-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, GEZJFZqvA62A+PRfoydhpw3w82lTKvylV2hXt5fsz5WnSxbWS6baz7tcrPT6jf2I QQ90uEmnhYGDXSKsyTyM/w== 0000912057-94-001098.txt : 19940330 0000912057-94-001098.hdr.sgml : 19940330 ACCESSION NUMBER: 0000912057-94-001098 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19931231 FILED AS OF DATE: 19940329 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WESTERN INVESTMENT REAL ESTATE TRUST CENTRAL INDEX KEY: 0000106135 STANDARD INDUSTRIAL CLASSIFICATION: 6798 IRS NUMBER: 946100058 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 34 SEC FILE NUMBER: 001-08723 FILM NUMBER: 94518450 BUSINESS ADDRESS: STREET 1: 3450 CALIFORNIA ST CITY: SAN FRANCISCO STATE: CA ZIP: 94118 BUSINESS PHONE: 4159290211 10-K 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1993 Commission File No. 0-2809 WESTERN INVESTMENT REAL ESTATE TRUST - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) California 94-6100058 - ----------------------------------------- ----------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 3450 California Street, San Francisco, CA 94118 - ----------------------------------------- ----------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (415) 929-0211 ---------------------------- Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered 8% Convertible Debentures Due 2008 American Stock Exchange - ----------------------------------------- ----------------------------------- Securities registered pursuant to Section 12(g) of the Act: Shares of beneficial interest, without par value - -------------------------------------------------------------------------------- (Title of class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- 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 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] 1 The aggregate market value of the voting shares held by nonaffiliates of the registrant on March 14, 1994, based on the reported closing sales price of the Trust's shares of beneficial interest on the American Stock Exchange on such date was $232,932,000. Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date. Shares of Beneficial Interest, No Par Value - 16,645,791 shares as of March 14, 1994. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Trust's proxy statement with respect to its 1994 Annual Meeting of Shareholders which will be filed with the Commission regarding the fiscal year covered by this Form 10-K are incorporated by reference in Part III, Items 10, 11, 12 and 13. WESTERN INVESTMENT REAL ESTATE TRUST INDEX TO 10-K
Page ---- PART I Item 1 Business 3 to 8 Item 2 Properties 9 to 11 Item 3 Legal Proceedings 12 Item 4 Submission of Matters to a Vote of Security Holders N/A PART II Item 5 Market for Registrant's Common Equity and Related Stockholder Matters 13 Item 6 Selected Financial Data 14 Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operation 15 to 18 Item 8 Financial Statements 19 to 33 Financial Statement Schedules 34 to 39 Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 40 PART III Item 10 Directors and Executive Officers of the Registrant 40 Item 11 Executive Compensation 40 Item 12 Security Ownership of Certain Beneficial Owners and Management 40 Item 13 Certain Relationships and Related Transactions 40 PART IV Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K 40 Signatures 42
2 PART I Item 1. Business GENERAL DEVELOPMENT OF BUSINESS Western Investment Real Estate Trust is a real estate investment trust ("REIT") and qualifies as such under Sections 856 and 960 of the Internal Revenue Code. The Trust was organized under the laws of the State of California in 1962 and commenced real estate operations in 1964. In order that the Trust may continue to qualify as a real estate investment trust: (i) more than 75% of the Trust's total assets must be invested in real estate, cash, cash items or government securities, (ii) at least 75% of the Trust's gross income must be derived from real estate assets, (iii) the Trust can hold no property primarily for sale to customers in the ordinary course of business, (iv) beneficial ownership of the Trust must be held by more than 100 persons during at least 335 days of each taxable year, and (v) the Trust must distribute annually to its shareholders an amount equal to or exceeding 95% of its real estate investment trust taxable income. Under the terms of its Declaration of Trust, the Trust is permitted to invest its funds in ownership of real estate, mortgages, deeds of trust and certain financial instruments as permitted by law. Substantially all of the Trust's funds have been invested in the ownership of real estate. FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS The Trust is not engaged in different segments of a business nor is the Trust engaged in more than one line of business. NARRATIVE DESCRIPTION OF BUSINESS The Trust, which at December 31, 1993 employed 43 people, is a self-administered and fully integrated equity REIT, which invests in a diversified portfolio of income-producing properties located principally in Northern and Central California and Nevada. At December 31, 1993, the Trust had investments in 58 income-producing properties. These properties contain, in the aggregate, approximately 4.4 million rentable square feet of improvements and approximately 19.8 million square feet of land. At year end, the occupancy rate of the Trust's properties was 90%. Of the amounts invested by the Trust at December 31, 1993, 88% is in shopping centers and retail properties with the balance in commercial and industrial properties. The Trust has not invested in residential income properties. 3 The following table indicates the composition of the Trust's real estate investments as of December 31, 1993 by type based on amounts invested by the Trust. Portfolio Summary DECEMBER 31, 1993 Portfolio Distribution by Type of Real Estate Investment
Number of Amount of Investments Investment Percentage ----------- ---------- ---------- Shopping Center/Retail 44 $305,714,000 88% Commercial 11 36,587,000 10% Industrial 3 5,696,000 2% --- ------------ ---- 58 $347,997,000 100% --- ------------ ---- --- ------------ ---- Portfolio Distribution by Type of Ownership Number of Amount of Investments (1) Investment Percentage ----------- ---------- ---------- Equity ownership (subject to operating leases) 57 $342,578,000 98% Direct financing leases 2 2,510,000 1% Mortgages 2 2,909,000 1% --- ------------ ---- 61 $347,997,000 100% --- ------------ ---- --- ------------ ---- (1) Two properties are included in two types of ownership. The Mid-Peninsula Plaza Shopping Center is included in property subject to operating leases to the extent of the Trust's co-tenancy interest of $3,672,000 and is included in mortgage loans to the extent of the Trust's $2,809,000 secured note. Viking Freight System Truck Terminal is included in equity ownership to the extent of the Trust's land investment of $548,000 and is included in direct financing leases to the extent of $1,444,000. The Trust holds a mortgage loan in the amount of $100,000, secured by land in Reno, Nevada, which is included in the Shopping Center/Retail line in the upper half of the schedule above. This $100,000 mortgage loan is not accounted for in the 58 number of investments (above) as a separate investment.
4 Major Revenue Producers 1993 OPERATING REVENUES
% of Total Operating Number of Tenant Revenue Revenues Locations ------ ------- --------- --------- 1) Raley's Supermarkets $7,770,000 23.0 19 2) Coast Federal Bank 1,662,000 4.9 6 3) Save Mart Supermarkets 1,408,000 4.2 7 4) Marin General Hospital (1) 1,325,000 3.9 1 5) PayLess Drugs 862,000 2.5 5 6) Safeway 638,000 1.9 2 7) K-Mart 609,000 1.8 2 8) Lucky's 598,000 1.8 3 9) Scolari's 442,000 1.3 1 10) Ross Stores 420,000 1.2 3 ----------- ----- $15,734,000 46.5% ----------- ----- ----------- ----- (1) On January 27, 1994 the Trust sold its Marin General Hospital property in Larkspur, California, for $12,412,000 pursuant to a purchase option.
In spite of a sluggish California economy, the Trust's occupancy rate at year- end was stable at 90% in 1993 and 1992. The Trust believes that it was unable to increase occupancy above this rate during this period due to the economy coupled with overbuilding in certain areas in which Trust properties are located. The smaller retail and service tenants at the Trust's community shopping centers, which tend to be more dependent on discretionary spending, have been more negatively impacted by the economy than the Trust's anchor tenants. The anchor tenants consist primarily of supermarkets and/or super drugstores. In the Trust's experience, these businesses tend to be impacted less by economic downturns than other types of retailers. The Trust is positioned to benefit from a general economic improvement which should result in increased occupancy. As occupancy increases, the Trust's rental income should increase and expenses should decrease, as more tenants assume responsibility for common area and other expenses presently absorbed by the Trust. Increased tenants' sales at its community shopping centers should also increase rental income by generating greater percentage rents under some leases. During the past several years, volume discount retailers, such as Wal-Mart and Costco, have entered certain areas of California and Nevada where Trust community shopping center properties are located. The Trust expects that these discounters may positively or negatively affect certain of the Trust's shopping center tenants. The Trust believes that its tenants could benefit if these discounters attract additional customers to nearby Trust properties and thereby generate increased sales for Trust tenants. Conversely, the Trust's tenants could be negatively affected if discounters draw customers away from the Trust's properties. The Trust believes that to date the trend has had no measurable impact on the Trust's results of operations. The Trust's principal shopping center and retail tenants include substantial, well-recognized businesses such as Kmart, Lucky Stores, Marshall's, J.C. Penney, Raley's, Ross Stores, Save Mart and Thrifty. The Trust's commercial tenants include Coast Federal Bank and Fireman's Fund. 5 No single property investment accounted for more than 5% of operating revenues in 1993. However, at December 31, 1993, Raley's, a supermarket and super drug retailer, was a tenant in nineteen of the Trust's investments. Raley's, a privately owned company, currently operates 85 stores in Northern California and Nevada. The Raley's organization has released information indicating that its sales exceeded $1.58 billion in its most recently reported fiscal year ended June 26, 1993. The Trust receives sales and other information on a monthly, quarterly or annual basis from its retail tenants, including Raley's, whose leases provide for such reports. The Trust uses this information to monitor the payment of percentage rents. Virtually all of the Trust's existing leases include at least one of the following provisions for payment of additional rent: (1) scheduled and/or market rate increases, (2) percentage participation in tenants'gross sales, (3) or CPI based escalation clauses. The Trust endeavors to structure leases on a triple net basis with the lessees being responsible for most operating expenses, such as real estate taxes, certain types of insurance, utilities, normal repairs and maintenance. To the extent such provisions cannot be negotiated and in regard to vacant space, the Trust pays such expenses from current operating income. Most of the Trust's leases require the tenant to carry liability insurance coverage on their leased premises. The Trust monitors tenant compliance with insurance coverage requirements. While the Trust believes its properties are adequately insured, the Trust does not carry earthquake or flood coverage. Most of the Trust's properties are located in areas of California and Nevada where earthquakes have been known to occur. The Trust will consider future investments in existing or proposed shopping centers, industrial and commercial buildings and office buildings, as well as other kinds of income-producing properties which meet the Trust's return on investment, appreciation and risk criteria. The Trust may enter into development agreements and development mortgage loans in order to obtain future equity interests in properties. As of December 31, 1993, no such loans were outstanding. Although there may be attendant risks in such investments, the Trust seeks to minimize these risks by evaluating the financial substance and experience of developers and by obtaining construction, pre-leasing or other guarantees from the developer or other parties to the transaction. If a developer of a project under construction defaults or fails to complete the project, the Trust may incur substantial additional expense to complete construction. The Trust's investment focus has been in the Northern and Central areas of California and Nevada, generally outside of major cities in areas which are experiencing population growth. All but one of the Trust's properties are in this geographic area. The Trust's geographic focus and its experience in real estate investments in Northern California and Nevada allow for efficient asset management. The Trust has made and will consider making investments in other geographic locations if such investments have attractive returns, appreciation potential and can be effectively managed. The Trust competes for quality properties with other investors and engages in a continuing effort to identify desirable properties for acquisition. Management believes that the Trust can continue to compete effectively in the current real estate environment because of its experience in real estate investment, tenant selection and lease negotiation. The Trust plans to make additional investments in real properties, which will provide attractive yields to the Trust. The Trust has raised approximately $127.5 million during the five year period ending March 31, 1994 through the sale of additional shares and the issuance of senior notes, and will endeavor to raise additional capital, either debt or equity, to fund future purchases. The cost of debt or equity capital will be weighed against the anticipated yields of the investments which could be acquired with those funds. 6 POTENTIAL ENVIRONMENTAL RISKS Investments in real property create a potential for environmental liability on the part of the owner of such real property. If hazardous substances are discovered on or emanating from any of the Trust's properties, the Trust and/or others may be held strictly liable for all costs and liabilities relating to the clean-up of such hazardous substances. The Trust, as far as it is aware, owns only four properties which presently contain underground storage tanks. The Trust has no knowledge of any leakage or contamination resulting from these tanks. There are, however, reported low levels of soil contamination from underground storage tanks removed from the Heritage Place Shopping center in Tulare, California prior to its acquisition by the Trust. In addition, there is a potential for contamination from reported off-site leaking petroleum underground storage tanks located on properties adjacent to certain Trust properties. In order to mitigate environmental risks, in 1989 the Trust adopted a policy of requesting at least a Phase I environmental study (a preliminary site assessment which does not include environmental sampling, monitoring or laboratory analysis) on each property it seeks to acquire. No independent environmental analysis has been implemented by the Trust with respect to any of the properties which the Trust acquired prior to 1989. Although the Trust has no knowledge that any material environmental contamination has occurred, no assurance can be given that hazardous substances are not located under any of the properties. The Trust carries no express insurance coverage for the type of environmental risk described above. The Trust assesses on an ongoing basis measures necessary to comply with environmental laws and regulations. The probable overall costs of these measures cannot be determined at this time due to uncertainty about the extent of environmental risks and the Trust's responsibility, the complexity of environmental laws and regulations and the selection of alternative compliance approaches. However, the Trust is not aware of any environmental conditions which will have a material impact on its financial position or results of operations. ASSET MANAGEMENT The Trust is a fully integrated REIT which directly provides full asset management services to all but three of its properties. Asset management includes property management, leasing, marketing, accounting and legal support. Internal management provides for regular interaction between the Trust and its tenants and close supervision of properties, while permitting the Trust to provide its tenants with a range of value added services. The Trust directly manages 55 of its 58 properties. In order to facilitate its present and future asset management activities the Trust has significantly expanded its asset management staff, improved its systems and controls, and opened two branch offices which are centrally located to the properties. The offices are located at the Trust's Country Gables shopping center in Granite Bay, California and at the Victorian Walk shopping center in Fresno, California. As part of its improved systems and controls, the Trust has implemented a state of the art computerized management information system which is capable of providing the Trust with real time access to all property accounting, lease administration and property related information. 7 Internal management permits the Trust to provide value added services to its tenants. For example, the Trust's marketing staff works with the Trust's tenants on promotional and advertising activities to draw consumers to the shopping centers. These activities help the Trust attract and retain the national, regional, and local retail tenants which serve the Northern and Central California and Nevada markets. In addition, the Trust believes that over time the costs of internal property management and leasing should prove less expensive than employing independent property management and leasing firms due to lower commissions and fees and certain economies of scale. Three of the 58 properties are managed by independent property managers. G & W Management Co. continues to provide management services for the property leased to Fireman's Fund Insurance Company, in Petaluma, California, for fees equal to 3.5% of gross receipts. The Trust's property is a part of a larger office park which is managed in total by G & W Management Co. Commercial Real Estate Service (CRES) provides management services with respect to Serra Center, located in Colma, California, for fees equal to 4% of gross receipts attributable to the Trust's 30% interest in the center. CRES is an affiliate of the co-owner of the Serra Center and has been managing the property for approximately 20 years. The Trust and its co-owner have authorized the employment of Terranomics Management Services to manage Mid-Peninsula Plaza, in Redwood City, California for a fee equal to 6% of gross receipts. The cost of management services does not affect the Trust's priority return on this property. None of the above named property managers are affiliated with the Trust, its trustees, officers or any shareholder owning 5% or more of the Trust's shares. Repairs and maintenance of the Trust's properties not undertaken by tenants under the terms of the Trust's triple net leases are performed by independent contractors not affiliated with the Trust, its trustees or officers, or any shareholder owning 5% or more of the Trust's shares. 8 Item 2: Properties
12/31/93 Name Location Occupancy (1) 1993 1992 ---- -------- ------------- ---- ---- (in thousands) I. Rental Income SHOPPING CENTER/RETAIL Lucky Stores El Cerrito, CA 100% 241 241 San Antonio Center Mountain View, CA 81 524 500 Kmart, Lucky Stores Napa, CA 100 158 133 Lucky Stores Santa Maria, CA 100 145 174 Denny's Redwood City, CA 100 66 65 Carpeteria Concord, CA 100 221 187 Kwik Stop Santa Rosa, CA 100 45 57 Acapulco Y Los Arcos Restaurantes Fresno, CA 100 140 72 Serra Center (30% Int.) Colma, CA 100 405 352 Dodge Center Fallon, NV 100 (2) 293 289 West Town Plaza Winnemucca, NV 100 462 462 Nob Hill General Stores Watsonville, CA 100 296 305 Mid-Peninsula Plaza (50% Int.) (3) Redwood City, CA 100 (2) 428 432 Eastridge Plaza Shopping Center Porterville, CA 78 478 507 Angels Camp Towne Center Angels Camp, CA 96 548 554 Heritage Place Town Center Tulare, CA 99 969 986 Marshall's (3) Redwood City, CA 100 268 268 Raley's Shopping Center Yuba City, CA 93 732 838 Canal Farms Shopping Center Los Banos, CA 89 790 680 Kmart Shopping Center Sacramento, CA 88 400 436 Park Place Shopping Center Vallejo, CA 93 1,362 1,127 Blossom Valley Plaza Shopping Center Turlock, CA 99 1,096 1,064 Coalinga Shopping Center Coalinga, CA 77 377 342 Commonwealth Square Shopping Center Folsom, CA 92 1,557 1,405 Country Gables Shopping Center Granite Bay, CA 85 1,205 1,228 Heritage Oak Shopping Center Gridley, CA 73 450 490 Belle Mill Shopping Center Red Bluff, CA 86 (2) 678 724 Anderson Square Shopping Center Anderson, CA 90 290 393 North Hills Shopping Center Reno, NV 90 784 760 Cobblestone Shopping Center Redding, CA 88 927 898 Victorian Walk Shopping Center Fresno, CA 90 748 780 Elko Junction Shopping Center Elko, NV 97 749 768 Skypark Plaza Shopping Center Chico, CA 90 1,286 1,310 Heritage Park Shopping Center Suisun City, CA 84 1,294 1,162 Pinecreek Shopping Center (50% Int.) Grass Valley, CA 86 891 822 Eagle Station Shopping Center Carson City, NV 94 908 903 Currier Square Shopping Center Oroville, CA 89 932 918 Yreka Junction Shopping Center Yreka, CA 95 746 685 Ukiah Crossroads Shopping Center Ukiah, CA 86 877 874 Raley's Supermarket Fallon, NV 100 401 401 Caughlin Ranch Shopping Center Reno, NV 74 788 591 Mercantile Row Shopping Center Dinuba, CA 93 733 826 Elverta Crossing Shopping Center Sacramento, CA 90 1,079 622 -------- -------- Sub-total - Shopping Center/Retail $27,767 $26,631 -------- --------
9
12/31/93 Name Location Occupancy (1) 1993 1992 ---- -------- ------------- ---- ---- (in thousands) UNDEVELOPED LEASED SHOPPING CENTER SITE Raley's Willowrock Shopping Center (4) Rocklin, CA N/A $369 $225 ---- ---- Sub-total Undeveloped Leased Shopping Center Site $369 $225 -------- -------- COMMERCIAL U. S. Postal Service Boulder Creek, CA 100% 25 25 Coast Federal Bank Cupertino, CA 100 190 190 Coast Federal Bank (Taraval) San Francisco, CA 100 306 306 Coast Federal Bank Monterey, CA 100 421 421 Coast Federal Bank (Market) San Francisco, CA 100 272 272 Coast Federal Bank Santa Cruz, CA 100 173 166 Coast Federal Bank Salinas, CA 100 300 283 Marin General Hospital (5) Larkspur, CA 100 1,385 1,307 3450 California Street San Francisco, CA 100 211 195 Crystal Lake Office Building Milpitas, CA 18 23 0 Redwood Business Park II Petaluma, CA 100 619 616 -------- -------- Sub-total - Commercial $3,925 $3,781 -------- -------- INDUSTRIAL Viking Freight Systems Santa Clara, CA 100% $389 $358 Safeway Stores, Inc. (6) Oakland, CA 100(2) 546 546 Merchants, Inc. Commerce City, CO 100 183 175 -------- -------- Sub-total - Industrial $1,118 $1,079 -------- -------- Total Rental Income $33,179 $31,716 -------- -------- II. Direct Financing Lease Income Shopping Center/Retail and Industrial --------------------------- Kmart, Lucky Stores Napa, CA 100% $170 $187 Viking Freight Systems Santa Clara, CA 100 122 128 -------- -------- Total Direct Financing Lease Income $292 $315 -------- --------
10
Interest Name Location Rate 1993 1992 ---- -------- ------- ---- ---- (in thousands) III. Interest Income (7) SHOPPING CENTER/RETAIL Mid-Peninsula Plaza (3) Redwood City, CA 12% $342 $343 CDI Mortgage Loans (8) Elko & North Reno, NV 10% 0 505 -------- -------- Total Interest Income $342 $848 -------- -------- Total Operating Revenues $33,813 $32,879 -------- -------- -------- -------- (1) Once a space is subject to an executed lease, the space is then included in occupied space. A space continues to be incorporated in our occupancy percentage until: 1) the related lease expires and the tenant is no longer in legal possession, or 2) the related lease is formally terminated and the tenant is no longer in legal possession. (2) The occupancy of these properties includes space which is currently partially or wholly vacant but on which the Trust receives rental payments under leases or other guarantees. (3) Agreements for the sale of the Trust's interests in the Mid-Peninsula Plaza shopping center and the Marshall's property in Redwood City have been executed. However, there is no assurance that any such sales transaction will be completed. (4) Property consists of unimproved land currently under lease to Raley's which has an option to purchase expiring in November 1995. Raley's has given the Trust written notice of their exercise of said option conditionally upon Raley's completing a sale to a third party. There is no guarantee that the purchase will be consummated. (5) Property sold in January 1994. (6) Safeway has notified the Trust that it will terminate its lease with respect to the Oakland, California property as of September 30, 1994. Although Safeway will continue to pay rent on this property through September, it has vacated the premises and the Trust has initiated efforts to re-lease or sell the property. The Trust believes that it is unlikely that it will be able to re-lease the property on terms as favorable as the terms with Safeway. Furthermore, depending on the eventual use of the property, the Trust could be required to take a write down of up to $1.5 million (book value). (7) See Note 4 of the Financial Statements. (8) Investment converted to equity ownership through a deed in lieu of foreclosure in 1993.
11 Item 3. Legal Proceedings The Trust was named a defendant in two (2) lawsuits filed in the Second Judicial District Court for the State of Nevada, County of Washoe. One action was a class action (Gomer vs. Realm Development Corp. et al., No. CV90-6108) and the other was brought by 33 individuals (Bautista vs. Shaver Construction Co., Inc., No. CV92-01464). Plaintiffs in both lawsuits alleged that they suffered personal injury and/or property damage as the result of excessive dust generated from construction of the Caughlin Ranch development in Reno, Nevada. The Trust has reached a settlement in regard to these lawsuits involving a payment of $25,000 to the plaintiffs. On January 11, 1993, a complaint was filed by the United States against the Trust and other defendants with regard to an alleged disturbance of the wetlands at the Park Place shopping center in Vallejo, California (U.S. vs. Connolly Development Inc., et al., U.S. District Court, E.D. Cal No. S-93-044, WBS-GGH). The complaint sought implementation of a restoration plan, assessment of civil penalties, a permanent injunction prohibiting the discharge of fill materials into the wetlands, and the government's costs of suit and disbursements. This lawsuit has been settled by the execution of a consent decree under which the developer of the property is primarily liable for penalties and costs of restoration, and the action was dismissed against the Trust on February 11, 1994. However, the Trust has agreed to guarantee the performance of the restoration by, and to provide a loan to, the developer. In the event of a default by the developer, the Trust's exposure could be as much as $250,000. 12 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters. Principal Market: The shares of beneficial interest, without par value, of the Trust are listed on the American Stock Exchange under the symbol "WIR". The following table sets forth the high and low sales prices of the shares as reported by the American Stock Exchange:
Quarter Ended High Low Dividends ------------- ---- --- --------- March 31, 1992 14 1/4 11 1/8 .28 June 30, 1992 13 7/8 12 1/4 .28 September 30, 1992 13 1/8 11 7/8 .28 December 31, 1992 13 1/4 11 7/8 .28 March 31, 1993 17 1/4 12 1/4 .28 June 30, 1993 17 1/8 13 1/2 .28 September 30, 1993 14 7/8 13 3/4 .28 December 31, 1993 14 1/4 12 1/2 .28 Through March 14, 1994 15 1/8 12 1/4 .28 (1) (1) Paid March 15, 1994.
Approximate number of equity security holders: Title of Class Number of Record Holders -------------- ------------------------ (as of December 31, 1993) Shares of Beneficial Interest, without par value 2,688 The Trust estimates that there were over 18,000 beneficial owners of shares, including owners whose shares were held in brokerage and trust accounts. 13 Item 6. Selected Financial Data
Year Ended December 31, 1993 1992 1991 1990 1989 - ------------------------------------------------------------------------------------------------------- (in thousands, except for per share and share data) OPERATING DATA Operating revenues . . . . . . . . . . . $33,813 $32,879 $32,591 $31,295 $27,575 Net income . . . . . . . . . . . . . . . 11,594 11,323 14,653 17,902(1) 14,578(1) Funds from operations(2) . . . . . . . . 20,854 20,305 22,801 24,380 19,433 Cash dividends paid. . . . . . . . . . . 18,531 18,316 20,855 23,161 17,616 PER SHARE DATA Net income . . . . . . . . . . . . . . . $.70 $.69 $.91 $1.12(1) $1.12(1) Cash dividends paid. . . . . . . . . . . 1.12 1.12 1.29 1.445 1.355 Average shares outstanding . . . . . . . 16,548,198 16,356,462 16,177,460 16,028,557 13,024,855 BALANCE SHEET DATA Real estate investments, at cost . . . . $349,936 $347,959 $343,606 $316,254 $274,328 Total assets . . . . . . . . . . . . . . 309,345 316,622 318,941 302,014 299,816 Convertible debentures . . . . . . . . . 66,076 67,949 70,251 72,543 74,865 Real estate loans payable. . . . . . . . 1,516 1,581 1,637 1,693 1,754 Shareholders' equity . . . . . . . . . . 204,938 209,345 213,851 217,497 220,125 Book value per share(3). . . . . . . . . 12.31 12.71 13.15 13.51 13.78 (1) Excludes gains on sales of real estate investments of $526,000 or $.03 per share in 1990 and $236,000 or $.02 per share in 1989. (2) Industry analysts generally consider funds from operations to be an appropriate measure of the performance of an equity REIT. Funds from operations as defined by the National Association of Real Estate Investment Trusts are: net income excluding gains or losses from debt restructuring and sales of property, plus depreciation and amortization, and after adjustments for unconsolidated joint ventures. Funds from operations does not represent cash flow from operations as defined by generally accepted accounting principles (GAAP), is not necessarily indicative of cash available to fund all cash needs and should not be considered as a substitute for net income under GAAP as an indicator of operating performance. (3) Determined by dividing shareholders' equity at such year end by the number of actual shares outstanding at such year end.
14 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations OPERATING REVENUES YEARS ENDED DECEMBER 31, 1993 AND 1992 Rental income increased 5% to $33,179,000 from $31,716,000. The increase consists of additional rental income of $851,000 from increased rental rates and collection of prior year rents and $612,000 of deferred rent receivable. Operating revenues increased 3% to $33,813,000 from $32,879,000 as a result of increased rental income of $1,463,000 (5%), partially offset by decreased interest income on mortgage loans of $506,000 (-2%) and decreased direct financing lease income of $23,000. YEARS ENDED DECEMBER 31, 1992 AND 1991 Rental income increased 2% to $31,716,000 from $31,220,000. The increase consists of $1,149,000 (5%) in rental income generated from properties acquired in 1991, $443,000 (2%) in rental income generated from the conversion of a loan on a property in 1991, and increased rental income of $405,000 (1%) due to increased rents and other income and collections from bankruptcy settlements of two previous tenants, offset by a decrease of $1,344,000 (-5%) in rental income due to the restructuring of master leases covering 17 of the Trust's shopping center properties and a decrease of $157,000 (-1%) due to the increase in the allowance for uncollectible accounts. Operating revenues increased 1% to $32,879,000 from $32,591,000 as a result of increased rental income of $496,000 (2%), partially offset by decreased interest income on participating convertible and other mortgage loans of $188,000 (-1%) and decreased direct financing lease income of $20,000. OPERATING EXPENSES YEARS ENDED DECEMBER 31, 1993 AND 1992 Operating expenses increased 17% to $3,936,000 from $3,357,000. The increase consists of $19,000 of increased repair, maintenance and other operating expenses and increased property management expense of $560,000 (17%) due primarily to the increase in allocated administrative expense and the development of internal asset management capabilities which include leasing, marketing and property management. YEARS ENDED DECEMBER 31, 1992 AND 1991 Operating expenses increased 85% to $3,357,000 from $1,810,000. The increase consists of $905,000 (50%) of increased repair, maintenance, and other operating expenses and increased property management expense of $642,000 (35%) due primarily to the restructuring of master leases covering 17 of the Trust's shopping center properties and the reclassification of certain administrative expenses to operating expenses in 1992. 15 DEPRECIATION AND AMORTIZATION YEARS ENDED DECEMBER 31, 1993 AND 1992 Depreciation and amortization expense increased 5% to $9,078,000 from $8,610,000 due to additional depreciation from property improvements made in 1993 and a full year's depreciation from property improvements made in 1992. YEARS ENDED DECEMBER 31, 1992 AND 1991 Depreciation and amortization expense increased 9% to $8,610,000 from $7,880,000 due to additional depreciation from improvements on properties in 1992 and a full year's depreciation on properties purchased in 1991. DEBENTURE AND OTHER INTEREST EXPENSE YEARS ENDED DECEMBER 31, 1993 AND 1992 Debenture and other interest expense decreased $146,000 (-2%) primarily due to debenture redemptions during 1993. YEARS ENDED DECEMBER 31, 1992 AND 1991 Debenture and other interest expense increased $1,155,000 (17%) primarily due to decreased capitalization of interest costs for projects under development in 1992 and increased levels of bank borrowings in 1992 as compared to 1991 offset in part by debenture redemptions. ADMINISTRATIVE EXPENSES YEARS ENDED DECEMBER 31, 1993 AND 1992 The Trust's administrative expenses decreased 14% to $1,449,000 from $1,681,000. The decrease is principally due to substantially lower legal fees and to the allocation of certain administrative expenses to property management expenses. YEARS ENDED DECEMBER 31, 1992 AND 1991 The Trust's administrative expenses increased 11% to $1,681,000 from $1,510,000 primarily as the result of increased legal fees and other expenses, offset in part by a reallocation of certain administrative expenses to property management expenses. NET INCOME YEARS ENDED DECEMBER 31, 1993 AND 1992 Net income was $11,594,000 in 1993 compared to $11,323,000 in 1992, an increase of $271,000 (2%). The significant components of this change include increased rental income ($1,463,000), offset by decreased interest on mortgage loans (-$506,000), and increased property management expense (-$560,000). Additional significant components affecting net income are reduced legal fees ($218,000) and increased depreciation and amortization expense (-$468,000). 16 Net income per share for the year ended December 31, 1993 increased to $0.70 on average outstanding shares of 16,548,198 from $.69 on average outstanding shares of 16,356,462 in 1992. YEARS ENDED DECEMBER 31, 1992 AND 1991 Net income was $11,323,000 in 1992 compared to $14,653,000 for the comparable period in 1991, a decrease of $3,330,000 (-23%). The significant components of this change include increased rental income ($496,000), offset by increased property operating expense (-$1,547,000), interest expense (-$1,155,000), depreciation expense (-$730,000), administrative expenses (-$171,000), and decreased mortgage interest and other income (-$223,000). Net income per share for the year ended December 31, 1992 decreased to $.69 from $.91 in 1991. LIQUIDITY AND CAPITAL RESOURCES The Trust has a $35,000,000 unsecured line of credit on which there was an outstanding balance of $33,244,000 as of December 31, 1993. On January 27, 1994, the Trust sold its Marin General Hospital property, located in Larkspur, California, for $12,412,000. The sales proceeds were used to reduce the outstanding balance on the line of credit. On February 24, 1994, the Trust issued $50,000,000 of 7 7/8% senior notes due February 15, 2004. Proceeds from the sale of senior notes were used to pay the remaining outstanding balance on the line of credit of $17,644,598. The remaining proceeds will be used to acquire properties as suitable opportunities arise and to expand and improve existing properties. The senior notes contain certain covenants which impose limitations on the incurrence of debt and other restrictions. Funds from operations (FFO), as defined by the National Association of Real Estate Investment Trusts, were $20,854,000 in 1993. Dividends paid in 1993 totaled $18,531,000, resulting in a payout ratio of 88.9% of FFO. The Trust believes that its current sources of funds will be sufficient to meet its existing capital commitments and operating requirements. The Trust's unsecured $35 million line of credit expires May 31, 1994 and it intends to renew or replace it. As noted above, the entire amount of the line of credit is currently available. Additionally, the Trust could borrow additional funds using its 55 properties which do not have mortgage debt. However, senior note borrowing limitations impose a cap on total borrowings of 55% of undepreciated real estate assets. IMPACT OF THE ECONOMY Occupancy rates of the Trust's investments remained stable at year-end at 90%. In spite of a sluggish California economy and some related tenant fall-out, the Trust has continued to lease space to sustain its occupancy levels. The Trust is positioned to benefit from a general economic improvement which should result in increased occupancy. As occupancy increases, the Trust's rental income should increase and expenses should decrease, as more tenants assume responsibility for operating expenses presently absorbed by the Trust. 17 During the last several years, high-volume discount retailers, such as Wal-Mart and Costco, entered certain areas of California and Nevada where Trust community shopping center properties are located. The Trust expects that these discounters may positively or negatively affect certain of the Trust's shopping center tenants. The Trust believes that its tenants could benefit if these discounters attract additional customers to nearby Trust properties and thereby generate increased sales for Trust tenants. Conversely, the Trust's tenants could be negatively affected if discounters draw customers away from the Trust's tenants. The Trust believes that to date this trend has had no measurable impact on the Trust's results of operations. Given the current level of inflation, the Trust believes the effect of inflation on its results of operations is inconsequential. Future increases in inflation would likely increase Trust rental income by increasing tenant revenues upon which percentage rents are based, increasing rents subject to CPI-based escalation clauses and permitting an increase in base rents on new leases. DIVIDENDS On March 15, 1994, the Trust paid its 120th consecutive quarterly dividend since it commenced real estate operations in 1964. Dividends paid to shareholders totaled $18,531,000 in 1993. Since the 1993 distributions exceeded current and accumulated earnings and profits, 28.55% is non-taxable and constitutes a return of capital to shareholders. The Trust declares and pays quarterly dividends based on income and funds from operations and the Trust's anticipated ability to maintain or increase such dividends in future years. RECENT DEVELOPMENTS In February 1994, the Trust successfully completed a public offering of $50,000,000 in senior notes with a coupon rate of 7 7/8%. On January 27, 1994 the Trust sold its Marin General Hospital property in Larkspur, California, for $12,412,000 resulting in a gain on sale of $3,629,000. Additionally, the Trust has executed agreements for the sale of its interests in the Mid-Peninsula Plaza Shopping center and the Marshall's property in Redwood City, California. The aggregate book value of these three investments at December 31, 1993 was $16,972,000. Interest rates for the short-term investment of the proceeds from these property sales and the senior debt offering are substantially less than the previous yields on these properties and the cost of the senior notes. The Trust will benefit as new properties are acquired with yields substantially greater than yields on short-term investments. 18 WESTERN INVESTMENT REAL ESTATE TRUST Financial Statements Form 10-K Item 8 December 31, 1993 19 WESTERN INVESTMENT REAL ESTATE TRUST INDEX TO FINANCIAL STATEMENTS Page ---- Report of Independent Certified Public Accountants 21 Balance Sheets - December 31, 1993 and December 31, 1992 22 Statements of Income - For the Years Ended December 31, 1993, 1992 and 1991 23 Statements of Shareholders' Equity - For the Years Ended December 31, 1993, 1992 and 1991 24 Statements of Cash Flows - For the Years Ended December 31, 1993, 1992 and 1991 25 Notes to Financial Statements 26 to 33 Financial Statement Schedules 34 to 39 20 Report of Independent Certified Public Accountants To the Trustees and Shareholders Western Investment Real Estate Trust: We have audited the financial statements of Western Investment Real Estate Trust (a California real estate investment trust) as listed in the accompanying index. In connection with our audits of the financial statements, we also have audited the financial statement schedules as listed in the accompanying index. These financial statements and financial statement schedules are the responsibility of the Trust's management. Our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. 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 Western Investment Real Estate Trust as of December 31, 1993 and 1992, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 1993, in conformity with generally accepted accounting principles. Also in our opinion, the related financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information set forth therein. San Francisco, California KPMG PEAT MARWICK February 7, 1994 (except as to Note 14, which is of February 24, 1994) 21 WESTERN INVESTMENT REAL ESTATE TRUST Balance Sheets
December 31, ------------ ASSETS 1993 1992 ------------------- (In thousands) Real estate investments: Property subject to operating leases. . . . . . . . . .$342,578 $335,016 Less accumulated depreciation and amortization. . . . . (45,635) (36,954) -------- -------- 296,943 298,062 Property subject to direct financing leases, net. . . . 2,510 2,687 Mortgage loans. . . . . . . . . . . . . . . . . . . . . 2,909 8,494 -------- -------- Net real estate investments. . . . . . . . . . . . 302,362 309,243 Cash and cash equivalents. . . . . . . . . . . . . . . . . . 328 1,028 Deferred debenture issuance costs, net . . . . . . . . . . . 2,515 2,637 Accounts receivable and other assets . . . . . . . . . . . . 4,140 3,714 -------- -------- $309,345 $316,622 -------- -------- -------- -------- LIABILITIES AND SHAREHOLDERS' EQUITY Note payable . . . . . . . . . . . . . . . . . . . . . . . . $33,244 $35,902 Real estate loans payable. . . . . . . . . . . . . . . . . . 1,516 1,581 Debenture interest payable . . . . . . . . . . . . . . . . . 1,322 --- Accounts payable and accrued liabilities . . . . . . . . . . 238 91 Other liabilities. . . . . . . . . . . . . . . . . . . . . . 2,011 1,754 -------- -------- 38,331 39,328 Convertible debentures . . . . . . . . . . . . . . . . . . . 66,076 67,949 Commitments and contingencies (Notes 7, 9 and 13) Shareholders' equity: Shares of beneficial interest, no par value, unlimited share authorization. Issued and outstanding: December 31, 1992-16,466,048 shares; December 31, 1993-16,645,791 shares; . . . . . . . 236,178 233,648 Accumulated dividends in excess of Trust net income . . (31,240) (24,303) -------- -------- Total shareholders' equity. . . . . . . . . . 204,938 209,345 -------- -------- $309,345 $316,622 -------- -------- -------- --------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 22 WESTERN INVESTMENT REAL ESTATE TRUST Statements of Income
Year Ended December 31, ----------------------- 1993 1992 1991 ------------------------------ (In thousands, except for per share and share data) INCOME FROM REAL ESTATE OPERATIONS: Operating revenues: Rental income. . . . . . . . . . . . . . . . . . . $ 33,179 $ 31,716 $ 31,220 Direct financing lease income. . . . . . . . . . . 292 315 335 Interest on mortgage loans . . . . . . . . . . . . 342 848 1,036 ---------- ---------- ---------- 33,813 32,879 32,591 ---------- ---------- ---------- Operating expenses: Property management. . . . . . . . . . . . . . . . 1,834 1,274 632 Repairs, maintenance and other . . . . . . . . . . 2,102 2,083 1,178 ---------- ---------- ---------- 3,936 3,357 1,810 ---------- ---------- ---------- Depreciation and amortization. . . . . . . . . . . . 9,078 8,610 7,880 ---------- ---------- ---------- Income from real estate operations . . . . . . . 20,799 20,912 22,901 ---------- ---------- ---------- Debenture interest expense and amortization. . . . . . 5,538 5,679 5,096 Other interest expense . . . . . . . . . . . . . . . . 2,241 2,246 1,674 ---------- ---------- ---------- 7,779 7,925 6,770 ---------- ---------- ---------- Interest and other income. . . . . . . . . . . . . . . 23 17 32 ---------- ---------- ---------- Administrative expenses: Trustees' fees and salaries. . . . . . . . . . . . . 793 823 861 Professional services. . . . . . . . . . . . . . . . 293 511 127 Office and other expenses. . . . . . . . . . . . . . 363 347 522 ---------- ---------- ---------- 1,449 1,681 1,510 ---------- ---------- ---------- Net income . . . . . . . . . . . . . . . . . . . . $11,594 $11,323 $14,653 ---------- ---------- ---------- ---------- ---------- ---------- Net income per share . . . . . . . . . . . . . . . $.70 $.69 $.91 ---------- ---------- ---------- ---------- ---------- ---------- DIVIDENDS PAID PER SHARE . . . . . . . . . . . . . . . $1.12 $1.12 $1.29 ---------- ---------- ---------- ---------- ---------- ---------- WEIGHTED AVERAGE NUMBER OF SHARES. . . . . . . . . . . 16,548,198 16,356,462 16,177,460 ---------- ---------- ---------- ---------- ---------- ----------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 23 WESTERN INVESTMENT REAL ESTATE TRUST Statements of Shareholders' Equity Years Ended December 31, 1993, 1992 and 1991 (In thousands, except share data)
Accumulated Shares of Dividends Total Beneficial Interest in Excess of Share- -------------------- Trust Net holders' Number Amount Income Equity -------------------------------------------------- Balance, January 1, 1991 . . . . . . . . . . . . . . 16,103,977 $228,638 $(11,141) $217,497 Net proceeds from issuance of shares . . . . . . . . 57,620 815 -- 815 Debenture redemption . . . . . . . . . . . . . . . . 103,147 1,708 -- 1,708 Net income . . . . . . . . . . . . . . . . . . . . . -- -- 14,653 14,653 Cash dividends paid. . . . . . . . . . . . . . . . . -- -- (20,855) (20,855) Recovery of unrealized loss on marketable securities . . . . . . . . . . . . . . . . . . . . -- -- 33 33 ---------- -------- -------- -------- Balance, December 31, 1991 . . . . . . . . . . . . . 16,264,744 231,161 (17,310) 213,851 Net proceeds from issuance of shares . . . . . . . . 70,997 898 -- 898 Debenture redemption . . . . . . . . . . . . . . . . 130,307 1,589 -- 1,589 Net income . . . . . . . . . . . . . . . . . . . . . -- -- 11,323 11,323 Cash dividends paid. . . . . . . . . . . . . . . . . -- -- (18,316) (18,316) ---------- -------- -------- -------- Balance, December 31, 1992 . . . . . . . . . . . . . 16,466,048 233,648 (24,303) 209,345 Net proceeds from issuance of shares . . . . . . . . 65,614 935 -- 935 Debenture redemption . . . . . . . . . . . . . . . . 114,129 1,595 -- 1,595 Net income . . . . . . . . . . . . . . . . . . . . . -- -- 11,594 11,594 Cash dividends paid. . . . . . . . . . . . . . . . . -- -- (18,531) (18,531) ---------- -------- -------- -------- Balance, December 31, 1993 . . . . . . . . . . . . . 16,645,791 $236,178 $(31,240) $204,938 ---------- -------- -------- -------- ---------- -------- -------- --------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 24 WESTERN INVESTMENT REAL ESTATE TRUST Statements of Cash Flows
Year Ended December 31, ----------------------- 1993 1992 1991 ---- ---- ---- (In thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net income . . . . . . . . . . . . . . . . . . . . . . . . . . $11,594 $11,323 $14,653 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization. . . . . . . . . . . . . . . . . 9,078 8,610 7,880 Debenture expense amortization . . . . . . . . . . . . . . . . 182 199 200 Decrease (increase) in accounts receivable and other assets . . . . . . . . . . . . . . . . . . . . . . (59) (1,505) 922 Increase in deferred rent receivable . . . . . . . . . . . . . (612) -- -- Increase (decrease) in debenture interest payable. . . . . . . 1,322 (1,405) (46) Increase (decrease) in accounts payable and accrued liabilities. . . . . . . . . . . . . . . . . . . . . 147 (1,356) 968 Increase (decrease) in other liabilities . . . . . . . . . . . 257 21 (519) ------- ------- ------- Net cash provided by operating activities. . . . . . . . . . . 21,909 15,887 24,058 ------- ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition and improvements of real estate investments. . . . (2,083) (3,784) (22,530) Recovery of investment in direct financing leases... . . . . . 177 154 134 Acquisition of mortgage loans. . . . . . . . . . . . . . . . . (46) (569) (4,787) ------- ------- ------- Net cash used in investing activities. . . . . . . . . . . . . (1,952) (4,199) (27,183) ------- ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from note payable . . . . . . . . . . . . . . . . . . 25,927 30,285 73,894 Principal payments on note payable . . . . . . . . . . . . . . (28,585) (23,000) (51,295) Principal payments on real estate loans payable. . . . . . . . (65) (57) (56) Redemption of convertible debentures . . . . . . . . . . . . . (216) (646) (508) Proceeds from issuance of shares, net. . . . . . . . . . . . . 935 898 815 Capitalized senior note costs. . . . . . . . . . . . . . . . . (122) -- -- Cash dividends paid. . . . . . . . . . . . . . . . . . . . . . (18,531) (18,316) (20,855) ------- ------- ------- Net cash provided by (used in) financing activities. . . . . (20,657) (10,836) 1,995 ------- ------- ------- Net increase (decrease) in cash and cash equivalents . . . . (700) 852 (1,130) Cash and cash equivalents, at beginning of year. . . . . . . . . 1,028 176 1,306 ------- ------- ------- Cash and cash equivalents, at end of year. . . . . . . . . . . . $ 328 $ 1,028 $ 176 ------- ------- ------- ------- ------- ------- SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the year for interest . . . . . . . . . . . $ 6,247 $ 9,143 $ 6,649 ------- ------- ------- ------- ------- -------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 25 NOTES TO FINANCIAL STATEMENTS Note 1: Significant Accounting Policies (A) Properties Properties comprising real estate investments are stated at cost. Depreciation and amortization are provided primarily using the straight-line method over the estimated useful lives of the properties as follows:
Property Type Years - -------------------------------------------------------------------------------- Buildings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20 to 45 Improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 to 25
Interest and fee income relating to loans on property under development for acquisition by the Trust are recorded as reductions of the Trust's investment in those properties. Interest cost is capitalized on projects under development in accordance with Financial Accounting Standards Board Statement No. 34. During 1993, no interest was capitalized. In 1992, interest cost of $46,000 was capitalized. (B) Federal Income Tax Reporting For Federal income tax reporting purposes, the Trust has elected to use a 15- year straight-line accelerated cost recovery as provided by the Economic Recovery Tax Act of 1981 for properties acquired after 1981, and for properties acquired after March 1984, a 35-year, straight-line accelerated cost recovery as provided by the Deficit Reduction Act of 1984. Properties acquired after December 1986 use a 31.5-year, straight-line method as provided by the 1986 Tax Act. Properties acquired after 1989 are depreciated using a 40-year, straight- line method. Depreciation for financial statement reporting purposes is based on the estimated economic useful life of the property. (C) Cash and Cash Equivalents Cash equivalents are comprised of certain highly liquid investments with a maturity of less than three months. (D) Direct Financing Leases The net investment in direct financing leases consists of the aggregate minimum lease payments to be received over the terms of the leases, plus an estimated residual value, less unearned income. Unearned income, representing the difference between the minimum lease payments and estimated residual value, less the costs of the leased property, is recognized over the life of the lease using the interest rate implicit in the lease, which provides a level rate of return on the net investment in the property. (E) Rental Income The Trust accrues base rental income (minimum contractual lease payments) as earned. Certain of the Trust's leases provide for additional rent based on specified percentages of the lessee's revenues. Such percentage-based rental income is recognized during the year based on estimates. Beginning in 1993, the Trust has begun recognizing income from deferred rental receivables in accordance with Financial Accounting Standards Board Statement No. 13. During 1993, $612,000 of deferred rent receivable was recognized as income. 26 (F) Deferred Debt Issuance Costs The costs incurred in connection with the issuance of debt are amortized over the term of the debt instruments. (G) Income Per Share Income per share has been computed using the weighted average number of shares outstanding during each year. There were no common stock equivalents that on conversion or exercise would dilute income per share. (H) Impairment Accounting Policy When the Trust concludes that recovery of the carrying value of a real estate investment is permanently impaired, it reduces such carrying value to amounts deemed recoverable. (I) Reclassification Certain of the 1992 and 1991 financial statement amounts have been reclassified to conform to the 1993 presentation. Note 2: Real Estate Investments The following is a reconciliation of real estate investments and the related accumulated depreciation and amortization:
Year Ended December 31, 1993 1992 1991 - ------------------------------------------------------------------------------- (In thousands) Real estate investments: Balance at beginning of year . . . . . . . . . . $335,016 $331,232 $296,517 Additions: Acquisitions and improvements. . . . 1,932 3,784 34,715 Conversion of secured loans. . . . . 5,630 --- --- -------- -------- -------- Balance at end of year . . . . . . . . . . . . . $342,578 $335,016 $331,232 -------- -------- -------- -------- -------- -------- Accumulated depreciation and amortization: Balance at beginning of year . . . . . . . . . . $ 36,954 $ 28,433 $ 20,588 Additions charged to operations. . . . . . . . . 8,681 8,521 7,845 -------- -------- -------- Balance at end of year . . . . . . . . . . . . . $ 45,635 $ 36,954 $ 28,433 -------- -------- -------- -------- -------- --------
Safeway has notified the Trust that it will terminate its lease with respect to the Oakland, California property as of September 30, 1994. Although Safeway will continue to pay rent on this property through September, it has vacated the premises and the Trust has initiated efforts to re-lease or sell the property. The Trust believes that it is unlikely that it will be able to release the property on terms as favorable as the terms with Safeway. Furthermore, depending on the eventual use of the property, the Trust could be required to take a write down of up to $1.5 million (book value). With respect to the Trust's property in Rocklin, California, Raley's has an option to purchase that expires in November of 1995. Raley's has given the Trust written notice of their exercise of said option conditionally upon Raley's completing a sale to a third party. There is no guarantee that the purchase will be consummated. 27 The Trust sold its Marin General Hospital property in Larkspur, California, on January 27, 1994. The sales price was $12,412,000, resulting in a gain of $3,629,000. The Trust used the net proceeds of the sale to reduce the outstanding balance on its line of credit. Additionally, the Trust has executed agreements for the sale of its interests in the Mid-Peninsula Plaza shopping center and the adjoining Marshall's property in Redwood City, California. If the sale occurs it will result in the Trust receiving payment in full on the related mortgage loan (see Note 4). Note 3: Leases Two of the Trust's investment properties are accounted for as direct financing leases. All other leases are accounted for as operating leases. The following is a schedule of future minimum lease payments under direct financing and operating leases that have initial or remaining noncancellable lease terms in excess of one year as of December 31, 1993:
Real Estate Investments Under ----------------------------- Direct Financing Operating Lease Lease - ------------------------------------------------------------------------------------------ (In thousands) MINIMUM LEASE PAYMENTS: 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $469 $28,494 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 469 26,979 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 469 25,836 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 469 24,906 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 469 23,191 Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 924 242,658 ------ -------- Total minimum lease payments . . . . . . . . . . . . . . . . . . . . 3,269 $372,064 -------- -------- Estimated residual value . . . . . . . . . . . . . . . . . . . . . . 383 ------ 3,652 Less unearned income . . . . . . . . . . . . . . . . . . . . . . . . 1,142 ------ Investment in direct financing leases. . . . . . . . . . . . . . . $2,510 ------ ------ Original cost of properties subject to direct financing leases . . . $4,449 ------ ------
Included in rental income is percentage rent income of $530,149, $755,554 and $801,635 in 1993, 1992 and 1991, respectively. 28 Note 4: Investments in Mortgage Loans
Loan Balance ------------ Interest 1993 1992 Rate - -------------------------------------------------------------------------------------------------------------------------- (In thousands) Loan on a shopping center in Redwood City, California, secured by a first deed of trust on the property. Interest only is payable monthly. Mortgage is due June 2004. . . . . . . . . . . . . . . . . . . . $2,809 $2,809 12.00% Loans secured by first deeds of trust on properties in Elko and Reno, Nevada. The loans were converted to equity ownership in August 1993. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . --- 5,585 10.00% Loan secured by first deed of trust on property in Reno, Nevada. Mortgage is due May 1995 . . . . . . . . . . . . . . . . . . . . . . . . . 100 100 10.00% ------ ------ $2,909 $8,494 ------ ------ ------ ------
Note 5: Major Tenants Rental income attributable to leases with Raley's, our most significant tenant, was $7,770,000, $7,734,000 and $7,393,000 in 1993, 1992 and 1991, respectively. Note 6: Note and Real Estate Loans Payable The Trust has a $35,000,000 line of credit as of December 31, 1993. Interest on funds drawn under this line of credit is at a rate no greater than the bank's reference rate plus one quarter of one percent (6 1/4% at December 31, 1993) and is payable monthly on any outstanding balance. In addition, the Trust pays an annual fee of one quarter of one percent of the commitment. The Trust is not required to pledge any assets or maintain compensating balances for this line of credit although the Trust has agreed not to further encumber any of its properties or to sell or convey any of them except as permitted by the terms of the line of credit. Additionally, if amounts due under the line of credit are not paid at maturity, the lender, at its option, can require the Trust to provide security interests in Trust properties. At December 31, 1993, the Trust had borrowed $33,244,000 under this line of credit which, if not renewed, expires May 31, 1994. At December 31, 1992, the Trust had a $40 million line of credit with an outstanding balance of $35,902,000. The Trust has one real estate mortgage loan and one property subject to an assessment bond aggregating $1,516,000 and $1,581,000 at December 31, 1993 and 1992, respectively. Aggregate principal maturities for the five years following December 31, 1993 are: 1994 -- $74,000; 1995 -- $81,000; 1996 -- $88,000; 1997 - - - $97,000; 1998 -- $107,000; thereafter -- $1,069,000. Additionally, the Trust owns a 50% interest in one property that is encumbered by a note and deed of trust under which the co-owner is the borrower. 29 Note 7: Convertible Debentures In August, 1988 the Trust issued $75,000,000 of 8% convertible debentures (the "debentures"), due 2008. The debentures are convertible prior to maturity, unless previously redeemed, at a conversion price equal to $22.23 per share. The debentures are subject to limited mandatory redemption at 100% of their principal amount plus accrued interest (i) on June 30 in any year, with the consent of any holder thereof, or (ii) at any time within 60 days after the receipt of a consent on behalf of a deceased holder. The Trust has the option either to redeem debentures for cash or to exchange its shares in an amount equal to 100% of the principal amount of such debentures. Such redemption obligations are limited to an annual, non-cumulative maximum principal amount of $25,000 per holder and $2,250,000 in the aggregate, with priority being given to consents on behalf of deceased holders. The Trust may redeem debentures tendered in excess of the above limitations. In addition, the Trust has the option to redeem the debentures without the consent of the holders, in whole or in part, at redemption prices declining from 102% of the principal balance of the debentures until June 30, 1994, 101% until June 30, 1995, and at par thereafter. On June 30, 1993 and 1992, respectively, $1,657,000 and $1,656,000 of debentures were presented for limited mandatory redemption. The Trust elected to exchange 114,129 and 130,307 shares at $14.50 and $12.70, respectively, for the debentures. During 1993 and 1992, respectively, an additional $216,000 and $646,000 of debentures were presented for mandatory redemption on behalf of deceased debenture holders which at the Trust's option were paid in cash. Note 8: Disclosure about Fair Value of Financial Instruments The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value: Cash - The carrying amount approximates fair value because of the liquidity of this asset. Loans Receivable - The Redwood City loan receivable has a fair value equal to the carrying amount as the Trust expects to receive payment in full in 1994. The face value of the Reno loan approximates its fair value. Marketable Securities - The fair value of marketable securities is based on quoted market prices. Note Payable - The carrying amount approximates fair value because of the short maturity of this liability. Convertible Debenture - The fair value of convertible debentures is based on quoted market prices. Mortgage Payable - The carrying value of this asset approximates fair value. The estimated fair values of the Trust's financial instruments for years ended December 31, 1993 and 1992 are (in thousands):
1993 1992 ---- ---- Carrying Fair Carrying Fair Amount Value Amount Value ---------------------- -------------------- Cash . . . . . . . . . . . . . $ 328 $ 328 $ 1,028 $1,028 Loans receivable . . . . . . . 2,909 2,909 8,494 8,552 Marketable securities. . . . . 159 184 159 159 Note payable . . . . . . . . . 33,244 33,244 35,902 35,902 Convertible debenture. . . . . 66,076 66,654 67,949 64,552 Mortgage payable . . . . . . . 1,424 1,424 1,480 1,480
30 Note 9: Trustee and Officer Compensation Trustee Emeritus, Death and Disability Programs Under the Trustee Emeritus Program, Chester R. MacPhee, O. A. Talmage, Bernard Etcheverry, and Chester R. MacPhee, Jr. are eligible to become a Trustee Emeritus after reaching age 65. A Trustee Emeritus shall serve the Trust in an advisory capacity and will be compensated accordingly, up to a maximum of $60,000 annually ($75,000 for one trustee). Mr. Etcheverry elected to become Trustee Emeritus on January 1, 1993 and Mr. MacPhee elected to become Trustee Emeritus on January 1, 1991. Chester R. MacPhee, O. A. Talmage, Bernard Etcheverry, and Chester R. MacPhee, Jr. are eligible to participate in the Death and Disability Program. The Trust will pay an annual death or disability benefit under the program based on a percentage of the participant's average annual compensation for his 36 months of service as a trustee during which his compensation was the greatest up to a maximum of $60,000 annually ($75,000 for one trustee). Stock Option Plan On May 12, 1988, the Trust instituted a non-qualified stock option plan (the "Plan"). The purchase price of shares of beneficial interest purchased pursuant to the Plan is to be not less than the fair market value of the shares on the date of grant. Options granted under the Plan, which expire six years from the grant date if not exercised, vest and become exercisable at a rate of 20% per year from the date of grant until completely vested. A total of 300,000 shares of beneficial interest have been authorized under the Plan. The following options have been issued and are outstanding as of December 31, 1993:
OPTION PRICE PERCENT GRANT DATE SHARES PER SHARE VESTED May 18, 1988 141,000 $17.350 100% November 20, 1989 38,500 18.000 80% November 18, 1991 35,700 11.440 40% November 23, 1992 15,400 12.625 20% November 11, 1993 67,000 13.810 0%
None of the options had been exercised through December 31, 1993. Note 10: Dividend Reinvestment Plan In accordance with the Dividend Reinvestment and Share Purchase Plan adopted by the Trust in 1990, the Trust received $935,000 and $898,000 net of issuance costs and issued 65,614 and 70,997 shares of beneficial interest in 1993 and 1992, respectively. 31 Note 11: Quarterly Results of Operations The following is a summary of quarterly financial information for the last two years:
Quarters Unaudited --------------------------------------------------- (In thousands, except for per share and share data) First Second Third Fourth - --------------------------------------------------------------------------------------------------------- 1993 Operating revenues and interest income . . . $8,441 $8,552 $8,461 $8,382 ----- ----- ----- ----- ----- ----- ----- ----- Net income . . . . . . . . . . . . . . . . . $2,877 $3,165 $2,657 $2,895 ----- ----- ----- ----- ----- ----- ----- ----- Per share: Net income . . . . . . . . . . . . . . . . . $.18 $.19 $.16 $.17 Dividends. . . . . . . . . . . . . . . . . . $.28 $.28 $.28 $.28 Weighted average number of shares. . . . . . 16,468,355 16,482,586 16,612,784 16,629,068 1992 Operating revenues and interest income . . . $8,168 $8,143 $8,241 $8,344 ----- ----- ----- ----- ----- ----- ----- ----- Net income . . . . . . . . . . . . . . . . . $2,775 $2,931 $2,862 $2,755 ----- ----- ----- ----- ----- ----- ----- ----- Per share: Net income . . . . . . . . . . . . . . . . . $.17 $.18 $.17 $.17 Dividends. . . . . . . . . . . . . . . . . . $.28 $.28 $.28 $.28 Weighted average number of shares. . . . . . 16,267,154 16,281,819 16,428,475 16,448,400
Note 12: Income Tax Status of Trust The Trust has qualified, and intends to continue to qualify, as a real estate investment trust under the applicable provisions of the Internal Revenue Code and the comparable California statutes. Under such provisions, the Trust will not be taxed on that portion of its taxable income distributed currently to shareholders, provided that at least 95% of its real estate investment trust taxable income is distributed. As the Trust intends to distribute all of its income currently, no provision has been made for federal or state income taxes. Federal taxable income of the Trust prior to the dividend-paid deductions for the three years ended December 31, 1993 is: 1993 -- $12,351,000; 1992 -- $11,368,000; 1991 -- $15,588,000. The difference between net income for financial reporting purposes and taxable income results primarily from different methods of accounting for leases, depreciation of investment properties and gains on property dispositions. The taxable and nontaxable portions to shareholders for federal income tax purposes in 1993 are as follows:
Percentages Distribution ------------------------ Dates Paid Paid Per Share Taxable Non-taxable - ----------------------------------------------------------------------------- March 15, 1993 $.28 71.45% 28.55% June 15, 1993 $.28 71.45% 28.55% September 15, 1993 $.28 71.45% 28.55% December 15, 1993 $.28 71.45% 28.55%
32 Note 13: Commitments and Contingencies The Trust identifies and evaluates prospective investments on a continuous basis. In connection therewith, the Trust initiates letters of interest and extends offers on a regular basis. At December 31, 1993, the Trust was not committed to fund any acquisition. The Trust is involved as plaintiff or defendant in various legal actions arising in the normal course of business. At December 31, 1993, one case involves allegations that there was a disturbance of wetlands during the construction of the Trust's Vallejo shopping center. This lawsuit has been settled by the execution of a consent decree under which the developer of the property is primarily liable for penalties and costs of restoration. However, the Trust has agreed to guarantee the performance of the restoration by, and to provide a loan to, the developer. In the event of a default by the developer, the Trust's exposure could be as much as $250,000. The Trust has also reached settlement in regard to two lawsuits alleging the generation of excessive dust during construction of our Caughlin Ranch shopping center, for a payment of $25,000 payable to the plaintiffs. Note 14: Subsequent Events On February 24, 1994, the Trust completed a $50 million senior note offering. The unsecured senior notes mature February 15, 2004, and carry a coupon of 7 7/8%. Proceeds from the offering were used to pay off the line of credit of approximately $17.6 million and the balance will be used to acquire properties as suitable opportunities arise and to expand and improve existing properties. 33 Western Investment Real Estate Trust Schedule IX - Short-term Borrowings
Weighted Maximum Average average Balance month-end month-end Category of interest at end of balance balance Borrowing rate period during period during period (1) - ---------- ---- ------ ------------- ------------- 1993 - ---- Line of Credit 6.25% $33,244,000 $33,244,000 $31,618,000 1992 - ---- Line of Credit 6.50% $35,902,000 $35,902,000 $30,190,000 (1) Average month-end balance during period was calculated by summing the month-end balances for the period, then dividing by 12.
34
Western Investment Real Estate Trust Schedule XI - Real Estate and Accumulated Depreciation December 31, 1993 Cost Capitalized (In thousands except for depreciable lives) after Gross Amounts at which Initial Cost to Trust Acquisitions Carried at Close of Period(6) --------------------- ------------ ----------------------------- Buildings Buildings Encum- and and Descriptions brances Land Improvements Improvements Land Improvements Total - ------------ ------- ---- ------------ ------------ ---- ------------ ----- RETAIL / SHOPPING CENTER Lucky Store El Cerrito, CA . . . . . . . . . . . . $250 $450 $625 $250 $1,075 $1,325 San Antonio Center Mountain View, CA. . . . . . . . . . . 310 534 4,394 310 4,928 5,238 Lucky Stores Santa Maria, CA. . . . . . . . . . . . 77 273 164 77 437 514 Denny's Redwood City, CA . . . . . . . . . . . 101 137 101 137 238 Carpeteria Concord, CA. . . . . . . . . . . . . . 794 249 142 794 391 1,185 Kwik Stop Santa Rosa, CA . . . . . . . . . . . . 20 54 20 54 74 Acapulco Y Los Arcos Rest Fresno, CA . . . . . . . . . . . . . . 163 382 163 382 545 Serra Center (30% Int.) Colma, CA. . . . . . . . . . . . . . . 433 914 32 433 946 1,379 Dodge Center Fallon, NV . . . . . . . . . . . . . . 405 1,595 32 405 1,627 2,032 West Town Plaza Winnemucca, NV . . . . . . . . . . . . 131 3,386 131 3,386 3,517 Nob Hill General Stores Watsonville, CA. . . . . . . . . . . . 416 1,084 416 1,084 1,500 Mid-Peninsula Plaza (50% Int.) (1) Redwood City, CA . . . . . . . . . . . 905 2,680 87 905 2,767 3,672 Eastridge Plaza Shopping Center Porterville, CA. . . . . . . . . . . . 939 4,390 18 939 4,408 5,347 Angels Camp Towne Center Angels Camp, CA. . . . . . . . . . . . 580 4,447 8 580 4,455 5,035 Heritage Place Town Center Tulare, CA . . . . . . . . . . . . . . 1,427 7,117 200 1,427 7,317 8,744 Marshall's (1) Redwood City, CA . . . . . . . . . . . 1,265 1,410 1,265 1,410 2,675 Raley's Shopping Center Yuba City, CA. . . . . . . . . . . . . 2,101 5,151 688 2,101 5,839 7,940 Canal Farms Shopping Center. . . . . . . 1,180 6,904 235 1,180 7,139 8,319 Los Banos, CA. . . . . . . . . . . . . Accumulated Depreciation Depreciable and Date of Date Lives Descriptions Amortization Construction Acquired in Years - ------------ ------------ ------------ -------- ----------- RETAIL / SHOPPING CENTER Lucky Store El Cerrito, CA . . . . . . . . . . . . 668 1964/1983 1964 31 San Antonio Center Mountain View, CA. . . . . . . . . . . 1,323 1959/1990 1965 10 to 31 Lucky Stores Santa Maria, CA. . . . . . . . . . . . 348 1962 1967 28 Denny's Redwood City, CA . . . . . . . . . . . 114 1968 1968 45 Carpeteria Concord, CA. . . . . . . . . . . . . . 261 1963 1969 20 to 30 Kwik Stop Santa Rosa, CA . . . . . . . . . . . . 51 1970 1970 25 Acapulco Y Los Arcos Rest Fresno, CA . . . . . . . . . . . . . . 328 1972 1972 28 Serra Center (30% Int.) Colma, CA. . . . . . . . . . . . . . . 588 1972 1973/1988 23 to 31 Dodge Center Fallon, NV . . . . . . . . . . . . . . 1,021 1978 1977 24 West Town Plaza Winnemucca, NV . . . . . . . . . . . . 1,260 1978/1991 1978 25 to 31 Nob Hill General Stores Watsonville, CA. . . . . . . . . . . . 491 1982 1982 25 Mid-Peninsula Plaza (50% Int.) (1) Redwood City, CA . . . . . . . . . . . 639 1986 1985 10 to 31 Eastridge Plaza Shopping Center Porterville, CA. . . . . . . . . . . . 1,078 1985 1985 5 to 35 Angels Camp Towne Center Angels Camp, CA. . . . . . . . . . . . 1,007 1986 1985 31 Heritage Place Town Center Tulare, CA . . . . . . . . . . . . . . 1,567 1986 1987 10 to 31 Marshall's (1) Redwood City, CA . . . . . . . . . . . 322 1985 1985 35 Raley's Shopping Center Yuba City, CA. . . . . . . . . . . . . 1,109 1963/1984 1986 5 to 40 Canal Farms Shopping Center. . . . . . . 1,207 1988 1986 31 Los Banos, CA. . . . . . . . . . . . .
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Western Investment Real Estate Trust Schedule XI - Real Estate and Accumulated Depreciation December 31, 1993 Cost Capitalized (In thousands except for depreciable lives) after Gross Amounts at which Initial Cost to Trust Acquisitions Carried at Close of Period(6) --------------------- ------------ ----------------------------- Buildings Buildings Encum- and and Descriptions brances Land Improvements Improvements Land Improvements Total - ------------ ------- ---- ------------ ------------ ---- ------------ ----- RETAIL / SHOPPING CENTER (CONTINUED) Kmart Shopping Center. . . . . . . . . . 1,875 3,116 83 1,875 3,199 5,074 Sacramento, CA Park Place Shopping Center . . . . . . . 3,850 11,291 431 3,850 11,722 15,572 Vallejo, CA Blossom Valley Plaza . . . . . . . . . . 2,448 8,315 366 2,448 8,681 11,129 Turlock, CA Coalinga Shopping Center Coalinga, CA . . . . . . . . . . . . . 1,424 816 2,144 731 816 2,875 3,691 Commonwealth Square Folsom, CA . . . . . . . . . . . . . . 3,312 13,022 83 3,312 13,105 16,417 Country Gables Shopping Center Granite Bay, CA. . . . . . . . . . . . 2,704 12,684 271 2,704 12,955 15,659 Heritage Oak Shopping Center Gridley, CA . . . . . . . . . . . . . . 1,603 3,597 51 1,603 3,648 5,251 Belle Mill Shopping Center Red Bluff, CA . . . . . . . . . . . . . 2,247 6,043 102 2,247 6,145 8,392 Anderson Square Shopping Center Anderson, CA. . . . . . . . . . . . . . 1,145 2,125 127 1,145 2,252 3,397 North Hills Shopping Center Reno, NV. . . . . . . . . . . . . . . . 5,406 6,911 24 5,406 6,935 12,341 Cobblestone Shopping Center Redding, CA. . . . . . . . . . . . . . 2,375 7,969 84 2,375 8,053 10,428 Victorian Walk Shopping Center Fresno, CA . . . . . . . . . . . . . . 1,120 7,356 128 1,120 7,484 8,604 Elko Junction Shopping Center Elko, NV . . . . . . . . . . . . . . . 2,516 7,631 646 2,516 8,277 10,793 Skypark Plaza Shopping Center Chico, CA. . . . . . . . . . . . . . . 2,854 10,454 1,236 2,854 11,690 14,544 Heritage Park Shopping Center. . . . . . Suisun City, CA. . . . . . . . . . . . 3,575 12,187 119 3,575 12,306 15,881 Pinecreek Center (50% Int.) (2) Grass Valley, CA . . . . . . . . . . . 2,725 7,966 43 2,725 8,009 10,734 Eagle Station Shopping Center Carson City, NV. . . . . . . . . . . . 1,735 7,585 54 1,735 7,639 9,374 Currier Square Shopping Center Oroville, CA . . . . . . . . . . . . . 2,025 7,203 560 2,025 7,763 9,788 Yreka Junction Shopping Center Yreka, CA. . . . . . . . . . . . . . . 1,350 5,846 267 1,350 6,113 7,463 Accumulated Depreciation Depreciable and Date of Date Lives Descriptions Amortization Construction Acquired in Years - ------------ ------------ ------------ -------- ----------- RETAIL / SHOPPING CENTER (CONTINUED) Kmart Shopping Center. . . . . . . . . . 756 1964/1986 1986 5 to 30 Sacramento, CA Park Place Shopping Center . . . . . . . 1,319 1987 1990 10 to 31 Vallejo, CA Blossom Valley Plaza . . . . . . . . . . 946 1988/1991 1990 31 Turlock, CA Coalinga Shopping Center Coalinga, CA . . . . . . . . . . . . . 643 1977 1987 10 to 30 Commonwealth Square Folsom, CA . . . . . . . . . . . . . . 1,484 1988 1990 31 Country Gables Shopping Center Granite Bay, CA. . . . . . . . . . . . 1,116 1988 1991 31 Heritage Oak Shopping Center . . . . . . Gridley, CA . . . . . . . . . . . . . . 763 1981 1987 5 to 31 Belle Mill Shopping Center Red Bluff, CA . . . . . . . . . . . . . 1,288 1982/1987 1987 5 to 31 Anderson Square Shopping Center Anderson, CA. . . . . . . . . . . . . . 480 1979 1987 10 to 31 North Hills Shopping Center Reno, NV. . . . . . . . . . . . . . . . 1,256 1986 1988 31 Cobblestone Shopping Center Redding, CA. . . . . . . . . . . . . . 1,425 1988 1988 31 Victorian Walk Shopping Center Fresno, CA . . . . . . . . . . . . . . 1,196 1988 1988 31 Elko Junction Shopping Center Elko, NV . . . . . . . . . . . . . . . 1,184 1986/1991 1988 31 Skypark Plaza Shopping Center. . . . . . Chico, CA. . . . . . . . . . . . . . . 1,810 1985/1991 1988 28 to 31 Heritage Park Shopping Center Suisun City, CA. . . . . . . . . . . . 1,405 1989 1990 31 Pinecreek Center (50% Int.) (2) Grass Valley, CA . . . . . . . . . . . 1,270 1988 1989 10 to 31 Eagle Station Shopping Center Carson City, NV. . . . . . . . . . . . 1,046 1982 1989 31 Currier Square Shopping Center Oroville, CA . . . . . . . . . . . . . 1,055 1969/1989 1989 5 to 31 Yreka Junction Shopping Center Yreka, CA. . . . . . . . . . . . . . . 782 1989 1990 31
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Western Investment Real Estate Trust Schedule XI - Real Estate and Accumulated Depreciation December 31, 1993 Cost Capitalized (In thousands except for depreciable lives) after Gross Amounts at which Initial Cost to Trust Acquisitions Carried at Close of Period(6) --------------------- ------------ ----------------------------- Buildings Buildings Encum- and and Descriptions brances Land Improvements Improvements Land Improvements Total - ------------ ------- ---- ------------ ------------ ---- ------------ ----- RETAIL / SHOPPING CENTER (CONTINUED) Ukiah Crossroads Shopping Center Ukiah, CA. . . . . . . . . . . . . . . 1,925 8,119 310 1,925 8,429 10,354 Raley's Supermarket Fallon, NV . . . . . . . . . . . . . . 1,000 3,220 1,000 3,220 4,220 Caughlin Ranch Shopping Center Reno, NV . . . . . . . . . . . . . . . 2,950 7,123 114 2,950 7,237 10,187 Mercantile Row Shopping Center Dinuba, CA . . . . . . . . . . . . . . 1,440 6,208 (25) 1,440 6,183 7,623 Raley's Willowrock Shopping Center (3) Rocklin, CA. . . . . . . . . . . . . . 4,212 109 81 4,212 190 4,402 Elverta Crossing Shopping Center Sacramento, CA . . . . . . . . . . . . 3,370 7,477 295 3,370 7,772 11,142 ------ ------- -------- ------- ------- -------- -------- Sub-total - Retail / Shopping Center $1,424 $72,075 $216,858 $12,806 $72,075 $229,664 $301,739 ------ ------- -------- ------- ------- -------- -------- COMMERCIAL U S Postal Service Boulder Creek, CA. . . . . . . . . . . $8 $38 $31 $8 $69 $77 Coast Federal Bank Cupertino, CA. . . . . . . . . . . . . 615 845 615 845 1,460 Coast Federal Bank (Taraval) San Francisco, CA. . . . . . . . . . . 366 1,824 366 1,824 2,190 Coast Federal Bank Monterey, CA . . . . . . . . . . . . . 911 2,189 911 2,189 3,100 Coast Federal Bank (Market) San Francisco, CA. . . . . . . . . . . 873 1,068 873 1,068 1,941 Coast Federal Bank Santa Cruz, CA . . . . . . . . . . . . 205 823 205 823 1,028 Coast Federal Bank Salinas, CA. . . . . . . . . . . . . . 516 1,632 516 1,632 2,148 Marin General Hospital (4) Larkspur, CA . . . . . . . . . . . . . 2,343 8,307 2,343 8,307 10,650 3450 California Street San Francisco, CA. . . . . . . . . . . 1,450 1,159 278 1,450 1,437 2,887 Redwood Business Park II Petaluma, CA . . . . . . . . . . . . . 92 1,017 3,052 1,017 3,052 4,069 Crystal Lake Office Building Milpitas, CA . . . . . . . . . . . . . 979 6,020 38 979 6,058 7,037 ------ ------- -------- ------- ------- -------- -------- Sub-total - Commercial . . . . . . . $92 $9,283 $26,957 $347 $9,283 $27,304 $36,587 ------ ------- -------- ------- ------- -------- -------- Accumulated Depreciation Depreciable and Date of Date Lives Descriptions Amortization Construction Acquired in Years - ------------ ------------ ------------ -------- ----------- RETAIL / SHOPPING CENTER (CONTINUED) Ukiah Crossroads Shopping Center Ukiah, CA. . . . . . . . . . . . . . . 1,085 1986 1989 31 Raley's Supermarket Fallon, NV . . . . . . . . . . . . . . 303 1991 1991 31 Caughlin Ranch Shopping Center Reno, NV . . . . . . . . . . . . . . . 565 1990/1991 1990 10 to 31 Mercantile Row Shopping Center Dinuba, CA . . . . . . . . . . . . . . 600 1990 1990 31 Raley's Willowrock Shopping Center (3) Rocklin, CA. . . . . . . . . . . . . . 0 N/A 1990 N/A Elverta Crossing Shopping Center Sacramento, CA . . . . . . . . . . . . 531 1991 1990 31 ------- Sub-total - Retail / Shopping Center $37,690 ------- COMMERCIAL U S Postal Service Boulder Creek, CA. . . . . . . . . . . $ 39 1959 1969 10 to 30 Coast Federal Bank Cupertino, CA. . . . . . . . . . . . . 278 1980 1985 25 Coast Federal Bank (Taraval) San Francisco, CA. . . . . . . . . . . 584 1975 1985 25 Coast Federal Bank Monterey, CA . . . . . . . . . . . . . 700 1963 1985 25 Coast Federal Bank (Market) San Francisco, CA. . . . . . . . . . . 342 1964 1986 25 Coast Federal Bank Santa Cruz, CA . . . . . . . . . . . . 156 1980 1986 40 Coast Federal Bank Salinas, CA. . . . . . . . . . . . . . 306 1937 1986 40 Marin General Hospital (4) Larkspur, CA . . . . . . . . . . . . . 1,873 1969/1986 1986 31 3450 California Street San Francisco, CA. . . . . . . . . . . 480 1957 1987 5 to 31 Redwood Business Park II Petaluma, CA . . . . . . . . . . . . . 476 1985 1989 31 Crystal Lake Office Building Milpitas, CA . . . . . . . . . . . . . 1,249 1987 1987 10 to 31 ------- Sub-total - Commercial . . . . . . . $6,483 -------
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Western Investment Real Estate Trust Schedule XI - Real Estate and Accumulated Depreciation December 31, 1993 Cost Capitalized (In thousands except for depreciable lives) after Gross Amounts at which Initial Cost to Trust Acquisitions Carried at Close of Period(6) --------------------- ------------ ----------------------------- Buildings Buildings Encum- and and Descriptions brances Land Improvements Improvements Land Improvements Total - ------------ ------- ---- ------------ ------------ ---- ------------ ----- Industrial Viking Freight Systems Santa Clara, CA. . . . . . . . . . . . 548 0 0 548 0 548 Safeway Stores, Inc. (5) Oakland, CA. . . . . . . . . . . . . . 489 2,144 145 489 2,289 2,778 Merchants, Inc. Commerce City, CO. . . . . . . . . . . 278 648 278 648 926 ------ ------- -------- ------- ------- -------- -------- Sub-total - Industrial . . . . . . . $0 $1,315 $2,792 $145 $1,315 $2,937 $4,252 ------ ------- -------- ------- ------- -------- -------- Total. . . . . . . . . . . . . . . $1,516 $82,673 $246,607 $13,298 $82,673 $259,905 $342,578 ------ ------- -------- ------- ------- -------- -------- ------ ------- -------- ------- ------- -------- -------- Accumulated Depreciation Depreciable and Date of Date Lives Descriptions Amortization Construction Acquired in Years - ------------ ------------ ------------ -------- ----------- Industrial Viking Freight Systems Santa Clara, CA. . . . . . . . . . . . N/A N/A 1978 N/A Safeway Stores, Inc. (5) Oakland, CA. . . . . . . . . . . . . . 1,289 1930 1983 5 to 19 Merchants, Inc. Commerce City, CO. . . . . . . . . . . 173 1984 1984 35 ------- Sub-total - Industrial . . . . . . . $1,462 ------- Total. . . . . . . . . . . . . . . $45,635 ------- ------- (1) Agreements for the sale of the Trust's interest in the Mid-Peninsula Plaza shopping center and the Marshall's property in Redwood City have been executed. However, there is no assurance that any such sales transaction will be completed. (2) Pinecreek is encumbered by a note and deed of trust under which the 50% co-owner is the borrower. (3) Property consists of unimproved land currently under lease to Raley's which has an option to purchase expiring in November 1995. Raley's has given the Trust written notice of its exercise of said option conditionally upon Raley's completing a sale to a third party. There is no guarantee that the purchase will be consummated. (4) Property sold January 1994. (5) Safeway has notified the Trust that it will terminate its lease with respect to the Oakland, California property as of September 30, 1994. Although Safeway will continue to pay rent on this property through September, it has vacated the premises and the Trust has initiated efforts to re-lease or sell the property. The Trust believes that it is unlikely that it will be able to re-lease the property on terms as favorable as the terms with Safeway. Furthermore, depending on the eventual use of the property, the Trust could be required to take a write down of up to $1.5 million (book value). (6) The aggregate cost or adjusted basis of rental property for federal income tax purposes reconciles to the amount reflected in the financial statements at December 31, 1993 as follows:
Basis for federal income tax purposes. . . . . . . . . . . . . . . . . . . 343,084 Direct financing leases capitalized for financial reporting purposes . . . (3,153) Reduction in tax basis for deferred gains on condemnation and other sales and discharge of indebtedness. . . . . . . . . . . . . . . . 2,647 -------- Financial statement reporting basis. . . . . . . . . . . . . . . . . . . . $342,578 -------- --------
38 WESTERN INVESTMENT REAL ESTATE TRUST 1993 LAND, BUILDING IMPROVEMENT, AND LEASE COMMISSION ADDITIONS
LAND, BUILDING LEASING NAME LOCATION AND IMPROVEMENTS COMMISSIONS - ---- -------- ---------------- ----------- (IN THOUSANDS) (IN THOUSANDS) SHOPPING CENTER SERRA CENTER (30%) COLMA, CA. $ 23 $ 17 EASTRIDGE PLAZA PORTERVILLE, CA. (19) -- ANGELS CAMP TOWNE CENTER ANGELS CAMP, CA. 8 -- HERITAGE PLACE TULARE, CA. 45 19 RALEY'S CENTER YUBA CITY, CA. 187 120 CANAL FARMS LOS BANOS, CA. 235 28 KMART CENTER SACRAMENTO, CA. 46 7 PARK PLACE VALLEJO, CA. 370 116 BLOSSOM VALLEY PLAZA TURLOCK, CA. 5 9 COALINGA SHOPPING CENTER COALINGA, CA. 7 -- COMMONWEALTH SQUARE FOLSOM, CA. -- 6 COUNTRY GABLES GRANITE BAY, CA. 78 10 HERITAGE OAK GRIDLEY, CA. 13 -- BELLE MILL LANDING RED BLUFF, CA. 47 -- ANDERSON SQUARE ANDERSON, CA. 67 -- NORTH HILLS RENO, NV. 3,711 (1) 2 COBBLESTONE REDDING, CA. -- 9 VICTORIAN WALK FRESNO, CA. 16 -- ELKO JUNCTION RENO, NV. 2,149 (1) 93 SKYPARK PLAZA CHICO, CA. 85 17 HERITAGE PARK SUISUN, CA. 41 22 PINECREEK (50%) GRASS VALLEY, CA. (33) (33) EAGLE STATION CARSON CITY, CA 14 10 CURRIER SQUARE OROVILLE, CA. (12) -- YREKA JUNCTION YREKA, CA. 46 -- CROSSROADS UKIAH, CA. 264 22 CAUGHLIN RANCH RENO, NV. 88 6 MERCANTILE ROW DINUBA, CA. (25) 7 ELVERTA CROSSING SACRAMENTO, CA. 76 64 ------- ----- SUB-TOTAL - SHOPPING CENTER 7,532 551 COMMERCIAL ---------- U.S. POSTAL SERVICE BOULDER CREEK, CA. 15 -- 3450 CALIFORNIA STREET SAN FRANCISCO, CA. 15 -- ------- ----- SUB-TOTAL - COMMERCIAL 30 0 ------- ----- TOTAL $ 7,562 $ 551 (1) Of these additions, $3,699 and $1,931 for North Hills and Elko Junction, respectively, relate to the conversion to equity ownership from first deeds of trust in August, 1993. See footnote 4 of the financial statements.
39 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosures. None PART III Items 10, 11, 12 and 13 are incorporated by reference from the definitive proxy statement relating to the Annual Meeting of Shareholders to be held on May 12, 1994. PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. (a) 1. Financial Statements - Included in Item 8 Page ---- Report of Independent Certified Public Accountants 21 Balance Sheets - December 31, 1993 and 1992 22 Financial Statements for the Years Ended December 31, 1993, 1992 and 1991: Statements of Income 23 Statements of Shareholders' Equity 24 Statements of Cash Flows 25 Notes to Financial Statements 26 to 33 2. Financial Statement Schedules 34 to 39 3. Exhibits Consent of Independent Certified Public Accountants 41 Incorporated by reference hereto is the Indenture Agreement which was filed as Exhibit 4.1 to Amendment No. 1 to Registration Statement No. 33-22893 filed on July 28, 1988 and the Declaration of Trust which was filed as Exhibit 3.1 to said registration statement. 40 Consent of Independent Certified Public Accountants The Trustees Western Investment Real Estate Trust: We consent to incorporation by reference in the registration statement (No. 33-27016) on Form S-8 of Western Investment Real Estate Trust of our report dated February 7, 1994, except as to Note 14 which is as of February 24, 1994, relating to the balance sheets of Western Investment Real Estate Trust as of December 31, 1993 and 1992, and the related statements of income, shareholders' equity and cash flows for each of the years in the three-year period ended December 31, 1993, and the related financial statement schedules as of December 31, 1993, which report appears in the December 31, 1993 annual report on Form 10-K of Western Investment Real Estate Trust. San Francisco, California KPMG PEAT MARWICK March 29, 1994 41 SIGNATURES Pursuant to the requirements of Section 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 there unto duly authorized. WESTERN INVESTMENT REAL ESTATE TRUST ------------------------------------ (Registrant) By: s/ Dennis D. Ryan ------------------------------ Dennis D. Ryan Vice President and Dated: March 29, 1994 Chief Financial Officer ------------------ Pursuant to the requirements of the Security Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date - --------- ----- ---- s/ O.A. Talmage Chairman of the March 29, 1994 _______________________________ Board, President, O. A. Talmage Chief Executive Officer and Trustee s/Dennis D. Ryan Vice President and March 29, 1994 _______________________________ Chief Financial Dennis D. Ryan Officer s/ William A. Talmage Trustee March 29, 1994 _______________________________ William A. Talmage s/ Chester R. MacPhee, Jr. Trustee March 29, 1994 _______________________________ Chester R. MacPhee, Jr. s/ Reginald B. Oliver Trustee March 29, 1994 _______________________________ Reginald B. Oliver s/ James L. Stell Trustee March 29, 1994 _______________________________ James L. Stell s/ John R. Beckett Trustee March 29, 1994 _______________________________ John R. Beckett 42 -----END PRIVACY-ENHANCED MESSAGE-----