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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _________________ TO _________________
COMMISSION FILE NUMBER 0-24594
WEST COAST REALTY INVESTORS, INC.
(Exact name of registrant as specified in its charter)
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: 2,932,762 shares outstanding,
as of March 22, 1999.
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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.
PART I
ITEM 1. BUSINESS
West Coast Realty Investors, Inc. (the "Company"), was organized in October 1989
under the laws of the State of Delaware. The Company 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 oversees the
investments of the Company, subject to the direction of the Company's Board of
Directors.
The Company is 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 and;
3. Provide capital gains through potential appreciation of properties.
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, 1999
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 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 closures of
military bases and aerospace firms could soften the business environment in the
Orange County area.
The Building was originally acquired for cash in 1991 for a total acquisition
cost of $1,676,210. 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 February 1, 2004. 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 basis 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 Company.
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
month for 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 rentable
square foot, respectively. This lease requires the tenant to pay insurance,
taxes, maintenance, and all other operating costs. 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.
The Fresno Property is a retail building (the "Fresno Building") with
construction completed in April 1993. 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.
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. Monthly
payments $5,244 are made at the rate of 8.25% with a twenty-five year
amortization schedule. In July 1998, the interest rate on the loan was adjusted
to 3.00% above the five-year Treasury Bond yield at that time.
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 basis for the property are the same. In the opinion of the
Advisor, the property is adequately insured. The property is managed by WCRM.
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").
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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 near 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.
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 31, 1998.
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 and the
minimum rent was reduced.
The Company currently receives $82,800 ($6,900 per month) in rental income or
$1.15 per square foot per month, plus percentage rent of 8.2% of gross sales per
quarter, less certain allowances, minus the rent paid for such period. The
Company received $942 in percentage rent for the year ended December 31, 1998.
As a result of the Amendment, the Company absorbed $21,318 in operating expenses
in 1998 that were previously allocated to The Wherehouse. The total decrease in
income as a result of the Amendment is therefore estimated to be $44,358 per
year. Based on approximately 2.9 million shares of the Company outstanding as of
December 31, 1998, the Amendment will decrease distributable income by
approximately $.015 per share per year, and thus is not material to the
operating results of the Company.
OPTO-22 BUILDING
On September 15, 1993, the Company acquired the 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, whose
sublease expired in April 1997.
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 approximately 201 parking 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.
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Total consideration for the OPTO-22 Building paid by the Company was
approximately $2,500,000. The purchase price was arrived at through arms-length
negotiations with the Seller. 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 Home Loan Bank Board, Eleventh District Cost of Funds
Rate every year. Payments on the note are currently $12,794 per month.
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.
In August 1998, the Company leased the property to TYR Sports, Inc. an
international distributor of swimwear. TYR's headquarters are located adjacent
to the property. The Company receives $25,000 per month of rental income and the
tenant pays all taxes, insurance and operating expenses. The rent increases to
$28,800 per month on August 15, 1999. The lease expires on August 14, 2001 and
the tenant has an option to purchase the property for $2,675,000 in the first 4
1/2 months of the year 2000. The tenant also has the right of first refusal to
purchase the property through February 15, 2000 and an option to extend the
lease for a five year period through August 14, 2006.
In connection with the lease, the tenant was permitted to remove approximately
9,603 square feet of office improvements thereby reducing the total rentable
square footage of the building from 63,483 to 53,880 square feet. The reduction
decreased the office improvements from 25,866 to 16,263 square feet. The
reduction also resulted from the fact that the building was over-improved in the
area.
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 categories is estimated, based
on allocations in the appraisal report. Depreciation will be computed on a
straight-line basis over 39 years using a straight-line method for both
financial and income tax purposes.
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 developed retail area containing
various restaurants and retailers. 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 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 8.25% and is fully
due and payable November 8, 2004. Payments of interest and principal are
currently $9,988 per month.
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 basis 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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The sole 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, in which the
tenant pays all property taxes, insurance and operating expenses of the
property. The lease also has some provisions for the sharing of a certain
percentage of gross sales, including concessions.
The Company is a defendant in a lawsuit entitled JOHN LONBERG; RUTHEE GOLDKORN
V. SANBORN THEATERS, INC.; SALTS, TROUTMAN AND KANESHIRO, INC.; WEST COAST
REALTY INVESTORS, INC., in the U.S. District Court for the Central District of
California. (Case #CV-97-6598AHM(JGx)
The Company was added as a defendant in the plaintiff's First Amended Complaint
filed May 7, 1998, apparently due to the Company's status as landlord for a
movie theater known as the Riverside Market Place Cinema.
The plaintiffs alleged violations of the federal Americans with Disabilities Act
and the California Unruh Civil Rights Act with respect to their movie-going
experiences, including inadequate physical accommodations for wheelchair-bound
guests and insensitive theater personnel. Sanborn is the tenant and theater
operator. Troutman is the architect who designed the theater and its interiors.
The plaintiffs seek actual damages of $1,000 for each violation of law; three
times actual damages; and attorneys fees, expenses and costs. The plaintiffs
also seek mandatory injunctive relief requiring the defendants to make the
theater accessible to and useable by disabled individuals.
The plaintiffs have agreed to dismiss their claims under the Unruh Civil Rights
Act.
The U.S. Department of Justice, Civil Rights Division ("DOJ") filed a Motion to
Intervene in the case on March 1, 1999. DOJ has sued Sanborn Theaters only and
preliminary discussions have been held between the DOJ and Sanborn. Sanborn
intends to vigorously defend against the DOJ.
The Company believes it has complied with all applicable provisions of law and
intends to vigorously defend the allegations contained in the lawsuit. The
Company believes that the lawsuit will have no material impact on the Company's
continuing operations or overall financial condition.
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 property has
approximately 40,000 rentable square feet, and was built to suit the current
tenant.
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. Payments of interest
and principal are currently $24,191 per month.
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 basis for the property are the same. In the opinion of the
Advisor, the property is adequately insured. The property is managed by WCRM.
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 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. The average monthly
rent over the life of the lease is $50,914.
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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 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.
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. As of December 31, 1998, the
scheduled rent is $34,642 per month. 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, property taxes, maintenance and all other operating
costs.
The tenant had subleased 20,000 square feet of its space to Macrotron Systems.
This sublease is a month-to-month tenancy. Macrotron pays its rent directly to
the Company, and CMS Welding & Machining's rent obligation is reduced
accordingly.
JAVA CITY PROPERTY
On August 2, 1996, the Company acquired the Java City Property.
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.
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 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.
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There is financing on each building of the Property that is being assumed by the
Company. The financing on the 717 West Del Paso Road building is as follows:
Lender: U.S. Bank, Sacramento, CA
Original Loan Amount: $350,000 Payment: $3,413.32/month
Interest Rate: 10% fixed rate Amortization: 25 years
Due Date: November, 2001 Assumption Fee: $3,814
The financing on the 721 West Del Road building is as follows:
Lender: Heller First Capital Corp., Chicago, IL
Original Loan Amount: $405,000 Payment: $3,126/month
Interest Rate: 8% fixed rate Amortization: 25 years
Due Date: June, 2018 Assumption Fee: None
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.
The primary tenant of the Property is Cucina Holdings, Inc. The tenant owns and
operates forty-one Java City Bakery Cafes and five La Petite Boulangerie cafes.
The tenant 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 tenant'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 tenant's sales are from its retail cafe operations and
14% from its wholesale operations.
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.
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 thirteen years old. There are significant tenant improvements that
were substantially complete at time of acquisition which 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.
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.
Long-term financing of $2,312,500, in the form of a variable rate promissory
note secured by a first deed of trust was provided by a bank in June 1997. The
note is amortized over 25 years and matures on August 1, 2007. The current
interest rate is 7.65% per annum and current interest and principal payments of
$16,693 are due monthly.
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,
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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.
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 currently
$39,574 per month.
ROSEVILLE PROPERTY
On November 26, 1997, the Company acquired the Roseville Property in a Section
1031 tax free exchange. 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.
Total consideration paid by the Company for the Roseville property is
$1,976,484. This cost includes the $1,950,000 sales price paid 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 purchase price was
determined through arms-length negotiations with the Seller/Operator. On July 7,
1998 the Company financed the property with a mortgage debt, secured by the
building, for $1,450,000. The loan is due July of 2008 and calls for monthly
payments of $11,510. The current interest rate is 8.33%.
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.
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.
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
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year) with rental increases scheduled every five years at the rate of 12 1/2%.
The lease commenced on December 1, 1997.
CORONA PROPERTY
On December 31, 1997, the Company acquired 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/gravel roof. Parking is adequate and within applicable building codes,
with some parking available in the Building's basement. The Building is eight
years old.
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 paid to the Advisor. In addition, $92,000 was received from the
Seller in the transfer of prepaid rents. The purchase price was determined
through an arms-length negotiation with the Seller. The Property was acquired
from an unrelated third party, American Circle Limited, A California Limited
Partnership (the "Seller"). On May 8, 1998, the Company financed the property
with a mortgage debt, secured by the building, for $1,000,000. The loan is due
July of 2011 and calls for monthly payments of $7,309. The current interest rate
is 7.375%, which is adjustable, on the fourth and eighth anniversary years of
the loan, to the weekly average of the five-year Treasury Note yield seven weeks
prior to the adjustment date, plus 195 basis points.
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 is computed on a
straight-line basis over 39 years, the estimated component useful life of the
assets.
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.
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 requires average monthly payments of
$16,622 and expires May 31, 2002, with a five year option to renew.
LAUFEN TILE DISTRIBUTION CENTER
On January 15, 1998, the Company acquired 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.
9
<PAGE> 11
The construction involves concrete footings, foundation and slab, with a flat
tar/gravel roof. There are 38 parking spaces on the site. The Buildings were
originally constructed in 1976.
Total consideration paid by the Company for the Laufen Property was $2,141,200.
This cost includes the $2,020,000 sales price paid to the Seller, approximately
$20,000 in legal, appraisal, and closing costs, and approximately $108,000 in
acquisition fees paid to the Advisor. The Property was acquired from an
unrelated third party, the Huarte Family Trust (the "Seller"). The purchase
price was determined through an arms-length negotiation with the Seller. On May
8, 1998 the Company financed the property with a mortgage debt, secured by the
building, for $1,000,000. The loan is due June of 2011 and calls for monthly
payments of $7,309. The current interest rate is 7.375%, which is adjustable, on
the fourth and eighth anniversary years of the loan, to the weekly average of
the five-year Treasury Note yield seven weeks prior to the adjustment date, plus
195 basis points.
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 is computed on a
straight-line basis over 39 years, the estimated component useful life of the
assets.
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.
The sole tenant of the property is Laufen International, Inc. The Company is a
floor tile manufacturer with North American headquarters located in Tulsa,
Oklahoma. Laufen is owned by a parent company located in Germany. Laufen has
been occupying the property since 1987.
The lease is a triple-net lease requiring average monthly payments of $19,718
expiring July 31, 2003, 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.
DAEDO AMERICA CORPORATION PROPERTY
On April 19, 1998, the Company purchased a light industrial facility located in
Chino, California.
Constructed in 1989, the building has two stories, has a total rental area of
38,554 square feet and is situated on 82,764 square feet of land. The building
(located at 3625 Placentia Court in Chino, California) is in a area with strong
tenant demand for existing industrial and warehouse space, as well as being in
close proximity to major transportation routes. Chino is located in southern
California.
The property was acquired for $1,859,338 in cash. This cost includes $1,850,000
in sales price paid to the Seller and approximately $5,500 in legal and
appraisal fees. The purchase price was determined through an arms-length
negotiation with the Seller. On September 2, 1998, the Company financed the
property with a mortgage debt, secured by the building, for $925,000. The loan
is due October 2010, with monthly payments of $6,836. Current interest rate is
7.5%, which is adjustable, on the fourth and eighth anniversary years of the
loan, to the weekly average of the five-year Treasury Note yield seven weeks
prior to the adjustment date, plus 200 basis points.
The computation of depreciation for the property is based on the cost of the
property, including acquisition expenses. The allocation of the cost of the
property to various asset categories is estimated, based on allocations in the
appraisal report. The property is managed be West Coast Realty Management, Inc.
("WCRM"), an affiliate of the Company. WCRM charges the Company 3% of the gross
rental revenue collected as a management fee, as allowed by the property
management agreement. According to property management, the property is
adequately insured.
10
<PAGE> 12
The building is 100% occupied by the Daedo America Corporation, through April 4,
2003, on a triple net lease. The tenant's lease calls for average monthly rental
payments of $15,366 expiring on April 8, 2003. All property taxes, property
insurance and maintenance and repair expenses are paid by the tenant.
VACAVILLE PROPERTY
On May 20, 1998 the Company acquired a two tenant, light industrial building at
4941 Allison Parkway in Vacaville, California ("Vacaville Property"). The
building was built in 1996 and has a two rentable suites, one consisting of
53,850 square feet and the other of 12,150 square feet. The entire building is
situated on approximately 71,600 square feet of land. The property is located in
the Golden Hills Commerce Park, an industrial park, which consist of 100 acres
of industrial/warehouse facilities. The park is situated in a growing area of
Vacaville, which caters to high technolgy, office and R&D users. Vacaville is
located in the northern portion of Solono County, which is northeast of San
Francisco.
The property was acquired for $2,737,500 in cash. This cost includes $2,725,000
paid to the Seller and $8,000 in legal fees. The purchase price was determined
through an arms-length negotiation with the Seller. On September 2, 1998 the
Company financed the property with a mortgage debt, secured by the building, for
$1,400,000. The loan is due in October of 2010, with monthly payments of
$10,346. The current interest rate is 7.5%, which is adjustable, on the fourth
and eighth anniversary years of the loan, to the weekly average of the five-year
Treasury Note yield seven weeks prior to the adjustment date, plus 200 basis
points.
The computation of depreciation for the property is based on the cost of the
property, including acquisition expenses. The allocation of the cost of the
property to various asset categories is estimated, based on allocations in the
appraisal report. The property is managed by West Coast Realty Management, Inc.
("WCRM"), an affiliate of the Company. WCRM charges the Company 3% of the gross
rental revenue collected as a management fee, as allowed by the property
management agreement. According to property management, the property is
adequately insured.
The larger of the two suites is occupied by Mindscape, Inc., which has been the
only tenant of the suite. The lease term began in August of 1996 and expires in
September 2006. The lease requires for monthly rental payments of $19,321 for
the first three years, $21,253 for the 4th through 6th year, $23,378 for the 7th
through 9th year and $25,716 for the final year. All real property taxes,
property insurance and maintenance and repair expenses are paid by the tenant.
The smaller suite is occupied by Nor-Cal Beverage Company, Inc., which has been
the only tenant of the suite. The lease term began in October of 1996 and
extends through December of 1999. The lease calls for monthly rental payments of
$4,617. All real property taxes, property insurance and maintenance and repair
expenses are paid by the tenant.
CERRITOS PROPERTY
On December 23, 1998 the Company acquired a light industrial property at 17719
Valley View Avenue in Cerritos, California.
The building was built in 1980 and has 47,656 square feet of rental area.
Situated on 100,619 square feet of land, the property is within close proximity
to major transportation routes, as well as being in an area with stability and
growth of current rental rates. Cerritos is centrally located in Southern
California and currently is growing from a strong demand for research and
development buildings in the area.
The property was acquired for $2,314,569 in cash. This cost includes $2,300,000
paid to the Seller and $8,800 in legal and appraisal fees. The purchase price
was determined through an arms-length negotiation with the Seller. Subsequent to
year end the property was financed with a first deed of trust secured by the
property for $1,250,000. The current interest rate is 7.50% per annum, which is
adjustable, on the fourth and eight anniversary years of the loan, to the weekly
average of the five-year Treasury Note yield seven weeks prior to the
anniversary date, plus 275 points. The loan is due March 2011, with $9,238
monthly payments of principal and interest.
The computation of depreciation for the property is based on the cost of the
property, including acquisition expenses. The allocation of the cost of the
property to various asset categories is estimated, based on allocations in the
appraisal report. The property is managed be West Coast Realty Management, Inc.
("WCRM"), an affiliate of the Company. WCRM charges the Company 3% of the gross
rental revenue collected as a management fee, as allowed by the property
management agreement. According to property management, the property is
adequately insured.
The property is currently 100% occupied by California Aquatium Supply
Corporation, which has occupied the building since May of 1991. The lease
expires on June of 2001, and calls for monthly payments of $17,084. All real
property taxes, property insurance and maintenance and repair expenses are paid
by the tenant.
11
<PAGE> 13
ONTARIO PROPERTY
On January 12, 1999 the Company acquired a light industrial facility at 12160
South Dupont Avenue in Ontario, California ("Ontario Property").
The building was built in 1997, is two stories and has 40,000 square feet of
rentable area. Situated on 4.63 acres of land, the property is located in a
developing industrial area of the San Bernardino area. Attractions include,
close proximaty to major transportation routes, declining vacancy rate and a
strengthening economy in the area.
The property was acquired for $4,614,964 in cash. This cost includes $4,600,000
paid to the Seller and $10,900 in legal and appraisal fees. The purchase price
was determined through an arms-length negotiation with the Seller. Subsequent to
the acquisition, the company financed the property with a mortgage debt, secured
by the building for $3,000,000. The loan is due in March of 2004 and calls for
monthly payments of $22,390. The initial interest rate on the loan is fixed at
7.5% per annum.
The computation of depreciation for the property is based on the cost of the
property, including acquisition expenses. The allocation of the cost of the
property to various asset categories is estimated, based on allocations in the
appraisal report. The property is managed be West Coast Realty Management, Inc.
("WCRM"), an affiliate of the Company. WCRM charges the Company 3% of the
gross rental revenue collected as a management fee, as allowed by the property
management agreement. According to property management, the property is
adequately insured.
The property is currently 100% occupied by Comcast Holdings, Inc. and Comcast
Cablevision of Inland Valley, Inc., which has been the only tenant of the
building. The lease term commenced August 15, 1998 and expires in August 2013.
The lease requires monthly payments of $22,244 in base rent and $10,547 in
tenant improvements (West Coast Realty "Lessor" paid $1,040,000 in tenant
improvements which is amortized over 15 years, in equal monthly payments, at 9%
per annum) for a total monthly rent of $32,791. All real property taxes,
property insurance and maintenance and repair expenses are paid by the tenant.
12
<PAGE> 14
SUMMARY
Tenants representing 10% or more of the Company's total rental revenue are as
follows:
Safeguard accounted for 20% of the total rental revenue of the Company.
Tycom accounted for 16% of the total rental revenue of the Company.
Riverside Marketplace Theaters accounted for 16% of the total rental
revenue of the Company. CMS Welding & Machinery (Fremont property)
accounted for 15% of the total rental revenue of the Company.
The acquisition costs and dates of acquisition were as follows:
<TABLE>
<CAPTION>
ACQUISITION
COST AND ACQUISITION
DESCRIPTION IMPROVEMENTS DATE
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Blockbuster Video Building $ 1,676,210 02/26/91
Fresno Village Shopping Center 1,414,893 05/14/93
OPTO-22 Building 2,628,985 09/15/93
Riverside Marketplace Theaters 3,655,500 11/29/94
Safeguard Building 4,862,094 05/22/95
Technology Drive 3,747,610 10/31/95
Java City Properties 1,828,500 08/02/96
Tycom 4,907,440 01/17/97
Roseville Property 1,976,484 10/31/97
Corona Property 1,904,452 12/31/97
Laufen Tile Property 2,141,200 01/15/98
Chino Property 1,859,338 04/19/98
Vacaville Property 2,735,308 05/20/98
Cerritos Property 2,314,569 12/23/98
-----------
Subtotal 37,652,583
Subsequent to year end (12/31/98)
Ontario Property 4,614,964 01/12/99
-----------
Total acquisition cost and improvements $42,267,547
===========
</TABLE>
All properties were 100% occupied by their respective tenants (or in the case of
Technology Drive, tenant and sub-tenant).
ITEM 3. LEGAL PROCEEDINGS
The Company is a defendant in a lawsuit entitled JOHN LONBERG; RUTHEE GOLDKORN
V. SANBORN THEATERS, INC.; SALTS, TROUTMAN AND KANESHIRO, INC.; WEST COAST
REALTY INVESTORS, INC., in the U.S. District Court for the Central District of
California. (Case #CV-97-6598AHM(JGx)
The Company was added as a defendant in the plaintiff's First Amended Complaint
filed May 7, 1998, apparently due to the Company's status as landlord for a
movie theater known as the Riverside Market Place Cinema.
The plaintiffs alleged violations of the federal Americans with Disabilities Act
and the California Unruh Civil Rights Act with respect to their movie-going
experiences, including inadequate physical accommodations for
13
<PAGE> 15
wheelchair-bound guests and insensitive theater personnel. Sanborn is the tenant
and theater operator. Troutman is the architect who designed the theater and its
interiors.
The plaintiffs seek actual damages of $1,000 for each violation of law; three
times actual damages; and attorneys fees, expenses and costs. The plaintiffs
also seek mandatory injunctive relief requiring the defendants to make the
theater accessible to and useable by disabled individuals.
The plaintiffs have agreed to dismiss their claims under the Unruh Civil Rights
Act.
The U.S. Department of Justice, Civil Rights Division ("DOJ") filed a Motion to
Intervene in the case on March 1, 1999. DOJ has sued Sanborn Theaters only and
preliminary discussions have been held between the DOJ and Sanborn. Sanborn
intends to vigorously defend against the DOJ.
The Company believes it has complied with all applicable provisions of law and
intends to vigorously defend the allegations contained in the lawsuit. The
Company believes that the lawsuit will have no material impact on the Company's
continuing operations or overall financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
14
<PAGE> 16
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, was completed April 1998
with 1,504,544 shares sold for $15,013,960 in gross proceeds.
At December 31, 1998, there were 2,932,762 shares of Common Stock outstanding
and 1,270 stockholders of record. There is no present trading market for the
shares and none is expected to develop.
The Company had established a dividend reinvestment plan (the "Plan") for its
Shareholders. Shares acquired under the Plan during the offering were 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. The Dividend Reinvestment Plan was terminated in April 1998.
Dividends totaling $1,772,037, $1,488,950 and $1,128,597 in 1998, 1997 and 1996
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 1998, 1997
and 1996 dividend distributions are summarized below:
Dividends declared during 1998 were as follows:
<TABLE>
<CAPTION>
OUTSTANDING AMOUNT TOTAL
RECORD DATE SHARES PER SHARE DIVIDEND
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
January 1, 1998 2,149,404 $ .0666 $ 143,150
February 1, 1998 2,345,825 .0666 156,232
March 1, 1998 2,345,825 .0666 156,232
April 1, 1998 2,345,825 .0558 130,898
May 1, 1998 2,590,131 .0558 144,529
June 1, 1998 2,888,319 .0558 161,168
September 30, 1998 2,932,762 .1500 439,914
December 15, 1998 2,932,762 .1500 439,914
----------
Total $1,772,037
==========
</TABLE>
15
<PAGE> 17
Dividends declared during 1997 were as follows:
<TABLE>
<CAPTION>
OUTSTANDING AMOUNT TOTAL
RECORD DATE SHARES PER SHARE DIVIDEND
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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
==========
</TABLE>
Dividends declared during 1996 were as follows:
<TABLE>
<CAPTION>
OUTSTANDING AMOUNT TOTAL
RECORD DATE SHARES PER SHARE DIVIDEND
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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
==========
</TABLE>
Dividends are based on income from operations before depreciation and
amortization, with appropriate allowances made for 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 quarterly
dividends subject to the maintenance of reasonable reserves.
16
<PAGE> 18
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>
1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operations for the years ended December 31:
Revenues $ 3,803,884 $ 3,217,492 $ 2,474,627 $ 1,813,126 $ 903,167
Net income 763,608 978,978 705,636 649,605 247,068
Net income per share* .29 .53 .49 .58 .35
Dividends per share* .67 .799 .779 .72 .74
Financial position at December 31,
Total assets $41,255,672 $29,839,091 $23,571,838 $21,392,898 $13,228,888
Long-term debt 16,686,668 11,194,832 10,078,793 9,539,180 5,161,355
Stockholders' equity 24,034,280 17,852,963 12,904,891 11,234,837 7,756,140
</TABLE>
*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 or implied by such forward-looking statements.
RESULTS OF OPERATIONS - 1998 VS. 1997
Operations for the year ended December 31, 1998 represented a full year of
rental operations for all properties except the Sacramento property which was
acquired on January 15, 1998, the Chino Property which was acquired on April 9,
1998, the Vacaville property which was acquired May 20,1998, and the Cerritos
property which was acquired on December 23, 1998. The Ontario property was
acquired in January 1999 and accordingly is excluded form the 1998 results of
operations.
The net income for the year ended December 31, 1998, $763,608 was lower than the
year ended December 31, 1997, $978,978.
Rental revenue increased $754,718 (27%) due to a full eleven months ownership of
the Sacramento property, eight and seven months ownership of the Chino and
Vacaville property, respectively as compared to no ownership of these properties
during the year ended December 31, 1997. Interest income increased $93,842 (71%)
due to higher cash balances maintained in money market accounts during the year
ended December 31, 1998 as compared to the year ended December 31, 1997.
17
<PAGE> 19
ITEM 7. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONT.)
Operating expenses increased $53,770 (14%) primarily due to increase in property
management fees, property taxes, and property insurance expenses due to the
ownership of additional properties. Interest expense increased $73,727 (7%) due
to the additional debt incurred in connection with property acquisitions 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
44% of property cost (as defined in the by-laws) as December 31, 1998). General
and administrative costs increased $491,125 (106%) due to acquisition and
refinancing for $444,000 expended in connection with property acquisitions.
General and administrative costs as a percentage of revenue increased from 10.7%
in 1997 to 23% in 1998. Much of this increase is due to $444,000 of acquisition
and refinancing fees expensed in connection with the property acquisitions.
Depreciation and amortization expense increased $183,140 (39%) as the result of
the ownership of additional properties during 1998 as compared to 1997.
The weighted average number of shares outstanding during 1998 was 2,640,041
versus 1,839,018 in 1997. The net income per share decreased from $.53 in 1997
to $.29 in 1998.
During the year ended December 31, 1998, the Company declared dividends totaling
$1,772,037 compared to dividends of $1,488,950 declared for the year ended
December 31, 1997. Cash basis net income for the year ended December 31, 1998
was $1,421,616. This was derived by adding depreciation and amortization expense
to net income. Thus, cash distributions this year were greater ($350,421) than
cash basis net income. In contrast, distributions in 1997 were greater ($35,104)
than cash basis net income. The Company continues to qualify as a REIT.
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. Certain properties
were acquired subsequent to December 31, 1997.
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 $484,868 (21%) 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 an 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.
18
<PAGE> 20
ITEM 7. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONT.)
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.
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 net income for the year ended December 31, 1997
was $1,453,846. 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 net income.
LIQUIDITY AND CAPITAL RESOURCES
During the year ended December 31, 1998, the Company declared dividends totaling
$1,772,037. 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, 1998, the Company raised an additional
$6,920,212 in net proceeds as the result of the sale of shares from its fourth
public offering. In 1997, the Company raised $5,331,605 in net proceeds as the
result of the sale of shares from its 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.
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.
19
<PAGE> 21
ITEM 7. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONT.)
The first factor refers to the risk of the Company's investments. At December
31, 1998, 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, 1998, notes payable
pertaining to property acquisitions by the Company increased by $5,775,000,
while cash used in principal repayments of notes totaled $283,164. 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 2011. 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 in the "operating" stage. Virtually all funds raised
were invested in a short-term money market fund. At year-end, the Company has
allocated approximately $450,000 towards a "reserve" fund (3% of gross funds
raised, as disclosed in the Company's latest prospectus), $150,000 of cash to be
paid for current mortgage and accounts payable commitments, $290,000 in tenant
security deposits and prepaid rents, and the balance-approximately
$3,700,000-expected to be invested in future property acquisitions. The
Company's operations generated $1,421,616 in net operating cash flow in 1998
(net income plus depreciation and amortization 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.
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.
On January 12, 1999, the Company acquired an industrial building located in
Ontario, California for $4,614,964 in cash. The acquisition was accomplished
with the use of the proceeds from the Company's fourth public offering. On March
4, 1999, the Company refinanced this property for $3,000,000 at an interest rate
of 7.5%.
CASH FLOWS 1998 VS. 1997
Cash resources increased $2,494,730 during 1998 compared to the $82,663 increase
in 1997. Cash provided by operating activities increased by $919,623 with the
largest contributor being $1,421,616 in cash basis income. In contrast, 1997 saw
$1,706,404 in cash being provided by operating activities due primarily to
$1,453,846 in cash basis income. Cash used in investing activities for 1998
totaled $9,186,901 for the acquisition of four additional properties located in
Sacramento (Laufen Tile International), Corona, Vacaville, and Cerritos. In
contrast, during 1997 the use of cash for investing activities was $6,405,754
due to $8,780,874 used to the purchase the Tycom, Roseville and Corona
properties, offset by $2,375,120 from the sale of the Brea property. During
1998, $10,762,008 was provided by financing activities. The result of $6,920,212
in net proceeds from the sale of additional shares in the Company, and
$5,775,000 in financing obtained in connection with the acquisition of
additional properties. These cash resources were offset by dividends declared
and paid of $1,772,037 and payments on notes payable of $283,164. In contrast,
1997's cash provided by financing activities was $4,782,373 due to 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.
20
<PAGE> 22
ITEM 7. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONT.)
CASH FLOWS 1997 VS. 1996
Cash resources increased $82,663 during 1997 compared to the $567,172 increase
in 1996. Cash provided by operating activities increased by $1,706,044 with the
largest contributor being $1,453,846 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 $6,405,754 due to $8,780,874 used to the purchase the Tycom, Roseville
and Corona properties, offset by $2,375,120 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,
$4,782,373 was provided by financing activities. This increase was the result of
$5,331,605 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 net 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 and payments on notes
payable of $215,387.
IMPACT OF YEAR 2000
Many existing computer systems and applications, and other control devices, use
only two digits to identify a year in the date field, without considering the
impact of the upcoming change in the century. As a result, such systems and
applications could fail or create erroneous results unless corrected so that
they can process data related to the year 2000. The Company relies on its
systems, applications and devices in operating and monitoring all major aspects
of its business, including financial systems (such as general ledger, accounts
receivable, accounts payable and shareholder servicing), and embedded computer
chips, networks and telecommunications equipment and end products. The Company
also relies, directly and indirectly, on external systems of business
enterprises such as its advisor, lessees, suppliers, creditors, financial
organizations, and of governmental entities for accurate exchange of data. The
Company's current estimate is that the costs associated with the year 2000 issue
will not have a material adverse effect on the results of operations or
financial position of the Company. However, despite the Company's efforts to
address the year 2000 impact on its internal systems, the Company may not have
fully identified such impact or whether it can resolve it without disruption of
its business and without incurring significant expense. In addition, even if the
internal systems of the Company are not materially affected by the year 2000
issue, the Company could be affected through disruption in the operations of the
enterprises with which the Company interacts.
NEW ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standard No. 133 (SFAS 133), "Accounting for
Derivative Instruments and Hedging Activities," issued by the Financial
Accounting Standards Board is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. This statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. The Company
does not expect adoption to have any effect on its financial position, results
of operations and cash flows.
21
<PAGE> 23
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
PAGE
<S> <C>
Report of Independent Certified Public Accountants .......................................................................23
Balance Sheets - December 31, 1998 and 1997 ..............................................................................24
Statements of Income for the years ended
December 31, 1998, 1997 and 1996 ....................................................................25
Statements of Stockholders' Equity for the years ended
December 31, 1998, 1997 and 1996.....................................................................26
Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996 ....................................................................27
Summary of Accounting Policies .............................................................................28-29
Notes to Financial Statements ..............................................................................30-38
Financial Statement Schedules
Schedule III - Real Estate and Accumulated Depreciation ..........................................44-46
Schedule IV - Mortgage Loans and Real Estate......................................................47-49
</TABLE>
22
<PAGE> 24
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
West Coast Realty Investors, Inc.
Los Angeles, California
We have audited the accompanying balance sheets of West Coast Realty Investors,
Inc., as of December 31, 1998 and 1997 and the related statements of income,
stockholders' equity, and cash flows for each of the three years ended December
31, 1998. 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 audits 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, 1998 and 1997, and the results of its operations and its
cash flows for each of the three years ended December 31, 1998, 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 22, 1999
23
<PAGE> 25
WEST COAST REALTY INVESTORS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, 1998 1997
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Rental real estate, less accumulated depreciation (Notes 1, 2, $ 35,870,984 $ 27,322,612
5, and 11)
Cash and cash equivalents 4,594,587 2,099,857
Deferred rent 426,878 288,411
Loan origination fees, net of accumulated amortization of $71,084
and $51,603
217,316 89,260
Other assets 145,907 38,951
- ----------------------------------------------------------------------------------------------------------
Total assets $ 41,255,672 $ 29,839,091
==========================================================================================================
LIABILITIES AND PARTNERS' EQUITY
LIABILITIES
Accounts payable $ 34,542 $ 130,076
Due to related party (Note 4g) 56,349 187,267
Security deposits and prepaid rent 324,041 366,921
Other liabilities 119,792 107,032
Notes payable (Notes 5 and 11) 16,686,668 11,194,832
- ----------------------------------------------------------------------------------------------------------
Total liabilities 17,221,392 11,986,128
- ----------------------------------------------------------------------------------------------------------
COMMITMENTS (Note 10)
STOCKHOLDERS' EQUITY
Common stock $.01 par value; 5,000,000 shares authorized;
2,932,762 and 2,163,561 shares issued and outstanding 29,328 21,635
Additional paid-in capital 26,495,731 19,313,678
Dividends in excess of retained earnings (Note 7) (2,490,779) (1,482,350)
- ----------------------------------------------------------------------------------------------------------
Total stockholders' equity 24,034,280 17,852,963
- ----------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 41,255,672 $ 29,839,091
==========================================================================================================
</TABLE>
See accompanying summary of accounting policies and notes to financial
statements.
24
<PAGE> 26
WEST COAST REALTY INVESTORS, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years ended December 31, 1998 1997 1996
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Rental (Notes 1 and 2) $3,577,116 $2,822,398 $2,337,530
Gain on sale of property -- 262,168 --
Interest 226,768 132,926 97,097
- --------------------------------------------------------------------------------------
3,803,884 3,217,492 2,474,627
- --------------------------------------------------------------------------------------
COST AND EXPENSES
Interest expense (Note 9) 1,122,501 1,048,774 880,978
General and administrative (Note 4) 827,679 336,554 224,254
Depreciation and amortization 658,008 474,868 360,901
Operating (Note 4) 432,088 378,318 302,858
- --------------------------------------------------------------------------------------
3,040,276 2,238,514 1,768,991
- --------------------------------------------------------------------------------------
NET INCOME $ 763,608 $ 978,978 $ 705,636
======================================================================================
NET INCOME PER SHARE (Note 7) $ .29 $ .53 $ .49
======================================================================================
</TABLE>
See accompanying summary of accounting policies and notes to financial
statements.
25
<PAGE> 27
WEST COAST REALTY INVESTORS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
Dividends
Common Stock Additional in Excess of
----------------------- Paid-In Retained
Shares Amount Capital Earnings Total
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE, January 1, 1996 1,322,404 $ 13,224 $ 11,771,030 $ (549,417) $ 11,234,837
Issuance of stock for cash, net of costs and
sales commissions of $246,599 228,203 2,282 2,046,672 -- 2,048,954
Net income for the year -- -- -- 705,636 705,636
Equity contribution by Affiliates through
expense reimbursements (Note 4(f)) -- -- 44,061 -- 44,061
Dividends declared ($.779 per share) (Note 7) -- -- -- (1,128,597) (1,128,597)
- ------------------------------------------------------------------------------------------------------------------------------
BALANCE, December 31, 1996 1,550,607 15,506 13,861,763 (972,378) 12,904,891
Issuance of stock for cash, net of costs and
sales commissions of $691,928 612,954 6,129 5,325,476 -- 5,331,605
Net income for the year -- -- -- 978,978 978,978
Equity contribution by Affiliates through
expense reimbursements (Note 4(f)) -- -- 126,439 -- 126,439
Dividends declared ($.779 per share) (Note 7) -- -- -- (1,488,950) (1,488,950)
- ------------------------------------------------------------------------------------------------------------------------------
BALANCE, December 31, 1997 2,163,561 21,635 19,313,678 (1,482,350) 17,852,963
Issuance of stock for cash, net of costs and
sales commissions of $683,323 784,879 7,850 6,912,362 -- 6,920,212
Treasury stock (15,678) (157) -- -- (157)
Net income for the year -- -- -- 763,608 763,608
Equity contribution by Affiliates through
expense reimbursements (Note 4(f)) -- -- 269,691 -- 269,691
Dividends declared ($.667 per share) (Note 7) -- -- -- (1,772,037) (1,772,037)
- ------------------------------------------------------------------------------------------------------------------------------
BALANCE, December 31, 1998 2,932,762 $ 29,328 $ 26,495,731 $(2,490,779) $ 24,034,280
==============================================================================================================================
</TABLE>
See accompanying summary of accounting policies and notes to financial
statements.
26
<PAGE> 28
WEST COAST REALTY INVESTORS, INC.
STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
Years ended December 31, 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 763,608 $ 978,978 $ 705,636
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation expense 638,529 474,868 360,901
Interest expense due to amortization of loan origination fees 19,479 2,007 21,161
Gain on sale of property -- (262,168) --
Increase (decrease) from changes in operating assets and liabilities:
Accounts receivable (138,467) (40,463) (115,800)
Other assets (106,956) 46,920 (45,277)
Accounts payable (95,534) 116,154 (11,497)
Due to related party (130,919) 140,982 (121,029)
Security deposits and prepaid rent (42,880) 242,187 15,666
Other liabilities 12,763 6,579 10,022
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 919,623 1,706,044 819,783
- ---------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of rental real estate (9,186,901) (8,780,874) (1,828,500)
Proceeds from sale of rental real estate -- 2,375,120 --
- ---------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (9,186,901) (6,405,754) (1,828,500)
- ---------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock, net 6,920,212 5,331,605 2,048,954
Repurchase of treasury stock (157) -- --
Equity contribution by Affiliates through expense reimbursements 269,691 126,439 44,061
Dividends (1,772,037) (1,791,710) (1,052,925)
Proceeds from notes payable 5,775,000 2,312,500 755,000
Payments on notes payable (283,164) (1,196,461) (215,387)
Increase in loan origination fees (147,537) -- (3,814)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 10,762,008 4,782,373 1,575,889
- ---------------------------------------------------------------------------------------------------------------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 2,494,730 82,663 567,172
CASH AND CASH EQUIVALENTS, beginning of year 2,099,857 2,017,194 1,450,022
- ---------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, end of year $ 4,594,587 $ 2,099,857 $ 2,017,194
===========================================================================================================================
</TABLE>
See accompanying summary of accounting policies and notes to financial
statements.
27
<PAGE> 29
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 1998, 1997 and 1996 tax years; however qualification
as a REIT for future years is dependent upon future operations of the Company.
The Company was organized to acquire interests in income-producing residential,
industrial, retail or commercial properties located primarily in California and
the west coast of the United States. The Company intends to acquire property for
cash 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 and intends to own and operate such
properties for investment over an anticipated holding period of five to ten
years.
RENTAL REAL ESTATE AND DEPRECIATION
Assets are stated at lower of cost or net realizable value. Depreciation is
computed using the straight-line method over their estimated useful lives of
31.5 to 39 years for financial and income tax reporting purposes.
In the event that facts and circumstances indicate that the cost of an asset may
be impaired, an evaluation of recoverability would be performed. If an
evaluation is required, the estimated future undiscounted cash flows associated
with the asset would be compared to the carrying amount to determine if a
write-down to market value is required.
RENTAL INCOME
Rental revenue is recognized on a straight-line basis to the extent that rental
revenue is deemed collectible. Where there is uncertainty of collecting higher
scheduled rental amounts, due to the tendency of tenants to renegotiate their
leases at lower amounts, rental income is recognized as the amounts are
collected.
ACQUISITION COSTS
The Company began expensing internal acquisition costs in accordance with
Emerging Issues Task Force 97-11, "Accounting for Internal Costs Relating to
Real Estate Property Acquisitions" which was issued in March 1998. Acquisition
costs are paid to an affiliate, West Coast Realty Advisors, "WCRA" who incurs
such internal acquisition costs. Prior to this, the Company capitalized internal
acquisition costs and included it as part of the cost of the property.
LOAN ORIGINATION FEES
Loan origination fees are capitalized and amortized over the life of the loan.
CASH AND CASH EQUIVALENTS
The Company considers cash in the bank, liquid money market funds, and all
highly liquid certificates of deposit, with original maturities of three months
of less, to be cash and cash equivalents.
28
<PAGE> 30
WEST COAST REALTY INVESTORS, INC.
SUMMARY OF ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
NET INCOME PER SHARE
Net income per share is calculated by dividing the net income by the weighted
average number of shares outstanding for the period.
NEW ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standard No. 133 (SFAS 133), "Accounting for
Derivative Instruments and Hedging Activities," issued by the Financial
Accounting Standards Board is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. This statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. The Company
does not expect adoption to have any effect on its financial position, results
of operations and cash flows.
29
<PAGE> 31
WEST COAST REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1--RENTAL PROPERTIES
The Company owns the following income-producing properties:
<TABLE>
<CAPTION>
Original
Acquisition
Location (Property Name) Date Purchased Cost
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Huntington Beach, California (Blockbuster) February 26, 1991 $1,676,210
Fresno, California May 14, 1993 1,414,893
Huntington Beach, California (OPTO-22) September 15, 1993 2,628,985
Riverside, California November 29, 1994 3,655,500
Tustin, California (Safeguard) May 22, 1995 4,862,094
Fremont, California (Technology Drive) October 31, 1995 3,747,610
Sacramento, California (Java City) August 2, 1996 1,828,500
Irvine, California (Tycom) January 17, 1997 4,907,440
Roseville, California (Applebee's) October 31, 1997 1,976,484
Corona, California December 31, 1997 1,904,452
Sacramento, California (Horn Road) January 15, 1998 2,141,200
Chino, California April 19, 1998 1,859,338
Vacaville, California May 20, 1998 2,735,308
Cerritos, California December 23, 1998 2,314,569
</TABLE>
The major categories of property are:
<TABLE>
<CAPTION>
December 31, 1998 1997
- -------------------------------------------------------------------
<S> <C> <C>
Land $12,576,130 $ 9,449,150
Buildings and improvements 25,076,453 19,016,532
- -------------------------------------------------------------------
37,652,583 28,465,682
Less accumulated depreciation 1,781,599 1,143,070
- -------------------------------------------------------------------
Net rental properties $35,870,984 $27,322,612
===================================================================
</TABLE>
30
<PAGE> 32
WEST COAST REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1--RENTAL PROPERTIES (CONTINUED)
On October 31, 1997, the Company ("Seller") sold the North Palm Street Property
to an unrelated buyer. The total sales price was $2,515,860. 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:
Three tenants accounted for 18%, 14% and 12%, respectively, in 1998;
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.
NOTE 2--UNAUDITED PROFORMA INFORMATION
The following unaudited pro forma information is presented to illustrate the
effect of the four properties acquired in during 1998 and 1997, as discussed
above, and the property acquired in 1999, as discussed in Note 10, as if the
acquisitions occurred on January 1st of each year presented.
<TABLE>
<CAPTION>
Pro formas for the years ended
December 31, 1998 1997
- ------------------------------------------------------------------------------
<S> <C> <C>
Revenues:
Rental income $4,323,855 $4,089,982
Gain on sale of property -- 262,168
- ------------------------------------------------------------------------------
4,323,855 4,352,150
- ------------------------------------------------------------------------------
Costs and expenses:
Operating 1,183,728 1,140,857
Interest 1,263,334 1,296,899
Depreciation and amortization 778,714 543,030
- ------------------------------------------------------------------------------
3,225,776 2,980,786
- ------------------------------------------------------------------------------
Net income 1,098,079 $1,371,364
==============================================================================
Net income per share $ .37 $ .48
==============================================================================
</TABLE>
31
<PAGE> 33
WEST COAST REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 3--FUTURE MINIMUM RENTAL INCOME
As of December 31, 1998, future minimum rental income under the existing leases
that have remaining noncancelable terms in excess of one year are as follows:
<TABLE>
<CAPTION>
Years ending December 31, Amount
- ------------------------------------------------------------------------
<S> <C>
1999 $ 4,331,729
2000 4,359,497
2001 4,080,478
2002 3,625,884
2003 3,007,277
Thereafter 14,537,356
- ------------------------------------------------------------------------
Total $33,942,221
- ------------------------------------------------------------------------
</TABLE>
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
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.
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,
1998, 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 Company financial
statements.
(a) In accordance with the advisory agreement, syndication fees earned
by the Advisor totaled $225,176, $262,833 and $82,864 in 1998, 1997 and
1996.
(b) Overhead expenses reimbursed to the Advisor totaled $24,000, $24,000
and $12,000 in 1998, 1997 and 1996.
(c) Sales commissions paid in accordance with the selling agreement to
ASC totaled $458,147 $429,095 and $163,735 for 1998, 1997 and 1996.
(d) Fees related to the purchase, sale or refinancing of real estate
totaled $639,398, $384,719 and $78,177 in 1998, 1997 and 1996 (Note 1).
These fees are split, in accordance with the advisory agreement, between
the Advisor and an affiliate.
(e) Property management fees earned by WCRM totaled $125,563, $106,576
and $103,052 in 1998, 1997 and 1996.
32
<PAGE> 34
NOTE 4--RELATED PARTY TRANSACTIONS (CONTINUED)
(f) Advisory fees earned by WCRA totaled $269,691, $186,439 and
$74,361 in 1998, 1997 and 1996. WCRA waived collection of $269,691,
$126,439 and $44,061 in 1998, 1997 and 1996, respectively, of these
fees which are included in additional paid-in capital.
(g) The Corporation had related party accounts payable as follows:
<TABLE>
<CAPTION>
December 31, 1998 1997
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Associated Securities Corp. $16,697 $ 6,152
West Coast Realty Management 33,652 23,192
West Coast Realty Advisors 6,000 157,923
- ----------------------------------------------------------------------------------------
$56,349 $187,267
- ----------------------------------------------------------------------------------------
</TABLE>
NOTE 5--NOTES PAYABLE
Notes payable are made up of the following:
<TABLE>
<CAPTION>
December 31, 1998 1997
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
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 $ 603,662 $ 616,219
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, 1998), and may
never go below 6.5% or above 11.0%, monthly principal and interest payments
are $12,794, due October 1, 2003 1,668,449 1,688,870
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 542,584 556,403
8.25% promissory note secured by a Deed of Trust on the Riverside property,
monthly principal and interest payments are $9,988, due November 8, 2004 1,156,264 1,167,149
9.625% promissory note secured by a Deed of Trust on the Safeguard property,
monthly principal and interest payments are $24,190, due February 1, 2005 1,973,724 2,069,004
</TABLE>
33
<PAGE> 35
WEST COAST REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 5--NOTES PAYABLE (CONTINUED)
<TABLE>
<CAPTION>
December 31, 1998 1997
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
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 2,036,273 2,090,456
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 321,124 329,083
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 367,440 375,540
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, 1998), monthly payments of
principal and interest are $16,693, due June 30, 2007 2,267,479 2,302,108
7.5% promissory note secured by a Deed of Trust on the Chino property, monthly
principal and interest payments are $6,836, due October 1, 2010 (rate is
adjustable on the fourth and eighth anniversary years of the loan, to the
weekly average of the five-year Treasury Note yield for the seventh week
prior to the Adjustment Date plus 200 basis points, but no less than the
existing rate) 922,884 -
7.5% promissory note secured by a Deed of Trust on the Vacaville property,
monthly principal and interest payments are $10,346, due October 1, 2010
(rate is adjustable on the fourth and eighth anniversary years of the loan,
to the weekly average of the five-year Treasury Note yield for the seventh
week prior to the Adjustment Date plus 200 basis points, but no less than
the existing rate) 1,396,798 -
7.375% promissory note secured by a Deed of Trust on the Horn Road property,
monthly principal and interest payments are $7,309, due June 1, 2011 (rate
is adjustable on the fourth and eighth anniversary years of the loan, to the
weekly average of the five-year Treasury Note yield for the seventh week
prior to the Adjustment Date plus 195 basis points, but no less than the
existing rate) 992,913 -
</TABLE>
34
<PAGE> 36
WEST COAST REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 5--NOTES PAYABLE (CONTINUED)
<TABLE>
<CAPTION>
December 31, 1998 1997
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
8.33% promissory note secured by a Deed of Trust on the Roseville property,
monthly principal and interest payments are $11,510 due July 1, 2008 1,444,161 -
7.375% promissory note secured by a Deed of Trust on the Corona property,
monthly principal and interest payments are $7,309 due June 1, 2011 (rate is
adjustable on the fourth and eighth anniversary years of the loan, to the
weekly average of the five-year Treasury Note yield for the seventh week
prior to the Adjustment Date plus 195 basis points, but no less than the
existing rate) 992,913 -
- ---------------------------------------------------------------------------------------------------------------------
$16,686,668 $11,194,832
=====================================================================================================================
</TABLE>
The aggregate fair value of the notes is approximately $17,367,000 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, 1998 are as follows:
<TABLE>
<CAPTION>
Years ending December 31, Amount
- ------------------------------------------------------------------------------
<S> <C>
1999 $ 357,041
2000 393,630
2001 435,147
2002 764,545
2003 2,526,325
Thereafter 12,209,980
- ------------------------------------------------------------------------------
Total $16,686,668
- -------------------------------------------------------------------------------
</TABLE>
NOTE 6--DIVIDEND REINVESTMENT PLAN
The Company had a Dividend Reinvestment Plan (the "Plan") where cash dividends
were at the election of the shareholders, used to purchase additional shares of
the Company. The dividend reinvestment plan was terminated in April 1998.
35
<PAGE> 37
WEST COAST REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 7--NET INCOME AND DIVIDENDS PER SHARE
Dividends are declared and accrued based approximately upon the previous
quarter's income from operations before depreciation and amortization.
Net Income Per Share was computed using the weighted average number of
outstanding shares of 2,640,041, 1,839,018 and 1,447,366 for 1998, 1997 and
1996.
Dividends declared during 1998 were as follows:
<TABLE>
<CAPTION>
OUTSTANDING AMOUNT TOTAL
RECORD DATE SHARES PER SHARE DIVIDEND
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
January 1, 1998 2,149,404 $0.0666 $ 143,150
February 1, 1998 2,345,825 0.0666 156,232
March 1, 1998 2,345,825 0.0666 156,232
April 1, 1998 2,345,825 0.0558 130,898
May 1, 1998 2,590,131 0.0558 144,529
June 1, 1998 2,888,319 0.0558 161,168
September 30, 1998 2,932,762 0.1500 439,914
December 15, 1998 2,932,762 0.1500 439,914
----------
Total $1,772,037
==========
</TABLE>
Dividends declared during 1997 were as follows:
<TABLE>
<CAPTION>
OUTSTANDING AMOUNT TOTAL
RECORD DATE SHARES PER SHARE DIVIDEND
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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
==========
</TABLE>
36
<PAGE> 38
WEST COAST REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 7--NET INCOME AND DIVIDENDS PER SHARE (CONTINUED)
Dividends declared during 1996 were as follows:
<TABLE>
<CAPTION>
OUTSTANDING AMOUNT TOTAL
RECORD DATE SHARES PER SHARE DIVIDEND
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
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
==========
</TABLE>
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:
<TABLE>
<CAPTION>
December 31, 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Taxable ordinary income $ 0.289 $ 0.385 $ 0.487
Nontaxable return of capital 0.382 0.414 0.292
- -----------------------------------------------------------------------------------------------------------------
$ 0.671 $ 0.799 $ 0.779
=================================================================================================================
</TABLE>
NOTE 8--TAXES ON INCOME
For the taxable years 1998 and 1997, the Company elected to be treated as a REIT
on the filings of the 1998 and 1997 tax returns, and intends to elect the same
for 1999.
NOTE 9--STATEMENT OF CASH FLOWS
Cash paid for interest during the year ended December 31, 1998, 1997 and 1996
was $1,088,909, $1,043,192 and $857,042.
The Company had a noncash financing activity related to unpaid dividends
declared of $-0-, $-0- and $302,996 for 1998, 1997 and 1996.
37
<PAGE> 39
WEST COAST REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 10--COMMITMENTS AND CONTINGENCIES
LITIGATION
The Company is, from time to time, involved in legal proceedings, claims and
litigation arising in the ordinary course of business. While the amounts claimed
may be substantial, the ultimate liability cannot presently be determined
because of considerable uncertainties that exist. Therefore, it is possible the
outcome of such legal proceedings, claim and litigation could have a material
effect on quarterly or annual operating results or cash flows when resolved in a
future period. However, based on facts currently available, management believes
such matters will not have a material adverse affect on the Company's financial
position, results of operations or cash flows.
NOTE 11--SUBSEQUENT EVENTS
(a) On January 12, 1999, the Company acquired an industrial building located in
Ontario, California for $4,614,964 in cash. The acquisition was accomplished
with the use of the proceeds from the Company's fourth public offering. On March
4, 1999, the Company refinanced this property for $3,000,000 at an interest rate
of 7.5%.
(b) On March 5, 1999, the Company refinanced the Cerritos property (which was
originally acquired on December 23, 1998) for $1,250,000 at an interest rate of
7.5%.
38
<PAGE> 40
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
39
<PAGE> 41
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:
<TABLE>
<CAPTION>
NAME COMPANY ADVISOR
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Philip N. Gainsborough Chairman of the Board/Director Chairman of the Board/Director
W. Thomas Maudlin, Jr. President/Director President/Director
Neal E. Nakagiri Executive Vice President/Secretary Executive Vice President/Secretary
John R. Lindsey Vice President/Treasurer Treasurer
George Young Director N/A
Steve Bridges Director N/A
James W. Coulter Director N/A
</TABLE>
The biographies for the above individuals are noted below:
PHILIP N. GAINSBOROUGH (Born 1938) is Chairman and a Director of West Coast
Realty Advisors, Inc. Mr. Gainsborough is also currently the President of
Associated Financial Group, Inc., Associated Securities Corp., and Associated
Planners Investment Advisory, 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.
W. THOMAS MAUDLIN JR. (Born 1936) is a Director and President of West
Coast Realty Advisors, Inc. ("WCRA"). Mr. Maudlin has been active in the real
estate area for over 30 years, serving as co-developer of high-rise office
buildings and condominiums. He 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. Mr. Maudlin was co-developer of the Gateway Los Angeles office
building, a 165,000 square foot, fourteen-story office building located in West
Los Angeles. From 1980 to 1985, in partnership with the Muller Company, he
developed eleven acres in San Bernardino which included a 42,000 square-foot
office building, a six-plex movie theater and two restaurants. From 1980 to
1985, Mr. Maudlin was involved in building a 134-unit condominium development in
San Bernardino, California, a shopping center, and a restaurant in Ventura. He
is a graduate of the University of Southern California.
40
<PAGE> 42
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.
JOHN R. LINDSEY (Born 1946) is Senior Vice President/Treasurer, is
responsible for all facets of financial management of the Associated Financial
Group. Previously, Mr. Lindsey was a consultant specializing in financial
services, worked for a large financial institution and performed audits and
consulting assignments for Price Waterhouse. He is a Certified Public Accountant
and a member of the California Society of CPAs and the American Institute of
CPAs. He received a BS in Business Administration and Accounting from the
University of Southern California in 1968.
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, 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.
41
<PAGE> 43
ITEM 11. EXECUTIVE COMPENSATION
During 1998, 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 they attend or $100 per meeting via telephone. During 1998, a
total of $3,600 was paid to the Company's Independent Directors.
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, 1998, the Advisor had purchased $22,556 worth of shares, or
approximately .8% of the adjusted net worth. The Registrant has no shareholders
representing more than 5% of the outstanding common stock of the Company.
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 August 1990 upon
formation of the Company and subsequently purchased an additional 21,481 shares
of common stock for a net amount of $199,773.
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, 1998, the Company paid the Advisor
and/or Descolin $639,398 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, 1998, commissions paid to ASC for the sale of these
shares totaled $458,147 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, 1998, the Company incurred $125,563 of property management
fees.
4. Advisory fees earned by the Advisor totaled $269,691 for the
year end December 31, 1998. The Advisor waived collection of these fees which
are included in additional paid in capital.
42
<PAGE> 44
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:
<TABLE>
<CAPTION>
PAGE
<S> <C>
Report of Independent Certified Public Accountants ...............................23
Balance Sheets - December 31, 1998 and 1997 ......................................24
Statements of Income for the years ended
December 31, 1998, 1997 and 1996 .........................................25
Statements of Partners' Equity for the years ended
December 31, 1998, 1997 and 1996..........................................27
Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996 .........................................27
Summary of Accounting Policies ................................................28-29
Notes to Financial Statements .................................................30-38
2. FINANCIAL STATEMENT SCHEDULES
Schedule III--Real Estate and Accumulated Depreciation ........................44-46
Schedule IV--Mortgage Loans and Real Estate....................................47-49
</TABLE>
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
FINANCIAL DATA SCHEDULE
43
<PAGE> 45
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1998
INFORMATION REQUIRED BY RULE 12-28 IS AS FOLLOWS
<TABLE>
<CAPTION>
Cost Gross Amount at which
Initial Cost Capitalized Carried at Close of Period
--------------------------------- Subsequent to -------------------------------
Building and Acquisition Building and
Description Emcumbrances Land Improvements Improvements Land Improvement
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Retail Building,
Huntington Beach, CA $ 542,584 $ 1,005,965 $ 670,245 $ -- $ 1,005,965 $ 670,245
Retail Bldg., Shopping
Center, Fresno, CA 603,662 553,648 861,245 -- 553,648 861,245
Industrial Building,
Huntington Beach, CA 1,668,449 1,132,159 1,367,842 128,984 1,132,159 1,496,826
Entertainment Center,
Riverside, CA 1,156,264 768,667 2,886,833 -- 768,667 2,886,833
Office Building, Tustin,
CA 1,973,724 1,089,796 3,772,298 -- 1,089,796 3,772,298
Light Industrial Bldg,
Fremont, CA 2,036,273 1,228,262 2,519,349 -- 1,228,262 2,519,349
Light Industrial Bldg.,
Sacramento, CA 321,124 489,182 609,397 -- 489,182 609,397
Light Industrial Bldg.,
Sacramento, CA 367,440 325,024 404,896 -- 325,024 404,896
Light Industrial Bldg.,
Irvine, CA 2,267,479 1,570,000 3,337,440 -- 1,570,000 3,337,440
Restaurant Facility,
Roseville, CA 1,444,161 594,025 1,382,459 -- 594,025 1,382,459
</TABLE>
<TABLE>
<CAPTION>
Life (Years)
on which
Depreciation
is Computed
Year ------------
Total Accumulated Construction Date Building and
Description Cost Depreciation Completed Acquired Improvements
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Retail Building,
Huntington Beach, CA $ 1,676,210 $ 167,575 1991 2/91 31.5
Retail Bldg., Shopping
Center, Fresno, CA 1,414,893 124,220 1993 5/93 39.0
Industrial Building,
Huntington Beach, CA 2,628,985 185,594 1976 9/93 39.0
Entertainment Center,
Riverside, CA 3,655,500 302,252 1994 11/94 39.0
Office Building, Tustin,
CA 4,862,094 346,589 1986 5/95 39.0
Light Industrial Bldg,
Fremont, CA 3,747,611 201,875 1993 10/95 39.0
Light Industrial Bldg.,
Sacramento, CA 1,098,579 37,118 1988 8/96 39.0
Light Industrial Bldg.,
Sacramento, CA 729,920 24,662 1988 8/96 39.0
Light Industrial Bldg.,
Irvine, CA 4,907,440 265,474 1978 1/97 39.0
Restaurant Facility,
Roseville, CA 1,976,484 36,164 1997 10/97 39.0
</TABLE>
44
<PAGE> 46
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)
DECEMBER 31, 1998
INFORMATION REQUIRED BY RULE 12-28 IS AS FOLLOWS (CONTINUED)
<TABLE>
<CAPTION>
Cost Gross Amount at which
Initial Cost Capitalized Carried at Close of Period
--------------------------------- Subsequent to -------------------------------
Building and Acquisition Building and
Description Emcumbrances Land Improvements Improvements Land Improvement
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Light Industrial Bldg.,
Corona, CA 992,913 703,142 1,201,310 -- 703,142 1,201,310
Light Industrial Bldg
Sacramento, CA 992,913 1,068,000 1,073,200 -- 1,068,000 1,073,200
Light Industrial Bldg
Chino, CA 922,884 714,245 1,145,093 -- 714,245 1,145,093
Light Industrial Bldg
Vacaville, CA 1,396,798 330,000 2,405,308 -- 330,000 2,405,308
Light Industrial Bldg
Cerritos, CA -- 1,004,015 1,310,554 -- 1,004,015 1,310,554
- -----------------------------------------------------------------------------------------------------------------------------------
Total $16,686,668 $12,576,130 $24,947,469 $128,984 $12,576,130 $25,076,453
===================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Life (Years)
on which
Depreciation
is Computed
Year ------------
Total Accumulated Construction Date Building and
Description Cost Depreciation Completed Acquired Improvements
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Light Industrial Bldg.,
Corona, CA 1,904,452 30,802 1988 12/97 39.0
Light Industrial Bldg
Sacramento, CA 2,141,200 13,758 1976 1/98 39.0
Light Industrial Bldg
Chino, CA 1,859,338 14,680 1989 4/98 39.0
Light Industrial Bldg
Vacaville, CA 2,735,308 30,836 1996 5.98 39.0
Light Industrial Bldg
Cerritos, CA 2,314,569 -- 1980 12/98 39.0
- -----------------------------------------------------------------------------------------------------
Total $37,652,583 $1,781,599
=====================================================================================================
</TABLE>
45
<PAGE> 47
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)
DECEMBER 31, 1998
A reconciliation of the total cost for the years ending December 31, 1996, 1997
and 1998 follows:
<TABLE>
<S> <C>
Balance at January 1, 1996 $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
1998 Additions 9,186,901
-----------
Balance at December 31, 1998 $37,652,583
===========
</TABLE>
A reconciliation of accumulated depreciation for the years ending December 31,
1996, 1997 and 1998 follows:
<TABLE>
<S> <C>
Balance at January 1, 1996 $ 454,487
1996 Depreciation 360,461
-----------
Balance at December 31, 1996 814,948
1997 Depreciation 463,513
1997 Disposition (135,391)
-----------
Balance at December 31, 1997 1,143,070
1998 Depreciation 638,529
-----------
Balance at December 31, 1998 $ 1,781,599
===========
</TABLE>
46
<PAGE> 48
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE DECEMBER 31, 1998
INFORMATION REQUIRED BY RULE 12-29 IS AS FOLLOWS
<TABLE>
<CAPTION>
Final Period 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 8.25% 8/1/2003 Equal Monthly Payments None $ 665,000 $ 603,662 None
Fresno, CA to Maturity; Balloon
First Deed of Trust Payment due 8/2003
Industrial Building, Variable 10/1/2003 Equal Monthly Payments None 1,700,000 1,668,449 None
Huntington Beach, CA to Maturity; Balloon
First Deed of Trust Payment due 10/2003
Retail Building, Variable 2/1/2004 Variable Monthly None 600,000 542,584 None
Huntington Beach, Payments to Maturity;
California 25 yr Amortization;
First Deed of Trust Balloon Payment due
2/2004
Entertainment Center, 9.25% 11/8/2004 Equal Monthly Payments; None 1,200,000 1,156,264 None
Riverside, CA Amortized over 28 yrs,
First Deed of Trust 3 months; Balloon
Payment due 11/2004
Office Building, 9.625% 2/1/2005 Fixed Rate; 15 year None 2,300,000 1,973,724 None
Tustin, CA Amortization; Balloon
First Deed of Trust Payment due 2/2005
Light Industrial Bldg. 8.240% 8/1/2015 Equal Monthly Payments None 2,200,000 2,036,273 None
Fremont, CA 20 years Amortization
First Deed of Trust
Light Industrial Bldg. 10.000% 12/1/2001 Equal Monthly Payments None 350,000 321,124 None
Sacramento, CA 25 years Amortization
First Deed of Trust
Light Industrial Bldg. 8.000% 6/1/2018 Equal Monthly Payments None 405,000 367,440 None
Sacramento, CA 25 years Amortization
First Deed of Trust
Light Industrial Bldg. Variable 8/1/2007 Variable Monthly None 2,312,500 2,267,479 None
Irvine, CA Payments to Maturity;
First Deed of Trust 25 year Amortization
</TABLE>
47
<PAGE> 49
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE (CONTINUED) DECEMBER 31, 1998
INFORMATION REQUIRED BY RULE 12-29 IS AS FOLLOWS (CONTINUED)
<TABLE>
<CAPTION>
Final Period Delinquent
Interest Maturity Payment Prior Face Carrying Principal/
Description Rate Date Terms Liens Amount Amount Interest
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Light Industrial Variable 10/1/2010 Equal Monthly Payments None 925,000 922,884 None
Chino, CA to Maturity; Balloon
First Deed of Trust Payment due 10/2010
Industrial Building 7.50% 10/1/2010 Equal Monthly Payments None 1,400,000 1,396,798 None
Vacaville, CA to Maturity; Balloon
First Deed of Trust Payment due 10/2010
Light Industrial 7.375% 6/01/2011 Equal Monthly Payments None 1,000,000 992,913 None
Sacramento, CA to Maturity; Balloon
First Deed of Trust Payment due 6/2011
Restaurant Facility 8.33% 7/1/2008 Equal Monthly Payments None 1,450,000 1,444,161 None
Roseville, CA to Maturity;
First Deed of Trust Amortization Over 25
Years Balloon Payment
due 7/2008
Light Industrial 7.375% 6/1/2011 Final Monthly Payments None 1,000,000 992,912 None
Corona, CA to Maturity; Balloon
First Deed of Trust Payment due 6/2011
- ----------------------------------------------------------------------------------------------------------------------------------
$17,507,500 $16,686,668
==================================================================================================================================
</TABLE>
48
<PAGE> 50
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE (CONTINUED)
DECEMBER 31, 1998
A reconciliation of mortgage loans payable for the years ended December 31,
1996, 1997 and 1998 follows:
<TABLE>
<S> <C>
Balance at January 1, 1996 $ 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
1998 Additions 5,775,000
1998 Paydowns (283,164)
-----------
Balance at December 31, 1998 $16,686,668
===========
</TABLE>
49
<PAGE> 51
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.
/s/ W. THOMAS MAUDLIN JR.
-----------------------------------------------------
W. THOMAS MAUDLIN JR.
(Director, President and Principal Executive Officer)
/s/ PHILIP N. GAINSBOROUGH
-----------------------------------------------------
PHILIP N. GAINSBOROUGH
(Chairman of the Board of Directors)
/s/ JOHN R. LINDSEY
-----------------------------------------------------
JOHN R. LINDSEY
(Vice President/Treasurer,
Principal Financial Officer, and
Principal Accounting Officer)
/s/ GEORGE YOUNG
-----------------------------------------------------
GEORGE YOUNG
(Director)
Date: March 30, 1999
50
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 4,594,587
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,691,294
<PP&E> 37,652,583
<DEPRECIATION> (1,781,599)
<TOTAL-ASSETS> 41,225,672
<CURRENT-LIABILITIES> 534,724
<BONDS> 16,686,668
0
0
<COMMON> 29,238
<OTHER-SE> 24,004,952
<TOTAL-LIABILITY-AND-EQUITY> 41,225,672
<SALES> 3,577,116
<TOTAL-REVENUES> 3,803,884
<CGS> 1,917,775
<TOTAL-COSTS> 1,917,775
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,122,501
<INCOME-PRETAX> 763,608
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 763,608
<EPS-PRIMARY> .29
<EPS-DILUTED> .29
</TABLE>
