on a combined basis, or eighty percent
individually and intends to own and operate such properties for investment
over an anticipated holding period of five to ten years.
RENTAL PROPERTIES AND DEPRECIATION
Assets are stated at lower of cost or net realizable value. Depreciation
is computed using the straight-line method over their estimated useful
lives of 31.5 to 39 years for financial and income tax reporting purposes.
In the event that facts and circumstances indicate that the cost of an asset
may be impaired, an evaluation of recoverability would be performed.
If an evaluation is required, the estimated future undiscounted cash flows
associated with the asset would be compared to the carrying amount to
determine if a write-down to market value is required.
<PAGE>
WEST COAST REALTY INVESTORS, INC.
SUMMARY OF ACCOUNTING POLICIES
(Continued)
LOAN ORIGINATION FEES
Loan origination fees are capitalized and amortized over the life of the loan.
RENTAL INCOME
Rental income is recognized on a straight-line basis to the extent that rental
income is deemed collectable. Where there is uncertainty of collecting higher
scheduled rental amounts, due to the tendency of tenants to renegotiate their
leases for lower amounts, rental income is recognized as the amounts
are collected.
CASH AND CASH EQUIVALENTS
The Company considers cash in the bank, liquid money market funds, and all
highly liquid certificates of deposits, with original maturities of three
months or less, to be cash and cash equivalents.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
RECLASSIFICATIONS
For comparative purposes, certain prior year amounts have been reclassified
to conform to the current year presentation.
<PAGE>
WEST COAST REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED)
AND DECEMBER 31, 1995
NOTE 1 - GENERAL
On October 30, 1989, West Coast Realty Advisors, Inc. (the "Advisor"),
purchased 1,000 shares of the Company's common stock for $10,000. On
August 30, 1990, the Company reached its minimum initial offering funding
level of $1,000,000. On November 30, 1992, the Company reached its
secondary offering level of $250,000. On July 25, 1994, the Company achieved
its minimum third offering funding level of $250,000.
Sales commissions and wholesaling fees, representing 7% of the gross proceeds
from the sale of common shares, were paid to Associated Securities Corp.
("ASC"), a member of the National Association of Securities Dealers, Inc.
and an affiliate of the Advisor.
Dividends are declared and accrued based approximately upon the previous
quarter's income from operations before depreciation and amortization.
NOTE 2 - RENTAL PROPERTIES
The Company owns the following income-producing properties
ORIGINAL
LOCATION (PROPERTY NAME) DATE PURCHASED ACQUISITION
COST
Huntington Beach, California
(Blockbuster) February 26, 1991 $ 1,676,210
Fresno, California May 14, 1993 1,414,893
Huntington Beach, California
(OPTO-22) September 15, 1993 2,500,001
Brea, California March 4, 1994 2,248,343
Riverside, California November 29, 1994 3,655,500
Tustin, California
(Safeguard) May 22, 1995 4,862,094
Fremont, California
(Technology Drive) October 31, 1995 3,747,611
Sacramento, California
(Java City) August 2, 1996 1,828,500
<PAGE>
WEST COAST REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED)
AND DECEMBER 31, 1995 (Continued)
NOTE 2 - RENTAL PROPERTIES (CONTINUED)
The major categories of property are:
SEPTEMBER 30, 1996 DECEMBER 31, 1995
Land $ 7,401,126 $ 6,586,920
Buildings and improvements 14,532,025 13,517,732
21,933,151 20,104,652
Less accumulated depreciation 721,414 454,487
Net rental properties $ 21,211,737 $ 19,650,165
A significant portion of the Company's rental revenue was earned from
tenants whose individual rents represented more than 10% of total
rental revenue. Specifically:
Four tenants accounted for 27%, 19%, 19% and 12%, respectively, in 1996;
Four tenants accounted for 24%, 20%, 15% and 10%, respectively, in 1995.
NOTE 3 - OTHER ASSETS
Other assets consists of the following:
SEPTEMBER 30, 1996 DECEMBER 31, 1995
Deposits and prepaid expenses $58,300 $40,923
Organization costs 14,330 14,330
Loan origination fees 142,870 139,056
215,500 194,309
Less accumulated amortization 55,056 33,746
Net other assets $160,444 $160,563
<PAGE>
WEST COAST REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 (UNAUDITED)
AND DECEMBER 31, 1995 (Continued)
NOTE 4 - FUTURE MINIMUM RENTAL INCOME
As of September 30, 1996 and December 31, 1995, future minimum rental income
under the existing leases that have remaining noncancelable terms in excess
of one year are as follows:
SEPTEMBER 30, 1996 DECEMBER 31,1995
1996 .................................. $379,048 $2,046,963
1997 ..................................1,925,526 1,925,526
1998 ..................................1,841,270 1,841,270
1999 ..................................1,772,331 1,772,331
2000 ..................................1,645,181 1,645,181
Thereafter .......................... 10,166,258 10,166,258
Total $17,729,614 $19,397,529
Future minimum rental income does not include lease renewals or new leases
that may result after a noncancelable-lease expires.
NOTE 5 - RELATED PARTY TRANSACTIONS
The Advisor has an agreement with the Company to provide advice on
investments and to administer the day-to-day operations of the Company.
Property management services for the Company's properties are provided
by West Coast Realty Management, Inc. ("WCRM"), an affiliate of the
Advisor.
<PAGE>
WEST COAST REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1996, AND 1995 (UNAUDITED)
AND DECEMBER 31, 1995 (Continued)
During the periods presented, the Company had the following related
party transactions:
(a) In accordance with the advisory agreement, compensation earned by,
or services reimbursed or reimbursable to the advisor, consisted
of the following:
NINE MONTHS ENDED FOR THE YEAR ENDED
SEPTEMBER 30, 1996 DECEMBER 31, 1995
Syndication fees $56,805 $150,429
Acquisition & financing fees 78,177 444,795
Advisory fees 35,912 ----
Overhead expenses 9,000 12,000
$179,894 $607,224
(b) At September 30, 1996 and December 31, 1995, the Advisor
owned 22,505 shares of the issued and outstanding shares of the Company.
(c) Sales commissions paid in accordance with the selling agreement
to ASC totaled $119,083 for the nine months ended September 30, 1996
and $233,929 for the nine months ended September 30, 1995. Monitoring
fees payable to ASC, in accordance with the provisions of the current
offering which was effective May 7, 1996, totaled $93.
(d) A financing fee of $26,204 was paid in January 1995 in connection
with the refinancing of the notes on the Brea property (Note 6).
(e) Property management fees earned by WCRM totaled $27,015 and
$12,823 for the three months ended September 30, 1996 and 1995,
respectively. For the nine months ended September 30, 1996 and 1995, WCRM
earned $78,213 and $31,579, respectively in property management fees.
(f) The Corporation had related party accounts payable (receivable)
as follows:
SEPTEMBER 30, DECEMBER 31, 1995
1996
Associated Financial Group $ --- $ 40,143
Associated Securities Corp. 93 ---
West Coast Realty Management 27,015 15,369
West Coast Realty Advisors (671) 111,802
$26,437 $167,314
<PAGE>
WEST COAST REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1996, AND 1995 (UNAUDITED)
AND DECEMBER 31, 1995 (Continued)
NOTE 6 - NOTES PAYABLE
Notes payable are made up of the following:
SEPTEMBER 30, DECEMBER 31,
1996 1995
8.25% promissory note secured by a Deed of Trust
on the Fresno Property, monthly principal and interest
payments are $5,244 due August 1, 2003 ............ $ 630,852 $ 639,182
Variable rate promissory note secured by a Deed
of Trust on the OPTO-22 property, interest rate
adjustments are monthly and are based on the 11th
District cost of funds rate plus 3% (7.819% at
September 30, 1996), and may never go below 6.5%
or above 11.0%, monthly principal and interest
payments are $12,429, due October 1, 2003 .......... 1,712,734 1,721,993
8.25% promissory note secured by a Deed of Trust on
the Blockbuster property, interest rate adjusts
to the 5-year Treasury rate plus 350 basis points
on February 1, 1999, monthly principal and interest
payments are $4,934, due February 1, 2004 .......... 572,154 579,923
9.25% promissory note secured by a Deed of Trust
on the Riverside property, monthly principal and
interest payments are $9,988, due November 8, 2004 . 1,179,464 1,185,778
Variable rate promissory note secured by a Deed of Trust
on the Brea property, interest rate is 9.5% until March 1,
2000 (and each succeeding March 1st) when interest rate
adjusts to the Moody's corporate bond index daily rate
plus 0.125%, monthly principal and interest payments
vary depending upon interest rates and are currently
$8,737, due March 1, 2020 ..................... 984,197 992,379
<PAGE>
WEST COAST REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1996, AND 1995 (UNAUDITED)
AND DECEMBER 31, 1995 (Continued)
NOTE 6 - NOTES PAYABLE (CONT.)
SEPTEMBER 30, DECEMBER 31,
1996 1995
9.625% promissory note secured by a Deed of Trust
on the Safeguard property, monthly principal and
interest payments are $24,191, due February 1,
2005 ....................................... $2,175,951 $2,234,231
Variable rate promissory note secured by a Deed of Trust
on the Fremont property, interest rate equals the current
Treasury rate plus 1.65% (8.24% at September 30,1996),
monthly principal and interest payments vary depending
upon interest rates and are currently $18,898, due
August 1, 2015 .............................. 2,152,258 2,185,694
10% promissory note secured by a Deed of Trust on the
Java City property, monthly principal and interest payments
are $3,413, due November 1, 2018.............. 337,989 ---
8% promissory note secured by a Deed of Trust on the
Java City property, monthly principal and interest payments
are $3,126, due June 1, 2018.................. 384,136 ---
$10,129,735 $9,539,180
<PAGE>
WEST COAST REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1996, AND 1995 (UNAUDITED)
AND DECEMBER 31, 1995 (Continued)
The carrying amount is a reasonable estimate of fair value of notes payable
because the interest rates approximate the borrowing rates currently
available for mortgage loans with similar terms and average maturities.
The aggregate annual future maturities at September 30, 1996 and
December 31, 1995 are as follows:
YEAR ENDING SEPTEMBER 30, 1996 DECEMBER 31, 1995
1996 ............................... $878,491 $1,004,320
1997 ............................... 1,019,011 1,004,320
1998 ............................... 1,020,397 1,004,320
1999 ............................... 1,021,915 1,004,320
2000 ............................... 1,023,579 1,004,320
Thereafter ......................... 5,166,342 4,517,580
Total $10,129,735 $9,539,180
NOTE 7 - DIVIDEND REINVESTMENT PLAN
The Company has established a Dividend Reinvestment Plan (the "Plan")
whereby cash dividends will, upon election of the shareholders, be used
to purchase additional shares of the Company. The shareholders'
participation in the Plan may be terminated at any time.
<PAGE>
WEST COAST REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1996, AND 1995 (UNAUDITED)
AND DECEMBER 31, 1995 (Continued)
NOTE 8 - NET INCOME AND DIVIDENDS PER SHARE
Net Income Per Share for the nine months ended September 30, 1996 and 1995
was computed using the weighted average number of outstanding shares
of 1,430,333 and 1,084,878, respectively.
Dividends declared during the first nine months 1995 and 1996 were as follows:
OUTSTANDING AMOUNT TOTAL
RECORD DATE SHARES PER UNIT DIVIDEND
January 1, 1995 911,986 $0.060 $54,719
February 1, 1995 945,136 0.060 56,708
March 1, 1995 1,009,084 0.060 60,545
April 1, 1995 1,069,048 0.060 64,143
May 1, 1995 1,109,204 0.060 66,552
June 1, 1995 1,109,704 0.060 66,582
July 1, 1995 1,116,721 0.060 67,003
August 1, 1995 1,151,742 0.060 69,104
September 1, 1995 1,204,347 0.060 72,260
TOTAL $577,616
January 1, 1996 1,325,404 0.0600 $79,524
February 1, 1996 1,371,794 0.0600 82,308
March 1, 1996 1,401,664 0.0600 84,100
April 1, 1996 1,413,736 0.0666 94,155
May 1, 1996 1,445,236 0.0666 96,253
June 1, 1996 1,448,836 0.0666 96,492
July 1, 1996 1,448,836 0.0666 96,492
August 1, 1996 1,448,836 0.0666 96,492
September 1, 1996 1,498,246 0.0666 99,784
TOTAL $825,600
<PAGE>
WEST COAST REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1996, AND 1995 (UNAUDITED)
AND DECEMBER 31, 1995 (Continued)
NOTE 9 - NEW ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed of" (SFAS No. 121) issued by the Financial Accounting Standards
Board (FASB) is effective for financial statements for fiscal years beginning
after December 15, 1995. The new Standard establishes new guidelines
regarding when impairment losses on long-lived assets, which include plant
and equipment, and certain identifiable intangible assets, should be
recognized and how impairment losses should be measured. The partnership
elected adoption of SFAS No.121 on January 1, 1996. This adoption had no
effect on the statement of income for the nine months ended
September 30, 1996, as there were no impairment amounts recorded during the
period.
Statements of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (SFAS No.123) issued by the Financial Accounting
Standards Board (FASB) is effective for specific transactions entered into
after December 15, 1995, while the disclosure requirements of SFAS No. 123
are effective for financial statements for fiscal years beginning after
December 15, 1995. The new standard establishes a fair value method of
accounting for stock-based compensation plans and for transactions in which
an entity acquires goods or services from nonemployees in exchange for
equity instruments. The Company does not currently provide stock based
compensation and adoption does not have a material effect on its
financial position or results of operations for the nine months ended
September 30, 1996.
NOTE 10 - SUBSEQUENT EVENT
(a) In October 1996, the Company paid dividends totaling $292,768 ($0.0666
per share per monthly record date), payable to shareholders of record on
July 1, August 1, and September 1, 1996, respectively (Note 8).
<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 September 30, 1996, the Company had raised
$14,981,808 in gross proceeds from all four offerings. A fourth offering of
shares was began on May 6, 1996. As of November 7, 1996 $993,000 had been
raised from the sale of these shares; and all funds had been released from an
escrow account.
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 nine months ended September 30, 1996 the Company declared dividends
totaling $825,059, compared to the nine months ended September 30, 1995, when
the Company declared dividends totaling $577,617. Dividends are determined by
management based on cash flows and the liquidity position of the Company. It
is the intention of management to declare dividends, subject to the
maintenance of reasonable reserves.
During the nine months ended September 30, 1996 the Company raised an
additional $1,599,917 in net proceeds as the result of the sale of shares
from its third public offering. The Company used the net proceeds from
this offering to purchase an additional income-producing property in
August 1996 and to add to the cash reserve balances of the Company as is
prudent given the amount of property now under ownership.
Management uses cash as its primary measure of the Company's liquidity.
The amount of cash that represents adequate liquidity for a real estate
investment company, is dependent on several factors. Among them are:
1. Relative risk of the Company's operations;
2. Condition of the Company's properties;
3. Stage in the Company's operating cycle (e.g., money-raising,
acquisition, operating or disposition phase); and
4. Shareholders dividends.
The Company is adequately liquid and management believes it has the ability to
generate sufficient cash to meet both short-term and long-term liquidity need,
based upon the above four points.
The first point refers to the risk of the Company's investments. At
September 30, 1996, the Company's excess funds were invested in a short-term
money market fund. The purchase of rental properties have been made
either entirely with cash or the use of moderate leverage. During the nine
months ended September 30, 1996, notes payable pertaining to property
acquisitions by the Company increased $724,465 due to the purchase of an
additional income - producing property in August 1996, while cash used
in principal repayments of notes totaled $133,910. Although the notes
are set up on an amortization schedule allowing for the repayment of
principal over time, most of the principal on the notes is due in balloon
payments that come due in the years 2001 through 2005. The Company is
aware that prior to the time that these large payments come due, refinancing
of the loans or the sale of the property(ies) will be necessary in order to
protect the interests of the Company's shareholders. Furthermore, most
of the properties' tenants are nationally known retailers or well-established
business under long-term leases.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
As to the second point, the Company's properties are in good condition without
significant deferred maintenance obligations and are leased through
"triple-net" leases, which reduces the Company's risk pertaining to
excessive maintenance and operating costs.
As to the third point, the Company was liquid at September 30, 1996 since
the Company is still operating in the "money-raising" stage. Virtually all
funds raised were invested in a short-term money market fund. As of
September 30, 1996, the Company has allocated approximately $430,000 towards
a "reserve" fund (3% of gross funds raised, as disclosed in the Company's
latest prospectus), $293,000 of cash held pending distribution to investors,
$159,000 of cash to be used for current mortgage and accounts payable
commitments, $112,000 in tenant security deposits, and the
balance--$686,000-- expected to be invested in future property acquisitions.
The Company's operations generated $845,044 in net operating cash flow in
the nine months ending September 30, 1996 (net income plus depreciation
expense). Thus, the Company is generating significant amounts of cash flow
currently and could choose to withhold payment of all or a portion of
dividends, if necessary, in order to rebuild cash balances.
Fourth, the amount of dividends to shareholders was made at a level consistent
with the amount of net income available after application of expenses. The
Advisor is careful not to make distributions in excess of the income
available. The Advisor expects to increase the level of dividends as
additional funds are raised, and overhead expenses are spread over a large
base of investors' funds.
Inflation and changing prices have not had a material effect on the
Company's operations.
The Company currently has no external sources of liquidity, other than
funds that potentially could be received from the sale of additional shares.
The Company currently has no material capital commitments.
The Tax Reform Acts of 1986 and 1987 and the Revenue Reconciliation Acts of
1990 and 1993 did not have a material impact on the Company's operations.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
In August 1996, the Company acquired from unrelated parties, two
light industrial buildings located in Sacramento, California. The total
consideration paid by the Company includes $1,725,000 paid to the Sellers,
$17,000 in legal, appraisal and closing costs and $86,500 in Acquisition
Fees paid to the Advisor. There is financing on each building of the
Property that was being assumed by the Company. Financing of
approximately $339,000, on the first building provided by Business &
Professional Bank, was assumed at an annual fixed percentage rate of
10%, due in November 2001, amortized over a twenty-five year period with
monthly principal and interest payments of approximately $3,413.
Financing of approximately $385,000, on the second building provided by
Heller First Capital Corp., was assumed at an annual fixed percentage rate
of 8%, due in June 2018, amortized over a twenty-five year period with
monthly principal and interest payments of approximately $3,126. The
total amount of financing/assumption fees that the Company is paying in
connection with the assumption of the above two loans is $3,814.
Thus in summary, the balance of the debt at the time of purchase was
approximately $724,000 with the remaining cost of acquisition, including
financing fees, being paid in cash ($1,108,000). The source of cash was funds
received in connection with the sale of the Company's shares.
NEW ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assists to Be
Disposed of" (SFAS No.121) issued by the Financial Accounting Standards
Board (FASB) is effective for financial statements for fiscal years
beginning after December 15, 1995. The new standard establishes new
guidelines regarding when impairment losses on long-lived assets, which
include plant and equipment, and certain identifiable intangible assets,
should be recognized and how impairment losses should be measured. The
partnership elected adoption of SFAS No.121 on January 1, 1996. This
adoption had no effect on the statement of income for the nine months
ended September 30, 1996, as there were no impairment amounts recorded
during the period.
Statements of Financial Accounting Standards No.123, "Accounting for
Stock-Based Compensation" (SFAS No. 123) issued by the Financial Accounting
Standards Board (FASB) is effective for specific transactions entered into
after December 15, 1995, while the disclosure requirements of SFAS No. 123
are effective for financial statements for fiscal years beginning 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 nine
months ended September 30, 1996.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
RESULTS OF OPERATIONS
Operations for the nine months ended September 30, 1996 represent a full nine
months of rental operations for the Blockbuster Video Building, Fresno Village
Shopping Center, OPTO-22 Building, Riverside Marketplace, Brea, Technology
Drive and Safeguard Building properties, and two months of rental
operations at the Sacramento (Java City) properties.
The net income for the nine months ended September 30, 1996 continued to
be significantly larger than the prior nine months ended September 30, 1995
amount due to the raising of additional funds and investment of such funds
in income producing rental real estate and in money market funds. The
Company did not have any adverse events that significantly impacted net
income during the nine months ending September 30, 1996, and all properties
that have been purchased by the Company have operated at levels equal to
expectations. All tenants were current on their lease obligations.
For the nine months ending September 30, 1996 rental revenue increased
$619,817 (53.8%) due to a full nine months ownership of the Technology
Drive and Safeguard Business Systems properties and two months ownership of
the Java City properties. Interest income decreased $22,289 (24%) due
primarily to lower cash and government securities balances in the first nine
months of 1996 as compared to the first nine months of 1995.
Operating expenses increased $7,711 (10.2%) as a reflection of the
additional properties owned during the nine months ending September 30,
1996. Interest expense increased $224,971 (54.3%) as a reflection of the
additional debt taken on in connection with additional property acquisition
and refinancing activities. Despite the large debt amounts, the Company is
still below the maximum 50% debt maximum that is allowed by the Company's
by-laws (debt was 46% of property cost (as defined in the by-laws) at
September 30, 1996). General and administrative costs increased $36,193
(52.2%) due to higher accounting, consulting fees, taxes and general
insurance expense costs related to the Company. Depreciation and
amortization expense increased $103,405 (56%) as the result of the ownership
of additional properties during the nine months ending September 30, 1996
as compared to the nine months ending September 30, 1995. Net income of
$556,807 as of September 30, 1996 was $109,429 (24.5%) higher than the nine
months ending September 30, 1995.
The weighted average number of shares outstanding at September 30, 1996
was 1,430,333 vs. 1,084,878 in 1995. The net income per share for the
first nine months of the year decreased $.02 from September 30, 1995
to 1996. The Company did not realize an improvement in net income per
share due to a larger percentage of the Company's assets being invested
in relatively lower yielding money market investments as opposed to
income-producing real estate during the nine months of 1996, compared to
the nine months of 1995.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
During the nine months ended September 30, 1996, the Company declared
dividends totaling $825,059, compared to dividends of $577,617 declared
for the nine months ended September 30, 1995. Cash basis income for the
nine months ended September 30, 1996 was $845,044. This was derived by
adding depreciation and amortization expense to net income. Thus, cash
distributions for the nine months ending September 30, 1996 were $19,985
less than cash basis net income. In comparison, distributions in the nine
months ending September 30, 1995 were $54,593 less than cash basis income.
In either event, the Company continued to qualify as a REIT in 1996, and
liquidity of the Company continues to be strong.
Cash resources increased $229,912 during the nine months ending September 30,
1996 compared to a $1,544,098 for the nine months ending September 30, 1995.
This was the result of normal amounts of financing, investing, and
operating activities that were expected to take place during the nine
months ending September 30, 1996. For the nine months ending
September 30, 1996, cash provided by operating activities increased
$641,242 with the largest contributors being $845,044 in cash basis income,
offset by a $109,016 increase in accounts receivable (increase in the
deferred rent receivable due to recognition of rental income on a
"straight-line" basis over the life of tenant leases), $78,462 decrease
in accounts payable and accrued liabilities (attributable to a decrease
in normal trade payables), and $16,443 decrease in security deposits and
prepaid rents (due primarily to prepaid tenant rent received prior to
January 1, 1996 which was not received prior to October 1, 1996). In
contrast, during the nine months ended September 30, 1995, $2,039,304 was
provided by operating activities. This resulted primarily from cash basis
income of $632,210 (net income plus depreciation expense), plus $1,229,963
in proceeds received in liquidation of a government securities account. Cash
used in investing activities totaled $1,828,500 for the nine months ended
September 30, 1996, resulting from the acquisition of the Sacramento (Java
City) property in August 1996. In contrast, $4,901,485 was used in
investing activities for the nine months ended September 30, 1995 resulting
from the acquisition of the Safeguard Building in May 1995. For the nine
months ended September 30, 1996, financing activities provided an additional
$1,417,170 in cash resources to the Company via the sale of additional shares
in the Company ($1,599,917 in net proceeds), plus $724,465 in proceeds
received from the lender in connection with the Java City acquisition, less
cash dividends paid and payable of $773,302 and $133,910 in repayments on
notes payable. In contrast, $4,406,279 was provided by financing
activities for the nine months ended September 30, 1995. This resulted
from $2,645,775 in proceeds received from the issuance of the Company
shares, plus $2,276,750 in proceeds received from the lender in connection
with the Safeguard Building acquisition, offset by cash dividends paid and
payable of $466,430 and $49,816 used in repayments to the existing notes
payable.
In summary then, the operating performance of the Company continued to
improve as additional funds were raised, additional property was
acquired, and all properties were operated profitably.
<PAGE>
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)
November 13, 1996 By: WEST COAST REALTY ADVISORS, INC.
A California Corporation,
Advisor
Neal E. Nakagiri
Vice President / Secretary
November 13, 1996
Michael G. Clark
Vice President / Treasurer
<TABLE> <S> <C>
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<NAME> WEST COAST REALTY INVESTORS, INC.
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<PERIOD-START> JAN-01-1996
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