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, 1997
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: 2,345,825 shares outstanding,
as of March 1, 1998
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PART I
Certain statements in the Annual Report on Form 10-K, particularly under Items 1
through 8, constitute "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995 (the "Reform Act"). Such
forward-looking statements involve known and unknown risks, uncertainties, and
other factors which may cause the actual results, performance or achievements of
the Company to be materially different from any future results, performance or
achievements, expressed or implied by such forward-looking statements.
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 qualifies as a Real
Estate Investment Trust ("REIT") for federal and state income tax purposes. 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 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.
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, 1998
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.
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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 1997, 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, believes the
tenant has the ability to meet its lease obligation.
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 on August 1,
2003. Payments are made at the rate of 8.25% with a twenty-five year
amortization schedule. In July 1998, the interest rate on the loan will adjust
to 3.00% 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.
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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 has not significantly impacted 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, 1997.
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 1998. 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.
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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 2.2 million shares of the Company outstanding as of
December 31, 1997, the Amendment decreased distributable income by approximately
$.01 to $.02 per share per year in 1996 and 1997, and thus was 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 expires in 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.
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 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 ended at the same time that
Claremont High School's sublease ended with OPTO-22. The primary lease on the
property currently called 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.
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The lease on the OPTO-22 building expired on April 30, 1997. OPTO-22, the
tenant, and Claremont School, the sub-tenant, both vacated the premises on
September 10, 1997. West Coast Realty Investors, Inc. has settled with OPTO-22
for the amounts owed by OPTO-22 to West Coast Realty Investors, Inc. for rent
and for deferred maintenance. OPTO-22 has paid the amounts owed to West Coast
Realty Investors, Inc. in accordance with the terms and conditions of a
Settlement Agreement dated October 31, 1997 and the parties have released one
another from any further claims as provided in said agreement. The Company
effectively was compensated for rental income from May 1997 to October 15, 1997.
The Company also received $115,000 to be applied towards repair or various
deferred maintenance items. These repair funds were substantially complete as
of March 15, 1998.
The Company is currently attempting to locate a tenant to enter into a long-
term lease for the Property. If its efforts are successful, the Company expects
to spend an additional $200,000 to $300,000 in additional funds to meet the
requirements of a tenant to refurnish the Property. The Company believes that
the rental revenue it was receiving under the old OPTO-22 lease was 15% to 20%
below current market rates; thus, if a new tenant can be positioned into the
property, the Company could experience an increase in cash flow from the
property. However, the Company may need to slightly decrease distributions to
investors in the first and/or second quarters of 1998 due to the effective
vacancy at the property since October 15, 1997.
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.
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 1997 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 $12,795 per month.
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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
was leased to two tenants. M.L.E., which occupied 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 occupied 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.
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.
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.
On October 31, 1997, the Company ("Seller") sold the North Palm Street
Property to a unrelated buyer. The sale was unsolicited and was partially
contingent on the Seller utilizing the Internal Revenue Service Code Section
S1031 to facilitate a tax free exchange. The total sales price was $2,515,860
in cash. The Seller paid the existing first deed of trust, which as of October
31, 1997 totaled $971,305. The Buyer agreed to contribute an additional
$15,000 to pay the mortgage loan's early prepayment penalty.
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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.
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.
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 current 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.
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.
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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. The loan is fully due and payable
on August 1, 2015.
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.
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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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 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.
The total consideration paid by the Company for the Java City properties was
$1,828,500. The total acquisition cost included $1,725,000 paid to the Sellers,
$25,323 in legal, appraisal and closing costs, and $78,177 in Acquisition Fees
paid to the Advisor.
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.
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TYCOM PROPERTY
On January 17, 1997, the Company acquired the Tycom Property--a 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). The property has 164 striped parking spaces. The building is
approximately twelve years old. There are significant 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
$4,907,441. 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 39 years, the estimated component useful life of the assets.
The financial and tax basis 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.
ROSEVILLE PROPERTY
On November 26, 1997, the Company acquired the investment described below
(the "Roseville Property" or the "Property"). The funds to acquire the
Roseville property resulted from the Section 1031 tax free exchange of the Brea
property (as described above), plus additional proceeds resulting from the sale
of the Company's Shares in the current offering. No debt financing was used in
connection with the Roseville acquisition.
The Property is located on a lot size of .87 acres (approximately 37,900
square feet). This site is part of a larger shopping center which includes well-
known retailers such as Costco, Toys 'R Us, Shell Gasoline, Ross Dress For Less,
and McDonald's Restaurants. The total lot size is approximately 8.66 acres
(378,000 square feet). There are 61 parking spaces assigned to this site, with
the Property also enjoying the use of hundreds of other parking spaces located
within the larger shopping center. The building size totals 5,133 square feet.
11
<PAGE>
The sole tenant of the Property is Applebee's Restaurant. Applebee's is a
well-known, national franchise of sit-down casual restaurants. This particular
Applebee's was developed by, and acquired from, Christian Knox (an individual
and unrelated third party), and the restaurant franchise is owned and operated
by him in a sale-leaseback arrangement. Mr. Knox has seven Applebees and nine
Burger King franchises, as evidence of his experience in this industry.
The lease of the Property commenced after the issuance of the Certificate of
Occupancy in September 1997. The lease is a 20 year triple net lease, including
provisions for collection of common area charges that are assessed by the
shopping center owner. Lease payments are $14,333.33 per month ($172,000 per
year) with rental increases scheduled every five years at the rate of 12 /%.
The lease commenced on December 1, 1997. Future minimum lease payments on a
calendar year basis are noted below:
1997 $ 14,333
1998-2001 172,000
2002 179,167
2003-2006 193,500
2007 201,563
2008-2011 217,688
2012 226,758
2013-2016 244,898
2017 (through September 1) 163,266
Mr. Knox has personally guaranteed the lease and has provided documentation
demonstrating a personal net worth in excess of $10 million.
The Roseville Property is managed by West Coast Realty Management, Inc.
("WCRM"), an affiliate of the Company. WCRM charges the Company 3% of the gross
rents collected as a management fee, as allowed by the Property Management
Agreement. Property taxes in the first full year of operations, are estimated
to be $20,000 (approximately 1% of the sales price).
Total consideration paid by the Company for the Roseville property is
$1,976,484. This cost includes the $1,950,000 sales price payable to the
Seller/Operator, $12,500 in estimated legal, appraisal, and closing costs, and a
$16,000 Acquisition Fee payable to the Advisor. In addition, $14,333 was
received from the Seller/Operator as a security deposit. The sale was paid for
from approximately $1,500,000 received from the disposition of the Brea property
(as described above), with the balance (approximately $567,000) from the
proceeds resulting from the sale of the Company's shares in the current
offering.
The purchase price was determined through arms-length negotiations with the
Seller/Operator.
The computation of depreciation for the Roseville 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 will be computed on a
straight-line basis over 39 years, the estimated component useful life of the
assets.
12
<PAGE>
CORONA PROPERTY
On December 31, 1997, the Company acquired the investment described below
(the "Corona Property" or the "Property"). The funds to acquire the Corona
Property resulted from proceeds received in connection with the sale of the
Company's Shares in the current offering. No debt financing was used to acquire
the Corona Property.
The Corona Property is located at 363 American Circle, Corona in the
Riverside County section of Southern California. The Property is located near
the 91 Freeway and the Maple Street exit. There is easy access to the freeway
and surrounding areas. The Property is in the middle of an industrial and
warehouse/development area. There is a mixture of light industrial
manufacturing, office, industrial, and research/development space in the
immediate area.
The Property is located on a lot size of 77,101 square feet. The Property
is a two-story warehouse/industrial building containing approximately 37,330
square feet. The construction involves concrete footings, foundation and slab,
with a flat tar/gavel roof. Parking is adequate and within applicable building
codes, with some parking available in the Building's basement. The Building is
eight years old
The sole tenant of the Property is American National Manufacturing, Inc,
(the "Tenant"). The tenant entered into a triple net lease on June 1, 1997.
The tenant manufactures foundations and convertible beds, and contract
manufacturing of beds of all types. This triple net lease expires May 31, 2002,
with a five year option to renew. Future minimum rent under the current lease
is as follows:
January 1, 1998 - May 31, 1998 $14,932
June 1, 1998 - May 31, 1999 15,679
June 1, 1999 - May 31, 2000 16,425
June 1, 2000 - May 31, 2001 17,172
June 1, 2001 - May 31, 2002 17,918
The Property was acquired from an unrelated third party, American Circle
Limited, A California Limited Partnership (the "Seller").
The Corona Property is managed by West Coast Realty Management, Inc.
("WCRM"), an affiliate of the Company. WCRM charges the Company 3% of the gross
rents collected as a management fee, as allowed by the Property Management
Agreement. Property taxes in the first full year of operations which are the
obligation of the tenant, are estimated at approximately $19,000 (approximately
1% of the sales price).
Total consideration paid by the Company for the Corona Property was
$1,896,949. This cost includes the $1,800,000 sales price payable to the
Seller, approximately $20,000 in legal, appraisal, and closing costs, and an
$94,000 acquisition fee payable to the Advisor. In addition, $92,000 was
received from the Seller in the transfer of prepaid rents. The sale was paid
for from the proceeds resulting from the sale of the Company's shares in the
current offering.
13
<PAGE>
The purchase price was determined through an arms-length negotiation with
the Seller. The total cost of $51.11 per square foot is comparable to recent
sales in the area for similar properties. Four sales were surveyed and the
price per square foot ranged from $48.00 to $57.37, with the weighted square
foot average being $51.42. Considering the state of the recovering economy in
the area and the long term lease in place with a relatively stable and desirable
tenant, the price paid for the Property is considered reasonable.
The computation of depreciation for the Corona 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 will be computed on a
straight-line basis over 39 years, the estimated component useful life of the
assets.
LAUFEN TILE DISTRIBUTION CENTER
On January 14, 1998, the Company acquired the investment described below
(the "Laufen Property" or the "Property"). The funds to acquire the Laufen
Property resulted from proceeds received in connection with the sale of the
Company's Shares in the current offering. No debt financing was used to acquire
the Laufen Property.
The Laufen Property is located at 9970 and 9980 Horn Road, Sacramento in the
Rancho Cordova section of Sacramento, which is located in Northern California.
The Property is located near the U.S. 50 (El Dorado) and Interstate 80 Freeways.
There is easy access to freeways and surrounding areas. The Property is located
in an industrial area which has recently been under strong demand by local
businesses.
The property is located on a lot size of 151,153 square feet, which consists
of two adjacent parcels. The Property contains two separate, one-story 24,000
square foot buildings, with a total of 48,000 square feet. The construction
involves concrete footings, foundation and slab, with a flat tar/gavel roof.
There are 38 parking spaces on the site. The Buildings were originally
constructed in 1976.
The sole tenant of the property is Laufen International, Inc. The Company
is a floor tile manufacturer with North American headquarters locate din Tulsa,
Oklahoma. Laufen is owned by a parent company located in Germany. Laufen has
been occupying the property since 1987. Under the provisions of the current
lease future minimum rent is as follows:
January 1, 1998 - January 31, 1998 $ 17,242
February 1, 1998 - January 31, 1999 18,391
February 1, 1999 - January 31, 2000 18,502
February 1, 2000 - January 31, 2001 19,570
February 1, 2001 - January 31, 2002 20,265
February 1, 2002 - January 31, 2003 21,188
The lease is a triple-net lease, with the tenant responsible for reimbursing
the Company for 91.67% of the property taxes, insurance and common area costs
that are incurred in connection with the Property.
The Property was acquired from an unrelated third party, the Huarte Family
Trust (the "Seller").
14
<PAGE>
The Laufen Property is managed by West Coast Realty Management, Inc.
("WCRM"), an affiliate of the Company. WCRM charges the Company 3% of the gross
rents collected as a management fee, as allowed by the Property Management
Agreement. Property taxes in the first full year of operations, which are the
obligation of the tenant are estimated to be approximately $21,000
(approximately 1% of the sales price).
Total consideration paid by the Company for the Laufen Property was
$2,141,200. This cost includes the $2,020,000 sales price payable to the
Seller, approximately $20,000 in legal, appraisal, and closing costs, and a
approximately a $108,000 acquisition fee payable to the Advisor (the
distribution of amounts between acquisition fees and costs are still
approximate at this point). The sale was paid for from the proceeds resulting
from the sale of the Company's shares in the current offering.
The purchase price was determined through an arms-length negotiation with
the Seller. The total cost of $44.61 per square foot is comparable to recent
sales in the area for similar properties. Eight sales were surveyed and the
price per square foot ranged from $45.00 to $51.00. Considering the state of
the recovering economy in the area and the long term lease in place with a
relatively stable and desirable tenant, the price paid for the Property is
considered reasonable.
The computation of depreciation for the Corona 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 will be computed on a
straight-line basis over 39 years, the estimated component useful life of the
assets.
SUMMARY
Tenants representing 10% or more of the Company's total consolidated rental
revenue are as follows:
Safeguard accounted for 20% of the total consolidated rental revenue of the
Company.
Tycom accounted for 16% of the total consolidated rental revenue of the
Company.
Riverside Marketplace Theaters accounted for 16% of the total consolidated
rental revenue of the Company.
CMS Welding & Machinery (Fremont property) accounted for 15% of the total
consolidated rental revenue of the Company.
15
<PAGE>
The acquisition costs and dates of acquisition were as follows:
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 - SOLD ON OCTOBER 31, 1997 --- 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
Java City Properties 1,828,500 08/02/96
Tycom 4,907,441 01/17/97
Roseville Property 1,976,484 10/31/97
Corona Property 1,896,949 12/31/97
28,465,682
Subsequent to year end (12/31/97):
Laufen Tile Property 2,141,200 01/15/98
Total Acquisition Cost & Improvements 30,606,882
As mentioned in the narrative above, all properties were 100% occupied by
their respective tenants (or in the case of Technology Drive, tenant and sub-
tenant), expect for the OPTO-22 property. The Company is currently attempting to
locate a tenant to enter into a long-term lease for the OPTO-22 Property.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
16
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
The Company has completed four 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 704,746 shares had been
sold resulting in $7,033,450 in gross proceeds as of December 31, 1997.
At December 31, 1997, there were 2,163,561 shares of Common Stock outstanding
and 1,150 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 intended 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 $1,488,950, $1,128,597 and $804,595 in 1997, 1996 and
1995 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 1997 and
1996 dividend distributions are summarized below:
17
<PAGE>
Dividends declared during 1997 were as follows:
OUTSTANDING AMOUNT TOTAL
RECORD DATE SHARES PER UNIT DIVIDEND
January 1, 1997 1,550,607 $0.0666 $103,270
February 1, 1997 1,671,442 0.0666 111,318
March 1, 1997 1,671,442 0.0666 111,318
April 1, 1997 1,810,916 0.0666 120,606
May 1, 1997 1,815,579 0.0666 120,918
June 1, 1997 1,815,579 0.0666 120,918
July 1, 1997 1,815,579 0.0666 120,918
August 1, 1997 1,974,143 0.0666 131,478
September 1, 1997 1,968,143 0.0666 131,078
October 1, 1997 1,968,143 0.0666 131,078
November 1, 1997 2,147,524 0.0666 143,025
December 1, 1997 2,147,524 0.0666 143,025
TOTAL $1,488,950
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
18
<PAGE>
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.
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Operations for the years
ended December 31:
Revenues $3,217,492 $2,474,627 $1,813,126 $903,167 $ 362,566
Net Income 978,978 705,636 649,605 247,068 158,490
Net Income/Share* .53 .49 .58 .35 .38
Dividends/Share* .799 .779 .72 .74 .53
Financial position at
December 31:
Total Assets 29,839,091 23,571,838 21,392,898 13,228,888 7,483,308
Long-term Debt 11,194,832 10,078,793 9,539,180 5,161,355 2,405,526
Stockholders' Equity 17,852,963 12,904,891 11,234,837 7,756,140 4,925,260
</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
Certain statements in the Management Discussion and Analysis constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995 (the "Reform Act"). Such forward-looking
statements involve known and unknown risks, uncertainties, and other factors
which may cause the actual results, performance or achievements of the Company
to be materially different from any future results, performance or achievements,
expressed of implied by such forward-looking statements.
RESULTS OF OPERATIONS - 1997 VS. 1996
Operations for the year ended December 31, 1997 represented a full year of
rental operations for all properties expect Tycom Property which was owned for
eleven months, the Roseville Property which was owned for one month and the
Corona Property which was purchased on December 31, 1997.
19
<PAGE>
ITEM 7. MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
The net income for the year ended December 31, 1997 ($978,978) was higher
than the year ended December 31, 1996 ($705,636) 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, 1997, except the OPTO-22
property which has been unleased since October 15, 1997. The Company is
attempting to locate a tenant to enter into a long-term lease for the property.
All tenants were current on their lease obligations.
Rental revenue increased $707,036 (30%) due to a full year's ownership of
the Java City property, eleven months ownership of the Tycom property and one
month ownership of the Roseville property during 1997 less two month's fewer
ownership of the Brea property, as compared to a five month ownership for the
Java City Property and no ownership for both the Tycom and Roseville properties
in 1996). Interest income increased $35,829 (37%) due to higher cash balances
maintained during the year ended December 31, 1997 as compared to the year ended
December 31, 1996.
On October 31, 1997, the Company ("Seller") sold the North Palm Street
Property to a unrelated buyer. The total sales price was $2,515,860 in cash.
The Seller paid the existing first deed of trust, which as of October 31, 1997
totaled $971,305. The Company recognized a $262,168 gain on the sale of the
North Palm Street property in Brea, California.
Operating expenses increased $75,460 (25%) due to the additional properties
owned during the year. Interest expense increased $167,796 (19%) due to the
additional debt incurred in connection with property acquisition and refinancing
activities. Despite the amount of debt financing, the Company remains below the
50% debt maximum allowed by the Company's by-laws (debt was 39% of property cost
(as defined in the by-laws) as December 31, 1997). General and administrative
costs increased $112,300 (50%) due to higher overhead expenses and Advisory fee
expenses related to the Company's increased size. General and administrative
costs as a percentage of revenue increased from 9.4% in 1996 to 10.7% in 1997.
Much of this increase is due to $186,439 that the Advisor was paid in 1997 as a
result of the revised provisions of the Advisor agreement. Depreciation and
amortization expense increased $113,967 (32%) as the result of the ownership of
additional properties during 1997 as compared to 1996.
The weighted average number of shares outstanding during 1997 was 1,839,018
versus 1,447,366 in 1996. Despite the greater number of shares outstanding, the
net income per share increased from $.49 in 1996 to $.53 in 1997. If this
figure is analyzed using flow of funds - that is net income plus depreciation
expense - then the amount in 1997 was $.79 per share vs. $.75 in 1996.
The improvement in the per share figures is attributable to a larger
percentage of the Company's assets being invested in income producing real
estate during 1997, as opposed to investments in relatively lower yielding money
market investments.
20
<PAGE>
ITEM 7. MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
During the year ended December 31, 1997, the Company declared dividends
totaling $1,488,950, compared to dividends of $1,128,597 declared for the year
ended December 31, 1996. Cash basis income for the year ended December 31, 1997
was $1,459,406. This was derived by adding depreciation and amortization
expense to net income. Thus, cash distributions this year were greater
($35,104) than cash basis net income. In contrast, distributions in 1996 were
greater ($62,060) than cash basis income. The Company continues to qualify
as a REIT.
In summary, the operating performance of the Company continued to improve
as additional funds were raised, additional property was acquired, and all
properties were operating profitably, expect the OPTO-22 property. The Company
is currently attempting to locate a tenant to enter into a long-term lease for
the OPTO-22 property.
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.
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.
21
<PAGE>
ITEM 7. MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
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.
LIQUIDITY AND CAPITAL RESOURCES
During the year ended December 31, 1997, the Company declared dividends
totaling $1,488,950. 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, 1997, the Company raised an additional
$5,331,605 in net proceeds as the result of the sale of shares from its third
and fourth public offering. In 1996, the Company raised $2,048,954 in net
proceeds as the result of the sale of shares from a combination of its third
offering and fourth offering. The Company used the net proceeds from these
offerings to purchase additional income-producing properties and to add to the
cash reserve balances of the Company.
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.
22
<PAGE>
ITEM 7. MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
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 factors.
The first factor refers to the risk of the Company's investments. At December
31, 1997, the Company's excess funds were invested in a short-term money market
fund. The Company acquires rental property either entirely for cash or with
moderate financing. During the year ended December 31, 1997, notes payable
pertaining to property acquisitions by the Company increased by $2,312,500,
while cash used in principal repayments of notes totaled $1,196,461. 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 2007. The Company is aware
that the balloon payments must be avoided through refinancing of the loans or
the sale of the property(ies) 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.
The second factor refers to the condition of the Company's properties. The
Company's properties are in good condition without significant deferred
maintenance obligations and are leased under "triple-net" leases, which reduces
the Company's risk pertaining to excessive maintenance and operating costs.
The third factor refers to operating cycle. 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 $580,000 towards a "reserve"
fund (3% of gross funds raised, as disclosed in the Company's latest
prospectus), $210,000 of cash to be paid for current mortgage and accounts
payable commitments, $257,000 in tenant security deposits and prepaid rents, and
the balance--approximately $1,050,000--expected to be invested in future
property acquisitions. The Company's operations generated $1,459,406 in net
operating cash flow in 1997 (net income plus depreciation expense). Thus, the
Company is generating significant amounts of cash flow and could withhold
payment of all or a portion of dividends, if necessary, in order to rebuild cash
balances.
The fourth factor refers to distribution of dividends to shareholders.
Dividends to shareholders were 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 available income. 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 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.
23
<PAGE>
ITEM 7. MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
CASH FLOWS 1997 VS. 1996
Cash resources increased $82,663 during 1997 compared to the $567,172
increase in 1996. 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 $2,135,855 with the largest
contributor being $1,704,659 in cash basis income. In contrast, 1996 saw
$819,783 in cash being provided by operating activities due primarily to
$1,066,537 in cash basis income. Cash used in investing activities for 1997
totaled $6,170,565 due to $8,686,425 used to the purchase the Tycom, Roseville
and Corona properties, offset by $2,515,860 due to the sale of the Brea
property. In contrast, during 1996 the sole use of cash for investing
activities was $1,828,500 expended for the purchase of the Java City property.
During 1997, $4,117,373 was provided by financing activities. This increase was
the result of $4,666,531 in net proceeds from the sale of additional shares in
the Company and $2,312,500 increase in notes payable in connection with the
purchase of the Tycom property. These cash resources were offset by dividends
declared and paid of $1,791,710 and payments on notes payable of $1,196,461.
This continues the Company's trend of paying virtually all the cash basis income
out to investors in the form of quarterly dividends. In contrast, 1996's cash
provided by financing activities was $1,575,889 due to $2,048,954 in proceeds
from the sale of additional shares, and a $755,000 gross increase in notes
payable, offset by dividends paid and declared of $1,052,925.
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.
24
<PAGE>
ITEM 7. MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
NEW ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 130 (SFAS No. 130) "Reporting
Comprehensive Income," issued by the Financial Accounting Standards Board is
effective for financial statements with fiscal years beginning after December
15, 1997. Earlier application is permitted. SFAS No. 130 establishes standards
for reporting and display of comprehensive income and its components in a full
set of general-purpose financial statements. The Company has not determined the
effect on its financial position or results of operations, is any, from the
adoption of this statement.
Statement of Financial Accounting Standards No. 131 (SFAS No. 131), "Disclosure
about Segments of an Enterprise and Related Information," issued by the
Financial Accounting Standards Board is effective for financial statements with
fiscal years beginning after December 15, 1997. The new standard requires that
public business enterprises report certain information about operating segments
in complete sets of financial statements of the enterprises and in condensed
financial statements of interim periods issued to shareholders. It also
requires that public business enterprises report certain information about their
products and services, the geographic areas in which they operate and their
major customers. The Company has not determined the effect on its financial
position or results of operations, if any, from the adoption of this statement.
25
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PAGE
Report of Independent Certified Public Accountants 27
Balance Sheets - December 31, 1997 and 1996 28
Statements of Income for the years ended
December 31, 1997, 1996 and 1995 29
Statements of Stockholders' Equity for the years ended
December 31, 1997, 1996 and 1995 30
Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995 31-32
Summary of Accounting Policies 33-34
Notes to Financial Statements 35-42
Financial Statement Schedules
Schedule III - Real Estate and Accumulated Depreciation 49-50
Schedule IV - Mortgage Loans on Real Estate 51-52
26
<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, 1997 and 1996 and the related
statements of income, stockholders' equity, and cash flows for each of the three
years ended December 31, 1997. 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, 1997 and 1996, and the results of its operations and its
cash flows for each of the three years ended December 31, 1997, 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
March 12, 1998
27
<PAGE>
<TABLE>
WEST COAST REALTY INVESTORS, INC.
BALANCE SHEETS
<CAPTION>
December 31, 1997 1996
<S> <C> <C>
ASSETS
Rental real estate, less accumulated
depreciation (Notes 2 and 3) $27,322,612 $21,118,203
Cash and cash equivalents 2,099,857 2,017,194
Deferred rent 288,411 247,948
Loan origination fees, net of
accumulated amortization of $51,603 and $40,248 89,260 102,622
Other assets 38,951 85,871
Total assets $29,839,091 $23,571,838
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Accounts payable $130,076 $13,922
Due to related party (Note 4) 187,267 46,285
Dividends payable (Note 7) --- 302,760
Security deposits and prepaid rent 366,921 124,734
Other liabilities 107,032 100,453
Notes payable (Note 5) 11,194,832 10,078,793
Total liabilities 11,986,128 10,666,947
COMMITMENTS
STOCKHOLDERS' EQUITY
Common stock, $.01 par-shares authorized,
5,000,000 shares issued, 2,163,561 and 1,550,607
outstanding in 1997 and 1996 21,635 15,506
Additional paid-in capital 19,313,678 13,861,763
Retained earnings (1,482,350) (972,378)
Total stockholders' equity 17,852,963 12,904,891
Total liabilities and stockholders' equity $29,839,091 $23,571,838
</TABLE>
[FN]
See accompanying summary of accounting policies and notes to financial
statements.
28
<PAGE>
<TABLE>
WEST COAST REALTY INVESTORS, INC.
STATEMENTS OF INCOME
<CAPTION>
Years ended December 31, 1997 1996 1995
<S> <C> <C> <C>
REVENUES
Rental (Notes 2 and 3) $2,822,398 $2,377,530 $1,692,176
Gain on sale of property 262,168 --- ---
Interest 132,926 97,097 120,950
3,217,492 2,474,627 1,813,126
COSTS AND EXPENSES
Operating 378,318 302,858 169,679
Interest expense 1,048,774 880,978 620,031
General and administrative 336,554 224,254 117,667
Depreciation and amortization 474,868 360,901 256,144
2,238,514 1,768,991 1,163,521
NET INCOME $978,978 $705,636 $649,605
NET INCOME PER SHARE (Note 7) $.53 $.49 $.58
</TABLE>
[FN]
See accompanying summary of accounting policies and notes to financial
statements.
29
<PAGE>
<TABLE>
WEST COAST REALTY INVESTORS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<CAPTION>
Common Stock Additional Distributions
Shares Amount Paid-in in Excess of
Capital Earnings
<S> <C> <C> <C> <C>
BALANCE, January 1, 1995 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 $246,599 228,203 2,282 2,046,672 ---
Net income for the year --- --- --- 705,636
Equity contribution by Affiliates through
expense reimbursements (Note 4f ) --- --- 44,061 ---
Dividends declared ($.779 per share-Note 7) --- --- --- (1,128,597)
BALANCE, December 31, 1996 1,550,607 15,506 13,861,763 (972,378)
Issuance of stock for cash, net of costs 612,954 6,129 5,325,476 ---
and sales commissions of $691,928
Net income for the year --- --- --- 978,978
Equity contribution by Affiliates through
expense reimbursements (Note 4f ) --- --- 126,439 ---
Dividends declared ($.799 per share-Note 7) --- --- --- (1,488,950)
BALANCE, December 31, 1997 2,163,561 $21,635 $19,313,678 $(1,482,350)
</TABLE>
[FN]
See accompanying summary of accounting policies and notes to financial
statements.
30
<PAGE>
<TABLE>
WEST COAST REALTY INVESTORS, INC.
STATEMENTS OF CASH FLOW
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<CAPTION>
Years ended December 31, 1997 1996 1995
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $978,978 $705,636 $649,605
Adjustments to reconcile net income to net
cash provided by operating activities:
Gain on sale of property (262,168) --- ---
Depreciation and amortization 474,868 360,901 256,144
Interest expense on amortization of loan
origination fees 2,007 21,161 11,454
Increase (decrease) from changes in
operating assets and liabilities:
Government securities --- --- 1,240,190
Accounts receivable (40,463) (115,800) (62,784)
Other assets 46,920 (45,277) 30,469
Accounts payable 116,154 (11,497) 10,731
Due to related party 140,982 (121,029) 130,378
Security deposits and prepaid rent 242,187 15,666 71,823
Other liabilities 6,579 10,022 35,133
Net cash provided by operating activities 1,706,044 819,783 2,373,143
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of rental real estate (8,780,874) (1,828,500) (8,647,090)
Proceeds from sale of rental real estate 2,375,120 --- ---
Net cash (used in) investing activities (6,405,754) (1,828,500) (8,647,090)
</TABLE>
31
<PAGE>
<TABLE>
A WEST COAST REALTY INVESTORS, INC.
STATEMENTS OF CASH FLOW (CONT.)
<CAPTION>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
Years ended December 31, 1997 1996 1995
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock, net 5,331,605 2,048,954 3,633,687
Equity contribution by Affiliates through
expense reimbursements 126,439 44,061 ---
Dividends (1,791,710) (1,052,925) (745,172)
Proceeds from notes payable 2,312,500 755,000 4,469,647
Payments on notes payable (1,196,461) (215,387) (91,822)
Decrease (Increase) in loan origination fees --- (3,814) (38,200)
Net cash provided by financing activities 4,782,373 1,575,889 7,228,140
NET INCREASE IN CASH AND CASH EQUIVALENTS 82,663 567,172 954,193
CASH AND CASH EQUIVALENTS, beginning of year 2,017,194 1,450,022 495,829
CASH AND CASH EQUIVALENTS, end of year $2,099,857 $2,017,194 $1,450,022
</TABLE>
[FN]
See accompanying summary of accounting policies and notes to financial
statements.
32
<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 exists as a Real Estate
Investment Trust ("REIT") under Sections 856 to 860 of the
Internal Revenue Service Code. The Company has complied with all
requirements imposed on REIT's for the 1997, 1996 and 1995 tax
years; however qualification as a REIT for future years is
dependent upon future operations of the Company. The Company was
organized to acquire interests in income-producing residential,
industrial, retail or commercial properties located primarily in
California and the west coast of the United States. The Company
intends to acquire property for cash on a moderately leveraged
basis with aggregate mortgage indebtedness not to exceed fifty
percent of the purchase price of all properties on a combined
basis, or eighty percent individually and intends to own and
operate such properties for investment over an anticipated
holding period of five to ten years.
RENTAL 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 Investments classified as trading securities are recorded at
market value. Unrealized gains or losses are included 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.
33
<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.
RECLASSIFICATIONS For comparative purposes, certain prior year amounts have
been reclassified to conform to the current year
presentation.
EARNINGS (LOSS) On March 3, 1997, the FASB issued Statement of Financial
PER SHARE Accounting Standards No. 128, "Earnings Per Share" (SFAS
128). This pronouncement provides a different method of
calculating earnings per share than is currently used in
accordance with APB 15, "Earnings Per Share". SFAS 128
provides for the calculation of Basic and Diluted earnings
per share. Basic earnings per share includes no dilution and
is computed by dividing income available to common
shareholders by the weighted average number of common shares
outstanding for the period. Diluted earnings per share
reflects the potential dilution of securities that could
share in the earnings of the entity, similar to fully diluted
earnings per share. Except where the provisions of the
Securities and Exchange Commission's Staff Accounting
Bulletin No. 98 are applicable, common share equivalents have
been excluded in all years presented in the Statements of
Operations when the effect of their inclusion would be anti-
dillutive. SFAS 128 is effective for fiscal years and interim
periods after December 15, 1997. The Company has adopted
this pronouncement during the fiscal year ended December 31,
1997. The adoption of SFAS 128 does not effect earnings per
share for fiscal year ended December 31, 1997 and prior
years.
NEW ACCOUNTING Statement of Financial Accounting Standards No. 130 (SFAS
PRONOUNCEMENTS No. 130) "Reporting Comprehensive Income," issued by the
Financial Accounting Standards Board is effective for
financial statements with fiscal years beginning after
December 15, 1997. Earlier application is permitted. SFAS
No. 130 establishes standards for reporting and display of
comprehensive income and its components in a full set of
general-purpose financial statements. The Company has not
determined the effect on its financial position or results of
operations, is any, from the adoption of this statement.
Statement of Financial Accounting Standards No. 131 (SFAS No.
131), "Disclosure about Segments of an Enterprise and Related
Information," issued by the Financial Accounting Standards
Board is effective for financial statements with fiscal years
beginning after December 15, 1997. The new standard requires
that public business enterprises report certain information
about operating segments in complete sets of financial
statements of the enterprises and in condensed financial
statements of interim periods issued to shareholders. It
also requires that public business enterprises report certain
information about their products and services, the geographic
areas in which they operate and their major customers. The
Company has not determined the effect on its financial
position or results of operations, if any, from the adoption
of this statement.
34
<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, 1997 the Company has raised
$21,595,947 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
(OTPO-22) September 15, 1993 2,500,001
Riverside, California November 29, 1994 3,655,500
Tustin, California
(Safeguard) May 22, 1995 4,862,094
Fremont, California
(Technology Drive) October 31, 1995 3,747,611
Sacramento, California
(Java City) August 2, 1996 1,828,500
Irvine, California
(Tycom) January 17, 1997 4,907,441
Roseville, California
(Applebee's) October 31, 1997 1,976,484
Corona, California December 31, 1997 1,896,949
35
<PAGE>
WEST COAST REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 2 - RENTAL PROPERTIES (CONTINUED)
The major categories of property are:
DECEMBER 31, 1997 1996
Land $ 9,449,150 $ 7,401,126
Buildings and improvements 19,016,532 14,532,025
28,465,682 21,933,151
Less accumulated depreciation 1,143,073 814,948
Net rental properties $ 27,332,612 $ 21,118,203
During 1997, the Company acquired three properties. The Statement of Operations
includes rental income for the acquired properties from the dates of acquisition
to December 31, 1997.
On October 31, 1997, the Company ("Seller") sold the North Palm Street Property
to a unrelated buyer. The total sales price was $2,515,860 in cash. The Seller
paid the existing first deed of trust, which as of October 31, 1997 totaled
$971,305. The Company recognized a $262,168 gain on the sale of the North Palm
Street property in Brea, California.
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:
Four tenants accounted for 20%, 16%, 16% and 15%, respectively, in 1997;
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;
The following unaudited pro forma information are presented to illustrate the
effect of the three properties acquired in during 1997 and 1996, as discussed
above, and the property acquired in 1998, as discussed in Note 10, as if the
acquisitions occurred on January 1st of each year presented.
PRO FORMAS FOR THE YEARS
ENDED 1997 1996
DECEMBER 31,
Revenues:
Rental Income $ 3,241,702 $ 3,321,089
Gain on sale of property 214,128 204,519
3,455,830 3,525,608
Costs and Expenses:
Operating 353,869 313,090
Interest 980,241 1,020,428
General & Administrative 336,554 528,441
Depreciation & Amortization 543,761 224,254
2,214,425 2,086,213
Net Income $1,241,405 $1,439,395
Net Income per Share $0.67 $0.74
36
<PAGE>
WEST COAST REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 3- FUTURE MINIMUM RENTAL INCOME
As of December 31, 1997, future minimum rental income under the existing leases
that have remaining noncancelable terms in excess of one year are as follows:
DECEMBER 31,1997
1998 .................................$2,822,600
1999 ..................................2,864,178
2000 ..................................2,906,830
2001 ..................................2,834,342
2002 ..................................2,704,149
Thereafter .......................... 11,772,647
Total $25,904,746
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,
1997, 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 $262,833, $82,864 and $150,429 in 1997, 1996 and 1995.
(b) Overhead expenses reimbursed to the Advisor totaled $24,000, $12,000
and $12,000 in 1997, 1996 and 1995.
(c) Sales commissions paid in accordance with the selling agreement to ASC
totaled $429,095 $163,735 and $301,706 for 1997, 1996 and 1995.
(d) Fees related to the purchase, sale or refinancing of real estate
totaled $384,719, $78,177 and $444,795 in 1997, 1996 and 1995 (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 $106,576, $103,052 and
$46,947 in 1997, 1996 and 1995.
(f) Advisory fees earned by WCRA totaled $186,439 and $74,361 in 1997 and
1996. WCRA waived collection of $126,439 and $44,061 in 1997 and 1996
respectively, of these fees which are included in additional paid-in
capital.
37
<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:
1997 1996
DECEMBER 31,
Associated Securities Corp. 6,152 396
West Coast Realty Management 23,192 24,839
West Coast Realty Advisors 157,923 21,050
$187,267 $46,285
NOTE 5 - NOTES PAYABLE
Notes payable are made up of the following:
DECEMBER 31, 1997 1996
8.25% promissory note secured by a Deed of Trust
on the Fresno Property, monthly principal and interest
payments are $5,244 due August 1, 2003 ............... $ 616,219 $ 628,471
Variable rate promissory note secured by a Deed
of Trust on the OPTO-22 property, interest rate
adjustments are monthly and are based on the 11th
District cost of funds rate plus 3% (7.963% at
December 31, 1997), and may never go below 6.5%
or above 11.0%, monthly principal and interest
payments are $12,723, due October 1, 2003 ............. 1,688,870 1,708,362
8.25% promissory note secured by a Deed of Trust on
the Blockbuster property, interest rate adjusts
to the 5-year Treasury rate plus 350 basis points
on February 1, 1999, monthly principal and interest
payments are $4,934, due February 1, 2004 .............. 556,403 569,132
9.25% promissory note secured by a Deed of Trust
on the Riverside property, monthly principal and
interest payments are $9,988, due November 8, 2004 .. 1,167,149 1,177,055
Variable rate promissory note secured by a Deed of Trust
on the Brea property, interest rate is 9.5% until March 1,
2000 (and each succeeding March 1st) when interest rate
adjusts to the Moody's corporate bond index daily rate
plus 0.125%, monthly principal and interest payments
vary depending upon interest rates and are currently
$8,737, due March 1, 2020 ............................... --- 981,338
38
<PAGE>
WEST COAST REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 5 - NOTES PAYABLE (CONT.)
DECEMBER 31, 1997 1996
9.625% promissory note secured by a Deed of Trust
on the Safeguard property, monthly principal and
interest payments are $24,191, due February 1,
2005 ............................................... $2,069,004 $2,155,575
8.24% promissory note secured by a Deed of Trust
on the Fremont property, interest rate equaled the 20-year
Treasury rate plus 1.65% at loan closing, monthly principal
and interest payments are currently $18,898, due
August 1, 2015 .................................... 2,090,456 2,140,311
10% promissory note secured by a Deed of Trust on the
Java City property, monthly principal and interest payments
are $3,413, due November 1, 2001...................... 329,083 336,272
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.......................... 375,540 382,277
Variable rate promissory note secured by a Deed of Trust on the
Tycom property, interest rate margin is 1.9% over the 3 month
LIBOR with right of conversion after the first year (7.65% at
December 31, 1997), monthly payments of principal and
interest are $17,469, due June 30, 2007 2,302,108 ---
$11,194,832 $10,078,793
The fair value of the notes are approximately $11,127,609 calculated by
discounting the expected future cash outflows on the notes to the present based
on current lending rates which are the approximate industry lending rates on
these type of properties and these locations.
The aggregate annual future maturities at December 31, 1997 are as follows:
YEAR ENDING DECEMBER 31, 1997
1998 .................................. $ 257,341
1999 .................................. 277,629
2000 .................................. 300,845
2001 .................................. 328,143
2002 .................................. 649,352
Thereafter .......................... 9,381,522
Total $11,194,832
39
<PAGE>
WEST COAST REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
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.
NOTE 7 - NET INCOME AND DIVIDENDS PER SHARE
Net Income Per Share was computed using the weighted average number of
outstanding shares of 1,839,018, 1,447,366 and 1,117,494 for 1997, 1996 and
1995.
Dividends declared during 1997 were as follows:
OUTSTANDING AMOUNT TOTAL
RECORD DATE SHARES PER UNIT DIVIDEND
January 1, 1997 1,550,607 $0.0666 $103,270
February 1, 1997 1,671,442 0.0666 111,318
March 1, 1997 1,671,442 0.0666 111,318
April 1, 1997 1,810,916 0.0666 120,606
May 1, 1997 1,815,579 0.0666 120,918
June 1, 1997 1,815,579 0.0666 120,918
July 1, 1997 1,815,579 0.0666 120,918
August 1, 1997 1,974,143 0.0666 131,478
September 1, 1997 1,968,143 0.0666 131,078
October 1, 1997 1,968,143 0.0666 131,078
November 1, 1997 2,147,524 0.0666 143,025
December 1, 1997 2,147,524 0.0666 143,025
TOTAL $1,488,950
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
40
<PAGE>
WEST COAST REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 7 - NET INCOME AND DIVIDENDS PER SHARE (CONTINUED)
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 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, 1997 1996 1995
Taxable ordinary income $0.385 $0.487 $0.549
Nontaxable return of capital 0.414 0.292 0.171
$0.799 $0.779 $0.720
NOTE 8 - TAXES ON INCOME
For the taxable years 1997 and 1996, the Company elected to be treated as a REIT
on the filings of the 1997 and 1996 tax returns, and will elect the same for
1998.
41
<PAGE>
WEST COAST REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 9 - STATEMENT OF CASH FLOWS
The Company had a noncash financing activity related to unpaid dividends
declared of $-0-, $302,996 and $226,649 for 1997, 1996 and 1995.
Cash paid for interest during the year ended December 31, 1997, 1996 and 1995
was $1,043,192, $857,042, and $569,746.
NOTE 10 - SUBSEQUENT EVENTS
(a) From January 5 to January 16, 1998, a total of $1,907,287 in proceeds from
the sale of shares in the Company's current offering were released from an
escrow account, and 191,362 shares were issued to investors.
(b) On January 15, 1998, the Company acquired an industrial building located
in Sacramento, California for $2,020,000. The acquisition was accomplished
with use of the proceeds from the Company's current offering.
42
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
43
<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. Gainsborough Chairman of the Chairman of the
Board/Director Board/Director
W. Thomas Maudlin, Jr. President/Director President/Director
Neal E. Nakagiri Executive Vice Executive Vice
President/Secretary President/Secretary
Michael G. Clark Vice Treasurer
President/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:
44
<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.
45
<PAGE>
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 1997, 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 1997, a
total of $2,000 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, 1997, the Advisor had purchased $225,561 worth of shares, or
approximately 1.05% of the adjusted net worth.
46
<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, 1997, the Company paid the Advisor and/or
Descolin $384,719 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, 1997, commissions paid to ASC for the sale of these
shares totaled $429,095 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, 1997, the Company incurred $106,576 of property management
fees.
47
<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 ...............27
Balance Sheets -- December 31, 1997 and 1996..................... 28
Statements of Income for the years ended
December 31, 1997, 1996 and 1995............................29
Statements of Stockholders' Equity for the years ended
December 31, 1997, 1996 and 1995............................30
Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995.........................31-32
Summary of Accounting Policies ................................33-34
Notes to Financial Statements..................................35-42
2. FINANCIAL STATEMENT SCHEDULES
Schedule III -- Real Estate and Accumulated Depreciation ..49-50
Schedule IV -- Mortgage Loans on Real Estate .................. 51-52
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.
(C) EXHIBITS
None.
48
<PAGE>
<TABLE>
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1997
INFORMATION REQUIRED BY RULE 12-28 IS AS FOLLOWS:
<CAPTION>
Gross Amount at
which
Carried at Close of Period
Initial Cost Cost Life on
Building Capitalized which
& Subsequent Building Depreciaton is
Improve- Acquisition & Year Computed
Improve- Improve- Total Accumulated Construction Date Building &
Description Emcumbrances Land ments ments Land ments Cost Depreciation Completed Acquired Improvements
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Retail
Building,
Huntington $ 556,403 $1,005,965 $ 670,245 0 $1,005,965 $ 670,245 $1,676,210 $ 146,295 1991 2/91 31.5
Beach, CA
Retail Bldg.,
Shopping
Center, 616,219 553,648 861,245 0 553,648 861,245 1,414,893 102,138 1993 5/93 39.0
Fresno, CA
Industrial
Building
Huntington 1,688,870 1,132,159 1,367,842 0 1,132,159 1,367,842 2,500,001 150,522 1976 9/93 39.0
Beach, CA
Entertainment
Center
Riverside, CA 1,167,149 768,667 2,886,833 0 768,667 2,886,833 3,655,500 228,234 1994 11/94 39.0
Office
Building
Tustin, CA 2,069,004 1,089,796 3,772,298 0 1,089,796 3,772,298 4,862,094 249,867 1986 5/95 39.0
Light
Industrial
Bldg, 2,090,456 1,228,262 2,519,349 0 1,228,262 2,519,349 3,747,611 137,279 1993 10/95 39.0
Fremont, CA
Light
Industrial
Bldg.
Sacramento, CA 329,083 489,182 609,397 0 489,182 609,397 1,098,579 21,493 1988 8/96 39.0
Light
Industrial
Bldg.
Sacramento, CA 375,540 325,024 404,896 0 325,024 404,896 729,920 14,280 1988 8/96 39.0
Light
Industrial 2,302,108 1,570,000 3,337,440 0 1,570,000 3,337,440 4,907,440 88,538 1978 1/97 39.0
Bldg.
Irvine, CA
Restaurant
Facility --- 586,000 1,390,484 0 586,000 1,390,484 1,976,484 4,427 1997 10/97 39.0
Roseville, CA
Light
Industrial --- 700,447 1,196,502 0 700,447 1,196,502 1,896,949 --- 1988 12/97 39.0
Bldg.
Corona, CA
TOTAL $ 11,194,832 $9,449,150 $19,016,532 0 $9,449,150 $19,016,532 $28,465,682 $1,143,073
</TABLE>
49
<PAGE>
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)
DECEMBER 31, 1997
A reconciliation of the total cost for the years ending
December 31, 1995, 1996 and 1997 follows:
Balance at January 1, 1995 ....... $ 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
1997 Additions 8,780,873
1997 Disposition (2,248,343)
Balance at December 31, 1997 ..... $28,465,682
A reconciliation of accumulated depreciation for the years ending
December 31, 1995, 1996 and 1997 follows:
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
1997 Depreciation 463,513
1997 Disposition (135,388)
Balance at December 31, 1997 ...... $ 1,143,073
50
<PAGE>
<TABLE>
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE DECEMBER 31, 1997
INFORMATION REQUIRED BY RULE 12-29 IS AS FOLLOWS:
<CAPTION>
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 to None $665,000 $616,219 None
First Deed of Trust Maturity
Balloon Payment
due 8/2003
Industrial Building Variable Monthly
Huntington Variable 10/1/2003 Payments to None $1,750,000 $1,688,870 None
Beach, California Maturity
First Deed of Trust Balloon Payment
due 10/2003
Retail Building Variable Monthly
Huntington Variable 2/1/2004 Payments to None $600,000 $556,403 None
Beach, California Maturity; 25 yr
First Deed of Trust Amortization;
Balloon Payment
due 2/2004
Entertainment Center Equal Monthly
Riverside, CA 9.25% 11/8/2004 Payments; None $1,200,000 $1,167,149 None
First Deed of Trust Amortized
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 $2,069,004 None
First Deed of Trust Amortization;
Balloon Payment
due 2/2005
Light Industrial Bldg. Fixed Monthly
Fremont, CA 8.240% 8/1/2015 Payments None $2,200,000 $2,090,456 None
First Deed of Trust 20 years
Amortization
Light Industrial Bldg. Fixed Monthly
Sacramento, CA 10.000% 11/1/2001 Payments None $350,000 $329,083 None
First Deed of Trust 25 years
Amortization
Light Industrial Bldg. Fixed Monthly
Sacramento, CA 8.000% 6/1/2018 Payments None $405,000 $375,540 None
First Deed of Trust 25 years
Amortization
Light Industrial Variable Monthly
Bldg. Variable 7/1/2007 Payments to None 2,312,500 2,302,108 None
Irvine, CA Maturity; 25 year
First Deed of Trust Amortization
11,782,500 11,194,832
</TABLE>
51
<PAGE>
A reconciliation or mortgage loans payable for the years
ending December 31, 1995, 1996, and 1997 follows:
Balance at January 1, 1995 $ 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
1997 Additions 2,312,500
1997 Paydowns .. (1,196,461)
Balance at December 31, 1997 ......... $11,194,832
52
<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 13, 1998
53
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000858346
<NAME> WEST COAST REALTY INVESTORS, INC.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 2,099,857
<SECURITIES> 0
<RECEIVABLES> 288,411
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,427,219
<PP&E> 28,465,682
<DEPRECIATION> (1,143,073)
<TOTAL-ASSETS> 29,839,091
<CURRENT-LIABILITIES> 791,296
<BONDS> 11,194,832
0
0
<COMMON> 21,635
<OTHER-SE> 17,831,328
<TOTAL-LIABILITY-AND-EQUITY> 29,839,091
<SALES> 2,822,398
<TOTAL-REVENUES> 3,217,492
<CGS> 0
<TOTAL-COSTS> 1,189,740
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,048,774
<INCOME-PRETAX> 978,978
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 978,978
<EPS-PRIMARY> .53
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