<PAGE>
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 JUNE 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. 1,974,144 SHARES OUTSTANDING
AS OF AUGUST 12, 1997.
<PAGE>
<TABLE>
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 six months ended June 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.
WEST COAST REALTY INVESTORS, INC.
BALANCE SHEETS
JUNE 30, 1997 (UNAUDITED) AND DECEMBER 31, 1996
<CAPTION>
June 30, December 31,
1997 1996
<S> <C> <C>
ASSETS
Rental real estate, less accumulated
depreciation (Note 2) $25,793,024 $21,118,203
Cash and cash equivalents 1,756,814 2,017,194
Accounts receivable 328,600 247,948
Loan origination fees, net of accumulated
amortization of $46,339 and $40,248 96,532 102,622
Other assets 37,888 85,871
TOTAL ASSETS $28,012,858 $23,571,838
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Accounts payable $32,946 $13,922
Due to related party (Note 5(e)) 70,551 46,285
Dividends payable (Note 8) 302,205 302,760
Security deposits and prepaid rent 186,939 124,734
Other liabilities 93,542 100,453
Notes payable (Note 6) 12,272,173 10,078,793
TOTAL LIABILITIES 13,018,356 10,666,947
COMMITMENTS
STOCKHOLDERS' EQUITY
Common stock, $.01 par-shares authorized,
5,000,000 shares issued, 1,823,887 and
1,550,607 outstanding in 1997 and 1996 18,239 15,506
Additional paid-in capital 16,254,698 13,861,763
Retained earnings (1,278,435) (972,378)
TOTAL STOCKHOLDERS' EQUITY 14,994,502 12,904,891
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $28,012,858 $23,571,838
</TABLE>
[FN]
See accompanying notes to financial statements.
<PAGE>
<TABLE>
WEST COAST REALTY INVESTORS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 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 273,280 2,733 2,337,366 ---
Equity contribution by Affiliates
through expense reimbursements --- --- 55,569 ---
Net income --- --- --- 382,291
Dividends declared (Note 8) --- --- --- (688,348)
BALANCE AT JUNE 30, 1997 1,823,887 $18,239 $16,254,698 $(1,278,435)
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1996
(UNAUDITED)
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 126,432 1,264 1,154,137 ---
Net income --- --- --- 385,127
Dividends declared (Note 8) --- --- --- (532,290)
BALANCE AT JUNE 30, 1996 1,448,836 $14,488 $12,925,167 $(696,580)
</TABLE>
[FN]
See accompanying notes to financial statements.
<PAGE>
<TABLE>
WEST COAST REALTY INVESTORS, INC.
STATEMENTS OF INCOME
THREE AND SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED)
<CAPTION>
THREE THREE SIX SIX
MONTHS MONTHS MONTHS MONTHS
ENDED ENDED ENDED ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
REVENUES:
Rental $717,926 $564,777 $1,447,812 $1,154,381
Interest 22,578 27,877 32,953 50,950
740,504 592,654 1,480,765 1,204,971
COSTS AND EXPENSES:
Operating 31,442 42,445 67,696 72,763
Property taxes 27,722 18,259 55,445 37,398
Property management
fees-related party(Note 5 (d)) 26,313 25,091 55,803 51,198
Interest 275,565 208,979 519,712 419,140
General and administrative 82,445 30,705 160,888 49,872
Depreciation and amortization 119,465 94,736 238,930 189,473
562,952 420,215 1,098,474 819,844
NET INCOME $177,552 $172,439 $382,291 $385,127
NET INCOME PER SHARE (NOTE 8) $.10 $.12 $.23 $.28
</TABLE>
[FN]
See accompanying notes to financial statements.
<PAGE>
<TABLE>
WEST COAST REALTY INVESTORS, INC.
STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (UNAUDITED)
<CAPTION>
SIX MONTHS Six Months
ENDED Ended
INCREASE (DECREASE) IN CASH AND CASH JUNE 30,1997 June 30,1996
EQUIVALENTS
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $382,291 $385,127
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 232,840 189,473
Interest expense on amortization of loan
origination fees 6,090 ---
Increase (decrease) from changes in:
Accounts receivable (80,652) (51,514)
Other assets 47,983 12,886
Accounts payable 19,024 (166,667)
Due to related party 24,266 ---
Security deposits and prepaid rent 62,205 (19,709)
Other liabilities (6,911) ---
NET CASH PROVIDED BY OPERATING ACTIVITIES 687,136 349,596
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 2,340,434 1,155,401
Equity contribution by Affiliates through
expense reimbursements 55,569 ---
Dividends declared and paid (629,458) (486,401)
Increase in notes payable 2,300,000 ---
Payments on notes payable (106,620) (85,883)
NET CASH PROVIDED BY FINANCING ACTIVITIES 3,959,925 583,117
NET (DECREASE) INCREASE IN CASH AND CASH (260,380) 932,713
EQUIVALENTS
CASH AND CASH EQUIVALENTS, BEGINNING OF 2,017,194 1,450,022
PERIOD
CASH AND CASH EQUIVALENTS, END OF PERIOD $1,756,814 $2,382,735
</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 June 30, 1997, the income statements and
statements of cash flow for the six months periods ended June 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 six month period ended June 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 Service Code. The Company has complied with all requirements
imposed on REIT's for 1997 and 1996 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 SIX MONTHS ENDED JUNE 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
June 30, 1997 the Company has raised $18,211,913 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 SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (UNAUDITED)
AND DECEMBER 31, 1996
NOTE 2 - RENTAL PROPERTIES (CONTINUED)
THE MAJOR CATEGORIES OF PROPERTY ARE:
JUNE 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 1,047,568 814,948
Net rental properties $ 25,793,024 $ 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:
JUNE 30, 1997 DECEMBER 31, 1996
Deposits and prepaid expenses $38,877 $86,640
Organization costs 14,330 14,330
53,207 100,970
Less accumulated amortization 15,319 15,099
Net other assets $37,888 $85,871
<PAGE>
WEST COAST REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (UNAUDITED)
AND DECEMBER 31, 1996
NOTE 4 - FUTURE MINIMUM RENTAL INCOME
As of June 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:
JUNE 30, 1997 DECEMBER 31,1996
1997 .................................. $1,079,798 $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 $28,462,030 $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 AND SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (UNAUDITED)
AND DECEMBER 31, 1996
NOTE 5 - RELATED PARTY TRANSACTIONS (CONT.)
During the periods presented, the Company had the following related party
transactions:
(a) In accordance with the advisory agreement, compensation earned by, or
services reimbursed or reimbursable to the advisor, consisted of the following:
SIX MONTHS ENDED FOR THE YEAR ENDED
JUNE 30, 1997 DECEMBER 31, 1996
Syndication fees $317,307 $82,864
Acquisition fees 270,384 78,177
Overhead expenses 12,000 12,000
$599,691 $173,041
(b) At June 30, 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 $198,374 for the six months ended June 30, 1997 and $84,496 for the six
months ended June 30, 1996.
(d) Property management fees earned by WCRM totaled $26,313 and $25,091
for the three months ended June 30, 1997 and 1996, respectively. For the six
months ended June 30, 1997 and 1996, WCRM earned $55,803 and $51,198,
respectively in property management fees.
(e) The Corporation had related party accounts payable as follows:
JUNE 30, 1997 DECEMBER 31, 1996
Associated Securities Corp. $ 2,182 $ 396
West Coast Realty Management 26,313 24,839
West Coast Realty Advisors 42,056 21,050
$70,551 $46,285
<PAGE>
WEST COAST REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (UNAUDITED)
AND DECEMBER 31, 1996
NOTE 6 - NOTES PAYABLE
NOTES PAYABLE ARE MADE UP OF THE FOLLOWING:
JUNE 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 .............. $ 622,177 $ 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
June 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 ............1,698,602 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 ............. 562,899 569,132
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 .. 1,172,067 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 ............................ 975,414 981,338
<PAGE>
WEST COAST REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (UNAUDITED)
AND DECEMBER 31, 1996
NOTE 6 - NOTES PAYABLE (CONT.)
JUNE 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 ............................................. $2,113,327 $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 ..................................... 2,115,660 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.................. 332,722 336,272
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........................ 379,305 382,277
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 ---
$12,272,173 $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 SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (UNAUDITED)
AND DECEMBER 31, 1996
NOTE 6 - NOTES PAYABLE (CONT.)
The aggregate annual future maturities at June 30, 1997 and December 31, 1996
are as follows:
YEAR ENDING JUNE 30, 1997 DECEMBER 31, 1996
1997 .................................. $103,702 $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 $12,272,173 $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 June 30, 1997 and 1996 was
computed using the weighted average number of outstanding shares of 1,698,025
and 1,385,908, respectively.
Dividends declared during the first six 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
TOTAL $688,347
<PAGE>
WEST COAST REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (UNAUDITED)
AND DECEMBER 31, 1996
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
TOTAL $532,832
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 July 1997, the Company paid dividends totaling $362,442 ($0.0666 per
share per period), payable to shareholders of record on April 1, May 1, and June
1, 1997, respectively (Note 8).
(b) On July 2, and July 16, 1997, a total of $1,463,808 in proceeds from the
sale of shares in the Company's current offering was released from an escrow
account, and 146,784 shares were issued to investors.
<PAGE>
WEST COAST REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED JUNE 30, 1997 AND 1996 (UNAUDITED)
AND DECEMBER 31, 1996
NOTE 10 - SUBSEQUENT EVENTS (CONT.)
(c) The Company ("Seller") is negotiating the sale of the North Palm Street
Property to a unrelated buyer. The offer to purchase the property was
unsolicited and is partially contingent on the Seller utilizing the Internal
Revenue Service Code Section S1031 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 S1031 tax free exchange requirement. The
total sales price is expected to be $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.
(d) In late August or early September 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 is
currently under construction with construction expected to be completed by
August 15, 1997, and the Company taking ownership of the Property two to three
weeks later when an 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 June 30, 1997, the Company had raised $18,211,913 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 six months ended June 30, 1997 the Company declared dividends
totaling $688,348, compared to the six months ended June 30, 1996, when the
Company declared dividends totaling $532,290. 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 six months ended June 30, 1997 the Company raised an additional
$3,858,229 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 June 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 six months ended June 30,
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 $106,620.
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 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 June 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 June 30, 1997, the
Company has allocated approximately $546,000 towards a "reserve" fund (3% of
gross funds raised, as disclosed in the Company's latest prospectus), $362,000
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--$579,000-- expected to be invested in future property
acquisitions. The Company's operations generated $621,221 in net operating cash
flow in the six months ending June 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 SIX MONTHS ENDED JUNE 30, 1997 VS. THE SIX MONTHS ENDED
JUNE 30, 1996
Cash resources decreased $260,380 during the six months ended June 30, 1997
compared to a $932,713 increase in cash resources for the six months ended June
30, 1996. Cash provided by operating activities increased by $687,136 with the
largest contributor being $621,221 in cash basis net income for the six months
ended June 30, 1997. In contrast, the six months ended June 30, 1996 provided
$349,596 in cash from operating activities due primarily to $574,600 in cash
basis net income, offset by a $166,667 decrease in accounts payable (primarily
due to a decrease in the amount of trade payables). The sole use of cash in
investing activities for the six months ended June 30, 1997 was $4,907,441
expended for the acquisition of an additional property located in Irvine,
California. In contrast, the six months ended June 30, 1996 did not have any
investing activities. For the six months ended June 30, 1997, financing
activities provided an additional $3,959,925 via the sale of additional shares
in the Company ($2,340,434 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 $629,458 and repayments on notes payable of
$106,620. In contrast, the six months ended June 30, 1996, financing activities
provided an additional $583,117 via the sale of additional shares in the Company
($1,155,401 in net proceeds), less dividends paid and payable of $486,401 and
repayments of notes payable of $85,883.
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 six months ended June 30, 1997 represented a full six months
of rental operations for all properties except Tycom which was owned for five
and one-half months.
The net income for the six months ended June 30, 1997 continued to be
significantly larger than the prior six 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 six months ended June 30, 1997, and all
properties that have been purchased by the Company have operated at levels equal
to current expectations.
Rental revenue increased $293,431 (25.4%) due to a full six months ownership of
the Java City property and five and one-half months of the Tycom property (as
compared to no ownership of these properties during the six months ended June
30, 1996). Interest income decreased $17,637 (34.9%) 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 decreased $5,067 (7%) primarily due to the reclassification
of general liability insurance from operating to general and administrative
expenses during the six months ended June 30, 1997 as compared to the six months
ended June 30, 1996. Interest expense increased $100,572 (24%) 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
June 30, 1997). General and administrative costs increased $111,016 (223%) due
to the reclassification of general liability insurance from operating expense to
general and administrative expense for the six months ended June 30, 1997 as
compared to the six months ended June 30, 1996. Additionally, much of this
increase is due to $85,569 that the Advisor was paid during the six months ended
June 30, 1997 due to the revised provisions of the Advisor agreement. No
advisor fees were earned during the six months ended June 30, 1996. Depreciation
and amortization expense increased $49,457 (26%) as the result of the ownership
of additional properties during 1997 as compared to 1996. Net income of
$382,291 for the six months ended June 30, 1997 was $2,836 (1%) lower than the
six months ended June 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 1,698,025 vs. 1,385,908
in 1996. Partly because of the greater number of shares outstanding, the net
income per share decreased from $.28 in 1996 to $.23 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 $.42 per share vs. $.41 per share in 1996.
During the six months ended June 30, 1997, the Company declared dividends
totaling $688,348, compared to dividends of $532,290 declared for the six months
ended June 30, 1996. Cash basis income for the six months ended June 30, 1997
was $621,221. This was derived by adding depreciation and amortization expense
to net income. Thus, cash distributions during the six months ended June 30,
1997 were $67,127 greater than cash basis net income. In comparison,
distributions in the first six months of 1996 were $42,310 less than cash basis
income of $574,600. 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.
PENDING PROPERTY LITIGATION
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.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
PENDING PROPERTY AND FINANCING TRANSACTIONS
NORTH PALM STREET PROPERTY
As of August 8, 1997, the Company ("Seller") is negotiating the sale of the
North Palm Street Property to a unrelated buyer. The offer to purchase the
property was unsolicited and is partially contingent on the Seller utilizing the
Internal Revenue Service Code Section S1031 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 S1031 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.
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 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 Roseville Property is currently under construction, and 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 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 will be 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 the lease were to
commence September 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 $ 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.
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)
August 12, 1997 By: WEST COAST REALTY ADVISORS, INC.
A California Corporation,
Advisor
Neal E. Nakagiri
Vice President / Secretary
August 12, 1997
Michael G. Clark
Vice President / Treasurer
<TABLE> <S> <C>
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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
<PERIOD-END> JUN-30-1997
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