FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 (Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 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)
CALIFORNIA 95-4246740
(State or other Jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5933 W. CENTURY BLVD., 9TH, FLOOR
LOS ANGELES, CALIFORNIA 90045
(Address of principal executive offices)
(Zip Code)
(310) 670-0800
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
APPLICABLE ONLY TO CORPORATE ISSUERS:
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES
OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE. 2,147,525 SHARES
OUTSTANDING AS OF NOVEMBER 7, 1997.
<PAGE>
<TABLE>
WEST COAST REALTY INVESTORS, INC.
ITEM 1. FINANCIAL STATEMENTS
In the opinion of the Management of West Coast Realty Investors, Inc. (the
"Company"), all adjustments necessary for a fair presentation of the Company's
results for the three and nine months ended September 30, 1997 and 1996, have
been made in the following financial statements which are normal and recurring
in nature. However, such financial statements are unaudited and are subject to
any year-end adjustments that may be necessary.
BALANCE SHEETS
SEPTEMBER 30, 1997 (UNAUDITED) AND DECEMBER 31, 1996
<CAPTION>
SEPTEMBER 30, December 31,
1997 1996
<S> <C> <C>
ASSETS
Rental real estate, less accumulated
depreciation (Note 2) $25,676,713 $21,118,203
Cash and cash equivalents 2,882,215 2,017,194
Accounts receivable 404,203 247,948
Loan origination fees, net of accumulated
amortization of $49,872 and $40,248 122,335 102,622
Other assets 44,869 85,871
TOTAL ASSETS $29,130,335 $23,571,838
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Accounts payable $11,322 $13,922
Due to related party (Note 5(e)) 80,557 46,285
Dividends payable (Note 8) 383,236 302,760
Security deposits and prepaid rent 137,392 124,734
Other liabilities 137,484 100,453
Notes payable (Note 6) 12,228,139 10,078,793
TOTAL LIABILITIES 12,978,130 10,666,947
COMMITMENTS
STOCKHOLDERS' EQUITY
Common stock, $.01 par-shares authorized,
5,000,000 shares issued, 1,968,144 and
1,550,607 outstanding in 1997 and 1996 19,681 15,506
Additional paid-in capital 17,609,705 13,861,763
Retained earnings (1,477,181) (972,378)
TOTAL STOCKHOLDERS' EQUITY 16,152,205 12,904,891
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $29,130,335 $23,571,838
</TABLE>
[FN]
See accompanying notes to financial statements.
<PAGE>
<TABLE>
WEST COAST REALTY INVESTORS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)
<CAPTION>
COMMON STOCK ADDITIONAL PAID-IN
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 417,537 4,175 3,659,200 ---
Equity contribution by Affiliates
through expense reimbursements --- --- 88,742 ---
Net income --- --- --- 567,017
Dividends declared (Note 8) --- --- --- (1,071,820)
BALANCE AT SEPTEMBER 30, 1997 1,968,144 $19,681 $17,609,705 $(1,477,181)
NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
<CAPTION>
COMMON STOCK ADDITIONAL PAID-IN
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 178,342 1,783 1,584,406 ---
Equity contribution by Affiliates
through expense reimbursements --- --- 20,912 ---
Net income --- --- --- 556,807
Dividends declared (Note 8) --- --- --- (825,059)
BALANCE AT SEPTEMBER 30, 1996 1,500,746 $15,007 $13,376,348 $(817,669)
</TABLE>
[FN]
See accompanying notes to financial statements.
<PAGE>
<TABLE>
WEST COAST REALTY INVESTORS, INC.
STATEMENTS OF INCOME
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
<CAPTION>
THREE THREE NINE NINE
MONTHS MONTHS MONTHS MONTHS
ENDED ENDED ENDED ENDED
SEPTEMBER SEPTEMBER SEPTEMBER SEPTEMBER
30, 1997 30, 1996 30, 1997 30, 1996
<S> <C> <C> <C> <C>
REVENUES:
Rental $735,057 $618,081 $2,182,869 $1,772,462
Interest 37,605 19,974 70,558 70,564
772,662 638,055 2,253,427 1,843,026
COSTS AND EXPENSES:
Operating 43,076 40,405 110,772 83,061
Property taxes 27,722 18,528 83,167 55,927
Property management fees
-related party (Note 5 (d)) 27,581 27,015 83,384 78,213
Interest 282,835 220,188 802,547 639,327
General and administrative 86,767 61,476 247,656 141,454
Depreciation and amortization 119,954 98,764 358,884 288,237
587,935 466,376 1,686,410 1,286,219
NET INCOME $184,727 $171,679 $567,017 $556,807
NET INCOME PER SHARE (NOTE 8) $.10 $.12 $.32 $.39
</TABLE>
[FN]
See accompanying notes to financial statements.
<PAGE>
<TABLE>
WEST COAST REALTY INVESTORS, INC.
STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
<CAPTION>
NINE MONTHS Nine Months
ENDED Ended
INCREASE (DECREASE) IN CASH AND CASH SEPTEMBER September
EQUIVALENTS 30, 1997 30, 1996
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $567,017 $556,807
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 349,260 288,237
Interest expense on amortization of loan
origination fees 9,624 ---
Increase (decrease) from changes in:
Accounts receivable (156,255) (109,016)
Other assets 41,002 119
Accounts payable (2,600) (78,462)
Due to related party 34,272 ---
Security deposits and prepaid rent 12,658 (16,443)
Other liabilities 37,031 ---
NET CASH PROVIDED BY OPERATING ACTIVITIES 892,009 641,242
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to rental real estate (4,907,441) (1,828,500)
NET CASH (USED IN) INVESTING ACTIVITIES (4,907,441) (1,828,500)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock, net 3,544,372 1,579,005
Equity contribution by Affiliates through
expense reimbursements 88,742 20,912
Dividends declared and paid (931,344) (773,302)
Proceeds from notes payable 2,312,500 724,465
Payments on notes payable (163,154) (133,910)
Increase in loan origination fees 29,337 ---
NET CASH PROVIDED BY FINANCING ACTIVITIES 4,880,453 1,417,170
NET INCREASE IN CASH AND CASH EQUIVALENTS 865,021 229,912
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 2,017,194 1,450,022
CASH AND CASH EQUIVALENTS, END OF PERIOD $2,882,215 $1,679,934
</TABLE>
[FN]
See accompanying notes to financial statements.
<PAGE>
WEST COAST REALTY INVESTORS, INC.
SUMMARY OF ACCOUNTING POLICIES
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
AND DECEMBER 31, 1996
BASIS OF PRESENTATION
The accompanying balance sheet as of September 30, 1997, the income statements
and statements of cash flow for the nine months periods ended September 30,
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 nine month period ended September
30, 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 Code. The Company has complied with all requirements imposed
on REIT's for 1996 and 1995 tax years; however, qualification as a REIT for
future years is dependent upon future operations of the Company. The Company
was organized to acquire interests in income-producing residential,
industrial, retail or commercial properties located primarily in California
and the west coast of the United States. The Company intends to acquire
property for cash on a moderately leveraged basis with aggregate mortgage
indebtedness not to exceed fifty percent of the purchase price of all
properties on a combined basis, or eighty percent individually and intends
to own and operate such properties for investment over an anticipated holding
period of five to ten years.
RENTAL PROPERTIES AND DEPRECIATION
Assets are stated at lower of cost or net realizable value. Depreciation is
computed using the straight-line method over their estimated useful lives of
31.5 to 39 years for financial and income tax reporting purposes.
In the event that facts and circumstances indicate that the cost of an asset
may be impaired, an evaluation of recoverability would be performed. If an
evaluation is required, the estimated future undiscounted cash flows
associated with the asset would be compared to the carrying amount to
determine if a write-down to market value is required.
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 income is recognized on a straight-line basis to the extent that rental
income is deemed collectable. Where there is uncertainty of collecting higher
scheduled rental amounts, due to the tendency of tenants to renegotiate their
leases for lower amounts, rental income is recognized as the amounts are
collected.
CASH AND CASH EQUIVALENTS
The Company considers cash in the bank, liquid money market funds, and all
highly liquid certificates of deposits, with original maturities of three
months or less, to be cash and cash equivalents.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
RECLASSIFICATIONS
For comparative purposes, certain prior year amounts have been reclassified
to conform to the current year presentation.
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 AND NINE MONTHS ENDED SEPTEMBER 30, 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 September 30, 1997 the Company has raised $19,650,602
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 AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
AND DECEMBER 31, 1996 (Continued)
NOTE 2 - RENTAL PROPERTIES (CONTINUED)
The major categories of property are:
SEPTEMBER 30, 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 1,163,879 814,948
Net rental properties $ 25,676,713 $ 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:
SEPTEMBER 30, 1997 DECEMBER 31, 1996
Deposits and prepaid expenses $44,869 $85,871
Organization costs 14,330 14,330
59,199 100,201
Less accumulated amortization 14,330 14,330
Net other assets $44,869 $85,871
<PAGE>
WEST COAST REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (UNAUDITED)
AND DECEMBER 31, 1996 (Continued)
NOTE 4 - FUTURE MINIMUM RENTAL INCOME
As of September 30, 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:
SEPTEMBER 30, 1997 DECEMBER 31,1996
1997 ........................ $763,725 $2,123,959
1998 ........................ 1,839,402 2,037,591
1999 ........................ 1,845,801 1,976,664
2000 ........................ 1,863,450 1,864,724
2001 ........................ 1,751,311 1,771,212
Thereafter .................. 15,193,805 15,255,711
Total $23,257,494 $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 AND NINE MONTHS ENDED SEPTEMBER 30, 1997, AND 1996 (UNAUDITED)
AND DECEMBER 31, 1996 (Continued)
During the periods presented, the Company had the following related party
transactions:
(a) In accordance with the advisory agreement, compensation earned by, or
services reimbursed or reimbursable to the advisor, consisted of the
following:
NINE MONTHS ENDED FOR THE YEAR
SEPTEMBER 30, 1997 ENDED
DECEMBER 31, 1996
Syndication fees $482,307 $82,864
Acquisition fees 270,384 78,177
Overhead expenses 18,000 12,000
$770,691 $173,041
(b) At September 30, 1997 and December 31, 1996, 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 $310,421 for the nine months ended September 30, 1997
and $119,083 for the nine months ended September 30, 1996.
(d) Property management fees earned by WCRM totaled $27,581 and $27,015
for the three months ended September 30, 1997 and 1996,
respectively. For the nine months ended September 30, 1997 and
1996, WCRM earned $83,384 and $78,213, respectively in property
management fees.
(e) The Corporation had related party accounts payable as follows:
SEPTEMBER 30, 1997 DECEMBER 31, 1996
Associated Securities Corp. $ 4,156 $ 396
West Coast Realty Management 19,249 24,839
West Coast Realty Advisors 57,152 21,050
$80,557 $46,285
(f) A financing fee of $23,125 was paid in August 1997 in connection
with the refinancing of the note payable on the Tycom property
(Note 6).
<PAGE>
WEST COAST REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997, AND 1996 (UNAUDITED)
AND DECEMBER 31, 1996 (Continued)
NOTE 6 - NOTES PAYABLE
Notes payable are made up of the following:
SEPTEMBER 30, 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 ........... $ 619,366 $ 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
September 30, 1997), and may never go below 6.5%
or above 11.0%, monthly principal and interest
payments are $12,723, due October 1, 2003 ........... 1,693,720 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 ........... 559,684 569,132
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 .. 1,169,786 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 ........................ 972,345 981,338
<PAGE>
WEST COAST REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997, AND 1996 (UNAUDITED)
AND DECEMBER 31, 1996 (Continued)
NOTE 6 - NOTES PAYABLE (CONT.)
SEPTEMBER 30, 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 ....................................... $2,091,431 $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 .............................. 2,103,427 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............... 330,971 336,272
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...................... 377,482 382,277
Variable rate promissory note secured by a Deed of Trust
on the Tycom Property, interest rate is 1.90% over the
3 month LIBOR with right to convert after first year; The
conversion margin would be 1.90% over selected Treasury
Rate for the 10 year loan term, monthly principal and interest
payments vary depending upon interest rates and are
currently $17,469 due July 31, 2007................ 2,309,927 ---
$12,228,139 $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 AND NINE MONTHS ENDED SEPTEMBER 30, 1997, AND 1996 (UNAUDITED)
AND DECEMBER 31, 1996 (Continued)
The aggregate annual future maturities at September 30, 1997 and December 31,
1996 are as follows:
YEAR ENDING SEPTEMBER 30, 1997 DECEMBER 31, 1997
1997 $60,032 $210,322
1998 239,183 228,391
1999 259,579 248,287
2000 281,228 269,435
2001 594,384 582,090
Thereafter 10,793,733 8,540,268
Total $12,228,139 $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 nine months ended September 30, 1997 and 1996 was
computed using the weighted average number of outstanding shares of 1,764,404
and 1,430,333, respectively.
Dividends declared during the first nine months 1997 and 1996 were as follows:
OUTSTANDING AMOUNT TOTAL
RECORD DATE SHARES PER UNIT 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
April 1, 1997 1,810,916 0.0666 120,607
May 1, 1997 1,815,579 0.0666 120,917
June 1, 1997 1,815,579 0.0666 120,917
July 1, 1997 1,815,579 0.0666 120,917
August 1, 1997 1,974,144 0.0666 131,478
September 1, 1997 1,968,144 0.0666 131,078
TOTAL $1,071,820
<PAGE>
WEST COAST REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997, AND 1996 (UNAUDITED)
AND DECEMBER 31, 1996 (Continued)
NOTE 8 - NET INCOME AND DIVIDENDS PER SHARE (CONT.)
OUTSTANDING AMOUNT TOTAL
RECORD DATE SHARES PER UNIT DIVIDEND
January 1, 1996 1,325,404 0.0600 $79,524
February 1, 1996 1,371,794 0.0600 82,308
March 1, 1996 1,401,664 0.0600 84,100
April 1, 1996 1,413,736 0.0666 94,155
May 1, 1996 1,445,236 0.0666 96,253
June 1, 1996 1,448,836 0.0666 96,492
July 1, 1996 1,448,836 0.0666 96,492
August 1, 1996 1,448,836 0.0666 96,492
September 1, 1996 1,498,246 0.0666 99,783
TOTAL $825,599
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 EVENTS
(a) In October 1997, the Company paid dividends totaling $383,474 ($0.0666
per share per period), payable to shareholders of record on July 1, August 1,
and September 1, 1997, respectively (Note 8).
(b) On October 3, and October 10, 1997, a total of $1,775,984 in proceeds
from the sale of shares in the Company's current offering was released from
an escrow account, and 178,105 shares were issued to investors.
<PAGE>
WEST COAST REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997, AND 1996 (UNAUDITED)
AND DECEMBER 31, 1996 (Continued)
NOTE 10 - SUBSEQUENT EVENTS (CONT.)
(c) On October 31, 1997, the Company ("Seller") sold the North Palm Street
Property to a unrelated buyer. The offer to purchase the property was
unsolicited and was partially contingent on the Seller utilizing the Internal
Revenue Service Code Section S1031 to facilitate a tax free exchange. The
total sales price is $2,515,860 in cash. The Seller paid off the existing
lender of the first deed of trust which as of September 30, 1997 totaled
$975,309. Additionally, the Buyer agreed to contribute an additional
$15,000 to prepay the mortgage loan.
(d) In early November 1997, the Company intends on acquiring an investment
known as the Roseville Property. The funds to acquire the Roseville will
result from the Section S1031 tax free exchange of the Brea property (as
described above), plus additional proceeds resulting from the sale of the
Company's Shares in the current offering. No debt financing will be used in
connection with the Roseville acquisition. The Roseville Property has been
constructed, and the Company will be taking ownership of the Property two to
three weeks after the occupancy permit is issued. The property's tenant
intends on using the property as a sit-down, casual restaurant. Roseville
is a city located in the Sacramento region of Northern California.
<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 September 30, 1997, the Company had raised
$19,650,602 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 nine months ended September 30, 1997 the Company declared dividends
totaling $1,071,820, compared to the nine months ended September 30, 1996,
when the Company declared dividends totaling $825,059. Dividends are
determined by management based on cash flows and the liquidity position of
the Company. It is the intention of management to declare dividends, subject
to the maintenance of reasonable reserves.
During the nine months ended September 30, 1997 the Company raised an
additional $5,187,893 in net proceeds as the result of the sale of shares
from its fourth public offering. The Company 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
needs, based upon the above four points.
The first point refers to the risk of the Company's investments. At September
30, 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 nine months
ended September 30, 1997, notes payable pertaining to property acquisitions
by the Company increased $2,312,500 due to the purchase of an additional
income-producing property in January 1997, while cash used in principal
repayments of notes totaled $163,154. 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 2007. 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, which makes the properties easier to sell or refinance.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES (CONT.)
As to the second point, the Company's properties are in good condition without
significant deferred maintenance obligations and are leased through "triple-net"
leases, which reduces the Company's risk pertaining to excessive maintenance and
operating costs.
As to the third point, the Company was liquid at September 30, 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 September 30,
1997, the Company has allocated approximately $590,000 towards a "reserve" fund
(3% of gross funds raised, as disclosed in the Company's latest prospectus),
$383,000 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--$1,639,000-- expected to be invested in
future property acquisitions. The Company's operations generated $925,901 in
net operating cash flow in the nine months ending September 30, 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 - FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 VS. THE NINE MONTHS
ENDED SEPTEMBER 30, 1996
Cash resources increased $865,021 during the nine months ended September 30,
1997 compared to a $229,912 increase in cash resources for the nine months ended
September 30, 1996. Cash provided by operating activities increased by $892,009
with the largest contributor being $925,901 in cash basis net income for the
nine months ended September 30, 1997. In contrast, the nine months ended
September 30, 1996 provided $641,242 in cash from operating activities due
primarily to $845,044 in cash basis net income, offset by a $109,016 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), a
$78,462 decrease in accounts payable and accrued liabilities (attributable to a
decrease in normal trade payables), and $16,443 decrease in security deposits
and prepaid rents (due primarily to prepaid tenant rent received prior to
January 1, 1996 which was not received prior to October 1, 1996). The sole use
of cash in investing activities for the nine months ended September 30, 1997 was
$4,907,441 expended for the acquisition of an additional property located in
Irvine, California. In contrast, cash used in investing activities totaled
$1,828,500 for the nine months ended September 30, 1996, resulting from the
acquisition of the Sacramento (Java City) property in August 1996. For the nine
months ended September 30, 1997, financing activities provided an additional
$4,880,453 via the sale of additional shares in the Company ($3,544,372 in net
proceeds), and $2,312,500 in financing obtained in connection with the
acquisition of the additional property, less dividends paid and payable of
$931,344 and repayments on notes payable of $163,154. In contrast, the nine
months ended September 30, 1996, financing activities provided an additional
$1,417,170 via the sale of additional shares in the Company ($1,579,005 in net
proceeds), less dividends paid and payable of $773,302 and repayments of notes
payable of $133,910.
NEW ACCOUNTING PRONOUCNEMENTS
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 nine months ended September 30, 1997 represented a full nine
months of rental operations for all properties except Tycom which was owned for
eight and one-half months.
The net income for the nine months ended September 30, 1997 continued to be
significantly larger than the prior nine months 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 nine months ended September 30, 1997, and all
properties that have been purchased by the Company have operated at levels equal
to current expectations.
Rental revenue increased $410,407 (23.2%) due to a full nine months ownership of
the Java City property and eight and one-half months of the Tycom property (as
compared to no ownership of this property during the nine months ended September
30, 1996).
Operating expenses increased $27,711 (33%) primarily due to a increase in
property liability insurance, utilities and common area maintenance during the
nine months ended September 30, 1997 as compared to the nine months ended
September 30, 1996. Interest expense increased $163,220 (25.5%) 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
September 30, 1997). General and administrative costs increased $106,202 (75%),
much of this increase is due to $133,742 that the Advisor was paid during the
nine months ended September 30, 1997 due to the revised provisions of the
Advisor agreement. In contrast, the Advisor was paid $35,912 during the nine
months ended September 30, 1996 for Advisory fees in accordance to the revised
Advisor Agreement. Depreciation and amortization expense increased $163,219
(26%) as the result of the ownership of additional properties during 1997 as
compared to 1996. Net income of $567,017 for the nine months ended September
30, 1997 was $10,210 (2%) higher than the nine months ended September 30, 1996.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
RESULTS OF OPERATIONS (CONT.)
The average number of shares outstanding during 1997 was 1,764,404 vs. 1,430,333
in 1996. Partly because of the greater number of shares outstanding, the net
income per share decreased from $.39 in 1996 to $.32 in 1997. If this figure is
analyzed using flow of funds - that is net income plus depreciation expense,
plus adding advisory fee expense with was incurred in 1997 and not 1996 - then
the amount in 1997 was $.60 per share vs. $.62 per share in 1996.
During the nine months ended September 30, 1997, the Company declared dividends
totaling $1,071,820, compared to dividends of $825,059 declared for the nine
months ended September 30, 1996. Cash basis income for the nine months ended
September 30, 1997 was $925,901. This was derived by adding depreciation and
amortization expense to net income. Thus, cash distributions during the nine
months ended September 30, 1997 were $145,919 greater than cash basis net
income. In comparison, distributions in the first nine months of 1996 were
$19,985 less than cash basis income of $845,044. In either event, the Company
is expected 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.
PENDING PROPERTY LITIGATION
OPTO-22 PROPERTY
The existing lease on the OPTO-22 building expired on April 30, 1997. OPTO-22,
the tenant, and Claremont School, the sub-tenant, both vacated the premises on
September 10, 1997. West Coast Realty Investors, Inc. has settled with OPTO-22
for the amounts owed by OPTO-22 to West Coast Realty Investors, Inc. for rent
and for deferred maintenance. OPTO-22 has paid the amounts owed to West Coast
Realty Investors, Inc. in accordance with the terms and conditions of a
Settlement Agreement dated October 31, 1997 and the parties have released one
another from any further claims as provided in said agreement.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
PENDING PROPERTY AND FINANCING TRANSACTIONS
TYCOM PROPERTY
The Company is negotiating the refinancing of the existing short term promissory
note on the Tycom Property loan which matures on February 1, 1998. The terms of
the prospective lender of the new first deed of trust loan are as follows:
Lender: Union Bank of California, N.A.
Loan Amount: $2,312,500
Interest Rate: Variable Rate - margin is 1.9% over the 3 month LIBOR with right
to convert after the first year. The conversion margin would be 1.9%
over selected Treasury Rate for the selected loan term.
Loan Term: Ten year term
Amortization: Twenty-five years
Monthly Debt Service: $17,469
Other: Recourse is only to West Coast Realty Investors, Inc.; the Company
must maintain a minimum net worth of $5,000,000; loan fees and a majority
of the administrative expenses are being paid by the former owner from whom
the Company purchased the property.
ROSEVILLE PROPERTY
In early November 1997, the Company intends on acquiring the
investment described below (the "Roseville Property" or the "Property"). The
funds to acquire the Roseville Property will result from the Section S1031 tax
free exchange of the Brea property (as described above), plus additional
proceeds resulting from the sale of the Company's Shares in the current
offering. No debt financing will be used in connection with the Roseville
acquisition.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
PENDING PROPERTY TRANSACTIONS (CONT.)
ROSEVILLE PROPERTY (CONT.)
The Property is located in Roseville, California. Roseville is a located
in the Sacramento region of Northern California.
The property is located on a lot size of .87 acres (approximately 37,900
square feet). This site is part of a larger shopping center which includes well-
known retailers such as Costco, Toys 'R Us, Shell Gasoline, Ross Dress For Less,
and McDonald's Restaurants. The total lot size is approximately 8.66 acres
(378,000 square feet). There are 61 parking spaces assigned to this site, with
the property also enjoying the use of hundreds of other parking spaces located
within the larger shopping center. The building size is expected to total 5,133
square feet.
The sole tenant of the Property is an Applebee's Restaurant. Applebee's is
a well-known, national franchise of sit-down casual restaurants. This
particular Applebee's is being developed by, and acquired from, Christian Knox
(an individual and unrelated third party), and the restaurant franchise will be
owned and operated by him in a sale-leaseback arrangement. Mr. Knox has seven
Applebees and nine Burger King franchises, as evidence of his experience in this
industry.
The lease on the property will commence upon the concurrent issuance of the
Certificate of Occupancy and transfer of the Property to the Company. The lease
is a 20 year triple net lease, including provisions for collection of common
area charges that will be assessed by the shopping center owner. Lease payments
are initially $14,333.33 per month ($172,000 per year) with rental increases
scheduled every five years at the rate of 12 /%. Assuming ownership were to
commence November 1, 1997, the lease payments on a calendar year basis are noted
below:
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
PENDING PROPERTY TRANSACTIONS (CONT.)
ROSEVILLE PROPERTY (CONT.)
1997 $ 28,667
1998-2001 172,000
2002 179,167
2003-2006 193,500
2007 201,563
2008-2011 217,688
2012 226,758
2013-2016 244,898
2017 (through September 1) 163,266
Mr. Knox has personally guaranteed the lease and has provided documentation
demonstrating a personal net worth in excess of $10 million.
The Roseville Property will be managed by West Coast Realty Management,
Inc. ("WCRM"), an affiliate of the Company. WCRM will charge the Company 3% of
the gross rents collected as a management fee for managing the Property, as
allowed by the Property Management Agreement. Although the tenant will be
obligated to pay property taxes, property tax in the first full year of
operations is estimated to be $20,000 (approximately 1% of the sales price).
Total consideration expected to be paid by the Company for the Roseville
property is $2,067,000. This cost is expected to include the $1,950,000 sales
price payable to the Seller/Operator, $7,000 in estimated legal, appraisal, and
closing costs, and a $110,000 Acquisition Fee payable to the Advisor. In
addition, a yet undetermined amount is expected to be received from the
Seller/Operator as a security deposit. The sale is expected to be paid for from
approximately $1,500,000 received from the disposition of the Brea property (as
described above), with the balance (approximately $567,000) from the proceeds
resulting from the sale of the Company's shares in the current offering.
The purchase price was arrived at through arms-length negotiations with the
Seller/Operator.
<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
- 8K filed on March 18, 1997 resulting from the acquisition 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)
November 11, 1997 By: WEST COAST REALTY ADVISORS, INC.
A California Corporation,
Advisor
Neal E. Nakagiri
Vice President / Secretary
November 11, 1997
Michael G. Clark
Vice President / Treasurer
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<NAME> WEST COAST REALTY INVESTORS, INC.
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
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