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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, 1999
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.
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(Exact name of registrant as specified in its charter)
DELAWARE 95-4246740
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State or other jurisdiction of (IRS Employer
incorporation or organization Identification)
5933 WEST CENTURY BLVD., 9TH FLOOR, LOS ANGELES, CA 90045-5454
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(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
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(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 [X]
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date: 2,927,967 shares outstanding,
as of March 17, 2000.
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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, commercial and industrial 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 managed by the Advisor, subject to the terms of the Amended
Advisory Agreement dated January 1, 1992, which was renewed until June 30, 2000
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 administrative services are provided by the Advisor, subject to
the terms of the Amended Advisory Agreement.
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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.
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 a current interest rate of
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" or "the Property Manager"), 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 $13,416 per
month for the remaining years of the lease. This is equivalent to $2.58 per
rentable square foot. 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 67% occupied by Wherehouse Entertainment, Inc. ("The
Wherehouse" - a music and video retailer). The remaining 33% of the building is
available for lease.
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The Wherehouse is 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.
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, 1999.
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. 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 $181 in percentage rent for the year ended December 31, 1999.
As a result of the Amendment, the Company absorbed $13,272 in operating expenses
in 1999 that were previously allocated to The Wherehouse.
During July of 1999 the Rent-to-Own tenant ceased operations and vacated
the building. As such the Company signed an agreement with the tenant in which
they collected $92,187 which is for monthly rental and reimbursable expenses for
the next 20 months ($4,609 per month). The portion of the building that was
occupied the tenant is currently vacant and the Company is in the process of
locating a new tenant.
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 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 $1,700,000 was obtained from the Seller, with the
remainder of the acquisition costs, approximately $779,000, paid in cash. The
$1,700,000 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 WCRM. 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 received $25,000 per month of rental income and the
tenant pays all taxes, insurance and operating expenses. The rent was increased
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 $3,675,000.
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.
Subsequent to year end the tenant of the Opto 22 property has executed its
right to purchase the property. The property is in escrow, with an expected
sales price of $3,675,000. The Company expects to realize a gain of
approximately $1,100,000 from the sale. Proceeds from the sale will be used for
working capital. There is no assurance that the sale will ultimately be
consummated and if consummated it is reasonably possible that the gain may be
significantly different.
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.
In connection with the above litigation the Tenant of the Riverside property has
been unable to meet a portion of their rent payments. At December 31, 1999 there
is a receivable due from the Tenant of $296,010, which is comprised of back rent
and late charges. As of December 1, 1999 the Company has agreed to collect
$27,300, on a monthly basis, in rental and usage payments through November of
2000. The Company is also in the process of negotiating certain terms in which
certain assets of the Tenant will be used as collateral against the rent
receivable.
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.
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The sole tenant of the property is Safeguard Business Systems
("Safeguard"). 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. Safeguard has sub-leased 100% of the
property to PairGain Technologies, Inc. ("PairGain") for use as their
headquarters. PairGain pays its sub-lease rent to Safeguard, which pays its rent
to the Company.
FREMONT PROPERTY
On October 31, 1995, the Company acquired a single story light
industrial/research & development facility 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 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 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, 1999, the
scheduled rent is $36,687 per month. The lease is 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, which 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.
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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.
Each building was financed separately with a mortgage debt, secured by the
building. The building at 717 West Del Paso Road was financed for $350,000,
which has a fixed interest rate of 10%, is amortized over 25 years and is due
November 2001. Monthly principal and interest payments are $3,413. The building
at 721 West Del Road was financed for $405,000, which has a fixed interest rate
of 8%, is amortized over 25 years and is due June 2018. Monthly principal and
interest payments are $3,126.
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 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 7.23% 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 was 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 WCRM.
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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 was
$1,976,484. This cost includes the $1,950,000 sales price payable to the
Seller/Operator, $12,500 in estimated legal, appraisal, and closing costs, and a
$16,000 Acquisition Fee payable to the Advisor. In addition, $14,333 was
received from the Seller/Operator as a security deposit. The 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 currently $14,333.33 per month
($172,000 per year) with rental increases scheduled every five years at the rate
of 12 1/2%. The lease commenced on December 1, 1997.
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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 $1,904,452.
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 will be computed on a
straight-line basis over 39 years, the estimated component useful life of the
assets.
The Corona Property is managed by WCRM. 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. 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.
9
<PAGE> 11
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. The
sale was paid for from the proceeds resulting from the sale of the Company's
shares in the most recent offering. 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 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 WCRM. 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 9, 1998, the Company purchased a light industrial facility located in
Chino, California.
Constructed in 1989, the building has two stories, 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 by WCRM. 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 manufacturers and distributes footwear.
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 technology, 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 $2,735,308 in cash. This cost includes
$2,725,000 paid to the Seller and $10,308 in legal fees and other costs. 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 WCRM. 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 leased to Mindscape, Inc., a division of
The Learning Company (which is owned by Mattel, Inc.), which has been the only
tenant of the suite. The tenant produces educational software products for
children. 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. Mindscape, Inc.
assigned it leasehold interest to International Microcomputer Software,
Inc.("IMSI"). IMSI produces business software products. Mindscape, Inc.
continues to be responsible for rent and all other obligations set forth in its
lease, including reimbursement to the Company for its share of property taxes,
property insurance and maintenance and repairs in excess of base-year amounts.
The smaller suite was occupied by Nor-Cal Beverage Company, Inc., from October
of 1996 through December of 1999. The tenant manufactured and distributed drink
beverages and snack food. The lease called for monthly rental payments of
$4,617. All real property taxes, property insurance and maintenance and repair
expenses are paid by the tenant.
On February 7, 2000 the Company signed as lease with Cameron Environmental,
Inc., which is involved in the business of pollution control systems and waste
management. The lease term is through September 30, 2001 and calls for $5,350 in
monthly rental payments. 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.
11
<PAGE> 13
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. In May of
1999, 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 by WCRM. 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 Aquarium Supply
Corporation, which has occupied the building since May of 1991. The lease
expires on June of 2001, and calls for monthly payments of $17,938. All real
property taxes, property insurance and maintenance and repair expenses are paid
by the tenant.
ONTARIO PROPERTY
On January 12, 1999 the Company acquired a light industrial facility at 12160
South Dupont Avenue in Ontario, California. 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 proximity 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. 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 by WCRM. 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 tenant is involved in the development and management of Cable
Communications. The lease term commenced August 15, 1998 and expires in August
2013. The lease requires monthly payments of $32,800. All real property taxes,
property insurance and maintenance and repair expenses are paid by the tenant.
FOLSOM PROPERTY
On May 1, 1999 the Company acquired a light industrial facility at 101 Blue
Ravine Road, Folsom, California. The multiple tenant building, which was built
in 1984, has 52,186 rentable square feet and is situated on approximately 4
acres of land. Located in Sacramento County, which benefits from being a rich
agricultural area, the building is strategically located close to seven major
freeways. The area has also experienced strong economic growth over the past
decade.
12
<PAGE> 14
The property was acquired for $6,010,956, which includes $6,000,000 paid to the
Seller and $10,956 in legal and appraisal fees. The purchase price was
determined through an arms-length negotiation with the Seller. Long-term
financing of $4,125,870 was provided in the form of a variable rate (1.75% plus
LIBOR rate) rate promissory note secured by a first deed of trust. The interest
rate was 7.87% at December 31, 1999. The note is due September 1, 2001 and calls
for monthly principal and interest payments of $29,425.
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 the 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 6% 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 occupied by California Independent System
Operator Corporation ("CalIso"), Blue Shield of California ("BSC") and J&W
Scientific, Inc. ("JW"). CalIso is a electrical controller for 75% of
California's Power Supply. BSC provides health insurance and processes insurance
claims and JW produces gas chromatography columns which separate components of a
solution. CalIso, which occupies 21,493 or 41% of rentable square feet, has a
lease with the Company that is effective through November 2006 and calls for
average monthly rental payments of $25,285 over the term of the lease. BSC,
which occupies 10,200 or 20% of rentable square feet, has a lease with the
Company that is effective through January 2002 and calls for average monthly
rental payments of $9,435 over the term of the lease. JW, which occupies 20,353
or 39% of rentable square feet, has a lease with the Company that is effective
through September 2006 and calls for average monthly rental payments of $20,424
over the term of the lease. J&W is in the process of being acquired by Agilent
Technologies, Inc.
SUMMARY
Tenants representing 10% or more of the Company's total rental revenue for the
year ended December 31, 1999 are as follows:
Safeguard accounted for 13% of the total rental revenue of the Company.
Tycom accounted for 10% of the total rental revenue of the Company. CMS
Welding & Machinery (Fremont property) accounted for 10% of the total
rental revenue of the Company.
13
<PAGE> 15
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 Building 1,414,893 05/14/93
OPTO-22 Building 2,628,985 09/15/93
Riverside Marketplace 3,655,500 11/29/94
Safeguard Building Systems 4,862,094 05/22/95
Fremont Property 3,747,610 10/31/95
Java City Property 1,828,500 08/02/96
Tycom Property 4,907,440 01/17/97
Roseville Property 1,976,484 10/31/97
Corona Property 1,904,452 12/31/97
Laufen Tile Distribution Center 2,141,200 01/15/98
Daedo America Corporation Property 1,859,338 04/19/98
Vacaville Property 2,735,308 05/20/98
Cerritos Property 2,314,569 12/23/98
Ontario Property 4,614,964 01/12/99
Folsom Property 6,010,956 05/01/99
----------- --------
Total acquisition cost and improvements $48,278,503
===========
</TABLE>
All properties were 100% occupied by their respective tenants (or in the case of
Fremont Property, tenant and sub-tenant) except for the Fresno Village Shopping
Center building which is 67% occupied.
ITEM 3. LEGAL PROCEEDINGS
The Company is a defendant in a lawsuit entitled JOHN LONBERG; RUTHEE GOLDKORN
V. SANBORN THEATERS, INC.; SO-CAL CINEMA, 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.
14
<PAGE> 16
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.
Management cannot determine the likelihood of an unfavorable outcome or range
of potential loss.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
15
<PAGE> 17
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company has completed four offerings of common stock. 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, 1999, there were 2,927,967 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 $1,874,666, $1,772,037 and $1,488,950 in 1999, 1998 and 1997
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.
On March 15, 2000, the Company declared and issued a "spill-over" dividend to
the shareholders of record on December 31, 1999. A total of $175,678 or $0.06
per share was paid.
The 1999, 1998 and 1997 dividend distributions are summarized below:
Dividends declared during/for 1999 were as follows:
<TABLE>
<CAPTION>
OUTSTANDING AMOUNT TOTAL
RECORD DATE SHARES PER SHARE DIVIDEND
----------- ----------- --------- --------
<S> <C> <C> <C>
March 15, 2000 2,927,967 .060 $ 175,678
==========
March 1, 1999 2,932,762 .160 469,242
June 1, 1999 2,927,967 .160 468,475
September 1, 1999 2,927,967 .160 468,475
December 1, 1999 2,927,967 .160 468,475
----------
Total $1,874,666
==========
</TABLE>
16
<PAGE> 18
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 130,897
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>
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 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.
17
<PAGE> 19
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>
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Operations for the years ended December 31:
Revenues $ 5,397,663 $ 3,803,884 $ 3,217,492 $ 2,474,627 $ 1,813,126
Net income 1,070,670 763,608 978,978 705,636 649,605
Net income per share* .37 .29 .53 .49 .58
Dividends per share* .64 .67 .799 .779 .72
Financial position at December 31,
Total assets $48,864,500 $ 41,255,67 $ 29,839,09 $23,571,838 $21,392,898
Long-term debt 24,616,551 16,686,668 11,194,832 10,078,793 9,539,180
Stockholders' equity 23,473,468 24,034,280 17,852,962 12,904,891 11,234,837
</TABLE>
*Net income per share and dividends per share were based on the weighted
average number of shares outstanding. Dividends per share for 1999 does not
include the "spill-over" dividend declared om March 15, 2000.
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 - 1999 VS. 1998
Operations for the year ended December 31, 1999 represented a full year of
rental operations for all properties except the Ontario property which was
acquired on January 12, 1999 and the Folsom property which was acquired May 1,
1999.
The net income for the year ended December 31, 1999 was $1,070,670, which is
$307,062 greater than the year ended December 31, 1998.
Rental revenue increased $1,712,178 or 48% due to the additional properties
acquired during the current year. Interest income decreased $118,399 to $108,369
for the year ended December 31, 1999 since the Company's cash balances were
lower throughout the current year due to the property purchases.
Operating expenses increased $112,469 or 26% as a result of an increase in
property management fees, property taxes and property insurance expense from the
purchase of the additional properties. Interest expense was $1,798,544 an
increase of $676,043 or 60% for the year ended December 31, 1999 due to
additional debt financing with the two property acquisitions and one refinancing
of an existing property. General and administrative costs have increased
$437,714 or 53% which can be attributed to the acquisition of the additional
properties, as well as the increased cost of maintaining a larger property
portfolio. Depreciation and amortization expense increased $60,491 or 9% due to
the additional properties acquired during the current year.
18
<PAGE> 20
ITEM 7. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONT.)
The weighted average number of shares outstanding for the year ended December
31, 1999 was 2,929,442. Net income per share increased $.08 or 28% from $.29 in
1998 to $.37 in 1999.
For the year ended December 31, 1999, the Company declared dividends totaling
$1,874,666, which was a $102,629 increase as compared to December 31, 1998. Cash
basis income for the year ended December 31, 1999 was $1,789,169, which is a
$367,553 increase for the year ended December 31, 1998. Cash basis income was
derived by adding depreciation and amortization expense to net income.
On March 15, 2000 the Company declared and issued a "spill-over" dividend of
$175,678 or $0.060 to all the shareholders of record on December 31, 1999.
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 and Folsom
properties were acquired in January 1999 and accordingly are 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.
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 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 income. The Company continues to qualify as a REIT.
19
<PAGE> 21
LIQUIDITY AND CAPITAL RESOURCES
During the year ended December 31, 1999, the Company declared dividends totaling
$1,874,666. 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.
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.
The first factor refers to the risk of the Company's operations. At December 31,
1999, 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, 1999, notes payable
pertaining to property acquisitions by the Company increased by $8,339,590,
while cash used in principal repayments of notes totaled $409,707. 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 excess funds
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), $125,000 of cash to be
paid for current mortgage and accounts payable commitments, $325,000 in tenant
security deposits and prepaid rents, and the balance-approximately $1,425,000 is
to be held for working capital purposes. The Company's operations generated
$1,812,113 in net operating cash flow in 1999 (net income plus depreciation and
amortization expense).
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.
20
<PAGE> 22
CASH FLOWS 1999 VS. 1998
Cash provided by operating activities was $1,942,803, which was a $753,489
increase from 1998. The increase was largely due to increased cash basis net
income and cash received from security deposits and prepaid rent. Cash used in
investing activities increased $1,439,017 to $10,625,918 for 1999. This is the
direct result of the purchase of the Ontario property for approximately
$4,600,000 and the purchase of the Folsom property for approximately $6,000,000.
In contrast 1998 used approximately the same amount of cash in investing
activities for the purchase of four additional properties. Cash provided by
financing activities was $5,963,408 a decrease of $4,528,909 as compared to
1998. The largest proceed was from additional debt financing of $8,339,590,
while the largest payment was for dividends of $1,874,666. During 1998 the
Company's largest proceed was $6,920,212 from issuance of common stock, while
the largest payment was for dividends of $1,791,710.
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.
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.
Following the Year 2000 transition, the Company has not experienced any known
disruption to its business as a result of Year 2000. The Company will continue
to evaluate the nature of these risks throughout Year 2000. The cost of the
Company's Year 2000 programs have not been material to the Company's financial
position or results of operations. Although the Company's business systems were
Year 2000 compliant by December 31, 1999, the Company makes no assurances
regarding the Year 2000 compliance of third party systems.
21
<PAGE> 23
NEW ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 133, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities" (SFAS 133), establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, (collectively referred to as
derivatives) and for hedging activities. Statement of Financial Accounting
Standards No. 137, Accounting for Derivative Instruments and Hedging Activities
- - Deferral of the effective date of FASB Statement No. 133 - an amendment of
FASB Statement No. 133 ("SFAS 133"), defers the effective date of SFAS 133 to be
effective for financial statements ending after June 15, 2000. The Company does
not expect adoption of SFAS No. 133 to have a material effect, if any, on its
financial position or results of operations.
22
<PAGE> 24
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
PAGE
<S> <C>
Report of Independent Certified Public Accountants ..................................24
Balance Sheets - December 31, 1999 and 1998 .........................................25
Statements of Income for the years ended
December 31, 1999, 1998 and 1997 .....................................26
Statements of Stockholders' Equity for the years ended
December 31, 1999, 1998 and 1997......................................27
Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997......................................28
Summary of Accounting Policies ...................................................29-30
Notes to Financial Statements ....................................................31-40
Financial Statement Schedules
Schedule III - Real Estate and Accumulated Depreciation ...........46-48
Schedule IV - Mortgage Loans and Real Estate.......................49-50
</TABLE>
23
<PAGE> 25
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, 1999 and 1998 and the related statements of income,
stockholders' equity, and cash flows for each of the three years ended December
31, 1999. 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, 1999 and 1998, and the results of its operations and its
cash flows for each of the three years ended December 31, 1999, 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 17, 2000
24
<PAGE> 26
WEST COAST REALTY INVESTORS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, 1999 1998
- ------------ ------------ ------------
<S> <C> <C>
ASSETS
Rental real estate, less accumulated depreciation $ 45,778,403 $ 35,870,984
(Notes 1, 2, 5 and 11)
Cash and cash equivalents 1,874,880 4,594,587
Deferred rent 569,442 426,878
Accounts receivable 362,714 --
Loan origination fees, net of accumulated amortization of
$116,257 and $71,084 230,471 217,316
Other assets 48,590 145,907
------------ ------------
Total assets $ 48,864,500 $ 41,255,672
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Accounts payable $ 728 $ 34,542
Due to related party (Note 4g) 87,166 56,349
Security deposits and prepaid rent 484,854 324,041
Other liabilities 201,733 119,792
Notes payable (Notes 5 and 11) 24,616,551 16,686,668
------------ ------------
Total liabilities 25,391,032 17,221,392
COMMITMENTS (Note 10)
STOCKHOLDERS' EQUITY
Common stock $.01 par value; 5,000,000 shares authorized;
2,927,967 and 2,932,762 shares issued and outstanding 29,280 29,328
Additional paid-in capital 26,738,963 26,495,731
Dividends in excess of retained earnings (Note 7) (3,294,775) (2,490,779)
------------ ------------
Total stockholders' equity 23,473,468 24,034,280
------------ ------------
Total liabilities and stockholders' equity $ 48,864,500 $ 41,255,672
============ ============
</TABLE>
See accompanying summary of accounting policies and notes to financial
statements.
25
<PAGE> 27
WEST COAST REALTY INVESTORS, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years ended December 31, 1999 1998 1997
- ------------------------ --------- --------- ---------
<S> <C> <C> <C>
REVENUES
Rental (Notes 1 and 2) $5,289,294 $3,577,116 $2,822,398
Gain on sale of property -- -- 262,168
Interest 108,369 226,768 132,926
--------- --------- ---------
5,397,663 3,803,884 3,217,492
--------- --------- ---------
COST AND EXPENSES
Interest expense (Note 9) 1,798,544 1,122,501 1,048,774
General and administrative (Note 4) 1,265,393 827,679 336,554
Depreciation and amortization 718,499 658,008 474,868
Operating (Note 4) 544,557 432,088 378,318
--------- --------- ---------
4,326,993 3,040,276 2,238,514
--------- --------- ---------
NET INCOME $1,070,670 $ 763,608 $ 978,978
========== ========== ==========
NET INCOME PER SHARE (Note 7) $ .37 $ .29 $ .53
========== ========== ==========
</TABLE>
See accompanying summary of accounting policies and notes to financial
statements.
26
<PAGE> 28
WEST COAST REALTY INVESTORS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
<TABLE>
<CAPTION>
Dividends
Additional in Excess of
Common Stock Paid-In Retained
Shares Amount Capital Earnings Total
--------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
BALANCE, January 1, 1997 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
Treasury stock (4,795) (48) (47,764) -- (47,812)
Net income for the year -- -- -- 1,070,670 1,070,670
Equity contribution by affiliates
through expense reimbursements
(Note 4(f)) -- -- 290,996 -- 290,996
Dividends declared ($.64 per share)
(Note 7) -- -- -- (1,874,666) (1,874,666)
--------- ------------ ------------ ------------ ------------
BALANCE, December 31, 1999 2,927,967 $ 29,280 $ 26,738,963 $ (3,294,775) $ 23,473,468
========= ============ ============ ============ ============
</TABLE>
See accompanying summary of accounting policies and notes to financial
statements.
27
<PAGE> 29
WEST COAST REALTY INVESTORS, INC.
STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
Years ended December 31, 1999 1998 1997
- ------------------------ ------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,070,670 $ 763,608 $ 978,978
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation expense 718,499 638,529 474,868
Interest expense due to amortization of loan 30,842 19,479 2,007
origination fees
Gain on sale of property -- -- (262,168)
Equity contribution by Affiliates through expense
reimbursements 290,996 269,691 126,439
Increase (decrease) from changes in operating assets
and liabilities:
Deferred rent (142,564) (138,467) (40,463)
Accounts receivable (362,714) -- --
Other assets (97,317) (106,956) 46,920
Accounts payable (33,814) (95,534) 116,154
Due to related party 30,817 (130,919) 140,982
Security deposits and prepaid rent 160,813 (42,880) 242,187
Other liabilities 81,941 12,763 6,579
------------ ------------ ------------
Net cash provided by operating activities 1,942,803 1,189,314 1,832,483
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of rental real estate (10,625,918) (9,186,901) (8,780,874)
Proceeds from sale of rental real estate -- -- 2,375,120
------------ ------------ ------------
Net cash used in investing activities (10,625,918) (9,186,901) (6,405,754)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock, net -- 6,920,212 5,331,605
Repurchase of treasury stock (47,812) (157) --
Dividends (1,874,666) (1,772,037) (1,791,710)
Proceeds from notes payable 8,339,590 5,775,000 2,312,500
Payments on notes payable (409,707) (283,164) (1,196,461)
(Increase) in loan origination fees (43,997) (147,537) --
------------ ------------ ------------
Net cash provided by financing activities 5,963,408 10,492,317 4,655,934
------------ ------------ ------------
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS (2,719,707) 2,494,730 82,663
CASH AND CASH EQUIVALENTS, beginning of year 4,594,587 2,099,857 2,017,194
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, end of year $ 1,874,880 $ 4,594,587 $ 2,099,857
============ ============ ============
</TABLE>
See accompanying summary of accounting policies and notes to financial
statements.
28
<PAGE> 30
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 1999, 1998 and 1997 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 acquires 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.
29
<PAGE> 31
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.
COMPREHENSIVE INCOME
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income," ("SFAS 130") establishes standards for reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements. Comprehensive income is comprised of net income and all
changes to stockholders' equity except those due to investments by owners and
distribution to owners. The Company does not have any components of
comprehensive income for each of the years ended December 31, 1999, 1998 and
1997.
NEW ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 133, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities" (SFAS 133), establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, (collectively referred to as
derivatives) and for hedging activities. Statement of Financial Accounting
Standards No. 137, Accounting for Derivative Instruments and Hedging Activities
- - Deferral of the effective date of FASB Statement No. 133 - an amendment of
FASB Statement No. 133 ("SFAS 133"), defers the effective date of SFAS 133 to be
effective for financial statements ending after June 15, 2000. The Company does
not expect adoption of SFAS No. 133 to have a material effect, if any, on its
financial position or results of operations.
30
<PAGE> 32
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 February 26, 1991 $ 1,676,210
(Blockbuster)
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 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 October 31, 1997 1,976,484
Corona, California December 31, 1997 1,904,452
Sacramento, California (Laufen Tile) January 15, 1998 2,141,200
Chino, California (Daedo American) April 19, 1998 1,859,338
Vacaville, California May 20, 1998 2,735,308
Cerritos, California December 23, 1998 2,314,569
Ontario, California January 12, 1999 4,614,964
Folsom, California May 1, 1999 6,010,956
</TABLE>
The major categories of property are:
<TABLE>
<CAPTION>
December 31, 1999 1998
- ------------- ------------ ------------
<S> <C> <C>
Land $ 16,318,835 $ 12,576,130
Buildings and improvements 31,959,668 25,076,453
------------ ------------
48,278,503 37,652,583
Less accumulated depreciation 2,500,100 1,781,599
------------ ------------
Net rental properties $ 45,778,403 $ 35,870,984
============ ============
</TABLE>
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 13%, 10% and 10%, respectively, in 1999
Three tenants accounted for 18%, 14% and 12%, respectively, in 1998;
Four tenants accounted for 20%, 16%, 16% and 15%, respectively, in 1997;
31
<PAGE> 33
WEST COAST REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 2--UNAUDITED PRO FORMA INFORMATION
The following unaudited pro forma information is presented to illustrate the
effect of the two properties acquired in during 1999 and 1998, as discussed
above, as if the acquisitions occurred on January 1st of each year presented.
The unaudited pro forma information is not necessarily indicative of the
results that would have been obtained had the properties been acquired earlier,
nor are they intended to be indicative of future results.
<TABLE>
<CAPTION>
Pro formas for the years ended
December 31, 1999 1998
- ------------------------------- ---------- ----------
<S> <C> <C>
Revenues:
Rental income $5,615,766 $4,556,016
---------- ----------
5,615,766 4,556,016
---------- ----------
Costs and expenses:
Interest 1,952,588 1,672,207
General and administrative 1,242,449 827,679
Operating 554,351 467,455
Depreciation and amortization 808,555 834,501
---------- ----------
4,557,943 3,801,842
---------- ----------
Net income $1,057,823 $ 754,174
========== ==========
Net income per share $ .36 $ .20
========== ==========
</TABLE>
NOTE 3--FUTURE MINIMUM RENTAL INCOME
As of December 31, 1999, 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>
2000 $ 5,041,381
2001 4,753,631
2002 4,285,529
2003 3,638,304
2004 3,520,554
Thereafter 12,970,455
Total $ 34,209,854
</TABLE>
Future minimum rental income does not include lease renewals or new leases that
may result after a noncancelable-lease expires.
32
<PAGE> 34
WEST COAST REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
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,
1999, the Advisor owned 22,556 shares of the Company. Property management
services for the Company's properties are provided by West Coast Realty
Management, Inc. ("WCRM"), an affiliate of the Advisor.
Certain officers and directors of the Company are also officers and directors of
the Advisor and its affiliates.
The following related party transactions are included in the statement of income
(a) In accordance with the advisory agreement, syndication fees earned
by the Advisor totaled $0, $225,176 and $262,833 in 1999, 1998 and 1997.
(b) Overhead expenses reimbursed to the Advisor totaled $24,000, $24,000
and $24,000 in 1999, 1998 and 1997.
(c) Sales commissions paid in accordance with the selling agreement to
ASC totaled $0, $458,147 and $429,095 for 1999, 1998 and 1997.
(d) Fees related to the purchase, sale or refinancing of real estate
totaled $682,414, $639,398 and $384,719 in 1999, 1998 and 1997 (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 $200,702, $125,563
and $106,576 in 1999, 1998 and 1997.
(f) Advisory fees earned by WCRA totaled $290,996, $269,691 and $186,439
in 1999, 1998 and 1997. WCRA waived collection of $290,996, $269,691 and
$126,439 in 1999, 1998 and 1997, 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, 1999 1998
- ------------ ------- -------
<S> <C> <C>
Associated Securities Corp. $22,723 $16,697
West Coast Realty Management 58,443 33,652
West Coast Realty Advisors 6,000 6,000
------- -------
$87,166 $56,349
======= =======
</TABLE>
33
<PAGE> 35
WEST COAST REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 5--NOTES PAYABLE
Notes payable are made up of the following:
<TABLE>
<CAPTION>
December 31, 1999 1998
- ------------ ---------- ----------
<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 $ 590,029 $ 603,662
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% (7.66% at December 31, 1999), and may never
go below 6.5% or above 11.0%, monthly principal and
interest payments are $12,794, due October 1, 2003 1,641,227 1,668,449
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 527,580 542,584
$4,934, due February 1, 2004
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 1,143,447 1,156,264
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 1,868,858 1,973,724
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, 1,977,469 2,036,273
due August 1, 2015
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 312,318 321,124
</TABLE>
34
<PAGE> 36
WEST COAST REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 5--NOTES PAYABLE (CONTINUED)
<TABLE>
<CAPTION>
December 31, 1999 1998
- ------------ --------- ---------
<S> <C> <C>
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 358,931 367,440
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 (7.23% at December 31, 1999), monthly
payments of principal and interest are $16,693, due June 2,229,873 2,267,479
30, 2007
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) 909,618 922,884
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 1,376,725 1,396,798
the existing rate)
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 977,933 992,913
the existing rate)
</TABLE>
35
<PAGE> 37
WEST COAST REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 5--NOTES PAYABLE (CONTINUED)
<TABLE>
<CAPTION>
December 31, 1999 1998
- ------------ --------- ---------
<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 1,425,641 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) 977,933 992,913
7.5% promissory note secured by a deed of trust on the
Cerritos property, monthly principal and interest
payments are $9,238, due February 2, 2009 (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 275 basis points, but no less than the existing
rate) 1,238,343 --
7.5% promissory note secured by a deed of trust on the
Ontario property, monthly principal and interest payments
are $22,390, due March 1, 2004 2,971,576 --
1.75% plus LIBOR rate (7.87% at December 31, 1999)
promissory note secured by a deed of trust of the Folsom
property, monthly principal and interest payments are
$29,425, due September 1, 2001 4,089,050 --
--------- ---------
$24,616,551 $16,686,668
=========== ===========
</TABLE>
The aggregate fair value of the notes is approximately $24,750,000 and
17,367,000 for 1999 and 1998, respectively, based on current lending rates
which are the approximate industry lending rates on these type of properties and
these locations.
36
<PAGE> 38
WEST COAST REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 5--NOTES PAYABLE (CONTINUED)
The aggregate annual future maturities at December 31, 1999 are as follows:
<TABLE>
<CAPTION>
Years ending December 31, Amount
------------------------- -------------
<S> <C>
2000 $ 2,443,716
2001 6,056,972
2002 2,049,660
2003 3,415,092
2004 4,237,987
Thereafter 6,413,124
------------
Total $ 24,616,551
============
</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.
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 2,929,442, 2,640,041 and 1,839,018 for 1999, 1998 and
1997.
Dividends declared during/for 1999 were as follows:
<TABLE>
<CAPTION>
OUTSTANDING AMOUNT TOTAL
RECORD DATE SHARES PER SHARE DIVIDEND
----------- ----------- --------- ----------
<S> <C> <C> <C>
March 15, 2000 2,927,967 .060 175,678
==========
March 1, 1999 2,932,762 .160 $ 469,242
June 1, 1999 2,927,967 .160 468,475
September 1, 1999 2,927,967 .160 468,475
December 1, 1999 2,927,967 .160 468,475
----------
Total $1,874,666
==========
</TABLE>
37
<PAGE> 39
WEST COAST REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 7--NET INCOME AND DIVIDENDS PER SHARE (CONTINUED)
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>
38
<PAGE> 40
WEST COAST REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 7--NET INCOME AND DIVIDENDS PER SHARE (CONTINUED)
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, 1999 1998 1997
------------ -------- ------- -------
<S> <C> <C> <C>
Taxable ordinary income $ 0.366 $ 0.289 $ 0.385
Nontaxable return of capital 0.274 0.382 0.414
-------- ------- -------
$ 0.640 $ 0.671 $ 0.799
======== ======= =======
</TABLE>
NOTE 8--TAXES ON INCOME
For the taxable years 1999 and 1998, the Company elected to be treated as a REIT
on the filings of the 1999 and 1998 tax returns, and will elect the same for
2000.
NOTE 9--STATEMENT OF CASH FLOWS
Cash paid for interest during the year ended December 31, 1999, 1998 and 1997
was $1,748,271, $1,088,909 and $1,043,192.
The Company had a noncash financing activity related to unpaid equity
contributed by an affiliate through expense reimbursement of $290,996, $269,691
and $126,439 for 1999, 1998 and 1997.
NOTE 10--LITIGATION
The Company is a defendant in a lawsuit entitled John Lonberg & Ruthee Goldkorn
v. Sanborn Theaters, Inc. A California Corporation Doing Business as Market lace
Cinema; So-Cal Cinema, Inc., a California Corporation; and
Salts-Troutman-Kaneshiro, Inc. West Coast Realty Investors, Inc., USDC Central
District of California, Eastern Division Case No. CV-97-6598AHM (JGx). This is
an Americans with Disabilities Act claim brought against the Market Place Cinema
located in Riverside, California. The theater is owned by the Company and leased
to and operated by Sanborn Theaters. Plaintiffs allege certain features of the
theater discriminated against them and violated state and federal disabled
access laws. Plaintiffs demand statutory damages, damages for emotional
distress, a "lodestar" multiplier, attorneys' fees, and punitive damages.
Plaintiffs have not quantified their damages, however, it is expected that
Plaintiffs claims will exceed $300,000. The United States Department of Justice
has intervened in this suit. This case has now been stayed pending the outcome
of a similar case filed against AMC Theaters. Management cannot determine the
likelihood of an unfavorable outcome or range of potential loss.
39
<PAGE> 41
WEST COAST REALTY INVESTORS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 11--SUBSEQUENT EVENTS
(a) During January of 2000 the tenant of the Opto 22 property executed its
right to purchase the property. The property is in escrow, with an expected
sales price of $3,675,000. The Company expects to realize an approximate
gain of $1,100,000 from the sale. There is no assurance that the sale will
ultimately be consummated and if consummated it is reasonable possible that
gain could differ.
(b) On March 15, 2000 the Company declared and issued a "spill-over" dividend
of $175,678 or $0.060 per share, to all the owners of record as of
December 31, 1999.
40
<PAGE> 42
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
41
<PAGE> 43
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>
Neal E. Nakagiri N/A Director
W. Thomas Maudlin, Jr. President/Director President/Director
John R. Lindsey Vice President/Treasurer Treasurer
George Young Director N/A
Steve Bridges Director N/A
James W. Coulter Director N/A
James E. Prock Director N/A
</TABLE>
The biographies for the above individuals are noted below:
NEAL NAKAGIRI (Born 1954) serves as President and General Counsel
Associated Financial Group, Inc. He is 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.
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.
42
<PAGE> 44
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.
JAMES E. PROCK (Born 1935) has been President of West Coast Realty
Management, Inc., a subsidiary of Associated Financial Group, Inc., since
December 1991. From 1981 until he joined Associated, Mr. Prock was President of
Keystate Properties, Inc., a real estate consulting and brokerage firm providing
acquisition, development and disposition management services to owners of
improved and unimproved properties. His career has included executive positions
in the real estate and construction industries where he managed the nationwide
real estate program of International Industries, Inc. (IHOP Corp.) and directed
the construction of West Coast facilities for Gulf Oil Corporation. He also
managed commercial and large-scale residential real estate development
operations for several joint ventures (whose partners included Lear Siegler,
Atlantic Richfield Company, The Boston Company and Lehman Brothers) as well as
for Newport National Corporation and the Bergheer Company. Mr. Prock has a BE in
Civil Engineering degree and an MBA from the University of Southern California.
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.
43
<PAGE> 45
ITEM 11. EXECUTIVE COMPENSATION
During 1999, 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 1999, a
total of $1,800 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, 1999, the Advisor had purchased $225,561 worth of shares, or
approximately 1% of the adjusted net worth.
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, 1999, the Company incurred $200,702 of property management
fees.
44
<PAGE> 46
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 ...................24
Balance Sheets - December 31, 1999 and 1998 ..........................25
Statements of Income for the years ended
December 31, 1999, 1998 and 1997 ................................26
Statements of Partners' Equity for the years ended
December 31, 1999, 1998 and 1997.................................27
Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997.................................28
Summary of Accounting Policies ....................................29-30
Notes to Financial Statements .....................................31-40
2. FINANCIAL STATEMENT SCHEDULES
Schedule III--Real Estate and Accumulated Depreciation ............46-48
Schedule IV--Mortgage Loans and Real Estate........................49-50
</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
45
<PAGE> 47
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1999
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 Encumbrances Land Improvements Improvements Land Improvements
- ----------- ------------ ---------- ------------ ------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Retail Building,
Huntington Beach, CA $ 527,580 $1,005,965 $ 670,245 $- $1,005,965 $ 670,245
Retail Bldg., Shopping
Center, Fresno, CA 590,029 553,648 861,245 -- 553,648 861,245
Industrial Building,
Huntington Beach, CA 1,641,227 1,132,159 1,367,842 128,984 1,132,159 1,496,826
Entertainment Center,
Riverside, CA 1,143,447 768,667 2,886,833 -- 768,667 2,886,833
Office Building,
Tustin, CA 1,868,858 1,089,796 3,772,298 -- 1,089,796 3,772,298
Light Industrial Bldg,
Fremont, CA 1,977,469 1,228,262 2,519,348 -- 1,228,262 2,519,348
Light Industrial Bldg.,
Sacramento, CA 312,318 489,182 609,398 -- 489,182 609,398
Light Industrial Bldg.,
Sacramento, CA 358,931 325,024 404,896 -- 325,024 404,896
Light Industrial Bldg.,
Irvine, CA 2,229,873 1,570,000 3,337,440 -- 1,570,000 3,337,440
Restaurant Facility,
Roseville, CA 1,425,641 594,025 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 $ 188,855 1991 2/91 31.5
Retail Bldg., Shopping
Center, Fresno, CA 1,414,893 146,306 1993 5/93 39.0
Industrial Building,
Huntington Beach, CA 2,628,985 223,973 1976 9/93 39.0
Entertainment Center,
Riverside, CA 3,655,500 376,271 1994 11/94 39.0
Office Building,
Tustin, CA 4,862,094 443,311 1986 5/95 39.0
Light Industrial Bldg,
Fremont, CA 3,747,610 266,471 1993 10/95 39.0
Light Industrial Bldg.,
Sacramento, CA 1,098,580 52,743 1988 8/96 39.0
Light Industrial Bldg.,
Sacramento, CA 729,920 35,042 1988 8/96 39.0
Light Industrial Bldg.,
Irvine, CA 4,907,440 351,046 1978 1/97 39.0
Restaurant Facility,
Roseville, CA 1,976,484 71,610 1997 10/97 39.0
</TABLE>
46
<PAGE> 48
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)
DECEMBER 31, 1999
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 Encumbrances Land Improvements Improvements Land Improvements
- ----------- ------------ --------- ------------- ------------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Light Industrial Bldg.,
Corona, CA 977,933 703,142 1,201,310 -- 703,142 1,201,310
Light Industrial Bldg
Sacramento, CA 977,933 1,068,000 1,073,200 -- 1,068,000 1,073,200
Light Industrial Bldg
Chino, CA 909,618 714,245 1,145,093 -- 714,245 1,145,093
Light Industrial Bldg
Vacaville, CA 1,376,725 330,000 2,405,308 -- 330,000 2,405,308
Light Industrial Bldg
Cerritos, CA 1,238,343 1,004,015 1,310,554 -- 1,004,015 1,310,554
Light Industrial Bldg 2,971,576 2,636,728 1,978,236 -- 2,636,728 1,978,236
Ontario, CA
Light Industrial Bldg 4,089,050 1,105,977 4,904,979 -- 1,105,977 4,904,979
Folsom, CA
--------- --------- --------- ----------- --------- ---------
Total $24,616,551 $16,318,835 $31,830,684 $ 128,984 $16,318,835 $31,959,668
=========== =========== =========== =========== =========== ===========
</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 61,604 1988 12/97 39.0
Light Industrial Bldg
Sacramento, CA 2,141,200 41,276 1976 1/98 39.0
Light Industrial Bldg
Chino, CA 1,859,338 44,040 1989 4/98 39.0
Light Industrial Bldg
Vacaville, CA 2,735,308 92,508 1996 5.98 39.0
Light Industrial Bldg
Cerritos, CA 2,314,569 16,801 1980 12/98 39.0
Light Industrial Bldg
Ontario, CA 4,614,964 25,361 1997 1/99 39.0
Light Industrial Bldg
Folsom, CA 6,010,956 62,882 1984 5/99 39.0
--------- ------ ---- ---- ----
Total $ 48,278,503 $ 2,500,100
============ =========== ==== ==== ====
</TABLE>
47
<PAGE> 49
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)
DECEMBER 31, 1998
A reconciliation of the total cost for the years ending December 31, 1997, 1998
and 1999 follows:
<TABLE>
<S> <C>
Balance at January 1, 1997 $ 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
1999 Additions 10,625,921
------------
Balance at December 31, 1999 $ 48,278,504
------------
A reconciliation of accumulated depreciation for the years ending December 31,
1997, 1998 and 1999 follows:
Balance at January 1, 1997 $ 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
1999 Depreciation 718,502
------------
Balance at December 31, 1999 $ 2,500,100
------------
</TABLE>
48
<PAGE> 50
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE DECEMBER 31, 1999
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 None $ 665,000 $ 590,029 None
Fresno, CA Payments to
First Deed of Trust Maturity; Balloon
Payment due 8/2003
Industrial Building, Variable 10/1/2003 Equal Monthly None 1,700,000 1,641,227 None
Huntington Beach, CA Payments to
First Deed of Trust Maturity; Balloon
Payment due 10/2003
Retail Building, Variable 2/1/2004 Variable Monthly None 600,000 527,580 None
Huntington Beach, Payments to
California Maturity; 25 yr
First Deed of Trust Amortization;
Balloon Payment due
2/2004
Entertainment Center, 9.25% 11/8/2004 Equal Monthly None 1,200,000 1,143,447 None
Riverside, CA Payments; Amortized
First Deed of Trust over 28 yrs, 3
months; Balloon
Payment due 11/2004
Office Building, 9.625% 2/1/2005 Fixed Rate; 15 year None 2,300,000 1,868,858 None
Tustin, CA Amortization;
First Deed of Trust Balloon Payment due
2/2005
Light Industrial Bldg. 8.240% 8/1/2015 Equal Monthly None 2,200,000 1,977,469 None
Fremont, CA Payments 20 years
First Deed of Trust Amortization
Light Industrial Bldg. 10.000% 12/1/2001 Equal Monthly None 350,000 312,318 None
Sacramento, CA Payments 25 years
First Deed of Trust Amortization
Light Industrial Bldg. 8.000% 6/1/2018 Equal Monthly None 405,000 358,931 None
Sacramento, CA Payments 25 years
First Deed of Trust Amortization
Light Industrial Bldg. Variable 8/1/2007 Variable Monthly None 2,312,500 2,229,873 None
Irvine, CA Payments to
First Deed of Trust Maturity; 25 year
Amortization
</TABLE>
49
<PAGE> 51
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE (CONTINUED) DECEMBER 31, 1999
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 None 925,000 909,618 None
Chino, CA Payments to
First Deed of Trust Maturity; Balloon
Payment due 10/2010
Industrial Building 7.50% 10/1/2010 Equal Monthly None 1,400,000 1,376,725 None
Vacaville, CA Payments to
First Deed of Trust Maturity; Balloon
Payment due 10/2010
Light Industrial 7.375% 6/01/2011 Equal Monthly None 1,000,000 977,933 None
Sacramento, CA Payments to
First Deed of Trust Maturity; Balloon
Payment due 6/2011
Restaurant Facility 8.33% 7/1/2008 Equal Monthly None 1,450,000 1,425,641 None
Roseville, CA Payments to
First Deed of Trust Maturity;
Amortization Over
25 Years Balloon
Payment due 7/2008
Light Industrial 7.375% 6/1/2011 Final Monthly None 1,000,000 977,933 None
Corona, CA Payments to
First Deed of Trust Maturity; Balloon
Payment due 6/2011
Light Industrial 7.50% 2/2/2009 Equal Monthly None 1,250,000 1,238,343 None
Cerritos, CA Payments to
First Deed of Trust Maturity; Balloon
Payment due 2/2009
Light Industrial 7.50% 3/1/2004 Equal Monthly None 3,000,000 2,971,576 None
Ontario, CA Payments to
First Deed of Trust Maturity; Balloon
Payment due 3/2004
Light Industrial Variable 9/1/2001 Equal Monthly None 4,125,870 4,089,050 None
Folsom, CA Payments to
First Deed of Trust Maturity; Balloon
Payment due 9/2001
$25,883,370 $24,616,551
=========== ===========
</TABLE>
50
<PAGE> 52
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE (CONTINUED)
DECEMBER 31, 1998
A reconciliation of mortgage loans payable for the years ended December 31,
1997, 1998 and 1999 follows:
<TABLE>
<S> <C>
Balance at January 1, 1997 $ 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
1999 Additions 8,339,590
1999 Paydowns (409,707)
------------
Balance at December 31, 1999 $ 24,616,551
============
</TABLE>
51
<PAGE> 53
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/ JAMES E. PROCK
-------------------------------------------
JAMES E. PROCK
(Director)
/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, 2000
52
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 1,874,880
<SECURITIES> 0
<RECEIVABLES> 362,714
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 48,278,503
<DEPRECIATION> (2,500,100)
<TOTAL-ASSETS> 48,864,500
<CURRENT-LIABILITIES> 0
<BONDS> 24,616,551
0
0
<COMMON> 29,280
<OTHER-SE> 23,444,188
<TOTAL-LIABILITY-AND-EQUITY> 48,864,500
<SALES> 0
<TOTAL-REVENUES> 5,397,663
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,528,449
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,798,544
<INCOME-PRETAX> 1,070,670
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,070,670
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,070,670
<EPS-BASIC> 0.37
<EPS-DILUTED> 0.37
</TABLE>
