SUPPLEMENT NO. 4 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 August 20, 1996.
This Supplement amends and supersedes the corresponding sections of the
Prospectus and Supplements Numbers 1, 2, and 3 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. 4 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 $532,832 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 $0.0600 1,325,404 $79,524
02/01/96 4/15/96 0.0600 1,371,794 82,308
03/01/96 4/15/96 0.0600 1,401,664 84,100
04/01/96 7/15/96 0.0666 1,413,736 94,155
05/01/96 7/15/96 0.0666 1,445,236 96,253
06/01/96 7/15/96 0.0666 1,448,836 96,492
The following supplements or amends the "MANAGEMENT'S DISCUSSION OF FINANCIAL
CONDITION RESULTS OF OPERATIONS" Section of the Prospectus, beginning on page
37.
As of August 20, 1996, the Company has raised $14,462,708 in capital from
prior offerings and $494,100 from the current offering (which were released
from an escrow account on August 12, 1996). An additional, $95,500 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.
<PAGE>
RESULTS OF OPERATIONS -- SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS
ENDED JUNE 30, 1995
Operations for the six months ended June 30, 1996 represents a full six months
of rental operations for the Blockbuster Video Building, Fresno Village
Shopping Center. OPTO-22 Building, Riverside Marketplace. Brea, Technology
Drive and Safeguard Building properties. In contrast the first six months
of 1995 inluded only 1 1/2 months of operations for the Safeguard Building
and no operations for Technology Drive.
The net income for the six months ended June 30, 1996 continued to be
significantly larger than the prior six months ended June 30, 1995 amount due
to the raising of additional funds and investment of such funds in additional
properties in May 1995 and October 1996. The Company did not have any
adverse events that significantly impacted net income during the six months
ending June 30, 1996, and all properties that have been purchased by the
Company have operated at levels equal to expectations. All tenants were
current on their lease obligations.
For the six months ending June 30, 1996, rental revenue increased $462,915
(67%) due to a full six months ownership of the Technology Drive and Safeguard
Business Systems properties. Interest income decreased $23,244 (31%), due
primarily to lower cash and cash equivalents and investments in government
securities balances in the first six months of 1996 as compared to the first
six months of 1995.
Operating expenses increased $24,429 (51 %) as a reflection of the additional
properties owned during the six months ending June 30, 1996. Interest expense
increased $173,378 (71%) as a reflection of the additional debt taken on in
connection with additional property acquisition and refinancing activities.
Despite the increase in debt, the Company is below the maximum 50% debt limit
allowed by the Company's by-laws (debt was 47% of property cost (as defined in
the by-laws) at June 30, 1996). General and administrative costs increased
$13,380 (37%) due to higher accounting, consulting fees, taxes and general
insurance expense costs related to the Company (due to the Company's larger
size). Depreciation and amortization expense increased $79,844 (73%) as the
result of the ownership of additional properties during the six months ending
June 30, 1996 as compared to the six months ending June 30, 1995. Net income
of $385,127 as of June 30, 1996 is $90,653 (31 %) higher than the six months
ending June 30, 1995.
The weighted average number of shares outstanding at June 30, 1996 was
1,385,908 vs. 1,038,625 in 1995. Despite the increase in the number of
shares outstanding, the net income per share for the first six months of
the year remained unchanged at $.28 at June 30, 1996 and 1995. The Company
did not realize an improvement in net income per share due to a larger
percentage of the Company's assets being invested in relatively lower
yielding money market investments as opposed to income-producing real estate
during the second quarter of 1996, compared to the second quarter of 1995.
In addition, depreciation expense on funds used to purchase property served
to lower net income.
<PAGE>
In summary, the operating performance of the Company continued to improve as
additional funds were raised, additional property was acquired, and all
properties were operated profitably.
The following supplements and amends the "Liquidity and Capital Resources "
Section of the Prospectus, beginning on page 40.
LIQUIDITY AND CAPITAL RESOURCES
During the six months ended June 30, 1996, the Company declared dividends
totaling $532.290, compared to dividends of $366,900 declared for the six
months ended June 30, 1995. Cash basis income for the six months ended
June 30, 1996 was $574,600. This was derived by adding depreciation and
amortization expense to net income. Thus, cash distributions this six months
ending June 30, 1996 were $42,310 less than cash basis net income. In
comparison, distributions in the six months ending June 30, 1995 were $34,854
less than cash basis income. In either event, the Company expects to qualify
as a REIT in 1996, and liquidity of the Company continues to be strong.
Cash resources increased $932,713 during the six months ending June 30, 1996
compared to a $589,417 for the six months ending June 30, 1995. This was the
result of normal amounts of financing, and operating activities that were
expected to take place during the six months ending June 30, 1996. For the
six months ending June 30, 1996, cash provided by operating activities was
$349,596 with the largest contributors being $574,600 in cash basis income
and $12,886 decrease in other assets (primarily due to the write-off of
prepaid insurance) offset by a $166,667 decrease in accounts payable
(primarily attributable to a decrease in normal trade payables) and a
$51,514 increase in accounts receivable (increase in deferred rent
receivable due to recognition of rental income on a "straight-line" basis
over the life of tenant leases). In contrast, during the six months ending
June 30, 1995, $1,763,191 was provided by operating activities. This
resulted primarily from cash basis income of $404,103 (net income plus
depreciation expense), plus $1,229,963 in proceeds received in liquidation
of investment in government securities account. There were no investing
activities for the six months ending June 30, 1996. In contrast, $4,901,485
was used in investing activities for the six months ending June 30, 1995,
resulting from the purchase of the Safeguard Building in May 1995. For the
six months ending June 30, 1996, financing activities provided an additional
$583,117 in cash resources to the Company via the sale of additional shares
in the Company ($921,924 in net proceeds), less cash dividends paid and
payable of $252,924 and $85,883 in repayments on notes payable. In contrast,
$3,727,711 was provided by financing activities for the six months ended
June 30, 1995. This resulted primarily from $2,276,750 in proceeds borrowed
for the purchase of the Safeguard Building in May 1995, plus $1,823,469 from
the sale of additional shares in the Company, offset by cash dividends paid
and payable of $347,401 and $25,107 in repayments on notes payable.
<PAGE>
Management uses cash as its primary measure of the Company's liquidity. The
amount of cash that represents adequate liquidity for a real estate investment
company, is dependent on several factors. Among them are:
1. Relative risk of the Company's operations;
2. Condition of the Company's properties;
3. Stage in the Company's operating cycle (e.g., money-raising,
acquisition, operating or disposition phase); and
4. Shareholders dividends.
The Company is adequately liquid and management believes it has the ability to
generate sufficient cash to meet both short-term and long-term liquidity need,
based upon the above four points.
The first point refers to the risk of the Company's investments. At June 30,
1996, the Company's excess funds were invested in a short-term money market
fund. The purchase of rental properties have been made either entirely with
cash or the use of moderate leverage. During the six months ended June 30,
1996, notes payable pertaining to property acquisitions by the Company did not
increase, while cash used in principal repayments of notes totaled $85,883.
Although the notes are set up on an amortization schedule allowing for the
repayment of principal over time, most of the principal on the notes is due in
balloon payments that come due in the years 2003 through 2005. The Company is
aware that prior to the time that these large payments come due, refinancing
of the loans or the sale of the property(ies) will be necessary in order to
protect the interests of the Company's shareholders. Furthermore, most of the
properties' tenants are nationally known retailers or well-established
business under long-term leases.
As to the second point, the Company's properties are in good condition without
significant deferred maintenance obligations and are leased through
"triple-net" leases, which reduces the Company's risk pertaining to excessive
maintenance and operating costs.
As to the third point, the Company was liquid at June 30, 1996 since the
Company is still operating in the "money-raising" stage. Virtually all funds
raised were invested in a short-term money market fund. As of June 30, 1996,
the Company has allocated approximately $430,000 towards a "reserve" fund (3%
of gross funds raised, as disclosed in the Company's latest prospectus),
$287,000 of cash held pending distribution to investors, $50,000 of cash to
be used for current mortgage and accounts payable commitments, $109,000 in
tenant security deposits, and the balance--$1,507,000-- expected to be
invested in future property acquisitions. The Company's operations generated
$574,600 in net operating cash flow in the six months ending June 30, 1996
(net income plus depreciation expense). Thus, the Company is generating
significant amounts of cash flow currently and could choose to withhold
payment of all or a portion of dividends, if necessary, in order to rebuild
cash balances. The Company could do these actions and still be able to
qualify as a Real Estate Investment Trust under the rules of the Internal
Revenue Service Code.
<PAGE>
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 allocated 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 (other than the
Java City acquisition described elsewhere in this document).
The Tax Reform Acts of 1986 and 1987 and the Revenue Reconciliation Acts of
1990 and 1993 did not have a material impact on the Company's operations.
The following amends the "MANAGEMENT" section on pages 42 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
resignation of Mr. McGaughey as Treasurer of West Coast Realty Management in
order to assume unrelated duties 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
<PAGE>
The principal executive officers. directors, and key employees of the
Property Manager are:
Philip N. Gainsborough....Director and Chairman of the Board
James E. Prock........................Director and President
W. Thomas Maudlin, Jr...........................Director (1)
Murli Sujanani.....................................Secretary
David Vazquez......................................Treasurer
(1) AFG owns 75% and Mr. Maudlin owns 25% of the capital stock of West Coast
Realty Management, Inc.
Additional description of occupations of Messrs. Sujanani and Vazquez are
noted below:
Murli Sujanani (Born 1950) has served as Senior Vice President/Investment
Research for AFG since 1994, and has been employed by AFG since December,
1990. From April 1990 to November 1990, Mr. Sujanani served as Vice
President/Mortgage Securities for GMACResidential 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
On August 16, 1996, the Partnership and the Lender executed a deed-in-lieu-of-
foreclosure, in connection with the Park Center Office Building. It is
anticipated that the remaining assets of the Partnership will be liquidated in
the fourth quarter of 1996, and that the Partnership will be dissolved shortly
thereafter.
<PAGE>
The following supplements or amends the ERISA CONSIDERATIONS" and "DESCRIPTION
OF COMMON STOCK" sections on page 59 of the Prospectus.
As of August 20, 1996, there are 1,498,047 Shares of the Company outstanding,
held by 734 Shareholders. In addition, $95,500 has been raised from the sale
of shares in the current offering to six additional investors; these funds
have been deposited into an escrow account, and shares will be issued at a
later date as provided for by the terms of this offering.
The following supplements the Real Property Investments section on page 25 of
the Prospectus.
JAVA CITY PROPERTY
On August 2, 1996, the Company acquired the investment described below (the
"Java City Property" or the "Property"). The funds to acquire the Java City
property were available as the result of the sale of the Company's Shares in
the previous offering, and the receipt of proceeds from bank financing
assumed in connection with the acquisition.
Description. The Java City Property consists of two single story light
industrial buildings located in the Northgate Industrial Park in Sacramento,
California. The addresses of the two properties are 717 and 721 West Del Paso
Road. The building sites are in the northern part of Sacramento, with access
to Interstate 80, Interstate 5, and other major freeways.
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 4,29') rentable square feet of
office space. Per the provisions of the current lease, 717 West Del Paso
consists of 5,398 rentable square feet of warehouse space and 5,802 of
rentable square feet of office space. The properties were originally
constructed in 1988. The Company believes that there are no deferred
maintenance items that need to be corrected or addressed. The buildings are
constructed using concrete footings (foundation and slab), wood frame wall
designs, and flat/tar gravel roofs. The building has sprinklers for fire
prevention and safety. There is adequate parking in the general business
park area for cars that utilize the Property.
<PAGE>
The primary tenant of the Property is Cucina Holdings, Inc. The company owns
and operates forty-one Java City Bakery Cafes and five La Petite Boulangerie
cafes. The Company is popularly known as "Java City". Java City outlets are
located in various areas of California and Arizona, and are generally in
high-visibility, high-traffic locations. These outlets sell high quality,
specialty coffees in a pleasant retail environment setting. In addition,
these outlets sell a selection of sandwiches and baked goods that compliment
the sale of coffee. Java City also operates a wholesale operation that
serves approximately seven hundred customer accounts located primarily in
Northern California. The Company's wholesale customers include supermarkets,
gourmet shops, convenience stores, restaurants, universities, airports, and
offices, some of which resell the coffee in whole bean form for home
consumption, while others brew and sell coffee beverages. Approximately 86%
of the Company's sales are from its retail cafe operations and 14% from its
wholesale operations. The tenant was effectively formed in 1993 when
Cucina Holdings, a corporation formed by current management and InterWest
Partners (a Menlo Park Based venture capital firm), purchased the assets of
La Petite Boulangerie from a private investor group in June 1993, and then
purchased Java City in September 1993. Cucina Holdings and Java City are
privately held, and not publicly traded companies.
Java City leases 100% of the rentable square feet in the two buildings
located on the Property. Each building has a separate lease, and both
leases are triple net leases. Both leases expire on August 1, 2003 and
there are no options for extension or purchase of the Property. Java City
operates its administrative offices, coffee bean processing, warehousing
facilities, and a Java City retail outlet out of these two buildings.
The remaining lease payments due on 717 West Del Paso are noted below
(rounded to the nearest dollar):
August 1, 1996 to July 31, 1997 10,004/month
August 1, 1997 to July 31, 1998 10,405/month
August 1, 1998 to July 31, 1999 10,821/month
August 1, 1999 to July 31, 2000 11,254/month
August 1, 2000 to July 31, 2001 11,704/month
August 1, 2001 to July 31, 2002 12,172/month
August 1, 2002 to July 31, 2003 12,659/month
The remaining lease payments due on 721 West Del Paso are noted below
(rounded to the nearest dollar):
August 1, 1996 to July 31, 1997 $5,671/month
August 1, 1997 to July 31, 1998 5,898/month
August 1, 1998 to July 31, 1999 6,134/month
August 1, 1999 to July 31, 2000 6,379/month
August 1, 2000 to July 31, 2001 6,635/month
August 1, 2001 to July 31, 2002 6,900/month
August 1 2002 to July 31, 2003 7,176/month
There are no provisions for consumer price increase adjustments in either
lease. The overall initial rent per square foot is approximately $.76, and
this increases 4% on each lease anniversary date.
<PAGE>
The Property was acquired from unrelated third parties--Thomas Weborg and
Sandra Singer-husband and wife (90% ownership), and David and Karen
Ewing--husband and wife (10% ownership)(collectively known as the "Sellers").
Mr. Weborg is President and Chief Executive Officer of Cucina Holdings,
Inc.--the tenant of the Property. Several methods of economic analysis were
used to determine the propriety of the purchase price, and economic
feasibility of the property, prior to acquisition. A review of rental rates
for similar size and style buildings and uses in the same general area
revealed rates ranging from $.41 to $.81 per square foot for triple net
leases. The current monthly rent on these buildings averages $.76 per
square foot. meaning that the Property currently rents near the highest rate
available in this market. However. considering the good condition of the
property. the quality of the tenant, and the long-term lease in place, this
property at this price is considered to be desirable. Comparable market
listing and sales activity were also reviewed by the Advisor. These
revealed that the price per square foot for similar buildings in the area
range from $40.00 to $97.50. Several of the buildings that were sold in the
lower range were older and of lower quality, and lacked amenities that are
present in the Property, including fire prevention sprinklers. The $86.25
per square foot that the Company is paying for the Property is considered
reasonable given the recent positive movements of price in the market, the
favorable seven year lease term. and the credit quality of the tenant (this
number does not include acquisition costs and expenses).
In the opinion of the Advisor, the purchase price of $1,725,000 that the
Company is paying the Sellers for this property is reasonable.
Property Operations. The Java City Property is managed by West Coast Realty
Management Inc.("WCRM"), an affiliate of the Company. WCRM charges the
Company 3% of the gross rents collected as a management fee for managing the
Property, as allowed by the Property Management Agreement. In the opinion
of the Advisor, the Java City Property is adequately insured. Although the
tenant is obligated to pay property taxes, property tax in the first year
is estimated to be $18,000 (approximately 1% of the sales price).
Terms of Purchase. Total consideration paid by the Company for the Java City
property was $1,828,500. The total acquisition cost included $1,725,000 paid
to the Sellers, $25,323 ) in legal, appraisal, and closing costs, and $78,177
in Acquisition Fees paid to the Advisor.
<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: $3,41336/month
Interest Rate: 10% fixed rate Amortization: 20 years
Due Date: November, 2001 Assumption Fee: $3,814
Balance of Debt at time of Purchase: $338,977
Other: Nonrecourse loan; no prepayment penalty
The financing on the 721 West Del Paso Road building is as follows:
Lender: Heller First Capital Corp., Chicago, IL
Original Loan Amount: $405,000 Payment: $3,126/month
Interest Rate: 8% fixed rate Amortization: 25 years
Due Date: August, 2018 Assumption Fee: None
Balance of Debt at Time of Purchase: $388,276
Other: Nonrecourse; no prepayment penalty
Thus, in summary, the total amount of financing/assumption fees that the
Company is paying in connection with the assumption of the above two loans
is $3,814. The balance of the debt at time of purchase was $724,465 with
the remaining cost of acquisition--including financing fees-being paid in
cash ($1,107,849). The source of cash was funds received in connection with
the sale of the Company's shares through April 30, 1996.
The purchase price was arrived at through arms-length negotiations with the
Sellers.
General. The computation of depreciation for the Java City Property is based
on the cost of the property, including Acquisition Fees and Acquisition
Expenses. The allocation of the cost of the Property to various asset
categories is estimated, based on allocations in the appraisal report.
Depreciation is computed on a straight-line basis over the component useful
life of the assets.
<PAGE>
The following amends the Index to Financial Statements on p. 74.
Unaudited Financial Statements
Balance Sheet as of June 30, 1996 and December 31,
1995............................................F-30
Statements of Income of the six months ended June 30,
ended June 30, 1996 and 1995 ..........................F-31
Statement Of Stockholders' Equity for the six months
1996 and 1995..........................................F-32
Statement of Cash Flows for the six months ended
June 30, 1996 and 1995.................................F-33
Summary of Accounting Policies.........................F-34
Notes to Financial Statements..........................F-36
Java City Property
Report of Independent Certified
Public Accountants..............................F-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 June 30, 1996
(unaudited)............................................F-50
Pro Forma Statement of Income for the six months
ended June 30, 1996 (unaudited)........................F-51
Notes to Pro Forma Statement of Income for the six
months ended June 30, 1996 (unaudited).................F-52
Pro Forma Statement of Income for the year ended
December 31, 1995 (unaudited)..........................F-53
Notes to Pro Forma Income Statement for year
ended December 31, 1995 (unaudited)...................F-54
<PAGE>
<TABLE>
WEST COAST REALTY INVESTORS, INC.
BALANCE SHEETS
JUNE 30,1996 (UNAUDITED) AND DECEMBER 31, 1995
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
<S> <C> <C>
ASSETS
RENTAL REAL ESTATE, net of
accumulated depreciation (Note 2) $19,474,817 $19,650,165
CASH AND CASH EQUIVALENTS 382,735 1,450,022
ACCOUNTS RECEIVABLE 183,662 132,148
OTHER ASSETS (Note 3) 147,677 160,563
$22,188,891 $21,392,898
LIABILITIES AND STOCKHOLDERS' EQUITY
ACCOUNTS PAYABLE --- $25,419
DUE TO RELATED PARTY (Note 5) 31,818 167,314
DIVIDENDS PAYABLE (Note 8) 286,663 226,649
SECURITY DEPOSITS 109,068 109,068
OTHER LIABILITIES 64,970 90,431
NOTES PAYABLE (Note 6) 9,453,297 9,539,180
TOTAL LIABILITIES 9,945,816 10,158,061
COMMITMENTS AND CONTINGENCIES (NOTE 1)
STOCKHOLDERS' EQUITY (Notes 1, 7 and 8):
Common Stock, $-01 par - shares authorized,
1,500,000; issued and outstanding 1,448,836
in 1996 and 1,322,404 in 1995 14,488 13,224
Additional paid-in capital 12,925,167 11,771,030
Deficit (696,580) (549,417)
TOTAL STOCKHOLDERS' EQUITY 12,243,075 11,234,837
$22,188,891 $21,392,898
</TABLE>
[FN]
See accompanying summary of accounting policies and notes to financial
statements.
F-30
<PAGE>
<TABLE>
WEST COAST REALTY INVESTORS, INC.
STATEMENTS OF INCOME
THREE AND SIX MONTHS ENDED JUNE 30,1996 AND 1995
(UNAUDITED)
<CAPTION>
THREE MONTHS THREE MONTHS SIX MONTHS SIX MONTHS
ENDED ENDED ENDED ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
REVENUES:
Rental $564,777 $384,388 $1,154,381 $691,466
Interest 27,877 28,466 50,590 73,834
592,654 412,854 1,204,971 765,300
COSTS AND EXPENSES:
Operating 42,445 21,391 72,763 48,334
Property taxes 18,259 10,801 37,398 21,603
Property management fees-
related party (Note 5(e)) 25,091 9,598 51,198 18,756
Interest 208,979 121,855 419,140 245,762
Generaland administrative 30,705 27,432 49,872 36,492
Depreciationandamortization94,736 59,044 189,473 109,629
Realized (gain) from investment in
government securities --- (9,750) --- (9,750)
Change in unrealized loss from
investment in government
securities --- 19,977 --- ---
420,215 260,348 819,844 470,826
NET INCOME $172,439 $152,506 $385,127 $294,474
NET INCOME PER SHARE $.12 $.14 $.28 $.28
</TABLE>
[FN]
See accompanying summary of accounting policies and notes to financial
statements.
F-31
<PAGE>
<TABLE>
WEST COAST REALTY INVESTORS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30,1996
(UNAUDITED)
<CAPTION>
ADDITIONAL
COMMON STOCK PAID-IN
SHARES AMOUNT CAPITAL DEFICIT
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31,1995 1,322,404 $13,224 $11,771,030 $(549,417)
Issuance of stock, net 126,432 1,264 1,154,137 ---
Net income --- --- --- 385,127
Dividends declared (Note 8) --- --- --- (532,220)
BALANCE, JUNE 30,1996 1,448,836 $14,488 $12,925,167 $(696,580)
<CAPTION>
SIX MONTHS ENDED JUNE 30,1995
(UNAUDITED)
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 204,736 2,047 1,821,422 ---
Net income --- --- --- 294,474
Dividends declared (Note 8) --- --- --- (366,900)
BALANCE, JUNE 30,1995 1,116,722 $11,167 $9,962,869 $(466,853)
</TABLE>
[FN]
See accompanying summary of accounting policies andnotes to financial
statements.
F-32
<PAGE>
<TABLE>
WEST COAST REALTY INVESTORS, INC.
STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED)
<CAPTION>
Six Months Six Months
Ended Ended
June 30, 1996 June 30, 1995
<S> <C> <C>
Cash Flow from operating activities:
Net income $385,127 $294,474
Adjustment to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 189,473 109,629
Proceeds from sales
of government securities --- 1,229,963
Realized gain on investment in
government securities --- (9,750)
Increase in unrealized loss from
Investment - government securities --- 19,977
Increase (decrease) from changes in:
Accounts receivable (51,514) 69,364
Other assets 12,886 (63,129)
Due to related party and other liabilities (166,667) 34,612
Prepaid rent and security deposit (19,709) 78,051
Net cash provided by operating activities 349,596 1,763,191
Cash flows from investing activities:
Additions to rental real estate --- (4,901,485)
Net cash (used in) investing activities --- (4,901,485)
Cash flows from financing activities:
Issuance of stock, net 921,924 1,823,469
Proceeds from notes payable --- 2,276,750
Repayments on notes payable (85,883) (25,107)
Dividends paid (312,938) (373,773)
Dividends payable 60,014 26,372
Net cash provided by financing activities 583,117 3,727,711
Net cash increase in cash and
cash equivalents 932,713 589,417
Cash and cash equivalents at
beginning of period 1,450,022 495,829
Cash and cash equivalents at end of period $2,382,735 $1,085,246
</TABLE>
[FN]
See accompanying summary of accounting policies and 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 June 30, 1996, the income statements and
statements of cash flow for the six months periods ended June 30, 1996, and
1995 are unaudited, but in the opinion of management include all adjustments,
consisting only of normal recurring accruals, necessary for a fair
presentation of the financial position and results of operations for the
periods presented. The results of operations for the six month period ended
June 30, 1996, are not necessarily indicative of results to be expected for
the year ended December 31, 1996.
These financial statements should be read in conjunction with the December 31,
1995 financial statements, and the notes thereto.
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 straightline 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 writedown to market value is required.
INVESTMENTS
Investments which represent trading securities are accounted for in
accordance with SFAS No. 115. The difference between historical cost and
market value are reported as unrealized gains or losses in the statements of
income.
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 I 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 period amounts have been reclassified
to conform to the current presentation.
F-35
<PAGE>
WEST COAST REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED JUNE 30,1996 AND 1995 (UNAUDITED)
AND DECEMBER 31, 1995
NOTE 1 - GENERAL
On October 30, 1989, West Coast Realty Advisors, Inc. (the "Advisor"),
purchased 1,000 shares of the Company's common stock for $10,000. On
August 30, 1990, the Company reached its minimum initial offering funding
level of $1,000,000. On November 30, 1992, the Company reached its
secondary offering level of $250,000. On July 25, 1994, the Company
achieved its minimum third offering funding level of $250,000.
Sales commissions and wholesaling fees, representing 7% of the gross proceeds
from the sale of common shares, were paid to Associated Securities Corp.
("ASC"), a member of the National Association of Securities Dealers, Inc. and
an affiliate of the Advisor.
Dividends are declared and accrued based approximately upon the previous
quarter's income from operations before depreciation and amortization.
NOTE 2 - RENTAL PROPERTIES
The Company owns the following income-producing properties
Original
Location Date Purchased Acquisition
(Property Name) 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 AND SIX MONTHS ENDED JUNE 30,1996 AND 1995 (UNAUDITED)
AND DECEMBER 31, 1995 (CONTINUED)
Note 2 - Rental Properties (continued)
The major categories of property are:
JUNE 30, 1996 DECEMBER 31, 1995
Land $ 6,586,920 $ 6,586,920
Buildings and improvements 13,517,732 13,517,732
20,104,652 20,104,652
Less accumulated depreciation 629,835 454,487
Net rental properties $ 19,474,817 $ 19,650,165
A significant portion of the Company's rental revenue was earned from
tenants whose individual rents represented more than 10% of total
rental revenue. Specifically:
Four tenants accounted for 27%, 19%, 19% and 12%, respectively, in 1996;
Four tenants accounted for 24%, 20%, 15% and 10%, respectively, in 1995.
NOTE 3 - OTHER ASSETS
Other assets consists of the following:
JUNE 30, 1996 DECEMBER 31, 1995
Deposits and prepaid expenses $42,163 $40,923
Organization costs 14,330 4,330
Loan origination fees 139,056 139,056
195,549 184,309
Less accumulated amortization 47,872 23,746
Net other assets $147,677 $160,563
F-37
<PAGE>
WEST COAST REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED JUNE 30,1996 AND 1995 (Unaudited)
AND DECEMBER 31, 1995 (Continued)
NOTE 4 - FUTURE MINIMUM RENTAL INCOME
As of June 30, 1996 and December 31, 1995, future minimum rental income
under the existing leases that have remaining noncancelable terms in excess
of one year are as follows:
JUNE 30, 1996 DECEMBER 31,1995
1996 .................................$922,907 $2,046,963
1997 ................................1,925,526 1,925,526
1998 ................................1,841,270 1,841,270
1999 ................................1,772,331 1,772,331
2000 ................................1,645,181 1,645,181
Thereafter .........................10,166,258 10,166,258
Total $18,273,473 $19,397,529
Future minimum rental income does not include lease renewals or new leases
that may result after a noncancelable-lease expires.
F-38
<PAGE>
WEST COAST REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED JUNE 30, 1996, AND 1995 (UNAUDITED)
AND DECEMBER 31, 1995 (CONTINUED)
NOTE 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.
Certain officers and directors of the company are also officers and directors
of the Advisor and its affiliate.
During the periods presented, the Company had the following related party
transactions:
(a) In accordance with the advisory agreement, compensation earned
by, or services reimbursed or reimbursable to the advisor, consisted of the
following:
SIX MONTHS ENDED FOR THE YEAR ENDED
JUNE 30, 1996 DECEMBER 31, 1995
Syndication fees $37,041 $150,429
Acquisition & financing fees --- 444,795
Overhead expenses 6,000 12,000
$43,041 $607,224
(b) At June 30, 1996 and December 3), 1995, the Advisor owned 22,505
shares of the issued and outstanding shares of the Company.
(c) Sales commissions paid in accordance with the selling agreement to
ASC totaled $84,496 for the six months ended June 30, 1996 and $151,954 for
the six months ended June 30, 1995.
(d) Property management fees earned by WCRM totaled $51,198 and $18,756
for the six months ended June 30, 1996 and 1995, respectively.
(e)The Corporation had related party accounts payable as follows:
JUNE 30, 1996 DECEMBER 31, 1995
Associated Financial Group $ --- $ 40,143
West Coast Realty Management 23,235 15,369
West Coast Realty Advisors 8,583 111,802
$31,818 $167,314
F-39
<PAGE>
WEST COAST REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED JUNE 30,1996, AND 1995 (UNAUDITED)
AND DECEMBER 31, 1995 (CONTINUED)
NOTE 6 - NOTES PAYABLE
Notes payable are made up of the following:
JUNE 30, DECEMBER 31,
1996 1995
8.25% promissory note secured by a Deed of Trust
on the Fresno Property, monthly principal and interest
payments are $5,244, due August 1, 2003 $633,883 $639,182
Variable rate promissory note secured by a Deed
of Trust on the OPTO-22 property, interest rate
adjustments are monthly and are based on the 11th
District cost of funds rate plus 3% (7.874% at
March 31, 1996), and may never go below 6.5%
or above I 1.0%, monthly principal and interest
payments are $11,702, due October 1, 2003 1,716,469 1,721,993
8.25% promissory note secured by a Deed of Trust on
the Blockbuster property, interest rate adjusts
to the 5-year Treasury rate plus 350 basis points
on February 1, 1999, monthly principal and interest
payments are $4,934, due February 1, 2004 575,115 579,923
9.25 % promissory note secured by a Deed of Trust
on the Riverside property, monthly principal and
interest payments are $9,988, due November 8, 2004 1,181,520 1,185,778
Variable rate promissory note secured by a Deed of Trust
on the Brea property, interest rate is 9.5% until March 1,
2000 (and each succeeding March I st) when interest rate
adjusts to the Moody's corporate bond index daily rate
plus 0. 1 25%, monthly principal and interest payments
vary depending upon interest rates and are currently
$8,737, due March 1, 2020 986,989 992,379
F-40
<PAGE>
WEST COAST REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED JUNE 30,1996, AND 1995 (UNAUDITED()
AND DECEMBER 31, 1995 (CONTINUED)
NOTE 6 - NOTES PAYABLE (CONT.)
JUNE 30, DECEMBER 31,
1996 1995
9.625% promissory note secured by a Deed of Trust
on the Safeguard property, monthly principal and
interest payments are $24,191, due February 1,
2005 $2,195,845 $2,234,231
Variable rate promissory note secured by a Deed of Trust
on the Fremont property, interest rate equals the current
Treasury rate plus 1.65% (8.24% at March 31,1996),
monthly principal and interest payments vary depending
upon interest rates and are currently $18,898, due
August 1, 2015 2,163,476 2,185,694
$9,453,297 $9,539,180
The carrying amount is a reasonable estimate of fair value of notes payable
because the interest rates approximate the borrowing rates currently
available for mortgage loans with similar terms and average maturities.
The aggregate annual future maturities at June 30, 1996 and
December 31, 1995 are as follows:
JUNE 30, 1996 DECEMBER 31, 1995
1996 ...............................$918,437 $1,004,320
1997 ..............................1,004,320 1,004,320
1998 ..............................1,004,320 1,004,320
1999 ..............................1,004,320 1,004,320
2000 ..............................1,004,320 1,004,320
Thereafter ........................4,517,580 4,517,580
Total ............................$9,453,297 $9,539,180
F-41
<PAGE>
WEST COAST REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED JUNE 30,1996, AND 1995 (UNAUDITED)
AND DECEMBER 31, 1995 (CONTINUED)
Note 7 - Dividend Reinvestment Plan
The Company has established a Dividend Reinvestment Plan (the "Plan") whereby
cash dividends will, upon election of the shareholders, be used to purchase
additional shares of the Company. The shareholders' participation in the Plan
may be terminated at any time.
Note 8 - Net Income and Dividends Per Share
Net Income Per Share for the six months ended June 30, 1996 and 1995 was
computed using the weighted average number of outstanding shares of 1,385,908
and 1,038,625, respectively.
Dividends declared during the first six months 1995 and 1996 were as follows:
OUTSTANDING AMOUNT TOTAL
RECORD DATE SHARES PER UNIT DIVIDEND
January 1, 1995 911,986 $ 0.060 $54,719
February 1, 1995 945,136 0.060 56,708
March 1, 1995 1,009,084 0.060 60,545
April 1, 1995 1,029,898 0.060 61,794
May 1, 1995 1,109,204 0.060 66,552
June 1, 1995 1,109,704 0.060 66,582
TOTAL $366,900
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 1,437,098 0.0666 95,711
June 1, 1996 1,448,836 0.0666 96,492
TOTAL $532,290
F-42
<PAGE>
WEST COAST REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED JUNE 30,1996, AND 1995 (UNAUDITED)
AND DECEMBER 31, 1995 (CONTINUED)
NOTE 9 - NEW ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of
(SFAS No. 121) issued by the Financial Accounting Standards Board (FASB) is
effective for financial statements for fiscal years beginning after
December 15, 1995. The new Standard establishes new guidelines regarding
when impairment losses on long-lived assets, which include plant and
equipment, and certain identifiable intangible assets, should be recognized
and how impairment losses should be measured. Adoption had no effect on the
statement of income for the six months ended June 30, 1996, as there were no
impairment amounts recorded during the period.
Statements of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation" (SFAS No. 1 23) issued by the Financial Accounting
Standards Board (FASB) is effective for specific transactions entered into
after December 15, 1995, while the disclosure requirements of SFAS No. 123
are effective for financial statements for fiscal years beginning after
December 15, 1995. The new standard establishes a fair value method of
accounting for stock-based compensation plans and for transactions in which
an entity acquires goods or services from nonemployees in exchange for
equity instruments. The Company does not currently provide stock based
compensation and adoption does not have a material effect on its financial
position or results of operations for the six months ended June 30, 1996.
NOTE 10 - SUBSEQUENT EVENT
(a) In July 1996, the Company paid dividends totaling $286,900 ($0.0666 per
share per monthly record date), payable to shareholders of record on April 1,
May 1, and June 1, 1996, respectively (Note 8).
(b) In August 1996, the Company acquired from unrelated parties, two light
industrial buildings located in Sacramento, California. The total
consideration paid by the Company includes $1,725,000 to be paid to the
Sellers, $17,000 in legal, appraisal and closing costs and $86,500 in
Acquisition Fees paid to the Advisor. There is financing on each building
of the Property that is being assumed by the Company. Financing of
approximately $339,000, on the first building provided by Business &
Professional Bank, was assumed at an annual fixed percentage rate of 10%,
due in November 2001, amortized over a twenty year period with monthly
principal and interest payments of approximately $3,814. 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 August 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 paid in connection with the
assumption of the above two loans was $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.
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 frorn 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 confon-nity with
generally accepted accounting principles.
HUNNICUTT OKAMOTO & ASSOCIATES
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
For the Three Months Ended March 31, 1996
and
Year Ended December 31, 1995
<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 1O%. Interest expense incurred during the three months
ended March 3 1, 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 Audited
Historical
Operating Financial
Results for Results Pro Forma Estimated
WCRI for the Adjustments Pro
December 31, period ended (Note 2) Forma
1995 December 31, Results
1995
<S> <C> <C> <C> <C>
REVENUE:
Rental Income $1,692,176 $176,815 $35,433 (a) $1,904,424
Interest Income 120,950 (55,000)(b) 65,950
1,813,126 $176,815 (19,567) 1,970,374
COSTS AND EXPENSES:
Operating 169,679 170 6,367 (c) 176,216
Interest 620,031 63,931 683,962
General &
Administrative 117,667 117,667
Depreciation &
Amortization 256,144 26,008 (d) 282,152
1,163,521 64,101 32,375 1,259,997
Taxable Operating Income $649,605 $112,714 ($51,942) $710,377
</TABLE>
WEST COAST REALTY INVESTORS, INC.
STATEMENT OF CASH AVAILABLE FROM OPERATIONS (NOTE 1)
Pro Forma Taxable Net Operating Income $710,377
Add: Depreciation 282,152
Pro Forma Cash Available from Operations $992,529
[FN]
See accompanying notes to pro forma financial statements
F-47
<PAGE>
WEST COAST REALTY INVESTORS, INC.
JAVA CITY PROPERTY
NOTES TO PRO FORMA OF TAXABLE OPERATING INCOME STATEMENT
(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
(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 I ives 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
PRO FORMA BALANCE SHEET
June 30, 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 acquired the Java City Property from Tom Weborg,
Sandra Singer, David Ewing, and Karen Ewing on August 2, 1996. Total
consideration paid for the property was $1,828,500, with $724,465 of the cost
paid through the assumption of financing with a bank, and the balance,
including $3,814 in financing costs, paid in cash ($1,107,849). The pro-forma
balance sheet below presents the financial condition of the Company as of June
30, 1996, 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
June 30, 1996
(unaudited)
Historical Pro Forma Pro Forma
June 30, 1996 Adiustments June 30, 1996
ASSETS:
<S> <C> <C> <C>
Rental Properties, net $19,474,817 $1,828,500 (1) $21,303,317
Cash and Cash Equivalents 2,382,735 (1,107,849)(1) 1,274,886
Accounts Receivable 183,662 183,662
Other Assets 147,677 3,814 (1) 151,491
$22,188,891 $724,465 $22,913,356
LIABILITIES & STOCKHOLDERS' EQUITY
Due to Related Party $31,818 $31,818
Prepaid Rent --- ---
Dividends Payable 286,663 286,663
Security Deposits 109,068 109,068
Other Liabilites 64,970 64,970
Notes Payable 9,453,297 724,465 (1) 10,177,762
9,945,816 724,465 10,670,281
Stockholders Equity 12,243,075 12,243,075
$22,188,891 $724,465 $22,913,356
</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 Six Months Ended June 30, 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 Pro
Historical Results Forma
June 30, 3 months Adjustments Pro Forma
1996 ended
March 31,
1996
<S> <C> <C> <C> <C>
Revenues:
Rent $1,154,381 $45,219 $57,775 (1) 1,257,375
Interest 50,590 (28,000)(2) 22,590
1,204,971 45,219 29,775 1,279,965
Expenses:
Operating 72,763 2,700 75,463
Property Taxes 37,398 37,398
Property Manangement
Fees-related party 51,198 3,090 (3) 54,288
Interest 419,140 15,985 435,125
General and Administrative 49,872 49,872
Depreciation and
Amortization 189,473 13,004 (4) 202,477
819,844 18,685 16,093 854,622
NET INCOME $385,127 $26,534 13,682 $425,343
NET INCOME PER SHARE $0.28 $0.31
Weighted Average Shares 1,385,908 1,385,908
Outstanding
</TABLE>
F-51
<PAGE>
WEST COAST REALTY INVESTORS, INC.
NOTES TO PRO FORMA STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(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 six
month's worth of operations reflected in the Statement of Income for the
six months ended June 30, 1996.
There can be no assurance that the foregoing results will be obtained.
2. PRO FORMA ADJUSTMENTS
The adjustments to the pro forma statement of income are as follows:
(1) To reflect rental income from January 1, 1996 to June 30, 1996.
(2) To eliminate interest income on funds used to purchase the Java City
Property from January 1, 1996 to June 30, 1996.
(3) To reflect property management fees and other property operating costs
from January 1, 1996 to June 30, 1996.
(4) To reflect depreciation expense on the Java City Property from January 1,
1996 to June 30, 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 elsewhere in this
Prospectus.
<CAPTION>
Pro Forma
Historical Safeguard Technology Java Condensed
December 31, Building Drive (II) City Adjustments December
1995 (I) (III) 31, 1995
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Rental $1,692,176 $680,457 $236,039 $176,815 ($437,744)(a) $2,403,921
20,745 (b)
35,433 (c)
Interest 120,950 (120,000)(d) 950
1,813,126 680,457 $236,039 176,815 (501,566) 2,404,871
Expense:
Operating 169,679 5,862 170 11,148 (e) $200,930
7,704 (f)
6,367 (g)
Interest 620,031 38,246 63,931 84,130 (h) 820,016
13,678 (i)
Depreciation and
Amortization 256,144 38,492 (j) 376,872
56,228 (k)
26,008 (l)
General and
Administrative 117,667 117,667
1,045,854 44,108 64,101 243,755 1,515,485
Net Income $649,605 $680,457 $191,931 $112,714 (745,321) $889,386
Net Income Per Share $0.58 Net Income Per Share $0.55
Weighted Average Weighted Average Shares Used for
Shares Used for 1,117,494 Pro Forma Calculation (Note 3) 1,607,494
Historical
calculation
</TABLE>
[FN]
(1) Year ended December 31, 1994 (audited)
(11) Nine months ended September 30,1995 (audited)
(111)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.
j. To reflect additional depreciation expense on the Safeguard Building for
calendar 1995.
k. To reflect additional depreciation expense on the Technology Drive
property for calendar 1995.
l. To reflect depreciation expense on the Java City Property for 1995.
F-54
<PAGE>
WEST COAST REALTY INVESTORS, INC.
NOTES TO PRO FORMA STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995 (UNAUDITED)
(CONTINUED)
2. PER SHARE AMOUNTS
The pro forma income statement assumes that the Technology Drive,
Safeguard Building and Java City properties were owned as of January 1, 1995.
The Company used approximately $5.2 million in cash TO acquire these
properties. However, as of January 1, 1995, the Company actually had
approximately $1.4 million available for the acquisition of additional
properties. The properties were acquired primarily using funds raised
subsequent to January 1, 1995. Therefore, the weighted average shares
outstanding as of December 31, 1995, was calculated assuming that an
additional $4.9 million in shares (490,000 shares) were outstanding as
of January 1, 1995, and that no additional shares were issued throughout
the year. This is assumed to be the minimum number of shares that would
be sold given the offering expenses and reserves that are allocated
against shares sold.
F-55
