-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, J3CoaiKCQHDydRiCVc9z33q8okk6TFQhayHreHY+iaSTC2aPaL7yRSaqk6sqEtYS RSfEgxwbEBhjeDa59TPkmA== 0000912057-96-004870.txt : 19960322 0000912057-96-004870.hdr.sgml : 19960322 ACCESSION NUMBER: 0000912057-96-004870 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960321 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: WESTERN INVESTMENT REAL ESTATE TRUST CENTRAL INDEX KEY: 0000106135 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 946100058 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-08723 FILM NUMBER: 96536838 BUSINESS ADDRESS: STREET 1: 3450 CALIFORNIA ST CITY: SAN FRANCISCO STATE: CA ZIP: 94118 BUSINESS PHONE: 4159290211 10-K405 1 FORM 10-K405 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACTION OF 1934 [FEE REQUIRED] For the fiscal year ended DECEMBER 31, 1995 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) Commission File Number 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] The aggregate market value of the voting shares held by nonaffiliates of the registrant on January 31, 1996, based on the reported closing sales price of the Trust's shares of beneficial interest on the American Stock Exchange on such date, was $185,337,000. (The Trust defines affiliates as those required to report under Section 16 of the Securities Exchange Act of 1934). 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 - 16,972,496 shares as of January 31, 1996. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Trust's proxy statement with respect to its 1996 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 and 12. WESTERN INVESTMENT REAL ESTATE TRUST INDEX TO 10-K PART I Page ---- Item 1 Business 3 to 9 Item 2 Properties 9 to 13 Item 3 Legal Proceedings 14 Item 4 Submission of Matters to a Vote of Security Holders 14 PART II Item 5 Market for Registrant's Common Equity and Related Stockholder Matters 14 Item 6 Selected Financial Data 15 Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations 16 to 18 Item 8 Financial Statements 19 to 34 Financial Statement Schedule 35 to 36 Additional Information: 1995 Building Improvement and Leasing Commission Additions (unaudited) 37 Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosures 38 PART III Item 10 Directors and Executive Officers of the Registrant 38 Item 11 Executive Compensation 38 Item 12 Security Ownership of Certain Beneficial Owners and Management 38 Item 13 Certain Relationships and Related Transactions 38 PART IV Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K 39 to 41 Signatures 42 2 PART I ITEM 1. BUSINESS. (a) GENERAL DEVELOPMENT OF BUSINESS. Western Investment Real Estate Trust ("The 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. (b) 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. (c) NARRATIVE DESCRIPTION OF BUSINESS. The Trust, which at December 31, 1995 employed 51 people, is in the business of acquiring, managing, leasing and developing retail, commercial and industrial properties. At December 31, 1995, the Trust owned 50 retail properties, 10 commercial properties and 2 industrial properties with a combined gross leasable area of 4.8 million square feet. The Trust has its executive office at 3450 California Street, San Francisco, California, 94118, and can be reached at (415) 929-0211. Additionally, the Trust maintains two regional offices in California. The Trust's portfolio of 62 properties at December 31, 1995 is summarized as follows:
Number of Land Gross Leasable Area Property Type State Properties (Square Feet) (Square Feet) - ------------- ----- ---------- ------------- ------------------- Shopping Center and Retail California 41 15,978,136 3,884,620 Nevada 9 4,062,307 655,702 -- ---------- ---------- Total Shopping Center and Retail 50 20,040,443 4,540,322 Commercial California 10 634,669 180,587 Industrial California 1 274,311 58,022 Colorado 1 162,500 20,300 -- ---------- ---------- Total Industrial 2 436,811 78,322 -- ---------- ---------- TOTAL 62 21,111,923 4,799,231 -- ---------- ---------- -- ---------- ----------
3 At December 31, 1995, occupancy for each property type is as follows: Property Type Occupancy Rate (1) ------------- ------------------ Shopping Center and Retail 93.8% Commercial 93.1% Industrial 100.0% Average Occupancy for All Property Types 93.9% (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. The following table summarizes the composition of the Trust's real estate investments as of December 31, 1995 by type based on amounts invested by the Trust. PORTFOLIO SUMMARY DECEMBER 31, 1995
Number of Amount of Investments Investment Percentage ----------- ---------- ---------- Shopping Center and Retail 50 $366,361,000 92% Commercial 10 26,414,000 7% Industrial 2 3,025,000 1% -- ------------ ---- 62 $395,800,000 100% -- ------------ ---- -- ------------ ----
The Trust owns 23 unimproved pads located within or adjacent to the property lines of its shopping centers that are available for development and leasing. Additionally, the Trust owns a total of 25 acres of undeveloped land adjacent to its North Hills and Elko Shopping Centers in Nevada. The weighted average age of the Trust's 62 properties is 12.5 years. The weighted average age of the Trust's commercial, industrial and retail properties is 21.5 years, 15.4 years and 12.05 years, respectively. This calculation is weighted by Gross Leasable Area and is based on the original construction date of the property. As such, construction or renovation occurring subsequent to the original construction date is not reflected in this calculation. 4 CURRENT ECONOMIC CLIMATE After a number of false starts in recent years, California's economy has experienced solid improvement. Additionally, many economists believe California's future is brighter. According to the Center for Continuing Study of the California Economy (Palo Alto, California), total personal income rose 7.2 percent during the first half of 1995. This, in conjunction with a 1.8 percent increase in consumer prices, produced the first substantial boost in real spending power since 1990. Some economists believe that California is once again ready to take its place as an engine of growth for the U.S. economy. California's strengths of foreign trade, entertainment and business services are producing gains in jobs, income and spending that will likely continue into 1996 and the decade ahead. While the strength of the California economic recovery is uncertain, improvement in economic conditions should help improve the Trust's operating results in 1996. Recent property acquisitions and improvements have been completely or partially funded with advances under the Trust's variable rate line of credit. If interest rates were to increase substantially the interest rate under the line of credit could approach, or exceed the yield on the property acquisitions. However, improving economic conditions, which could lead to higher interest rates, should also lead to improved occupancy and rental rates. COMPETITION 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 significant impact on the Trust's results of operations. The Trust competes for quality properties with other investors and engages in a continuing effort to identify desirable properties for acquisition. As the number of prospective buyers of the types of properties the Trust considers for purchase increases, the prices of such properties may increase and the yield decrease. The Trust believes it can continue to compete effectively in the current real estate environment because of its experienced staff and management team. The Trust competes for tenants primarily on the basis of location, rental rates, services provided and the design and condition of the properties. In some of the geographic areas in which the Trust owns properties, the available supply of space for lease exceeds the demand by prospective tenants. In order to compete effectively, the Trust employs experienced property managers and leasing agents. TENANTS The Trust's principal shopping center and retail tenants include substantial, well-recognized businesses such as Food-4-Less, Nob Hill Foods, PayLess Drugs, Pak N Save, Raley's, Safeway, Save Mart Supermarket and Thrifty Drug. The Trust's commercial tenants include Coast Federal Bank and Fireman's Fund Insurance Company. In addition, the Trust has other major retail tenants such as Lucky Stores and J.C. Penney. No single property investment accounted for more than 5% of total revenues in 1995. At December 31, 1995, Raley's, the Trust's most significant tenant, a supermarket and super drug retailer, was a lessee in nineteen of the Trust's properties and accounted for 20% of the Trust's 1995 total revenues. Raley's, a privately owned company, currently operates 81 stores in Northern California and Nevada. The Raley's organization has released information indicating that its sales exceeded $1.8 billion in its most recently reported fiscal year ended June 24, 1995. The Trust receives audited financial statements annually from Raley's and uses them to monitor Raley's financial position and results of operations. 5 The following table provides the location, size and expiration of the Raley's leases:
Lease Location Gross Leasable Area Expiration Date -------- ------------------- --------------- 1 Fallon, NV Note (1) 6/30/03 2 Fair Oaks, CA 59,231 3/31/06 3 Yuba City, CA 61,842 9/01/08 4 Carson City, NV 59,018 8/31/12 5 Redding, CA 60,000 5/31/14 6 Yreka, CA 60,000 11/30/14 7 Chico, CA 61,046 4/30/15 8 Winnemucca, NV 60,000 12/31/15 9 Fallon, NV 60,114 2/28/16 10 Reno, NV 61,046 3/31/16 11 Ukiah, CA 61,046 6/30/16 12 Elko, NV 61,000 1/31/17 13 Vallejo, CA 60,114 9/30/17 14 Folsom, CA 60,114 12/31/17 15 Turlock, CA 60,114 2/28/18 16 Grass Valley, CA 60,114 4/30/18 17 Granite Bay, CA 60,114 6/30/18 18 Suisun City, CA 60,114 5/31/19 19 Oroville, CA 59,885 6/01/19
NOTE (1): Although Raley's no longer occupies this Fallon, Nevada, property, it guarantees the J. C. Penney and Hub leases and makes supplemental lease payments to the Trust. MAJOR PRODUCERS OF 1995 TOTAL REVENUE
% of Total Number of Tenant Revenue Revenues Locations - ------ ------- -------- --------- 1) Raley's Supermarkets $9,009,000 19.8 19 2) Coast Federal Bank 1,913,000 4.2 6 3) Save Mart Supermarkets 1,711,000 3.8 7 4) Safeway/Pak N Save 1,606,000 3.5 3 5) PayLess Drugs/Thrifty's 1,595,000 3.5 10 6) Food-4-Less 1,070,000 2.3 3 7) Nob Hill Foods 1,023,000 2.2 3 8) Ross Stores 742,000 1.6 3 9) Fashion Bug 668,000 1.5 8 10) Scolari's Supermarket 563,000 1.2 1
6 The Trust receives sales and other information on a monthly, quarterly or annual basis from its retail tenants, including Raley's, under leases which provide for such reports. The Trust uses this information to monitor the payment of percentage rents where leases so provide. The Trust recognized $559,000 and $537,000 of percentage rents during 1995 and 1994, respectively. Virtually all of the Trust's existing leases include at least one of the following provisions for payment of additional rent: (1) scheduled fixed increases, (2) percentage rent based on tenants' gross sales, or (3) 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 incorporated into a lease 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 periodically considers the merits of purchasing earthquake insurance. To date the Trust has not purchased earthquake insurance because of (i) the high premiums and deductibles and (ii) the geographically diversified portfolio that reduces the likelihood of an earthquake resulting in a material loss to the Trust. Furthermore, the majority of properties in the portfolio principally comprise single-story, relatively new buildings. TENANT LEASE EXPIRATIONS AND RENEWALS The following table shows lease expirations for the leases in effect as of December 31, 1995, for the next ten years, assuming none of the tenants exercise renewal options:
Percentage of Average Total Leased Base Rent Gross Per Sq. Ft. Leasable Area No. of Gross Leasable Annualized Base Under Represented Expiration Leases Area in Rent Under Expiring by Expiring Year Expiring Square Feet Expiring Leases Leases Leases ---- -------- ----------- --------------- ------ ------ 1996 72 136,402 $ 1,815,252 $13.31 3.0% 1997 79 150,324 2,088,372 13.89 3.4% 1998 133 310,373 3,975,751 12.81 6.9% 1999 86 317,433 2,687,772 8.47 7.1% 2000 66 257,621 3,449,676 13.39 5.7% 2001 25 231,217 1,741,242 7.53 5.1% 2002 21 190,784 1,435,836 7.53 4.2% 2003 23 280,170 2,508,420 8.95 6.2% 2004 13 84,154 861,396 10.24 1.9% 2005 13 103,595 1,157,004 11.17 2.3% --- --------- ----------- ----- Total 531 2,062,073 $21,720,721 45.8% --- --------- ----------- ----- --- --------- ----------- -----
ASSET MANAGEMENT The Trust is a fully integrated REIT which provides full asset management services to all but two of its properties. Asset management includes property management, leasing, marketing and accounting support. Internal management provides for regular interaction between the Trust and its tenants and close supervision of properties. 7 The Trust directly manages 60 of its 62 properties. In order to facilitate its present and future asset management activities, the Trust maintains 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. 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 California and Nevada markets. The Trust believes the cost of internal property management and leasing is generally less expensive than employing independent property management, marketing and leasing firms due to lower commissions and fees and certain economies of scale. Two of the Trust's 62 properties are managed by independent property managers. G & W Management Co. provides 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 part of a larger office park which is managed 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 rents plus tenant administrative and management fees paid by the tenants 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. Neither one 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. 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. In order to mitigate environmental risks, in 1989 the Trust adopted a policy of obtaining 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. From time to time, when the Trust deems it appropriate, we have acquired independent environmental analyses on properties 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. In conducting its assessments, the Trust has identified the following matters: OAKLAND, CALIFORNIA During 1994, the Trust concluded the sale of its industrial property in Oakland, California. Under the terms of the sale agreement, the Trust is responsible for environmental clean-up costs that exceed the sum of (i) $658,000, and (ii) any amounts recovered by the buyer from third parties. On the basis of the current facts and circumstances, the Trust has not recorded a provision for any future environmental liability resulting from this property because the Trust believes the likelihood of incurring any liability is remote. The Trust will continue to monitor the environmental remediation activity and status of this property. 8 VALLEJO, CALIFORNIA The Trust has agreed to guarantee the performance of the restoration work related to disturbance of wetlands by, and to provide certain financial accommodations to, the developer of the Trust's Park Place Shopping Center in Vallejo, California. During July 1995, the developer declared Chapter 11 bankruptcy. The Trust received an initial estimate for the wetlands restoration from an environmental consulting firm, which projected total costs of as much as $250,000. Approximately $200,000 has already been funded by the Trust. UNDERGROUND STORAGE TANKS The Trust, as far as it is aware, owns only three properties which presently contain underground storage tanks. The Trust has no knowledge of any leakage or contamination resulting from these tanks that will have a material impact on its financial position or results of operations. 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. The prior owner has been ordered by the Tulare County environmental officials to clean up suspected soil contamination and has been approved for and received funding from the California Leaking Underground Storage Tank Fund. Should the prior owner fail to complete remediation, the Trust's exposure could be as much as $230,000 per the initial estimate by an environmental consultant. 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. 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 that it believes will have a material impact on its financial position or results of operations. ITEM 2. PROPERTIES. Property information is presented on the following pages. 9 ITEM 2: PROPERTIES
Minimum Rent ---------------------------- 12/31/95 Year Year Last Name Location 1995 1994 Occupancy (1) Completed Renovated ---- -------- ---- ---- ------------- --------- --------- (in thousands) I. Minimum Rents SHOPPING CENTER/RETAIL Luckys El Cerrito, CA $241 $241 100.00% 1964 1983 San Antonio Center Mountain View, CA 495 495 80.99% 1959 1990 Luckys Santa Maria, CA 49 49 100.00% 1962 1995 Denny's Redwood City, CA 66 66 100.00% 1968 Carpeteria Concord, CA 228 222 100.00% 1963 Kwik Stop Santa Rosa, CA 59 52 100.00% 1970 1995 Acapulco Y Los Arcos Fresno, CA 124 125 100.00% 1972 Serra Center (30% interest) Colma, CA 505 497 100.00% 1972 Dodge Center Fallon, NV 281 282 100.00% 1976 1995 West Town Winnemuca, NV 462 461 100.00% 1978 1991 Nob Hill General Store Watsonville, CA 195 195 100.00% 1982 Mid-Peninsula Plaza (50% Int.) (2) Redwood City, CA 0 191 SOLD Eastridge Plaza Shopping Center Porterville, CA 462 450 79.58% 1985 Angel's Camp Town Center Angel's Camp, CA 584 523 98.51% 1986 Heritage Place Shopping Center Tulare, CA 1,024 1,024 98.94% 1986 Marshall's (2) Redwood City, CA 0 96 SOLD Raley's Shopping Center Yuba City, CA 912 838 98.81% 1963 1995 Canal Farms Shopping Center Los Banos, CA 799 764 97.15% 1988 Kmart Center Sacramento, CA 357 380 87.61% 1964 1986 Park Place Shopping Center Vallejo, CA 1,504 1,419 93.11% 1987 Blossom Valley Plaza Turlock, CA 1,178 1,072 100.00% 1988 1991 Coalinga Shopping Center Coalinga, CA 338 308 82.78% 1977 Commonwealth Square Shopping Center Folsom, CA 1,487 1,468 93.75% 1988 Country Gables Shopping Center Granite Bay, CA 1,288 1,275 88.09% 1988 Heritage Oak Shopping Center Gridley, CA 418 436 83.23% 1981 Belle Mill Landing Red Bluff, CA 781 571 96.50% 1982 1995 Anderson Square Anderson, CA 242 226 98.89% 1979 North Hills Shopping Center Reno, CA 803 810 91.52% 1986 Cobblestone Shopping Center Redding, CA 999 943 83.23% 1981 Victorian Walk Shopping Center Fresno, CA 775 740 96.50% 1982 1994 Elko Junction Shopping Center Elko, NV 956 883 98.89% 1979 Elko Junction (Phase II) (5) Elko, NV 8 8 100.00% 1994 Skypark Plaza Shopping Center Chico, CA 1,318 1,339 93.43% 1985 1991
continued on next page 10 ITEM 2: PROPERTIES
Minimum Rent ---------------------------- 12/31/95 Year Year Last Name Location 1995 1994 Occupancy (1) Completed Renovated ---- -------- ---- ---- ------------- --------- --------- (in thousands) Heritage Park Shopping Center Suisun, CA 1,198 1,194 79.68% 1989 Pinecreek Shopping Center Grass Valley, CA 887 857 94.93% 1988 Eagle Station Shopping Center Carson City, CA 879 905 90.16% 1982 Currier Square Shopping Center Oroville, CA 1,010 932 95.35% 1969 1989 Yreka Junction Yreka, CA 729 714 95.76% 1984 Ukiah Crossroads Shopping Center Ukiah, CA 880 850 88.87% 1986 Raley's Supermarket Fallon, NV 401 401 100.00% 1991 Caughlin Ranch Shopping Center Reno, NV 880 805 90.77% 1990 1991 Mercantile Row Shopping Center Dinuba, CA 744 722 89.91% 1990 Elverta Crossing Shopping Center Sacramento, CA 1,208 1,168 90.84% 1991 1993 Centennial Plaza Shopping Center (3) Hanford, CA 1,228 546 100.00% 1991 Laguna 99 Shopping Center (3) Elk Grove, CA 1,321 751 97.49% 1993 Mission Ridge Shopping Center (3) Manteca, CA 1,175 672 100.00% 1993 Northridge Shopping Center (3) Fair Oaks, CA 668 338 96.20% 1958 1986 Plaza 580 Shopping Center (3) Livermore, CA 1,442 828 100.00% 1993 Nob Hill General Store (3) Hollister, CA 480 52 100.00% 1994 Nob Hill General Store (4) Newman, CA 272 0 100.00% 1995 ------------- ------------- Sub-total - Shopping Center/Retail $34,340 $30,184 ------------- ------------- UNDEVELOPED LAND Raley's Willowrock Shopping Center (2) Rocklin, CA $0 $263 SOLD ------------- ------------- Sub-total - Undeveloped Land $0 $263 ------------- ------------- INDUSTRIAL Viking Freight Systems Santa Clara, CA $415 $396 100.00% 1978 Safeway Stores, Inc. (2) Oakland, CA 0 409 SOLD Merchants, Inc. Commerce City, CO 115 183 100.00% 1984 1995 ------------- ------------- Sub-total - Industrial $530 $988 ------------- ------------- COMMERCIAL US Postal Service Boulder Creek, CA $25 $25 100.00% 1959 Coast Savings & Loan Cupertino, CA 197 190 100.00% 1980 Coast Savings & Loan (Taraval St) San Francisco, CA 328 306 100.00% 1975 Coast Savings & Loan Monterey,CA 450 421 100.00% 1963
continued on next page 11 ITEM 2: PROPERTIES
Minimum Rent ---------------------------- 12/31/95 Year Year Last Name Location 1995 1994 Occupancy (1) Completed Renovated ---- -------- ---- ---- ------------- --------- --------- (in thousands) Coast Savings & Loan (Market St) San Francisco, CA 291 272 100.00% 1964 Coast Savings & Loan Santa Cruz, CA 180 173 100.00% 1980 Coast Savings & Loan Salinas, CA 311 300 100.00% 1937 Marin General Hospital (2) Larkspur, CA 0 96 SOLD 3450 California St San Francisco, CA 219 219 100.00% 1957 1987 Redwood II Petaluma, CA 619 619 100.00% 1985 Crystal Lake Park Milpitas, CA 151 44 73.73% 1987 1995 ------------- ------------- Sub-total - Commercial $2,771 $2,665 ------------- ------------- Total Minimum Rent $37,641 $34,100 ------------- ------------- ------------- ------------- Percentage Rents ---------------------------- 1995 1994 ---- ---- (in thousands) II. Percentage Rent Kmart Napa, CA $115 $133 100.00% 1964 Luckys Santa Maria, CA 99 95 100.00% 1962 1995 Dodge Center Fallon, NV 18 12 100.00% 1976 1995 Nob Hill General Stores Watsonville, CA 76 92 100.00% 1982 Raley's Shopping Center Yuba City, CA 0 -8 98.81% 1963 1995 Kmart Center Sacramento, CA 45 56 87.61% 1964 1986 Park Place Shopping Center Vallejo, CA 8 4 93.11% 1987 Coalinga Shopping Center Coalinga, CA 47 58 82.78% 1977 Commonwealth Square Shopping Center Folsom, CA 6 9 93.75% 1988 Heritage Oak Shopping Center Gridley, CA 10 8 83.23% 1981 Belle Mill Landing Red Bluff, CA 3 0 96.50% 1982 1995 Anderson Square Anderson, CA 44 30 98.89% 1979 Cobblestone Shopping Center Redding, CA 6 4 83.23% 1981 Elko Junction Shopping Center Elko, NV 1 0 98.89% 1979 Heritage Park Shopping Center Suisun, CA 9 7 79.68% 1989 Pinecreek Shopping Center Grass Valley, CA 0 2 94.93% 1988 Eagle Station Shopping Center Carson City, CA 6 4 90.16% 1982 Yreka Junction Yreka, CA 1 1 95.76% 1984 Ukiah Crossroads Shopping Center Ukiah, CA 0 2 88.87% 1986
continued on next page 12 ITEM 2: PROPERTIES
Percentage Rents ---------------------------- 12/31/95 Year Year Last Name Location 1995 1994 Occupancy (1) Completed Renovated ---- -------- ---- ---- ------------- --------- --------- (in thousands) Caughlin Ranch Shopping Center Reno, NV 2 1 90.77% 1990 1991 Northridge Shopping Center (3) Fair Oaks, CA 63 27 96.20% 1958 1986 ------------- ------------- Total Percentage Rent Income $559 $537 ------------- ------------- ------------- ------------- Direct Financing Leases (6) ---------------------------- 1995 1994 ---- ---- (in thousands) III. Direct Financing Leases Kmart Napa, CA $127 $150 100.00% 1964 Viking Freight Systems Santa Clara, CA 106 115 100.00% 1978 ------------- ------------- $233 $265 ------------- ------------- ------------- -------------
(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 occupied 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) Sold in 1994. (3) Acquired in 1994. (4) Acquired in 1995. (5) Investment converted to equity ownership through a deed in lieu of foreclosure in 1993. (6) Included in Other Income. 13 ITEM 3. LEGAL PROCEEDINGS. The Trust is involved in various legal actions arising in the normal course of business. After taking into consideration legal counsel's evaluation of such actions, management is of the opinion that their outcome will not have a material adverse effect on the Trust's financial statements. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. Principal Market: The shares of beneficial interest of the Trust, without par value, 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, 1994 $15-1/8 $12-1/4 $0.28 June 30, 1994 14-5/8 12-3/8 0.28 September 30, 1994 14-1/2 12-1/2 0.28 December 31, 1994 13 11-3/8 0.28 March 31, 1995 $13 $11-1/4 $0.28 June 30, 1995 12-3/4 11-1/4 0.28 September 30, 1995 12-1/4 11-1/4 0.28 December 31, 1995 11-3/4 10-3/8 0.28 Through January 31, 1996 $11-1/2 $10-5/8 $0.28(1)
(1) Paid March 15, 1996. Approximate number of equity security holders: Title of Class Number of Record Holders -------------- ------------------------- (as of December 31, 1995) Shares of Beneficial Interest, without par value 2,428 The Trust estimates that there were over 18,000 beneficial owners of shares, including owners whose shares were held in brokerage and trust accounts. 14 ITEM 6. SELECTED FINANCIAL DATA
Year Ended December 31, 1995 1994 1993 1992 1991 - ------------------------------------------------------------------------------------------------------------ (in thousands, except for per share and share data) OPERATING DATA: Revenues (1) . . . . . . . . . . . . . . . . $45,605 $42,737 $39,741 $38,165 $35,915 Income from operations . . . . . . . . . . . 10,257 10,907 11,594 11,323 14,653 Net income . . . . . . . . . . . . . . . . . 10,304 15,266 11,594 11,323 14,653 Funds from operations (2). . . . . . . . . . 21,541 20,572 20,854 20,305 22,801 Cash flows from operating activities . . . . 20,203 20,212 21,900 15,877 24,058 Cash dividends paid. . . . . . . . . . . . . 18,882 18,683 18,531 18,316 20,855 PER SHARE DATA: Income from operation. . . . . . . . . . . . $0.61 $0.65 $0.70 $0.69 $0.91 Net income . . . . . . . . . . . . . . . . . 0.61 0.92 0.70 0.69 0.91 Cash dividends paid. . . . . . . . . . . . . 1.12 1.12 1.12 1.12 1.29 Weighted average number of shares outstanding. . . . . . . . . . . . 16,861,324 16,682,675 16,548,198 16,356,462 16,177,460 BALANCE SHEET DATA: Real estate owned (3). . . . . . . . . . . . $395,800 $389,094 $345,088 $337,703 $334,073 Total assets . . . . . . . . . . . . . . . . 344,571 347,172 309,345 316,622 318,941 Fixed rate debt . . . . . . . . . . . . . . 114,609 116,961 67,500 69,429 71,782 Bank line of credit balance. . . . . . . . . 29,250 23,645 33,244 35,902 28,617 Shareholders' equity . . . . . . . . . . . . 196,799 202,684 204,938 209,345 213,851
(1) Revenues comprise minimum rents, percentage rents, recoveries from tenants and other income. (2) The Trust, along with most industry analysts, considers Funds From Operations (FFO) to be an appropriate supplemental measure of the operating performance of an equity REIT. Funds From Operations, as defined in 1991 by the National Association of Real Estate Investment Trusts (NAREIT), is: 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 replace net income as a measure of performance or net cash provided by operating activities as a measure of liquidity. Funds From Operations presented in the Selected Financial Data schedule is calculated in accordance with the 1991 NAREIT definition of FFO. In 1995, NAREIT interpreted its definition of Funds From Operations. The effect of the 1995 interpretation on the Trust's calculation of FFO is to require exclusion from the add-backs to net income of: (i) amortization of deferred financing costs and (ii) depreciation of personal property. When calculated in accordance with NAREIT'S 1995 interpretation, FFO would be $21,017,000, $20,084,000, $20,522,000, $20,017,000 and $22,566,000 for the year ended December 31, 1995, 1994, 1993, 1992 and 1991, respectively. The Trust will adopt the 1995 interpretation in 1996. (3) Real estate owned reflects acquisition costs and capitalized costs of improvements before deduction of depreciation and amortization. 15 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES The Trust anticipates that cash flows provided by operating activities will continue to provide adequate funds for all current principal and interest payments as well as dividend payments in accordance with REIT requirements. Cash on hand and borrowings under its existing bank line of credit, as well as other debt and equity alternatives, will provide the necessary funds to achieve future growth. The Trust has only one loan secured by one of its properties. Additionally, the Trust jointly owns two properties where a co-owner is obligated under a note that is secured by the property. Any incurrence of additional debt by the Trust would be subject to limitations imposed by the Indenture Agreement executed in connection with the Trust's senior notes and the bank line of credit. As of December 31, 1995, the Trust had approximately $30.8 million available under its $60 million bank line of credit. This facility, which has certain covenants (including minimum shareholders' equity, maximum ratio of debt to net worth and income coverage requirements), could be used to fund acquisitions, improvements to real estate and other cash requirements. The interest rate on the bank line of credit is either LIBOR plus 1.6% or the participating banks' reference rate, at the Trust's election. The weighted average interest rate on the bank line of credit at December 31, 1995, was 7.57%. This facility expires May 31, 1996, at which time the Trust intends to renew it. RESULTS OF OPERATIONS COMPARISON OF YEARS ENDED DECEMBER 31, 1995 AND 1994 Net income decreased $5 million to $10.3 million, or $0.61 per share, in 1995, from $15.3 million, or $0.92 per share, in 1994. This 33% decrease is principally due to the 1994 gains realized from the sales of real estate investments. Additionally, the decrease is due to increased interest expense, depreciation and amortization, and property operating costs, as well as decreased other income, partially offset by the absence of the 1994 provision for loss on real estate investment. Funds From Operations (NAREIT 1991 definition) increased $969,000 to $21.5 million in 1995, an increase of more than 4% over the 1994 figure of $20.6 million. The major components of this increase are increased minimum rents, increased recoveries from tenants and the absence of a 1994 provision for environmental costs relating to the Oakland, California, property, offset in part by increased interest expense, property operating costs and decreased other income. The Trust, along with most industry analysts, considers Funds From Operations to be an appropriate supplemental measure of the operating performance of an equity REIT. Funds From Operations does not replace net income as a measure of performance or net cash provided by operating activities as a measure of liquidity. Minimum rents increased $3.5 million in 1995 to $37.6 million, a 10% increase over $34.1 million in 1994. This increase resulted from (i) the Trust's seven acquisitions during 1994 and 1995, partially offset by five dispositions in 1994 and (ii) occupancy gains. Recoveries from tenants increased by 12%, or $738,000, to $6.8 million in 1995 as compared to $6.1 million in 1994. This increase is primarily the result of the Trust's seven acquisitions and occupancy gains referred to above. Other income decreased $1.4 million to $584,000 from the 1994 amount of $2,017,000. The contributing factors to this decrease are the absence in 1995 of (i) a $600,000 lease termination fee recorded in 1994, (ii) investment income earned in 1994 from the senior notes net proceeds prior to the use of these proceeds for several 1994 acquisitions and (iii) mortgage interest income earned on a note retired during the second quarter of 1994. 16 Interest expense increased $1.4 million, or 14%, in 1995 to $11.5 million from $10.1 million in 1994. This increase primarily results from increased borrowings and higher interest rates under the Trust's bank line of credit. Additionally, interest expense increased as a result of twelve months of interest on the senior notes in 1995, compared to 10-1/2 months in 1994. Property operating costs were $8.3 million in 1995 compared to $7.4 million in 1994. This $899,000, or 12% increase from the prior year, is primarily due to the 1994 and 1995 acquisitions. Ownership of the majority of these properties commenced mid-year 1994. Depreciation and amortization expense increased $1 million to $10.9 million for the year ended December 31, 1995, from $9.9 million in 1994. This 10% increase results from a net increase in the depreciable basis of the Trust's portfolio of real estate investments due to additions made by the Trust beginning in mid-year 1994, net of dispositions. Income from operations was $10.3 million, or $0.61 per share, for the twelve months ended December 31, 1995, a $650,000 decrease from the comparable 1994 figure of $10.9 million, or $0.65 per share. The primary reasons for this decrease are increased interest expense, depreciation and amortization, property operating costs, and decreased other income, partially offset by increased minimum rents and increased recoveries from tenants. COMPARISON OF YEARS ENDED DECEMBER 31, 1994 AND 1993 Net income increased $3.7 million, or 32%, to $15.3 million, or $0.92 per share, in 1994 from $11.6 million, or $0.70 per share, in 1993. This increase reflects the gains realized from the sales of real estate investments and increases achieved in revenues from the Trust's six 1994 acquisitions, offset by increased interest expense and reduced revenues due to property dispositions. Funds From Operations decreased $282,000, or 1%, to $20.6 million from $20.9 million. The major components of this decrease are the provision for environmental costs related to the Oakland, California, property and increased interest expense partially offset by increased minimum rents. Minimum rents increased $1.9 million to $34.1 million, a 6% increase over the 1993 total of $32.2 million. This growth reflects rental revenues from the acquisition of six properties, offset by reduced rental revenues due to the dispositions of two retail properties, a commercial building, an industrial building and a parcel of land. The 1994 acquisitions and dispositions resulted in a net increase of 324,000 square feet to the portfolio. Other income increased $937,000 to $2,017,000 in 1994 from $1,080,000 for the comparable period in 1993. Most of this increase is due to (i) a lease termination fee of $600,000 and (ii) investment income from the senior notes proceeds earned prior to the use of these proceeds for several 1994 acquisitions. Interest expense increased by $2.3 million in 1994 to $10.1 million from $7.8 million in 1993. This 29% increase is due to the Trust's increased borrowings to fund property acquisitions and higher interest rates. On February 24, 1994, the Trust issued $50 million of 7 7/8% senior notes due February 15, 2004. Proceeds from the sale of the senior notes were used in part to pay the outstanding balance on the previous bank line of credit of $17.6 million. The remaining proceeds were used to acquire additional properties. On May 31, 1994, the Trust obtained a two-year unsecured $60 million bank line of credit (replacing the previous $35 million bank line of credit), which the Trust has drawn upon to fund additional acquisitions. Income from operations was $10.9 million, or $0.65 per share, for the year ended December 31, 1994, as compared to $11.6 million, or $0.70 per share, for the same period in 1993. This 6% decrease results from increased interest expense, depreciation and amortization, and property operating costs partially offset by increased minimum rents and other income. 17 IMPACT OF THE ECONOMY Substantially all of the Trust's properties are leased on a triple-net basis, which reduces the Trust's exposure to increases in property operating expenses resulting from inflation. Future increases in inflation would likely increase revenues and thereby further protect the Trust from the impact of inflation. Revenue increases could be realized through CPI-based escalation of rents, percentage rents based on tenants' gross sales and inflation-adjusted base rents on new leases. Increases in interest rates could increase the Trust's borrowing costs. As of December 31, 1995, the Trust had $29.3 million outstanding under its unsecured variable-rate bank line of credit. This amount represents approximately 20% of the Trust's total liabilities and approximately 7% of the Trust's historical cost of real estate owned. The continuing recovery of the California economy should lead to increases in employment, personal income and retail spending. Improving economic conditions should help strengthen the Trust's operating results in 1996 as occupancy continues to increase and rental rates continue to stabilize and improve. ACCOUNTING DEVELOPMENTS The Financial Accounting Standards Board has issued Financial Accounting Standards (FAS) 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" and FAS 123, "Accounting for Stock-Based Compensation." The Trust has adopted FAS 121 effective January 1, 1996, and believes that adoption will not have a material impact on the Trust's 1996 financial statements. The Trust will adopt the disclosure requirements of FAS 123 in 1996, but continue to account for its stock option plan under Accounting Principles Board Opinion 25, "Accounting for Stock Issued to Employees," as permitted under FAS 123. 18 WESTERN INVESTMENT REAL ESTATE TRUST Financial Statements Form 10-K Item 8 December 31, 1995 19 WESTERN INVESTMENT REAL ESTATE TRUST INDEX TO FINANCIAL STATEMENTS Page ---- Report of Independent Certified Public Accountants 21 Balance Sheets - December 31, 1995 and December 31, 1994 22 Statements of Income - For the Years Ended December 31, 1995, 1994 and 1993 23 Statements of Shareholders' Equity - For the Years Ended December 31, 1995, 1994 and 1993 24 Statements of Cash Flows - For the Years Ended December 31, 1995, 1994 and 1993 25 Notes to Financial Statements 26 to 34 Financial Statement Schedule III: Real Estate and Accumulated Depreciation 35 to 36 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 audit of the financial statements, we have also audited the financial statement schedule listed in the accompanying index. These financial statements and financial statement schedule are the responsibility of the Trust's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule 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, 1995, and 1994, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 1995, in conformity with generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. San Francisco, California KPMG PEAT MARWICK LLP January 29, 1996 21 WESTERN INVESTMENT REAL ESTATE TRUST Balance Sheets
December 31, ASSETS 1995 1994 ------------------------------ (In thousands) Real estate investments: Real estate owned . . . . . . . . . . . . . . . . . . . . $395,800 $389,094 Less accumulated depreciation and amortization. . . . . . (61,249) (50,802) -------- -------- Net real estate investments . . . . . . . . . . . . . . 334,551 338,292 Cash and cash equivalents. . . . . . . . . . . . . . . . . 657 648 Accounts receivable and other assets . . . . . . . . . . . 6,868 5,438 Deferred long-term debt issuance costs, net. . . . . . . . 2,495 2,794 -------- -------- $344,571 $347,172 -------- -------- -------- -------- LIABILITIES AND SHAREHOLDERS' EQUITY Bank line of credit. . . . . . . . . . . . . . . . . . . . $ 29,250 $ 23,645 Convertible debentures . . . . . . . . . . . . . . . . . . 63,433 65,731 Senior notes, net. . . . . . . . . . . . . . . . . . . . . 49,882 49,868 Real estate loan payable . . . . . . . . . . . . . . . . . 1,294 1,362 -------- -------- 143,859 140,606 Interest payable . . . . . . . . . . . . . . . . . . . . . 1,641 1,497 Prepaid rents and security deposits. . . . . . . . . . . . 1,320 1,272 Other liabilities. . . . . . . . . . . . . . . . . . . . . 952 1,113 -------- -------- Total liabilities. . . . . . . . . . . . . . . . . . . . 147,772 144,488 -------- -------- Shareholders' equity: Shares of beneficial interest, no par value, unlimited share authorization. Issued and outstanding: December 31, 1995 - 16,972,496 shares; December 31, 1994 - 16,734,532 shares . . . . . . . . . 240,034 237,341 Accumulated dividends in excess of net income. . . . . . (43,235) (34,657) -------- -------- Commitments and contingencies (notes 3, 6, 7, 8, 9, 11 and 16) Total shareholders' equity . . . . . . . . . . . . . . . 196,799 202,684 -------- -------- $344,571 $347,172 -------- -------- -------- --------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 22 WESTERN INVESTMENT REAL ESTATE TRUST Statements of Income
Year Ended December 31, 1995 1994 1993 ------------------------------------- (In thousands, except for per share and share data) REVENUES: Minimum rents . . . . . . . . . . . . . . . . . . . . . . $37,641 $34,100 $32,226 Percentage rents. . . . . . . . . . . . . . . . . . . . . 559 537 530 Recoveries from tenants . . . . . . . . . . . . . . . . . 6,821 6,083 5,905 Other income. . . . . . . . . . . . . . . . . . . . . . . 584 2,017 1,080 ---------- ---------- ---------- Total revenues . . . . . . . . . . . . . . . . . . . . . . 45,605 42,737 39,741 ---------- ---------- ---------- ---------- ---------- ---------- EXPENSES: Interest. . . . . . . . . . . . . . . . . . . . . . . . . 11,537 10,063 7,779 Property operating costs. . . . . . . . . . . . . . . . . 8,310 7,411 6,783 Depreciation and amortization . . . . . . . . . . . . . . 10,893 9,879 9,078 Other operating expenses. . . . . . . . . . . . . . . . . 2,917 2,967 3,058 General and administrative. . . . . . . . . . . . . . . . 1,691 1,510 1,449 ---------- ---------- ---------- Total expenses . . . . . . . . . . . . . . . . . . . . . . 35,348 31,830 28,147 ---------- ---------- ---------- Income from operations. . . . . . . . . . . . . . . . . . 10,257 10,907 11,594 ---------- ---------- ---------- Provision for loss on real estate investment . . . . . . . --- 996 --- ---------- ---------- ---------- Income before gains on sales of real estate investments. . . . . . . . . . . . . . . . . 10,257 9,911 11,594 Gains on sales of real estate investments. . . . . . . . . 47 5,355 --- ---------- ---------- ---------- Net income. . . . . . . . . . . . . . . . . . . . . . . . $10,304 $15,266 $11,594 ---------- ---------- ---------- ---------- ---------- ---------- Per share data: Income from operations. . . . . . . . . . . . . . . . . . $0.61 $0.65 $0.70 ---------- ---------- ---------- ---------- ---------- ---------- Net income. . . . . . . . . . . . . . . . . . . . . . . . $0.61 $0.92 $0.70 ---------- ---------- ---------- ---------- ---------- ---------- Cash dividends paid . . . . . . . . . . . . . . . . . . . $1.12 $1.12 $1.12 ---------- ---------- ---------- ---------- ---------- ---------- Weighted average number of shares outstanding. . . . . . . 16,861,324 16,682,675 16,548,198 ---------- ---------- ---------- ---------- ---------- ----------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 23 WESTERN INVESTMENT REAL ESTATE TRUST Statements of Shareholders' Equity Years Ended December 31, 1995, 1994 and 1993 (In thousands, except share data)
Accumulated Shares of Dividends Total Beneficial Interest in Excess of Share- ------------------- Net holders' Number Amount Income Equity ------ ------ ------ ------ Balance, January 1, 1993 . . . . . . . 16,466,048 $233,648 $(24,303) $209,345 Net proceeds from issuance of shares . 65,614 935 --- 935 Debenture redemptions. . . . . . . . . 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 Net proceeds from issuance of shares . 63,740 834 --- 834 Debenture redemptions. . . . . . . . . 25,001 329 --- 329 Net income . . . . . . . . . . . . . . --- --- 15,266 15,266 Cash dividends paid. . . . . . . . . . --- --- (18,683) (18,683) ---------- -------- -------- -------- Balance, December 31, 1994 . . . . . . 16,734,532 237,341 (34,657) 202,684 Net proceeds from issuance of shares . 43,575 514 --- 514 Debenture redemptions. . . . . . . . . 194,389 2,179 --- 2,179 Net income . . . . . . . . . . . . . . --- --- 10,304 10,304 Cash dividends paid. . . . . . . . . . --- --- (18,882) (18,882) ---------- -------- -------- -------- Balance, December 31, 1995 . . . . . . 16,972,496 $240,034 $(43,235) $196,799 ---------- -------- -------- -------- ---------- -------- -------- --------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 24 WESTERN INVESTMENT REAL ESTATE TRUST Statements of Cash Flows
Year Ended December 31, 1995 1994 1993 ------------------------------------- (In thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $10,304 $15,266 $11,594 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization. . . . . . . . . . . . . . . . . . . 10,893 9,879 9,078 Amortization of deferred debt issuance costs . . . . . . . . . . . 391 319 182 Gains on sales of real estate investments. . . . . . . . . . . . . (47) (5,355) --- Increase in accounts receivable and other assets . . . . . . . . . (304) (558) (59) Increase in deferred rent receivable . . . . . . . . . . . . . . . (1,065) (692) (612) Increase in interest payable . . . . . . . . . . . . . . . . . . . 144 175 1,322 (Decrease) increase in prepaid rents, security deposits and other liabilities. . . . . . . . . . . . . (113) 182 395 Provision for loss on real estate investment . . . . . . . . . . . --- 996 --- ------- ------- ------- Net cash provided by operating activities. . . . . . . . . . . . . 20,203 20,212 21,900 ------- ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sales of real estate investments. . . . . . . . . . . 168 24,470 --- Acquisitions of real estate investments . . . . . . . . . . . . . . (3,278) (64,907) --- Funds escrowed pending acquisition. . . . . . . . . . . . . . . . . (168) --- --- Improvements of real estate investments . . . . . . . . . . . . . . (4,276) (4,301) (2,083) Recovery of investment in direct financing leases.. . . . . . . . . 236 205 177 Proceeds from payoff (acquisition) of mortgage loan receivable . . . . . . . . . . . . . . . . . . . --- 2,809 (46) ------- ------- ------- Net cash used in investing activities . . . . . . . . . . . . . . (7,318) (41,724) (1,952) ------- ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Advances on bank line of credit . . . . . . . . . . . . . . . . . . 39,650 46,856 25,927 Principal payments on bank line of credit . . . . . . . . . . . . . (34,045) (56,455) (28,585) Principal payments on real estate loan payable. . . . . . . . . . . (68) (62) (56) Redemption of convertible debentures. . . . . . . . . . . . . . . . (45) (4) (216) Net proceeds from issuance of shares. . . . . . . . . . . . . . . . 514 834 935 Proceeds from senior notes offering . . . . . . . . . . . . . . . . --- 49,855 --- Senior notes issuance costs . . . . . . . . . . . . . . . . . . . . --- (509) (122) Cash dividends paid . . . . . . . . . . . . . . . . . . . . . . . . (18,882) (18,683) (18,531) ------- ------- ------- Net cash (used in) provided by financing activities . . . . . . . (12,876) 21,832 (20,648) ------- ------- ------- Net increase (decrease) in cash and cash equivalents. . . . . . . 9 320 (700) Cash and cash equivalents, at beginning of period. . . . . . . . . . $ 648 $ 328 $ 1,028 ------- ------- ------- ------- ------- ------- Cash and cash equivalents, at end of period. . . . . . . . . . . . . $ 657 $ 648 $ 328 ------- ------- ------- ------- ------- ------- SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the year for interest . . . . . . . . . . . . . . $11,030 $ 9,568 $ 6,247 ------- ------- ------- ------- ------- ------- SUPPLEMENTAL NON-CASH OPERATING ACTIVITY:. . . . . . . . . . . . . . Property buyer's assumption of liability . . . . . . . . . . . . . $ --- $ 658 $ --- ------- ------- ------- ------- ------- -------
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS. 25 NOTES TO FINANCIAL STATEMENTS Note 1: SIGNIFICANT ACCOUNTING POLICIES (A) Description of Business Western Investment Real Estate Trust, an equity real estate investment trust (REIT), is a dominant owner of community shopping centers in Northern California and Northern Nevada. At December 31, 1995, the company's real estate portfolio is comprised of 62 properties, of which 50 are retail properties. The majority of Western's retail properties are anchored by grocery superstores and major drug stores. Western, a self-administered and fully integrated real estate operating company, owns and manages quality properties that offer opportunities for growth in cash flow. (B) Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. (C) Real Estate Investments Properties comprising real estate investments are stated at cost plus capitalized improvements. Depreciation and amortization are calculated primarily using the straight-line method over the estimated useful lives of 20-45 years for buildings and 3-31 years for improvements. Included in real estate investments are net investments in direct financing leases consisting of the aggregate minimum lease payments to be received over the terms of the leases, plus an estimated residual value, less unearned income. In addition, third- party leasing commissions are capitalized and amortized over the respective terms of these leases. Leasing commissions are included under "Accounts receivable and other assets." The Trust adopted Financial Accounting Standards Board Statement (FAS) 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," effective January 1, 1996. Accordingly, in the normal course of the Trust's business, when it determines that a property should be disposed of, the Trust will discontinue the periodic depreciation of that property. Additionally, whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable, the recoverability of the carrying value of that property will be evaluated. If the sum of the undiscounted, expected future cash flows, exclusive of interest, is less than the carrying value of that asset, a determination of fair market value of that asset will be made. If the fair market value is less than the carrying value of that asset, an impairment charge will be recognized. Adoption of FAS 121 is not expected to have a material impact on 1996 operating results. (D) 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. The Trust recognizes income from deferred rental receivables in accordance with FAS 13. Deferred rent receivable recognized as income was $1,065,000 in 1995, $692,000 in 1994 and $612,000 in 1993. Unearned income on leases accounted for as direct financing leases - 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. 26 (E) Cash and Cash Equivalents Cash equivalents comprise certain highly liquid investments with maturities of less than three months. (F) Deferred Long-Term Debt Issuance Costs The costs incurred in connection with the issuance of debt are amortized over the term of the debt instruments. (G) Earnings Per Share Earnings per share have been computed using the weighted average number of shares outstanding during each year. Exercise of the outstanding stock options would not have a material dilutive effect on earnings per share. 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, ----------------------- 1995 1994 1993 ------------------------------------- (In thousands) Real estate investments: Balance at beginning of year. . . . . . . . . . . . . . . $389,094 $345,088 $337,703 Increases: Acquisitions . . . . . . . . . . . . . . . . 3,278 64,907 --- Improvements. . . . . . . . . . . . . . . . . 3,775 3,842 1,932 Conversion of secured loans . . . . . . . . . --- --- 5,630 Decreases: Dispositions. . . . . . . . . . . . . . . . . (111) (24,075) --- Write-down due to impairment. . . . . . . . . --- (463) --- Amortization of direct financing leases . . . (236) (205) (177) -------- -------- -------- Balance at end of year. . . . . . . . . . . . . . . . . . $395,800 $389,094 $345,088 -------- -------- -------- -------- -------- -------- Accumulated depreciation and amortization: Balance at beginning of year. . . . . . . . . . . . . . . $ 50,802 $ 45,635 $ 36,954 Additions charged to operations . . . . . . . . . . . . . 10,447 9,469 8,681 Dispositions. . . . . . . . . . . . . . . . . . . . . . . --- (4,302) --- -------- -------- -------- Balance at end of year. . . . . . . . . . . . . . . . . . $ 61,249 $ 50,802 $ 45,635 -------- -------- -------- -------- -------- --------
Most of the Trust's leases require the tenant to be responsible for, or reimburse the Trust for, casualty and liability insurance coverage on the properties. The Trust also maintains umbrella liability insurance on all of its properties. The Trust monitors tenant compliance with insurance coverage requirements. While the Trust believes its properties are adequately insured, the Trust does not carry earthquake, flood or pollution coverage. Most of the Trust's properties are located in areas of California and Nevada where earthquakes have been known to occur. In the event of a major earthquake, Trust properties could suffer substantial damage or destruction. Since it commenced real estate operations in 1964, the Trust has not incurred any material expense nor, to its knowledge, have any of its properties incurred any material damage from earthquake or flood. 27 The Trust periodically considers the merits of purchasing earthquake insurance. To date the Trust has not purchased earthquake insurance because of (i) the high premiums and deductibles and (ii) the geographically diversified portfolio that reduces the likelihood of an earthquake resulting in a material loss to the Trust. Furthermore, the majority of properties in the portfolio principally comprise single-story, relatively new buildings. Note 3: CAPITAL EXPENDITURES It is the Trust's practice to capitalize costs that exceed $4,000 and are associated with the improvement of real estate investments. Capitalized costs include third-party leasing commissions, tenant improvements and capital expenditures. During 1995, the Trust capitalized $4,276,000 in such expenditures (of which $3,775,000 relates to improvements and $501,000 relates to leasing commissions). This amount comprises $1,056,000 of build-to-suit capital improvements; $225,000 of capitalized costs incurred in connection with the leasing of previously unleased space; $2,319,000 of capitalized costs incurred in connection with leasing previously leased space; and $676,000 of capitalized costs that relate to general improvements to common areas. The Trust's leasing department costs, as well as legal and accounting costs associated with leasing, are expensed as incurred. The Trust has entered into several new leases that call for approximately $4,080,000 in future real estate improvements and leasing commissions. These expenditures will be paid from operating cash flows or from borrowings under the bank line of credit. These expenditures will expand the Trust's gross leasable area by 58,900 square feet and improve an additional 189,000 square feet. Note 4: LEASES Future minimum lease payments under operating leases that have initial or remaining noncancelable lease terms in excess of one year as of December 31, 1995, are as follows: 1996 -- $36,788,000; 1997 -- $35,276,000; 1998 -- $32,753,000; 1999 -- $29,743,000; 2000 -- $27,540,000; thereafter -- $260,620,000. The total minimum lease payments are $422,720,000. Future minimum lease payments under direct financing leases that have initial or remaining noncancelable lease terms in excess of one year as of December 31, 1995, are as follows: 1996 -- $469,000; 1997 -- $469,000; 1998 -- $469,000; 1999 -- $469,000; 2000 -- $454,000; thereafter -- $0. At December 31, 1995, the Trust's investment in direct financing leases was $2,069,000, and was calculated by adding the estimated residual value of $383,000 to the total remaining minimum lease payments of $2,330,000, less unearned income of $644,000. The original cost of the properties subject to these direct financing leases is $4,449,000. Included in other income is income recorded under direct financing leases of $233,000, $265,000 and $292,000 in 1995, 1994 and 1993, respectively. Note 5: MAJOR TENANT Total revenues attributable to leases with Raley's Supermarket, the Trust's most significant tenant, were $9,009,000, $9,400,000 and $9,614,000 in 1995, 1994 and 1993, respectively. These amounts represented 20%, 22% and 24% of total revenues during 1995, 1994 and 1993, respectively. 28 Note 6: BANK LINE OF CREDIT At December 31, 1995, the Trust had borrowed $29,250,000 under a $60 million unsecured line of credit. Interest on funds drawn under this line of credit is either LIBOR plus 1.6% or the participating banks' reference rate, at the Trust's election, and is payable monthly on any outstanding balance. In addition, the Trust pays an annual fee of $140,000. At December 31, 1995, and 1994, the weighted average interest rate on the outstanding balance under the Trust's bank line of credit was 7.57% and 8.16%, respectively. During the years ended December 31, 1995, and 1994, the average balance outstanding on the bank line of credit was $24,187,000 and $13,689,000, respectively. The weighted average interest rate during the year was 7.91% for 1995 and 7.17% for 1994. The Trust is not required to pledge any assets or maintain compensating balances for this line of credit, although the Trust has agreed to certain covenants that impose limitations on the incurrence of debt and other restrictions. 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. This facility expires May 31, 1996, at which time the Trust intends to renew it. Note 7: CONVERTIBLE DEBENTURES In August 1988, the Trust issued $75,000,000 of 8% convertible debentures (the "debentures"), due in 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 a noncumulative maximum principal amount of $25,000 per holder and $2,250,000 in the aggregate for each twelve-month period ending June 30, with priority being given to consents on behalf of deceased holders. In addition, the Trust has the option to redeem the debentures without the consent of the holders, in whole or in part, at a redemption price of par. On June 30, 1995, $1,827,000 of the debentures were presented for limited mandatory redemption. The Trust elected to exchange 158,785 shares at $11.50 for the debentures. During 1995, an additional $471,000 of debentures were presented for mandatory redemption on behalf of deceased debenture holders, and the Trust elected to exchange (i) $426,000 for 35,604 shares and (ii) $45,000 in cash. On June 30, 1994, $212,000 of the debentures were presented for limited mandatory redemption. The Trust elected to exchange 15,216 shares at $14.00 for the debentures. During 1994, an additional $133,000 of debentures were presented for mandatory redemption on behalf of deceased debenture holders, and the Trust elected to exchange (i) $129,000 for 9,785 shares and (ii) $4,000 in cash. As of December 31, 1995, the debentures carried "investment grade" ratings from Moody's Investor Service (Baa(3)) and Standard & Poor's (BBB). Note 8: SENIOR NOTES In February 1994, the Trust sold $50 million of 7 7/8% senior notes in a public offering. These notes are due in 2004 and contain certain covenants that impose limitations on the incurrence of debt and other restrictions. These restrictions include a cap on total borrowings, minimum shareholders' equity and income coverage requirements. The notes are not redeemable prior to maturity. As of December 31, 1995, the senior notes carried "investment grade" ratings from Moody's Investor Service (Baa(3)) and Standard & Poor's (BBB). 29 Note 9: REAL ESTATE LOAN PAYABLE The Trust has only one loan secured by one of its properties. The real estate loan balance was $1,294,000 and $1,362,000 at December 31, 1995, and 1994, respectively. Principal payments for the years following December 31, 1995, are: 1996 -- $75,000; 1997 -- $83,000; 1998 -- $91,000; 1999 -- $100,000; 2000 - $110,000; thereafter -- $835,000. The interest rate on the real estate loan is 9.63%. Additionally, the Trust jointly owns two properties where a co-owner is obligated under a note secured by the property. Note 10: 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 and Cash Equivalents - The carrying amount approximates fair value because of the liquidity of this asset. Marketable Securities - The fair value of marketable securities is based on quoted market prices. Bank Line of Credit - The carrying amount approximates fair value because of the variable interest rate of this liability. Convertible Debentures - The fair value of convertible debentures is based on quoted market prices. Senior Notes - The fair value of senior notes is based on quoted market prices. Real Estate Loan Payable - The carrying value of this liability approximates fair value. The estimated fair values of the Trust's financial instruments as of December 31 are as follows (in thousands):
1995 1994 Carrying Fair Carrying Fair Amount Value Amount Value ---------------------- --------------------- Cash and cash equivalents. . . . . . . $ 657 $ 657 $ 648 $ 648 Marketable securities. . . . . . . . . 159 199 159 159 Bank line of credit. . . . . . . . . . $29,250 $29,250 $23,645 $23,645 Convertible debentures . . . . . . . . 63,433 62,164 65,731 61,130 Senior notes . . . . . . . . . . . . . 49,882 54,015 49,868 44,605 Real estate loan payable . . . . . . . 1,294 1,294 1,362 1,362
Note 11: TRUSTEE AND OFFICER COMPENSATION Trustee Emeritus, Death and Disability Programs Under the Trustee Emeritus Program, 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. Mr. Etcheverry elected to become Trustee Emeritus on January 1, 1993. 30 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 obligation under the program based on a percentage of the participant's average annual compensation for his 36 months of service as a trustee during the time his compensation was the greatest up to a maximum of $60,000 annually. In the case of a participant's death, his eligible spouse will be entitled to receive benefits under the program. The Death and Disability obligation was calculated using a discount rate of 7.0% and 8.5% during 1995 and 1994, respectively. 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 this 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, 1995:
Option Price Percent Grant Date Shares Per Share Vested - ------------------------------------------------------------------------------- November 18, 1991 34,000 $11.44 80% November 23, 1992 15,400 $12.63 60% November 11, 1993 62,000 $13.81 40% June 28, 1994 25,000 $13.88 20% November 11, 1994 79,600 $12.31 20% November 13, 1995 33,000 $11.00 0%
During the year ended December 31, 1994, 160 shares were issued at $11.44 per share as a result of the exercise of stock options. The Trust will adopt disclosure requirements of FAS 123 "Accounting for Stock-Based Compensation" in 1996. Note 12: DIVIDEND REINVESTMENT PLAN In accordance with the Dividend Reinvestment and Share Purchase Plan adopted by the Trust in 1990, the Trust received $514,000 and $832,000 net of issuance costs and issued 43,575 and 63,580 shares of beneficial interest in 1995 and 1994, respectively. Additionally, in 1995, $184,000 in dividend reinvestment proceeds were used to purchase shares in the open market for the shareholders. 31 Note 13: QUARTERLY RESULTS OF OPERATIONS The following is a summary of quarterly financial information for the last two years:
Unaudited Quarters ------------------------------------------------- (In thousands, except for per share and share data) First Second Third Fourth - ------------------------------------------------------------------------------------------------------ 1995 Total revenues . . . . . . . . . . . . . . . . . $10,490 $11,589 $10,989 $12,537 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Income from operations . . . . . . . . . . . . . $ 2,161 $ 2,430 $ 2,725 $ 2,941 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net income . . . . . . . . . . . . . . . . . . . $ 2,161 $ 2,430 $ 2,772 $ 2,941 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Per share: Net income. . . . . . . . . . . . . . . . . . $0.13 $0.15 $0.16 $0.17 Dividends . . . . . . . . . . . . . . . . . . $0.28 $0.28 $0.28 $0.28 Weighted average number of shares. . . . . . . . 16,742,965 16,771,742 16,955,262 16,971,879 1994 Total revenues . . . . . . . . . . . . . . . . . $ 9,536 $10,852 $10,627 $11,722 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Income from operations . . . . . . . . . . . . . $ 2,779 $ 3,151 $ 2,491 $ 2,486 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net income . . . . . . . . . . . . . . . . . . . $ 6,408 $ 4,900 $ 1,565 $ 2,393 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Per share: Net income. . . . . . . . . . . . . . . . . . $0.39 $0.30 $0.09 $0.14 Dividends . . . . . . . . . . . . . . . . . . $0.28 $0.28 $0.28 $0.28 Weighted average number of shares. . . . . . . . 16,648,662 16,667,946 16,697,659 16,718,995
Note 14: FUNDS FROM OPERATIONS The Trust's calculation of Funds From Operations pursuant to the 1995 and 1991 NAREIT definitions for the year ended December 31, 1995, 1994 and 1993, respectively, is as follows:
Year Ended December 31 ----------------------------------- (In thousands) 1995 1994 1993 - ------------------------------------------------------------------------------------------------------ Net Income $10,304 $15,266 $11,594 Less: Gains on sales of real estate investments . . . . . . . . (47) (4,892) --- Plus: Real property depreciation. . . . . . . . . . . . . . . . 9,817 9,031 8,422 Amortization of tenant improvement costs. . . . . . . . . 631 439 267 Amortization of leasing commission costs. . . . . . . . . 312 240 239 ------- ------- ------- Funds From Operations, 1995 Definition (1) . . . . . . . . . . . $21,017 $20,084 $20,522 ------- ------- ------- ------- ------- ------- Plus: Personal property depreciation. . . . . . . . . . . . . . 133 169 150 Amortization of deferred debt issuance costs. . . . . . . 391 319 182 ------- ------- ------- Funds From Operations, 1991 Definition (2) . . . . . . . . . . . $21,541 $20,572 $20,854 ------- ------- ------- ------- ------- -------
32 (1) In 1995, the National Association of Real Estate Investment Trusts (NAREIT) interpreted its definition of Funds From Operations. The effect of the 1995 interpretation on the Trust's calculation of FFO is to require exclusion from the add-back of: (i) amortization of deferred financing costs and (ii) depreciation of personal property. (2) In 1991, NAREIT adopted a definition of Funds From Operations (FFO) in order to promote an industry-wide standard measure of REIT operating performance. The 1991 definition is as follows: "FUNDS FROM OPERATIONS means net income (computed in accordance with generally accepted accounting principles), excluding gains or losses from debt restructuring and sales of property, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. Adjustments for unconsolidated partnerships and joint ventures will be calculated to reflect funds from operations on the same basis." Note 15: 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 currently distributed 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 taxable 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, was: 1995 -- $12,727,000; 1994 -- $15,129,000 and 1993 -- $12,351,000. 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 of distributions to shareholders for federal income tax purposes in 1995 are as follows:
Percentages Distribution ------------------------------- Dates Paid Paid Per Share Taxable Nontaxable - ---------------------------------------------------------------------------- Ordinary Capital Income Gain March 15, 1995 $0.28 67.1% 0.3% 32.6% June 15, 1995 $0.28 67.1% 0.3% 32.6% September 15, 1995 $0.28 67.1% 0.3% 32.6% December 15, 1995 $0.28 67.1% 0.3% 32.6%
Note 16: 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, 1995, the Trust was not committed to fund any acquisition. The Trust is routinely involved in various legal actions arising in the normal course of business. After taking into consideration legal counsel's evaluation of such actions, management is of the opinion that such outcomes will not have a material adverse effect on the Trust's financial statements. 33 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 carries no express insurance coverage for this type of environmental risk. The Trust assesses on an ongoing basis measures necessary to comply with environmental laws and regulations. In conducting its assessments, the Trust has identified the following matters: OAKLAND, CALIFORNIA During 1994, the Trust concluded the sale of its industrial property in Oakland, California. Under the terms of the sale agreement, the Trust is responsible for any environmental clean-up costs that exceed the sum of (i) $658,000 and (ii) any amounts recovered by the buyer from third parties. On the basis of the current facts and circumstances, the Trust has not recorded a provision for any future environmental liability resulting from this property because the Trust believes the likelihood of incurring any liability is remote. The Trust will continue to monitor the environmental remediation activity and status of this property. VALLEJO, CALIFORNIA The Trust has agreed to guarantee the performance of the restoration work related to the disturbance of wetlands by, and to provide certain financial accommodations to, the developer of the Trust's Park Place Shopping Center in Vallejo, California. During July 1995, the developer declared Chapter 11 bankruptcy. The Trust received an initial estimate for the wetlands restoration from an environmental consulting firm, which projected total costs of as much as $250,000. Approximately $200,000 has already been funded by the Trust. UNDERGROUND STORAGE TANKS The Trust, as far as it is aware, owns only three properties that presently contain underground storage tanks. The Trust has no knowledge of any leakage or contamination resulting from these tanks that will have a material impact on its financial position or results of operations. 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. The prior owner has been ordered by Tulare County environmental officials to clean up suspected soil contamination and has been approved for and received funding from the California Leaking Underground Storage Tank Fund. Should the prior owner fail to complete remediation, the Trust's exposure could be as much as $230,000 per the initial estimate by an environmental consultant. 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. 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 that it believes will have a material impact on its financial position or results of operations. 34 WESTERN INVESTMENT REAL ESTATE TRUST SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1995 (IN THOUSANDS EXCEPT FOR DATES OF ACQUISITION AND CONSTRUCTION AND DEPRECIABLE LIVES)
Column A Column B Column C Column D -------- ------------ ----------------------- ---------------------------- Cost capitalized subsequent Intial cost to company to acquisition ----------------------- --------------------------- Buildings and Property Name Encumbrances Land improvements Land Improvements ------------- ------------ --------- ------------- ------------ ------------- SHOPPING CENTER/RETAIL Luckys, El Cerrito, CA $250 $450 $0 $625 San Antonio Center, Mountain View, CA 310 534 0 4,427 Kmart, Napa, CA Luckys, Santa Maria, CA 77 273 0 164 Denny's, Redwood City, CA 101 138 0 0 Carpeteria, Concord, CA 794 249 0 146 Kwik Stop, Santa Rosa, CA 20 54 0 180 Acapulco Y Los Arcos, Fresno, CA 163 382 0 0 Serra Center, Colma, CA (30% interest) 433 914 0 31 Dodge Center, Fallon, NV 405 1,595 0 32 West Town, Winnemuca, NV 130 3,386 0 0 Nob Hill General Stores, Watsonville, CA 416 1,084 0 0 Eastridge Plaza Shopping Center, Porterville, CA 939 4,390 0 44 Angel's Camp Town Center, Angels Camp, CA 580 4,447 0 110 Heritage Place Shopping Center, Tulare, CA 1,427 7,117 0 234 Raley's Shopping Center, Yuba City, CA 2,101 5,151 0 1,036 Canal Farms Shopping Center, Los Banos, CA 1,180 6,904 0 497 Kmart Center, Sacramento, CA 1,875 3,116 0 296 Park Place Shopping Center, Vallejo, CA 3,850 11,291 109 486 Blossom Valley Plaza, Turlock, CA 2,448 8,315 0 381 Coalinga Shopping Center, Coalinga, CA $1,294 816 2,144 0 827 Commonwealth Square Shopping Center, Folsom, CA 3,312 13,022 0 98 Country Gables Shopping Center, Granite Bay, CA 2,704 12,684 0 325 Heritage Oak Shopping Center, Gridley, CA 1,603 3,597 0 93 Belle Mill Landing, Red Bluff, CA 2,247 6,043 0 1,821 Anderson Square, Anderson, CA 1,145 2,125 0 327 North Hills Shopping Center, Reno, NV 1,700 6,911 0 56 North Hills (Phase II) 3,706 Cobblestone Shopping Center, Redding, CA 2,375 7,969 0 150 Victorian Walk Shopping Center, Fresno, CA 1,120 7,356 0 178 Elko Junction Shopping Center, Elko, CA 580 7,631 0 1,973 Elko Junction (Phase II) 1,936 (111) 0 Skypark Plaza Shopping Center, Chico, CA 2,854 10,454 0 1,326 Heritage Park Shopping Center, Suisun, CA 3,575 12,187 0 129 Pinecreek Shopping Center, Grass Valley, CA (50% interest)(1) 2,725 7,966 0 108 Eagle Station Shopping Center, Carson City, NV 1,735 7,585 0 110 Currier Square Shopping Center, Oroville, CA 2,025 7,203 0 748 Yreka Junction, Yreka, CA 1,350 5,846 0 441 Ukiah Crossroads Shopping Center, Ukiah, CA 1,925 8,119 0 327 Raley's Supermarket, Fallon, NV 1,000 3,220 0 0 Caughlin Ranch Shopping Center, Reno, NV 2,950 7,123 0 297 Column E --------------------------------------------------- Gross amount at which carried at close of period --------------------------------------------------- Properties Operating under Direct Buidings and Financing Land Improvements Leases Total --------- ------------ ------------ ------ SHOPPING CENTER/RETAIL Luckys, El Cerrito, CA $250 $1,075 $1,325 San Antonio Center, Mountain View, CA 310 4,961 5,271 Kmart, Napa, CA 0 781 781 Luckys, Santa Maria, CA 77 437 514 Denny's, Redwood City, CA 101 138 239 Carpeteria, Concord, CA 794 395 1,189 Kwik Stop, Santa Rosa, CA 20 234 254 Acapulco Y Los Arcos, Fresno, CA 163 382 545 Serra Center, Colma, CA (30% interest) 433 945 1,378 Dodge Center, Fallon, NV 405 1,627 2,032 West Town, Winnemuca, NV 130 3,386 3,516 Nob Hill General Stores, Watsonville, CA 416 1,084 1,500 Eastridge Plaza Shopping Center, Porterville, CA 939 4,434 5,373 Angel's Camp Town Center, Angels Camp, CA 580 4,557 5,137 Heritage Place Shopping Center, Tulare, CA 1,427 7,351 8,778 Raley's Shopping Center, Yuba City, CA 2,101 6,187 8,288 Canal Farms Shopping Center, Los Banos, CA 1,180 7,401 8,581 Kmart Center, Sacramento, CA 1,875 3,412 5,287 Park Place Shopping Center, Vallejo, CA 3,959 11,777 15,736 Blossom Valley Plaza, Turlock, CA 2,448 8,696 11,144 Coalinga Shopping Center, Coalinga, CA 816 2,971 3,787 Commonwealth Square Shopping Center, Folsom, CA 3,312 13,120 16,432 Country Gables Shopping Center, Granite Bay, CA 2,704 13,009 15,713 Heritage Oak Shopping Center, Gridley, CA 1,603 3,690 5,293 Belle Mill Landing, Red Bluff, CA 2,247 7,864 10,111 Anderson Square, Anderson, CA 1,145 2,452 3,597 North Hills Shopping Center, Reno, NV 1,700 6,967 8,667 North Hills (Phase II) 3,706 0 3,706 Cobblestone Shopping Center, Redding, CA 2,375 8,119 10,494 Victorian Walk Shopping Center, Fresno, CA 1,120 7,534 8,654 Elko Junction Shopping Center, Elko, CA 580 9,604 10,184 Elko Junction (Phase II) 1,825 0 1,825 Skypark Plaza Shopping Center, Chico, CA 2,854 11,780 14,634 Heritage Park Shopping Center, Suisun, CA 3,575 12,316 15,891 Pinecreek Shopping Center, Grass Valley, CA (50% interest)(1) 2,725 8,074 10,799 Eagle Station Shopping Center, Carson City, NV 1,735 7,695 9,430 Currier Square Shopping Center, Oroville, CA 2,025 7,951 9,976 Yreka Junction, Yreka, CA 1,350 6,287 7,637 Ukiah Crossroads Shopping Center, Ukiah, CA 1,925 8,446 10,371 Raley's Supermarket, Fallon, NV 1,000 3,220 4,220 Caughlin Ranch Shopping Center, Reno, NV 2,950 7,420 10,370 Column F Column G Column H Column I ------------ ------------ --------- ------------- Life on which depreciation in the latest income Accumulated Date of Date statement is Depreciation Construction Acquired computed ------------ ------------ --------- ------------- SHOPPING CENTER/RETAIL Luckys, El Cerrito, CA $738 1964/1983 1964 31 San Antonio Center, Mountain View, CA 1,645 1959/1990 1965 10 to 31 Kmart, Napa, CA 1964 1966 Luckys, Santa Maria, CA 376 1962 1967 28 Denny's, Redwood City, CA 120 1968 1968 45 Carpeteria, Concord, CA 291 1963 1969 20 to 30 Kwik Stop, Santa Rosa, CA 54 1970 1970 25 Acapulco Y Los Arcos, Fresno, CA 355 1972 1972 28 Serra Center, Colma, CA (30% interest) 668 1972 1973/1988 10 to 31 Dodge Center, Fallon, NV 1,156 1976 1977 24 to 31 West Town, Winnemuca, NV 1,508 1978/1991 1978 25 to 31 Nob Hill General Stores, Watsonville, CA 577 1982 1982 25 Eastridge Plaza Shopping Center, Porterville, CA 1,337 1985 1985 5 to 35 Angel's Camp Town Center, Angels Camp, CA 1,309 1986 1985 3 to 31 Heritage Place Shopping Center, Tulare, CA 2,070 1986 1985 5 to 31 Raley's Shopping Center, Yuba City, CA 1,480 1963/1984 1986 4 to 40 Canal Farms Shopping Center, Los Banos, CA 1,755 1988 1986 4 to 31 Kmart Center, Sacramento, CA 997 1964/1986 1986 4 to 31 Park Place Shopping Center, Vallejo, CA 2,169 1987 1990 3 to 31 Blossom Valley Plaza, Turlock, CA 1,510 1988/1991 1990 5 to 31 Coalinga Shopping Center, Coalinga, CA 877 1977 1987 5 to 31 Commonwealth Square Shopping Center, Folsom, CA 2,357 1988 1990 3 to 31 Country Gables Shopping Center, Granite Bay, CA 2,029 1988 1991 3 to 31 Heritage Oak Shopping Center, Gridley, CA 1,000 1981 1987 5 to 31 Belle Mill Landing, Red Bluff, CA 1,753 1982/1987/1994 1987 3 to 31 Anderson Square, Anderson, CA 646 1979 1987 5 to 31 North Hills Shopping Center, Reno, NV 1,714 1986 1988 4 to 31 North Hills (Phase II) 1993 Cobblestone Shopping Center, Redding, CA 1,975 1984 1988 3 to 31 Victorian Walk Shopping Center, Fresno, CA 1,696 1988 1988 3 to 31 Elko Junction Shopping Center, Elko, CA 1,759 1986/1991 1988 3 to 31 Elko Junction (Phase II) 1994 1993 Skypark Plaza Shopping Center, Chico, CA 2,599 1985/1991 1988 3 to 31 Heritage Park Shopping Center, Suisun, CA 2,231 1989 1990 5 to31 Pinecreek Shopping Center, Grass Valley, CA (50% interest)(1) 1,815 1988 1989 3 to 31 Eagle Station Shopping Center, Carson City, NV 1,557 1982 1989 3 to 31 Currier Square Shopping Center, Oroville, CA 1,606 1969/1989 1989 5 to 31 Yreka Junction, Yreka, CA 1,314 1984 1990 5 to 31 Ukiah Crossroads Shopping Center, Ukiah, CA 1,724 1986 1989 3 to 31 Raley's Supermarket, Fallon, NV 511 1991 1991 31 Caughlin Ranch Shopping Center, Reno, NV 1,073 1990/1991 1990 3 to 31
35
Column A Column B Column C Column D -------- ------------ ----------------------- ---------------------------- Cost capitalized subsequent Intial cost to company to acquisition ----------------------- --------------------------- Buildings and Property Name Encumbrances Land improvements Land Improvements ------------- ------------ --------- ------------- ------------ ------------- SHOPPING CENTER/RETAIL Mercantile Row Shopping Center, Dinuba, CA 1,440 6,208 0 (18) Elverta Crossing Shopping Center, Sacramento, CA 3,370 7,477 0 631 Centennial Plaza Shopping Center, Hanford, CA 2,225 8,935 0 5 Laguna 99 Shopping Center, Elk Grove, CA 2,791 11,194 0 (25) Mission Ridge Shopping Center, Manteca, CA 2,373 9,552 0 9 Northridge Shopping Center, Fair Oaks, CA 1,666 6,830 0 (106) Plaza 580 Shopping Center, Livermore, CA 2,941 11,768 403 42 Nob Hill General Stores, Hollister, CA 960 3,869 0 0 Nob Hill General Stores, Newman, CA 626 2,535 0 0 -------------------------------------------------------------- Total Shopping Center/Retail 1,294 79,274 267,343 401 18,561 INDUSTRIAL Viking Freight Systems, Santa Clara, CA 548 0 0 0 Merchants, Inc., Commerce City, CO 278 648 0 263 -------------------------------------------------------------- Total Industrial 0 826 648 0 263 COMMERCIAL US Postal Service, Boulder Creek, CA 8 38 0 31 Coast Savings & Loan, Cupertino, CA 615 845 0 0 Coast Savings & Loan (Taraval St), San Francisco, CA 366 1,824 0 0 Coast Savings & Loan, Monterey, CA 911 2,189 0 0 Coast Savings & Loan (Market St), San Francisco, CA 873 1,068 0 0 Coast Savings & Loan, Santa Cruz, CA 205 823 0 0 Coast Savings & Loan, Salinas, CA 516 1,632 0 0 3450 California St., San Francisco, CA 1,450 1,159 0 279 Redwood II, Petaluma, CA 1,017 3,052 0 1 Crystal Lake Park, Milpitas, CA 979 6,020 0 514 -------------------------------------------------------------- Total Commercial 0 6,940 18,650 0 825 -------------------------------------------------------------- Total All Properties $1,294 $87,040 $286,641 $401 $19,649 -------------------------------------------------------------- -------------------------------------------------------------- Column E --------------------------------------------------- Gross amount at which carried at close of period --------------------------------------------------- Properties Operating under Direct Buidings and Financing Land Improvements Leases Total --------- ------------ ------------ ------ SHOPPING CENTER/RETAIL Mercantile Row Shopping Center, Dinuba, CA 1,440 6,190 7,630 Elverta Crossing Shopping Center, Sacramento, CA 3,370 8,108 11,478 Centennial Plaza Shopping Center, Hanford, CA 2,225 8,940 11,165 Laguna 99 Shopping Center, Elk Grove, CA 2,791 11,169 13,960 Mission Ridge Shopping Center, Manteca, CA 2,373 9,561 11,934 Northridge Shopping Center, Fair Oaks, CA 1,666 6,724 8,390 Plaza 580 Shopping Center, Livermore, CA 3,344 11,810 15,154 Nob Hill General Stores, Hollister, CA 960 3,869 4,829 Nob Hill General Stores, Newman, CA 626 2,535 3,161 ---------------------------------------------------- Total Shopping Center/Retail 79,675 285,904 781 366,360 INDUSTRIAL Viking Freight Systems, Santa Clara, CA 548 0 1,288 1,836 Merchants, Inc., Commerce City, CO 278 911 1,189 ---------------------------------------------------- Total Industrial 826 911 1,288 3,025 COMMERCIAL US Postal Service, Boulder Creek, CA 8 69 77 Coast Savings & Loan, Cupertino, CA 615 845 1,460 Coast Savings & Loan (Taraval St), San Francisco, CA 366 1,824 2,190 Coast Savings & Loan, Monterey, CA 911 2,189 3,100 Coast Savings & Loan (Market St), San Francisco, CA 873 1,068 1,941 Coast Savings & Loan, Santa Cruz, CA 205 823 1,028 Coast Savings & Loan, Salinas, CA 516 1,632 2,148 3450 California St., San Francisco, CA 1,450 1,438 2,888 Redwood II, Petaluma, CA 1,017 3,053 4,070 Crystal Lake Park, Milpitas, CA 979 6,534 7,513 ---------------------------------------------------- Total Commercial 6,940 19,475 0 26,415 ---------------------------------------------------- Total All Properties $87,441 $306,290 $2,069 $395,800 ---------------------------------------------------- ---------------------------------------------------- Column F Column G Column H Column I ------------ ------------ --------- ------------- Life on which depreciation in the latest income Accumulated Date of Date statement is Depreciation Construction Acquired computed ------------ ------------ --------- ------------- SHOPPING CENTER/RETAIL Mercantile Row Shopping Center, Dinuba, CA 1,003 1990 1990 3 to 31 Elverta Crossing Shopping Center, Sacramento, CA 1,103 1991/1993 1990 5 to 31 Centennial Plaza Shopping Center, Hanford, CA 434 1991 1994 5 to 31 Laguna 99 Shopping Center, Elk Grove, CA 571 1993 1994 31 Mission Ridge Shopping Center, Manteca, CA 488 1993 1994 5 to31 Northridge Shopping Center, Fair Oaks, CA 359 1958/1986 1994 5 to 31 Plaza 580 Shopping Center, Livermore, CA 601 1993 1994 31 Nob Hill General Stores, Hollister, CA 138 1994 1994 31 Nob Hill General Stores, Newman, CA 71 1995 1995 31 ------------ Total Shopping Center/Retail 55,119 INDUSTRIAL Viking Freight Systems, Santa Clara, CA N/A 1978 1978 N/A Merchants, Inc., Commerce City, CO 208 1984 1984 24 to 35 ------------ Total Industrial 208 COMMERCIAL US Postal Service, Boulder Creek, CA 49 1959 1969 5 to 30 Coast Savings & Loan, Cupertino, CA 346 1980 1985 25 Coast Savings & Loan (Taraval St), San Francisco, CA 730 1975 1985 25 Coast Savings & Loan, Monterey, CA 876 1963 1985 25 Coast Savings & Loan (Market St), San Francisco, CA 427 1964 1986 25 Coast Savings & Loan, Santa Cruz, CA 197 1980 1986 40 Coast Savings & Loan, Salinas, CA 388 1937 1986 40 3450 California St., San Francisco, CA 573 1957/1987 1987 10 to 31 Redwood II, Petaluma, CA 674 1985 1989 31 Crystal Lake Park, Milpitas, CA 1,662 1987 1987 10 to 31 ------------ Total Commercial 5,922 ------------ Total All Properties $61,249 ------------ ------------
(1) Pinecreek is encumbered by a note and deed of trust under which the 50% co-owner is the borrower. (2) 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, 1995 as follows: Basis for federal income tax purposes $305,113 Direct financing leases capitalized for financial reporti ($3,153) Reduction in tax basis for deferred gains on condemnation $4,271 sales and discharge of indebtedness Miscellaneous differences $59 -------- Financial statement reporting basis $306,290 -------- --------
36 WESTERN INVESTMENT REAL ESTATE TRUST 1995 BUILDING IMPROVEMENT AND LEASING COMMISSION ADDITIONS
BUILDING LEASING NAME LOCATION IMPROVEMENTS COMMISSIONS - ---- -------- ------------ ----------- SHOPPING CENTERS / RETAIL CARPETERIA CONCORD, CA $ 4 $ - FAST & EASY MART SANTA ROSA, CA 180 - EASTRIDGE PLAZA PORTERVILLE, CA 5 - ANGELS CAMP TOWN CENTER ANGELS CAMP, CA 98 - HERITAGE PLACE TULARE, CA 20 6 RALEY'S CENTER YUBA CITY, CA 244 56 CANAL FARMS LOS BANOS, CA 257 4 KMART CENTER SACRAMENTO, CA 100 - PARK PLACE VALLEJO, CA 135 - COALINGA COALINGA, CA 35 - COMMONWEALTH SQUARE FOLSOM, CA 52 44 COUNTRY GABLES GRANITE BAY, CA 9 7 HERITAGE OAK GRIDLEY, CA 42 - BELLE MILL LANDING RED BLUFF, CA 596 - ANDERSON SQUARE ANDERSON, CA 91 - COBBLESTONE REDDING, CA 27 - VICTORIAN WALK FRESNO, CA 44 5 ELKO JUNCTION ELKO, NV 737 100 SKYPARK PLAZA CHICO, CA 51 10 PINECREEK (50%) GRASS VALLEY, CA 6 14 EAGLE STATION CARSON CITY, NV 24 14 CURRIER SQUARE OROVILLE, CA 42 - YREKA JUNCTION YREKA, CA 47 - CROSSROADS UKIAH, CA 16 - CAUGHLIN RANCH RENO, NV 101 51 MERCANTILE ROW DINUBA, CA - 2 ELVERTA CROSSING SACRAMENTO, CA - 17 CENTENNIAL PLAZA HANFORD, CA 5 - LAGUNA 99 PLAZA ELK GROVE, CA 4 9 MISSION RIDGE PLAZA MANTECA, CA 6 4 NORTHRIDGE FAIR OAKS, CA 15 13 PLAZA 580 PLAZA LIVERMORE, CA 87 2 ------ ---- SUBTOTAL - SHOPPING CENTERS / RETAIL $3,080 $358 ------ ---- COMMERCIAL REDWOOD II PETALUMA, CA $ 1 $ - CRYSTAL LAKE PARK MILPITAS, CA 431 143 ------ ---- SUBTOTAL - COMMERCIAL $ 432 $143 ------ ---- INDUSTRIAL MERCHANTS, INC. COMMERCE CITY, CO. $ 263 $ - ------ ---- SUBTOTAL - INDUSTRIAL $ 263 $ - ------ ---- TOTAL $3,775 $501 ------ ---- ------ ----
37 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES. None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. Information with respect to the trustees and executive officers of the Trust is incorporated by reference to the section entitled "Trustees and Executive Officers" of the Trust's definitive Proxy Statement in connection with the annual Meeting of Shareholders to be held May 9, 1996, which will be filed with the Commission not later than 120 days after the end of the fiscal year covered by this Form 10-K, pursuant to General Instruction G to this Form 10-K. ITEM 11. EXECUTIVE COMPENSATION. Information with respect to executive compensation is incorporated by reference to the sections entitled "Compensation of Trustees", "Compensation of Executive Officers", "Compensation Pursuant to Plans", "Trustee Emeritus Program and Death and Disability Program", "Stock Option Grants and Exercises" and "Report of Compensation Committee on Executive Compensation" of the Trust's definitive Proxy Statement in connection with the annual Meeting of Shareholders to be held May 9, 1996, which will be filed with the Commission not later than 120 days after the end of the fiscal year covered by this Form 10-K, pursuant to General Instruction G to this Form 10-K. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. Information with respect to security ownership of certain beneficial owners and management is incorporated by reference to the section entitled "Trustees and Executive Officers" of the Trust's definitive Proxy Statement in connection with the annual Meeting of Shareholders to be held May 9, 1996, which will be filed with the Commission not later than 120 days after the end of the fiscal year covered by this Form 10-K, pursuant to General Instruction G to this Form 10-K. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The Trust, its employees, officers or trustees are not engaged in any related transactions with the Trust. Additionally, the Trust has never made any loans to its management. 38 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. Page ---- (a) 1. Financial Statements - Included in Item 8 Report of Independent Certified Public Accountants 21 Balance Sheets - December 31, 1995 and 1994 22 Financial Statements for the Years Ended December 31, 1995, 1994 and 1993: Statements of Income 23 Statements of Shareholders' Equity 24 Statements of Cash Flows 25 Notes to Financial Statements 26 to 34 2. Financial Statement Schedule III: Real Estate and Accumulated Depreciation 35 to 36 3. Additional Information: 1995 Building Improvement and Leasing Commission Additions (unaudited) 37 (b) 1. Reports on Form 8-K. None. 39 Page ---- (c) Exhibits. (3) Declaration of Trust, as amended (filed as Exhibit 3.1 to Registration Statement on Form S-3 No. 33-22893 and incorporated herein by reference). (4.1) Form of Indenture relating to the 8% Convertible Debentures (filed as Exhibit 4.1 to Registration Statement on Form S-3 No. 33-22893 and incorporated herein by reference). (4.2) Form of Indenture relating to the Senior Notes (filed as Exhibit 4.1 to registration Statement on Form S-3 No. 33-71270 and incorporated herein by reference). (4.3) Form of Senior Notes (filed as Exhibit 4.2 to Registration Statement on Form S-3 No. 33-71270 and incorporated herein by reference). (10.1)**Trust's Nonqualified Stock Option Plan (filed as Exhibit 4.2 to Registration Statement on Form S-8 No. 33-27016 and incorporated herein by reference). (10.2)**Trust's Trustee Emeritus Plan (filed as an Exhibit to Proxy Statement dated March 25, 1986, and incorporated herein by reference. (23)* Consent of Independent Certified Public Accountants 41 __________ * Filed with this report. ** Management contract or compensatory plan or arrangement. 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 January 29, 1996, relating to the balance sheets of Western Investment Real Estate Trust as of December 31, 1995 and 1994, and the related statements of income, shareholders' equity and cash flows for each of the years in the three-year period ended December 31, 1995, and the related schedule, which report appears in the December 31, 1995, annual report on Form 10-K of Western Investment Real Estate Trust. San Francisco, California KPMG PEAT MARWICK LLP March 21, 1996 41 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 Executive Vice President, Chief Financial Officer Dated: March 21, 1996 and Trustee -------------- Pursuant to the requirements of the Securities 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 Board, March 21, 1996 - ------------------------------ Chief Executive -------------- O. A. Talmage Officer and Trustee s/ William A. Talmage President, March 21, 1996 - ------------------------------ Chief Operating Officer -------------- William A. Talmage and Trustee s/ Dennis D. Ryan Executive Vice President, March 21, 1996 - ------------------------------ Chief Financial Officer -------------- Dennis D. Ryan and Trustee s/ Chester R. MacPhee, Jr. Trustee March 21, 1996 - ------------------------------ -------------- Chester R. MacPhee, Jr. s/ Reginald B. Oliver Trustee March 21, 1996 - ------------------------------ -------------- Reginald B. Oliver s/ James L. Stell Trustee March 21, 1996 - ------------------------------ -------------- James L. Stell 42 EX-27 2 EXH 27: FDS
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE REGISTRANT'S STATEMENTS OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1995 AND BALANCE SHEET AT DECEMBER 31, 1995. 1,000 12-MOS DEC-31-1995 JAN-01-1995 DEC-31-1995 657 0 0 0 0 0 395,800 61,249 344,571 0 143,859 0 0 240,034 (43,235) 344,571 0 45,605 0 11,227 12,584 0 11,537 10,257 0 10,304 0 0 0 10,304 0.61 0.61 Amount insignificant. Balance sheet is not classified. Amount represents accumulated dividends in excess of Trust net income. Amount comprised of Property Operating Cost ($8,310) and Other Operating Expenses ($2,917). Amount comprised of Depreciation expense ($10,893) and General and Administrative expense ($1,691). Amount represents income before gains on sales of real estate investments. (Gains on sales of real estate investment equals $47) Exercise of the outstanding stock options would not have material dilutive effect on earnings per share.
-----END PRIVACY-ENHANCED MESSAGE-----