.SUPPLEMENT NO. 3 TO PROSPECTUS DATED MAY 1, 1997.
This supplement ("Supplement") to the Prospectus ("Prospectus") updates the
Prospectus of West Coast Realty Investors, Inc. (the "Company") dated May 1,
1997. This Supplement is part of and must accompany the Prospectus. The date
of this supplement is July 21, 1997.
This Supplement amends and supersedes the corresponding sections of the
Prospectus, and Supplements 1 and 2 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. 3 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 Cover Page and pages 1, 4, 8 ("Prior
Experience in Raising Funds"), and 68 ("Plan of Distribution") of the
Prospectus
As of July 21, 1997, the Company has sold 542,360 Shares ($5,418,419) in this
offering.
The following supplement page 21 of the Prospectus ("Use of Initial Capital").
The Company intends to use the net proceeds of this offering, which will be not
less than a minimum $4,768,000 as of July 21, 1997, and a maximum $13,300,000
for the purchase of Properties, for the payment of Acquisition Fees, and for
the establishment of appropriate reserves. See "Estimated Use of Proceeds."
The following supplements page 23("Dividends") and page 45 ("Liquidity and
Capital Resources") of the Prospectus.
The Company waived a portion of its Advisory Fees from January 1, 1997 to March
31, 1997. The amount waived was $26,043. The effect of this was to increase
Dividends approximately $.01 to $.02 per Share for the quarter ended March 31,
1997.
The following supplements the "Dividends" portion of INVESTMENT OBJECTIVES AND
POLICIES section of the Prospectus, beginning on page 23, and continuing to page
24.
Dividends totaling $325,906 were paid on April 15, 1997, for shareholders of
record on January 1, February 1, and March 1, 1997. Dividends totaling
$362,441 were paid on July 15, 1997 for shareholders of record on April 1,
May 1, and June 1, 1997.
<PAGE>
Approximately 37% of these dividends constituted a return of capital. The
dividend payments are summarized below:
Record Date Per Outstanding Total
Date Paid Share Shares Dividend
- ------ ------- ------- ------------ -----------
01/01/97 4/15/97 $0.0666 1,550,607 $ 103,270
02/01/97 4/15/97 0.0666 1,671,442 111,318
03/01/97 4/15/97 0.0666 1,671,442 111,318
04/01/97 7/15/97 0.0666 1,810,916 120,607
05/01/97 7/15/97 0.0666 1,815,579 120,917
06/01/97 7/15/97 0.0666 1,815,579 120,917
The following supplements or amends the "REAL PROPERTY INVESTMENTS " Section of
the Prospectus, beginning on page 29.
OPTO-22 PROPERTY
The existing lease on the OPTO-22 building expired on April 30, 1997. Thirty
days previous to the lease expiration date, the Company gave the tenant, OPTO-
22, a legal notice of such lease termination. Notwithstanding such notice, the
sub-tenant of the tenant, Claremont School, failed to vacate the premises and
is still in occupancy. In fact, Claremont School filed for protection under
Chapter 11 Bankruptcy. OPTO-22 is pursuing the eviction of Claremont through
the Federal Bankruptcy and California State Courts, and until Claremont is
ordered to vacate the premises, OPTO-22 continues to be liable to the Company
for the payment of rent. In addition, OPTO-22 is liable to the Company for
reimbursement of its legal fees in connection with its effort to gain
possession of the premises from OPTO-22 (and Claremont) as well as its
obligation to restore the premises to the condition existing when the
property was originally leased in 1987 (normal wear and tear expected) and
for the removal of any interior additions to the building not desired by
Company's management.
The following supplements or amends the "REAL PROPERTY INVESTMENTS " Section
of the Prospectus, beginning on page 31.
NORTH PALM STREET PROPERTY
As of July 21, 1997, the Company ("Seller") is negotiating the sale of the
North Palm Street Property to a unrelated buyer. The sale was unsolicited and
is partially contingent on the Seller utilizing the Internal Revenue Service
Code Section 1031 to facilitate a tax free exchange. However, if the Seller
does not locate an exchange property by October 31, 1997, the Buyer may close
escrow with no Section 1031 tax free exchange requirement. The total sales
price is $2,515,860 in cash. The Seller must pay off the existing lender of
the first deed of trust which as of June 30, 1997 totaled $975,309.
Additionally, the Buyer has agreed to contribute an additional $15,000 to
prepay the mortgage loan.
Pro forma financial statements do not reflect the affects of the possible sale
due to the uncertainties regarding the date the transaction will take place,
and the uncertainties of a possible tax free exchange.
<PAGE>
The following supplements or amends the "REAL PROPERTY INVESTMENTS " Section
of the Prospectus, beginning on page 40.
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 late August or early September 1997, the Company intends on acquiring
the investment described below (the "Roseville Property" or the "Property").
The funds to acquire the Roseville will result from the Section 1031 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.
Description. The Roseville Property is currently under construction, and
an official address has not yet been assigned to the Property. Construction
is expected to be completed by August 15, 1997, with the Company taking
ownership of the Property two to three weeks later when an occupancy permit
is issued. The Property is located at the corner of Stanford Ranch Road and
Fairway Drive in Roseville, California. Roseville is a city of 59,700
residents (1997 Sacramento Area Council of Governments estimate) 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 will be 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.
<PAGE>
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 the
lease were to commence September 1, 1997, the lease payments on a calendar
year basis are noted below:
1997 $ 57,333
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.
Property Operations. 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).
Terms of Purchase. 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.
General. The computation of depreciation for the Roseville Property
will be based on the cost of the property, including Acquisition Fees and
Expenses. The allocation of the cost of the Property to various asset
categories will be estimated, based on allocations in the appraisal report.
Depreciation will be computed on a straight-line basis over the component
useful life of the assets.
Due to significant contingencies that still exist in connection with the
transaction, pro forma financial results of the Company are not available at
this time.
<PAGE>
The following supplements or amends the "MANAGEMENT'S DISCUSSION OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS" Section of the Prospectus, beginning on
page 41.
As of July 21, 1997, the Company has raised $14,462,708 in capital from prior
offerings and $5,418,419 from the current offering. An additional $317,333
has been raised in the current offering for sales between June 24, 1997 and
July 21, 1997; these funds are expected to be released from escrow in to
October, 1997.
RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE
MONTHS ENDED MARCH 31, 1996
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.
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.
<PAGE>
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.
The following supplements the "Liquidity and Capital Resources" section on Page
45.
Fees paid to the Advisor and the Property Manager for the three months ended
March 31, 1997 are as follows:
Advisor--$426,384
Property Manager --$29,489
The following supplements or amends the "ERISA CONSIDERATIONS" and "DESCRIPTION
OF COMMON STOCK" sections on pages 62 and 63 of the Prospectus.
As of July 21, 1997, there are 1,826,924 Shares of the Company outstanding,
held by approximately 950 Shareholders. In addition, $317,333 in gross proceeds
has been raised from the sale of 31,733 shares in the current offering to twelve
investors between June 24 and July 21, 1997; these funds have been deposited
into an escrow account, and shares are expected to be issued in October 1997.
<PAGE>
The following amends the Index to Financial Statements on p. 78.
West Coast Realty Investors
Unaudited Financial Statements
Balance Sheet as of December 31, 1996 and March 31, 1997................F-33
Statements Of Income for the three months ended March 31,1997 and 1996..F-34
Statements of Stockholders' Equity for the three months ended March 31,
1997 and 1996...........................................................F-35
Statement of Cash Flows for the three months ended March 31, 1997 and
1996....................................................................F-36
Summary of Accounting Policies..........................................F-37
Notes to Financial Statements...........................................F-38
West Coast Realty Investors, Inc.
Pro Forma Statement of Income for the three months ended March 31,1997..F-47
Notes to Pro Forma Financial Statement for the three months ended
March 31, 1997 .........................................................F-48
<PAGE>
<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' EQUITY $26,946,535 $23,571,838
</TABLE>
[FN]
See accompanying notes to financial statements.
F-33
<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.
F-34
<PAGE>
<TABLE>
WEST COAST REALTY INVESTORS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 1997
(UNAUDITED)
<CAPTION>
COMMON STOCK ADDITIONAL
SHARES AMOUNT PAID-IN 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)
COMMON STOCK ADDITIONAL
SHARES AMOUNT PAID-IN 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.
F-35
<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.
F-36
<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.
F-37
<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.
F-38
<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
F-39
<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
F-40
<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.
F-41
<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
F-42
<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
F-43
<PAGE>
WEST COAST REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996 (UNAUDITED) AND DECEMBER 31, 1996
(Continued)
MARCH 31, DECEMBER 31,
1997 1996
NOTE 6 - NOTES PAYABLE (CONT.)
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
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
F-44
<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 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.
The aggregate annual future maturities at March 31, 1997 and December 31, 1996
are as follows:
YEAR 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.
F-45
<PAGE>
WEST COAST REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1997 AND 1996 (UNAUDITED) AND DECEMBER 31, 1996
NOTE 8 - NET INCOME AND DIVIDENDS PER SHARE (CONT.)
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
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.
F-46
<PAGE>
<TABLE>
WEST COAST REALTY INVESTORS, INC.
PRO FORMA STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1997
INTRODUCTION
The following unaudited pro forma financial statement is presented to
illustrate the acquisition of the Tycom Property 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 occupied by their respective tenants
on January 1, 1997 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>
HISTORICAL TYCOM ADJUST- PRO
MARCH (I) MENTS FORMA
31, 1997 (NOTE 1) CONDENSED
MARCH 31,
1997
<S> <C> <C> <C> <C>
REVENUE:
Rental 729,886 25,754 (a) 755,640
Interest 10,375 (7,400) (b) 2,975
740,261 18,354 758,615
EXPENSES:
Operating 93,467 19,800 773 (c) 94,240
(19,800) (e)
Interest 244,147 12,240 (d) 256,387
Depreciation and amortization 119,465 119,465
General and administrative 78,444 --- --- 78,444
535,523 19,800 (6,787) 548,536
Net income $204,738 $(19,800) 25,141 210,079
Net income per share $.13 $.14
Weighted Average Shares Used Weighted Average Shares Used for Pro
for Historical Calculation 1,641,233 Forma Calculation 1,641,233
</TABLE>
[FN]
(I) Period January 12, 1996 to December 17, 1996 (audited)
F-47
<PAGE>
WEST COAST REALTY INVESTORS, INC.
NOTES TO PRO FORMA FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(UNAUDITED)
1. BASIS OF PRESENTATION
The pro forma statements of income reflect operations for the Company
assuming that the Tycom Property was acquired on January 1, 1997.
This statement contains certain adjustments which are expected to be
incurred in those properties' first year of operations, with a full
three month's worth of operations reflected in the Statement of Income for
the three months ended March 31, 1997.
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:
(a) To reflect additional rental income for the Tycom Property, so that a
full three months are recognized.
(b) To eliminate interest income to reflect funds used for the acquisition
of Tycom.
(c) To reflect additional property management fees for three months based
on the first year of the lease on the Tycom property.
(d) To reflect added interest expense for the quarter for the Tycom property
based on the first year of payments under the projected amortization schedule
for the Tycom Property loan.
(e) To eliminate operating expenses incurred by previous owner of Tycom
Property in 1996 since the Company will be operating the Property on a triple
net basis.
F-48
