FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-24594
WEST COAST REALTY INVESTORS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 95-4246740
(State or other Jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5933 W. CENTURY BLVD., 9TH, FLOOR
LOS ANGELES, CALIFORNIA 90045
(Address of principal executive offices)
(Zip Code)
(310) 670-0800
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
APPLICABLE ONLY TO CORPORATE ISSUERS:
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES
OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE. 1,815,579 SHARES
OUTSTANDING AS OF MAY 13, 1997.
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
In the opinion of the Management of West Coast Realty Investors, Inc. (the
"Company"), all adjustments necessary for a fair presentation of the Company's
results for the three months ended March 31, 1997 and 1996, have been made in
the following financial statements which are normal recurring entries in nature.
However, such financial statements are unaudited and are subject to any year-end
adjustments that may be necessary.
<TABLE>
WEST COAST REALTY INVESTORS, INC.
BALANCE SHEETS
MARCH 31, 1997 (UNAUDITED) AND DECEMBER 31, 1996
<CAPTION>
MARCH 31, 1997 December 31, 1996
<S> <C> <C>
ASSETS
Rental real estate, less accumulated
depreciation (Note 2) $25,909,334 $21,118,203
Cash and cash equivalents 522,061 2,017,194
Accounts receivable 337,992 247,948
Loan origination fees, net of accumulated
amortization of $43,293 and $40,248 99,578 102,622
Other assets 77,570 85,871
TOTAL ASSETS $26,946,535 $23,571,838
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Accounts payable $58,904 $13,922
Due to related party (Note 5(e)) 50,700 46,285
Dividends payable (Note 8) 325,669 302,760
Security deposits and prepaid rent 242,892 124,734
Other liabilities 70,826 100,453
Notes payable (Note 6) 12,325,239 10,078,793
TOTAL LIABILITIES 13,074,230 10,666,947
COMMITMENTS
STOCKHOLDERS' EQUITY
Common stock, $.01 par-shares
authorized, 5,000,000 shares issued,
1,671,442 and 1,550,607 outstanding in
1997 and 1996 16,714 15,506
Additional paid-in capital 14,949,137 13,861,763
Retained earnings (1,093,546) (972,378)
TOTAL STOCKHOLDERS' EQUITY 13,872,305 12,904,891
TOTAL LIABILITIES AND STOCKHOLDERS' $26,946,535 $23,571,838
EQUITY
</TABLE>
[FN]
See accompanying notes to financial statements.
<PAGE>
<TABLE>
WEST COAST REALTY INVESTORS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 1997
(UNAUDITED)
<CAPTION>
ADDITIONAL
COMMON STOCK PAID
SHARES AMOUNT CAPITAL DEFICIT
<S> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1996 1,550,607 $15,506 $13,861,763 $(972,378)
Issuance of stock, net 120,835 1,208 1,061,331 ---
Equity contribution by
Affiliates through expense
reimbursements --- --- 26,043 ---
Net income --- --- --- 204,738
Dividends declared (Note 8) --- --- --- (325,906)
BALANCE AT MARCH 31, 1997 1,671,442 $16,714 $14,949,137 $(1,093,546)
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1996
(UNAUDITED)
ADDITIONAL
COMMON STOCK PAID
SHARES AMOUNT CAPITAL DEFICIT
<S> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1995 1,322,404 $13,224 $11,771,030 $(549,417)
Issuance of stock, net 91,260 913 883,375 ---
Net income --- --- --- 210,831
Dividends declared (Note 8) --- --- --- (245,932)
BALANCE AT MARCH 31, 1996 1,413,664 $14,137 $12,654,405 $(584,518)
</TABLE>
[FN]
See accompanying notes to financial statements.
<PAGE>
<TABLE>
WEST COAST REALTY INVESTORS, INC.
STATEMENTS OF INCOME
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(UNAUDITED)
<CAPTION>
Three Months Three Months
Ended Ended
March 31, 1997 March 31, 1996
<S> <C> <C>
Revenues
Rental (Notes 2 and 3) $729,886 $589,604
Interest 10,375 22,713
740,261 612,317
Costs and expenses
Operating 36,256 30,317
Property taxes 27,722 19,140
Property management fees (Note 5(e)) 29,489 27,964
Interest expense 244,147 210,161
General and administrative 78,444 19,168
Depreciation and amortization 119,465 94,736
535,523 401,486
Net income $204,738 $210,831
Net income per share (Note 8) $.13 $.15
</TABLE>
[FN]
See accompanying notes to financial statements.
<PAGE>
<TABLE>
WEST COAST REALTY INVESTORS, INC.
STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996 (UNAUDITED)
<CAPTION>
Three Months Three Months
Ended Ended
INCREASE (DECREASE) IN CASH AND CASH March March
EQUIVALENTS 31,1997 31,1996
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $204,738 $210,831
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 119,465 94,736
Interest expense on amortization of loan
origination fees 3,045 6,953
Increase (decrease) from changes in:
Accounts receivable (90,044) (30,326)
Other assets 8,300 10,745
Accounts payable 44,982 (8,621)
Due to related party (4,415) ---
Security deposits and prepaid rent 118,158 ---
Other liabilities (29,627) ---
NET CASH PROVIDED BY OPERATING ACTIVITIES 374,602 284,318
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to rental real estate (4,907,441) ---
NET CASH (USED IN) INVESTING ACTIVITIES (4,907,441) ---
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock, net 1,045,305 794,236
Equity contribution by Affiliates through
expense reimbursements 26,043 ---
Dividends declared and paid (280,088) (226,886)
Increase in notes payable 2,300,000 ---
Payments on notes payable (53,554) (41,505)
NET CASH PROVIDED BY FINANCING ACTIVITIES 3,037,706 525,845
NET INCREASE (DECREASE) IN CASH AND CASH (1,495,133) 810,163
EQUIVALENTS
CASH AND CASH EQUIVALENTS, BEGINNING OF 2,017,194 1,450,022
PERIOD
CASH AND CASH EQUIVALENTS, END OF PERIOD $522,061 $2,260,185
</TABLE>
[FN]
See accompanying notes to financial statements.
<PAGE>
WEST COAST REALTY INVESTORS, INC.
SUMMARY OF ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying balance sheet as of March 31, 1997, the income statements and
statements of cash flow for the three month periods ended March 31, 1997, and
1996 are unaudited, but in the opinion of management include all adjustments,
consisting only of normal recurring accruals, necessary for a fair presentation
of the financial position and results of operations for the periods presented.
The results of operations for the three month period ended March 31, 1997, are
not necessarily indicative of results to be expected for the year ended December
31, 1997.
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 Service Code. The Company has complied with all requirements
imposed on REIT's for the 1996, 1995 and 1994 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 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.
LOAN ORIGINATION FEES
Loan origination fees are capitalized and amortized over the life of the loan.
<PAGE>
WEST COAST REALTY INVESTORS, INC.
SUMMARY OF ACCOUNTING POLICIES
(Continued)
RENTAL INCOME
Rental revenue is recognized on a straight-line basis to the extent that rental
revenue is deemed collectible. Where there is uncertainty of collecting higher
scheduled rental amounts, due to the tendency of tenants to renegotiate their
leases at 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 deposit, 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.
NEW ACCOUNTING PRONOUCEMENTS
Statement of Financial Accounting Standards No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities" (SFAS No.
125) issued by the Financial Accounting Standards Board (FASB) is effective for
transfers and servicing of financial assets and extinguishments of liabilities
occurring after December 31, 1996, and is to be applied prospectively. Earlier
or retroactive application is not permitted. The new standard provides
accounting and reporting standards for transfers and servicing of financial
assets and extinguishments of liabilities. The Company does not expect adoption
to have a material effect on its financial position or results of operations.
<PAGE>
WEST COAST REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996 (UNAUDITED) AND DECEMBER 31, 1996
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. As of
March 31, 1997 the Company has raised $16,687,616 in capital.
Sales commissions and wholesaling fees, representing 8% 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.
("NASD") 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
Irvine, California (Tycom) January 17, 1997 4,907,441
<PAGE>
WEST COAST REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996 (UNAUDITED) AND DECEMBER 31, 1996
NOTE 2 - RENTAL PROPERTIES (CONTINUED)
The major categories of property are:
MARCH 31, 1997 DECEMBER 31, 1996
Land $ 8,971,126 $ 7,401,126
Buildings and improvements 17,869,466 14,532,025
26,840,592 21,933,151
Less accumulated depreciation 931,258 814,948
Net rental properties $ 25,909,334 $ 21,118,203
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:
Five tenants accounted for 28%, 22%, 20%, 19% and 10% in 1997;
Five tenants accounted for 23%, 19%, 18%, 12% and 10% in 1996;
Four tenants accounted for 24%, 20%, 15% and 10% in 1995;
NOTE 3 - OTHER ASSETS
Other assets consists of the following:
MARCH 31, 1997 DECEMBER 31, 1996
Deposits and prepaid expenses $78,449 $86,640
Organization costs 14,330 14,330
92,779 100,970
Less accumulated amortization 15,209 15,099
Net other assets $77,570 $85,871
<PAGE>
WEST COAST REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996 (UNAUDITED) AND DECEMBER 31, 1996
NOTE 4 - FUTURE MINIMUM RENTAL INCOME
As of March 31, 1997 and December 31, 1996, future minimum rental income under
the existing leases that have remaining noncancelable terms in excess of one
year are as follows:
MARCH 31, 1997 DECEMBER 31,1996
1997 ............................$1,729,798 $2,123,959
1998 .............................2,485,224 2,037,591
1999 .............................2,424,297 1,976,664
2000 .............................2,312,357 1,864,724
2001 .............................2,218,845 1,771,212
Thereafter ..................... 17,941,509 15,255,711
Total $29,112,030 $25,029,861
Future minimum rental income does not include lease renewals or new leases that
may result after a noncancelable-lease expires.
NOTE 5 - RELATED PARTY TRANSACTIONS
The Advisor has an agreement with the Company to provide advice on investments
and to administer the day-to-day operations of the Company. Property management
services for the Company's properties are provided by West Coast Realty
Management, Inc. ("WCRM"), an affiliate of the Advisor.
<PAGE>
WEST COAST REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996 (UNAUDITED) AND DECEMBER 31, 1996
During the periods presented, the Company had the following related party
transactions:
(a) In accordance with the advisory agreement, compensation earned by, or
services reimbursed or reimbursable to the advisor, consisted of the
following:
THREE MONTHS ENDED FOR THE YEAR
MARCH 31, 1997 ENDED
DECEMBER 31, 1996
Syndication fees $150,000 $82,864
Acquisition fees 270,384 78,177
Overhead expenses 6,000 12,000
$426,384 $173,041
(b) At March 31, 1997 and December 31, 1996, the Advisor owned 22,556
shares of the issued and outstanding shares of the Company.
(c) Sales commissions paid in accordance with the selling agreement to ASC
totaled $100,778 for the three months ended March 31, 1997 and $63,741 for the
three months ended March 31, 1996.
(d) Property management fees earned by WCRM totaled $29,489 and $27,964
for the three months ended March 31, 1997 and 1996, respectively.
(e) The Corporation had related party accounts payable as follows:
MARCH 31, 1997 DECEMBER 31, 1996
Associated Securities Corp. $ 1,210 $ 396
West Coast Realty Management 29,490 24,839
West Coast Realty Advisors 20,000 21,050
$50,700 $46,285
<PAGE>
WEST COAST REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996 (UNAUDITED) AND DECEMBER 31, 1996
(Continued)
NOTE 6 - NOTES PAYABLE
Notes payable are made up of the following:
MARCH 31, DECEMBER 31,
1997 1996
8.25% promissory note secured by a Deed of Trust
on the Fresno Property, monthly principal and interest
payments are $5,244 due August 1, 2003 ................$ 625,069 $ 628,471
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% (7.835% at
December 31, 1996), and may never go below 6.5%
or above 11.0%, monthly principal and interest
payments are $12,723, due October 1, 2003 .............1,703,640 1,708,362
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 ..............566,047 569,132
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 ...1,174,294 1,177,055
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 ...............................978,411 981,338
<PAGE>
WEST COAST REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996 (UNAUDITED) AND DECEMBER 31, 1996
NOTE 6 - NOTES PAYABLE (CONT.)
MARCH 31, DECEMBER 31,
1997 1996
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 ................................................$2,134,704 $2,155,575
8.24% promissory note secured by a Deed of Trust
on the Fremont property, interest rate equaled the 20-year
Treasury rate plus 1.65% at loan closing, monthly principal
and interest payments are currently $18,898, due
August 1, 2015 .......................................2,127,634 2,140,311
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, 2001........................334,427 336,272
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............................381,013 382,277
9.25% promissory note secured by a Deed of Trust on the
Tycom property, monthly payments of interest only are
approximately $17,000, due January 8, 1998 2,300,000 ---
$12,325,239 $10,078,793
The above carrying amounts with the exception of the note on the Fresno property
are reasonable estimates of fair values of notes payable based on current
lending rates in the industry for mortgage loans with similar terms and
maturities. The fair value of the Fresno note is approximately $580,000
calculated by discounting the expected future cash outflows on the note to the
present based on a current lending rate of 10%, which is the approximate
industry lending rate on properties of this type in this location.
<PAGE>
WEST COAST REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996 (UNAUDITED) AND DECEMBER 31, 1996
NOTE 6 - NOTES PAYABLE (CONT.)
The aggregate annual future maturities at March 31, 1997 and December 31, 1996
are as follows:
PERIOD ENDING MARCH 31, 1997 DECEMBER 31, 1996
1997 .................................. $156,768 $ 210,322
1998 .................................. 2,528,391 228,391
1999 .................................. 248,287 248,287
2000 .................................. 269,435 269,435
2001 .................................. 582,090 582,090
Thereafter ............................ 8,540,268 8,540,268
Total $12,325,239 $10,078,793
NOTE 7 - DIVIDEND REINVESTMENT PLAN
The Company has established a Dividend Reinvestment Plan (the "Plan") whereby
cash dividends will, upon election of the shareholders, be used to purchase
additional shares of the Company. The shareholders' participation in the Plan
may be terminated at any time.
NOTE 8 - NET INCOME AND DIVIDENDS PER SHARE
Net Income Per Share for the three months ended March 31, 1997 and 1996 was
computed using the weighted average number of outstanding shares of 1,641,233
and 1,378,132, respectively.
Dividends declared during the first quarter 1997 and 1996 were as follows:
OUTSTANDING AMOUNT TOTAL
RECORD DATE SHARES PER SHARE DIVIDEND
January 1, 1997 1,550,607 $0.0666 $103,270
February 1, 1997 1,671,442 0.0666 111,318
March 1, 1997 1,671,442 0.0666 111,318
TOTAL $325,906
January 1, 1996 1,325,404 0.060 $79,524
February 1, 1996 1,371,794 0.060 82,308
March 1, 1996 1,401,664 0.060 84,100
TOTAL $245,932
<PAGE>
WEST COAST REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996 (UNAUDITED) AND DECEMBER 31, 1996
(Continued)
NOTE 9 - NEW ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities" (SFAS No.
125) issued by the Financial Accounting Standards Board (FASB) is effective for
transfers and servicing of financial assets and extinguishments of liabilities
occurring after December 31, 1996, and is to be applied prospectively. Earlier
or retroactive application is not permitted. The new standard provides
accounting and reporting standards for transfers and servicing of financial
assets and extinguishments of liabilities. The Company does not expect adoption
to have a material effect on its financial position or results of operations.
NOTE 10 - SUBSEQUENT EVENT
(a) In April 1997, the Company paid dividends totaling $325,906 ($0.0666 per
share per period), payable to shareholders of record on January 1, February 1,
and March 1, 1997, respectively (Note 8).
(b) On April 1, 1997, a total of $1,402,438 in proceeds from the sale of shares
in the Company's current offering was released from an escrow account, and
139,422 shares were issued to investors.
<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. A fourth offering of shares began on May 6, 1996. As
of March 31, 1997, the Company had raised $16,687,616 in gross proceeds from all
four offerings.
The Company was organized for the purpose of investing in, improving, holding,
and managing equity interests in a diversified number of commercial properties
located in California and the West Coast, while qualifying as a Real Estate
Investment Trust. Properties will be acquired for cash or on a moderately
leveraged basis, with aggregate indebtedness not to exceed 50% of the purchase
price of all properties on a combined basis. The Company intends to hold each
property for approximately seven to ten years.
The Company's principal investment objectives are to invest in rental real
estate properties which will:
(1) Preserve and protect the Company's invested capital;
(2) Provide shareholders with cash distributions; a portion of which will not
constitute taxable income.
(3) Provide capital gains through potential appreciation; and
(4) Provide market liquidity through transferable shares of stock.
The Company qualifies as a Real Estate Investment Trust (REIT) for federal and
state income tax purposes.
The ownership and operation of any income-producing real estate is subject to
those risks inherent in all real estate investments, including national and
local economic conditions, the supply and demand for similar types of
properties, competitive marketing conditions, zoning changes, possible casualty
losses, increases in real estate taxes, assessments, and operating expenses, as
well as others.
The Company has engaged West Coast Realty Advisors, Inc. ("WCRA") to act as the
Company's advisor. Pursuant to the terms of the advisory agreement, WCRA
provides investment and financial advice and conducts the day-to-day operations
of the Company. The Company, itself, has no employees.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
During the quarter ended March 31, 1997 the Company declared dividends totaling
$325,906 compared to the quarter ended March 31, 1996, the Company declared
dividends totaling $245,932. Dividends are determined by management based on
cash flows and the liquidity position of the Company. It is the intention of
management to declare dividends, subject to the maintenance of reasonable
reserves.
During the quarter ended March 31, 1997 the Company raised an additional
$1,045,305 in net proceeds as the result of the sale of shares from its fourth
public offering. The Company has used the net proceeds from offerings to
purchase additional income-producing properties and to add to the cash reserve
balances of the Company as is prudent given the amount of property now under
ownership.
Management uses cash as its primary measure of the Company's liquidity. The
amount of cash that represents adequate liquidity for a real estate investment
company, is dependent on several factors. Among them are:
1. Relative risk of the Company's operations;
2. Condition of the Company's properties;
3. Stage in the Company's operating cycle (e.g., money-raising, acquisition,
operating or disposition phase); and
4. Shareholders dividends.
The Company is adequately liquid and management believes it has the ability to
generate sufficient cash to meet both short-term and long-term liquidity need,
based upon the above four points.
The first point refers to the risk of the Company's investments. At March 31,
1997, the Company's excess funds were invested in a short-term money market
fund. The purchase of rental properties have been made either entirely with
cash or the use of moderate leverage. During the quarter ended March 31, 1997,
notes payable pertaining to property acquisitions by the Company increased
$2,300,000 due to the purchase of an additional income-producing property in
January 1997, while cash used in principal repayments of notes totaled $53,554.
Although most of 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 1998 through 2005. The Company
is aware that prior to the time that these large payments come due, refinancing
of the loans or the sale of the property(ies) will be necessary in order to
protect the interests of the
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
Company's shareholders. Furthermore, most of the properties' tenants are
nationally known retailers or well-established business under long-term leases,
which makes the properties easier to sell of refinance.
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 March 31, 1997 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 March 31, 1997,
the Company has allocated approximately $500,000 towards a "reserve" fund (3% of
gross funds raised, as disclosed in the Company's latest prospectus), $325,000
of cash held pending distribution to investors, $120,000 of cash to be used for
current mortgage and accounts payable commitments, $150,000 in tenant security
deposits, and the balance of --<$573,000>-- expected to be received from future
sales of Company shares. The Company's operations generated $321,049 in net
operating cash flow in the quarter ended March 31, 1997 (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)
CASH FLOWS - MARCH 31, 1997 VS. MARCH 31, 1996
Cash resources decreased $1,495,133 during the three months ended March 31, 1997
compared to a $810,163 increase in cash resources for the three months ended
March 31, 1996. Cash provided by operating activities increased by $374,602
with the largest contributor being $324,203 in cash basis net income for the
three months ended March 31, 1997. In contrast, the three months ended March
31, 1996 provided $284,318 in cash from operating activities due primarily to
$305,567 in cash basis net income. The sole use of cash in investing activities
for the three months ended March 31, 1997 was $4,907,441 expended for the
acquisition of an additional property located in Irvine, California. In
contrast, the three months ended March 31, 1996 did not have any investing
activities. For the three months ended March 31, 1997, financing activities
provided an additional $3,037,706 via the sale of additional shares in the
Company ($1,045,305 in net proceeds), and $2,300,000 in financing obtained in
connection with the acquisition of the additional property, less dividends paid
and payable of $280,088 and repayments on notes payable of $53,554. In
contrast, the three months ended March 31, 1996, financing activities provided
an additional $525,845 via the sale of additional shares in the Company
($794,236 in net proceeds), less dividends paid and payable of $226,886 and
repayments of notes payable of $41,505.
NEW ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities" (SFAS No.
125) issued by the Financial Accounting Standards Board (FASB) is effective for
transfers and servicing of financial assets and extinguishments of liabilities
occurring after December 31, 1996, and is to be applied prospectively. Earlier
or retroactive application is not permitted. The new standard provides
accounting and reporting standards for transfers and servicing of financial
assets and extinguishments of liabilities. The Company does not expect adoption
to have a material effect on its financial position or results of operations.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
RESULTS OF OPERATIONS
Operations for the quarter ended March 31, 1997 represented a full quarter of
rental operations for all properties except Tycom which was owned for two and
one-half months.
The net income for the quarter ended March 31, 1997 continued to be
significantly larger than the prior quarter's amount due to the raising of
additional funds and investment of such funds in additional income producing
properties. The Company did not have any adverse events that significantly
impacted net income during the quarter ended March 31, 1997, and all properties
that have been purchased by the Company have operated at levels equal to current
expectations. All tenants were current on their lease obligations.
Rental revenue increased $140,282 (24%) due to a full quarter ownership of the
Java City property and two and one-half months of the Tycom property (as
compared to no ownership of these properties during the quarter ended March 31,
1996). Interest income decreased $12,338 (54%) due to a new escrow release
procedure on the current offering where new investor funds come into the Company
quarterly rather than daily, thus lowering the amount of excess cash available
for investment.
Operating expenses increased $5,939 (20%) as a reflection of the additional
properties owned during the quarter. Interest expense increased $33,986 (16%)
as a reflection of the additional debt taken on in connection with additional
property acquisition and refinancing activities. Despite the large debt
amounts, the Company is still below the maximum 50% debt a maximum that is
allowed by the Company's by-laws (debt was 46% of property cost (as defined in
the by-laws) at March 31, 1997). General and administrative costs increased
$59,276 (309%) due to higher accounting, taxes, and general insurance expense
and overhead costs related to the Company. General and administrative costs
increased as a percentage of revenue going from 3% in 1996 to 11% in 1997. Much
of this increase is due to $41,043 that the Advisor was paid during the quarter
ended March 31, 1997 due to the revised provisions of the Advisor agreement. No
advisor fees were earned during the quarter ended March 31, 1996. Depreciation
and amortization expense increased $24,729 (26%) as the result of the ownership
of additional properties during 1997 as compared to 1996. Net income of
$204,738 for the quarter ended March 31, 1997 was $6,093 (3%) lower than the
three months ended March 31, 1996.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
The average number of shares outstanding during 1997 was 1,641,233 vs. 1,378,132
in 1996. Partly because of the greater number of shares outstanding, the net
income per share decreased from $.15 in 1996 to $.13 in 1997. If this figure is
analyzed using flow of funds - that is net income plus depreciation expense -
then the amount in 1997 was $.20 per share vs. $.22 per share in 1996.
During the quarter ended March 31, 1997, the Company declared dividends totaling
$325,906, compared to dividends of $245,932 declared for the quarter ended March
31, 1996. Cash basis income for the quarter ended March 31, 1996 was $324,203.
This was derived by adding depreciation and amortization expense to net income.
Thus, cash distributions this quarter were $1,703 greater than cash basis net
income. In comparison, distributions in the first quarter 1996 were $59,635
less than cash basis income of $305,567. In either event, the Company continued
to qualify as a REIT in 1997, and liquidity of the Company continues to be
strong.
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
- 8-K filed on March 18, 1997 resulting from the purchase of the
Irvine, California property on January 17, 1997.
<PAGE>
WEST COAST REALTY INVESTORS, INC.
S I G N A T U R E S
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WEST COAST REALTY INVESTORS, INC.
(Registrant)
May 14, 1997 By: WEST COAST REALTY ADVISORS, INC.
A California Corporation,
Advisor
Neal E. Nakagiri
Director and Executive Vice President / Secretary
May 14, 1997
Michael G. Clark
Vice President / Treasurer
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