WEST COAST REALTY INVESTORS INC, 10-K, 1997-03-31

WEST COAST REALTY INVESTORS INC
10-K, 1997-03-31
REAL ESTATE INVESTMENT TRUSTS

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]

FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996

OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER 0-24594

WEST COAST REALTY INVESTORS, INC.
(Exact name of registrant as specified in its charter)

DELAWARE 95-4246740
State or other jurisdiction of (IRS Employer
incorporation or organization Identification)

5933 WEST CENTURY BLVD., 9TH FLOOR, LOS ANGELES, CA 90045-5454
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (310) 670-0800

Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
NONE NONE

Securities registered pursuant to Section 12(g) of the Act:

SHARES OF COMMON STOCK $.01 PAR VALUE
(Title of class)

Indicate by check mark whether the registrant (1) has filed all reports 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

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this
Form 10-K [ ]

Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date: 1,675,442 shares outstanding,
as of March 1, 1997

1
<PAGE>

PART I

ITEM 1. BUSINESS

West Coast Realty Investors, Inc. (the "Company"), was organized in October
1989 under the laws of the State of Delaware. The Company is advised by West
Coast Realty Advisors, Inc. (the "Advisor"), a wholly-owned subsidiary of
Associated Financial Group, Inc. The Advisor will oversee the investments of
the Company, subject to the direction of the Company's Board of Directors.

The Company was organized for the purpose of investing in, holding, and
managing income-producing retail or commercial properties located primarily in
California and on the west coast of the United States. Properties have been and
will be acquired for cash or 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.

The Company's principal goals are to:

1. Invest in properties which will preserve and protect capital;
2. Provide shareholders with cash dividends, a portion of which will not
constitute taxable income;
3. Provide capital gains through potential appreciation of properties;
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.

On February 26, 1991, the Company acquired a 100% interest in a commercial
building located in Huntington Beach, California. On May 14, 1993, the Company
acquired a 100% interest in a two tenant commercial building located in Fresno,
California. On September 15, 1993, the Company acquired a 100% interest in a
light industrial/office building located in Huntington Beach, California. On
March 4, 1994, the Company acquired a 100% interest in a light industrial/office
building located in Brea, California. On November 29, 1994, the Company
acquired a 100% interest in a six-plex cinema complex in Riverside, California.
On May 22, 1995, the Company acquired a 100% interest in an office building
located in Tustin, California. On October 31, 1995, the Company acquired a 100%
interest in a light industrial building located in Fremont, California. On
August 2, 1996, the Company acquired 100% interest in two light industrial
buildings located in Sacramento, California.

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 real
property, competitive marketing conditions, zoning changes, possible casualty
losses, and increases in real estate taxes, assessments, and operating expenses,
as well as others.

<PAGE>

The Company is subject to competitive conditions that exist in the local
market where it operates rental real estate. These conditions are discussed in
Item 2: Properties.

In addition to specific competitive conditions, the Company is subject to the
usual competitive factors that are common in real estate including new
construction, changes in the economy, and vacancy factors at other rental real
estate locations.

The Company is operated by the Advisor, subject to the terms of the Amended
Advisory Agreement dated January 1, 1992, which was renewed until June 30, 1997
by a majority vote of the shareholders, and will thereafter be renewable
annually with the approval of a majority of the shareholders. The Company has
no employees, and all administrative services are provided by the Advisor.

ITEM 2. PROPERTIES

BLOCKBUSTER VIDEO BUILDING

On February 26, 1991, the Company purchased a commercial building, located in
Huntington Beach, California.

Constructed in 1991, the building is one-story, has a total of 5,200 rentable
square feet and is located on an 18,225 square foot parcel of land. The
building is 100% occupied by one tenant, Blockbuster Video, through 2001, on a
triple net lease. The tenant's lease calls for rental payments of $11,180 per
for the years one through five (1991-1995) and $13,416 per month for years six
through ten (1996-2000). This is equivalent to $2.15 and $2.58 per square foot,
respectively. This lease requires the tenant to pay insurance, taxes,
maintenance, and all other operating costs. During 1996, property taxes, paid
by the tenant as part of its lease, were approximately $18,000.

The Building was originally acquired for all cash in 1991 for a total
acquisition cost of $1,676,210. However, in February 1994, the Company financed
the Building by incurring mortgage debt secured by the Building for $600,000.
The loan is amortized over a twenty-five year period and is due in ten years.
The monthly payment is currently $4,934 per month with the interest rate set to
be adjusted at the end of the fifth year of the loan to 350 basis points above
the five-year Treasury Bond yield. The current rate is 8.25%.

The building and improvements are depreciated over 31.5 years using a
straight-line method for both financial and income tax reporting purposes. The
financial and income tax bases for the property are the same. In the opinion of
the General Partner, the property is adequately insured. The property is
managed by West Coast Realty Management, Inc. ("WCRM"), an affiliate of the
corporate General Partner.

The building is located in Orange County, California, which has maintained
one of the lowest unemployment rates in California, based on its stable base of
employers ranging from big businesses to smaller retailers. Management is aware
that future planned closures of military bases and aerospace firms could soften
the business environment in the Orange County area. The Advisor, however, does
not expect these economic factors to have a significant impact on the ability of
the tenant to meet its lease obligation.

<PAGE>

FRESNO VILLAGE SHOPPING CENTER BUILDING

On May 14, 1993, the Company purchased a free standing commercial building
located in a shopping center in Fresno, California.

Total consideration paid for the property was $1,414,893. Long-term
financing used to acquire the property was $665,000 and matures in August 1,
2003. Payments are made at the rate of 8.25% with a twenty-five year
amortization schedule. In 1998, the interest rate on the loan will adjust to
3.25% above the five-year Treasury Bond yield at that time.

The Fresno Property was a newly developed retail building (the "Fresno
Building") with construction completed in April 1993. The Fresno Building is
located at 1614 North Blackstone, Fresno, California. The Fresno Building is
located close to the center of Fresno, California on the northeast corner of
Blackstone and McKinley. Fresno is located in Central California. The Fresno
Building is located on a lot size of 23,855 square feet, with a building size of
8,915 square feet. The exterior of the Fresno Building consists of stucco and
glass construction.

The Fresno Building is 100% occupied by two tenants -- Wherehouse
Entertainment, Inc. ("The Wherehouse" - a music and video retailer), and RTO,
Inc. (which stands for "Rent To Own" - a home furnishing and appliance rental
company) (collectively "Tenants").

The building and improvements are depreciated over 39 years using a straight-
line method for both financial and income tax reporting purposes. The financial
and tax bases for the property are the same. In the opinion of the Advisor, the
property is adequately insured. The property is managed by WCRM.

As part of a larger neighborhood shopping center anchored by a major
department store, all of the tenants are dependent upon the vitality of the
consumer market in the general area. Although there are other shopping centers
in the area, being located in a densely populated area north of downtown Fresno,
and across the street from a large community college, the high daily traffic
count provides a large customer base for all the retail and service businesses
in the general area. Although all areas of Central California have been
affected by the economic slowdown, it is not expected to significantly impact
the occupancy of the Center.

The Wherehouse entered into a ten year lease which commenced April 1, 1993 and
was to continue through March 31, 2003. The Wherehouse occupies approximately
6,000 square feet of the Fresno Building.

Prior to the modification of The Wherehouse lease, as described below, monthly
rental payments were to be as follows:

April, 1993 to March, 1998; $7,680 per month
(1.28/sq.ft./month)
April, 1998 to March 2003; $8,820 per month
(1.41/sq.ft./month)

As possible additional rent, The Wherehouse was scheduled to pay the Company 3%
of gross sales after applying a formula that involves recapture of rent and
expenses that The Wherehouse would pay as a triple net lease tenant. There were
no amounts due on this additional rent through December, 1996.

4
<PAGE>

On August 2, 1995, The Wherehouse filed for protection under Chapter 11 of
the U.S. Bankruptcy Code. The Wherehouse continued to pay its rent under the
terms of the original lease through January 1997. In November 1996, the Company
and The Wherehouse agreed to the terms of a new lease, subject to the approval
of the Bankruptcy Court. Under the terms of the First Amendment to Lease (the
"Amendment") dated November 30, 1996, commencing February 1, 1997, The
Wherehouse's lease was converted from a "net" lease to a "gross" lease. At a
minimum, the Company will be paid rent of $54,000 per year ($4,500 per month)
until January 31, 1998 unless the Wherehouse exercises its one time option to
terminate the lease on March 31, 1998. If the lease is not terminated, the
Company will be paid $82,800 per year ($6,900 per month) thereafter to January
31, 2003. The Amendment also provides that commencing January 20, 1997, the
gross rent will be adjusted to an amount equal to 6.5% of gross sales from the
previous eleven months, but such rent shall never be less than the rent paid
during the said period. On April 20, 1998 and each three months thereafter, the
gross rent will be adjusted to an amount equal to 8.2% of gross sales from the
previous calendar quarter, but the rent shall never be less than the rent paid
during the said quarter. At this time, the Company does not feel that the gross
rent calculation will exceed the minimum rental amount payable in 1997. The
Wherehouse will also pay for any percentage increase in property taxes over and
above the amount assessed for calendar year 1996, on its pro rata share of
occupied space of the property. The terms and conditions pertaining to options
to renew the lease remain unmodified and are described below.

As a result of the Amendment, the monthly rent payments (based on minimum rental
amounts) was decreased from $1.28 per square foot to $.75 per square foot (or
$4,500 per month) effective February 1, 1997. In addition, the Company expects
to absorb an additional $18,000 in operating expenses that were previously
allocated to The Wherehouse. The total decrease in income as a result of the
Amendment is therefore estimated to be $38,160 per year until February 1, 1998
when the total decrease will be reduced to $28,800 per year. Based on
approximately 1.6 million shares of the Company outstanding, the Amendment would
decrease distributable income by approximately $.02 per share per year, and thus
is not material to the operating results of the Company.

OPTO-22 BUILDING

On September 15, 1993, the Company acquired the property described below (the
"OPTO-22 Property" or "Building"). The funds used to acquire the OPTO-22
Property were obtained from the sale of the Company's shares and from seller-
provided financing in connection with the acquisition of the OPTO-22 Property.

The OPTO-22 Property is located within the master-planned Huntington Beach
Industrial Park at 15461 Springdale (at the intersection of Springdale Street
and McFadden Avenue), Huntington Beach, California. The Building was built in
1977, and was occupied by a company named OPTO-22 from 1979 through 1992. In
August 1992, OPTO-22 subleased the Building to Claremont High School, a private
school, whose sublease runs through April 1997. The Building was deeded over to
the Seller in May 1993 by the John Lusk Corporation via a Deed in Lieu of
Foreclosure.
5

<PAGE>

Situated on approximately 3.34 acres of fee land, the Building is concrete tilt-
up construction. The Building has approximately 25,866 square feet of fully
improved office area, 24 foot high clearance, is fully sprinklered, and has two
overhead truck doors as well as one exterior, two-bay truck loading well. In
addition, the site contains ample parking with approximately 201 spaces, and has
three separate driveway entrances for ingress and egress.

The Huntington Beach Industrial Park is a master-planned development of the Lusk
Company. This industrial park contains over 1.5 million square feet of space,
and benefits from its close proximity to labor markets and desirable housing as
well as access to the San Diego (405) Freeway. Also located within one mile are
the Westminster Mall, Golden West Community College, and a McDonnell Douglas
Corporation facility.

The OPTO-22 Property is currently being occupied by Claremont High School, a
private school, under a sublease that commenced in August 1992 and continues
until April 1997. Claremont High School in a non-profit, public-benefit, tax-
exempt educational institution that serves students in the 7th through 12th
grade levels, and has been in existence since 1975. Claremont is accredited by
the Western Association of Schools and Colleges, and is also certified by the
University of California system. Since taking occupancy of the Building,
Claremont has spent an estimated $200,000 on improvements and upgrades to the
interior of the building.

The Building was previously occupied by OPTO-22, the primary lease, which took
occupancy in 1979, and subleased the Building to Claremont High School in August
1992. OPTO-22's lease on the Building ends at the same time that Claremont High
School's sublease ends with OPTO-22. The primary lease on the property
currently calls for rent of $19,709.41 per month. Claremont High School
currently pays a sublease rent $3,690.59 per month higher than OPTO-22's rent.

At this time, the Company is negotiating with Claremont High School in an
attempt to retain the school as a tenant. The Company expects to at least
retain the school as a tenant on a month-to-month basis through August 1997.
Failure to re-negotiate an extension of the existing lease could require the
Company to expend $100,000 to $200,000 in capital refurbishing costs (in order
to attract a qualified tenant) and result in a vacancy at the property for two
to four months.

The lease is "triple-net" with the Tenant responsible for all operating expenses
including utilities, maintenance, taxes and insurance.

The OPTO-22 Building was acquired from Glendale Federal Bank (the "Seller") - an
unrelated third party. In determining the propriety of the investment in the
Building, the Advisor reviewed 1991 and 1992 sales information on several
similar properties in the vicinity. Based on the sales price of $2,350,000, the
OPTO-22's acquisition price was approximately $38.90 per square foot. In
contrast, the comparative sales in the area ranged from $42 to $65 per square
foot, with the average of all the building equal to $45 per square foot. In
addition, the Advisor took note that the monthly rental being paid by OPTO-22 is
less than the current market rents in the area, especially in comparison to the
sub-lease rent being paid to OPTO-22 by Claremont High School for this property.
Based on (1) comparison of the price per square foot of the OPTO-22 Building,
and the comparative recent sales price per square foot of several properties
comparable in quality to the OPTO-22 Building, and (2) the comparison of current
rental revenue on the building to current market rental rates for the area, it
is the opinion of the Advisor that the acquisition price of the OPTO-22 Building
is reasonable.

6
<PAGE>

The OPTO-22 Building is managed by West Coast Realty Management, Inc. ("WCRM")
(the "Property Manager"), an affiliate of the Company. WCRM charges the Company
3% of the gross rents collected as a management fee for managing the Property,
as allowed by the Property Management Agreement. In the opinion of the Advisor,
the OPTO-22 Building is adequately insured. Although the tenant is obligated by
their leases to pay property taxes, the property tax in 1996 was approximately
$24,000.

Total consideration for the OPTO-22 Building paid by the Company was
approximately $2,500,000. The total acquisition cost included $2,350,000 paid
to the Seller, approximately $7,000 in legal, appraisal, audit and closing
costs, and a $143,000 Acquisition Fee paid to Descolin, Incorporated, an
affiliate of the Advisor. Financing of $1,750,000 was obtained from the Seller,
with the remainder of the acquisition costs, approximately $779,000, paid in
cash. The $1,750,000 financing was in the form of a ten year note, that is
being amortized over a thirty year period. The note has an adjustable interest
rate that began at approximately 7.0%, and will adjust to three hundred basis
points (3.00%) above the Federal Reserve Board Eleventh District Cost of Funds
Rate every year. Payments on the note are currently $12,723 per month.

The purchase price was arrived at through arms-length negotiations with the
Seller. The source of funds for the purchase were proceeds from the sales of
the Company's Shares, and Seller-provided financing (the Seller is a large bank
and lender).

The computation of depreciation is based on the cost of the OPTO-22 Property,
including Acquisition Fees and Acquisition Expenses. The allocation of the cost
of the OPTO-22 Property to the various asset is 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.

NORTH PALM STREET

On March 4, 1994, the Company acquired an industrial/research and
development building located in Brea, California.

The Building was acquired for total consideration of $2,248,343. Seller
financing of $1,000,000 was provided in order to allow for the purchase. This
financing was in the form of two purchase money notes for $500,000 each, with
one due an payable March 4, 1995 and the other due March 4, 1996. Payments were
interest only at the rate of 8% and totaled $6,667 per month. The seller
financing was refinanced in February 1995 with a $1,000,000 promissory note at a
variable rate amortized over 25 years, 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 the 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, and due March 1, 2020.

Constructed in 1989, the building contains approximately 42,000 rentable
square feet, and is located within a master-planned business park. The building
is currently leased to two tenants. M.L.E., which occupies 27,831 square feet,
is a contract office furniture supplier. M.L.E., which has been in business
since 1982, commenced their lease on February 1, 1991, and the lease terminates
on May 31, 1999. The lease calls for payments of $11,143 per month. Surgical
Technologies ("Surgical"), which occupies 14,100 square feet, provides contract
sterilization, assembly, and packaging of medical devices. Surgical's lease
runs from December 15, 1993 to December 14, 1999, with lease payments equal to
$6,819 per month through December 14,1998 and $7,077 per month through December
14, 1999. Both the M.L.E. and Surgical leases are triple net.

<PAGE>

The building is located in Brea, California in an established industrial area
of North Orange County. Many of the economic factors pertaining to the OPTO-22
and Blockbuster Video Buildings pertain to this property as well.

RIVERSIDE MARKETPLACE

On November 29, 1994, the Company purchased a six-plex cinema located in the
Riverside Marketplace in Riverside, California. Construction of the property
was completed June 15, 1994, and it is located in a newly developed retail area
containing various restaurants and retailers. The tenant is Sanborn Theaters,
Inc. which does business under the name of SoCal Cinemas. The tenant's lease is
for twenty years, and is scheduled to expire on December 31, 2014. The lease
is a triple-net lease. The lease also has some provisions for the sharing of a
certain percentage of gross sales, including concessions.

The property was acquired for $3,655,500. Long term financing of $1,200,000
in the form of a first trust deed and note was used to facilitate the purchase.
The note is amortized over a fifteen year period at the rate of 9.25% and is
fully due and payable November 8, 2004.

The six screen theater has seating for 1,586 and contains 30,493 square feet.
There is parking available for 483 cars in an adjacent parking lot.

SAFEGUARD BUSINESS SYSTEMS

On May 22, 1995, the Company acquired the Safeguard Business Systems
Property, a two story office building located in Tustin, California. The sole
tenant of the property is Safeguard Business Systems, which occupies 100% of the
property. The tenant is involved in the providing office supply and data
services to small businesses.

The property has 40,000 rentable square feet, and was built to suit for
Safeguard Business Systems in 1986. The tenant's lease commenced October 1,
1994 and is scheduled to terminate eleven years from that date (September 30,
2005). The lease has provisions for annual rental increases with the rent for
the initial year (10/1/94 - 9/30/95) set at $43,333 per month, and $44,633 for
the second year (10/1/95-9/30/96), and $45,972 for the third year (10/1/96-
9/30/97). The average monthly rent over the life of the lease is $50,914.

Total consideration paid for the property was $4,862,094. Long-term
financing of $2,300,000, in the form of a first trust deed and note, was used
to facilitate the purchase. The note is amortized over a fifteen year period at
a fixed rate of 9.625%, and is fully due and payable February 1, 2005.

<PAGE>

TECHNOLOGY DRIVE PROPERTY

On October 31, 1995, the Company acquired a single story light
industrial/research & development located in Fremont, California. The property
is a one story building that contains 58,727 divisible rentable square feet
located on 3.47 acres. The primary tenant of the property is CMS Welding &
Machining. The tenant is a manufacturer of welded vacuum chambers used in the
processing of semi-conductors. Its lease runs from November 2, 1993 to February
28, 2005, with various levels of rent scheduled to be paid. From April 1, 1995
to August 31, 1996, the scheduled rent is $30,976 per month, and $32,596 from
September 1, 1996 to February 1, 1999. The average rent scheduled on the lease,
beginning with the first day of the Company's ownership (October 31, 1995) is
$32,191 per month. The lease in a "triple net" lease, requiring CMS Welding &
Machining to pay insurance, taxes, maintenance and all other operating costs.

The tenant has subleased 20,000 square feet of its space to Macrotron
Systems. This sublease runs from March 1, 1995 to March 1, 1998. Macrotron
pays its rent directly to the Company, and CMS Welding & Machining's rent
obligation is reduced accordingly.

The total consideration paid for the property was $3,747,611. Financing of
$2,192,897 was assumed from the seller in connection with the transaction. This
debt is fully amortized over a twenty year period at a fixed rate promissory
note secured by a Deed of Trust on the Fremont property, interest rate equals
the 20-year Treasury rate at loan close plus 1.65% or 8.24%, monthly principal
and interest payments are currently $18,898. The original balance of the loan
was $2,200,000 and was funded July 1, 1995. Loan fully due and payable on
August 1, 2015.

JAVA CITY PROPERTY

On August 2, 1996, the Company acquired the investment described below (the
"Java City Property" or the "Property"). The funds to acquire the Java City
Property were available as the result of the sale of the Company's Shares in the
previous offering, and the receipt of proceeds from bank financing assumed in
connection with the acquisition.

The Java City Property consists of two single story light industrial buildings
located in the Northgate Industrial Park in Sacramento, California. The
addresses of the two properties are 717 and 721 West Del Paso Road. The
building sites are in the northern part of Sacramento, with access to Interstate
80, Interstate 5, and other major freeways.

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<PAGE>

The buildings are located on a site of approximately 62,173 square feet. Total
building square footage for both buildings is approximately 20,000 square feet.
The subject lot is zoned M-1 industrial by the City of Sacramento. This zoning
allows for a variety of uses, including the existing use. 721 West Del Paso
Road consists of 8,964 total square feet and 717 West Del Paso Road consists of
11,035 total square feet. Per the provisions of the current lease, 721 West Del
Paso consists of 4,347 rental square feet of warehouse space and 4,293 rental
square feet of office space. Per the provisions of the current lease, 717 West
Del Paso consists of 5,398 rentable square feet of warehouse space and 5,802 of
rental square feet of office space. The properties were originally constructed
in 1988. The Company believes that there are no deferred maintenance items that
need to be corrected or addressed. The buildings are constructed using concrete
footings (foundation and slab), wood frame wall designs, and flat/tar gravel
roofs. The building has sprinklers for fire prevention and safety. There is
adequate parking in the general business park area for cars that utilize the
Property.

The primary tenant of the Property is Cucina Holdings, Inc. The company owns
and operates forty-one Java City Bakery Cafes and five La Petite Boulangerie
cafes. The Company is popularly known as "Java City". Java City outlets are
located in various areas of California and Arizona, and are generally in high-
visibility, high-traffic locations. These outlets sell high quality, specialty
coffees in a pleasant retail environment setting. In addition, these outlets
sell a selection of sandwiches and baked goods that complement the sale of
coffee. Java City also operates a wholesale operation that serves approximately
seven hundred customer accounts located primarily in Northern California. The
Company's wholesale customers include supermarkets, gourmet shops, convenience
stores, restaurants, universities, airports, and offices, some of which resell
the coffee in whole bean form for home consumption, while others brew and sell
coffee beverages. Approximately 86% of the Company's sales are from its retail
cafe operations and 14% from its wholesale operations. The tenant was
effectively formed in 1993 when Cucina Holdings, a corporation formed by current
management and InterWest Partners (a Menlo Park Based venture capital firm),
purchased the assets of la Petite Boulangerie from a private investor group in
June 1993, and then purchased Java City in September 1993. Cucina Holdings and
Java City are privately held, and not publicly traded companies.

Java City leases 100% of the rentable square feet in the two buildings located
on the Property. Each building has a separate lease, and both leases are triple
net leases. Both leases expire on August 1, 2003 and there are no options for
extension or purchase of the Property. Java City operates its administrative
offices, coffee bean processing, warehousing facilities, and a Java City retail
outlet out of these two buildings.

The computation of depreciation for the Java City Property is based on the cost
of the Property, including Acquisition Fees and Acquisition Expenses. The
allocation of the cost of the Property to various asset categories is estimated,
based on allocations in the appraisal report. Depreciation is computed on a
straight-line basis over 39 years for both financial and income tax reporting
purposes.

<PAGE>

TYCOM PROPERTY

On January 17, 1997, the Company acquired the Tycom Property--- two story
building, with underground parking, located at 17862 Fitch Street, Irvine,
California. Total building square footage is approximately 63,225 square feet
(both floors), while the property has 164 striped parking spaces. The building
is approximately twelve years old. There are substantial new tenant
improvements that were substantially complete at time of acquisition that will
enhance the building for office usage. These improvements include improved air
conditioning, Americans with Disabilities Act compliance, a complete fire
sprinkler system, new electrical, new restrooms, and new carpet.

The sole tenant of the Property is Tycom Corporation ("Tycom" or "the
Tenant"). Tycom, a privately held company, is a manufacturer of drill bits and
assorted items used by the semi-conductor and dental industries, and has been in
business for approximately ten years. The Tenant initially purchased this
building and has invested approximately $1.4 million in improvements and
renovations. Tycom sold the building to Brutten/Reynolds/Shidler Investment
Corp. (the property's seller) on December 19, 1996 for an unknown amount. The
Tenant began occupying the building on December 19, 1996, at which time the
provisions of the lease became effective. The term of the lease is eleven
years, and is intended to be a "triple-net" lease with the Tenant paying
virtually all taxes, insurance, utilities, and other operating costs of the
Property. The base rent is $37,302.75 per month.

Total consideration paid by the Company for the Tycom Property was
$4,902,500. Financing was utilized in connection with the acquisition of the
Tycom Property. A short-term 9.25% promissory note for $2,300,000 was provided
by First National Bank of San Diego. The note provides for interest only
payments of $17,729 and is due in full February 1, 1998. The Company plans on
replacing this financing prior to the due date with a first trust deed mortgage
from a bank.

The computation of depreciation for the Tycom Property is based on the cost
of the property, including Acquisition Fees and Expenses. The allocation of the
cost of the Property to various asset categories is estimated, based on
allocations in the appraisal report. Depreciation is computed on a straight-
line basis over the component useful life of the assets. The financial and tax
bases for the property are the same. In the opinion of the Advisor, the
Property is adequately insured. The Property is managed by West Coast Realty
Management.

SUMMARY

The acquisition costs and dates of acquisition were as follows:

<PAGE>

Description Acquisition Acquisition
Cost and Date
Improvements

Blockbuster Video Building $1,676,210 02/26/91
Fresno Village Shopping Center 1,414,893 05/14/93
OPTO-22 Building 2,500,001 09/15/93
Brea Property 2,248,343 03/04/94
Riverside Marketplace Theaters 3,655,500 11/29/94
Safeguard Building 4,862,094 05/22/95
Technology Drive 3,747,611 10/31/95

20,104,652
Subsequent to year end (12/31/96):
Tycom 4,902,500 01/17/97

Total Acquisition Cost & Improvements 25,007,152

As mentioned in the narrative above, all properties were 100% occupied by their
respective tenants (or in the case of Technology Drive and OPTO-22, tenant and
sub-tenant). There are no significant deferred maintenance projects
attributable to any of the properties.

ITEM 3. LEGAL PROCEEDINGS

None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

<PAGE>

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS

The Company has had three offerings of shares. The first offering of
1,500,000 shares commenced on April 20, 1990 and was completed on November 18,
1991 with 268,791 shares sold for $2,672,586 in gross proceeds. The second
offering of 2,000,000 shares commenced on May 14, 1992 and was completed on May
14, 1994 with 368,524 shares sold for $3,681,147 in gross proceeds. The third
offering of 2,000,000 shares commenced on June 3, 1994 and was completed in May
1996 with 813,841 shares sold for $8,132,169 in gross proceeds. The fourth
offering of 1,500,000 shares commenced in May 1996, and 221,258 shares had been
sold resulting in $2,211,429 in gross proceeds as of December 31, 1996.

At December 31, 1996, there were 1,550,607 Shares of Common Stock outstanding
and 820 stockholders of record. There is no present trading market for the
Shares and none is expected to develop. For a period of approximately two years
following the completion of this offering, the Company intends to use a crossing
arrangement pursuant to which Associated Securities Corp. (the "Crossing
Agency") will match buy-and-sell orders for Shares at negotiated markups or
commissions.

The Company has established a dividend reinvestment plan (the "Plan") for its
Shareholders. Shares acquired under the Plan during the offering will be
purchased at the $10.00 offering price. After the completion of the offering
period, the Plan will acquire existing Shares through the Crossing Agency at a
maximum price of $10.00 per Share, if a sufficient number of Shares are
available at such price.

Dividends totaling $1,128,597, $804,595, and $522,614, in 1996, 1995 and
1994 were declared for Shareholders of record, who owned Shares on the first day
of each month, and paid in the quarter following the record date. The 1996 and
1995 dividend distributions are summarized below:

<PAGE>

Dividends declared during 1996 were as follows:

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 99,784
October 1, 1996 1,498,246 0.0666 99,784
November 1, 1996 1,500,651 0.0666 99,943
December 1, 1996 1,550,607 0.0666 103,270

TOTAL $1,128,597

Dividends declared during 1995 were as follows:

OUTSTANDING AMOUNT TOTAL
RECORD DATE SHARES PER UNIT DIVIDEND

January 1, 1995 911,986 $0.060 $54,719
February 1, 1995 945,136 0.060 56,708
March 1, 1995 1,009,084 0.060 60,545
April 1, 1995 1,069,217 0.060 64,153
May 1, 1995 1,109,374 0.060 66,562
June 1, 1995 1,109,874 0.060 66,592
July 1, 1995 1,116,891 0.060 67,013
August 1, 1995 1,151,911 0.060 69,115
September 1, 1995 1,204,517 0.060 72,271
October 1, 1995 1,225,398 0.060 73,524
November 1, 1995 1,261,859 0.060 75,712
December 1, 1995 1,294,683 0.060 77,681

TOTAL $804,595

Dividends are based on income from operations before depreciation and
amortization, with appropriate allowances made for the reinvestment of dividends
into additional shares and the repayment of note principal. Dividends are
determined by management based on cash flows and the liquidity position of the
Company. It is the intention of management to declare monthly dividends subject
to the maintenance of reasonable reserves.

ITEM 6. SELECTED FINANCIAL DATA

The selected financial data should be read in conjunction with the
financial statements and related notes and Item 7-- "Management Discussion and
Analysis of Financial Condition and Results of Operations" appearing elsewhere
in this report. This statement is not covered by the accountants' opinion
included elsewhere in this report.

<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Operations for the
years ended December 31:
Revenues $2,474,627 $1,813,126 $ 903,167 $ 362,566 $ 158,306
Net Income 705,636 649,605 247,068 158,490 40,287
Net Income/Share* .49 .58 .35 .38 .15
Dividends/Share* .779 .72 .74 .53 .27
Financial position at
December 31:
Total Assets 23,571,838 21,392,898 13,228,888 7,483,308 2,786,923
Long-term Debt 10,078,793 9,539,180 5,161,355 2,405,526 ---
Stockholders' Equity 12,904,891 11,234,837 7,756,140 4,925,260 2,707,474

</TABLE>
[FN]
*Net income per Share and Dividends per Share were based on the weighted average
number of Shares outstanding.

ITEM 7. MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS - 1996 VS. 1995

Operations for the year ended December 31, 1996 represented a full year of
rental operations for all properties expect Java City which was owned for only
five months.

The net income for the year ended December 31, 1996 ($705,636) was higher than
the year ended December 31, 1995 ($649,605) 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 year ended December 31, 1996, 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 $685,354 (41%) due to a full year's ownership of the
Technology Drive and Safeguard Building properties (as compared to partial year
ownership in 1995), and partial year ownership for the Java City property.
Interest income decreased $23,853 (25%) 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.

ITEM 7. MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

Operating expenses increased $133,179 (78%) as a reflection of the additional
properties owned during the year. Interest expense increased $260,947 (42%) as
a reflection of the additional debt incurred in connection with property
acquisition and refinancing activities. Despite the amount of debt, the Company
remains below the maximum 50% debt maximum allowed by the Company's by-laws
(debt was 48% of property cost (as defined in the by-laws) as December 31,
1996). General and administrative costs increased $106,587 (91%) due to higher
accounting, taxes, and general insurance expense costs related to the Company's
increased size. General and administrative costs increased as a percentage of
revenue going from 6.5% in 1996 to 9.0% in 1996. Much of this increase is due
to $74,361 that the Advisor was paid in 1996 due to the revised provisions of
the Advisor agreement. No advisor fees were earned in 1995. Depreciation and
amortization expense increased $104,757 (41%) as the result of the ownership of
additional properties during 1995 as compared to 1996.

The average number of shares outstanding during 1996 was 1,447,366 vs. 1,117,494
in 1995. Partly because of the greater number of shares outstanding, the net
income per share decreased from $.58 in 1995 to $.49 in 1996. If this figure is
analyzed using flow of funds - that is net income plus depreciation expense -
then the amount in 1996 was $.75 per share vs. $.80 in 1995.

The decrease in the per share figures is largely due to the imposition of the
Advisory Fee in 1996 ($74,361) which effectively decreased net income and flow
of funds per share by $.05 per share. However, it should be noted that although
the full Advisory fee is recognized on the Statement of Income, the Advisor
agreed to waive collection of $44,061 (59%) of these fees in 1996, and may elect
to waive collection of all or a portion of the fees in the future. The
Advisor's wavier of these fees has been treated as an infusion of equity into
the Company, rather than as a reduction in expenses.

In addition to the added Advisory Fee Expense, the Company had a fairly large
drop in interest income. This was due to relatively lower interest rates in
place for most of 1996 as compared to 1995, and a slower level of new fund
raising from the sale of shares in 1996 as compared to 1995. $3,633,687 was
raised in net proceeds in 1995, while only $2,124,626 was raised in 1996. Thus,
the Company had less funds on hand awaiting investment in 1996 than in 1995.

During the year ended December 31, 1996, the Company declared dividends totaling
$1,128,597, compared to dividends of $804,595 declared for the year ended
December 31, 1995. Cash basis income for the year ended December 31, 1996 was
$1,066,537. This was derived by adding depreciation and amortization expense to
net income. Thus, cash distributions this year were greater ($40,898) than cash
basis net income. In contrast, distributions in 1995 were less ($101,154) than
cash basis income. In either event, the Company continues to qualify as a REIT.

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 operating profitably.

<PAGE>

ITEM 7. MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

RESULTS OF OPERATIONS - 1995 VS. 1994

Operations for the year ended December 31, 1995 represented a full year of
rental operations for the Blockbuster Video Building, Fresno Village Shopping
Center, OPTO-22 Building, Riverside Marketplace, and Brea properties, and
partial years of operations for the Technology Drive and Safeguard Building
properties.

The net income for the year ended December 31, 1995 ($649,605) was higher
than the year ended December 31, 1994 ($247,068) 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 year ended December 31, 1995, and all properties
that have been purchased by the Company have operated at levels equal to
expectations. All tenants were current on their lease obligations.

Rental revenue increased $889,562 (111%) due to a full year's ownership of the
Riverside Marketplace and Brea properties (as compared to partial year ownership
in 1994), and partial year ownership for the Technology Drive and Safeguard
Business Systems properties. Interest income increased $20,397 (20%) due to a
greater amount of cash held during the year awaiting investment and greater
amounts of profits held each quarter awaiting distribution to investors on the
normal distribution timeline.

Operating expenses increased $73,042 (76%) as a reflection of the additional
properties owned during the year. Interest expense increased $317,907 (105%) as
a reflection of the additional debt incurred in connection with property
acquisition and refinancing activities. Despite the amount of debt, the Company
remains below the maximum 50% debt maximum allowed by the Company's by-laws
(debt was 49% of property cost (as defined in the by-laws) at December 31,
1995). General and administrative costs increased $46,777 (66%) due to higher
accounting, taxes, and general insurance expense costs related to the Company's
larger size. General and administrative costs decreased as a percentage of
revenue from 7.8% in 1994 to 6.5% in 1995. Depreciation and amortization
expense increased $137,906 (117%) as the result of the ownership of additional
properties during 1995 as compared to 1994. 1994's results were hurt by the
recognition of $68,210 in loss on government securities investments during the
year. No loss was recorded in 1995. Net income of $649,605 for 1995 was
$402,537 (163%) higher than 1994.

The average number of shares outstanding during 1995 was 1,117,494 vs. 706,684
in 1994. Despite the greater number of shares outstanding, the net income per
share increased from $.35 in 1994 to $.58 in 1995. If this figure is analyzed
using flow of funds - that is net income plus depreciation expense and loss on
government securities investments -- then the amount in 1995 was $.80 per share
vs. $.61 in 1994. The improvement in results is attributable to a larger
percentage of the Company's assets being invested in income-producing real
estate in 1995 than in 1994, as opposed to investments in relatively lower
yielding money market investments. Although the balance of cash and cash
equivalents was higher at the end of 1995 ($1,450,022) than at the end of 1994
($495,829), the average level of cash on hand during 1995 was lower. In
addition, the rate of increase in total revenues (111%) was much higher than the
rate of increase in general and administrative expenses (66%). General and
administrative expenses represented a smaller percentage of total revenues in
1995 than in 1994 (6.5% in 1995 vs. 7.8% in 1994).

<PAGE>

ITEM 7. MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

During the year ended December 31, 1995, the Company declared dividends
totaling $804,095, compared to dividends of $522,614 declared for the year ended
December 31, 1994. Cash basis income for the year ended December 31, 1995 was
$905,749. This was derived by adding depreciation and amortization expense to
net income. Thus, cash distributions this year were less ($101,154) than cash
basis net income. In contrast, distributions in 1994 were greater ($89,098)
than cash basis income. In either event, the Company continues to qualify as a
REIT.

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.

LIQUIDITY AND CAPITAL RESOURCES

During the year ended December 31, 1996, the Company declared dividends
totaling $1,128,597. 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 year ended December 31, 1996, the Company raised an additional
$2,048,554 in net proceeds as the result of the sale of shares from its third
and fourth public offering. In 1995, the Company raised $3,633,687 in net
proceeds as the result of the sale of shares from its third offering. In 1994,
the Company raised a net $3,088,804 from a combination of its second and third
public offerings. The Company has used the net proceeds from these offerings to
purchase additional income-producing properties and to add to the cash reserve
balances of the Company as is prudent given the amount of property now under
ownership.

Management uses cash as its primary measure of the Company's liquidity. The
amount of cash that represents adequate liquidity for a real estate investment
company, is dependent on several factors. Among them are:

1. Relative risk of the Company's operations;
2. Condition of the Company's properties;
3. Stage in the Company's operating cycle (e.g., money-raising,
acquisition, operating or disposition phase); and
4. Shareholders dividends.

The Company is adequately liquid and management believes it has the ability
to generate sufficient cash to meet both short-term and long-term liquidity
need, based upon the above four points.

<PAGE>

ITEM 7. MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

The first point refers to the risk of the Company's investments. At December
31, 1996, the Company's excess funds were invested in a short-term money m arket
fund. The purchases of rental properties have been made either entirely with
cash or the use of moderate leverage. During the year ended December 31, 1996,
notes payable pertaining to property acquisitions by the Company increased by
$755,000, while cash used in principal repayments of notes totaled $215,387.
Although the notes are set up on an amortization schedule allowing for the
repayment of principal over time, most of the principal on the notes is due in
balloon payments that come due in the years 2003 through 2005. The Company is
aware that prior to the time that these large payments come due, refinancing of
the loans or the sale of the property(ies) will be necessary in order to protect
the interests of the Company's shareholders. (Please refer to "Properties"
information in Item 2 for more detail as to leverage). Furthermore, most of
the properties' tenants are nationally known retailers or well-established
businesses under long-term leases.

As to the second point, the Company's properties are in good condition
without significant deferred maintenance obligations and are leased through
"triple-net" leases, which reduces the Company's risk pertaining to excessive
maintenance and operating costs.

As to the third point, the Company was liquid at year-end since the Company
is still operating in the "money-raising" stage. Virtually all funds raised
were invested in a short-term money market fund. At year-end, the Company has
allocated approximately $400,000 towards a "reserve" fund (3% of gross funds
raised, as disclosed in the Company's latest prospectus), $303,000 of cash held
pending distribution to investors, $114,000 of cash to be paid for current
mortgage and accounts payable commitments, $125,000 in tenant security deposits,
and the balance--$1,066,537--expected to be invested in future property
acquisitions. The Company's operations generated $1,087,698 in net operating
cash flow in 1996 (net income plus depreciation expense). Thus, the Company is
generating significant amounts of cash flow currently and could choose to
withhold payment of all or a portion of dividends, if necessary, in order to
rebuild cash balances.

Fourth, the amount of dividends to shareholders was made at a level
consistent with the small 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 larger base
of investors' funds.

Inflation and changing prices have not had a material effect on the
Company's operations. Operations in the near future may be materially affected
as and when the Company acquires additional property.

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 7. MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

CASH FLOWS 1996 VS. 1995

Cash resources increased $567,172 during 1996 compared to $954,193 increase in
1995. This was the result of normal amounts of investing, financing and
operating activities that were expected to take place during the year. Cash
provided by operating activities increased by $819,783 with the largest
contributor being $1,066,537 in cash basis income. In contrast, 1995 saw
$2,373,143 in cash being provided by operating activities due to $905,749 in
cash basis income and $1,240,190 being received from the sale government
securities (such securities were purchased in 1993 primarily). $1,128,597 was
declared as dividends during 1996; this is noted as a large use of cash under
financing activities. This continues the Company's trend of paying virtually
all the cash basis income out to investors in the form of quarterly dividends.
Over the last three years, cash basis income has totaled $2,337,592, while
dividend declarations have totaled $2,311,572 (98% of cash basis income).
Financing activities provided an additional $1,575,889 in cash resources to the
Company via the sale of additional shares in the Company ($2,124,626 in net
proceeds), and $724,465 in financing obtained in connection with the acquisition
of refinancing of properties, less dividends paid of $1,128,597. In contrast,
1995's cash provided by financing activities was $7,228,140 due to $3,633,687 in
proceeds from the sale of additional shares, and a $4,469,647 gross increase in
notes payable, net of dividends paid of $745,172. The sole use of cash in
investing activities in 1996 was $1,828,500 expended for the acquisition of one
property during the year. $755,000 of the funds necessary for obtaining this
property was obtained from debt financing. In contrast, $8,647,090 were used to
purchase additional rental properties in 1995 with $4,469,647 in debt financing
used to facilitate the purchases.

CASH FLOWS 1995 VS. 1994

Cash resources increased $954,193 during 1995 compared to a $284,966 in 1994.
This was the result of normal amounts of investing, financing, and operating
activities that were expected to take place during the year. Cash provided by
operating activities increased $2,373,143 with the largest contributors being
$905,749 in cash basis income and $1,240,190 in proceeds from the sale of
government securities. In contrast, 1994 saw $791,190 in cash being provided by
operating activities due to only $433,516 in cash basis income and $372,104
being received from the sale of government securities (such securities were
purchased in 1993 primarily). $804,595 (88.8%) of the cash basis income
($905,749) was declared as dividends during the year; this is noted as a large
use of cash under financing activities. This continues the Company's trend of
paying virtually all the cash basis income out to investors in the form of
quarterly dividends. Financing activities provided an additional $7,228,140 in
cash resources to the Company via the sale of additional shares in the Company
($3,633,687 in net proceeds), and $4,469,647 in financing obtained in connection
with the acquisition or refinancing of properties, less cash dividends paid of
$745,172. In contrast, 1994's cash provided by financing activities was
$5,360,233 due to $3,088,804 in proceeds from the sale of additional shares, and
a $2,800,000 gross increase in notes payable, net of dividends paid of $437,803.
The sole use of cash in investing activities in 1995 was $8,647,090 expended for
the acquisition of additional properties during the year. As mentioned above,
$4,469,647 of the funds necessary for obtaining these new properties was
obtained from debt financing. In contrast, only $5,866,457 in funds were used
to purchase additional rental properties in 1994. (Note: cash dividends paid
were less than dividends declared due to some dividends being reinvested in
additional shares of the Company).

<PAGE>

ITEM 7. MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)

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.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

PAGE

Report of Independent Certified Public Accountants 23

Balance Sheets - December 31, 1996 and 1995 24

Statements of Income for the years ended
December 31, 1996, 1995 and 1994 25

Statements of Stockholders' Equity for the years ended
December 31, 1996, 1995 and 1994 26

Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994 27-28

Summary of Accounting Policies 29-30

Notes to Financial Statements 31-38

Financial Statement Schedules

Schedule III - Real Estate and Accumulated Depreciation 45-46

Schedule IV - Mortgage Loans on Real Estate 47

<PAGE>

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

West Coast Realty Investors, Inc.
Los Angeles, California

We have audited the accompanying consolidated balance sheets of West Coast
Realty Investors, Inc.., as of December 31, 1996 and 1995 and the related
statements of income, stockholders' equity, and cash flows for each of the three
years ended December 31, 1996, 1995 and 1994. We have also audited the
schedules listed in the accompanying index. These financial statements and
schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedules based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and schedules are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements and
schedules. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of West Coast Realty Investors,
Inc., at December 31, 1996 and 1995, and the results of its operations and its
cash flows for each of the years ended December 31, 1996, 1995 and 1994 in
conformity with generally accepted accounting principles.

Also in our opinion, the schedules present fairly, in all material respects, the
information set forth therein.

BDO SEIDMAN, LLP
Los Angeles, California
February 28, 1997

WEST COAST REALTY INVESTORS, INC.
BALANCE SHEETS

December 31, 1996 1995
<S> <C> <C>
ASSETS
Rental real estate, less accumulated
depreciation (Notes 2 and 3) $21,118,203 $19,650,165
Cash and cash equivalents 2,017,194 1,450,022
Accounts receivable 247,948 132,148
Loan origination fees, net of accumulated
amortization of $21,161 and $19,087 102,622 119,969
Other assets 85,871 40,594

Total assets $23,571,838 $21,392,898

LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES
Accounts payable $13,922 $25,419
Due to related party (Note 4) 46,285 167,314
Dividends payable (Note 7) 302,760 226,649
Security deposits and prepaid rent 124,734 109,068
Other liabilities 100,453 90,431
Notes payable (Note 5) 10,078,793 9,539,180

Total liabilities 10,666,947 10,158,061

COMMITMENTS

STOCKHOLDERS' EQUITY
Common stock, $.01 par-shares authorized,
5,000,000 shares issued, 1,550,607 and
1,322,404 outstanding in 1996 and 1995 15,506 13,224
Additional paid-in capital 13,861,763 11,771,030
Retained earnings (972,378) (549,417)

Total stockholders' equity 12,904,891 11,234,837

Total liabilities and stockholders' $23,571,838 $21,392,898
equity

</TABLE>
[FN]
See accompanying summary of accounting policies and notes to financial
statements.

WEST COAST REALTY INVESTORS, INC.
STATEMENTS OF INCOME

Years ended December 31, 1996 1995 1994
<S> <C> <C> <C>
REVENUES
Rental (Notes 2 and 3) $2,377,530 $1,692,176 $802,614
Interest 97,097 120,950 100,553

2,474,627 1,813,126 903,167
COSTS AND EXPENSES
Operating 302,858 169,679 96,637
Interest expense 880,978 620,031 302,124
General and administrative 224,254 117,667 70,890
Depreciation and amortization 360,901 256,144 118,238
Loss on government securities --- --- 68,210

1,768,991 1,163,521 656,099

NET INCOME $705,636 $649,605 $247,068

NET INCOME PER SHARE (Note 7) $.49 $.58 $.35

</TABLE>
[FN]

See accompanying summary of accounting policies and notes to financial
statements.

<PAGE>
<TABLE>
WEST COAST REALTY INVESTORS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1995

<CAPTION>
Additional Distributions
Common Stock Paid-in in Excess of
Shares Amount Capital Earnings
<S> <C> <C> <C> <C>
BALANCE, January 1, 1994 562,885 $5,629 $5,038,512 (118,881)

Issuance of stock for cash,
net of costs and sales
commissions of $399,416 349,101 3,491 3,085,313 ---

Net income for the year --- --- --- 247,068

Equity contribution by
Affiliates through expense
reimbursements (Note 4b) --- --- 17,622 ---

Dividends declared ($.762
per share-Note 7) --- --- --- (522,614)

BALANCE, December 31, 1994 911,986 9,120 8,141,447 (394,427)

Issuance of stock for cash,
net of costs and sales
commissions of $423,603 410,418 4,104 3,629,583 ---

Net income for the year --- --- --- 649,605

Dividends declared ($.72
per share-Note 7) --- --- --- (804,595)

BALANCE, December 31, 1995 1,322,404 13,224 11,771,030 (549,417)

Issuance of stock for cash,
net of costs and sales
commissions of $246,599 228,203 2,282 2,046,672 ---

Net income for the year --- --- --- 705,636

Equity contribution by
Affiliates through expense
reimbursements (Note 4b) --- --- 44,061 ---

Dividends declared ($.779
per share-Note 7) --- --- --- (1,128,597)

BALANCE, December 31, 1996 1,550,607 $15,506 $13,861,763 $(972,378)

</TABLE>
[FN]
See accompanying summary of accounting policies and notes to financial
statements.

<PAGE>
<TABLE>
WEST COAST REALTY INVESTORS, INC.
STATEMENTS OF CASH FLOW

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

Years ended December 31, 1996 1995 1994

CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income $705,636 $649,605 $247,068
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 360,901 256,144 118,238
Interest expense on amortization ofloan
origination fees 21,161 11,454 6,335
Increase (decrease) from changes in:
Government securities --- 1,240,190 440,314
Accounts receivable (115,800) (62,784) (19,001)
Other assets (45,277) 30,469 (49,185)
Accounts payable (11,497) 10,731 14,688
Due to related party (121,029) 130,378 (16,412)
Security deposits and prepaid rent 15,666 71,823 12,245
Other liabilities 10,022 35,133 36,900

Net cash provided by operating 819,783 2,373,143 791,190
activities

CASH FLOWS FROM INVESTING ACTIVITIES
Additions to rental real estate (1,828,500) (8,647,090) (5,866,457)

Net cash (used in) investing (1,828,500) (8,647,090) (5,866,457)
activities

</TABLE>
27
<PAGE>
<TABLE>

WEST COAST REALTY INVESTORS, INC.
STATEMENTS OF CASH FLOW (CONT.)

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

Years ended December 31, 1996 1995 1994

CASH FLOWS FROM FINANCING ACTIVITIES
<S> <C> <C> <C>
Proceeds from issuance of common
stock, net 2,048,954 3,633,687 3,088,804
Equity contribution by Affiliates through
expense reimbursements 44,061 --- 17,622
Dividends declared and paid (1,052,925) (745,172) (437,803)
Increase in notes payable 755,000 4,469,647 2,800,000
Payments on notes payable (215,387) (91,822) (44,171)
Increase in loan origination fees (3,814) (38,200) (64,219)

Net cash provided by financing activities 1,575,889 7,228,140 5,360,233

NET INCREASE IN CASH AND CASH EQUIVALENTS 567,172 954,193 284,966

CASH AND CASH EQUIVALENTS, beginning of 1,450,022 495,829 210,863
year

CASH AND CASH EQUIVALENTS, end of year $2,017,194 $1,450,022 $495,829

</TABLE>
[FN]
See accompanying summary of accounting policies and notes to financial
statements.
28
<PAGE>

WEST COAST REALTY INVESTORS, INC.
SUMMARY OF ACCOUNTING POLICIES

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 exits 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 REAL Assets are stated at lower of cost net realizable value.
ESTATE AND Depreciation is computed using the straight-line method over
DEPRECIATION 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.

RENTAL Rental revenue is recognized on a straight-line basis to the
INCOME 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.

INVESTMENTS The difference between historical cost and market value are
reported as unrealized gains or losses in the statements of
income.

LOAN Loan origination fees are capitalized and amortized over the
ORIGINATION life of the loan.
FEES

CASH AND The Company considers cash in the bank, liquid money market
CASH funds, and all highly liquid certificates of deposit, with
EQUIVALENTS original maturities of three months of less, to be cash and
cash equivalents.

<PAGE>

WEST COAST REALTY INVESTORS, INC.
SUMMARY OF ACCOUNTING POLICIES

USE OF The preparation of financial statements in conformity with
ESTIMATES 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.

RECLASSIF- For comparative purposes, certain prior year amounts have been
CATION reclassified to conform to the current year presentation.

NEW ACCOUNTING Statement of Financial Accounting Standards No. 125,
PRONOUNCE- "Accounting for Transfers and Servicing of Financial Assets and
MENTS 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

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
December 31, 1996 the Company has raised $15,479,714 in capital.

Sales commissions and wholesaling fees, representing 7% of the gross proceeds
from the sale of common shares, were paid to Associated Securities Corp.
("ASC"), a member of the National Association of Securities Dealers, Inc.
("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

<PAGE>

WEST COAST REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS

NOTE 2 - RENTAL PROPERTIES (CONTINUED)

The major categories of property are:

DECEMBER 31, 1996 1995

Land $ 7,401,126 $ 6,586,920
Buildings and improvements 14,532,025 13,517,732

21,933,151 20,104,652
Less accumulated depreciation 814,948 454,487

Net rental properties $ 21,118,203 $ 19,650,165

A significant portion of the Company's rental revenue was earned from tenants
whose individual rents represented more than 10% of total rental revenue.
Specifically:

Five tenants accounted for 23%, 19%, 18% , 12% and 10%, respectively, in
1996;
Four tenants accounted for 24%, 20%, 15% and 10%, respectively, in 1995;
Four tenants accounted for 29%, 18%, 17% and 14%, respectively, in 1994;

The following unaudited pro forma information are presented to illustrate the
effect of the three properties acquired in during 1996 and 1995, as discussed
above, and the property acquired in 1997, as discussed in Note 10, as if the
acquisitions occurred on January 1st of each year presented.

<TABLE>

PRO FORMAS FOR THE YEARS ENDED 1996 1995
DECEMBER 31,
<S> <C> <C>
Revenues:
Rental Income $ 2,948,961 $ 2,851,554
Interest 7,097 950

2,956,058 2,852,504
Costs and Expenses:
Operating 320,171 214,359
Interest 1,130,255 1,032,764
General & Administrative 224,254 117,667
Depreciation & Amortization 551,399 553,696

2,226,079 1,918,486

Net Income $729,979 $934,018

Net Income per Share $0.45 $0.54

</TABLE>
32

<PAGE>

WEST COAST REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS

NOTE 3- FUTURE MINIMUM RENTAL INCOME

As of December 31, 1996, future minimum rental income under the existing leases
that have remaining noncancelable terms in excess of one year are as follows:

DECEMBER 31,1996

1997 .................................$2,123,959
1998 ..................................2,037,591
1999 ..................................1,976,664
2000 ..................................1,864,724
2001 ..................................1,771,212
Thereafter .......................... 15,255,711

Total $25,029,861

Future minimum rental income does not include lease renewals or new leases that
may result after a noncancelable-lease expires.

NOTE 4 - 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. At December 31,
1996, the Advisor owned 22,556 shares of the Company. Property management
services for the Company's properties are provided by West Coast Realty
Management, Inc. ("WCRM"), an affiliate of the Advisor.

Certain officers and directors of the Company are also officers and directors of
the Advisor and its affiliates.

The following related party transactions are included in the statement of income

(a) In accordance with the advisory agreement, syndication fees earned by
the Advisor totaled $82,864, $150,429 and $173,874 in 1996, 1995 and 1994.

(b) Overhead expenses reimbursed to the Advisor totaled $12,000, $12,000
and $2,000 in 1996, 1995 and 1994. In 1994, the Advisor waived $10,000 of
these costs which are included in additional paid-in capital.

(c) Sales commissions paid in accordance with the selling agreement to ASC
totaled $163,735, $301,706 and $172,098 for 1996, 1995 and 1994.

(d) Acquisition fees related to the purchase of real estate totaled
$78,177, $444,795 and $320,006 in 1996, 1995 and 1994 (Note 2). These fees
are split, in accordance with the advisory agreement, between the Advisor
and an affiliate.

(e) Property management fees earned by WCRM totaled $84,749, $46,947 and
$24,077 in 1996, 1995 and 1994. In 1994, WCRM waived $7,622 in property
management fees.

(f) Advisory fees earned by WCRA totaled $74,361 in 1996. WCRA waived
collection of $44,061 of these fees which are included in additional paid-
in capital.

<PAGE>

WEST COAST REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS

NOTE 4 - RELATED PARTY TRANSACTIONS (CONTINUED)

(f) The Corporation had related party accounts payable as follows:

1996 1995
DECEMBER 31,
Associated Financial Group $ --- $ 40,143
Associated Securities Corp. 396 ---
West Coast Realty Management 24,839 15,369
West Coast Realty Advisors 21,050 111,802

$46,285 $167,314

NOTE 5 - NOTES PAYABLE

Notes payable are made up of the following:

DECEMBER 31, 1996 1995

8.25% promissory note secured by a Deed of Trust
on the Fresno Property, monthly principal and interest
payments are $5,244 due August 1, 2003 ................ $ 628,471 $ 639,182

Variable rate promissory note secured by a Deed
of Trust on the OPTO-22 property, interest rate
adjustments are monthly and are based on the 11th
District cost of funds rate plus 3% (7.835% 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 ..............1,708,362 1,721,993

8.25% promissory note secured by a Deed of Trust on
the Blockbuster property, interest rate adjusts
to the 5-year Treasury rate plus 350 basis points
on February 1, 1999, monthly principal and interest
payments are $4,934, due February 1, 2004 .............. 569,132 579,923

9.25% promissory note secured by a Deed of Trust
on the Riverside property, monthly principal and
interest payments are $9,988, due November 8, 2004 .. 1,177,055 1,185,778

Variable rate promissory note secured by a Deed of Trust
on the Brea property, interest rate is 9.5% until March 1,
2000 (and each succeeding March 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 ......................... 981,338 992,379

<PAGE>

WEST COAST REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS

NOTE 5 - NOTES PAYABLE (CONT.)

DECEMBER 31, 1996 1995

9.625% promissory note secured by a Deed of Trust
on the Safeguard property, monthly principal and
interest payments are $24,191, due February 1,
2005 ........................................... $2,155,575 $2,234,231

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 ............................... 2,140,311 2,185,694

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.............. 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.................... 382,277 ---

$10,078,793 $9,539,180

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 December 31, 1996 are as follows:

YEAR ENDING DECEMBER 31, 1996

1997 ..................................$210,320
1998 ........................... 228,391
1999 ........................... 248,287
2000 ........................... 269,435
2001 ................................ 582,090
Thereafter ..................... 8,540,268

Total $10,078,793

NOTE 6 - 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.

<PAGE>

WEST COAST REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS

NOTE 7 - NET INCOME AND DIVIDENDS PER SHARE

Net Income Per Share was computed using the weighted average number of
outstanding shares of 1,447,366, 1,117,494 and 706,684 for 1996, 1995 and 1994.

Dividends declared during 1996 were as follows:

OUTSTANDING AMOUNT TOTAL
RECORD DATE SHARES PER UNIT DIVIDEND

TOTAL $1,128,597

Dividends declared during 1995 were as follows:

OUTSTANDING AMOUNT TOTAL
RECORD DATE SHARES PER UNIT DIVIDEND

TOTAL $804,595

<PAGE>

WEST COAST REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS

NOTE 7 - NET INCOME AND DIVIDENDS PER SHARE (CONTINUED)

Dividends declared during 1994 were as follows:

OUTSTANDING AMOUNT TOTAL
RECORD DATE SHARES PER UNIT DIVIDEND

January 1, 1994 562,888 $0.058 $32,648
February 1, 1994 568,404 0.060 34,104
March 1, 1994 590,966 0.062 36,640
April 1, 1994 610,195 0.063 38,442
May 1, 1994 620,421 0.064 39,707
June 1, 1994 637,315 0.065 41,426
July 1, 1994 637,315 0.065 41,426
August 1, 1994 688,203 0.065 44,733
September 1, 1994 747,876 0.065 48,612
October 1, 1994 811,034 0.065 52,717
November 1, 1994 844,800 0.065 54,913
December 1, 1994 880,700 0.065 57,246

TOTAL $522,614

Dividends are paid in the fiscal quarter following the record date.

The Company has followed the practice of making distributions to shareholders in
amounts approximately equal to its cash basis net income. Since cash flows are
sheltered from tax by depreciation and amortization expense, distributions to
shareholders are in excess of net income. Accordingly, certain distributions
result in a nontaxable return of capital. Distributions per beneficial share
are reportable by shareholders on their individual income tax returns as shown
below:

YEARS ENDED DECEMBER 31, 1996 1995 1994

Taxable ordinary income $0.487 $0.549 $0.469
Nontaxable return of capital 0.292 0.171 0.270

$0.779 $0.720 $0.739

NOTE 8 - TAXES ON INCOME

For the taxable years 1996 and 1995, the Company elected to be treated as a REIT
on the filings of the 1996 and 1995 tax returns and will elect the same for
1997.

<PAGE>

WEST COAST REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS

NOTE 9 - SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

The Company had a noncash financing activity related to unpaid dividends
declared of $302,996, $226,649 and $164,876 for 1996, 1995 and 1994.

Cash paid for interest during the year ended December 31, 1996, 1995 and 1994
was $857,042, $569,746 and $277,288.

NOTE 10 - SUBSEQUENT EVENTS

(a) From January 2 to January 14, 1997, a total of $1,179,423 in proceeds from
the sale of shares in the Company's current offering was released from an escrow
account, and 117,987 shares were issued to investors.

(b) On January 17, 1997, the Company acquired an industrial building located in
Irvine, California for $4,902,500. The acquisition was accomplished with use of
$2,300,000 in debt financing, and the remainder with proceeds from the Company's
current offering.

(c) On January 15, 1997, the Company paid dividends totaling $302,997 ($0.0666
per share per monthly record date), payable to shareholders of record on October
1, November 1, and December 1, 1996, respectively (Note 7).

<PAGE>

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE

None.

<PAGE>

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The Company is managed by West Coast Realty Advisors, Inc., ("Advisor"), a
California corporation. The Shareholders are entitled to decide certain matters
by a majority vote of Shares at a Shareholders' meeting at which a quorum is
present, or by a written consent of a majority of the Shares without a meeting.
The Company's directors may also make certain decisions without Shareholder
approval.

Resumes of the Company's and Advisor's principal officers and directors, and
a description of the Advisor are set forth in the following paragraphs.

WEST COAST REALTY ADVISORS, INC.

West Coast Realty Advisors, Inc. (WCRA) is a California corporation formed on
May 10, 1983 for the purpose of structuring real estate programs and to act as
general partner or Advisor for such programs. WCRA is a subsidiary of
Associated Financial Group, Inc.

The officers and directors of the Company and the Advisor are as follows:

NAME COMPANY ADVISOR

Philip N. Chairman of the Chairman of the
Gainsborough Board/Director Board/Director

W. Thomas Maudlin, President/Director President/Director
Jr.

Neal E. Nakagiri Executive Vice Executive Vice
President/Secretary President/Secretary

Michael G. Clark Vice President/Treasurer Treasurer

George Young Director N/A

Steve Bridges Director N/A

James W. Coulter Director N/A

The biographies for the above individuals are noted below:

<PAGE>

PHILIP N. GAINSBOROUGH (Born 1938) is Chairman of the Board of Directors,
President and Director of Associated Financial Group, Inc. He has been, and he
currently serves as, Chairman of the Board of Directors, President and Director
of Associated Securities Corp. since its inception in 1982. Mr. Gainsborough
is also currently the Chairman of the Board of Directors and Director of West
Coast Realty Advisors, Inc., and West Coast Realty Management, Inc. He is also
Chairman of the Board of Directors, a Director and President of Associated
Planners Partnership Services, Inc., and Associated Planners Insurance Services,
Inc. In addition, from January 1981 to the present, he has served as President
of Gainsborough Financial Consultants, Inc., a financial planning firm located
in Los Angeles, California. From January 1981 to December 1982, Mr.
Gainsborough served as a Registered Principal of Private Ledger Financial
Services, Inc. From January 1977 to December 1980, he was employed by E.F.
Hutton & Co. as a Registered Representative. Mr. Gainsborough is a graduate of
the University of Southern California.

W. THOMAS MAUDLIN JR. (Born 1936) is a Director and President of West Coast
Realty Advisors, Inc., and a Director of West Coast Realty Management, Inc. He
has been active in the real estate area for over 33 years, serving as
co-developer of high-rise office buildings and shopping centers. Mr. Maudlin
has structured transactions for syndicators in apartment housing, including sale
leasebacks, all-inclusive trust deeds, buying and restructuring transactions to
suit a particular buyer, and as a buyer acting as a principal. From 1980 to
present, he has been involved in the development of real property in numerous
parts of Southern California. Mr. Maudlin is a graduate of the University of
Southern California.

NEAL NAKAGIRI (Born 1954 ) serves as Executive Vice President, General
Counsel, Chief Operating Officer and Secretary of Associated Financial Group,
Inc. He is Vice President for two subsidiaries, Associated Securities Corp. and
Associated Planners Investment Advisory, Inc. He joined the "Associated" group
of companies in March 1985. He was Vice President of Compliance with Morgan,
Olmstead, Kennedy & Gardner from 1984 to 1985. He was First Vice President and
Director of Compliance with Jefferies and Co., Inc. from 1981 to 1984. He was
Vice President and Director of Compliance at W & D Securities, Inc. from 1980 to
1983. He was an Investigator with the National Association of Securities
Dealers, Inc. from 1976 to 1980. He has a B.A. degree in Economics from UCLA
(1976) and a J.D. from Loyola Law School of Los Angeles (1991). He is a member
of the California Bar and the Compliance and Legal Division of the Securities
Industry Association.

MICHAEL G. CLARK (Born 1956) is Senior Vice President/Treasurer of Associated
Financial Group, Inc., Associated Planners Investment Advisory, Inc., Associated
Planners Insurance Services, Inc., Associated Planners Partnership Services,
Inc., West Coast Realty Advisors, Inc., and Associated Securities Corp. Prior
to joining Associated Financial Group in 1986, Mr. Clark served as Controller
for Quest Resources, a Los Angeles-based syndicator and operator of alternative
energy projects from October 1984 to March 1986, and as Assistant Controller for
Valley Cable T.V. from March 1982 through September 1984. In addition, he
served as an auditor for Arthur Young & Co. in Los Angeles, from July 1978 to
March 1982. Mr. Clark is a graduate of the University of California, Santa
Barbara and has a Masters of Science degree in Management from California State
University at Northridge.

GEORGE YOUNG (Born 1937) Since 1972 has been president of his own company,
now named Internet Link Corporation. The firm specializes in integrating
Internet and Intranet communications into the productive life of enterprises.
They host and develop sites on the World Wide Web; integrate e-mail and
interactive data retrieval applications; and provide content management and
consulting services. Internet Link Corporation is affiliated with Netscape
Communications, Pacific Bell Internet Services and InterNex Information
Services. Mr. Young is a graduate of the University of Southern California.

STEVE BRIDGES (Born 1951) has served as Executive Vice President of Pacific
Building Industries, a general building contractor from January 1995 to present.
From July 1986 to January 1995, Mr. Bridges served as Executive Vice President
of Pathfinder Mortgage, a mortgage brokerage firm, and was responsible for loan
production and financing of construction loans. From July 1984 to July 1986,
Mr. Bridges was the President of The Muller Company, a real estate development
company, and was responsible for the management of that company, developing,
financing, and joint venture relationships, the development of 800,000 square
feet of industrial and commercial real estate, and partnership management. Mr.
Bridges is a graduate of the University of Southern California.

JAMES W. COULTER (Born 1938) has since 1988 been a principal in Coulter &
Company, a firm which provides brokerage services and invests in real property
with an emphasis in retail, industrial and office properties. From 1981 to 1988
Mr. Coulter was a Vice President of the investment division of Bishop-Hawk,
Inc., a firm which specializes in commercial real estate. He started the
investment division in Sacramento. Prior to 1981, Mr. Coulter was involved in
real estate investments, property management and development, and served as an
officer of a real estate investment trusts. Mr. Coulter is a graduate of and
has a Masters of Business Administration degree from the University of Southern
California.

Gainsborough, Maudlin, Clark, Coulter, Young and Bridges have served in their
positions with the Company since inception. Nakagiri was named Secretary of the
Company in June 1996, replacing Mr. William T. Haas, who retired from the
Company.

ITEM 11. EXECUTIVE COMPENSATION

During 1996, the Registrant paid no direct or indirect compensation to the
Company's officers.

The Registrant has no annuity, pension or retirement plans, or existing plan
or arrangement pursuant to which compensatory payments are proposed to be made
in the future to directors or officers.

The Company's Independent Directors are entitled to receive up to $500 for
each meeting that they attend or participate in via telephone. During 1996, a
total of $6,600 was paid.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT

As disclosed in the Prospectus, the Advisor made a commitment to the
Company to purchase an amount of Shares, at the public offering price of $10 per
Share, which in aggregate is equal to the lesser of 10% of the adjusted net
worth of the Company, upon completion of the initial offering, or $200,000. As
of December 31, 1996, the Advisor had purchased $225,561 worth of shares, or
approximately 1.8% of the adjusted net worth.

42
<PAGE>

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The Registrant was organized in October 1989 as a Delaware corporation.
Its Advisor is West Coast Realty Advisors, Inc. Certain officers and directors
of the Registrant are officers and directors of the Advisor as well (See Item
10-- "Directors and Executive Officers of the Registrant"). The Advisor
purchased 1,075 shares of common stock for a net amount of $10,000 in October
1989 upon formation of the Company and subsequently purchased an additional
21,481 shares of common stock for a net amount of $215,561.

Other transactions involving the Registrant, the Advisor, and its
affiliates are summarized below:

1. As compensation for its services rendered in evaluation and selection
of properties to the Company, the Advisor or Descolin Incorporated ("Descolin"),
an affiliate of the Advisor, are entitled to an acquisition fee that shall not
exceed 6% of gross proceeds allocated towards the purchase of any property.
Descolin is wholly-owned by W. Thomas Maudlin, Jr., the Company's president.
During the year ended December 31, 1996, the Company paid the Advisor and/or
Descolin $78,177 related to the purchase of real estate.

2. The majority of the common stock was sold by representatives of
Associated Securities Corp. ("ASC"), an affiliate of the Advisor. During the
year ended December 31, 1996, commissions paid to ASC for the sale of these
shares totaled $163,735 and are included in additional paid-in capital on the
Company's balance sheet.

3. For property management services, the Advisor engaged West Coast
Realty Management, Inc. ("WCRM"), an affiliate of the Advisor. During the year
ended December 31, 1996, the Company incurred $84,749 of property management
fees.

<PAGE>

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K

(A) 1. FINANCIAL STATEMENTS

The following financial statements of West Coast Realty Investors, Inc. are
included in PART II, ITEM 8:

Page

Report of Independent Certified Public Accountants ...............23
Balance Sheets -- December 31, 1996 and 1995..................... 24
Statements of Income for the years ended
December 31, 1996, 1995 and 1994... ........................25
Statements of Stockholders' Equity for the years ended
December 31, 1996, 1995 and 1994............................26
Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994....... .................27-28
Summary of Accounting Policies ................................29-30
Notes to Financial Statements.............. ...................31-38

2. FINANCIAL STATEMENT SCHEDULES

Schedule III -- Real Estate and Accumulated Depreciation .....45-46
Schedule IV -- Mortgage Loans on Real Estate ........... 47

All other schedules have been omitted because they are either not
required, not applicable, or the information has been otherwise supplied.

(B) REPORTS ON FORM 8-K

None.

<PAGE>

<TABLE>

SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION

DECEMBER 31, 1996

INFORMATION REQUIRED BY RULE 12-28 IS AS FOLLOWS:

Cost Gross Amount at which Life on
Initial Cost Capitalized Carried at Close of Period which

Building Subsequent to Building Depreciation is
& Acquisition & Year Computed
Improvements Improvements Improvements Total Accumulated Construction Date Building/
Description Emcumbrance Land Land Cost Depreciation Completed Acquired Improvements
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Retail
Building,
Huntington
Beach, CA 569,132 1,005,965 670,245 0 1,005,965 670,245 1,676,210 125,015 1991 2/91 31.5

Retail
Building,
Shopping
Center,
Fresno, CA 628,471 553,648 861,245 0 553,648 861,245 1,414,893 80,056 1993 5/93 39.0

Industrial
Building
Huntington
Beach,
CA 1,708,362 1,132,159 1,367,842 0 1,132,159 1,367,842 2,500,001 115,450 1976 9/93 39.0

Industrial
Building
Brea, CA 981,338 808,423 1,439,920 0 808,423 1,439,920 2,248,343 104,617 1989 3/94 39.0

Entertainment
Center
Riverside, CA 1,177,055 768,667 2,886,833 0 768,667 2,886,833 3,655,500 154,215 1994 11/94 39.0

Office
Building
Tustin, CA 2,155,575 1,089,796 3,772,298 0 1,089,796 3,772,298 4,862,094 153,145 1986 5/95 39.0

Light
Industrial
Bldg, 2,140,311 1,228,262 2,519,349 0 1,228,262 2,519,349 3,747,611 72,683 1993 10/95 39.0
Fremont, CA

Light
Industrial
Bldg, 336,272 489,182 609,397 0 489,182 609,397 1,098,579 5,868 1988 8/96 39.0
Sacramento,
CA

Light
Industrial
Bldg, 382,277 325,024 404,896 0 325,024 404,896 729,920 3,899 1988 8/96 39.0
Sacramento,
CA

TOTAL 10,078,793 7,401,126 14,532,025 0 7,401,126 14,532,0252 1,933,151 814,948

45
</TABLE>
<PAGE>

SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)

DECEMBER 31, 1996

A reconciliation of the total cost for the years ending
December 31, 1994, 1995 and 1996 follows:

Balance at January 1, 1994....... $ 5,591,104
1994 Additions................... 5,866,457
Balance at December 31, 1994 .... 11,457,561
1995 Additions .................. 8,647,091
Balance at December 31, 1995 .... 20,104,652
1996 Additions ................. 1,828,500
Balance at December 31, 1996..... $21,933,152

A reconciliation of accumulated depreciation for the years ending
December 31, 1994, 1995 and 1996 follows:

Balance at January 1, 1994........ $ 85,210
1994 Depreciation ................ 115,372
Balance at December 31, 1994 ..... 200,582
1995 Depreciation ................ 253,905
Balance at December 31, 1995 ..... 454,487
1996 Depreciation ................ 360,461
Balance at December 31, 1996 ..... $ 814,948

<PAGE>

<TABLE>

SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE

DECEMBER 31, 1996

INFORMATION REQUIRED BY RULE 12-29 IS AS FOLLOWS:

Final Periodic Delinquent
Interest Maturity Payment Prior Face Carrying Principal/
Description Rate Date Terms Liens Amount Amount Interest

<S> <C> <C> <C> <C> <C> <C> <C>
Retail Building Equal
Monthly
Fresno, CA 8.25% 8/1/2003 Payments None $665,000 $628,471 None
to
First Deed of Maturity
Trust Balloon
Payment
due
8/2003

Industrial Variable
Building Monthly
Huntington Variable 10/1/2003 Payments None $1,750,000 $1,708,362 None
Beach, to
California Maturity
First Deed of Balloon
Trust Payment
due
10/2003

Retail Building Variable
Monthly
Huntington Variable 2/1/2004 Payments None $600,000 $569,132 None
Beach, to
California Maturity
; 25 yr
First Deed of Amortiza
Trust tion;
Balloon
Payment
due
2/2004

Industrial Variable
Building Rate;
Brea, CA Variable 3/1/2020 25 yr None $1,000,000 $981,338 None
First Deed of Amortiza
Trust tion;

Entertainment Center Equal
Monthly
Riverside, CA 9.25% 11/8/2004 Payments; None $1,200,000 $1,177,055 None
First Deed of Amortized
Trust over 28
yrs,3
months;
Balloon
Payment
due
11/2004

Office Building Fixed
Rate;
Tustin, CA 9.625% 2/2/2005 15 year None $2,300,000 $2,155,575 None
First Deed of Amortiza
Trust tion;
Balloon
Payment
due
2/2005

Light Fixed
Industrial Bldg. Monthly
Fremont, CA 8.240% 8/1/2015 Payments None $2,200,000 $2,140,311 None
First Deed of 20 years
Trust Amortization

Light Fixed
Industrial Bldg. Monthly
Sacramento, CA 10.000% 11/1/2001 Payments None $350,000 $336,272 None
First Deed of 25 years
Trust Amortization

Light Fixed
Industrial Bldg. Monthly
Sacramento, CA 8.000% 6/1/2018 Payments None $405,000 $382,277 None
First Deed of 25 years
Trust Amortization

10,470,000 10,078,793

</TABLE>

A reconciliation or mortgage loans payable for the years
ending December 31, 1994, 1995, and 1996 follows:

Balance at January 1,1994............ 2,405,526
1994 Additions . 2,800,000
1994 Paydowns .. (44,171)
Balance at December 31, 1994 5,161,355
1995 Additions . . 4,469,647
1995 Paydowns ........................ (91,822)
Balance at December 31, 1995 ......... 9,539,180
1996 Additions . . 755,000
1996 Paydowns ........................ (215,387)
Balance at December 31, 1996 ......... $10,078,793

<PAGE>

SIGNATURES

Pursuant to the requirements of the 13 or 15(d) 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.

W. THOMAS MAUDLIN JR.
(Director, President and Principal Executive Officer)

PHILIP N. GAINSBOROUGH
(Chairman of the Board of Directors)

MICHAEL G. CLARK
(Vice President/Treasurer, Controller, and Principal
Financial Officer)

GEORGE YOUNG
(Director)

Date: March 17, 1997

<ARTICLE> 5
<CIK> 0000858346
<NAME> WEST COAST REALTY INVESTORS, INC.

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 2,017,194
<SECURITIES> 0
<RECEIVABLES> 247,948
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,075,524
<PP&E> 21,933,151
<DEPRECIATION> (814,948)
<TOTAL-ASSETS> 23,571,838
<CURRENT-LIABILITIES> 588,154
<BONDS> 10,079,793
0
0
<COMMON> 0
<OTHER-SE> 12,904,891
<TOTAL-LIABILITY-AND-EQUITY> 23,571,838
<SALES> 2,377,530
<TOTAL-REVENUES> 2,474,627
<CGS> 888,013
<TOTAL-COSTS> 888,013
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 880,978
<INCOME-PRETAX> 705,636
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 705,636
<EPS-PRIMARY> .49
<EPS-DILUTED> .49

</TABLE>