<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 30, 1998
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-11
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
AMB PROPERTY CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MARYLAND
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION)
94-3281941
(I.R.S. EMPLOYER IDENTIFICATION NUMBER)
505 MONTGOMERY STREET
SAN FRANCISCO, CALIFORNIA 94111
(415) 394-9000
(ADDRESS AND TELEPHONE NUMBER OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
DAVID S. FRIES, ESQ.
MANAGING DIRECTOR AND GENERAL COUNSEL
AMB PROPERTY CORPORATION
505 MONTGOMERY STREET
SAN FRANCISCO, CALIFORNIA 94111
(415) 394-9000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
JEFFREY T. PERO, ESQ. KENNETH M. DORAN, ESQ.
LAURA L. GABRIEL, ESQ. GIBSON, DUNN & CRUTCHER LLP
LATHAM & WATKINS 333 SOUTH GRAND AVENUE
505 MONTGOMERY STREET, SUITE 1900 LOS ANGELES, CALIFORNIA 90071
SAN FRANCISCO, CALIFORNIA 94111-2562 (213) 229-7000
(415) 391-0600
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF AMOUNT BEING OFFERING AGGREGATE OFFERING REGISTRATION
SECURITIES BEING REGISTERED REGISTERED(1) PRICE PER UNIT(2) PRICE(2) FEE
- ---------------------------------------------------------------------------------------------------------------------------
Series B Preferred Stock ($0.01 par
value)............................ 3,450,000 $25.00 $86,250,000 $25,443.75
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes 450,000 shares of Series B Preferred Stock which the Underwriters
have options to purchase to cover over-allotments, if any.
(2) Estimated solely for purposes of calculating the registration fee.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
FORM S-11 ITEM NO. AND HEADING LOCATION OR HEADING IN PROSPECTUS
------------------------------ ---------------------------------
<C> <S> <C>
1. Forepart of Registration Statement and
Outside Front Cover Page of Prospectus..... Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages
of Prospectus.............................. Inside Front Cover Page; Outside Back Cover
Page
3. Summary Information, Risk Factors and Ratio
of Earnings to Fixed Charges............... Prospectus Summary; Risk Factors
4. Determination of Offering Price............ Not Applicable
5. Dilution................................... Not Applicable
6. Selling Security Holders................... Not Applicable
7. Plan of Distribution....................... Underwriters
8. Use of Proceeds............................ Use of Proceeds
9. Selected Financial Data.................... Selected Financial and Other Data
10. Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................. Management's Discussion and Analysis of
Financial Condition and Results of
Operations
11. General Information as to Registrant....... Prospectus Summary; Business and
Properties; Management; Principal
Stockholders; Certain Provisions of
Maryland Law and of the Company's Charter
and Bylaws
12. Policy with Respect to Certain
Activities................................. Policies With Respect to Certain Activities
13. Investment Policies of Registrant.......... Policies With Respect to Certain Activities
14. Description of Real Estate................. Management's Discussion and Analysis of
Financial Condition and Results of
Operations; Business and Properties
15. Operating Data............................. Business and Properties
16. Tax Treatment of Registrant and Its
Security Holders........................... Material Federal Income Tax Consequences
17. Market Price of and Dividends on the
Registrant's Common Equity and Related
Stockholder Matters........................ Risk Factors; Price Range of Common Stock
and Distribution History; Principal
Stockholders
18. Description of Registrant's Securities..... Description of Capital Stock; Series B
Preferred Stock
19. Legal Proceedings.......................... Business and Properties
20. Security Ownership of Certain Beneficial
Owners and Management...................... Principal Stockholders
21. Directors and Executive Officers........... Management
22. Executive Compensation..................... Management
23. Certain Relationships and Related
Transactions............................... Risk Factors; Business and Properties;
Management; Certain Relationships and
Related Transactions; Principal
Stockholders
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
FORM S-11 ITEM NO. AND HEADING LOCATION OR HEADING IN PROSPECTUS
------------------------------ ---------------------------------
<C> <S> <C>
24. Selection, Management and Custody of
Registrant's Investments................... Risk Factors; Business and Properties;
Policies With Respect to Certain Activities
25. Policies with Respect to Certain
Transactions............................... Risk Factors; Business and Properties;
Policies With Respect to Certain
Activities; Management; Certain
Relationships and Related Transactions;
Principal Stockholders
26. Limitations of Liability................... Management; Certain Provisions of Maryland
Law and of the Company's Charter and
Bylaws; Description of Certain Provisions
of the Partnership Agreement of the
Operating Partnership
27. Financial Statements and Information....... Index to Financial Statements
28. Interests of Named Experts and Counsel..... Not Applicable
29. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities................................ Not Applicable
30. Quantitative and Qualitative Disclosures
About Market Risk.......................... Risk Factors
</TABLE>
<PAGE> 4
PROSPECTUS (SUBJECT TO COMPLETION)
(ISSUED , 1998)
3,000,000 SHARES
AMB PROPERTY CORPORATION
% SERIES B CUMULATIVE REDEEMABLE PREFERRED STOCK
($.01 PAR VALUE PER SHARE)
(LIQUIDATION PREFERENCE $25.00 PER SHARE)
------------------------
DIVIDENDS ON THE % SERIES B CUMULATIVE REDEEMABLE PREFERRED STOCK, $.01 PAR
VALUE PER SHARE (THE "SERIES B PREFERRED STOCK"), OFFERED HEREBY (THE
"OFFERING") OF AMB PROPERTY CORPORATION (THE "COMPANY"), A MARYLAND CORPORATION,
ARE CUMULATIVE FROM THE DATE OF ORIGINAL ISSUE AND ARE PAYABLE QUARTERLY IN
ARREARS ON THE 15TH DAY OF , , AND OF EACH YEAR,
COMMENCING ON , 1998, AT THE RATE OF % OF THE LIQUIDATION
PREFERENCE PER ANNUM (EQUIVALENT TO $ PER ANNUM PER SHARE OF SERIES B
PREFERRED STOCK). SEE "SERIES B PREFERRED STOCK -- DIVIDENDS."
------------------------
THE SERIES B PREFERRED STOCK WILL NOT BE REDEEMABLE PRIOR TO , 2003.
ON AND AFTER , 2003, THE SERIES B PREFERRED STOCK WILL BE REDEEMABLE
BY THE COMPANY, IN WHOLE OR FROM TIME TO TIME IN PART, AT THE OPTION OF THE
COMPANY, FOR CASH, AT A REDEMPTION PRICE OF $25.00 PER SHARE, PLUS ACCUMULATED
AND UNPAID DIVIDENDS THEREON, IF ANY, TO THE REDEMPTION DATE. THE REDEMPTION
PRICE OF THE SERIES B PREFERRED STOCK (OTHER THAN THE PORTION THEREOF CONSISTING
OF ACCUMULATED AND UNPAID DIVIDENDS) WILL BE PAYABLE SOLELY OUT OF THE SALE
PROCEEDS OF OTHER EQUITY SECURITIES OF THE COMPANY, WHICH MAY INCLUDE OTHER
CLASSES AND SERIES OF PREFERRED SHARES, AND FROM NO OTHER SOURCE. THE SERIES B
PREFERRED STOCK HAS NO STATED MATURITY, WILL NOT BE SUBJECT TO MANDATORY
REDEMPTION OR ANY SINKING FUND AND WILL NOT BE CONVERTIBLE INTO ANY OTHER
SECURITIES OF THE COMPANY. HOWEVER, THE COMPANY MAY PURCHASE SERIES B PREFERRED
STOCK AT ANY TIME IN CERTAIN CIRCUMSTANCES RELATING TO THE MAINTENANCE OF ITS
ABILITY TO QUALIFY AS A REIT FOR FEDERAL INCOME TAX PURPOSES. SEE "SERIES B
PREFERRED STOCK -- REDEMPTION."
APPLICATION HAS BEEN MADE TO LIST THE SERIES B PREFERRED STOCK ON THE NEW YORK
STOCK EXCHANGE (THE "NYSE"), SUBJECT TO OFFICIAL NOTICE OF ISSUANCE, UNDER THE
SYMBOL "AMB PR B." IF SO APPROVED, TRADING ON THE NYSE IS EXPECTED TO COMMENCE
WITHIN A 30-DAY PERIOD AFTER THE DATE OF INITIAL DELIVERY OF THE SERIES B
PREFERRED STOCK.
------------------------
See "Risk Factors" beginning on page 15 herein for certain factors relevant
to an investment in the shares of Series B Preferred Stock, including:
- - The Company may be unable to pay dividends on the Series B Preferred Stock if
the Company is unable to renew leases at favorable rental rates upon
expiration or pay tenant improvement costs in connection therewith, if the
Properties do not generate revenue sufficient to meet operating expenses and
fixed charges, or if the Company is unable to sell Properties when necessary.
- - The Company may not have sufficient cash flow to pay dividends on the Series B
Preferred Stock if the Company incurs additional indebtedness, or is unable to
repay, extend or refinance existing indebtedness.
- - The Company's cash flow and ability to pay dividends on the Series B Preferred
Stock would be adversely affected if principal payments on the Company's debt
due at maturity cannot be refinanced, extended or paid with proceeds of other
capital transactions.
- - Increased interest expense on the Company's variable-rate indebtedness would
adversely affect cash flow and the Company's ability to pay dividends on the
Series B Preferred Stock if prevailing interest rates increase or other
factors result in higher interest rates.
- - REIT distribution requirements may limit the Company's ability to finance
future acquisitions, expansions and developments without additional debt or
equity financing necessary to achieve the Company's business plan, which in
turn may adversely affect the price of the Series B Preferred Stock.
- - The Company may not complete the development of properties on schedule or
within budget and may be unable to obtain, or encounter delays in obtaining,
required permits and authorizations, and completed development projects may
perform below anticipated levels, any of which could have an adverse effect on
the Company's financial condition, results of operations, cash flow and
ability to pay dividends on the Series B Preferred Stock.
- - The involvement of certain officers and directors in other real estate
activities could divert management's attention from the day-to-day operations
of the Company.
- - Contingent or undisclosed liabilities acquired in mergers, property
acquisitions or other similar transactions could adversely affect the
Company's results of operations, financial condition, cash flow and ability to
pay dividends on the Series B Preferred Stock.
- - The influence of Executive Officers, directors and significant stockholders on
the Company's operations could result in management taking action which is not
in the best interests of all of the Company's stockholders.
- - Taxation of the Company as a corporation if it fails to qualify as a REIT for
Federal income tax purposes could result in a decrease in cash available to
pay dividends on the Series B Preferred Stock.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
PRICE $25 A SHARE
------------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC(1) COMMISSIONS(2) COMPANY(1)(3)
-------------------- -------------------- --------------------
<S> <C> <C> <C>
Per Share........................................... $ $ $
Total(4)............................................ $ $ $
</TABLE>
- ---------------
(1) Plus accumulated dividends, if any, from the date of original issuance.
(2) The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriters."
(3) Before deducting expenses payable by the Company estimated at $1,000,000.
(4) The Company has granted to the Underwriters an option, exercisable within 30
days of the date hereof, to purchase up to an additional 450,000 shares of
Series B Preferred Stock solely to cover over-allotments, if any. If this
option is exercised in full, the total Price to Public, Underwriting
Discounts and Commissions and Proceeds to Company will be $ ,
$ and $ , respectively. See "Underwriters."
------------------------
The shares of Series B Preferred Stock are offered, subject to prior sale,
when, as, and if accepted by the Underwriters, and subject to approval of
certain legal matters by Gibson, Dunn & Crutcher LLP, counsel for the
Underwriters. It is expected that delivery of the Series B Preferred Stock will
be made on or about 1998, at the offices of Morgan Stanley & Co.
Incorporated, New York, New York, against payment therefor in immediately
available funds.
------------------------
MORGAN STANLEY DEAN WITTER SALOMON SMITH BARNEY
GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.
LEHMAN BROTHERS
, 1998
THIS PROSPECTUS AND THE INFORMATION CONTAINED HEREIN ARE SUBJECT TO CHANGE,
COMPLETION OR AMENDMENT WITHOUT NOTICE. THESE SECURITIES MAY NOT BE SOLD NOR MAY
AN OFFER TO BUY BE ACCEPTED PRIOR TO THE TIME THE PROSPECTUS IS DELIVERED IN
FINAL FORM. UNDER NO CIRCUMSTANCES SHALL THIS PROSPECTUS CONSTITUTE AN OFFER TO
SELL OR THE SOLICITATION OF AN OFFER TO BUY, NOR SHALL THERE BE ANY SALE OF
THESE SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER, SOLICITATION OR SALE
WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES
LAWS OF ANY SUCH JURISDICTIONS.
<PAGE> 5
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE SERIES B PREFERRED
STOCK. SUCH TRANSACTIONS MAY INCLUDE STABILIZING AND THE PURCHASE OF SERIES B
PREFERRED STOCK TO COVER SYNDICATE SHORT POSITIONS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITERS."
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY
OTHER THAN THE SERIES B PREFERRED STOCK OFFERED HEREBY, NOR DOES IT CONSTITUTE
AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY THE SERIES B PREFERRED
STOCK BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUMMARY.......................................... 1
The Company............................................... 1
Recent Developments....................................... 3
Risk Factors.............................................. 3
Business and Operating Strategies......................... 5
Strategies For Growth..................................... 6
The Offering.............................................. 8
Organization.............................................. 10
Tax Status of the Company................................. 11
Summary Financial and Other Data.......................... 11
RISK FACTORS................................................ 15
General Real Estate Risks................................. 15
Uncontrollable Factors Affecting Performance and
Value................................................. 15
Renewal of Leases and Reletting of Space............... 15
Illiquidity of Real Estate Investments................. 15
Concentration of Properties in California.............. 16
Concentration of Properties in Industrial and Retail
Sectors............................................... 16
Uninsured Loss......................................... 16
Uninsured Losses from Seismic Activity................. 16
Impact on Control Over and Liabilities With Respect to
Properties Owned Through Partnerships and Joint
Ventures.............................................. 17
Possible Inability to Consummate Acquisitions on
Advantageous Terms.................................... 17
Possible Inability to Complete Renovation and
Development on Advantageous Terms..................... 17
Limited Restrictions on Total Indebtedness................ 18
Debt Financing............................................ 18
Debt Financing and Existing Debt Maturities............ 18
Impact of Rising Interest Rates and Variable Rate
Debt.................................................. 19
</TABLE>
i
<PAGE> 6
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Dependence on External Sources of Capital.............. 19
Possible Impact of Defaults on Cross-Collateralized and
Cross-Defaulted Debt.................................. 19
Contingent or Unknown Liabilities......................... 19
Conflicts of Interest..................................... 20
Continued Involvement of Executive Officers in Other
Real Estate Activities and Investments................ 20
Conflicts of Interest in Connection with Properties
Owned or Controlled by Executive Officers and
Directors............................................. 20
Conflicts Relating to the Operating Partnership........ 21
Influence of Directors, Executive Officers and
Significant Stockholders.............................. 21
Failure to Enforce Terms of Certain Agreements......... 22
Government Regulations.................................... 22
Costs of Compliance with Americans with Disabilities
Act................................................... 22
Environmental Matters.................................. 22
Other Regulations...................................... 23
Federal Income Tax Risks.................................. 23
Adverse Consequences of the Company's Failure to
Qualify as a REIT..................................... 23
Other Tax Liabilities.................................. 24
Dependence on Key Personnel............................... 24
Absence of Prior Public Market for Shares; Market
Conditions............................................. 25
Need to Manage Rapid Growth............................... 25
The Preferred Stock Subsidiaries.......................... 25
Adverse Consequences of Lack of Control Over the
Business of the Preferred Stock Subsidiaries.......... 25
Uncertainty of AMB Investment Management Operations.... 25
THE COMPANY................................................. 26
General................................................... 26
Recent Developments....................................... 26
BUSINESS AND OPERATING STRATEGIES........................... 27
Strategic Alliance Programs(TM)........................... 27
National Property Company................................. 27
Two Complementary Property Types.......................... 27
Research-Driven, Select Market Focus...................... 28
Disciplined Investment Process............................ 28
Property Development...................................... 29
Financing Strategy........................................ 29
The Preferred Stock Subsidiaries.......................... 29
STRATEGIES FOR GROWTH....................................... 30
Growth Through Operations................................. 30
Growth Through Acquisitions............................... 30
Growth Through Property Development....................... 31
USE OF PROCEEDS............................................. 31
PRICE RANGE OF COMMON STOCK AND DISTRIBUTION HISTORY........ 31
CAPITALIZATION.............................................. 32
</TABLE>
ii
<PAGE> 7
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SELECTED FINANCIAL AND OTHER DATA........................... 33
Company and Predecessor................................... 33
Operating Partnership and AMB Contributed Properties...... 36
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................. 38
General................................................... 38
Company and Predecessor Results of Operations............. 38
Company and Predecessor -- Six Months Ended June 30,
1998 and 1997......................................... 38
Company and Predecessor -- Years Ended December 31,
1997 and 1996......................................... 39
Predecessor -- Years Ended December 31, 1996 and
1995.................................................. 39
Operating Partnership Results of Operations............... 39
Operating Partnership and AMB Contributed
Properties -- Six Months Ended June 30, 1998 and
1997.................................................. 39
Operating Partnership and AMB Contributed
Properties -- Years Ended December 31, 1997 and
1996.................................................. 40
AMB Contributed Properties -- Years Ended December 31,
1996 and 1995......................................... 41
Liquidity and Capital Resources........................... 42
Capital Resources...................................... 42
Liquidity.............................................. 43
Capital Commitments.................................... 44
Inflation................................................. 44
Year 2000 Compliance...................................... 44
Funds From Operations..................................... 45
BUSINESS AND PROPERTIES..................................... 46
Industrial Properties..................................... 46
Industrial Property Summary............................... 49
Industrial Property Tenant Information.................... 54
Industrial Property Lease Expirations..................... 55
Retail Properties......................................... 55
Retail Property Summary................................... 58
Retail Property Tenant Information........................ 62
Retail Property Lease Expirations......................... 63
Historical Tenant Retention Rates and Rent Increases...... 64
Recurring Tenant Improvements and Leasing Commissions per
Square Foot Leased..................................... 64
Occupancy and Average Base Rent........................... 65
Development Projects in Progress.......................... 65
Properties Held Through Joint Ventures, Limited Liability
Companies and Partnerships............................. 66
Debt Financing............................................ 68
Insurance................................................. 70
Government Regulations.................................... 70
Management and Employees.................................. 72
Legal Proceedings......................................... 72
POLICIES WITH RESPECT TO CERTAIN ACTIVITIES................. 72
Investment Policies....................................... 72
Financing Policies........................................ 73
</TABLE>
iii
<PAGE> 8
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Lending Policies.......................................... 74
Conflict Of Interest Policies............................. 74
Policies with Respect to Other Activities................. 74
Policies with Respect to Investment Advisory Services..... 75
Other Policies............................................ 75
MANAGEMENT.................................................. 76
Committees of the Board of Directors...................... 79
Compensation of the Board of Directors.................... 80
Executive Compensation.................................... 80
Option Grants in Last Fiscal Year......................... 81
Aggregated Option Exercises in Last Fiscal Year and Fiscal
Year-End Option Values................................. 82
Employment Agreements..................................... 82
Stock Incentive Plan...................................... 83
401(k) Plan............................................... 85
Limitation of Directors' and Officers' Liability.......... 86
Indemnification Agreements................................ 86
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............. 86
Formation Transactions.................................... 86
Other Related Transactions................................ 87
Conflicts of Interest..................................... 87
PRINCIPAL STOCKHOLDERS...................................... 88
SERIES B PREFERRED STOCK.................................... 89
Preferred Stock Generally................................. 89
Series B Preferred Stock Generally........................ 89
Ranking................................................... 90
Dividends................................................. 90
Liquidation Preference.................................... 91
Optional Redemption....................................... 92
Voting Rights............................................. 93
Conversion Rights......................................... 94
Power to Issue Additional Common Shares and Preferred
Shares................................................. 95
Restrictions on Ownership and Transfer.................... 95
Transfer Agent, Registrar, Conversion Agent and Dividend
Disbursing Agent....................................... 95
DESCRIPTION OF CAPITAL STOCK................................ 95
Common Stock.............................................. 95
Preferred Stock........................................... 96
Restrictions on Ownership and Transfer.................... 99
CERTAIN PROVISIONS OF MARYLAND LAW AND OF THE COMPANY'S
CHARTER AND BYLAWS........................................ 102
Board of Directors........................................ 102
Removal of Directors...................................... 102
Opt Out of Business Combinations and Control Share
Acquisition Statutes................................... 102
Amendment to the Charter and Bylaws....................... 102
Meetings of Stockholders.................................. 103
</TABLE>
iv
<PAGE> 9
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Advance Notice of Director Nominations and New Business... 103
Dissolution of the Company................................ 103
Limitation of Directors' and Officers' Liability.......... 103
DESCRIPTION OF CERTAIN PROVISIONS OF THE PARTNERSHIP
AGREEMENT OF THE OPERATING PARTNERSHIP.................... 105
General................................................... 105
Purpose, Business and Management.......................... 105
Engaging in Other Businesses; Conflicts of Interest....... 106
Reimbursement of the Company; Transactions with the
Company and its Affiliates............................. 106
Exculpation and Indemnification of the Company............ 107
Sales of Assets; Liquidation.............................. 107
Capital Contribution...................................... 108
Distributions; Allocations of Income and Loss............. 108
Removal of the General Partner; Transferability of the
Company's Interests; Treatment of Units in Significant
Transactions........................................... 108
Redemption/Exchange Rights................................ 109
Performance Units......................................... 110
Registration Rights....................................... 110
Duties and Conflicts...................................... 111
Meetings; Voting.......................................... 111
Amendment of the Partnership Agreement.................... 111
Books and Reports......................................... 112
Term...................................................... 112
MATERIAL FEDERAL INCOME TAX CONSEQUENCES.................... 112
Taxation of the Company................................... 113
Failure of the Company to Qualify as a REIT............... 119
Tax Aspects of the Operating Partnership and the Joint
Ventures............................................... 120
Taxation of Taxable U.S. Stockholders Generally........... 122
Taxation of Non-U.S. Stockholders......................... 125
Tax Liabilities and Attributes Inherited From
Predecessors........................................... 128
Other Tax Consequences.................................... 129
ERISA CONSIDERATIONS........................................ 129
Employee Benefit Plans, Tax-Qualified Retirement Plans and
IRAs................................................... 130
Status of the Company Under ERISA......................... 130
UNDERWRITERS................................................ 132
LEGAL MATTERS............................................... 133
EXPERTS..................................................... 133
AVAILABLE INFORMATION....................................... 133
GLOSSARY.................................................... 135
</TABLE>
AMB and its logo are registered service marks of the Company. Strategic
Alliance Programs(TM), Development Alliance Program(TM), UPREIT Alliance
Program(TM), Institutional Alliance Program(TM), Customer Alliance Program(TM),
Management Alliance Program(TM) and Institutional Alliance Partners(TM) are
registered trademarks of the Company. All other trademarks and service marks
appearing in this Prospectus are the property of their respective holders.
v
<PAGE> 10
In addition to historical information, the information included in this
Prospectus contains forward-looking statements, such as those pertaining to the
Company's (including for purposes of this paragraph, certain of its
subsidiaries') capital resources, portfolio performance and results of
operations. Likewise, the pro forma financial statements and other pro forma
information included in this Prospectus also contain forward-looking statements.
In addition, all statements regarding anticipated growth in the Company's funds
from operations and anticipated market conditions, demographics and results of
operations are forward-looking statements. Forward-looking statements involve
numerous risks and uncertainties and should not be relied upon as predictions of
future events, and there can be no assurance that the events or circumstances
reflected in such forward-looking statements will be achieved or will occur.
Certain such forward-looking statements can be identified by the use of
forward-looking terminology such as "believes," "expects," "may," "will,"
"should," "seeks," "approximately," "intends," "plans," "pro forma," "estimates"
or "anticipates" or the negative thereof or other variations thereof or
comparable terminology, or by discussions of strategy, plans or intentions. Such
forward-looking statements are necessarily dependent on assumptions, data or
methods that may be incorrect or imprecise and they may be incapable of being
realized. The following factors, among others, could cause actual results and
future events to differ materially from those set forth or contemplated in the
forward-looking statements: defaults on or non-renewal of leases, increased
interest rates and operating costs, failure to obtain necessary outside
financing, difficulties in identifying properties to acquire and in effecting
acquisitions, failure to successfully integrate acquired properties and
operations, risks and uncertainties affecting property development and
construction (including, without limitation, construction delays, cost overruns,
inability to obtain necessary permits and public opposition to such activities),
the Company's failure to qualify and maintain its status as a real estate
investment trust (a "REIT") under the Internal Revenue Code of 1986, as amended
(the "Code"), environmental uncertainties, risks related to natural disasters,
financial market fluctuations, changes in real estate and zoning laws and
increases in real property tax rates. The Company's success also depends upon
economic trends generally, including interest rates, income tax laws,
governmental regulation, legislation, population changes and certain other
matters discussed in the section entitled "Risk Factors." Readers are cautioned
not to place undue reliance on forward-looking statements, which reflect
management's analysis only.
vi
<PAGE> 11
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial data, including the financial statements and notes
thereto, set forth elsewhere in this Prospectus. Unless otherwise indicated or
required by the context, (i) all calculations and information contained in this
Prospectus assume the Underwriters' over-allotment option will not be exercised,
(ii) all rental and square footage data are approximate and/or on a weighted
average basis, (iii) unless otherwise indicated, all property information is
presented as of June 30, 1998 and (iv) the "Company" shall include AMB Property
Corporation and its subsidiaries, including AMB Property, L.P. (the "Operating
Partnership") and its subsidiaries and, with respect to the period prior to the
Company's initial public offering, the AMB Predecessors (as defined).
Capitalized terms shall have the meanings set forth herein and in the Glossary
beginning on page 135.
THE COMPANY
The Company is one of the largest publicly-traded real estate companies in
the United States. As of September 25, 1998, the Company owned 546 industrial
buildings (the "Industrial Properties") located in 26 markets throughout the
United States, including 83 industrial buildings acquired since June 30, 1998,
and 37 retail centers (the "Retail Properties") located in 16 markets throughout
the United States. The Industrial Properties, principally warehouse distribution
properties, encompass approximately 52.8 million rentable square feet and, as of
June 30, 1998, were 95.1% leased to over 1,300 tenants. The Retail Properties,
principally grocer-anchored community shopping centers, encompass approximately
6.8 million rentable square feet and, as of the same date, were 95.0% leased to
over 900 tenants. The Industrial Properties and the Retail Properties are
collectively referred to as the "Properties." The Company owns substantially all
of its assets, and conducts substantially all of its business, through the
Operating Partnership and its subsidiaries.
The Company is engaged in the business of acquiring and operating
industrial properties and community shopping centers in target markets
nationwide. The Company is led by Hamid R. Moghadam, its Chief Executive Officer
and one of three founders of the Company. Douglas D. Abbey and T. Robert Burke,
the other two founders, also play active roles in the Company's operations as
the Chairman of its Investment Committee and the Chairman of its Board of
Directors, respectively. The Company's 10 executive officers have an average of
23 years of experience in the real estate industry and have worked together for
an average of nine years building the AMB real estate business.
AMB Property Corporation was organized in November 1997 and commenced
operations upon the completion of its initial public offering on November 26,
1997 (the "IPO"). The Company operates as a self-administered and self-managed
real estate company and believes that it has qualified and that it will continue
to qualify as a REIT for Federal income tax purposes beginning with the year
ended December 31, 1997.
The following tables set forth certain summary information with respect to
the Properties owned as of June 30, 1998 and excludes 83 industrial buildings
aggregating 5.1 million rentable square feet, which were acquired subsequent to
June 30, 1998.
INDUSTRIAL PROPERTIES
<TABLE>
<CAPTION>
PERCENTAGE
OF TOTAL PERCENTAGE
NUMBER RENTABLE INDUSTRIAL ANNUALIZED OF
OF SQUARE SQUARE PERCENTAGE BASE RENT ANNUALIZED
REGION BUILDINGS FEET FEET LEASED (000S)(1) BASE RENT
------ --------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Eastern................. 77 9,864,840 20.7% 91.5% $ 37,849 19.1%
Midwestern.............. 103 11,868,394 24.9 93.8 42,935 21.6
Southern................ 142 13,169,885 27.6 96.6 54,142 27.3
Western................. 141 12,772,141 26.8 97.5 63,568 32.0
--- ---------- ----- ---- -------- -----
Total/Weighted
Average..... 463 47,675,260 100.0% 95.1% $198,494 100.0%
=== ========== ===== ==== ======== =====
</TABLE>
1
<PAGE> 12
RETAIL PROPERTIES
<TABLE>
<CAPTION>
PERCENTAGE
OF TOTAL PERCENTAGE
NUMBER RENTABLE RETAIL ANNUALIZED OF
OF SQUARE SQUARE PERCENTAGE BASE RENT ANNUALIZED
REGION CENTERS FEET FEET LEASED (000S)(1) BASE RENT
------ --------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Eastern................. 4 1,272,968 18.6% 98.1% $ 14,399 18.7%
Midwestern.............. 4 710,833 10.4 98.9 7,098 9.2
Southern................ 12 1,957,051 28.6 90.3 19,596 25.4
Western................. 17 2,907,986 42.4 95.8 35,967 46.7
--- ---------- ----- ---- -------- -----
Total/Weighted
Average..... 37 6,848,838 100.0% 95.0% $ 77,060 100.0%
=== ========== ===== ==== ======== =====
</TABLE>
TOTAL PROPERTIES
<TABLE>
<CAPTION>
NUMBER
OF PERCENTAGE PERCENTAGE
BUILDINGS RENTABLE OF TOTAL ANNUALIZED OF
AND SQUARE SQUARE PERCENTAGE BASE RENT ANNUALIZED
REGION CENTERS FEET FEET LEASED (000S)(1) BASE RENT
------ --------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Eastern................. 81 11,137,808 20.4% 92.3% $ 52,248 19.0%
Midwestern.............. 107 12,579,227 23.1 94.1 50,033 18.2
Southern................ 154 15,126,936 27.7 95.8 73,738 26.8
Western................. 158 15,680,127 28.8 97.2 99,535 36.0
--- ---------- ----- ---- -------- -----
Total/Weighted
Average..... 500 54,524,098 100.0% 95.1% $275,554 100.0%
=== ========== ===== ==== ======== =====
</TABLE>
- ---------------
(1) Annualized Base Rent means the monthly contractual amount under existing
leases at June 30, 1998, multiplied by 12. This amount excludes expense
reimbursements and rental abatements.
2
<PAGE> 13
RECENT DEVELOPMENTS
Sale of Senior Debt Securities. On June 30, 1998, the Operating Partnership
sold $400 million aggregate principal amount of senior debt securities (the
"Senior Debt Securities") in an underwritten public offering. The net proceeds
were used to repay borrowings under the Company's $500 million unsecured credit
facility (the "Credit Facility") incurred in connection with property
acquisitions.
Sale of Series A Preferred Stock. On July 27, 1998, the Company sold
4,000,000 shares (the "Series A Preferred Shares") of 8 1/2% Series A Cumulative
Redeemable Preferred Stock (the "Series A Preferred Stock") at a price of $25.00
per share in an underwritten public offering. The net proceeds were used to
repay borrowings under the Credit Facility incurred in connection with property
acquisitions.
Acquisition and Development Activity. From July 1, 1998 to September 25,
1998, the Company invested approximately $258.9 million in 83 industrial
buildings aggregating 5.1 million rentable square feet and committed to invest
approximately $23.3 million in two new development projects aggregating 0.5
million rentable square feet.
Distributions and Dividends. On September 3, 1998, the Board of Directors
declared a distribution on the Common Stock of $0.3425 per share, payable on
October 2, 1998 to stockholders of record as of September 16, 1998, and, in its
capacity as general partner of the Operating Partnership, declared a
distribution on the Operating Partnership's common partnership units of $0.3425
per common partnership unit, payable on October 2, 1998 to partners of record as
of September 16, 1998. On September 3, 1998, the Board of Directors also
declared a dividend on the Series A Preferred Stock of $0.4604 per share for the
period commencing on July 27, 1998 and ending on October 14, 1998, payable on
October 15, 1998 to stockholders of record as of September 16, 1998, and, in its
capacity as general partner of the Operating Partnership, declared a
distribution for such period on the Operating Partnership's Series A Preferred
Units (as defined) of $0.4604 per Series A Preferred Unit, payable on October
15, 1998 to partners of record as of September 16, 1998.
Investment-Grade Credit Ratings. The Company received credit ratings on its
senior unsecured debt of Baa1 from Moody's Investors Service, BBB from Standard
& Poor's Corporation and BBB+ from Duff & Phelps Credit Rating Co. As a result
of receiving these investment-grade credit ratings, the interest rate on the
Company's Credit Facility was reduced by 20 basis points to LIBOR plus 90 basis
points. In addition, the Company received ratings on the Series A Preferred
Stock of Baa2 from Moody's Investors Service, BBB- from Standard & Poor's
Corporation and BBB from Duff & Phelps Credit Rating Co.
RISK FACTORS
An investment in shares of Series B Preferred Stock involves various
material risks. Prospective investors should carefully consider the following
risk factors, in addition to the other information set forth in this Prospectus,
before making an investment decision regarding the shares of Series B Preferred
Stock offered hereby. Each of these matters could have adverse consequences to
the Company. Such risks include, among others:
- the possible failure of investments to perform in accordance with the
Company's expectations, inaccuracy of estimates of costs of improvements
to bring an acquired property up to standards, competition for attractive
investment opportunities and other general risks associated with any real
estate investment, which could have an adverse effect on the Company's
financial condition, results of operations, cash flow and ability to pay
dividends on, and the market price of, the Series B Preferred Stock;
- the need to renew leases or re-lease space upon lease expirations and to
pay renovation and re-leasing costs in connection therewith, the effect
of economic and other conditions on property cash flows and values, the
ability of tenants to make lease payments, the ability of a property to
generate revenue sufficient to meet operating expenses (including future
debt service), and the illiquidity of real estate investments which could
have an adverse effect on the Company's financial condition, results of
3
<PAGE> 14
operations, cash flow and ability to pay dividends on, and the market
price of, the Series B Preferred Stock;
- the inability to refinance outstanding indebtedness upon maturity or
refinance such indebtedness on favorable terms, the risks of rising
interest rates in connection with the Credit Facility and other
variable-rate borrowings and the Company's ability to incur more debt
without stockholder approval, any of which could adversely affect the
Company's financial condition, results of operations, cash flow and
ability to pay dividends on, and the market price of, the Series B
Preferred Stock;
- the distribution requirements of REITs which may limit the Company's
ability to finance future acquisitions, expansions and development
without additional debt or equity financing necessary to achieve the
Company's business plan, and risks associated with the Company's reliance
on external sources of capital which, in turn, may adversely affect its
ability to pay dividends on, and the market price of, the Series B
Preferred Stock;
- conflicts of interest in connection with the Company's operations,
including (i) the continued involvement of certain of the Executive
Officers and directors in other real estate activities and investments
which could divert management's attention from the Company's day-to-day
operations; (ii) the influence of certain directors, officers and
significant stockholders on the management and operation of the Company,
and as stockholders, on the outcome of matters submitted to a vote of the
stockholders and (iii) the potential failure to enforce the terms of
agreements, including the indemnification by certain of the Executive
Officers and other participants in the Formation Transactions (as
defined) for breaches of representations and warranties relating to the
Formation Transactions, each of which could result in the Company taking
action which is not in the interest of all stockholders;
- taxation of the Company as a corporation if it fails to qualify as a REIT
for Federal income tax purposes, the Company's liability for certain
Federal, state and local income taxes in such event, and the resulting
decrease in cash available for the payment of dividends to holders of the
Series B Preferred Stock;
- if the Company does not effectively manage its rapid growth, it may be
unable to pay dividends to holders of the Series B Preferred Stock;
- the possible unavailability of acquisition and development financing on
favorable terms;
- in connection with the Company's development of properties, the
possibility that (i) the Company may incur increased debt service
expense, construction costs or delays in leasing properties if
construction is not completed on schedule or within budget, (ii) the
Company may be unable to obtain, or encounter delays in obtaining,
required governmental permits and authorizations or (iii) once completed,
such properties may perform below anticipated levels, any of which could
have an adverse effect on the Company's financial condition, results of
operations, cash flow and ability to pay dividends on, and the market
price of, the Series B Preferred Stock;
- possible uninsured losses or losses in excess of insured limits relating
to certain activities, including fire, rental loss and seismic activity,
which could have an adverse effect on the Company's financial condition,
results of operations, cash flow and ability to pay dividends on, and the
market price of, the Series B Preferred Stock;
- potential liability of the Company for contingent or unknown liabilities
assumed by the Company as the surviving entity in the Formation
Transactions and as an acquiror of properties, entities and interests
therein which could have an adverse effect on the Company's financial
condition, results of operations, cash flow and ability to pay dividends
on, and the market price of, the Series B Preferred Stock;
- potential liability of the Company for environmental matters and the
costs of compliance with certain government regulations which could have
an adverse effect on the Company's financial condition,
4
<PAGE> 15
results of operations, cash flow and ability to pay dividends on, and the
market price of, the Series B Preferred Stock;
- in connection with the Company's property ownership through partnerships
and joint ventures, the possibility that (i) a joint venturer or another
partner in a partnership may (a) become bankrupt while the Company and
any other remaining partners or joint venturers remain liable for the
liabilities of such partnerships or joint ventures or (b) have economic
interests inconsistent with those of the Company, or (ii) the Company
could be required to sell its interest or acquire its joint venturers'
interest or another partner's interest at a disadvantageous time or on
disadvantageous terms, which could adversely affect the return realized
by the Company on such investments and therefore could have an adverse
effect on the Company's financial condition, results of operations, cash
flow and ability to pay dividends on, and the market price of, the Series
B Preferred Stock;
- possible conflicts of interest imposed by the fiduciary obligations of
the Company to the limited partners of the Operating Partnership, in its
capacity as the general partner of the Operating Partnership, the
requirement for the limited partners to approve certain amendments
affecting their rights and the ability of the limited partners to approve
certain transactions that affect all stockholders of the Company, which
could result in the Company taking action which is not in the interest of
all stockholders, including holders of the Series B Preferred Stock;
- the dependence on the efforts of the Executive Officers, particularly
Messrs. Abbey, Moghadam and Burke, the Chairman of the Company's
Investment Committee, its Chief Executive Officer and the Chairman of the
Board of Directors, respectively. The inability to find suitable
replacements for these key personnel, the loss of their services or the
limitation of their availability could have an adverse effect on the
Company's financial condition, results of operations, cash flow and
ability to pay dividends on, and the market price of, the Series B
Preferred Stock.
- absence of a prior public market for the shares of Series B Preferred
Stock and no assurance that a public market will develop or be sustained,
and potential adverse effects on the value of the shares of Series B
Preferred Stock from fluctuations in equity markets or rising market
interest rates, which may negatively impact the price at which shares of
Series B Preferred Stock may be resold.
BUSINESS AND OPERATING STRATEGIES
The Company focuses its investment activities in industrial hub
distribution markets and "in-fill" retail trade areas throughout the U.S. where
opportunities exist to acquire and develop additional properties on an
advantageous basis ("in-fill" trade areas or locations are those typified by
significant population densities and low availability of land resulting in
limited opportunities for new construction of competitive properties). The
Company seeks to implement the following business and operating strategies:
- Strategic Alliance Programs(TM). The Company believes that its strategy
of forming strategic alliances with local and regional real estate
experts and institutional investors provides it with growth
opportunities, access to private capital and the ability to remain
flexible in the markets in which it operates. The Company has been a
leader in systematically forming these alliances through its Strategic
Alliance Programs(TM) which include the Development Alliance Program(TM),
the UPREIT Alliance Program(TM), the Institutional Alliance Program(TM),
the Customer Alliance Program(TM) and the Management Alliance
Program(TM). See "Business and Operating Strategies."
- National Property Company. The Company believes that its national
strategy enables it to increase or decrease investments in certain
regions to take advantage of the relative strengths and attractive
investment opportunities in different real estate markets. Through its
presence in markets throughout the U.S., the Company has developed
expertise in leasing, expense management, tenant retention strategies and
property design and configuration.
5
<PAGE> 16
- Two Complementary Property Types. Management believes that its dual
property strategy provides significant opportunities to allocate capital
and organizational resources and offers the Company an optimal
combination of growth, strong current income and stability through market
cycles.
- Research-Driven, Select Market Focus. The Company focuses on acquiring,
developing, redeveloping and operating properties in in-fill locations.
The Company's decisions regarding the deployment of capital are
experience- and research-driven, and are based on thorough qualitative
and quantitative research and analysis of local markets. The Company
employs a dedicated research department using proprietary analyses,
databases and systems.
- Disciplined Investment Process. The Company has established a disciplined
approach to the investment decision-making process through operating
divisions that are subject to the overall policy direction of its
Investment Committee. The Company has also established efficient and
effective proprietary systems and procedures to manage and track a high
volume of acquisition and development proposals and transactions.
- Property Development. Management believes that value-added renovation and
expansion of properties and development of well-located, high-quality
industrial properties and community shopping centers through the
Company's Development Alliance Program(TM) should continue to provide the
Company with attractive opportunities for increased cash flow and a
higher risk-adjusted rate of return than may be obtained from the
purchase of stabilized properties.
- Financing Strategy. The Company intends to operate with a conservative
Debt-to-Total Market Capitalization Ratio and to continue to structure
its balance sheet in order to maintain investment-grade ratings. Upon
consummation of the Offering, the Company's Debt-to-Total Market
Capitalization Ratio as of June 30, 1998 on a pro forma basis (giving
effect to the acquisition-related debt incurred subsequent to June 30,
1998, the sale of the Series A Preferred Shares and the Offering and the
application of the net proceeds therefrom as if the debt had been
incurred and those transactions had occurred as of that date) would have
been approximately 33.6% (approximately 34.2% on an historical basis).
STRATEGIES FOR GROWTH
The Company intends to achieve its growth objectives of long-term
sustainable growth in funds from operations ("FFO") and maximization of
long-term stockholder value principally through the following:
Growth Through Operations. The Company seeks to improve operating margins
by maintaining high occupancy rates at its Properties and by capitalizing on the
economies of owning, operating and growing a large national portfolio. During
the quarter and 12 months ended June 30, 1998, the Company increased average
base rental rates (on a cash basis) by 21.0% and 12.1%, respectively, from the
expiring rent for such space on leases entered into or renewed during such
periods, representing 1.6 million and 7.0 million rentable square feet,
respectively. As of June 30, 1998, the Properties were 95.1% leased.
During the 12 months ending June 30, 1999, leases encompassing an aggregate
of 13.4 million rentable square feet (representing 24.6% of the Company's
aggregate rentable square footage as of June 30, 1998) are subject to
contractual rent increases resulting in an average increase in the Annualized
Base Rent on such leases of approximately 5.9%. Based on recent experience and
market trends, management believes it will have an opportunity to increase the
average base rental rate on Property leases expiring during the six months
ending December 31, 1998 covering an aggregate of 4.1 million rentable square
feet.
Growth Through Acquisitions. The Company believes its significant
acquisition experience, its alliance-based operating strategy and its extensive
network of property acquisition sources will continue to provide opportunities
for external growth. Management believes there is a growing trend among large
private institutional holders of real estate assets to shift a portion of their
direct investment in real estate assets to more liquid securities such as common
stock and units in publicly-traded REITs. The Company has relationships through
its Institutional Alliance Program(TM) with a number of the nation's leading
pension funds
6
<PAGE> 17
and other institutional investors, many of whom have large portfolios of
industrial properties and community shopping centers. Management believes the
Company's relationship with third party local property managers through its
Management Alliance Program(TM) also will create acquisition opportunities as
such managers market properties on behalf of unaffiliated sellers. The Company's
operating structure also enables it to acquire properties through its UPREIT
Alliance Program(TM) in exchange for Operating Partnership Units, thereby
enhancing the Company's attractiveness to owners and developers seeking to
transfer properties on a tax-deferred basis. See "Strategies for
Growth -- Growth Through Acquisitions."
Between January 1, 1998 and September 25, 1998, the Company invested
approximately $674.4 million (including the Company's share of co-investments)
in (i) 187 industrial buildings aggregating 15.3 million square feet, (ii) two
retail centers aggregating 0.4 million square feet and (iii) an unconsolidated
limited partnership interest in an existing real estate joint venture which owns
36 industrial buildings aggregating 4.0 million square feet. Of the total
investment during such period, the Company invested approximately $215.8 million
through its UPREIT Alliance Program(TM) and approximately $128.7 million through
its Institutional Alliance Program(TM), including $66.7 million of
co-investments with Institutional Alliance Partners(TM).
The Company is generally in various stages of negotiations for a number of
acquisitions, which may include acquisitions of individual properties, large
multi-property portfolios and other real estate companies and interests therein.
There can be no assurance that any of such acquisitions will be consummated.
Such acquisitions, if consummated, may be material individually or in the
aggregate. Sources of capital for acquisitions may include undistributed cash
flow, borrowings under the Credit Facility, other forms of secured or unsecured
financing, issuances of debt or equity securities by the Company or the
Operating Partnership (including issuances of Units in the Operating
Partnership) and assumption of debt related to the assets being acquired.
Growth Through Property Development. Management believes that it has the
market expertise and access to identify and acquire value-added properties and
develop new properties. The Company has developed the in-house expertise to
create value through acquiring and managing value-added properties and believes
its national market presence and expertise will enable it to continue to
generate and capitalize on such opportunities. Through its Development Alliance
Program(TM), the Company has established certain strategic alliances with
national and regional developers to enhance the Company's development
capabilities. As of September 25, 1998, the Company had committed to invest
approximately $331.9 million to develop approximately 6.3 million rentable
square feet. Of the total commitment, approximately $196.0 million is through
its Development Alliance Program(TM).
7
<PAGE> 18
THE OFFERING
Securities Offered............ 3,000,000 shares of % Series B Cumulative
Redeemable Preferred Stock (or 3,450,000 shares
of % Series B Cumulative Redeemable
Preferred Stock if the Underwriters'
over-allotment option is exercised in full).
Dividends..................... Dividends on the Series B Preferred Stock are
cumulative from the date of original issue and
are payable quarterly in arrears on the 15th
day of , , and of each
year, commencing on , 1998
(or, if any such date is not a Business Day, on
the next succeeding Business Day), at the rate
of % of the liquidation preference per
annum (equivalent to $ per annum per share
of Series B Preferred Stock). Dividends on the
Series B Preferred Stock will accumulate
whether or not there are funds legally
available for the payment of such dividends and
whether or not such dividends are declared. If
the Company designates any portion of a
dividend as "capital gain dividend," a holder's
share of such capital gain dividend will be an
amount that bears the same ratio to the total
amount of dividends (as determined for Federal
income tax purposes) paid to such holder for
the year as the aggregate amount designated as
a capital gain dividend bears to the aggregate
amount of all dividends (as determined for
Federal income tax purposes) paid on all
classes of stock for the year. See "Series B
Preferred Stock -- Dividends."
Ranking....................... The Series B Preferred Stock will rank, with
respect to the payment of dividends and the
distribution of assets upon liquidation,
dissolution or winding up of the Company, on a
parity with the Series A Preferred Stock and
senior to the Common Stock. See "Series B
Preferred Stock -- Ranking."
Liquidation Preference........ The Series B Preferred Stock will have a
liquidation preference of $25.00 per share,
plus an amount equal to accumulated and unpaid
dividends thereon, if any. See "Series B
Preferred Stock -- Liquidation Rights."
Maturity...................... The Series B Preferred Stock has no stated
maturity and will not be subject to mandatory
redemption or any sinking fund.
Optional Redemption........... The Series B Preferred Stock will not be
redeemable prior to , 2003.
On and after , 2003, the
Series B Preferred Stock will be redeemable for
cash at the Company's option, in whole or from
time to time in part, at a redemption price of
$25.00 per share, plus accumulated and unpaid
dividends thereon, if any, to the redemption
date. The redemption price (other than the
portion thereof consisting of accumulated and
unpaid dividends) will be payable solely out of
the sale proceeds of other equity securities of
the Company, which may include other classes or
series of Preferred Stock, and from no other
source. In certain circumstances related to the
Company's maintenance of its ability to qualify
as a REIT for Federal income tax purposes, the
Company may redeem shares of Series B Preferred
Stock. See "Series B Preferred
Stock -- Redemption."
8
<PAGE> 19
Voting Rights................. If dividends on the Series B Preferred Stock
remain unpaid for six or more quarterly periods
(whether or not consecutive), holders of the
Series B Preferred Stock (voting separately as
a class with all other classes or series of
equity securities of the Company upon which
like voting rights have been conferred and are
exercisable) will be entitled to vote for the
election of two additional directors to serve
on the Board of Directors until all dividend
arrearages with respect to the Series B
Preferred Stock are eliminated. The Series B
Preferred Stock will also be entitled to
certain additional voting rights described
herein. See "Series B Preferred Stock -- Voting
Rights."
Conversion.................... The Series B Preferred Stock will not be
convertible into or exchangeable for any other
property or securities of the Company.
NYSE Listing.................. Application has been made to list the Series B
Preferred Stock on the NYSE, subject to
official notice of issuance, under the symbol
"AMB Pr B." Trading on the NYSE is expected to
commence within a 30-day period after the date
of initial delivery of the Series B Preferred
Stock. While the Underwriters have advised the
Company that they intend to make a market in
the Series B Preferred Stock prior to
commencement of trading on the NYSE, they are
under no obligation to do so and no assurance
can be given that a market for the Series B
Preferred Stock will exist prior to or upon
commencement of trading. See "Underwriters."
Use of Proceeds............... The net proceeds from the Offering will be used
for the repayment of indebtedness. See "Use of
Proceeds."
Ownership Limit............... In order to assist the Company in maintaining
its qualification as a REIT for Federal income
tax purposes, ownership, actually or
constructively, by any person of more than 9.8%
in value or number (whichever is more
restrictive) of shares of Series B Preferred
Stock is restricted by the Company's Articles
Supplementary for the Series B Preferred Stock.
See "Series B Preferred Stock."
9
<PAGE> 20
ORGANIZATION
The Company conducts substantially all of its operations through the
Operating Partnership. The following diagram illustrates the structure of the
Company, the Operating Partnership and certain of their subsidiaries:
AMP Property Flow Chart
- ---------------
(1) AMB Investment Management, Inc. ("AMB Investment Management") conducts its
business through AMB Investment Management Limited Partnership (the
"Investment Management Partnership"), of which it is the sole general
partner and owns the entire capital interest. Certain Executive Officers
own a profits interest in the Investment Management Partnership relating to
the allocation of a portion of the incentive fees with respect to assets
managed by the Company's predecessor prior to the IPO.
(2) Includes properties owned on a joint venture basis through certain limited
partnerships and limited liability companies in which the Operating
Partnership owns at least a 50% interest. See "Business and
Properties -- Properties Held Through Joint Ventures, Limited Liability
Companies and Partnerships" for a list of such entities.
(3) AMB Property II, L.P. and Long Gate LLC hold title to Properties in certain
states for local law purposes. The ownership of such Properties through
such entities does not materially affect the Operating Partnership's and
the Company's overall ownership of the interests in the Properties.
The principal executive offices of the Company are located at 505
Montgomery Street, San Francisco, California 94111, and its telephone number is
(415) 394-9000. The Company also maintains a regional office in Boston,
Massachusetts.
10
<PAGE> 21
TAX STATUS OF THE COMPANY
The Company elected to be taxed as a REIT under Sections 856 through 860 of
the Code, commencing with its taxable year ended December 31, 1997, and believes
its current organization and method of operation will enable it to maintain
status as a REIT. To maintain REIT status, an entity must meet a number of
organizational and operational requirements, including a requirement that it
distribute at least 95% of its REIT taxable income (determined without regard to
the dividends-paid deduction and by excluding net capital gains) to its
stockholders. As a REIT, the Company generally is not subject to Federal income
tax on net income it distributes to its stockholders. If the Company fails to
qualify as a REIT in any taxable year, it will be subject to Federal income tax
at regular corporate rates and may not be able to qualify as a REIT for the four
subsequent taxable years. See "Risk Factors -- Federal Income Tax
Risks -- Adverse Consequences of Failure to Qualify as a REIT" and "Material
Federal Income Tax Consequences -- Failure of the Company to Qualify as a REIT."
In the opinion of Latham & Watkins, tax counsel to the Company, commencing with
the Company's taxable year ended December 31, 1997, the Company has been
organized and has operated in conformity with the requirements for qualification
and taxation as a REIT, and its method of operation will enable it to continue
to meet the requirements for qualification and taxation as a REIT under the
Code. See "Material Federal Income Tax Consequences -- Taxation of the Company."
Such legal opinion, however, is based on various assumptions and factual
representations by the Company regarding the Company's ability to maintain the
various requirements for qualification as a REIT, and no assurance can be given
that actual operating results have met or will continue to meet these
requirements. Such legal opinion is not binding on the Internal Revenue Service
("IRS") or any court. Moreover, the Company's continued qualification and
taxation as a REIT depends upon its ability to meet (through actual annual
operating results, asset composition, distribution levels and diversity of stock
ownership) the various qualification tests imposed under the Code, the results
of which have not been and will not be reviewed by Latham & Watkins. Even if the
Company qualifies for taxation and maintains its status as a REIT, the Company
may be subject to certain Federal, state and local taxes on its income and
property.
SUMMARY FINANCIAL AND OTHER DATA
The following table sets forth summary financial and other data on (i) an
historical basis for the Company and its predecessor, AMB Institutional Realty
Advisors, Inc. ("AMB" or the "Predecessor"), for the five years ended December
31, 1997 and the six months ended June 30, 1997 and 1998 and (ii) an as adjusted
basis for the Company for the year ended December 31, 1997 (giving effect to the
Formation Transactions, the IPO and certain property acquisitions and
dispositions in 1997). Additionally, the table sets forth summary financial and
other data for the Company for the year ended December 31, 1997 and for the six
months ended June 30, 1998 on a pro forma basis (giving effect to the Formation
Transactions, the IPO, certain property acquisitions and dispositions in 1997,
the property acquisitions in 1998, the sale of the Senior Debt Securities and
the application of the net proceeds therefrom, the sale of the Series A
Preferred Shares and the application of the net proceeds therefrom and the
Offering and the application of the net proceeds therefrom, as if all such
transactions had occurred on January 1, 1997). The historical financial
information contained in the tables should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and accompanying Notes
thereto included elsewhere in this Prospectus.
For the four-year period ended December 31, 1996 and the period from
January 1, 1997 through November 25, 1997, the Predecessor operated as an
investment manager with revenues that consisted primarily of fees earned in
connection with real estate management services. The historical results of the
Company for 1997 include the results of operations of the Company, including
property operations for the period from November 26, 1997 to December 31, 1997,
and the results of the Predecessor for the period from January 1, 1997 to
November 25, 1997.
In the opinion of management, the historical financial information as of
and for the six months ended June 30, 1997 and 1998 reflects all adjustments,
which are of a normal recurring nature, necessary for a fair presentation of the
financial information, and the as adjusted and pro forma condensed financial
information provides for all adjustments necessary to reflect the adjustments
and transactions described above. The information for the six months ended June
30, 1997 and 1998 is unaudited and the operating data for that period are not
necessarily indicative of the results for the entire year. The as adjusted and
pro forma information is unaudited and is not necessarily indicative of the
results that would have occurred if the transactions and adjustments reflected
therein had been consummated in the period or on the date presented, nor does it
purport to represent the financial position, results of operations or changes in
cash flows for future periods.
11
<PAGE> 22
COMPANY AND PREDECESSOR SUMMARY FINANCIAL AND OTHER DATA
(SQUARE FEET AND DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
AS OF AND FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------------------------------------------
COMPANY
---------------------------------------
PREDECESSOR HISTORICAL AS ADJUSTED PRO FORMA
(1) (2) (3) (4)
------------------------------------ ---------- ----------- ------------
1993 1994 1995 1996 1997 1997 1997
------ ------- ------- ------- ---------- ----------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Total revenues................. $7,155 $12,865 $16,865 $23,991 $ 56,062 $ 284,674 $ 369,610
Income from operations before
minority interests............ 798 2,925 3,296 7,140 18,885 103,903 118,539
Net income available to common
stockholders.................. 798 2,925 3,262 7,003 18,228 99,508 94,117
Net income per common share(5):
Basic......................... $ 0.17 $ 0.59 $ 0.64 $ 1.38 $ 1.39 $ 1.16 $ 1.10
Diluted....................... 0.17 0.59 0.64 1.38 1.38 1.16 1.09
Distributions per common
share......................... 0.13 1.37 1.37
OTHER DATA:
EBITDA(6)...................... $ 195,218 $ 259,231
Funds from Operations(7)....... 147,409 153,770
Cash flows provided by (used
in):
Operating activities.......... 131,621 195,633
Investing activities.......... (607,768) (1,024,862)
Financing activities.......... 553,199 1,218,545
Ratio of earnings to fixed
charges and preferred stock
dividends(8).................. 3.1x 2.0x
Ratio of EBITDA to interest
expense and preferred stock
dividends(9).................. 4.3x 2.6x
BALANCE SHEET DATA:
Investments in real estate at
cost.......................... $ -- $ -- $ -- $ -- $2,442,999
Total assets................... 2,739 4,092 4,948 7,085 2,506,255
Secured debt(10)............... -- -- -- -- 535,652
Senior Debt Securities......... -- -- -- -- --
Unsecured credit facilities.... -- -- -- -- 150,000
Stockholders' equity........... 2,480 3,848 4,241 6,300 1,668,030
PROPERTY DATA:
INDUSTRIAL PROPERTIES
Total rentable square footage
of buildings at end of
period...................... 5,638 13,364 21,598 29,609 37,329
Number of buildings at end of
period........................ 45 115 166 270 356
Occupancy rate at end of
period........................ 97.4% 96.9% 97.3% 97.2% 95.7%
RETAIL PROPERTIES
Total rentable square footage
of centers at end of
period...................... 1,074 2,422 3,299 5,282 6,216
Number of centers at end of
period........................ 9 14 19 30 33
Occupancy rate at end of
period........................ 96.5% 93.7% 92.4% 92.4% 96.1%
<CAPTION>
AS OF AND FOR THE
SIX MONTHS ENDED JUNE 30,
----------------------------------------
COMPANY
--------------------------
PREDECESSOR PRO FORMA
(1) HISTORICAL (4)
----------- ----------- ------------
1997 1998 1998
----------- ----------- ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
OPERATING DATA:
Total revenues................. $11,083 $ 160,799 $ 193,260
Income from operations before
minority interests............ 2,764 59,570 67,501
Net income available to common
stockholders.................. 2,764 55,884 54,628
Net income per common share(5):
Basic......................... $ 0.54 $ 0.65 $ 0.64
Diluted....................... 0.54 0.65 0.63
Distributions per common
share......................... 0.69 0.69
OTHER DATA:
EBITDA(6)...................... $ 112,433 $ 137,227
Funds from Operations(7)....... 82,569 85,739
Cash flows provided by (used
in):
Operating activities.......... 75,720 100,514
Investing activities.......... (398,639) (152,426)
Financing activities.......... 312,118 (69,272)
Ratio of earnings to fixed
charges and preferred stock
dividends(8).................. 2.8x 2.1x
Ratio of EBITDA to interest
expense and preferred stock
dividends(9).................. 4.1x 2.9x
BALANCE SHEET DATA:
Investments in real estate at
cost.......................... $2,996,873 $3,255,732
Total assets................... 3,033,106 3,284,934
Secured debt(10)............... 592,430 663,936
Senior Debt Securities......... 400,000 400,000
Unsecured credit facilities.... 137,000 132,400
Stockholders' equity........... 1,669,417 1,837,867
PROPERTY DATA:
INDUSTRIAL PROPERTIES
Total rentable square footage
of buildings at end of
period...................... 47,675 52,780
Number of buildings at end of
period........................ 463 546
Occupancy rate at end of
period........................ 95.1% 95.1%
RETAIL PROPERTIES
Total rentable square footage
of centers at end of
period...................... 6,849 6,849
Number of centers at end of
period........................ 37 37
Occupancy rate at end of
period........................ 95.0% 95.0%
</TABLE>
- ---------------
(1) Represents the Predecessor's historical financial and other data for the
years ended December 31, 1993, 1994, 1995, 1996 and the six months ended
June 30, 1997. The Predecessor operated as an investment manager prior to
November 26, 1997.
(2) Represents the Predecessor's historical financial and other data for the
period January 1, 1997 through November 25, 1997 and the Company's
historical and other data for the period from November 26, 1997 to December
31, 1997.
(3) As adjusted financial and other data have been prepared as if the Formation
Transactions, the IPO and certain property acquisitions and dispositions in
1997 had occurred on January 1, 1997.
(4) Pro forma financial and other data have been prepared as if the Formation
Transactions, the IPO, certain property acquisitions and dispositions in
1997, the property acquisitions in 1998, the sale of the Senior Debt
Securities and the application of and the net proceeds therefrom, the sale
of Series A Preferred Shares and the application of the net proceeds
therefrom and the Offering and the application of the net proceeds therefrom
had occurred on January 1, 1997. See "Pro Forma Financial Information."
12
<PAGE> 23
(5) Historical, as adjusted and pro forma net income per basic share for the
year ended December 31, 1997 equals the historical, as adjusted and pro
forma net income divided by 13,140,218, 85,874,513 and 85,874,513 shares,
respectively. Historical and pro forma net income per basic share for the
six months ended June 30, 1998 equals the historical and pro forma net
income divided by 85,874,513 and 85,874,513 shares, respectively.
Historical, as adjusted and pro forma diluted net income per share for the
year ended December 31, 1997 equals the historical, as adjusted and pro
forma net income divided by 13,168,036, 86,156,556 and 86,156,556 shares,
respectively. Historical and pro forma diluted net income per share for the
six months ended June 30, 1998 equals the historical and pro forma net
income divided by 86,222,175 and 86,284,736 respectively.
(6) EBITDA is computed as income from operations before disposal of properties
and minority interests plus interest expense, income taxes, depreciation and
amortization. Management believes that in addition to cash flows and net
income, EBITDA is a useful financial performance measure for assessing
operating performance because, together with net income and cash flows,
EBITDA provides investors with an additional basis to evaluate the ability
to incur and service debt and to fund acquisitions and other capital
expenditures.
(7) FFO represents net income (loss) before minority interests and extraordinary
items, plus depreciation on real property and amortization of tenant
improvement costs and lease commissions, gains (losses) from the disposal of
properties and the Company's share of the FFO of unconsolidated joint
ventures less FFO attributable to minority interests in consolidated joint
ventures whose interests are not convertible into shares of Common Stock and
dividends on preferred stock that is not convertible into shares of Common
Stock. Management considers FFO an appropriate measure of performance of an
equity REIT because it is predicated on cash flow analyses. The Company
computes FFO in accordance with standards established by the White Paper on
Funds from Operations approved by the Board of Governors of NAREIT in March
1995 (the "White Paper"), which may differ from the methodology for
calculating FFO utilized by other REITs and, accordingly, may not be
comparable to such other REITs. FFO should not be considered as an
alternative to net income (determined in accordance with GAAP) as an
indicator of the Company's financial performance or to cash flow from
operating activities (determined in accordance with GAAP) as a measure of
the Company's liquidity, nor is it indicative of funds available to fund the
Company's cash needs, including its ability to make distributions. The
following table sets forth the Company's calculation of FFO for the periods
presented.
13
<PAGE> 24
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE SIX MONTHS
DECEMBER 31, 1997 ENDED JUNE 30, 1998
------------------------- -------------------------
AS ADJUSTED PRO FORMA HISTORICAL PRO FORMA
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Income from operations before minority
interests.................................. $ 103,903 $ 118,539 $ 59,570 $ 67,501
Real estate related depreciation and
amortization:
Depreciation and amortization.............. 45,886 57,630 25,302 29,515
Furniture, fixtures and equipment
depreciation............................ (173) (173) (215) (215)
FFO attributable to minority interests....... (2,207) (8,609) (2,088) (4,256)
Adjustment to derive FFO of unconsolidated
joint venture:
Company's share of net income.............. -- (5,086) -- (2,543)
Company's share of FFO..................... -- 6,344 -- 3,175
Series A Preferred Stock dividends........... -- (8,500) -- (4,250)
Series B Preferred Stock dividends........... -- (6,375) -- (3,188)
----------- ----------- ----------- -----------
FFO.......................................... $ 147,409 $ 153,770 $ 82,569 $ 85,739
=========== =========== =========== ===========
Weighted average shares and units outstanding
(diluted).................................. 88,698,719 90,604,395 89,362,932 90,670,014
=========== =========== =========== ===========
</TABLE>
- ---------------
(8) The ratio of earnings to fixed charges and preferred stock dividends is
computed as income from operations before minority interests plus fixed
charges (excluding capitalized interest) divided by fixed charges and
preferred stock dividends. Fixed charges consist of interest costs
(including amortization of debt premiums and financing costs), whether
capitalized or expensed, and the interest component of rental expense.
(9) The ratio of EBITDA to interest expense and preferred stock dividends is
calculated as EBITDA divided by the sum of book interest expense (including
amortization of debt premiums and discounts and financing costs) and
preferred stock dividends.
(10) Secured debt as of December 31, 1997 and June 30, 1998 is comprised of
mortgage loans and other secured debt and includes net unamortized debt
premiums of approximately $18,286 and $16,799, respectively.
14
<PAGE> 25
RISK FACTORS
An investment in the shares of Series B Preferred Stock involves various
material risks. Prospective investors should carefully consider the following
risk factors in connection with an investment in the shares of Series B
Preferred Stock offered hereby.
GENERAL REAL ESTATE RISKS
Uncontrollable Factors Affecting Performance and Value
Real property investments are subject to varying degrees of risk. The
yields available from equity investments in real estate depend on the amount of
income earned and capital appreciation generated by the related properties as
well as the expenses incurred in connection therewith. If the Properties do not
generate income sufficient to meet operating expenses, including debt service
and capital expenditures, the Company's ability to pay dividends to holders of
the Series B Preferred Stock could be adversely affected. Income from, and the
value of, the Properties may be adversely affected by the general economic
climate, local conditions such as oversupply of industrial or retail space or a
reduction in demand for industrial or retail space in the area, the
attractiveness of the Properties to potential tenants, competition from other
industrial and retail properties, the Company's ability to provide adequate
maintenance and insurance and an increase in operating costs (including
insurance premiums, utilities and real estate taxes). In addition, revenues from
properties and real estate values are also affected by such factors as the cost
of compliance with regulations and the potential for liability under applicable
laws, including changes in tax laws, and are also affected by interest rate
levels and the availability of financing. The Company's income would be
adversely affected if a significant number of tenants were unable to pay rent or
if its industrial or retail and other space could not be rented on favorable
terms. Certain significant expenditures associated with an investment in real
estate (such as mortgage payments, real estate taxes and maintenance costs)
generally do not decline when circumstances cause a reduction in income from the
property.
Renewal of Leases and Reletting of Space
The Company is subject to the risks that leases may not be renewed, space
may not be relet or the terms of renewal or reletting (including the cost of
required renovations) may be less favorable than current lease terms. Leases on
a total of approximately 40.0% of the Properties' leased square footage as of
June 30, 1998 will expire on or prior to December 31, 2000, with leases on 15.0%
of such leased square footage expiring during the 12 months ending June 30,
1999. In addition, numerous properties compete with the Company's Properties in
attracting tenants to lease space, particularly with respect to retail
properties. The number of competitive commercial properties in a particular area
could have a material adverse effect on the Company's ability to lease space in
its Properties or newly acquired properties and on the rents charged. If the
Company were unable to promptly relet or renew the leases for all or a
substantial portion of this space, if the rental rates upon such renewal or
reletting were significantly lower than expected or if its reserves for these
purposes proved inadequate, the Company's financial condition, results of
operations, cash flow and ability to pay dividends on, and the market price of,
the Series B Preferred Stock could be adversely affected. See "Business and
Properties -- Industrial Properties -- Industrial Property Lease
Expirations -- Portfolio Total" and "-- Retail Properties -- Retail Property
Lease Expirations -- Portfolio Total."
Illiquidity of Real Estate Investments
Because real estate investments are relatively illiquid, the Company's
ability to vary its portfolio promptly in response to economic or other
conditions is limited. The limitations in the Code and related regulations on a
REIT holding property for sale may affect the Company's ability to sell
properties without adversely affecting distributions to the Company's
stockholders, including holders of the Series B Preferred Stock. The relative
illiquidity of its holdings, Code prohibitions and related regulations could
impede the Company's ability to respond to adverse changes in the performance of
its investments and could have an adverse effect on the Company's financial
condition, results of operations, cash flow and ability to pay dividends on, and
the market price of, the Series B Preferred Stock.
15
<PAGE> 26
Concentration of Properties in California
As of June 30, 1998, the Properties in California represented approximately
22.4% of aggregate square footage and approximately 29.3% of Annualized Base
Rent. The Company's revenue from, and the value of its Properties located in,
California may be affected by a number of factors, including the local economic
climate (which may be adversely impacted by business layoffs or downsizing,
industry slowdowns, changing demographics and other factors) and local real
estate conditions (such as oversupply of or reduced demand for commercial
properties). A downturn in either the California economy or in California real
estate conditions could adversely affect the Company's financial condition,
results of operations, cash flow and ability to pay dividends on, and the market
price of, the Series B Preferred Stock. Certain Properties are also subject to
possible loss from seismic activity. See "-- Uninsured Losses from Seismic
Activity."
Concentration of Properties in Industrial and Retail Sectors
The Properties are and are likely to continue to be concentrated
predominantly in the industrial and retail commercial real estate sectors, which
as of June 30, 1998, represented 87.4% and 12.6%, respectively, of the
Properties' aggregate rentable square footage. Such concentration may expose the
Company to the risk of economic downturns in these sectors to a greater extent
than if its portfolio also included other property types. As a result, economic
downturns in these sectors could have an adverse effect on the Company's
financial condition, results of operations, cash flow and ability to pay
dividends on, and the market price of, the Series B Preferred Stock.
Uninsured Loss
The Company carries comprehensive liability, fire, extended coverage and
rental loss insurance covering all of its Properties, with policy specifications
and insured limits which the Company believes are adequate and appropriate under
the circumstances given relative risk of loss, the cost of such coverage and
industry practice. There are, however, certain types and magnitudes of losses
that are not generally insured because it is not economically feasible to insure
against such losses, such as losses due to riots or acts of war, or may be
insured subject to certain limitations including large deductibles or
co-payments, such as losses due to floods or seismic activity. See "-- Uninsured
Losses From Seismic Activity." Should an uninsured loss or a loss in excess of
insured limits occur with respect to one or more of its properties, the Company
could lose its capital invested in such properties, as well as the anticipated
future revenue from such properties and, in the case of debt which is with
recourse to the Company, the Company would remain obligated for any mortgage
debt or other financial obligations related to such properties. Moreover, as the
general partner of the Operating Partnership, the Company will generally be
liable for all of the Operating Partnership's unsatisfied obligations other than
non-recourse obligations. Any such liability could adversely affect the
Company's financial condition, results of operations, cash flow and ability to
pay dividends on, and the market price of, the Series B Preferred Stock.
Uninsured Losses from Seismic Activity
A number of the Industrial and Retail Properties are located in areas that
are known to be subject to earthquake activity, including in California where,
as of June 30, 1998, Industrial Properties aggregating 10.5 million rentable
square feet (representing 19.3% of the Properties based on aggregate square
footage) and Retail Properties aggregating 1.9 million rentable square feet
(representing 3.5% of the Properties based on aggregate square footage) are
located. The Company carries replacement cost earthquake insurance on all of its
Properties located in areas historically subject to seismic activity, subject to
coverage limitations and deductibles which the Company believes are commercially
reasonable. Such insurance coverage also applies to the properties managed by
AMB Investment Management, with a single aggregate policy limit and deductible
applicable to such properties and the Company's properties. Through an annual
analysis prepared by outside consultants, the Company evaluates its earthquake
insurance coverage in light of current industry practice and determines the
appropriate amount of earthquake insurance to carry. No assurance can be given,
however, that material losses in excess of insurance proceeds will not occur or
that such insurance will continue to be available at commercially reasonable
rates.
16
<PAGE> 27
Impact on Control Over and Liabilities With Respect to Properties Owned
Through Partnerships and Joint Ventures
The Company has ownership interests in 18 joint ventures, limited liability
companies or partnerships, including an interest in one unconsolidated entity
and two entities formed subsequent to June 30, 1998. The Company may make
additional investments through such ventures in the future and presently plans
to do so with clients of AMB Investment Management, with respect to certain
investment opportunities, who share certain approval rights over major
decisions. Partnership, limited liability company or joint venture investments
may, under certain circumstances, involve risks such as the possibility that the
Company's partners, members or joint venturers might become bankrupt (in which
event the Company and any other remaining general partners, members or joint
venturers would generally remain liable for the liabilities of such partnership,
limited liability company or joint venture), that such partners, members or
co-venturers might at any time have economic or other business interests or
goals which are inconsistent with the business interests or goals of the
Company, or that such partners, members or co-venturers may be in a position to
take action contrary to the Company's instructions or requests or contrary to
the Company's policies or objectives, including the Company's policy with
respect to maintaining its qualification as a REIT. In addition, agreements
governing joint ventures, limited liability companies and partnerships often
contain restrictions on the transfer of a joint venturer's, member's or
partner's interest or "buy-sell" or similar provisions which may result in a
purchase or sale of such an interest at a disadvantageous time or on
disadvantageous terms. The Company will, however, seek to maintain sufficient
control of such partnerships, limited liability companies or joint ventures to
permit the Company's business objectives to be achieved. There is no limitation
under the Company's organizational documents as to the amount of available funds
that may be invested in partnerships, limited liability companies or joint
ventures. The occurrence of one or more of the events described above could have
an adverse effect on the Company's financial condition, results of operations,
cash flow and ability to pay dividends on, and the market price of, the Series B
Preferred Stock.
Possible Inability to Consummate Acquisitions on Advantageous Terms
The Company intends to continue to acquire industrial and retail
properties. Acquisitions of industrial and retail properties entail risks that
investments will fail to perform in accordance with expectations. Estimates of
the costs of improvements to bring an acquired property up to standards
established for the market position intended for that property may prove
inaccurate. In addition, there are general investment risks associated with any
new real estate investment. Further, the Company expects that there will be
significant competition for attractive investment opportunities from other major
real estate investors with significant capital including both publicly traded
REITs and private institutional investment funds. The Company anticipates that
future acquisitions will be financed through a combination of borrowings under
the Credit Facility, and proceeds from equity or debt offerings by the Company
or the Operating Partnership (including issuances of Units in the Operating
Partnership), which could have an adverse effect on the Company's cash flow. No
assurance can be given that the Company will be able to acquire additional
properties. In addition, no assurance can be given that any such acquisitions
will be financed on terms favorable to the Company, or that such additional
properties, if any, will conform with management's expectations or investment
criteria. Any one of the foregoing events could have an adverse effect on the
Company's financial condition, results of operations, cash flow and ability to
pay dividends on, and the market price of, the Series B Preferred Stock.
Possible Inability to Complete Renovation and Development on Advantageous
Terms
The real estate development business, including the renovation and
rehabilitation of existing properties, involves significant risks in addition to
those involved in the ownership and operation of established industrial
buildings and community shopping centers, including the risks that financing may
not be available on favorable terms for development projects and construction
may not be completed on schedule or within budget, resulting in increased debt
service expense and construction costs and delays in leasing such properties and
generating cash flow. Substantial renovation and new development activities are
also subject to risks relating to the inability to obtain, or delays in
obtaining, all necessary zoning, land-use, building, occupancy
17
<PAGE> 28
and other required governmental permits and authorizations. Once completed, such
new or renovated properties may perform below anticipated levels, producing cash
flow below budgeted amounts. The occurrence of one or more of the foregoing in
connection with the Company's renovation and development activities could have
an adverse effect on its financial condition, results of operations, cash flow
and ability to pay dividends on, and the market price of, the Series B Preferred
Stock. In addition, substantial renovation as well as new development
activities, regardless of whether or not they are ultimately successful,
typically require a substantial portion of management's time and attention which
could divert management's time from the Company's day-to-day operations. The
Company anticipates that future activities will be financed through a
combination of additional equity offerings, and public or private debt
financing, including commercial lines of credit, and other forms of secured or
unsecured financing. If such activities are financed through construction loans,
there is a risk that, upon completion of construction, permanent financing may
not be available or may be available only on disadvantageous terms which could
have an adverse effect on the Company's financial condition, results of
operations, cash flow and ability to pay dividends on, and the market price of,
the Series B Preferred Stock.
LIMITED RESTRICTIONS ON TOTAL INDEBTEDNESS
The Company operates with a policy of incurring debt, either directly or
through its subsidiaries, only if upon such incurrence the Company's
Debt-to-Total Market Capitalization Ratio would be approximately 45% or less.
The aggregate amount of indebtedness the Company may incur under such policy
varies directly with the valuation of the Company's capital stock and the number
of shares of capital stock outstanding. Accordingly, the Company would be able
to incur additional indebtedness under such policy as a result of increases in
the market price per share of its common stock or other outstanding classes of
capital stock, and future issuance of shares of capital stock. Notwithstanding
the foregoing policy, the organizational documents of the Company do not contain
any limitation on the amount of indebtedness that may be incurred. Accordingly,
the Board of Directors could alter or eliminate this policy and would do so, for
example, if it were necessary for the Company to continue to qualify as a REIT.
If this policy were changed, the Company could become more highly leveraged,
resulting in an increase in debt service that could adversely affect the
Company's financial condition, results of operations, cash flow and ability to
pay dividends on, and the market price of, the Series B Preferred Stock.
DEBT FINANCING
Debt Financing and Existing Debt Maturities
The Company is subject to risks normally associated with debt financing,
including the risk that its cash flow will be insufficient to make distributions
to its stockholders, the risk that existing indebtedness on the Properties
(which in all cases will not have been fully amortized at maturity) will not be
able to be refinanced or that the terms of refinancing will not be as favorable
as the terms of existing indebtedness. See "Business and Properties -- Debt
Financing." As of June 30, 1998, the Company had total debt outstanding of
approximately $1.1 billion including (i) approximately $592.4 million of secured
indebtedness (including unamortized debt premiums of approximately $16.8
million) with an average maturity of seven years and a weighted average interest
rate of 7.91%, (ii) approximately $137.0 million outstanding under its unsecured
credit facilities with maturity dates of July 1998 and November 2000 and
weighted average interest rates of 6.59% and (iii) $400 million aggregate
principal amount of Senior Debt Securities with maturities in June 2008, 2015
and 2018 and a weighted average interest rate of 7.18%. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and "Business and
Properties -- Debt Financing." The Company is a guarantor of the Operating
Partnership's obligations with respect to the Senior Debt Securities. See
"Capitalization." If principal payments due at maturity cannot be refinanced,
extended or paid with proceeds of other capital transactions, such as new equity
capital, the Company expects that its cash flow will not be sufficient in all
years to pay dividends to holders of the Series B Preferred Stock and to repay
all such maturing debt. Furthermore, if prevailing interest rates or other
factors at the time of refinancing (such as the reluctance of lenders to make
commercial real estate loans) resulted in higher interest rates upon
refinancing, the interest expense relating to such refinanced indebtedness would
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increase, which would adversely affect the Company's financial condition,
results of operations, cash flow and ability to pay dividends on, and the market
price of, the Series B Preferred Stock. If a Property or Properties are
mortgaged to secure payment of indebtedness and the Company is unable to meet
mortgage payments, the Property could be foreclosed upon or otherwise
transferred to the mortgagee with a consequent loss of income and asset value to
the Company which could have an adverse affect on the its financial condition,
results of operations, cash flow and ability to pay dividends on, and the market
price of, the Series B Preferred Stock.
Impact of Rising Interest Rates and Variable Rate Debt
As of June 30, 1998, the Company had $137.0 million outstanding under its
unsecured credit facilities. In addition, the Company may incur other variable
rate indebtedness in the future. Increases in interest rates on such
indebtedness could increase the Company's interest expense, which would
adversely affect the Company's financial condition, results of operations, cash
flow and ability to pay dividends on, and the market price of, the Series B
Preferred Stock. Accordingly, the Company may in the future engage in
transactions to limit its exposure to rising interest rates to the extent that
it believes such to be appropriate and cost effective. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
Dependence on External Sources of Capital
In order to qualify as a REIT under the Code, the Company generally is
required each year to distribute currently to its stockholders at least 95% of
its REIT taxable income (determined without regard to the dividends-paid
deduction and by excluding any net capital gain). See "Material Federal Income
Tax Consequences -- Taxation of the Company -- Annual Distribution
Requirements." Because of this distribution requirement, the Company may not be
able to fund all future capital needs, including capital needs in connection
with acquisitions, from cash retained from operations. As a result, to fund
capital needs, the Company relies on third-party sources of capital, which may
or may not be available on favorable terms or at all. The Company's access to
third-party sources of capital depends upon a number of factors, including the
market's perception of the Company's growth potential and its current and
potential future earnings and cash distributions and the market price of the
shares of its capital stock. Additional debt financing may substantially
increase the Company's leverage. See "Policies with Respect to Certain
Activities -- Financing Policies."
Possible Impact of Defaults on Cross-Collateralized and Cross-Defaulted Debt
As of June 30, 1998, the Company had 12 non-recourse secured loans which
are cross-collateralized by five pools consisting of 19 Properties. As of June
30, 1998, there was $211.2 million outstanding on such loans. If an event of
default were to occur on any such loan, the Company would be required to repay
the aggregate of all indebtedness, together with applicable prepayment charges,
in order to avoid foreclosure on all such Properties within the applicable pool.
Foreclosure on such Properties, or the Company's inability to refinance any such
loan on terms as favorable as existing terms, could adversely impact its
financial condition, results of operations, cash flow and ability to pay
dividends on, and the market price of, the Series B Preferred Stock. In
addition, the Credit Facility and the Senior Debt Securities contain certain
cross-default provisions which are triggered in the event that other material
indebtedness of the Company (including its non-recourse secured and joint
venture debt) is in default. Such cross-default provisions may require the
Company to repay or restructure the Credit Facility and the Senior Debt
Securities in addition to any mortgage or other debt which is in default, which
could have an adverse effect on the Company's financial condition, results of
operations, cash flow and ability to pay dividends on, and the market price of,
the Series B Preferred Stock.
CONTINGENT OR UNKNOWN LIABILITIES
The AMB Predecessors have been in existence for varying lengths of time up
to 15 years. In the Formation Transactions, the Company acquired the assets of
CIF, VAF, AMB and WPF, and certain assets of the Individual Account Investors
(each as defined in the Glossary), subject to all of the potential existing
liabilities of such predecessor entities. There can be no assurances that there
are no current liabilities and will not be any future liabilities arising from
prior activities that are unknown and therefore not disclosed in this
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Prospectus. Such liabilities have been assumed by the Company as the surviving
entity in the various merger and contribution transactions that comprise the
Formation Transactions. Existing liabilities for indebtedness generally were
taken into account (directly or indirectly) in connection with the allocation of
the shares of Common Stock and/or Units in the Formation Transactions, but no
other liabilities were taken into account for such purposes. The Company does
not have recourse against CIF, VAF, AMB or WPF or any of their respective
stockholders or partners or against the Individual Account Investors, with
respect to any unknown liabilities except to the extent provided by the
indemnity escrow agreement entered into in connection with the Formation
Transactions (the "Indemnity Escrow"). Unknown liabilities might include
liabilities for clean-up or remediation of undisclosed environmental conditions,
claims of tenants, vendors or other persons dealing with the entities prior to
the Formation Transactions (that had not been asserted prior to the Formation
Transactions), accrued but unpaid liabilities incurred in the ordinary course of
business, tax liabilities and claims for indemnification by the officers and
directors of CIF, VAF and AMB and others indemnified by such entities, including
clients of AMB. Certain tenants may claim that the Formation Transactions gave
rise to a right to purchase the premises occupied by such tenants. The Company
does not believe any such claims would be material. See "-- Government
Regulations -- Environmental Matters" below as to the possibility of undisclosed
environmental conditions potentially affecting the value of the Properties. The
existence of undisclosed material liabilities which are not covered by the
Indemnity Escrow or undisclosed material liabilities in connection with the
acquisition of properties, entities and interests therein could have an adverse
effect on the Company's financial condition, results of operations, cash flow
and ability to pay dividends on, and the market price of, the Series B Preferred
Stock.
CONFLICTS OF INTEREST
Continued Involvement of Executive Officers in Other Real Estate Activities
and Investments
Certain Executive Officers own interests in real estate-related businesses
and investments. Such interests include minority ownership of Institutional
Housing Partners, a residential housing finance company (through AMB
Institutional Housing Partners); and ownership of AMB Development, Inc. and AMB
Development L.P., developers which own property that management believes is not
suitable for ownership by the Company. AMB Development, Inc. and AMB Development
L.P. have agreed not to initiate any new development projects following the IPO,
nor will they make any further investments in industrial or retail properties
other than those currently under development at the time of the IPO. AMB
Institutional Housing Partners, AMB Development, Inc. and AMB Development, L.P.
continue to use the name "AMB" pursuant to royalty-free license arrangements
with the Company. The continued involvement in other real estate-related
activities by certain of the Executive Officers and directors could divert
management's attention from the Company's day-to-day operations. Most of the
Executive Officers have entered into non-competition agreements with the Company
pursuant to which, among other things, they have agreed not to engage in any
activities, directly or indirectly, in respect of commercial real estate, and
not make any investment in respect of industrial or retail real estate, other
than through ownership of not more than 5% of the outstanding shares of a public
company engaged in such activities or through the existing investments referred
to herein.
The Company could also, in the future, subject to the unanimous approval of
the disinterested members of the Board of Directors with respect to such
transaction, acquire property from such Executive Officers, enter into leases
between such Executive Officers and the Company, and/or engage in other related
activities in which the interests pursued by such Executive Officers may not be
in the best interests of the holders of the Series B Preferred Stock.
Conflicts of Interest in Connection with Properties Owned or Controlled by
Executive Officers and Directors
AMB Development L.P. owns interests in 11 retail development projects in
the U.S., each of which consists of a single free-standing Walgreens drugstore,
and, together with other entities controlled by nine of the Executive Officers,
a low income housing apartment building located in the San Francisco Bay Area.
In addition, Messrs. Abbey, Moghadam and Burke, each a founder and director of
the Company, own less than 1% interests in two partnerships which own office
buildings in various markets; these interests have negligible
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value. Luis A. Belmonte, an Executive Officer, owns less than a 10% interest,
representing an estimated value of $75,000, in a limited partnership which owns
an office building located in Oakland, California. David S. Fries, an Executive
Officer, owns an approximate 1% interest in a limited partnership that owns an
apartment complex in Orange County, California.
In addition, several of the Executive Officers individually own: (i) less
than 1% interests in the stocks of certain publicly-traded REITs and residential
developers; (ii) certain interests in and rights to developed and undeveloped
real property located outside the United States; (iii) interests in
single-family homes and residential apartments in the San Francisco Bay Area;
(iv) certain passive interests, not believed to be material, in real estate
businesses in which such persons were previously employed; and (v) certain other
de minimis holdings in equity securities of real estate companies. Thomas W.
Tusher, a member of the Board of Directors, is a limited partner in a
partnership in which Messrs. Abbey, Moghadam and Burke are general partners and
which owns a 75% interest in an office building. Mr. Tusher owns a 20% interest
in the partnership, valued as of June 30, 1998 at approximately $1.2 million.
Messrs. Abbey, Moghadam and Burke each have an approximately 26.7% interest in
the partnership, each valued as of June 30, 1998 at approximately $1.6 million.
The Company believes that the properties and activities set forth above
generally do not directly compete with any of the Properties; however, it is
possible that a property in which an Executive Officer or director of the
Company, or an affiliate of such person, has an interest may compete with the
Company in the future if the Company were to invest in a property similar in
type and in close proximity to such property. However, the continued involvement
by the Executive Officers and directors in such properties could divert
management's attention from the Company's day-to-day operations. The Company is
prohibited from acquiring any properties from the Executive Officers or their
affiliates without the approval of the disinterested members of the Board of
Directors with respect to such transaction. See "Policies With Respect to
Certain Activities -- Conflict of Interest Policies."
Conflicts Relating to the Operating Partnership
The Company, as the general partner of the Operating Partnership, has
fiduciary obligations to the limited partners in the Operating Partnership, the
discharge of which may conflict with the interests of the Company's
stockholders. In addition, those persons holding Units, as limited partners,
will have the right to vote as a class on certain amendments to the Partnership
Agreement of the Operating Partnership and individually to approve certain
amendments that would adversely affect their rights, which voting rights may be
exercised in a manner that conflicts with the interests of those investors who
acquire shares of Series B Preferred Stock in the Offering. In addition, under
the terms of the Partnership Agreement, the holders of Units will have certain
approval rights with respect to certain transactions that affect all
stockholders but which may not be exercised in a manner which reflects the
interests of all stockholders, including holders of the Series B Preferred
Stock. See "Description of Certain Provisions of the Partnership Agreement of
the Operating Partnership -- Removal of General Partner; Transferability of the
Company's Interests; Treatment of Units in Significant Transactions."
Influence of Directors, Executive Officers and Significant Stockholders
As of August 31, 1998, the Company's three largest stockholders, Ameritech
Pension Trust, the City and County of San Francisco Employees' Retirement System
and Southern Company System Master Retirement Trust, beneficially owned
approximately 27.9% of the outstanding Common Stock (assuming the exchange of
all Units into shares of Common Stock). In addition, the Executive Officers and
directors beneficially owned 5.6% of the Common Stock as of such date (assuming
the exchange of all Units into shares of Common Stock, before issuance of any
Performance Units), and will have influence on the management and operation of
the Company and, as stockholders, will have influence on the outcome of any
matters submitted to a vote of the stockholders. Such influence might be
exercised in a manner that is inconsistent with the interests of other
stockholders, including the holders of the Series B Preferred Stock. Although
there is no understanding or arrangement for these directors, officers and
stockholders and their affiliates to act in concert, such parties
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would be in a position to exercise significant influence over the Company's
affairs should they choose to do so. See "Principal Stockholders."
Failure to Enforce Terms of Certain Agreements
As holders of shares of Common Stock and, potentially, Performance Units,
certain of the Company's directors and Executive Officers could have a conflict
of interest with respect to their obligations as directors and Executive
Officers to vigorously enforce the terms of certain of the agreements relating
to the Formation Transactions. The potential failure to enforce the material
terms of those agreements could result in a monetary loss to the Company, which
loss could have a material adverse effect on the Company's financial condition,
results of operations, cash flow and ability to pay distributions on, and the
market price of, the Series B Preferred Stock.
GOVERNMENT REGULATIONS
Many laws and governmental regulations are applicable to the Properties and
changes in these laws and regulations, or their interpretation by agencies and
the courts, occur frequently.
Costs of Compliance with Americans with Disabilities Act
Under the Americans with Disabilities Act of 1990 (the "ADA"), all places
of public accommodation are required to meet certain Federal requirements
related to access and use by disabled persons. Compliance with the ADA might
require removal of structural barriers to handicapped access in certain public
areas where such removal is "readily achievable." Noncompliance with the ADA
could result in the imposition of fines or an award of damages to private
litigants. The impact of application of the ADA to the Properties, including the
extent and timing of required renovations, is uncertain. If required changes
involve a greater amount of expenditures than the Company currently anticipates
or if the changes must be made on a more accelerated schedule than the Company
currently anticipates, its ability to pay dividends on, and the market price of,
Series B Preferred Stock could be adversely affected.
Environmental Matters
Under Federal, state and local laws and regulations relating to the
protection of the environment ("Environmental Laws"), a current or previous
owner or operator of real estate may be liable for contamination resulting from
the presence or discharge of hazardous or toxic substances or petroleum products
at such property, and may be required to investigate and clean up such
contamination at such property or such contamination which has migrated from
such property. Such laws typically impose liability and clean-up responsibility
without regard to whether the owner or operator knew of or caused the presence
of the contaminants, and the liability under such laws has been interpreted to
be joint and several unless the harm is divisible and there is a reasonable
basis for allocation of responsibility. In addition, the owner or operator of a
site may be subject to claims by third parties based on personal injury,
property damage and/or other costs, including investigation and clean-up costs,
resulting from environmental contamination present at or emanating from a site.
Environmental Laws also govern the presence, maintenance and removal of
asbestos-containing building materials ("ACBM"). Such laws require that ACBM be
properly managed and maintained, that those who may come into contact with ACBM
be adequately apprised or trained and that special precautions, including
removal or other abatement, be undertaken in the event ACBM is disturbed during
renovation or demolition of a building. Such laws may impose fines and penalties
on building owners or operators for failure to comply with these requirements
and may allow third parties to seek recovery from owners or operators for
personal injury associated with exposure to asbestos fibers. Some of the
Properties may contain ACBM.
Some of the Properties are leased or have been leased, in part, to owners
and operators of dry cleaners that operate on-site dry cleaning plants, to
owners and operators of gas stations or to owners or operators of other
businesses that use, store or otherwise handle petroleum products or other
hazardous or toxic substances. Some of these Properties contain, or may have
contained, underground storage tanks for the storage of
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petroleum products and other hazardous or toxic substances. These operations
create a potential for the release of petroleum products or other hazardous or
toxic substances. Some of the Properties are adjacent to or near other
properties that have contained or currently contain underground storage tanks
used to store petroleum products or other hazardous or toxic substances. In
addition, certain of the Properties are on, or are adjacent to or near other
properties upon which others, including former owners or tenants of the
Properties, have engaged or may in the future engage in activities that may
release petroleum products or other hazardous or toxic substances.
All of the Properties were subject to a Phase I or similar environmental
assessments by independent environmental consultants at the time of acquisition
or shortly after acquisition. Phase I assessments are intended to discover and
evaluate information regarding the environmental condition of the surveyed
property and surrounding properties. Phase I assessments generally include an
historical review, a public records review, an investigation of the surveyed
site and surrounding properties, and preparation and issuance of a written
report, but do not include soil sampling or subsurface investigations and
typically do not include an asbestos survey. The Company may perform additional
Phase II testing if recommended by the independent environmental consultant.
Phase II testing may include the collection and laboratory analysis of soil and
groundwater samples, completion of surveys for ACBM, and any other testing that
the consultant considers prudent in order to test for the presence of hazardous
materials. Some of the Company's environmental assessments of the Properties do
not contain a comprehensive review of the past uses of the Properties and/or the
surrounding properties.
None of the environmental assessments of the Properties has revealed any
environmental liability that the Company believes would have a material adverse
effect on its financial condition or results of operations taken as a whole, nor
is it aware of any such material environmental liability. Nonetheless, it is
possible that the assessments do not reveal all environmental liabilities and
that there are material environmental liabilities of which the Company is
unaware. Moreover, there can be no assurance that (i) future laws, ordinances or
regulations will not impose any material environmental liability or (ii) the
current environmental condition of the Properties will not be affected by
tenants, by the condition of land or operations in the vicinity of the
Properties (such as releases from underground storage tanks), or by third
parties unrelated to the Company. If the costs of compliance with the various
environmental laws and regulations, now existing or hereafter adopted, exceed
the Company's budgets for such items, the Company's financial condition, results
of operations, cash flow and ability to pay dividends on, and the market price
of, the Series B Preferred Stock could be adversely affected.
Other Regulations
The Properties are also subject to various Federal, state and local
regulatory requirements such as state and local fire and life safety
requirements. Failure to comply with these requirements could result in the
imposition of fines by governmental authorities or awards of damages to private
litigants. The Company believes that the Properties are currently in substantial
compliance with all such regulatory requirements. However, there can be no
assurance that these requirements will not be changed or that new requirements
will not be imposed which would require significant unanticipated expenditures
by the Company, which expenditures could have an adverse effect on the Company's
financial condition, results of operations, cash flow and ability to pay
dividends on, and the market price of, the Series B Preferred Stock.
FEDERAL INCOME TAX RISKS
Adverse Consequences of the Company's Failure to Qualify as a REIT
The Company intends to operate so as to qualify as a REIT under the Code.
Although management believes that the Company has been organized and has
operated in a manner which would allow it to qualify as a REIT under the Code,
no assurance can be given that the Company has been so organized and operated,
or that the Company will continue to be so organized and operated in the future.
Qualification as a REIT involves the satisfaction of numerous requirements (some
on an annual and quarterly basis) established under highly technical and complex
Code provisions for which there are only limited judicial and administrative
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interpretations, and involves the determination of various factual matters and
circumstances not entirely within the Company's control. For example, in order
to qualify as a REIT, at least 95% of the Company's gross income in any year
must be derived from qualifying sources, and the Company must pay dividends to
stockholders aggregating annually at least 95% of its REIT taxable income
(determined without regard to the dividends-paid deduction and by excluding
capital gains). The complexity of these provisions and of the applicable
Treasury Regulations that have been promulgated under the Code is greater in the
case of a REIT, such as the Company, that holds its assets in partnership form.
No assurance can be given that legislation, new regulations, administrative
interpretations or court decisions will not significantly change the tax laws
with respect to qualification as a REIT or the Federal income tax consequences
of such qualification. The Company, however, is not aware of any pending tax
legislation that would adversely affect its ability to operate as a REIT.
In the opinion of Latham & Watkins, tax counsel to the Company, commencing
with the Company's taxable year ended December 31, 1997, the Company has been
organized and has operated in conformity with the requirements for qualification
as a REIT and its method of operation will enable it to continue to meet the
requirements for qualification and taxation as a REIT under the Code. See
"Material Federal Income Tax Consequences -- Taxation of the Company." Such
legal opinion, however, is based on various assumptions and factual
representations by the Company regarding its ability to satisfy the various
requirements for qualification as a REIT, and no assurance can be given that
actual operating results have met or will continue to meet these requirements.
Such legal opinion is not binding on the IRS or any court. Moreover, the
Company's qualification and taxation as a REIT depends upon its ability to meet
(through actual annual operating results, asset composition, distribution levels
and diversity of stock ownership) the various qualification tests imposed under
the Code, the results of which have not been and will not be reviewed by Latham
& Watkins.
If the Company were to fail to qualify as a REIT in any taxable year, it
would be subject to Federal income tax (including any applicable alternative
minimum tax) on its taxable income at regular corporate rates. Moreover, unless
entitled to relief under certain statutory provisions, the Company also would be
disqualified from treatment as a REIT for the four taxable years following the
year during which qualification was lost. In addition, a Federal budget proposal
contains a provision which, if enacted in its present form, would result in the
immediate taxation of all gain inherent in a C corporation's (i.e., a
corporation which is neither an S Corporation nor a REIT) assets upon an
election by the corporation to become a REIT in taxable years beginning after
January 1, 1999, and thus could effectively preclude the Company from
re-electing to be taxed as a REIT following a loss of its REIT status. This
treatment would significantly reduce the net earnings of the Company available
for investment or distribution to stockholders because of the additional tax
liability to the Company for the year or years involved. In addition,
distributions to stockholders would no longer be required to be made. See
"Material Federal Income Tax Consequences -- Taxation of the Company -- Failure
of the Company to Qualify as a REIT."
Other Tax Liabilities
Even if the Company qualifies as a REIT, it will be subject to certain
Federal, state and local taxes on its income and property. In addition, the net
taxable income, if any, from the activities conducted through the Preferred
Stock Subsidiaries (as defined below) will be subject to Federal and state
income tax. See "Federal Income Tax Consequences -- Other Tax Consequences."
DEPENDENCE ON KEY PERSONNEL
The Company is dependent on the efforts of its Executive Officers,
particularly Messrs. Abbey, Moghadam and Burke, the Chairman of the Company's
Investment Committee, its Chief Executive Officer and the Chairman of its Board
of Directors, respectively. While the Company believes that it could find
suitable replacements for these key personnel, the loss of their services or the
limitation of their availability could have an adverse effect on the Company's
financial condition, results of operations, cash flow and ability to pay
dividends on, and the market price of, the Series B Preferred Stock. While
certain Executive Officers have entered into employment agreements with the
Company, there may be limitations under applicable state
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law in the enforceability of such agreements, particularly as respects the
non-competition agreements contained therein. See "Management -- Employment
Agreements."
ABSENCE OF PRIOR PUBLIC MARKET FOR SHARES; MARKET CONDITIONS
Prior to the completion of the Offering, there will have been no public
market for the Series B Preferred Stock and there can be no assurance that an
active trading market will develop or be sustained or that shares of Series B
Preferred Stock will be resold at or above the price to the public in the
Offering. The initial offering price of the shares of Series B Preferred Stock
will be determined by agreement among the Company and the Underwriters and may
not be indicative of the market price for the shares after the completion of the
Offering. The market price of the Series B Preferred Stock could be adversely
affected by general market conditions, including fluctuations in equity markets
or rising interest rates.
NEED TO MANAGE RAPID GROWTH
The Company's business has grown rapidly and continues to grow rapidly
through property acquisitions. There can be no assurance that the Company will
be able to manage effectively rapid growth in the future, and any failure to do
so could adversely affect the Company's financial condition, results of
operations, cash flow and ability to pay dividends on, and the market price of,
the Series B Preferred Stock.
THE PREFERRED STOCK SUBSIDIARIES
Adverse Consequences of Lack of Control Over the Business of the Preferred
Stock Subsidiaries
To comply with the REIT asset tests that restrict ownership of shares of
other corporations, the Operating Partnership owns 100% of the non-voting
preferred stock of AMB Investment Management and Headlands Realty Corporation
(together, the "Preferred Stock Subsidiaries") (representing approximately 95%
of the economic interest in each entity) and certain Executive Officers and an
officer of AMB Investment Management and certain Executive Officers and a
director of Headlands Realty Corporation own all of the outstanding voting
common stock of AMB Investment Management and Headlands Realty Corporation,
respectively (representing approximately 5% of the economic interest in each
entity). This ownership structure is necessary to permit the Company to share in
the income of the Preferred Stock Subsidiaries while maintaining its status as a
REIT. Although the Company receives substantially all of the economic benefit of
the businesses carried on by the Preferred Stock Subsidiaries through the
Company's right to receive dividends through the Operating Partnership, the
Company is not able to elect directors or officers of the Preferred Stock
Subsidiaries and, therefore, the Company does not have the ability to influence
the operation of the Preferred Stock Subsidiaries or require that the Preferred
Stock Subsidiaries' boards of directors declare and pay cash dividends on the
non-voting stock of the Preferred Stock Subsidiaries held by the Operating
Partnership. As a result, the boards of directors and management of the
Preferred Stock Subsidiaries might implement business policies or decisions that
would not have been implemented by persons controlled by the Company and that
may be adverse to the interests of the Company's stockholders or that lead to
adverse financial results, which could adversely impact the Company's financial
condition, results of operations, cash flow and ability to pay dividends on, and
the market price of, the Series B Preferred Stock. In addition, the Preferred
Stock Subsidiaries are subject to tax on their income, reducing their cash
available for distribution.
Uncertainty of AMB Investment Management Operations
Fees earned by AMB Investment Management are dependent upon various
factors, including factors beyond the control of the Company and the Operating
Partnership, affecting the ability to attract and retain investment management
clients and the overall returns achieved on managed assets. Failure of AMB
Investment Management to attract investment management clients or achieve
sufficient overall returns on managed assets could reduce its ability to make
distributions on the non-voting preferred stock owned by the Operating
Partnership. Such failure could also limit co-investment opportunities to the
Operating Partnership and, as a result, the Operating Partnership's ability to
generate rental revenues from such co-investments and use the co-investment
program as a source to finance property acquisitions and leverage acquisition
opportunities.
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THE COMPANY
GENERAL
The Company is one of the largest publicly-traded real estate companies in
the United States. As of September 25, 1998, the Company owned 583 industrial
buildings and retail centers, comprised of 546 industrial buildings (including
83 industrial buildings acquired since June 30, 1998) located in 26 markets
throughout the United States and 37 retail centers located in 16 markets
throughout the United States. The Industrial Properties encompass approximately
52.8 million rentable square feet and, as of June 30, 1998, were 95.1% leased to
over 1,200 tenants. The Retail Properties, principally grocer-anchored community
shopping centers, encompass approximately 6.8 million rentable square feet and,
as of the same date, were 95.0% leased to over 900 tenants. See "Business and
Properties." The Company owns substantially all of its assets, and conducts
substantially all of its business, through the Operating Partnership and its
subsidiaries.
The Company is engaged in the business of acquiring and operating
industrial properties and community shopping centers in target markets
nationwide. The Company is led by Hamid R. Moghadam, its Chief Executive Officer
and one of three founders of the Company. Douglas D. Abbey and T. Robert Burke,
the other two founders, also play active roles in the Company's operations as
the Chairman of its Investment Committee and the Chairman of its Board of
Directors, respectively. The Company's 10 executive officers have an average of
23 years of experience in the real estate industry and have worked together for
an average of nine years building the AMB real estate business.
AMB Property Corporation was organized in November 1997 and commenced
operations upon the completion of the IPO. The Company operates as a
self-administered and self-managed real estate company and believes that it has
qualified and that it will continue to qualify as a REIT for Federal income tax
purposes beginning with the year ended December 31, 1997.
RECENT DEVELOPMENTS
Sale of Senior Debt Securities. On June 30, 1998, the Operating Partnership
sold $400 million aggregate principal amount of Senior Debt Securities in an
underwritten public offering. The net proceeds were used to repay borrowings
under the Credit Facility incurred in connection with property acquisitions.
Sale of Series A Preferred Stock. On July 27, 1998, the Company sold
4,000,000 Series A Preferred Shares at a price of $25.00 per share in an
underwritten public offering. The net proceeds were used to repay borrowings
under the Credit Facility incurred in connection with property acquisitions.
Acquisition and Development Activity. From July 1, 1998 to September 25,
1998, the Company invested approximately $258.9 million in 83 industrial
buildings aggregating 5.1 million rentable square feet and committed to invest
approximately $23.3 million in two new development projects aggregating 0.5
million rentable square feet.
Distributions and Dividends. On September 3, 1998, the Board of Directors
declared a distribution on the Common Stock of $0.3425 per share, payable on
October 2, 1998 to stockholders of record as of September 16, 1998, and, in its
capacity as general partner of the Operating Partnership, declared a
distribution on the Operating Partnership's common partnership units of $0.3425
per common partnership unit, payable on October 2, 1998 to partners of record as
of September 16, 1998. On September 3, 1998, the Board of Directors also
declared a dividend on the Series A Preferred Stock of $0.4604 per share for the
period commencing on July 27, 1998 and ending on October 14, 1998, payable on
October 15, 1998 to stockholders of record as of September 16, 1998, and, in its
capacity as general partner of the Operating Partnership, declared a
distribution for such period on the Operating Partnership's Series A Preferred
Units of $0.4604 per Series A Preferred Unit, payable on October 15, 1998 to
partners of record as of September 16, 1998.
Investment-Grade Credit Rating. The Company received credit ratings on its
senior unsecured debt of Baa1 from Moody's Investors Service, BBB from Standard
& Poor's Corporation and BBB+ from Duff & Phelps Credit Rating Co. As a result
of receiving these investment-grade credit ratings, the interest rate on the
Credit Facility was reduced by 20 basis points to LIBOR plus 90 basis points. In
addition, the Company received ratings on the Series A Preferred Stock of Baa2
from Moody's Investors Service, BBB- from Standard & Poor's Corporation and BBB
from Duff & Phelps Credit Rating Co.
26
<PAGE> 37
BUSINESS AND OPERATING STRATEGIES
The Company focuses its investment activities in industrial hub
distribution markets and retail trade areas throughout the U.S. where management
believes opportunities exist to acquire and develop additional properties on an
advantageous basis. The Company is a full-service real estate company with
in-house expertise in acquisitions, development and redevelopment, asset
management and leasing, finance and accounting and market research. The Company
has long-standing relationships with many real estate management firms across
the country which provide local property management and leasing services to the
Company on a fee basis.
STRATEGIC ALLIANCE PROGRAMS(TM)
The Company believes that its strategy of forming strategic alliances with
local and regional real estate experts and institutional investors provides it
with growth opportunities, access to private capital and the ability to remain
flexible in the markets in which it operates. The Company has been a leader in
systematically forming such alliances through its following Strategic Alliance
Programs(TM).
DEVELOPMENT ALLIANCE PROGRAM(TM): The Company's strategy for its
Development Alliance Program(TM) is to enhance its development capability
by forming alliances with development firms with a strong local presence
and expertise.
UPREIT ALLIANCE PROGRAM(TM): Through its UPREIT Alliance Program(TM), the
Company issues operating partnership units in exchange for properties, thus
providing additional growth for the portfolio.
INSTITUTIONAL ALLIANCE PROGRAM(TM): The Company's strategy for its
Institutional Alliance Program(TM) is to form alliances with institutional
investors through the co-investment program of AMB Investment Management to
provide access to private capital, including during those times when the
public markets are less attractive.
CUSTOMER ALLIANCE PROGRAM(TM): Through its Customer Alliance Program(TM),
the Company seeks to build long-term working relationships with major
tenants with the assistance of leading local and national leasing firms.
MANAGEMENT ALLIANCE PROGRAM(TM): The Company's strategy for its Management
Alliance Program(TM) is to develop close relationships with and outsource
property management to local property managers that the Company believes to
be among the best in their respective markets and that provide local market
information related to tenant activity and acquisition opportunities, while
at the same time achieving economies of scale.
NATIONAL PROPERTY COMPANY
As of September 25, 1998, the Company owned 546 industrial buildings
located in 26 markets throughout the U.S. and 37 retail centers located in 16
markets throughout the U.S. The Company believes that its national strategy
enables it to (i) increase or decrease investments in certain regions to take
advantage of the relative strengths in different real estate markets; (ii)
retain and accommodate tenants as they consolidate or expand, particularly in
its Industrial Properties; and (iii) build brand awareness as well as customer
loyalty through the delivery of consistent service and quality product. Through
its presence in markets throughout the U.S., the Company has also developed
operating expertise in leasing, expense management, tenant retention strategies
and property design and configuration.
TWO COMPLEMENTARY PROPERTY TYPES
Management believes its strategy of owning and operating both industrial
properties and community shopping centers offers the Company an optimal
combination of growth opportunities, strong current income and increased
stability through market cycles. The Company has developed the expertise,
infrastructure and management information systems to acquire, reposition,
develop and operate these two property types. Management believes that its dual
property strategy provides significant opportunities to allocate capital and
27
<PAGE> 38
organizational resources between property types according to changing market
conditions and its investment strategy.
RESEARCH-DRIVEN, SELECT MARKET FOCUS
The Company intends to continue its strategy of investing in industrial hub
distribution markets and retail trade areas across the country to capitalize on
changes in the relative economic strength of these regions. The Company focuses
on acquiring, redeveloping and operating properties in "in-fill" locations,
which are characterized by limited new construction opportunities. As the
strength of these markets continues to grow and the demand for well-located
properties increases, the Company believes that it will benefit from an upward
pressure on rents resulting from the increased demand combined with the relative
lack of new available space. The Company's decisions regarding the deployment of
capital are experience- and research-driven, and are based on thorough
qualitative and quantitative research and analysis of local markets. The Company
employs a dedicated research department using proprietary analyses, databases
and systems.
The Company intends to continue to focus its industrial property investment
activities in six hub markets which dominate national warehouse distribution
activities: Atlanta, Chicago, Dallas/Fort Worth, Los Angeles, Northern New
Jersey and the San Francisco Bay Area. Among the nation's 53 major industrial
markets tracked by CB Commercial/Torto Wheaton Research, the six markets listed
above accounted for approximately (i) 36% of the warehouse property inventory as
of December 31, 1997 and (ii) for the three-year period ended December 31, 1997,
an average of 36% of industrial property net absorption. As of June 30, 1998,
such hub markets contained approximately 56% of the Industrial Properties'
aggregate square footage. The Company also invests in selected regional
distribution markets including Boston, Denver, Houston, Miami, Minneapolis, San
Diego, Seattle and Baltimore/Washington, D.C. The Company focuses on these
established industrial markets because management believes they offer large and
broadly diversified tenant bases which provide greater demand for properties
over market cycles than secondary markets. In-fill locations within these
markets also typically have significant barriers to new construction, including
geographic or regulatory supply constraints, and these markets typically benefit
from access to large labor supplies and well-developed transportation networks.
See "Business and Properties -- Industrial Properties -- Overview of Major
Target Markets."
DISCIPLINED INVESTMENT PROCESS
During its 14-year history prior to the consummation of the IPO, AMB
established a disciplined approach to the investment process through operating
divisions that are subject to the overall policy direction of management's
investment committee (the "Investment Committee"). The stages in the investment
process are highly integrated, with Investment Committee review at critical
points in the process.
Approval of each investment is the responsibility of the Investment
Committee with sponsorship from both an acquisitions officer and the regional
manager who will be responsible for managing the property. The initial
investment recommendation is thoroughly evaluated, with approval required in
order to proceed to contract and full due diligence. The terms of the
acquisition and its structure are determined as part of the initial approval and
are the responsibility of the acquisitions officer. The regional manager is
involved in providing and verifying underwriting assumptions and developing the
operating strategy. After the due diligence review and before removing
conditions to the contract, a final Investment Committee recommendation is
prepared by the acquisition and asset management team. The Investment Committee
conducts a complete review of the information developed during the due diligence
process and either rejects or gives final approval.
AMB also established proprietary systems and procedures to manage and track
a high volume of acquisition proposals, transactions and important market data.
This includes an on-line open issues database that provides the Company with
current information on the status of each transaction, highlighting the issues
that must be addressed prior to closing, and a database that includes and
compiles data on all transaction proposals and markets reviewed by the Company.
28
<PAGE> 39
PROPERTY DEVELOPMENT
The multidisciplinary backgrounds of the Company's employees provide the
Company with the skills and experience to capitalize on strategic renovation,
expansion and development opportunities. Several of the Company's officers have
extensive experience in real estate development, both at AMB and with national
development firms. The Company generally pursues development projects in joint
ventures with local developers. In this way, the Company leverages the
development skill, access to opportunities and capital of such developers,
transferring a significant amount of the development risk to them and
eliminating the need and expense of an in-house development staff. See
"Strategies for Growth -- Growth Through Renovation, Expansion and Development."
FINANCING STRATEGY
In order to maintain financial flexibility and facilitate the rapid
deployment of capital over market cycles, the Company intends to operate with a
Debt-to-Total Market Capitalization Ratio of approximately 45% or less, though
the Company's organizational documents do not limit the amount of indebtedness
the Company may incur. Additionally, the Company intends to continue to
structure its balance sheet in order to maintain investment-grade ratings. The
Company also intends to keep the majority of its assets unencumbered to help
facilitate such ratings. Upon consummation of the Offering, the Company's
Debt-to-Total Market Capitalization Ratio as of June 30, 1998 on a pro forma
basis (giving effect to the acquisition-related debt incurred subsequent to June
30, 1998, the sale of the Series A Preferred Shares and the Offering and the
application of the net proceeds therefrom as if the debt had been incurred and
those transactions had occurred as of that date) would have been approximately
33.6% (approximately 34.2% on an historical basis). See "Policies with Respect
to Certain Activities -- Financing Policies."
The Company anticipates that future acquisitions will be financed through a
combination of borrowings under the Credit Facility, other forms of secured or
unsecured financing, proceeds from equity or debt offerings by the Company or
the Operating Partnership and with shares of Preferred Stock or Units in the
Operating Partnership. See "Business and Properties -- Debt Financing."
Additionally, the Company's co-investment program will also serve as a source of
capital, particularly when more traditional sources of capital may not be
available on attractive terms. See "-- The Preferred Stock Subsidiaries,"
"Management's Discussion of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and "Business and
Properties -- Debt Financing."
THE PREFERRED STOCK SUBSIDIARIES
AMB Investment Management provides real estate investment management
services on a fee basis to certain clients of AMB, the Company's predecessor,
which did not participate in the Formation Transactions. The Company presently
intends to co-invest with clients of AMB Investment Management, to the extent
such clients newly commit investment capital, through partnerships, limited
liability companies and joint ventures. The Company uses a co-investment formula
with each client whereby the Company will own at least a 20% interest in all
ventures. As of June 30, 1998, the Company had consummated four co-investments
through one partnership. See "Business and Properties -- Properties Held Through
Joint Ventures, Limited Liability Companies and Partnerships." Headlands Realty
Corporation invests in properties and may in the future engage in or acquire
interests in entities that engage in the management, leasing and development of
properties and similar activities. The Operating Partnership owns 100% of the
non-voting preferred stock of AMB Investment Management and Headlands Realty
Corporation (representing approximately 95% of the economic interest in each
entity) and certain Executive Officers and an officer of AMB Investment
Management and certain Executive Officers and a director of Headlands Realty
Corporation own all of the outstanding voting common stock of AMB Investment
Management and Headlands Realty Corporation, respectively (representing
approximately 5% of the economic interest in each entity).
29
<PAGE> 40
STRATEGIES FOR GROWTH
The Company intends to achieve its objectives of long-term sustainable
growth in FFO and maximization of long-term stockholder value, principally by
growth through (i) operations, resulting from improved operating margins within
the portfolio while maintaining above-average occupancy, (ii) continued property
acquisitions, including through the Company's Strategic Alliance Programs(TM)
and (iii) renovation, expansion and development of selected properties,
including through the Company's Development Alliance Program(TM).
GROWTH THROUGH OPERATIONS
The Company seeks to improve operating margins by increasing the occupancy
rate of its Properties and by capitalizing on the economies of owning, operating
and growing a large national portfolio. As of June 30, 1998, the Industrial
Properties and Retail Properties owned as of such date were each 95.1% and 95.0%
leased, respectively. During the quarter and 12 months ended June 30, 1998, the
Company increased average base rental rates (on a cash basis) by 21.0% and
12.1%, respectively, from the expiring rent for such space, on leases entered
into or renewed during such periods, representing 1.6 million and 7.0 million
rentable square feet, respectively.
During the 12 months ending June 30, 1999, leases encompassing an aggregate
of 13.4 million rentable square feet (representing 24.6% of the Company's
aggregate rentable square footage as of June 30, 1998) are subject to
contractual rent increases resulting in an average increase in the Annualized
Base Rent on such leases of approximately 5.9%. Based on recent experience and
current market trends, management believes it will have an opportunity to
increase the average base rental rate on Property leases expiring during the six
months ending December 31, 1998 covering an aggregate of 4.1 million rentable
square feet. The Company seeks to reduce the potential volatility of the
portfolio's FFO by managing lease expirations so that they occur within
individual properties and across the entire portfolio in a staggered fashion,
and by monitoring the credit and mix of tenants, particularly those in the
Retail Properties.
GROWTH THROUGH ACQUISITIONS
The Company believes its significant acquisition experience, its
alliance-based operating strategy and its extensive network of property
acquisition sources will continue to provide opportunities for external growth.
Management believes there is a growing trend among large private institutional
holders of real estate assets to shift a portion of their direct investment in
real estate assets to more liquid securities such as common stock and units in
publicly-traded REITs. The Company has relationships through its Institutional
Alliance Program(TM) with a number of the nation's leading pension funds and
other institutional investors, many of whom have large portfolios of industrial
properties and community shopping centers. Management believes that the
Company's relationship with third party local property managers through its
Management Alliance Program(TM) also will create acquisition opportunities as
such managers market properties on behalf of unaffiliated sellers. The Company's
operating structure also enables it to acquire properties through its UPREIT
Alliance Program(TM) in exchange for Operating Partnership Units, thereby
enhancing the Company's attractiveness to owners and developers seeking to
transfer properties on a tax-deferred basis.
Between January 1, 1998 and September 25, 1998, the Company invested
approximately $674.4 million (including the Company's share of co-investments)
in (i) 187 industrial buildings aggregating 15.3 million square feet, (ii) two
retail centers aggregating 0.4 million square feet and (iii) an unconsolidated
limited partnership interest in an existing real estate joint venture which owns
36 industrial buildings aggregating 4.0 million square feet. Of the total
investment during such period, the Company invested approximately $215.8 million
through its UPREIT Alliance Program(TM) and approximately $128.7 million through
its Institutional Alliance Program(TM), including $66.7 million of
co-investments with Institutional Alliance Partners(TM).
The Company is generally in various stages of negotiations for a number of
acquisitions, which may include acquisitions of individual properties, large
multi-property portfolios and other real estate companies. There can be no
assurance that any of such acquisitions will be consummated. Such acquisitions,
if consummated, may be material individually or in the aggregate. Sources of
capital for acquisitions may include undistributed cash flow, borrowings under
the Credit Facility, other forms of secured or unsecured
30
<PAGE> 41
financing, issuances of debt or equity securities by the Company or the
Operating Partnership (including issuances of Units in the Operating
Partnership) and assumption of debt related to the assets being acquired.
GROWTH THROUGH PROPERTY DEVELOPMENT
Management believes that renovation and expansion of value-added properties
and development of well-located, high-quality industrial properties and
community shopping centers should continue to provide the Company with
attractive opportunities for increased cash flow and a higher rate of return
than may be obtained from the purchase of fully leased, renovated properties.
Value-added properties are typically characterized as properties with available
space or near-term leasing exposure, properties which are well-located but
require redevelopment or renovation, and occasionally undeveloped land acquired
in connection with another property that provides an opportunity for
development. Such properties require significant management attention and/or
capital investment to maximize their return. The Company has developed the
in-house expertise to create value through acquiring and managing value-added
properties and believes its national market presence and expertise will enable
it to continue to generate and capitalize on such opportunities. Through its
Development Alliance Program(TM), the Company has established certain strategic
alliances with national and regional developers to enhance the Company's
development capabilities.
As of September 25, 1998, the Company had committed to invest approximately
$331.9 million to develop approximately 6.3 million rentable square feet.
Approximately $196.0 million of this investment is through its Development
Alliance Program(TM).
USE OF PROCEEDS
The net proceeds from the Offering are expected to be approximately $71.6
million, after deducting Underwriters' discounts and commissions and estimated
offering expenses aggregating approximately $3.4 million. The Company intends to
use the net proceeds to repay approximately $71.6 million of borrowings
outstanding under the Credit Facility. Pending application of the net proceeds,
the Company may invest such portion of the net proceeds in interest-bearing
accounts and short-term, interest-bearing securities which are consistent with
the Company's qualification for taxation as a REIT. As of June 30, 1998, the
weighted average interest rate on such borrowings expected to be repaid with the
net proceeds of the Offering was approximately 6.59% and the maturity was
approximately 1.5 years. All of such indebtedness was incurred within the 12-
month period ended September 30, 1998.
PRICE RANGE OF COMMON STOCK AND DISTRIBUTION HISTORY
The Common Stock began trading on the New York Stock Exchange (the "NYSE")
on November 21, 1997 under the symbol "AMB." On September 29, 1998, the last
reported sales price per share of the Common Stock on the NYSE was $24 1/4. As
of September 29, 1998, there were approximately 160 holders of record of the
Common Stock (excluding beneficial owners whose shares are held in the name of
Cede & Co.). The following table sets forth the high and low closing sales
prices per share of the Common Stock reported on the NYSE for the period from
November 21, 1997 to September 29, 1998 and the distributions paid by the
Company with respect to such periods.
<TABLE>
<CAPTION>
YEAR HIGH LOW DISTRIBUTION
---- ---- --- ------------
<S> <C> <C> <C>
1997
Fourth Quarter (from November 21, 1997)........ $25 1/8 $22 1/4 $0.1340
1998
First Quarter.................................. $24 15/16 $23 3/8 $0.3425
Second Quarter................................. $25 $22 3/8 $0.3425
Third Quarter (through September 29, 1998)..... $25 1/4 $22 11/16 --
</TABLE>
On September 3, 1998, the Board of Directors declared a distribution on the
Common Stock of $0.3425 per share, payable on October 2, 1998 to stockholders of
record as of September 16, 1998, and in its capacity as general partner of the
Operating Partnership, declared a distribution on the Operating Partnership's
common partnership units of $0.3425 per common partnership unit, payable on
October 2, 1998 to partners of record as of September 16, 1998.
31
<PAGE> 42
CAPITALIZATION
The following table sets forth the Company's capitalization as of June 30,
1998 on an historical, a pre-Offering pro forma and a pro forma basis. The
pre-Offering pro forma information gives effect to the property acquisitions
occurring after June 30, 1998 and the sale of the Series A Preferred Shares and
the application of the net offering proceeds therefrom. The pro forma
information gives effect to such acquisitions, the sale of the Series A
Preferred Shares and the application of the net offering proceeds therefrom and
the Offering and the application of the net proceeds therefrom. See "Use of
Proceeds." The information set forth in the following table should be read in
conjunction with the historical Consolidated Financial Statements and Notes
thereto, the condensed consolidated pro forma financial information and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
PRE-OFFERING
HISTORICAL PRO FORMA PRO FORMA
---------- ------------ ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Debt:
Unsecured credit facilities...................... $ 137,000 $ 204,000 $ 132,400
Senior Debt Securities........................... 400,000 400,000 400,000
Secured debt(1).................................. 592,430 663,936 663,936
---------- ---------- ----------
Total debt............................... 1,129,430 1,267,936 1,196,336
Minority interests............................... 149,751 166,223 166,223
Stockholders' equity:
Preferred Stock, $0.01 par value, $25.00 per
share liquidation preference, 100,000,000
shares authorized; 4,000,000 shares of
Series A Preferred Stock issued and
outstanding, pro forma; 3,000,000 shares of
Series B Preferred Stock issued and
outstanding, pro forma...................... -- 96,850 168,450
Common Stock, $.01 par value, 500,000,000
shares authorized, 85,874,513 shares issued
and outstanding(2).......................... 859 859 859
Additional paid-in capital, Common Stock......... 1,668,558 1,668,558 1,668,558
Retained earnings................................ -- -- --
---------- ---------- ----------
Total stockholders' equity............... 1,669,417 1,766,267 1,837,867
---------- ---------- ----------
Total capitalization..................... $2,948,598 $3,200,426 $3,200,426
========== ========== ==========
</TABLE>
- ---------------
(1) Secured debt is comprised of mortgage loans and other secured debt and
includes net unamortized debt premiums of approximately $16,799.
(2) Does not include (i) 4,447,839 shares of Common Stock that may be issued
upon the exchange of Units and (ii) approximately 3,133,750 shares of Common
Stock issuable upon the exercise of outstanding options granted under the
Company's Stock Option and Incentive Plan.
32
<PAGE> 43
SELECTED FINANCIAL AND OTHER DATA
COMPANY AND PREDECESSOR
The following table sets forth selected financial and other data on (i) an
historical basis for the Company and its Predecessor, AMB Institutional Realty
Advisors, Inc., for the five years ended December 31, 1997 and the six months
ended June 30, 1997 and 1998 and (ii) an as adjusted basis for the Company for
the year ended December 31, 1997 (giving effect to the Formation Transactions,
the IPO and certain property acquisitions and dispositions in 1997).
Additionally, the table sets forth selected financial and other data for the
Company for the year ended December 31, 1997 and for the six months ended June
30, 1998 on a pro forma basis (giving effect to the Formation Transactions, the
IPO, certain property acquisitions and dispositions in 1997, the property
acquisitions in 1998, the sale of the Senior Debt Securities and the application
of the net offering proceeds therefrom, the sale of the Series A Preferred
Shares and the application of the net proceeds therefrom and the Offering and
the application of the net proceeds therefrom, as if such transactions had
occurred on January 1, 1997). The historical financial information contained in
the tables should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations," the Consolidated
Financial Statements and accompanying Notes thereto included elsewhere in this
Prospectus.
For the four-year period ended December 31, 1996 and the period from
January 1, 1997 through November 25, 1997, the Predecessor operated as an
investment manager with revenues that consisted primarily of fees earned in
connection with real estate management services. The historical results of the
Company for 1997 include the results of operations of the Company, including
property operations for the period from November 26, 1997 to December 31, 1997,
and the results of the Company's Predecessor for the period from January 1, 1997
to November 25, 1997.
In the opinion of management, the historical financial information as of
and for the six months ended June 30, 1997 and 1998 reflects all adjustments,
which are of a normal recurring nature, necessary for a fair presentation of the
financial information, and the as adjusted and pro forma condensed financial
information provides for all adjustments necessary to reflect the adjustments
and transactions described above. The information for the six months ended June
30, 1997 and 1998 is unaudited and the operating data for that period are not
necessarily indicative of the results for the entire year. The as adjusted and
pro forma information is unaudited and is not necessarily indicative of the
results that would have occurred if the transactions and adjustments reflected
therein had been consummated in the period or on the date presented, nor does it
purport to represent the financial position, results of operations or changes in
cash flows for future periods.
33
<PAGE> 44
COMPANY AND PREDECESSOR SELECTED FINANCIAL AND OTHER DATA
(SQUARE FEET AND DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
AS OF AND FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------------------------------------------
COMPANY
PREDECESSOR ---------------------------------------
(1) HISTORICAL AS ADJUSTED PRO FORMA
------------------------------------ (2) (3) (4)
1993 1994 1995 1996 1997 1997 1997
------ ------- ------- ------- ---------- ----------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Total revenues.................. $7,155 $12,865 $16,865 $23,991 $ 56,062 $ 284,674 $ 369,610
Income from operations before
minority interests............ 798 2,925 3,296 7,140 18,885 103,903 118,539
Net income available to common
stockholders.................. 798 2,925 3,262 7,003 18,228 99,508 94,117
Net income per common share(5):
Basic......................... $ 0.17 $ 0.59 $ 0.64 $ 1.38 $ 1.39 $ 1.16 $ 1.10
Diluted....................... 0.17 0.59 0.64 1.38 1.38 1.16 1.09
Distributions per common
share......................... 0.13 1.37 1.37
OTHER DATA:
EBITDA(6)....................... $ 195,218 259,231
Funds from Operations(7)........ 147,409 153,770
Cash flows provided by (used
in):
Operating activities.......... 131,621 195,633
Investing activities.......... (607,768) (1,024,862)
Financing activities.......... 553,199 1,218,545
Ratio of earnings to fixed
charges and preferred stock
dividends(8).................. 3.1x 2.0x
Ratio of EBITDA to interest
expense and preferred stock
dividends(9).................. 4.3x 2.6x
BALANCE SHEET DATA:
Investments in real estate at
cost.......................... $ -- $ -- $ -- $ -- $2,442,999
Total assets.................... 2,739 4,092 4,948 7,085 2,506,255
Secured debt(10)................ -- -- -- -- 535,652
Senior Debt Securities.......... -- -- -- --
Unsecured credit facility....... -- -- -- -- 150,000
Stockholders' equity............ 2,480 3,848 4,241 6,300 1,668,030
PROPERTY DATA:
INDUSTRIAL PROPERTIES
Total rentable square footage of
buildings at end of period.... 5,638 13,364 21,598 29,609 37,329
Number of buildings at end of
period........................ 45 115 166 270 356
Occupancy rate at end of
period........................ 97.4% 96.9% 97.3% 97.2% 95.7%
RETAIL PROPERTIES
Total rentable square footage of
centers at end of period...... 1,074 2,422 3,299 5,282 6,216
Number of centers at end of
period........................ 9 14 19 30 33
Occupancy rate at end of
period........................ 96.5% 93.7% 92.4% 92.4% 96.1%
<CAPTION>
AS OF AND FOR THE
SIX MONTHS ENDED JUNE 30,
----------------------------------------
COMPANY
--------------------------
PREDECESSOR PRO FORMA
(1) HISTORICAL (4)
1997 1998 1998
----------- ----------- ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
OPERATING DATA:
Total revenues.................. $11,083 $ 160,799 $ 193,260
Income from operations before
minority interests............ 2,764 59,570 67,501
Net income available to common
stockholders.................. 2,764 55,884 54,628
Net income per common share(5):
Basic......................... $ 0.54 $ 0.65 $ 0.64
Diluted....................... 0.54 0.65 0.63
Distributions per common
share......................... 0.69 0.69
OTHER DATA:
EBITDA(6)....................... $ 112,433 $ 137,227
Funds from Operations(7)........ 82,569 85,739
Cash flows provided by (used
in):
Operating activities.......... 75,720 100,514
Investing activities.......... (398,639) (152,426)
Financing activities.......... 312,118 (69,272)
Ratio of earnings to fixed
charges and preferred stock
dividends(8).................. 2.8x 2.1x
Ratio of EBITDA to interest
expense and preferred stock
dividends(9).................. 4.1x 2.9x
BALANCE SHEET DATA:
Investments in real estate at
cost.......................... $2,996,873 $3,255,732
Total assets.................... 3,033,106 3,284,934
Secured debt(10)................ 592,430 663,936
Senior Debt Securities.......... 400,000 400,000
Unsecured credit facility....... 137,000 132,400
Stockholders' equity............ 1,669,417 1,837,867
PROPERTY DATA:
INDUSTRIAL PROPERTIES
Total rentable square footage of
buildings at end of period.... 47,675 52,780
Number of buildings at end of
period........................ 463 546
Occupancy rate at end of
period........................ 95.1% 95.1%
RETAIL PROPERTIES
Total rentable square footage of
centers at end of period...... 6,849 6,849
Number of centers at end of
period........................ 37 37
Occupancy rate at end of
period........................ 95.0% 95.0%
</TABLE>
- ---------------
(1) Represents the Predecessor's historical financial and other data for the
years ended December 31, 1993, 1994, 1995, 1996 and the six months ended
June 30, 1997. The Predecessor operated as an investment manager prior to
November 26, 1997.
(2) Represents the Predecessor's historical financial and other data for the
period January 1, 1997 through November 25, 1997 and the Company's
historical and other data for the period from November 26, 1997 to December
31, 1997.
(3) As adjusted financial and other data have been prepared as if the Formation
Transactions, the IPO and certain property acquisitions and dispositions in
1997 had occurred on January 1, 1997.
(4) Pro forma financial and other data have been prepared as if the Formation
Transactions, the IPO, certain property acquisitions and dispositions in
1997, the property acquisitions in 1998, the sale of the Senior Debt
Securities and the application of the proceeds therefrom, the sale of the
Series A Preferred Shares and the application of the net proceeds therefrom
and the Offering and the application of the net proceeds therefrom had
occurred on January 1, 1997. See "Pro Forma Financial Information."
34
<PAGE> 45
(5) Historical, as adjusted and pro forma net income per basic share for the
year ended December 31, 1997 equals the historical, as adjusted and pro
forma net income divided by 13,140,218, 85,874,513 and 85,874,513 shares,
respectively. Historical and pro forma net income per basic share for the
six months ended June 30, 1998 equals the historical and pro forma net
income divided by 85,874,513 and 85,874,513 shares, respectively.
Historical, as adjusted and pro forma diluted net income per share for the
year ended December 31, 1997 equals the historical, as adjusted and pro
forma net income divided by 13,168,036, 86,156,556 and 86,156,556 shares,
respectively. Historical and pro forma diluted net income per share for the
six months ended June 30, 1998 equals the historical and pro forma net
income divided by 86,222,175 and 86,284,736 shares, respectively.
(6) EBITDA is computed as income from operations before disposal of properties
and minority interests plus interest expense, income taxes, depreciation
and amortization. Management believes that in addition to cash flows and
net income, EBITDA is a useful financial performance measure for assessing
operating performance because, together with net income and cash flows,
EBITDA provides investors with an additional basis to evaluate the ability
to incur and service debt and to fund acquisitions and other capital
expenditures.
(7) FFO represents net income (loss) before minority interests and
extraordinary items, plus depreciation on real property and amortization of
tenant improvement costs and lease commissions, gains (losses) from the
disposal of properties and the Company's share of the FFO of unconsolidated
joint ventures, less FFO attributable to minority interests in consolidated
joint ventures whose interests are not convertible into shares of Common
Stock and dividends on preferred stock that is not convertible into shares
of Common Stock. Management considers FFO an appropriate measure of
performance of an equity REIT because it is predicated on cash flow
analyses. The Company computes FFO in accordance with standards established
by the White Paper, which may differ from the methodology for calculating
FFO utilized by other REITs and, accordingly, may not be comparable to such
other REITs. FFO should not be considered as an alternative to net income
(determined in accordance with GAAP) as an indicator of the Company's
financial performance or to cash flow from operating activities (determined
in accordance with GAAP) as a measure of the Company's liquidity, nor is it
indicative of funds available to fund the Company's cash needs, including
its ability to make distributions. The following table sets forth the
Company's calculation of FFO for the periods presented.
<TABLE>
<CAPTION>
FOR THE FOR THE
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1997 JUNE 30, 1998
-------------------------- --------------------------
AS
ADJUSTED PRO FORMA HISTORICAL PRO FORMA
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Income from operations before
minority interests................ $ 103,903 $ 118,539 $ 59,570 $ 67,501
Real estate related depreciation and
amortization:
Depreciation and amortization..... 45,886 57,630 25,302 29,515
Furniture, fixtures and equipment
depreciation................... (173) (173) (215) (215)
FFO attributable to minority
interests......................... (2,207) (8,609) (2,088) (4,256)
Adjustment to derive FFO of
unconsolidated joint venture:
Company's share of net income..... -- (5,086) -- (2,543)
Company's share of FFO............ -- 6,344 -- 3,175
Series A Preferred Stock
Dividends......................... -- (8,500) -- (4,250)
Series B Preferred Stock
Dividends......................... -- (6,375) -- (3,188)
----------- ----------- ----------- -----------
FFO................................. $ 147,409 $ 153,770 $ 82,569 $ 85,739
=========== =========== =========== ===========
Weighted average shares and units
outstanding (diluted)............. 88,698,719 90,604,395 89,362,932 90,670,014
=========== =========== =========== ===========
</TABLE>
(8) The ratio of earnings to fixed charges and preferred stock dividends is
computed as income from operations before minority interests plus fixed
charges (excluding capitalized interest) divided by fixed charges and
preferred stock dividends. Fixed charges consist of interest costs
(including amortization of debt premiums and financing costs), whether
capitalized or expensed, and the interest component of rental expense.
(9) The ratio of EBITDA to interest expense and preferred stock dividends is
calculated as EBITDA divided by the sum of book interest expense (including
amortization of debt premiums and discounts and financing costs) and
preferred stock dividends.
(10) Secured debt as of December 31, 1997 and June 30, 1998 is comprised of
mortgage loans and other secured debt and includes net unamortized debt
premiums of approximately $18,286 and $16,799, respectively.
35
<PAGE> 46
OPERATING PARTNERSHIP AND AMB CONTRIBUTED PROPERTIES
The following table sets forth selected financial and other data on an
historical basis for the Operating Partnership for the period from November 26,
1997 to December 31, 1997 and for the six months ended June 30, 1998 and for the
properties contributed to the Company in the Formation Transactions ("the AMB
Contributed Properties"), for the four years ended December 31, 1996, the period
from January 1, 1997 to November 25, 1997 and the six months ended June 30,
1997, and an as adjusted basis for the Operating Partnership for the year ended
December 31, 1997 (giving effect to the Formation Transactions, the sale of the
Senior Debt Securities, the sale of the Series A Preferred Shares, the IPO and
certain property acquisitions and dispositions in 1997). Additionally, the table
sets forth selected financial and other data for the Operating Partnership for
the year ended December 31, 1997 and for the six months ended June 30, 1998 on a
pro forma basis (giving effect to the Formation Transactions, the IPO, certain
property acquisitions and dispositions in 1997, the 1998 property acquisitions,
the sale of the Senior Debt Securities, the sale of the Series A Preferred
Shares and the Offering and the application of the net proceeds therefrom, as if
such transactions had occurred on January 1, 1997). The historical financial
information contained in the tables should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," the Consolidated Financial Statements and accompanying Notes
thereto included elsewhere in this Prospectus.
In the opinion of management, the historical financial information as of
and for the six months ended June 30, 1998 reflects all adjustments, which are
of a normal recurring nature, necessary for a fair presentation of the financial
information, and the as adjusted and pro forma condensed financial information
provides for all adjustments necessary to reflect the adjustments and
transactions described above. The information for the six months ended June 30,
1998 is unaudited and the operating data for that period are not necessarily
indicative of the results for the entire year. The as adjusted and pro forma
information is unaudited and is not necessarily indicative of the results that
would have occurred if the transactions and adjustments reflected therein had
been consummated in the period or on the date presented, nor does it purport to
represent the financial position, results of operations or changes in cash flows
for future periods.
36
<PAGE> 47
OPERATING PARTNERSHIP AND AMB CONTRIBUTED PROPERTIES
SELECTED FINANCIAL AND OTHER DATA
(SQUARE FEET AND DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AS OF AND FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------------------------------------------------------------------
OPERATING PARTNERSHIP
--------------------------------------
AS
AMB CONTRIBUTED PROPERTIES(1) HISTORICAL ADJUSTED PRO FORMA
-------------------------------------------------------- (2) (3) (4)
1993 1994 1995 1996 1997 1997 1997 1997
-------- -------- ---------- ---------- -------- ---------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Total revenues.............. $ 24,398 $ 51,682 $ 108,249 $ 167,953 $208,608 $ 27,110 $ 284,674 $369,610
Income from operations
before minority
interests................. 6,871 13,753 32,519 54,865 58,068 9,291 103,903 118,539
BALANCE SHEET DATA:
Investments in real estate
at cost................... $323,230 $666,672 $1,018,681 $1,616,091 $2,442,999
Total assets................ 326,586 721,131 1,117,181 1,622,559 2,506,255
Secured debt(5)............. 100,496 201,959 254,067 522,634 535,652
PROPERTY DATA:
INDUSTRIAL PROPERTIES
Total rentable square
footage of buildings at
end of period............. 5,638 13,364 21,598 29,609 37,329
Number of buildings at end
of period................. 45 115 166 270 356
Occupancy rate at end of
period.................... 97.4% 96.9% 97.3% 97.2% 95.7%
RETAIL PROPERTIES
Total rentable square
footage of centers at end
of period................. 1,074 2,422 3,299 5,282 6,216
Number of centers at end of
period.................... 9 14 19 30 33
Occupancy rate at end of
period.................... 96.5% 93.7% 92.4% 92.4% 96.1%
<CAPTION>
AS OF AND FOR THE
SIX MONTHS ENDED JUNE 30,
----------------------------------------
AMB
CONTRIBUTED OPERATING PARTNERSHIP
PROPERTIES --------------------------
(1) HISTORICAL PRO FORMA(4)
1997 1998 1998
----------- ----------- ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
OPERATING DATA:
Total revenues.............. $54,749 $ 160,799 $ 193,260
Income from operations
before minority
interests................. 14,217 59,570 67,501
BALANCE SHEET DATA:
Investments in real estate
at cost................... $2,996,873 $3,255,732
Total assets................ 3,033,106 3,284,934
Secured debt(5)............. 592,430 663,936
PROPERTY DATA:
INDUSTRIAL PROPERTIES
Total rentable square
footage of buildings at
end of period............. 47,675 52,780
Number of buildings at end
of period................. 463 546
Occupancy rate at end of
period.................... 95.1% 95.1%
RETAIL PROPERTIES
Total rentable square
footage of centers at end
of period................. 6,849 6,849
Number of centers at end of
period.................... 37 37
Occupancy rate at end of
period.................... 95.0% 95.0%
</TABLE>
- ---------------
(1) Represents the AMB Contributed Properties' historical combined financial and
other data for the years ended December 31, 1993, 1994, 1995 and 1996, the
period from January 1, 1997 through November 25, 1997 and for the six months
ended June 30, 1997.
(2) For the period from November 26, 1997 to December 31, 1997.
(3) As adjusted financial and other data have been prepared as if the Formation
Transactions, the IPO and certain property acquisitions and dispositions in
1997 had occurred on January 1, 1997.
(4) Pro forma financial and other data have been prepared as if the Formation
Transactions, the IPO, certain property acquisitions and dispositions in
1997, the property acquisitions in 1998, the sale of the Senior Debt
Securities, the sale of the Series A Preferred Shares and the Offering had
occurred on January 1, 1997. See "Pro Forma Financial Information."
(5) Secured debt as of December 31, 1997 and June 30, 1998 includes net
unamortized debt premiums of approximately $18,286 and $16,799,
respectively.
37
<PAGE> 48
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the consolidated financial
condition and results of operations should be read in conjunction with the
"Notes to Consolidated Financial Statements" and "Selected Financial and Other
Data" of the Company. Statements contained herein which are not historical facts
may be forward-looking statements. Such statements are subject to certain risks
and uncertainties which could cause actual results to differ materially from
those projected. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof.
GENERAL
Because of the significant impact of the Formation Transactions and the IPO
on the Company's results of operations, the discussion below is presented as
follows: (i) results of the Company and its Predecessor for the years ended
December 31, 1995, 1996 and 1997 and for the six months ended June 30, 1997 and
1998, and (ii) results of the AMB Contributed Properties for the years ended
December 31, 1995, 1996 and 1997 and for the six months ended June 30, 1997 and
1998. Because the Company commenced operations as a REIT upon consummation of
the IPO on November 26, 1997, a separate discussion of the historical operations
for the comparative periods prior to the IPO is presented below.
The Company's historical results for the year ended December 31, 1997
include its results, including property operations, for the period from November
26, 1997 to December 31, 1997 and the results of the Company's Predecessor, an
investment manager, for the period from January 1, 1997 to November 25, 1997. As
an investment manager, the Predecessor's revenues consisted primarily of fees
earned in connection with real estate management services. Management's
discussion and analysis of the Company and Predecessor for the years ended
December 31, 1995, 1996 and 1997 and for the six months ended June 30, 1997 and
1998 is limited to investment management and other income and general and
administrative expenses, and excludes a discussion of rental revenues, operating
expenses, interest expense and depreciation and amortization because such
analysis is not comparable or meaningful given the differences in lines of
business between the Company's and the Predecessor's.
COMPANY AND PREDECESSOR RESULTS OF OPERATIONS
COMPANY AND PREDECESSOR -- SIX MONTHS ENDED JUNE 30, 1998 AND 1997
Rental revenues. Rental revenues, including straight-line rents, tenant
reimbursements and other property related income, totaled $160.8 million for the
six months ended June 30, 1998. The Predecessor's revenues consisted primarily
of fees earned in connection with real estate management services. As such, no
such rental revenues existed for the Predecessor for the six months ended June
30, 1997.
Property operating expenses and real estate taxes. Property operating
expenses, including asset management costs and real estate taxes, totaled $42.5
million for the six months ended June 30, 1998. The Predecessor's expenses
consisted primarily of salaries and other general and administrative costs. As
such, no such property operating expenses existed during the six months ended
June 30, 1997.
General and administrative expenses. The Company's general and
administrative expenses were $5.9 million for the six months ended June 30,
1998, as compared to the Predecessor's investment management expenses of $8.3
million for the six months ended June 30, 1997. Investment management expenses
of the Predecessor consisted primarily of salaries and other general and
administrative expenses. The $2.4 million, or 29%, decrease in general and
administrative expenses is attributable to the change in the operations of the
Company from an investment manager to a fully integrated real estate company,
and the formation of AMB Investment Management. In connection with the Formation
Transactions, AMB Investment Management assumed employment and other related
costs of certain employees who transferred from the Predecessor to AMB
Investment Management for the purpose of carrying on the investment management
business.
38
<PAGE> 49
COMPANY AND PREDECESSOR -- YEARS ENDED DECEMBER 31, 1997 AND 1996
Investment management and other income. Investment management and other
income for the period from January 1, 1997 to November 25, 1997 was $29.0
million, which on an annualized basis represents a 34.1% increase over the year
ended December 31, 1996. The increase reflects the growth in the portfolio under
management. Investment management and other income for the period from November
26, 1997 to December 31, 1997 was $0.6 million.
General and administrative expenses. General and administrative expenses
for the period from January 1, 1997 to November 25, 1997 were $19.4 million,
which represents a 27.7% increase on an annualized basis over the year ended
December 31, 1996. The increase was attributable to an increase in staffing that
resulted from the growth in the portfolio under management.
PREDECESSOR -- YEARS ENDED DECEMBER 31, 1996 AND 1995
Investment management and other income. Investment management and other
income for the years ended December 31, 1996 and 1995 was $24.0 million and
$16.9 million, respectively, an increase of 42.0%. The increase from 1995 to
1996 was primarily due to management fees associated with a growing portfolio
and increased economies of scale from managing this larger portfolio.
General and administrative expenses. General and administrative expenses
for the years ended December 31, 1996 and 1995 were $16.9 million and $13.6
million, respectively, reflecting the increase in size of the portfolio under
management.
OPERATING PARTNERSHIP RESULTS OF OPERATIONS
The Operating Partnership's historical results of operations for periods
prior to November 26, 1997 include Properties that were managed by the
Predecessor and exclude the results of four properties that were contributed to
the Company in the Formation Transactions that were not previously managed by
the Predecessor. In addition, the historical results of operations include the
results of Properties acquired after November 26, 1997, from the date of
acquisition of such Properties to December 31, 1997.
The historical property financial data presented herein show significant
increases in revenues and expenses principally attributable to the substantial
portfolio growth. As a result, the Company does not believe the year-to-year
financial data are comparable. Therefore, the analysis below shows (i) changes
resulting from Properties that were held during the entire period for both years
being compared (the "Same Store Properties") and (ii) changes attributable to
acquisition and development activity. For the comparison between the six months
ended June 30, 1997 and 1998, the Same Store Properties consist of Properties
aggregating 30.4 million square feet that were acquired prior to January 1,
1997, for the comparison between the years ended December 31, 1997 and 1996, the
Same Store Properties consist of Properties aggregating 23.4 million square feet
that were acquired prior to January 1, 1996, and for the comparison between the
years ended December 31, 1996 and 1995, the Same Store Properties consist of
Properties aggregating 15.6 million square feet that were acquired prior to
January 1, 1995. The Company's future financial condition and results of
operations, including rental revenues, may be impacted by the acquisition of
additional properties. No assurance can be given that the past trends of
revenues, expenses or income of the Company will continue in the future at their
historical rates, and any variation therefrom may be material.
The historical results of the Operating Partnership for 1997 include the
results achieved by the Operating Partnership for the period from November 26,
1997 (acquisition date) to December 31, 1997 and the results achieved by the
prior owners of the Properties for the period from January 1, 1997 to November
25, 1997.
OPERATING PARTNERSHIP AND AMB CONTRIBUTED PROPERTIES -- SIX MONTHS ENDED JUNE
30, 1998 AND 1997
Rental revenues. Rental revenues, including straight-line rents, tenant
reimbursements and other property related income, increased by $49.5 million, or
44%, for the six months ended June 30, 1998, to $160.8 million as compared to
$111.3 million for the six months ended June 30, 1997. Approximately $7.0
million, or 14% of this increase, was attributable to the Same Store Properties,
with the remaining
39
<PAGE> 50
$42.5 million attributable to Properties acquired in 1997 and 1998. The growth
in rental revenues in the Same Store Properties resulted primarily from the
incremental effect of rental rate increases, changes in occupancy and
reimbursement of expenses. During the trailing 12 months ended June 30, 1998,
such increase in average base rents (cash basis) was 12.1% on 7.0 million square
feet leased.
Property operating expenses and real estate taxes. Property operating
expenses, including asset management costs and real estate taxes, increased by
$8.2 million, or 24%, for the six months ended June 30, 1998, to $42.5 million,
as compared to $34.3 million for six months ended June 30, 1997. Same Store
Properties operating expenses decreased by approximately $0.6 and $0.2 million,
while operating expenses attributable to Properties acquired in 1998 and 1997
increased by $8.8 and $4.8 million, respectively. The change in Same Store
Properties operating expenses and real estate taxes relates to increases in Same
Store Properties real estate taxes and insurance expense of approximately $0.2
and $0.1 million from 1997 to 1998, offset by increases in Same Store Properties
other property operating expenses (excluding real estate taxes and insurance) of
approximately $0.8 and $0.3 million from 1997 to 1998. This decrease in other
property operating expenses is attributable to lower asset management costs in
1998 as compared to 1997 resulting from the change in ownership structure.
Interest expense. Interest expense increased by $4.3 million, or 18%, for
the six months ended June 30, 1998, to $27.6 million as compared to $23.3
million for the six months ended June 30, 1997. This was the result of an
increase in interest expense resulting from debt incurred to fund property
acquisitions, partially offset by a decrease in interest expense resulting from
the amortization of debt premiums of $1.8 million in the six months ended June
30, 1998 and an increase in capitalized interest related to developments in
process.
Depreciation and amortization expense. Depreciation and amortization
expense increased by $7.5 million, or 42%, for the six months ended June 30,
1998, to $25.3 million as compared to $17.8 million for the six months ended
June 30, 1997. This increase was attributable to substantial growth in the
number of properties owned by the Operating Partnership.
General, administrative and other expenses. General, administrative and
other expenses increased by $5.5 million for the six months ended June 30, 1998,
to $5.9 million as compared to $0.4 million for the six months ended June 30,
1997. This increase was attributable to the changes in operations resulting
primarily from the change in the character of the Operating Partnership's
business.
OPERATING PARTNERSHIP AND AMB CONTRIBUTED PROPERTIES -- YEARS ENDED DECEMBER
31, 1997 AND 1996
Rental revenues. Rental revenues, including tenant reimbursements and other
property related income, increased by $67.5 million, or 40.6%, for the year
ended December 31, 1997, to $233.9 million as compared to $166.4 million for the
year ended December 31, 1996. Approximately $8.8 million, or 13.0%, of this
increase, was attributable to the Same Store Properties, with the remaining
$58.7 million attributable to Properties acquired in 1996 and 1997. The 6.3%
growth in rental revenues in the Same Store Properties resulted primarily from
the incremental effect of rental rate increases and reimbursement of expenses.
In 1997, the Company increased average contractual or base rental rates on the
Properties by 12% on 393 new and renewing leases totaling 7.5 million rentable
square feet (representing 17.2% of the Properties' aggregate rentable square
footage).
Property operating expenses and real estate taxes. Property operating
expenses and real estate taxes increased by $25.6 million, or 46.3%, for the
year ended December 31, 1997, to $80.9 million as compared to $55.3 million for
the year ended December 31, 1996. Approximately $3.4 million of this increase
was attributable to the Same Store Properties, with the remaining $22.2 million
attributable to Properties acquired in 1997 and 1996. Same Store Properties real
estate taxes and insurance expense increased by approximately $1.4 million from
1996 to 1997. Same Store Properties other property operating expenses (excluding
real estate taxes and insurance) increased by $2.0 million from 1996 to 1997.
The increases in expenses are primarily due to increases in property tax
assessment values and incentive management fees expense.
Interest expense. Interest expense increased by $21.6 million, or 80.3%,
for the year ended December 31, 1997, to $48.5 million as compared to $26.9
million for the year ended December 31, 1996. Interest expense
40
<PAGE> 51
related to the Same Store Properties increased by $11.6 million due to the
placement of debt on certain properties, while financing related to properties
acquired in 1997 and 1996 added $10.0 million to interest expense.
Depreciation and amortization expense. Depreciation and amortization
expense increased by $8.2 million, or 28.7%, for the year ended December 31,
1997, to $36.8 million as compared to $28.6 million for the year ended December
31, 1996. The increase was attributable to substantial growth in the number of
properties owned by the Company. Depreciation and amortization includes
depreciation of capital and tenant improvements and amortization of leasing
commissions.
General, administrative and other expenses. General, administrative and
other expenses increased by $1.2 million or 150%, for the year ended December
31, 1997, to $2.0 million as compared to $0.8 million for the year ended
December 31, 1996. The increase was attributable to the changes in operations
resulting primarily from the change in the character of the Company's business
from that of an investment manager prior to the IPO to a self-administered and
self-managed REIT thereafter.
Interest and other income. Interest and other income decreased by $0.1
million, or 7%, for the year ended December 31, 1997, to $1.4 million as
compared to $1.5 million for the year ended December 31, 1996. This decrease was
primarily due to lower average cash balances.
AMB CONTRIBUTED PROPERTIES -- YEARS ENDED DECEMBER 31, 1996 AND 1995
Rental revenues. Rental revenues, including tenant reimbursements and other
property related income, increased by $60.2 million, or 56.7%, for the year
ended December 31, 1996, to $166.4 million as compared to $106.2 million for the
year ended December 31, 1995. Approximately $7.5 million, or 12.5% of this
increase, was attributable to the Same Store Properties, with the remaining
$52.7 million attributable to Properties acquired in 1996 and 1995. The 8.6%
growth in rental income in the Same Store Properties resulted primarily from
rental rate increases.
Property operating expenses and real estate taxes. Property operating
expenses and real estate taxes increased by $18.4 million, or 49.9%, for the
year ended December 31, 1996, to $55.3 million as compared to $36.9 million for
the year ended December 31, 1995. Approximately $1.6 million of this increase
was attributable to the Same Store Properties, with the remaining $16.8 million
attributable to Properties acquired in 1996 and 1995. The Same Store Properties
had an increase of approximately $1.0 million in real estate tax and insurance
expense. The other property operating expenses (excluding real estate taxes and
insurance) for the Same Store Properties increased by $0.6 million from 1995 to
1996. The increases in expenses are primarily due to increases in property tax
assessment values and miscellaneous expenses.
Interest expense. Interest expense increased by $6.4 million, or 31.2%, for
the year ended December 31, 1996, to $26.9 million as compared to $20.5 million
for the year ended December 31, 1995. Interest expense related to the Same Store
Properties increased by $3.2 million, while financing related to Properties
acquired in 1996 and 1995 added $3.2 million to interest expense.
Depreciation and amortization expense. Depreciation and amortization
expense increased by $11.1 million, or 63.4%, for the year ended December 31,
1996, to $28.6 million as compared to $17.5 million for the year ended December
31, 1995. The increase was attributable to substantial growth in the number of
properties owned by the Company. Depreciation and amortization includes
depreciation of capital and tenant improvements and amortization of leasing
commissions.
General, administrative and other expenses. General, administrative and
other expenses remained unchanged at $0.8 million for the years ended December
31, 1996 and December 31, 1995. General, administrative and other expenses as a
percentage of total revenues was 0.5% for the year ended December 31, 1996 and
0.7% for the year ended December 31, 1995.
Interest and other income. Interest income decreased by $0.6 million, or
28.6%, for the year ended December 31, 1996, to $1.5 million as compared to $2.1
million for the year ended December 31, 1995. This decrease was primarily due to
lower average cash balances.
41
<PAGE> 52
LIQUIDITY AND CAPITAL RESOURCES
The Company expects that its principal sources of working capital and
funding for acquisitions, development, expansion and renovation of Properties
will include borrowings under the Credit Facility, other forms of secured or
unsecured financing, proceeds from equity or debt offerings by the Company or
the Operating Partnership (including issuances of Units in the Operating
Partnership) and cash flows provided by operations. Management believes that its
sources of working capital and its ability to access private and public debt and
equity capital are adequate to continue to meet liquidity requirements for the
foreseeable future.
Capital Resources
The Company, through the Operating Partnership, has a $500.0 million
unsecured revolving credit agreement with Morgan Guaranty Trust Company of New
York acting as agent for a syndicate of 12 other banks. The Credit Facility,
which matures in November 2000, is subject to a fee that accrues on the daily
average undrawn funds, which varies between 15 and 25 basis points (currently 15
basis points) of the undrawn funds based on the Company's credit rating. The
Company uses the Credit Facility principally for acquisitions and for general
working capital requirements. Borrowings under the Credit Facility bear interest
at LIBOR plus 90 to 120 basis points (currently LIBOR plus 90 basis points),
depending on the Company's debt rating at the time of such borrowings. As of
June 30, 1998, the outstanding balance under the Credit Facility was $87.0
million and bore interest at LIBOR plus 90 basis points (6.59% as of such date).
Monthly debt service payments on the Credit Facility are interest only. The
total amount available under the Credit Facility fluctuates based upon the
borrowing base, as defined in the agreement governing the Credit Facility. At
June 30, 1998, the maximum amount available under the Credit Facility was
approximately $413.0 million. In addition, in April 1998, the Company obtained a
$50.0 million unsecured acquisition facility from NationsBank, N.A., bearing
interest at LIBOR plus 90 basis points (6.59% at June 30, 1998). This $50.0
million facility was repaid in July 1998.
In April 1998, the Company received credit ratings on its senior unsecured
debt of Baa1 from Moody's Investors Service, BBB from Standard & Poor's
Corporation and BBB+ from Duff & Phelps Credit Rating Co. As a result of the
receipt of these investment-grade credit ratings, the interest rate on the
Credit Facility was reduced by 20 basis points to LIBOR plus 90 basis points.
On June 30, 1998 the Operating Partnership sold the Senior Debt Securities
in an aggregate principal amount of $400 million in an underwritten public
offering, the net proceeds of which were used to repay amounts outstanding under
the Credit Facility. The Senior Debt Securities are comprised of $175 million
aggregate principal amount of 7.10% notes due June 30, 2008, $125 million
aggregate principal amount of 7.50% notes due June 30, 2018 and $100 million
aggregate principal amount of 6.90% Reset Put Securities due June 30,
2015 -- Putable/Callable June 30, 2005. Interest on the Senior Debt Securities
is payable semi-annually on June 30 and December 30, commencing December 30,
1998, and repayments of principal are not due prior to maturity. Each tranche of
the Senior Debt Securities may be redeemed at the option of the Operating
Partnership at any time, in whole or in part, at 100% of the outstanding
principal amount of such securities being redeemed, plus accrued and unpaid
interest to the date of redemption, plus the sum of the present values of the
remaining scheduled payments of principal and interest thereon (exclusive of
interest accrued to such redemption date) discounted to such redemption date on
a semiannual basis (assuming a 360-day year consisting of twelve 30-day months)
at the Treasury Rate plus 25 basis points. The Senior Debt Securities are
guaranteed on an unsecured basis by the Company.
In connection with the Formation Transactions and property acquisitions
consummated subsequent thereto, the Company has assumed various mortgages and
other secured debt. As of June 30, 1998, the aggregate principal amount of all
such mortgage and other secured debt was $575.6 million, excluding unamortized
debt premiums of $16.8 million. The secured debt bears interest at rates varying
from 4.00% to 10.38% per annum (with a weighted average of 7.91%) with final
maturity dates ranging from November 1998 to January 2014.
On June 30, 1998, the Company's total outstanding debt was approximately
$1.1 billion, including (i) $592.4 million of secured indebtedness (including
unamortized debt premiums of approximately
42
<PAGE> 53
$16.8 million) with an average maturity of seven years and a weighted average
interest rate of 7.91%, (ii) $137.0 million outstanding under its unsecured
credit facilities, comprised of the Credit Facility and the $50.0 million
unsecured acquisition facility, with maturity dates of July 1998 and November
2000 and weighted average interest rates of 6.59% and (iii) $400 million
principal amount of Senior Debt Securities, with maturities in June 2008, 2015
and 2018 and a weighted average interest rate of 7.18%. The total amount of debt
to be repaid during the remainder of 1998 is approximately $16.9 million,
including scheduled principal amortization of approximately $3.3 million.
On July 20, 1998, the Company sold $100 million of 8 1/2% Series A
Preferred Stock in an underwritten public offering, the net proceeds of which
were used to repay outstanding borrowings under the Credit Facility.
In order to maintain financial flexibility and facilitate the rapid
deployment of capital through market cycles, the Company presently intends to
operate with a Debt-to-Total Market Capitalization Ratio of approximately 45% or
less. Additionally, the Company presently intends to structure its balance sheet
to enable it to maintain investment-grade ratings on its senior unsecured debt.
Upon consummation of the Offering, the Company's Debt-to-Total Market
Capitalization Ratio as of June 30, 1998 on a pro forma basis (giving effect to
the acquisition-related debt incurred subsequent to June 30, 1998, the sale of
the Series A Preferred Shares and the Offering and the application of the
proceeds therefrom as if the debt had been incurred and those transactions had
occurred as of that date) would have been approximately 33.6% (approximately
34.2% on an historical basis).
Liquidity
As of June 30, 1998, the Company had approximately $29.2 million in cash
and cash equivalents and $413.0 million of available borrowings under the Credit
Facility.
The Company intends to use cash from operations, available borrowings under
the Credit Facility as well as net proceeds from the anticipated issuance of the
shares of Series B Preferred Stock and from future debt or equity offerings, if
any, to fund acquisitions, development activities and capital expenditures and
to provide for general working capital requirements.
On June 19, 1998, the Board of Directors declared a distribution on the
Common Stock of $0.3425 per share, paid on July 9, 1998 to stockholders of
record as of June 30, 1998 and in its capacity as general partner of the
Operating Partnership, declared a distribution on the Operating Partnership's
common partnership units of $0.3425 per common partnership unit, paid on July 9,
1998 to partners of record as of June 30, 1998. On September 3, 1998, the Board
of Directors declared a distribution on the Common Stock of $0.3425 per share,
payable on October 2, 1998 to stockholders of record as of September 16, 1998,
and, in its capacity as general partner of the Operating Partnership, declared a
distribution on the Operating Partnership's common partnership units of $0.3425
per common partnership unit, payable on October 2, 1998 to partners of record as
of September 16, 1998. On September 3, 1998, the Board of Directors also
declared a dividend on the Series A Preferred Stock of $0.4604 per share for the
period commencing on July 27, 1998 and ending on October 14, 1998, payable on
October 15, 1998 to stockholders of record as of September 16, 1998, and, in its
capacity as general partner of the Operating Partnership, declared a
distribution for such period on the Operating Partnership's Series A Preferred
Units (as defined) of $0.4604 per Series A Preferred Unit, payable on October
15, 1998 to partners of record as of September 16, 1998.
The anticipated size of the Company and the Operating Partnership's
distributions, using only cash from operations, will not allow them to retire
all of their debt as it comes due. Therefore, the Company and the Operating
Partnership intend to repay maturing debt with net proceeds from future debt
and/or equity financings. No assurance can be given, however, that future
financings will be available to the Company and the Operating Partnership or
that the terms of any such financings will be favorable from the Company's
perspective.
43
<PAGE> 54
Capital Commitments
In addition to recurring capital expenditures and costs to renew or
re-tenant space, as of September 25, 1998 the Company was in the process of
renovating, expanding or developing 18 projects at a total estimated cost of
$331.9 million, including two projects commenced subsequent to June 30, 1998 at
a total estimated cost at completion of $23.3 million. The Company presently
expects to fund these expenditures with cash from operations, borrowings under
the Credit Facility or debt or equity issuances. Other than these capital items,
the Company has no material capital commitments. During the period from January
1, 1998 to September 25, 1998, the Company invested $674.4 million of which
$258.9 million was invested subsequent to June 30, 1998 in (i) 187 industrial
buildings, aggregating 15.3 million rentable square feet, (ii) two retail
centers, aggregating 0.4 million square feet, and (iii) an unconsolidated
limited partnership interest in an existing real estate joint venture which owns
36 industrial buildings aggregating 4.0 million square feet. The acquisitions
were funded through borrowings under the Credit Facility, cash, debt assumption
of approximately $171.1 million, an investment from a co-investment partner of
approximately $60.3 million and the issuance of Units with a value of
approximately $44.7 million at the date of issuance. The Company expects that
its funds from operations and availability under its Credit Facility will be
sufficient to meet expected capital commitments for the next 12 months.
INFLATION
Substantially all of the industrial and retail leases require the tenant to
pay, as additional rent, a portion of any increases in real estate taxes and
operating expenses over a base amount. Leases representing approximately 5.9% of
the Company's total rentable square feet provide for rent increases based upon
changes in the Consumer Price Index. The remainder of the Company's leases
provide for fixed rental payments, of which a majority include predetermined
rent increases at various points in time during the lease term. Management
believes that inflationary increases in operating expenses will be offset, in
part, by the expense reimbursements and contractual rent increases described
above.
YEAR 2000 COMPLIANCE
Many computer programs have been written using two digits rather than four
to define the applicable year. Computer programs that have time-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000. This "year 2000 issue" could result in a system failure or miscalculations
causing disruptions of operations, including, among other things, a temporary
inability to process transactions, send invoices or engage in similar normal
business activities.
The Company is currently conducting a company-wide test of its financial
and non-financial systems to ensure that its systems will adequately handle the
year 2000 issue. The Company's current financial system generally provides for a
four-digit year; however, the current system is not fully year 2000 compliant.
The Company expects that its financial system will be fully year 2000 compliant
once it completes a software upgrade in late 1998 or early 1999. The cost of
such upgrade is expected to be less than $100,000.
The Company is currently surveying its property managers to determine if
its non-financial systems (HVAC, security, lighting and other building systems)
at its Properties are year 2000 compliant. The Company does not expect the cost
to bring property systems into compliance to be material. Although there can be
no assurance, the Company currently does not expect that the year 2000 issue
will materially affect its operations due to problems encountered by its
suppliers, customers and lenders.
44
<PAGE> 55
FUNDS FROM OPERATIONS
The following table reflects the calculation of the Company's FFO on an
historical basis for the six months ended June 30, 1998, on an as adjusted basis
(giving effect to the completion of the Formation Transactions, the IPO and
certain 1997 property acquisitions and dispositions) for the year ended December
31, 1997 and on a pro forma basis (giving effect to the Formation Transactions,
the IPO, certain 1997 property acquisitions and dispositions, the property
acquisitions in 1998, the sale of the Senior Debt Securities and the application
of the net proceeds therefrom, the sale of the Series A Preferred Shares and the
application of the net proceeds therefrom and the Offering and the application
of the net proceeds therefrom, as if all such transactions had occurred on
January 1, 1997) for the year ended December 31, 1997 and the six months ended
June 30, 1998. See "Pro Forma Financial Information."
<TABLE>
<CAPTION>
FOR THE
FOR THE YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1997 JUNE 30, 1998
------------------------- ----------------
AS ADJUSTED PRO FORMA HISTORICAL PRO FORMA
----------- ----------- ---------------- -----------
<S> <C> <C> <C> <C>
Income from operations before minority
interests.............................. $ 103,903 $ 118,539 $ 59,570 $ 67,501
Real estate related depreciation and
amortization:
Depreciation and amortization.......... 45,886 57,630 25,302 29,515
Furniture, fixtures and equipment
depreciation........................ (173) (173) (215) (215)
FFO attributable to minority
interests(1)(2)........................ (2,207) (8,609) (2,088) (4,256)
Adjustment to derive FFO of
unconsolidated joint venture:
Company's share of net income.......... -- (5,086) -- (2,543)
Company's share of FFO................. -- 6,344 -- 3,175
Series A Preferred Stock dividends....... -- (8,500) -- (4,250)
Series B Preferred Stock dividends....... -- (6,375) -- (3,188)
----------- ----------- ----------- -----------
FFO(1)................................... $ 147,409 $ 153,770 $ 82,569 $ 85,739
=========== =========== =========== ===========
Weighted average shares and units
outstanding (diluted).................. 88,698,719 90,604,395 89,362,932 90,670,014
=========== =========== =========== ===========
Cash flows provided by (used in):
Operating activities................... $ 131,621 $ 195,633 $ 75,720 $ 100,514
Investing activities................... (607,768) (1,024,862) (398,639) (152,426)
Financing activities................... 553,199 1,218,545 312,118 (69,272)
</TABLE>
- ---------------
(1) The White Paper defines Funds from Operations as net income (loss) (computed
in accordance with GAAP), excluding gains (or losses) from debt
restructuring and sales of properties, plus real estate related depreciation
and amortization. Management considers FFO an appropriate measure of an
equity REIT's performance because it is predicated on cash flow analyses.
The Company computes FFO in accordance with standards established by the
White Paper, which may differ from the methodology for calculating FFO
utilized by other REITs and, accordingly, may not be comparable to such
other REITs. FFO should not be considered as an alternative to net income
(determined in accordance with GAAP) as an indicator of the Company's
financial performance or to cash flow from operating activities (determined
in accordance with GAAP) as an indicator of the Company's liquidity, nor is
it indicative of funds available to fund the Company's cash needs, including
the Company's ability to make distributions.
(2) Represents FFO attributable to minority interests in consolidated joint
ventures for the period presented, which has been computed as minority
interests' share of net income before disposal of properties plus minority
interests' share of real estate-related depreciation and amortization of the
consolidated joint ventures for such period. Such minority interests are not
convertible into shares of Common Stock.
45
<PAGE> 56
BUSINESS AND PROPERTIES
The following table summarizes the diversification by region of the
Industrial and Retail Properties owned as of June 30, 1998:
<TABLE>
<CAPTION>
INDUSTRIAL
PROPERTIES RETAIL PROPERTIES NUMBER
------------------ -------------------- OF TOTAL
NUMBER RENTABLE NUMBER RENTABLE BUILDINGS RENTABLE
OF SQUARE % OF OF SQUARE % OF AND SQUARE % OF
REGION BUILDINGS FEET TOTAL CENTERS FEET TOTAL CENTERS FEET TOTAL
------ --------- ---------- ----- ------- ---------- ----- --------- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Eastern.......................... 77 9,864,840 20.7% 4 1,272,968 18.6% 81 11,137,808 20.4%
Midwestern....................... 103 11,868,394 24.9 4 710,833 10.4 107 12,579,227 23.1
Southern......................... 142 13,169,885 27.6 12 1,957,051 28.6 154 15,126,936 27.7
Western.......................... 141 12,772,141 26.8 17 2,907,986 42.4 158 15,680,127 28.8
--- ---------- ----- -- ---------- ----- --- ---------- -----
Total.................... 463 47,675,260 100.0% 37 6,848,838 100.0% 500 54,524,098 100.0%
=== ========== ===== == ========== ===== === ========== =====
</TABLE>
INDUSTRIAL PROPERTIES
At June 30, 1998, the Company owned 463 industrial buildings aggregating
approximately 47.7 million rentable square feet, located in 23 markets
nationwide. The Industrial Properties accounted for $198.5 million, or 72%, of
Annualized Base Rent derived from the Properties as of June 30, 1998. The
Industrial Properties were 95.1% leased to over 1,200 tenants as of the same
date, the largest of which accounted for no more than 1.2% of Annualized Base
Rent from the Industrial Properties.
Property Characteristics. The Industrial Properties, which consist
primarily of warehouse distribution facilities suitable for single or multiple
tenants, are typically comprised of multiple buildings (an average of five) and
generally range between 300,000 and 600,000 rentable square feet, averaging
475,000 rentable square feet per Property. The following table identifies
characteristics of the typical industrial buildings:
<TABLE>
<CAPTION>
TYPICAL BUILDING RANGE
-------------------- ----------------
<S> <C> <C>
Rentable square feet........................ 100,000 70,000 - 150,000
Clear height................................ 24 ft 18 - 32 ft.
Building depth.............................. 200 ft 150 - 300 ft.
Truck court depth........................... 110 ft 90 - 130 ft.
Loading Dock & Grade........................ Dock or Dock & Grade
Parking spaces per 1,000 square feet........ 1.0 0.5 - 2.0
Square footage per tenant................... 35,000 5,000 - 100,000
Office finish............................... 8% 3% - 15%
Site coverage............................... 40% 35% - 55%
</TABLE>
Lease Terms. The Industrial Properties are typically subject to lease on a
"triple net basis," defined as leases in which tenants pay their proportionate
share of real estate taxes, insurance and operating costs, or subject to leases
on a "modified gross basis," defined as leases in which tenants pay expenses
over certain threshold levels. Lease terms typically range from three to ten
years, with an average of seven years, excluding renewal options. The majority
of the industrial leases do not include renewal options.
Overview of Major Target Markets. The Industrial Properties are
concentrated in national hub distribution markets such as Atlanta, Chicago,
Dallas/Fort Worth, Los Angeles, Northern New Jersey and the San Francisco Bay
Area because management believes their strategic location, transportation
network and infrastructure, and large consumer and manufacturing bases support
strong demand for industrial space. The six national hub markets listed above
are the nation's largest warehouse markets and, as of December 31, 1997,
comprised 36% of the warehouse inventory of the 53 industrial markets tracked by
CB Commercial/ Torto Wheaton Research. As of December 31, 1997, the combined
population of these markets was approximately 37.2 million, and the amount of
per capita warehouse space was 19% above the average for such 53 industrial
markets. As set forth in the tables below, these six markets contained five of
the ten busiest cargo airports and three of the ten busiest container ports in
the periods noted.
46
<PAGE> 57
10 LARGEST WAREHOUSE MARKETS
<TABLE>
<CAPTION>
SQ. FT.
MARKET (000'S)(1)
- ------ ----------
<S> <C>
*Northern New Jersey........................................ 371,087
*Los Angeles................................................ 360,561
*Chicago.................................................... 344,968
*Atlanta.................................................... 286,006
*Dallas/Fort Worth.......................................... 265,769
*San Francisco Bay Area..................................... 258,578
Philadelphia............................................... 191,625
Greater Miami.............................................. 188,824
Orange County.............................................. 186,793
St. Louis.................................................. 156,666
</TABLE>
10 BUSIEST AIR CARGO MARKETS
IN THE CONTINENTAL U.S.
<TABLE>
<CAPTION>
ANNUAL
MARKET TONNAGE(2)
- ------ ----------
<S> <C>
Memphis.................................................... 2,233,490
*Los Angeles................................................ 1,872,528
Miami...................................................... 1,765,827
New York................................................... 1,661,400
*Chicago.................................................... 1,407,589
Louisville................................................. 1,345,318
*Newark..................................................... 1,048,954
*Atlanta.................................................... 864,474
Dayton..................................................... 812,440
*Dallas/Fort Worth.......................................... 810,621
</TABLE>
10 BUSIEST PORTS BY CONTAINERIZED CARGO
<TABLE>
<CAPTION>
ANNUAL
MARKET TONNAGE(3)
- ------ ----------
<S> <C>
*Long Beach/Los Angeles..................................... 31,411,023
*New York/New Jersey........................................ 13,407,276
Seattle/Tacoma............................................. 11,941,371
Charleston................................................. 6,858,062
*Oakland.................................................... 6,767,463
Houston.................................................... 6,458,136
Hampton Roads.............................................. 6,189,183
Savannah................................................... 5,505,551
Miami/Port Everglades...................................... 5,356,102
New Orleans................................................ 5,009,960
</TABLE>
Markets in which the Company owns Industrial Properties are in bold. "*"
denotes each of the six national hub markets as characterized by the Company.
- ---------------
(1) Table derived from data, as of December 31, 1997, obtained from CB
Commercial/Torto Wheaton Research.
(2) Table derived from preliminary data, as of December 1997, published by the
Airports Council International.
(3) Table derived from data, as of December 31, 1996, obtained from the U.S.
Bureau of the Census -- United States Foreign Trade.
47
<PAGE> 58
Within these metropolitan areas, the Industrial Properties are concentrated
in in-fill locations (areas which are typified by high population densities and
low levels of available land that could be developed into competitive industrial
or retail properties) within established, relatively large submarkets (markets
within a metropolitan area in which the competitive environment for one or more
property types is largely dependent upon the supply of such property type in
such market rather than the supply of such property type in other portions of
such metropolitan area) which the Company believes should provide a higher rate
of occupancy and rent growth than properties located elsewhere. These in-fill
locations are typically near major ports or airports, have good access to
freeways and rail lines, are proximate to a diverse labor pool, and have limited
land available for new construction. There is typically broad demand for
industrial space in these centrally located submarkets due to a diverse mix of
industries and types of industrial uses, including warehouse distribution, light
assembly and manufacturing. The Company generally avoids locations at the
periphery of metropolitan areas where there are fewer supply constraints. Small
metropolitan areas or cities without a heavy concentration of warehouse activity
typically have few, if any, supply-constrained locations.
48
<PAGE> 59
INDUSTRIAL PROPERTY SUMMARY
As of June 30, 1998, the 463 industrial buildings were diversified across
23 markets nationwide. The average age of the Industrial Properties is 12 years
(since the time the property was built or substantially renovated), which the
Company believes should result in lower operating costs over the long term.
Ownership of each Property is in fee simple unless otherwise noted.
<TABLE>
<CAPTION>
PERCENTAGE
YEAR OF TOTAL
NUMBER BUILT/ RENTABLE
OF RENOVATED RENTABLE SQUARE PERCENTAGE
REGION/MARKET/PROPERTY LOCATION BUILDINGS (1) SQUARE FEET FEET LEASED
---------------------- -------- --------- --------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
EASTERN
Baltimore/Washington, D.C.
Brightseat Road.................. Landover 1 1990 121,785 0.3% 100.0%
Crysen Industrial................ Savage 1 1986 150,000 0.3 66.0
Greenwood Industrial............. Savage 3 1982 480,610 1.0 89.2
Meadowridge...................... Elkridge 3 1990 332,512 0.7 100.0
Patuxent......................... Jessup 2 1981 147,383 0.3 100.0
Pennsy Drive..................... Landover 1 1998R 359,477 0.8 23.1
Preston Court.................... Jessup 1 1988 178,880 0.4 100.0
Santa Barbara Court.............. Elkridge 1 1978 166,820 0.3 100.0
Boston
Arsenal Street................... Watertown 1 1978 191,850 0.4 100.0
Bedford Street................... Middleborough 1 1982 40,018 0.1 100.0
Braintree Industrial............. Braintree 8 1969 976,634 2.0 100.0
Bradlee Circle Office............ Braintree 1 1987 120,000 0.3 100.0
Brockton Industrial.............. Brockton 1 1967 300,114 0.6 100.0
Cabot Business Park.............. Mansfield 15 1970 1,274,800 2.7 79.6
Collins Street................... Attleboro 1 1979 152,730 0.3 100.0
Hampden Road..................... Mansfield 1 1977 204,117 0.4 100.0
Hartwell Avenue.................. Lexington 1 1970 40,800 0.1 100.0
Locke Building................... Marlborough 1 1982 97,870 0.2 100.0
Stoughton Industrial............. Stoughton 5 1984 632,675 1.3 100.0
United Drive..................... West Bridgewater 1 1986 315,000 0.7 100.0
Cincinnati(5)
Dixie Highway.................... Florence 2 1990 209,680 0.4 100.0
Empire Drive..................... Florence 1 1989 199,440 0.4 100.0
Holton Drive..................... Florence 1 1994 268,525 0.6 100.0
Production Drive................. Florence 1 1975 50,729 0.1 0.0
Northern New Jersey
Dock's Corner(6)................. South Brunswick 1 1996 554,521 1.2 84.1
Dock's Corner II................. South Brunswick 1 1981 212,335 0.4 100.0
Jamesburg........................ Dayton 3 1989 821,712 1.7 95.7
South River Park(7).............. Cranbury n/a n/a n/a n/a n/a
Two South Middlesex.............. Monroe 1 1995 218,088 0.5 100.0
Philadelphia
Mid-Atlantic Business Center..... West Deptford 13 1979R 779,594 1.6 97.4
Wilmington
Boulden.......................... Wilmington 3 1986 266,141 0.6 100.0
--- ---------- -----
<CAPTION>
ANNUALIZED
BASE
ANNUALIZED PERCENTAGE RENT PER
BASE OF NUMBER LEASED
RENT(2) ANNUALIZED OF SQUARE
REGION/MARKET/PROPERTY (000S) BASE RENT LEASES FOOT(3)
---------------------- ---------- ---------- ------ ----------
<S> <C> <C> <C> <C>
EASTERN
Baltimore/Washington, D.C.
Brightseat Road.................. $ 586 0.3% 2 $4.77
Crysen Industrial................ 423 0.2 2 4.27
Greenwood Industrial............. 1,700 0.9 9 3.97
Meadowridge...................... 1,396 0.7 4 4.20
Patuxent......................... 677 0.3 8 4.59
Pennsy Drive..................... 353 0.2 1 4.25
Preston Court.................... 763 0.4 3 4.27
Santa Barbara Court.............. 616 0.3 2 3.69
Boston
Arsenal Street................... 1,439 0.7 1 7.50
Bedford Street................... 593 0.3 1 14.82
Braintree Industrial............. 2,028 1.0 10 2.08
Bradlee Circle Office............ 1,148 0.6 1 9.57
Brockton Industrial.............. 1,123 0.6 2 3.74
Cabot Business Park.............. 5,655 2.8 21 5.58
Collins Street................... 479 0.2 2 3.14
Hampden Road..................... 816 0.4 1 4.00
Hartwell Avenue.................. 204 0.1 1 5.00
Locke Building................... 333 0.2 1 3.40
Stoughton Industrial............. 1,888 1.0 7 2.98
United Drive..................... 1,229 0.6 1 3.90
Cincinnati(5)
Dixie Highway.................... 640 0.3 3 3.05
Empire Drive..................... 622 0.3 3 3.12
Holton Drive..................... 1,034 0.5 1 3.85
Production Drive................. 0.0 0.0 0 0.0
Northern New Jersey
Dock's Corner(6)................. 1,819 0.9 2 3.90
Dock's Corner II................. 839 0.4 1 3.95
Jamesburg........................ 4,809 2.4 4 6.11
South River Park(7).............. n/a n/a n/a n/a
Two South Middlesex.............. 856 0.4 2 3.93
Philadelphia
Mid-Atlantic Business Center..... 2,718 1.4 25 3.58
Wilmington
Boulden.......................... 1,062 0.5 5 3.99
-------- ----- -----
</TABLE>
49
<PAGE> 60
<TABLE>
<CAPTION>
PERCENTAGE
YEAR OF TOTAL
NUMBER BUILT/ RENTABLE
OF RENOVATED RENTABLE SQUARE PERCENTAGE
REGION/MARKET/PROPERTY LOCATION BUILDINGS (1) SQUARE FEET FEET LEASED
---------------------- -------- --------- --------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Eastern Region Total/
Weighted Average................... 77 9,864,840 20.7% 91.5%
--- ---------- -----
MIDWESTERN
Chicago
Alsip Industrial................. Alsip 1 1975 153,582 0.3 100.0
Belden Avenue.................... Addison 3 1991 346,233 0.7 100.0
Bensenville...................... Bensenville 13 1994R 2,137,370 4.5 97.2
Chicago Industrial............... Bensenville 2 1974 184,360 0.4 48.4
Crossroads Industrial............ Bollingbrook 1 1990 260,890 0.5 100.0
Elk Grove Village Industrial..... Elk Grove Village 10 1980 693,459 1.5 87.7
Executive Drive.................. Addison 1 1987 75,020 0.2 100.0
Greenleaf........................ Elk Grove Village 1 1973 50,695 0.1 100.0
Itasca Industrial Portfolio...... Itasca, Wood Dale 6 1996R 769,070 1.6 89.7
Lake Michigan Industrial
Portfolio(4)................... Itasca, Bridgeview 2 1994 310,681 0.7 100.0
Linder Skokie.................... Skokie 1 1991R 484,370 1.0 60.3
Lisle Industrial................. Lisle 1 1985R 360,000 0.8 100.0
Melrose Park..................... Melrose Park 1 1982 346,538 0.7 100.0
O'Hare Industrial Portfolio...... Itasca, Naperville 15 1975 699,512 1.5 92.9
Windsor Court.................... Addison 1 1990 56,640 0.1 100.0
Columbus
Industrial Drive................. Columbus 1 1991 228,433 0.5 100.0
Janitrol......................... Columbus 1 1989 240,000 0.5 86.7
Minneapolis
Braemar Business Center.......... Minneapolis 2 1982 108,091 0.2 93.7
Corporate Square................. Eagan 6 1992R 526,490 1.1 92.4
Edenvale Business Center......... Eden Prairie 1 1982 85,818 0.2 96.9
Mendota Heights(6)............... Mendota Heights 1 1998D 149,740 0.3 67.4
Minneapolis Distribution
Portfolio...................... Minneapolis, 5 1997R 1,032,994 2.2 99.7
Edina
Minneapolis Industrial Portfolio
IV............................. Plymouth 4 1985R 514,546 1.1 100.0
Minneapolis Industrial Portfolio
V.............................. Brooklyn Center 6 1997 499,673 1.0 95.2
Parkway Business Center.......... New Hope 1 1982 43,660 0.1 100.0
Penn James Office/Warehouse...... Bloomington 2 1974 215,606 0.5 100.0
Round Lake Business Center....... Arden Hills 1 1982 74,265 0.2 94.8
Shady Oak........................ Eden Prairie 1 1980R 104,243 0.2 93.4
Twin Cities...................... New Hope, Mendota 2 1980 600,464 1.3 100.0
Heights
Minnetonka Industrial............ Minnetonka 10 1978 515,951 1.1 100.0
--- ---------- -----
Midwestern Region Total/
Weighted Average................... 103 11,868,394 24.9 93.8
--- ---------- -----
<CAPTION>
ANNUALIZED
BASE
ANNUALIZED PERCENTAGE RENT PER
BASE OF NUMBER LEASED
RENT(2) ANNUALIZED OF SQUARE
REGION/MARKET/PROPERTY (000S) BASE RENT LEASES FOOT(3)
---------------------- ---------- ---------- ------ ----------
<S> <C> <C> <C> <C>
Eastern Region Total/
Weighted Average................... $ 37,848 19.1% 126 $4.19
-------- ----- -----
MIDWESTERN
Chicago
Alsip Industrial................. 557 1.2 11 3.38
Belden Avenue.................... 1,904 1.0 7 5.50
Bensenville...................... 7,932 4.0 30 3.82
Chicago Industrial............... 375 0.2 2 4.20
Crossroads Industrial............ 1,043 0.5 4 4.00
Elk Grove Village Industrial..... 2,577 1.3 14 4.24
Executive Drive.................. 600 0.3 6 8.00
Greenleaf........................ 266 0.1 1 5.25
Itasca Industrial Portfolio...... 2,329 1.2 11 3.38
Lake Michigan Industrial
Portfolio(4)................... 1,090 0.5 3 3.51
Linder Skokie.................... 830 0.4 6 2.84
Lisle Industrial................. 756 0.4 1 2.10
Melrose Park..................... 1,057 0.5 1 3.05
O'Hare Industrial Portfolio...... 3,008 1.5 15 4.63
Windsor Court.................... 276 0.1 1 4.87
Columbus
Industrial Drive................. 678 0.3 1 2.97
Janitrol......................... 684 0.3 1 3.29
Minneapolis
Braemar Business Center.......... 607 0.3 17 5.99
Corporate Square................. 1,736 0.9 20 3.57
Edenvale Business Center......... 338 0.2 10 4.07
Mendota Heights(6)............... 455 0.2 7 4.51
Minneapolis Distribution
Portfolio...................... 3,847 1.9 28 3.73
Minneapolis Industrial Portfolio
IV............................. 1,882 0.9 15 3.66
Minneapolis Industrial Portfolio
V.............................. 1,518 0.8 15 3.19
Parkway Business Center.......... 219 0.1 7 5.02
Penn James Office/Warehouse...... 834 0.4 23 3.87
Round Lake Business Center....... 405 0.2 10 5.75
Shady Oak........................ 341 0.2 2 3.50
Twin Cities...................... 1,931 1.0 8 3.22
----- -----
Minnetonka Industrial............ 2,858 1.4 42 5.54
--------
Midwestern Region Total/
Weighted Average................... 42,933 21.6 309 3.85
-------- ----- -----
</TABLE>
50
<PAGE> 61
<TABLE>
<CAPTION>
PERCENTAGE
YEAR OF TOTAL
NUMBER BUILT/ RENTABLE
OF RENOVATED RENTABLE SQUARE PERCENTAGE
REGION/MARKET/PROPERTY LOCATION BUILDINGS (1) SQUARE FEET FEET LEASED
---------------------- -------- --------- --------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
SOUTHERN
Atlanta
Amwiler-Gwinnett Industrial
Portfolio...................... Gwinnett County 9 1996 792,686 1.7% 97.2%
Atlanta South.................... Clayton County 9 1994 624,135 1.3 100.0
Marietta Industrial.............. Marietta 3 1979 199,300 0.4 97.9
Norcross/Brookhollow Portfolio... Gwinnett County 4 1996 322,399 0.7 100.0
Southfield/KDRC Industrial
Portfolio...................... Gwinnett County 10 1990 1,050,383 2.2 93.4
Suwanee Creek Distribution
Center(7)...................... Atlanta n/a 1998D n/a n/a n/a
Austin
Metric Center(4)................. Austin 6 1996 735,240 1.5 100.0
Dallas/Fort Worth
DFW Air Cargo Facility(7)........ Dallas n/a 1998D n/a n/a n/a
Dallas Industrial Portfolio...... Dallas, Arlington 18 1986 1,066,098 2.2 100.0
Garland Industrial............... Dallas 20 1984 1,019,200 2.1 92.5
Lincoln Industrial Center........ Carrollton 1 1980 93,718 0.2 100.0
Lonestar......................... Dallas, Irving, 7 1993 911,375 1.9 96.7
Grand Prairie
McDaniel Drive................... Carrollton 1 1981 157,500 0.3 100.0
N. Glenville Avenue.............. Richardson 1 1981 109,000 0.2 100.0
Pagemill & Dillworth............. Dallas 2 1981 217,782 0.5 87.5
Shiloh Road...................... Garland 1 1979 192,720 0.4 100.0
Valwood.......................... Carrollton 2 1984 275,994 0.6 100.0
Valwood Parkway II............... Carrollton 2 1984 254,219 0.5 100.0
West Kiest....................... Dallas 1 1981 248,698 0.5 100.0
West North Carrier............... Grand Prairie 1 1993R 248,736 0.5 100.0
Houston
Houston Industrial Portfolio..... Houston 5 1986 464,696 1.0 97.2
Houston Service Center........... Houston 3 1982 418,650 0.9 90.9
Memphis
Corporate Park................... Memphis 6 1987 658,322 1.4 100.0
Hickory Hill..................... Memphis 1 1979 200,000 0.4 100.0
Miami
Beacon Industrial Park........... Miami 8 1995 785,251 1.6 99.2
Blue Lagoon...................... Miami 2 1994 325,611 0.7 100.0
Brittania Business Park.......... Riviera Beach 2 1988 258,578 0.5 96.1
Orlando
Chancellor(4).................... Orlando 1 1996R 201,600 0.4 100.0
Chancellor Square................ Orlando 3 1982 141,778 0.3 67.3
Orlando Central Park
Development(7)................. Orlando n/a n/a n/a n/a n/a
Presidents Drive................. Orlando 3 1979 378,379 0.8 74.1
Presidents Drive II.............. Orlando 3 1984 302,400 0.6 100.0
<CAPTION>
ANNUALIZED
BASE
ANNUALIZED PERCENTAGE RENT PER
BASE OF NUMBER LEASED
RENT(2) ANNUALIZED OF SQUARE
REGION/MARKET/PROPERTY (000S) BASE RENT LEASES FOOT(3)
---------------------- ---------- ---------- ------ ----------
<S> <C> <C> <C> <C>
SOUTHERN
Atlanta
Amwiler-Gwinnett Industrial
Portfolio...................... $ 3,000 1.5% 26 $3.75
Atlanta South.................... 3,166 1.6 26 5.06
Marietta Industrial.............. 817 0.4 11 4.19
Norcross/Brookhollow Portfolio... 1,747 0.9 21 5.42
Southfield/KDRC Industrial
Portfolio...................... 3,931 2.0 34 4.01
Suwanee Creek Distribution
Center(7)...................... n/a n/a n/a n/a
Austin
Metric Center(4)................. 4,809 2.4 22 6.54
Dallas/Fort Worth
DFW Air Cargo Facility(7)........ n/a n/a n/a n/a
Dallas Industrial Portfolio...... 3,305 1.7 69 3.10
Garland Industrial............... 4,041 2.0 69 4.28
Lincoln Industrial Center........ 340 0.2 3 3.63
Lonestar......................... 2,977 1.5 11 3.38
McDaniel Drive................... 601 0.3 1 3.82
N. Glenville Avenue.............. 414 0.2 1 3.80
Pagemill & Dillworth............. 817 0.4 3 4.29
Shiloh Road...................... 530 0.3 1 2.75
Valwood.......................... 862 0.4 7 3.12
Valwood Parkway II............... 960 0.5 5 3.78
West Kiest....................... 601 0.3 1 2.42
West North Carrier............... 567 0.3 2 2.28
Houston
Houston Industrial Portfolio..... 1,419 0.7 18 3.14
Houston Service Center........... 1,966 1.0 49 5.17
Memphis
Corporate Park................... 2,348 1.2 10 3.57
Hickory Hill..................... 561 0.3 1 2.81
Miami
Beacon Industrial Park........... 5,245 2.6 21 6.73
Blue Lagoon...................... 2,357 1.2 14 7.24
Brittania Business Park.......... 1,294 0.7 8 5.21
Orlando
Chancellor(4).................... 579 0.3 1 2.87
Chancellor Square................ 567 0.3 7 5.94
Orlando Central Park
Development(7)................. n/a n/a n/a n/a
Presidents Drive................. 1,076 0.5 10 3.84
Presidents Drive II.............. 958 0.5 7 3.17
</TABLE>
51
<PAGE> 62
<TABLE>
<CAPTION>
PERCENTAGE
YEAR OF TOTAL
NUMBER BUILT/ RENTABLE
OF RENOVATED RENTABLE SQUARE PERCENTAGE
REGION/MARKET/PROPERTY LOCATION BUILDINGS (1) SQUARE FEET FEET LEASED
---------------------- -------- --------- --------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Sand Lake Service Center......... Orlando 6 1972 400,591 0.8% 99.4%
Viscount......................... Orlando 1 1972 114,846 0.2 100.0
--- ---------- -----
Southern Region Total/
Weighted Average................... 142 13,169,885 27.6 96.6
--- ---------- -----
WESTERN
Los Angeles
Anaheim Industrial............... Anaheim 1 1980 161,500 0.3 100.0
Artesia Industrial Portfolio..... Compton 27 1984 2,496,465 5.2 100.0
Commerce......................... Fontana 1 1990 254,414 0.5 0.0
East Walnut Drive................ City of Industry 1 1990 85,871 0.2 100.0
International Multifoods......... La Mirada 1 1995R 144,000 0.3 100.0
Jasmine Avenue................... Fontana 1 1990 410,428 0.9 100.0
L.A. County Industrial
Portfolio...................... Carson, Norwalk 6 1980 818,191 1.7 100.0
Systematics...................... Walnut 1 1981 66,387 0.1 100.0
Orange County
Northpointe Commerce............. Fullerton 2 1992 119,445 0.3 100.0
Stadium Business Park............ Anaheim 9 1995R 282,492 0.6 99.3
Portland
Cascade Business Park............ Tigard 4 1995 159,411 0.3 89.4
Wilsonville...................... Portland 1 1979 516,693 1.1 100.0
Sacramento
Hewlett Packard Distribution..... Roseville 1 1994 182,437 0.4 100.0
San Diego
Activity Distribution Center..... San Diego 4 1991 252,318 0.5 100.0
San Francisco Bay Area
Acer Distribution Center......... San Jose 1 1974 196,643 0.4 100.0
Alvarado Business Center......... San Leandro 10 1986 695,070 1.5 98.3
Ardenwood Corporate Park......... Fremont 4 1986 295,657 0.6 100.0
Dowe Industrial.................. Union City 2 1985R 326,080 0.7 100.0
Fairway Drive Industrial(4)(6)... San Leandro 2 1997D 175,324 0.4 100.0
Laurelwood....................... Santa Clara 2 1981 155,500 0.3 100.0
Milmont Page..................... Fremont 3 1982 199,862 0.4 100.0
Moffett Business Center.......... Sunnyvale 4 1994R 285,480 0.6 100.0
Moffett Park R&D Portfolio....... Sunnyvale 14 1994R 462,245 1.0 100.0
Pacific Business Center.......... Fremont 2 1991 375,912 0.8 100.0
San Jose,
Silicon Valley R&D Portfolio..... Sunnyvale, 5 1978 287,228 0.6 100.0
Milpitas
South Bay Industrial............. Fremont 8 1990 1,011,781 2.1 100.0
Weigman Road..................... Hayward 1 1990 148,559 0.3 100.0
Yosemite Drive................... Milpitas 1 1983 169,195 0.4 100.0
Zanker/Charcot Industrial........ San Jose 5 1993R 301,064 0.6 100.0
Seattle
Harvest Business Park............ Kent 3 1986 191,841 0.4 100.0
Kent Centre...................... Kent 4 1993 267,967 0.6 99.8
<CAPTION>
ANNUALIZED
BASE
ANNUALIZED PERCENTAGE RENT PER
BASE OF NUMBER LEASED
RENT(2) ANNUALIZED OF SQUARE
REGION/MARKET/PROPERTY (000S) BASE RENT LEASES FOOT(3)
---------------------- ---------- ---------- ------ ----------
<S> <C> <C> <C> <C>
Sand Lake Service Center......... $ 1,920 1.0% 40 $4.82
Viscount......................... 367 0.2 8 3.20
-------- ----- -----
Southern Region Total/
Weighted Average................... 54,142 27.3 508 4.25
-------- ----- -----
WESTERN
Los Angeles
Anaheim Industrial............... 925 0.5 2 5.73
Artesia Industrial Portfolio..... 9,747 4.9 30 3.90
Commerce......................... 0 0.0 0 0.00
East Walnut Drive................ 343 0.2 1 3.99
International Multifoods......... 755 0.4 1 5.24
Jasmine Avenue................... 1,231 0.6 1 3.00
L.A. County Industrial
Portfolio...................... 3,797 1.9 11 4.64
Systematics...................... 489 0.2 1 7.37
Orange County
Northpointe Commerce............. 801 0.4 2 6.71
Stadium Business Park............ 1,596 0.8 30 5.69
Portland
Cascade Business Park............ 1,069 0.5 8 7.50
Wilsonville...................... 1,550 0.8 1 3.00
Sacramento
Hewlett Packard Distribution..... 630 0.3 1 3.45
San Diego
Activity Distribution Center..... 1,466 0.7 15 5.81
San Francisco Bay Area
Acer Distribution Center......... 1,038 0.5 2 5.28
Alvarado Business Center......... 3,678 1.9 33 5.38
Ardenwood Corporate Park......... 2,592 1.3 6 8.77
Dowe Industrial.................. 1,137 0.6 4 3.49
Fairway Drive Industrial(4)(6)... 742 0.4 2 4.23
Laurelwood....................... 861 0.4 2 5.54
Milmont Page..................... 1,157 0.6 10 5.79
Moffett Business Center.......... 2,187 1.1 5 7.66
Moffett Park R&D Portfolio....... 5,818 2.9 33 12.59
Pacific Business Center.......... 2,144 1.1 11 5.70
Silicon Valley R&D Portfolio..... 2,405 1.2 9 8.37
South Bay Industrial............. 5,760 2.9 31 5.69
Weigman Road..................... 581 0.3 2 3.91
Yosemite Drive................... 748 0.4 1 4.42
Zanker/Charcot Industrial........ 2,009 1.0 18 6.67
Seattle
Harvest Business Park............ 857 0.4 11 4.47
Kent Centre...................... 1,173 0.6 15 4.39
</TABLE>
52
<PAGE> 63
<TABLE>
<CAPTION>
PERCENTAGE
YEAR OF TOTAL
NUMBER BUILT/ RENTABLE
OF RENOVATED RENTABLE SQUARE PERCENTAGE
REGION/MARKET/PROPERTY LOCATION BUILDINGS (1) SQUARE FEET FEET LEASED
---------------------- -------- --------- --------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Kingsport Industrial Park........ Kent 7 1994R 951,056 2.0% 99.9%
Northwest Distribution Center.... Kent 3 1980 325,625 0.7 88.5
Western Region Total/
Weighted Average................... 141 12,772,141 26.8 97.5
--- ---------- -----
TOTAL/WEIGHTED AVERAGE....... 463 47,675,260 100.0% 95.1%
=== ========== =====
<CAPTION>
ANNUALIZED
BASE
ANNUALIZED PERCENTAGE RENT PER
BASE OF NUMBER LEASED
RENT(2) ANNUALIZED OF SQUARE
REGION/MARKET/PROPERTY (000S) BASE RENT LEASES FOOT(3)
---------------------- ---------- ---------- ------ ----------
<S> <C> <C> <C> <C>
Kingsport Industrial Park........ $ 3,201 1.6% 18 $3.37
Northwest Distribution Center.... 1,085 0.5 3 3.77
Western Region Total/
Weighted Average................... 63,572 32.0 320 5.11
-------- ----- -----
TOTAL/WEIGHTED AVERAGE....... $198,495 100.0% 1,263 $4.38
======== ===== =====
</TABLE>
- ---------------
(1) Industrial Properties denoted with an "R," "E" or "D" indicate the date of
most recent renovation, expansion or development, respectively. All other
dates reference the year such Property was developed.
(2) Annualized Base Rent means the monthly contractual amount under existing
leases at June 30, 1998, multiplied by 12. This amount excludes expense
reimbursements and rental abatements.
(3) Calculated as total Annualized Base Rent divided by rentable square feet
leased as of June 30, 1998.
(4) The Company holds interests in these Properties through a joint venture
interest in a limited partnership or limited liability company. See
"-- Properties Held Through Joint Ventures, Limited Liability Companies and
Partnerships."
(5) The Properties included in the Cincinnati Consolidated Metropolitan
Statistical Area are located in Florence, Kentucky, and, accordingly, are
reflected in the Eastern region.
(6) This Property is being redeveloped. All calculations are based on rentable
square feet existing as of June 30, 1998.
(7) This Property consists of land held for future development.
53
<PAGE> 64
INDUSTRIAL PROPERTY TENANT INFORMATION
Largest Industrial Property Tenants. The following table lists tenants with
Annualized Base Rent representing at least 0.5% of total Annualized Base Rent as
of June 30, 1998 of the Industrial Properties owned as of such date. Eleven of
such tenants lease space in more than one of the Industrial Properties.
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE
OF OF AGGREGATE
NUMBER AGGREGATE AGGREGATE ANNUALIZED ANNUALIZED
OF RENTABLE LEASED BASE RENT BASE
TENANT NAME(1) PROPERTIES SQUARE FEET SQUARE FEET(2) (000S) RENT(3)
-------------- ---------- ----------- -------------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Wakefern Food Corporation.............. 1 419,900 0.9% $ 2,356 1.2%
Air Express International, Inc. ....... 3 291,495 0.6 2,117 1.1
United States Postal Service........... 2 433,359 1.0 1,969 1.0
Dell USA............................... 1 290,400 0.6 1,724 0.9
Sanmina Corporation.................... 2 134,989 0.3 1,652 0.8
Sage Enterprises Inc................... 3 245,289 0.5 1,641 0.8
Rite Aid............................... 1 516,693 1.1 1,550 0.8
Bradlees Stores, Inc................... 2 600,000 1.3 1,453 0.7
Boston Edison Company.................. 1 191,850 0.4 1,439 0.7
Home Depot USA Inc..................... 2 374,813 0.8 1,367 0.7
Boise Cascade Corporation.............. 2 400,655 0.9 1,349 0.7
Acer America........................... 2 241,643 0.5 1,318 0.7
General Electric Company............... 4 318,055 0.7 1,311 0.7
Cosmair Inc............................ 1 303,843 0.7 1,291 0.7
Schmelbach-Lubeca AG................... 2 339,104 0.7 1,265 0.6
Avery Dennison Corporation............. 1 410,428 0.9 1,231 0.6
United Liquors Ltd..................... 1 315,000 0.7 1,229 0.6
Mylex Corporation...................... 1 133,182 0.3 1,173 0.6
Rolf C. Hagen (USA) Corp. ............. 1 204,151 0.5 1,133 0.6
Holman Distribution.................... 1 371,440 0.8 1,129 0.6
Harmonic Lightwaves.................... 1 110,160 0.2 1,124 0.6
Unisource Worldwide, Inc. ............. 4 279,167 0.6 1,123 0.6
C & S Wholesale Grocers, Inc. ......... 1 113,680 0.3 1,108 0.6
Hexcel Corporation..................... 1 285,634 0.6 1,086 0.5
Ciba Vision Corporation................ 1 245,616 0.5 1,072 0.5
Dry Storage Corporation................ 1 346,538 0.8 1,057 0.5
Nature Company......................... 1 268,525 0.6 1,034 0.5
Mitsubishi Warehouse Corporation....... 1 253,584 0.6 1,004 0.5
Emery Air Freight Corporation.......... 2 152,126 0.3 959 0.5
Hit or Miss............................ 1 328,540 0.7 939 0.5
Autozone............................... 1 249,851 0.6 927 0.5
Superior Tea & Coffee.................. 1 201,011 0.4 926 0.5
Advo Systems, Inc...................... 1 173,660 0.4 905 0.5
--------- ---- ------- ----
Total........................ 9,544,381 21.0% $42,961 21.6%
========= ==== ======= ====
</TABLE>
- ---------------
(1) Tenant(s) may be a subsidiary of or an entity affiliated with the named
tenant.
(2) Computed as Aggregate Rentable Square Feet divided by the Aggregate Leased
Square Feet of the Industrial Properties.
(3) Computed as Annualized Base Rent divided by the Aggregate Annualized Base
Rent of the Industrial Properties.
54
<PAGE> 65
The 33 largest industrial tenants represent 21.6% of the Industrial
Properties' Annualized Base Rent as of June 30, 1998. Other companies that are
tenants in the Industrial Properties include International Business Machines,
Inc., Hewlett Packard Company, Federal Express Corporation, Lucent Technologies,
Inc. and a wide variety of other national, regional and local industrial
tenants. Leases of less than 25,000 rentable square feet represent 59.5% of the
Industrial Properties' total number of leases and 20.4% of the Industrial
Properties' Annualized Base Rent. Following is a list of certain tenants which
lease less than 25,000 rentable square feet of industrial space:
<TABLE>
<S> <C> <C>
Alabama Metal Industries, Inc. Type A Snowboard, Inc. The Sportsman's Guide
Argosy Industries, Inc. Buckeye International, Inc. W.R. Grace & Co.
City of San Leandro Creative Education Supplies Creative Solutions
Custom Walls & Windows Inc. Farmer's Insurance Genuine Parts Company
Golden West Games Le Gourmet Kitchens Litho Technical Services
Plummer's, Inc. New Golf Holding Co. Santa Cruz Motors
Supergraphics Inc. Quality Video Zebra Express Inc.
</TABLE>
INDUSTRIAL PROPERTY LEASE EXPIRATIONS
The following table summarizes the lease expirations for the Industrial
Properties for leases in place as of June 30, 1998, without giving effect to the
exercise of renewal options or termination rights, if any, at or prior to the
scheduled expirations.
<TABLE>
<CAPTION>
ANNUALIZED ANNUALIZED
RENTABLE PERCENTAGE BASE RENT PERCENTAGE OF BASE RENT
NUMBER SQUARE OF TOTAL OF EXPIRING ANNUALIZED OF EXPIRING
OF LEASES FOOTAGE OF RENTABLE LEASES BASE RENT LEASES PER
EXPIRING EXPIRING SQUARE (000S) OF EXPIRING SQUARE
YEAR OF LEASE EXPIRATION (1) LEASES(1) FOOTAGE (1)(2) LEASES FOOT(3)
------------------------ --------- ---------- ---------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
1998(4)......................... 164 3,724,535 8.2% $ 16,436 7.7% $4.41
1999............................ 248 7,428,298 16.3 32,300 15.2 4.35
2000............................ 283 8,448,309 18.5 37,977 17.8 4.50
2001............................ 213 6,296,231 13.8 31,815 14.9 5.05
2002............................ 171 7,247,266 15.9 32,447 15.2 4.48
2003............................ 94 4,506,837 9.9 21,732 10.2 4.82
2004............................ 32 2,242,598 4.9 11,865 5.6 5.29
2005............................ 27 2,408,756 5.3 9,765 4.6 4.05
2006............................ 15 1,046,243 2.3 6,557 3.1 6.27
2007............................ 7 578,141 1.3 3,145 1.5 5.44
2008 and beyond................. 18 1,653,911 3.6 8,928 4.2 5.40
----- ---------- ----- -------- ----- -----
Total/Weighted
Average............. 1,272 45,581,125 100.0% $212,967 100.0% $4.67
===== ========== ===== ======== ===== =====
</TABLE>
- ---------------
(1) Schedule includes executed leases that commence after June 30, 1998.
Schedule excludes leases expiring prior to July 1, 1998.
(2) Calculated as monthly rent at expiration multiplied by 12.
(3) Rent per square foot is calculated by dividing the Annualized Base Rent of
expiring leases by the square footage expiring in any given year.
(4) Includes leases encompassing 308,246 square feet which are on a
month-to-month basis.
RETAIL PROPERTIES
At June 30, 1998, the Company owned 37 retail centers aggregating
approximately 6.8 million rentable square feet, 34 of which are grocer-anchored.
At June 30, 1998, the Retail Properties were 95.0% leased to over 900 tenants,
the largest of which accounted for approximately 3.8% of Annualized Base Rent
from the
55
<PAGE> 66
Retail Properties as of such date. The Retail Properties have an average age of
six years since built, expanded or renovated.
The Retail Properties generally are located in supply-constrained trade
areas (those trade areas typified by significant population densities, a limited
number of existing retailers, such as grocers, and a low availability of land
which could be developed into competitive space for additional competitive
retailers) of 16 major metropolitan areas. The Company's national operating
strategy for the community shopping center business is based on detailed
research regarding target trade areas which typically have high population
densities and above-average income levels. The two graphs below compare the
population density and income levels surrounding the Company's Retail Properties
to the national averages.
1997 MEDIAN HOUSEHOLD INCOME
AMB RETAIL PROPERTIES VS. U.S.(1)
<TABLE>
<CAPTION>
Median
Household
Income
<S> <C> <C>
Within 3 miles of AMB
Retail Center(2) $50,000
All MSAs(3) $42,000
Total U.S.(3) $37,000
</TABLE>
1997 AVERAGE POPULATION WITHIN
THREE-MILE RADIUS OF RETAIL PROPERTIES(1)
<TABLE>
<CAPTION>
Population
<S> <C>
AMB Retail Centers 108,000
U.S. Shopping Centers(2) 71,000
</TABLE>
- ---------------
(1) Weighted by number of households.
(2) Derived from information compiled by Claritas Inc. The Company has been
advised that the information comes from various government and industry
sources, but the Company has not independently verified the information.
(3) Derived from forecasted data obtained from Regional Financial Associates.
- ---------------
(1) Derived from information compiled by Claritas Inc. The Company has been
advised that the information comes from various government and industry
sources, but the Company has not independently verified the information.
(2) For all shopping centers greater than or equal to 50,000 square feet and
less than or equal to 400,000 square feet.
56
<PAGE> 67
Management believes that the characteristics of its trade areas tend to
result in Retail Properties with above-average retail sales. The graph below
compares the average sales of the Retail Properties' grocer anchors to the
national average for grocers.
AVERAGE 1997 GROCER ANCHOR SALES FOR
RETAIL PROPERTIES
<TABLE>
<CAPTION>
AVERAGE GROCER SALES/SF
<S> <C>
AMB CENTERS(1)(2) $498
TOTAL U.S.(3) $398
</TABLE>
- ---------------
(1) Includes sales per square foot for grocer anchors reporting a full year of
sales. Thirty-one of 37 Retail Properties are represented above. Of the six
Retail Properties not represented, (i) four do not have grocer anchors, (ii)
one Property is currently under construction and (iii) the grocer-anchor
store at one Property is not owned by the Company and does not report sales.
(2) All but nine of the 31 Retail Properties included report sales on a calendar
year basis.
(3) Derived from data published in the Progressive Grocer Annual Report, April
1998.
Property Characteristics. The Retail Properties generally contain between
80,000 and 350,000 rentable square feet. On average, approximately 67% of the
rentable square feet for each of the Retail Properties is leased to one or more
Anchor Tenants (defined as all grocery stores, drugstores and any other retail
tenant occupying more than 10,000 rentable square feet). The following table
identifies characteristics of a typical Retail Property.
<TABLE>
<CAPTION>
TYPICAL PROPERTY TYPICAL RANGE
---------------- -------------
<S> <C> <C>
Rentable square feet................................ 190,000 80,000 - 350,000
Percentage leased by Anchor Tenants................. 67% 60% - 85%
Number of tenants................................... 25 10 - 50
Parking spaces per 1,000 square feet................ 5.0 4.0 - 6.0
Square footage per Anchor Tenant.................... 25,000 10,000 - 100,000
Average square footage per Non-Anchor Tenant........ 1,500 750 - 5,000
</TABLE>
Lease Terms. The Retail Properties are typically leased on a triple net
basis, defined as leases in which tenants pay their proportionate share of real
estate taxes, insurance and operating costs. In addition, some leases, including
some Anchor Tenant leases, require tenants to pay percentage rents based on
gross retail sales above predetermined thresholds. Typical Anchor Tenant leases
also provide for payment of a percentage administrative fee in lieu of a
management fee (calculated as a percentage of common area maintenance) which
ranges between 5% and 15%. Lease terms typical for Anchor Tenants range from 10
to 20 years, with an average of 19 years, with renewal options for an additional
10 to 20 years at fixed rents. Tenant improvement allowances are standard and
the amounts vary by submarket. Typical Non-Anchor Tenants have lease terms
ranging between three and 10 years with an average of eight years and they
typically receive options for an additional five-year term at market rents.
57
<PAGE> 68
RETAIL PROPERTY SUMMARY
Anchor Tenants accounted for 67.5% of the aggregate square footage of the
Retail Properties as of June 30, 1998. Annualized Base Rent as of such date for
the Company's 25 largest tenants was approximately $31.1 million, representing
approximately 40.4% of Annualized Base Rent for all Retail Properties.
Annualized Base Rent for the remaining retail tenants was approximately $45.9
million as of the same date, representing approximately 59.6% of the Annualized
Base Rent for all Retail Properties. The following table sets forth, on a
property-by-property basis, the rentable square footage leased to Anchor Tenants
and Non-Anchor Tenants as of June 30, 1998. Ownership of each Property is in fee
simple unless otherwise noted.
<TABLE>
<CAPTION>
LEASED
LEASED NON-
ANCHOR ANCHOR
RENTABLE RENTABLE AVAILABLE TOTAL
YEAR BUILT/ SQUARE SQUARE RENTABLE RENTABLE PERCENTAGE
REGION/MARKET/PROPERTY LOCATION RENOVATED(1) FEET FEET SQUARE FEET SQUARE FEET LEASED
---------------------- --------------- ------------ --------- --------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
EASTERN
Albany
Latham Farms Albany 1993 502,444 77,733 22,300 602,477 96.3%
Baltimore
Long Gate Shopping
Center Ellicott City 1996 390,288 14,467 -- 404,755 100.0
Boston
Mazzeo Drive Randolph 1993 88,420 -- -- 88,420 100.0
Hartford
Corbins Corner
Shopping Center Hartford 1988R 116,960 58,067 2,289 177,316 98.7
--------- --------- ------- ---------
Eastern Total/Weighted
Average 1,098,112 150,267 24,589 1,272,968 98.1
--------- --------- ------- ---------
MIDWESTERN
Chicago
Brentwood Commons Bensenville 1990R 61,621 39,637 871 102,129 99.1%
Civic Center Plaza Niles 1989 238,655 18,354 6,506 263,515 97.5
Riverview Plaza
Shopping Center Chicago 1981 113,607 25,665 -- 139,272 100.0
Minneapolis
Rockford Road Plaza Plymouth 1991 151,757 54,160 -- 205,917 100.0
--------- --------- ------- ---------
Midwestern Total/Weighted
Average 565,640 137,816 7,377 710,833 99.0
--------- --------- ------- ---------
<CAPTION>
AVERAGE
ANNUALIZED NUMBER BASE RENT
BASE RENT OF PER SQUARE PRIMARY
REGION/MARKET/PROPERTY (000S)(2) LEASES FOOT(3) TENANTS(4)
---------------------- ---------- ------ ---------- ------------------------
<S> <C> <C> <C> <C>
EASTERN
Albany
Latham Farms $ 5,941 27 $10.24 Sam's Club
Wal-Mart Stores
Baltimore
Long Gate Shopping
Center 4,639 12 11.46 Kohl's
Target
Boston
Mazzeo Drive 690 1 7.80 Bob's Inc.
Hartford
Corbins Corner
Shopping Center 3,129 23 17.88 Filene's Basement
Toys 'R Us
------- ---
Eastern Total/Weighted
Average 14,399 63 11.53
------- ---
MIDWESTERN
Chicago
Brentwood Commons $ 1,031 20 $10.18 Dominick's
Super Trak
Civic Center Plaza 2,483 14 9.66 Dominick's
Home Depot
Riverview Plaza
Shopping Center 1,379 14 9.90 Dominick's
Toys 'R Us
Minneapolis
Rockford Road Plaza 2,205 30 10.71 PetsMart
Rainbow Foods
------- ---
Midwestern Total/Weighted
Average 7,098 78 10.09
------- ---
</TABLE>
58
<PAGE> 69
<TABLE>
<CAPTION>
LEASED
LEASED NON-
ANCHOR ANCHOR
RENTABLE RENTABLE AVAILABLE TOTAL
YEAR BUILT/ SQUARE SQUARE RENTABLE RENTABLE PERCENTAGE
REGION/MARKET/PROPERTY LOCATION RENOVATED(1) FEET FEET SQUARE FEET SQUARE FEET LEASED
---------------------- --------------- ------------ --------- --------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
SOUTHERN
Atlanta
Woodlawn Point
Shopping Center Cobb County 1993 68,499 29,400 -- 97,899 100.0%
Houston
Randall's Austin
Parkway Sugarland 1993 90,650 21,025 -- 111,675 100.0
Randall's Commons
Memorial Houston 1993 75,689 31,002 3,504 110,195 96.8
Randall's Dairy
Ashford Houston 1993 115,360 18,575 2,000 135,935 98.5
Randall's Woodway
Collection Houston 1993 65,108 27,507 18,074 110,689 83.7
Wesleyan Plaza Houston 1986R 216,870 118,546 20,834 356,250 94.2
Miami
Kendall Mall(6) Miami 1995R 194,550 98,975 6,057 299,582 98.0
Northridge Plaza(6)(7) Ft. Lauderdale 1998R 124,650 54,883 11,674 191,207 93.9
Palm Aire(6)(7) Pompano Beach 1997R 33,100 32,848 93,954 159,902 41.2
Shoppes at Lago Mar Miami 1995 42,323 35,893 4,892 83,108 94.1
Springs Gate(8) Coral Springs n/a n/a n/a n/a n/a n/a
The Plaza at Delray(6) Delray Beach 1996R 216,883 55,058 28,668 300,609 90.5
--------- --------- ------- ---------
Southern Total/Weighted
Average 1,243,682 523,712 189,657 1,957,051 90.3
--------- --------- ------- ---------
WESTERN
Denver
Applewood Village
Shopping Center Wheat Ridge 1994R 265,663 83,668 3,892 353,223 98.9%
Arapahoe Village
Shopping Center Boulder 1989R 85,530 73,707 -- 159,237 100.0
<CAPTION>
AVERAGE
ANNUALIZED NUMBER BASE RENT
BASE RENT OF PER SQUARE PRIMARY
REGION/MARKET/PROPERTY (000S)(2) LEASES FOOT(3) TENANTS(4)
---------------------- ---------- ------ ---------- ------------------------
<S> <C> <C> <C> <C>
SOUTHERN
Atlanta
Woodlawn Point
Shopping Center $ 1,204 18 $12.30 Publix
Zany Brainy
Houston
Randall's Austin
Parkway 1,093 12 9.79 Randall's
Sears Hardware
Randall's Commons
Memorial 922 15 8.64 Randall's
Walgreen's
Randall's Dairy
Ashford 1,248 11 9.32 Randall's
PetsMart
Randall's Woodway
Collection 1,153 12 12.45 Randall's
Eckerd
Wesleyan Plaza 3,809 46 11.36 Randall's
Bering's Home Center
Miami
Kendall Mall(6) 3,950 48 13.46 J.C. Penney Home Store
Upton's
Northridge Plaza(6)(7) 1,419 25 7.90 Target
Publix
Palm Aire(6)(7) 516 19 7.82 Eckerd
Winn-Dixie
Shoppes at Lago Mar 930 18 11.89 Publix
Springs Gate(8) n/a n/a n/a n/a
The Plaza at Delray(6) 3,352 36 12.33 Home Place
Regal Cinema
------- ---
Southern Total/Weighted
Average 19,596 260 11.09
------- ---
WESTERN
Denver
Applewood Village
Shopping Center 2,850 40 8.16 Wal-Mart Stores
King Soopers
Arapahoe Village
Shopping Center 1,846 25 11.59 Safeway
So-Fro Fabrics
</TABLE>
59
<PAGE> 70
<TABLE>
<CAPTION>
LEASED
LEASED NON-
ANCHOR ANCHOR
RENTABLE RENTABLE AVAILABLE TOTAL
YEAR BUILT/ SQUARE SQUARE RENTABLE RENTABLE PERCENTAGE
REGION/MARKET/PROPERTY LOCATION RENOVATED(1) FEET FEET SQUARE FEET SQUARE FEET LEASED
---------------------- --------------- ------------ --------- --------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Los Angeles
Granada Village Granada Hills 1996R 124,638 85,946 14,199 224,783 93.7
Manhattan Village
Shopping Center Manhattan Beach 1992R 225,791 190,137 8,022 423,950 98.1%
Twin Oaks Shopping
Center Agoura Hills 1996R 58,475 42,724 1,200 102,399 98.8
Reno
Southwest Pavilion(7) Reno 1997E 47,140 27,456 2,161 76,757 97.2
San Diego
La Jolla Village
S.C.(5) La Jolla 1989R 67,238 97,714 -- 164,952 100.0
Rancho San Diego
Village S.C. La Mesa 1994R 39,777 53,400 18,275 111,452 83.6
Santa Barbara
Five Points Shopping
Center Santa Barbara 1996 97,189 47,295 -- 144,484 100.0
San Francisco Bay Area
Bayhill Shopping
Center San Bruno 1997R 59,221 57,775 5,045 122,041 95.9
Lakeshore Plaza
Shopping Center San Francisco 1993 38,836 81,975 2,050 122,861 98.3
Pleasant Hill Shopping
Center Pleasant Hill 1990R 210,614 23,063 -- 233,677 100.0
Silverado Plaza
Shopping Center Napa 1994R 58,328 23,953 2,742 85,023 96.8
Ygnacio Plaza Walnut Creek 1990R 52,118 50,118 7,193 109,429 93.4
Seattle
Aurora Marketplace Edmonds 1991 74,113 32,837 -- 106,950 100.0
Eastgate Plaza Bellevue 1995R 49,575 26,989 -- 76,564 100.0
Totem Lake Malls Kirkland 1989R 163,723 68,881 57,600 290,204 80.2
<CAPTION>
AVERAGE
ANNUALIZED NUMBER BASE RENT
BASE RENT OF PER SQUARE PRIMARY
REGION/MARKET/PROPERTY (000S)(2) LEASES FOOT(3) TENANTS(4)
---------------------- ---------- ------ ---------- ------------------------
<S> <C> <C> <C> <C>
Los Angeles
Granada Village 2,837 37 13.47 Hughes Market
TJ Maxx
Manhattan Village
Shopping Center $ 6,531 91 $15.70 Macy's
Fry's Electronics
Twin Oaks Shopping
Center 1,043 23 10.31 Ralph's
Rite Aid
Reno
Southwest Pavilion(7) 762 15 10.22 Scolari's Market
San Diego
La Jolla Village
S.C.(5) 3,085 40 18.70 Whole Foods Market
Sav-on Drugs
Rancho San Diego
Village S.C. 1,227 39 13.17 Safeway
Santa Barbara
Five Points Shopping
Center 2,427 25 16.80 Lucky
Ross Stores
San Francisco Bay Area
Bayhill Shopping
Center 1,222 27 10.44 Longs Drugs
Mollie Stone's Markets
Lakeshore Plaza
Shopping Center 3,262 33 27.00 Ross Stores
UCSF
Pleasant Hill Shopping
Center 2,371 12 10.15 Toys 'R Us
Target
Silverado Plaza
Shopping Center 797 16 9.69 Nob Hill Foods
Rite Aid
Ygnacio Plaza 1,379 24 13.49 Lucky
Rite Aid
Seattle
Aurora Marketplace 1,499 18 14.02 Drug Emporium
Safeway
Eastgate Plaza 947 15 12.37 Rite Aid
Albertson's
Totem Lake Malls 1,882 39 8.09 Lamonts Apparel
Computer City
</TABLE>
60
<PAGE> 71
<TABLE>
<CAPTION>
LEASED
LEASED NON-
ANCHOR ANCHOR
RENTABLE RENTABLE AVAILABLE TOTAL
YEAR BUILT/ SQUARE SQUARE RENTABLE RENTABLE PERCENTAGE
REGION/MARKET/PROPERTY LOCATION RENOVATED(1) FEET FEET SQUARE FEET SQUARE FEET LEASED
---------------------- --------------- ------------ --------- --------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Western Region Total/
Weighted Average 1,717,969 1,067,638 122,379 2,907,986 95.8
--------- --------- ------- ---------
Total/Weighted Average 4,625,403 1,879,433 344,002 6,848,838 95.0%
========= ========= ======= =========
<CAPTION>
AVERAGE
ANNUALIZED NUMBER BASE RENT
BASE RENT OF PER SQUARE PRIMARY
REGION/MARKET/PROPERTY (000S)(2) LEASES FOOT(3) TENANTS(4)
---------------------- ---------- ------ ---------- ------------------------
<S> <C> <C> <C> <C>
Western Region Total/
Weighted Average 35,967 519 12.91
------- ---
Total/Weighted Average $77,060 920 $11.85
======= ===
</TABLE>
- ---------------
(1) Retail Properties denoted with an "R," "E" or "D" indicate the date of most
recent renovation, expansion or development, respectively. All other dates
reference the year such Property was developed.
(2) Annualized Base Rent means the monthly contractual amount under existing
leases at June 30, 1998, multiplied by 12. This amount excludes expense
reimbursements, rental abatements and percentage rents.
(3) Calculated as total Annualized Base Rent divided by rentable square feet
actually leased as of June 30, 1998.
(4) Primary tenants are defined as the two largest Anchor Tenants as measured by
rentable square footage.
(5) This Property includes 33 apartment units which were acquired as part of the
acquisition of the Property.
(6) The Company holds interests in these Properties through a joint venture
interest in a limited partnership. See "-- Properties Held Though Joint
Ventures, Limited Liability Companies and Partnerships."
(7) This Property is being redeveloped. All calculations are based on rentable
square feet existing as of June 30, 1998.
(8) This Property consists of land held for future development.
61
<PAGE> 72
RETAIL PROPERTY TENANT INFORMATION
Largest Retail Property Tenants. The Company's 25 largest Retail Property
tenants by Annualized Base Rent are set forth in the table below.
<TABLE>
<CAPTION>
PERCENTAGE OF PERCENTAGE OF
AGGREGATE AGGREGATE AGGREGATE
RENTABLE LEASED ANNUALIZED ANNUALIZED
NUMBER OF SQUARE SQUARE BASE RENT BASE
TENANT NAME(1) PROPERTIES FEET FEET(3) (000S) RENT(4)
-------------- ---------- --------- ------------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Wal-Mart Stores, Inc. and Sam's
Club.......................... 2 388,866 6.0% $ 2,891 3.8%
Yucapia(2)...................... 6 299,480 4.6 2,561 3.3
Randall's Food & Drugs,
Inc.(2)....................... 5 298,549 4.6 2,369 3.1
Safeway Stores, Inc.(2)......... 4 187,334 2.9 1,860 2.4
Dayton Hudson................... 3 320,670 4.9 1,784 2.3
Home Place...................... 2 109,323 1.7 1,450 1.9
Viacom.......................... 10 58,785 0.9 1,247 1.6
Toys 'R Us, Inc. ............... 3 135,332 2.1 1,247 1.6
Publix(2)....................... 5 199,764 3.1 1,180 1.5
Home Quarters................... 1 101,783 1.6 1,167 1.5
J.C. Penney..................... 4 74,612 1.1 1,082 1.4
Tandy Corporation............... 15 81,910 1.3 1,044 1.4
Richfood Holdings, Inc. ........ 6 64,390 1.0 1,030 1.3
Gap, Inc. ...................... 4 57,591 0.9 1,016 1.3
Home Depot...................... 1 116,095 1.8 1,015 1.3
Barnes & Noble Super Stores,
Inc. ......................... 3 50,600 0.8 1,004 1.3
Great Atlantic.................. 1 86,889 1.3 949 1.2
PetsMart, Inc. ................. 4 102,100 1.6 875 1.1
Ross Stores, Inc. .............. 2 61,120 0.9 861 1.1
Hallmark........................ 12 47,643 0.7 831 1.1
Hannaford Bros. Co.(2).......... 1 63,664 1.0 828 1.1
TJX, Inc. ...................... 4 117,200 1.8 769 1.0
Randolph Bob's, Inc. ........... 1 88,420 1.4 690 0.9
American Stores(2).............. 4 116,873 1.8 689 0.9
Fry's Electronics............... 1 46,200 0.7 677 0.9
--------- ---- ------- ----
Total................. 3,275,193 50.4% $31,116 40.4%
========= ==== ======= ====
</TABLE>
- ---------------
(1) Tenant(s) may be a subsidiary of or an entity affiliated with the named
tenant.
(2) Of the top 25 Retail Property tenants, six are grocers. Of the 37 Retail
Properties, 34 are grocer-anchored.
(3) Computed as Aggregate Rentable Square Feet divided by the Aggregate Leased
Square Feet of the Retail Properties.
(4) Computed as Annual Base Rent divided by the Aggregate Annualized Base Rent
of the Retail Properties.
62
<PAGE> 73
With over 900 tenants, the Retail Properties include other national
retailers as well as regional and local tenants, many of which are privately
held. Leases of less than 2,500 rentable square feet represent 54.2% of the
Retail Property leases and 19.0% of the Retail Properties' Annualized Base Rent.
Following is a list of certain tenants which lease less than 2,500 rentable
square feet of retail space:
<TABLE>
<S> <C> <C>
Agoura Beauty Supply Let Us Mail Imagination Toys
Flower Basket Santa Barbara Travel Nail Xpress
Islands Restaurants State Farm Insurance Prestige Jewelers
Star of India The Bowling Store Sears Driving School
TCBY Domino's Pizza Subway
Baskin Robbins, Inc. Pavilion Cleaners Yum-Yum Donuts
Great Escapes Travel
</TABLE>
RETAIL PROPERTY LEASE EXPIRATIONS
The following table sets forth a summary schedule of the Retail Property
lease expirations for leases in place as of June 30, 1998 without giving effect
to the exercise of renewal options or termination rights, if any, at or prior to
the scheduled expirations.
<TABLE>
<CAPTION>
ANNUALIZED PERCENTAGE
PERCENTAGE BASE OF ANNUALIZED
RENTABLE OF RENT OF ANNUALIZED RENT OF
SQUARE TOTAL EXPIRING BASE EXPIRING
NUMBER OF FOOTAGE RENTABLE LEASES RENT OF LEASES PER
YEAR OF LEASE LEASES OF LEASES SQUARE (1)(2) EXPIRING SQUARE
EXPIRATION EXPIRING(1) EXPIRING(1) FOOTAGE (000S) LEASES FOOT(3)
------------- ----------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
1998(4)................ 101 377,457 5.8% $ 4,068 4.8% $10.78
1999................... 126 400,642 6.1 5,616 6.6 14.02
2000................... 124 467,272 7.1 5,938 7.0 12.71
2001................... 112 506,384 7.7 6,585 7.7 13.00
2002................... 129 423,247 6.4 7,708 9.1 18.21
2003................... 78 378,125 5.8 5,400 6.3 14.28
2004................... 32 180,245 2.7 3,006 3.5 16.68
2005................... 37 135,828 2.1 3,189 3.7 23.48
2006................... 46 270,000 4.1 5,407 6.4 20.03
2007................... 36 441,543 6.7 4,644 5.5 10.52
2008 and beyond........ 105 2,986,026 45.5 33,517 39.4 11.22
--- --------- ----- ------- ----- ------
Total/Weighted
Average.... 926 6,566,769 100.0% $85,078 100.0% $12.96
=== ========= ===== ======= ===== ======
</TABLE>
- ---------------
(1) Schedule includes executed leases that commence after June 30, 1998.
Schedule excludes leases expiring prior to July 1, 1998.
(2) Calculated as monthly rent at expiration multiplied by 12.
(3) Rent per square foot is calculated by dividing the Annualized Base Rent of
expiring leases by the square footage expiring in any given year.
(4) Includes leases encompassing 48,731 square feet which are on a
month-to-month basis.
63
<PAGE> 74
HISTORICAL TENANT RETENTION RATES AND RENT INCREASES
The following table sets forth information relating to tenant retention
rates and average rent increases (cash basis) on renewal and re-tenanted space
for the Industrial Properties and the Retail Properties for the periods
presented.
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED
------------------------- JUNE 30, WEIGHTED
1995 1996 1997 1998 AVERAGE
----- ----- ----- ---------- --------
<S> <C> <C> <C> <C> <C>
Industrial Properties:
Retention rate.............................. 67.9% 79.2% 69.5% 82.5% 74.7%
Rental rate increases....................... 4.8 4.7 13.0 13.6
Retail Properties:
Retention rate.............................. 63.5 88.4 87.8 84.7 83.3
Rental rate increases....................... 3.2 5.4 10.1 23.2
Total Properties:
Retention rate.............................. 67.7 79.8 70.3 82.6 75.2
Rental rate increases....................... 4.3 5.0 12.0 18.4
</TABLE>
RECURRING TENANT IMPROVEMENTS AND LEASING COMMISSIONS PER SQUARE FOOT LEASED
The table below summarizes for the Industrial Properties and the Retail
Properties, separately, the recurring tenant improvements and leasing
commissions per square foot leased for the periods presented. The recurring
tenant improvements and leasing commissions represent costs incurred to lease
space after the initial lease term of the initial tenant, excluding costs
incurred to relocate tenants as part of a re-tenanting strategy. The tenant
improvements and leasing commissions set forth below are not necessarily
indicative of future tenant improvements and leasing commissions. See "Risk
Factors -- General Real Estate Risks -- Possible Inability to Complete
Renovation and Development on Advantageous Terms."
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED
-------------------------- JUNE 30, WEIGHTED
1995 1996 1997 1998 AVERAGE
------ ------ ------ ---------- --------
<S> <C> <C> <C> <C> <C>
Industrial Properties:
Expenditures per renewed square foot
leased.................................. $0.91 $0.93 $1.05 $0.72 $0.89
Expenditures per re-tenanted square foot
leased.................................. 1.75 1.97 1.62 2.32 1.82
Weighted average........................... 1.32 1.29 1.30 0.99 1.23
Retail Properties:
Expenditures per renewed square foot
leased.................................. 5.53 4.72 4.25 1.55 3.52
Expenditures per re-tenanted square foot
leased.................................. 5.37 6.53 7.92 2.00 7.10
Weighted average........................... 5.46 5.61 6.41 1.78 5.04
</TABLE>
64
<PAGE> 75
OCCUPANCY AND AVERAGE BASE RENT
The table below sets forth weighted average occupancy rates and average
base rent based on square feet leased of the Industrial Properties and the
Retail Properties as of and for the periods presented.
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED
-------------------------- JUNE 30,
1995 1996 1997 1998
------ ------ ------ ----------
<S> <C> <C> <C> <C>
Industrial Properties:
Occupancy rate at period end....................... 97.3% 97.2% 95.7% 95.1%
Average base rent per square foot(1)............... $ 3.43 $ 3.81 $ 4.26 $ 4.38
Retail Properties:
Occupancy rate at period end....................... 92.4% 92.4% 96.1% 95.0%
Average base rent per square foot(1)............... $10.46 $11.32 $11.98 $11.85
</TABLE>
- ---------------
(1) Average base rent per square foot represents the total annualized
contractual base rental revenue for the period divided by the average
occupied square feet leased for the period.
DEVELOPMENT PROJECTS IN PROGRESS
The following table sets forth the Properties owned by the Company as of
June 30, 1998 which were undergoing renovation, expansion or new development. No
assurance can be given that any of such Properties will be completed on schedule
or within budgeted amounts. See "Risk Factors -- General Real Estate
Risks -- Possible Inability to Complete Renovation and Development on
Advantageous Terms."
<TABLE>
<CAPTION>
ESTIMATED ESTIMATED
ESTIMATED TOTAL SQUARE
STABILIZATION INVESTMENT FEET AT
PROPERTY NAME TYPE(1) DATE(2) (000S)(3) COMPLETION
------------- ----------- ------------- ---------- ----------
<S> <C> <C> <C> <C>
Industrial Properties:
Fairway Drive Phase II.................. Development Jul-98 $ 11,200 255,400
DFW Air Cargo Facility.................. Development Oct-98 18,300 205,000
Mendota Heights......................... Development Dec-98 7,200 149,700
South Dallas Industrial................. Expansion Dec-98 2,300 95,000
Dock's Corner........................... Expansion Mar-99 46,900 1,210,000
Pennsy Drive............................ Renovation June-99 14,000 359,500
Fairway Drive Phase III................. Development Sept-99 5,100 115,000
Richardson Tech Center.................. Development Sept-99 1,900 25,600
Orlando Central Park Development........ Development Jan-01 17,300 443,200
South River Park Development............ Development Mar-01 29,000 626,500
Cabot Business Park Land................ Development May-01 30,900 415,000
Suwanee Creek Distribution Center....... Development Dec-01 34,600 1,095,300
Wilsonville............................. Development Jan-02 8,400 155,000
-------- ---------
Subtotal............................. 227,100(4) 5,150,200(5)
Retail Properties:
Palm Aire............................... Renovation Feb-99 11,500 144,300
Springs Gate............................ Development May-99 34,600 248,900
Northridge Plaza........................ Renovation Sept-00 35,400 261,200
-------- ---------
Subtotal............................. 81,500 654,400
-------- ---------
Total........................... $308,600(4) 5,804,600(5)
======== =========
</TABLE>
- ---------------
(1) Renovation with respect to a Property means capital improvements which have
totaled 20% or more of the total cost of such Property within a 24-month
period or which have resulted in material improvement
65
<PAGE> 76
of physical condition. Expansion with respect to a Property means
construction resulting in an increase in the rentable square footage of an
existing structure or the development of additional buildings on a property
on which existing buildings are located. Development with respect to a
Property means new construction on a previously undeveloped location.
(2) Estimated stabilization date means management's estimate of when capital
improvements for repositioning, development and redevelopment programs will
have been completed and in effect for a sufficient period of time (but in no
case more than 12 months after shell completion) to achieve market occupancy
of at least 95%.
(3) Represents total estimated cost of renovation, expansion or development,
including initial acquisition costs. The estimates are based on the
Company's current planning estimates and forecasts and therefore subject to
change.
(4) As of June 30, 1998, approximately $82.6 million and $40.9 million for
industrial and retail developments, respectively, had been funded.
(5) Approximately 31% and 60% of the industrial and retail space, respectively,
has been preleased.
PROPERTIES HELD THROUGH JOINT VENTURES, LIMITED LIABILITY COMPANIES AND
PARTNERSHIPS
As of June 30, 1998, the Company held interests in 15 joint ventures,
limited liability companies and partnerships (collectively, the "Joint
Ventures") with certain unaffiliated third parties (the "Joint Venture
Participants") that are consolidated in the Company's consolidated financial
statements. Pursuant to the existing agreements with respect to each Joint
Venture, the Company holds a greater than 50% interest in 11 of the Joint
Ventures and a 50% interest in the remaining 4 Joint Ventures, but in certain
cases such agreements provide that the Company is a limited partner or that the
Joint Venture Participant is principally responsible for day-to-day management
control of the Property (though in all such cases, the Company has approval
rights with respect to significant decisions involving the underlying
properties). Under the agreements governing the Joint Ventures, the Company and
the Joint Venture Participant may be required to make additional capital
contributions, and subject to certain limitations, the Joint Ventures may incur
additional debt. Such agreements also impose certain restrictions on the
transfer of Joint Venture interests by the Company or the Joint Venture
Participant, and provide certain rights to the Company and/or the Joint Venture
Participant to sell its interest to the Joint Venture or to the other venturer
on terms specified in the agreement. All of the Joint Ventures terminate in the
year 2024 or later, but may end earlier if a Joint Venture ceases to hold any
interest in or have any obligations relating to the property held by such Joint
Venture. See "Risk Factors -- Impact on Control Over and Liabilities with
Respect to Properties Owned Through Partnerships and Joint Ventures."
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The following table sets forth certain information regarding the Properties
owned through consolidated Joint Ventures as of June 30, 1998:
<TABLE>
<CAPTION>
GROSS BOOK VALUE OF PERCENTAGE AND
BOOK MORTGAGE CO-VENTURER'S COMPANY'S FORM OF COMPANY'S
PROPERTY(1) VALUE DEBT INVESTMENT(2) INTEREST OWNERSHIP
----------- -------- -------- -------------- --------- ---------------------
<S> <C> <C> <C> <C> <C>
Industrial Properties:
Chancellor............ $ 6,431 $ (2,956) $ (575) $ 2,900 90% general
partnership interest
Nippon Express(3)..... 6,296 -- (377) 5,919 70% limited liability
co. interest
Metric Center(5)(6)... 44,022 -- (5,426) 38,596 87.15% limited
partnership interest
Jamesburg(4).......... 47,210 -- (23,911) 23,299 50.0005% general
partnership interest
Corporate Park Hickory
Hill(4)............ 27,414 -- (13,863) 13,551 50.0005% general
partnership interest
Garland
Industrial(4)...... 32,958 -- (16,195) 16,763 50.0005% general
partnership interest
Minnetonka
Industrial(4)...... 27,323 (13,191) (7,062) 7,070 50.0005% general
partnership interest
DFW Air Cargo(5)...... 44 -- -- 44 100% limited
liability co.
interest
Orlando Central Park
Development(5)..... 2,769 -- -- 2,769 95% limited liability
co. interest
South River Park
Development(5)..... 2,934 -- -- 2,934 95% limited liability
co. interest
Cabot Business Park
Land(5)............ 3,642 -- (325) 3,317 90% limited liability
co. interest
-------- -------- -------- --------
Subtotal........... 201,043 (16,147) (67,734) 117,162
Retail Properties
Kendall Mall(5)....... 36,011 (24,962) 301 11,350 50.0001% general
partnership interest
Manhattan Village..... 83,397 -- (7,900) 75,497 90% LLC interest
Palm Aire(5).......... 14,363 (5,272) (1,107) 7,984 50% general
partnership interest
The Plaza at
Delray(5).......... 35,325 (23,301) (356) 11,668 50% general
partnership interest
Springs Gate(5)....... 12,178 -- -- 12,178 50% limited
partnership interest
Northridge Plaza(5)... 14,384 -- -- 14,384 50% general
partnership interest
-------- -------- -------- --------
Subtotal........... 195,658 (53,535) (9,062) 133,061
-------- -------- -------- --------
Total......... $396,701 $(69,682) $(76,796) $250,223
======== ======== ======== ========
</TABLE>
- ---------------
(1) Represents the book value of the Property (before accumulated depreciation)
owned by the Joint Venture and excludes net other assets.
(2) Represents the partner's aggregate investment on a book value basis.
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<PAGE> 78
(3) Represents a building which is part of the Lake Michigan Industrial
Portfolio.
(4) These properties are owned with a Joint Venture Participant that is a client
of AMB Investment Management.
(5) Represents a development, renovation or expansion project with a Development
Alliance Partner(TM).
(6) Represents multiple buildings owned by two joint ventures on identical
economic terms.
The Company accounts for all of the above investments on a consolidated
basis for financial reporting purposes because of its ability to exercise
control over significant aspects of the investment as well as its significant
economic interest in such investments. See Notes to the Consolidated Financial
Statements of the Company. The Company also has a noncontrolling limited
partnership interest in one unconsolidated real estate joint venture.
DEBT FINANCING
The Company's financing policies and objectives are determined by the Board
of Directors and may be altered without the consent of the Company's
stockholders. The Company's organizational documents do not limit the amount of
indebtedness that it may incur. The Company presently intends to limit its
Debt-to-Total Market Capitalization Ratio to approximately 45% or less. As of
June 30, 1998, on a pro forma basis after giving effect to the Offering and the
application of the net proceeds therefrom as described in "Use of Proceeds," the
Company's consolidated Debt-to-Total Market Capitalization Ratio as of June 30,
1998 on a pro forma basis (giving effect to the acquisition-related debt
incurred subsequent to June 30, 1998, the sale of Series A Preferred Shares and
the Offering and the application of the proceeds therefrom as if the debt had
been incurred and those transactions had occurred as of that date) would have
been approximately 33.6% (approximately 34.2% on an historical basis). The
Company believes that the Debt-to-Total Market Capitalization Ratio is a useful
indicator of a company's ability to incur indebtedness and has gained acceptance
as an indicator of leverage for real estate companies. The Company intends to
utilize one or more sources of capital for future acquisitions, development and
capital improvements, which may include undistributed cash flow, borrowings
under the Credit Facility, issuance of debt or equity securities of either the
Operating Partnership or the Company, funds from its co-investment partners and
other bank and/or institutional borrowings. There can be no assurance, however,
that the Company will be able to obtain capital for any such acquisitions,
developments or improvements on terms favorable to the Company. See "Strategies
for Growth -- Growth Through Acquisition."
Credit Facility. The Company, through the Operating Partnership, is party
to the Credit Facility with aggregate availability of $500 million (subject to
borrowing base limitations). The Company intends to use the Credit Facility
principally for acquisitions and for working capital purposes. Borrowings under
the Credit Facility bear interest at a floating rate equal to LIBOR plus 90 to
120 basis points (currently LIBOR plus 90 basis points), depending upon the
Company's debt rating at the time of such borrowings. As of June 30, 1998, the
outstanding balance under the Credit Facility was $87.0 million and bore
interest at LIBOR plus 90 basis points (6.59% as of such date). Of the $87.0
million outstanding as of June 30, 1998, substantially all of such borrowings
were used to finance property acquisitions. The Company's ability to borrow
under the Credit Facility is subject to its ongoing compliance with a number of
financial and other covenants. The Credit Facility requires, among other things,
that: (i) the Company maintain a ratio of unencumbered property value to
unsecured indebtedness of at least 2 to 1; (ii) the unencumbered properties
generate sufficient net operating income to maintain a debt service coverage
ratio of at least 2 to 1; (iii) the Company maintain a total indebtedness to
total asset value ratio of not more than 0.5 to 1; (iv) the ratio of net
operating cash flow to debt service plus estimated capital expenditures and
preferred dividends be at least 2 to 1; and (v) certain other customary
covenants and performance requirements. The Credit Facility, except under
certain circumstances, limits the Company's ability to make distributions to no
more than 95% of its annual FFO.
Senior Debt Securities. On June 30, 1998 the Operating Partnership sold the
Senior Debt Securities in an aggregate principal amount of $400 million in an
underwritten public offering. The Senior Debt Securities are comprised of $175
million aggregate principal amount of 7.10% notes due June 30, 2008, $125
million aggregate principal amount of 7.50% notes due June 30, 2018 and $100
million aggregate principal amount of
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<PAGE> 79
6.90% Reset Put Securities due June 30, 2015 -- Putable/Callable June 30, 2005.
Interest on the Senior Debt Securities is payable semi-annually on June 30 and
December 30, commencing December 30, 1998, and repayments of principal are due
prior to maturity. Each tranche of the Senior Debt Securities may be redeemed at
the option of the Operating Partnership at any time, in whole or in part, at
100% of the outstanding principal amount of such securities being redeemed, plus
accrued and unpaid interest to the date of redemption, plus the sum of the
present values of the remaining scheduled payments of principal and interest
thereon (exclusive of interest accrued to such redemption date) discounted to
such redemption date on a semiannual basis (assuming a 360-day year consisting
of twelve 30-day months) at the Treasury Rate plus 25 basis points. The Senior
Debt Securities are guaranteed on an unsecured basis by the Company.
Secured Debt. As of June 30, 1998, $73 million was outstanding under a
credit facility which is secured by six Properties (the "Secured Facility").
Payments of interest only are due monthly at a fixed annual interest rate of
7.53% with the principal due on December 12, 2008. The Secured Facility became
an obligation of the Company upon consummation of the Formation Transactions.
Under the Secured Facility, the Company may substitute collateral, subject to
certain requirements with respect to the property offered as replacement
collateral. In addition to the Secured Facility, certain Properties secure
mortgage indebtedness and construction loans. As of June 30, 1998, Properties
representing approximately $1.2 billion of the Company's total investments in
real estate are secured by mortgage loans, the Secured Facility and construction
loans. At June 30, 1998, the aggregate principal amount of such secured debt was
$575.6 million, excluding unamortized debt premiums of $16.8 million. All
secured indebtedness bears interest at rates varying from 4.0% to 10.38% per
annum (with a weighted average of 7.91%) with final maturity dates ranging from
1998 to 2014.
The following table sets forth for each of the years from 1998 through
2014, scheduled principal payments on indebtedness secured by Properties which
the Company owned on June 30, 1998 (excluding construction debt of $5.6 million
as of June 30, 1998). All of the Company's mortgage debt is fixed-rate.
<TABLE>
<CAPTION>
SCHEDULED PRINCIPAL TOTAL
PRINCIPAL DUE AT PRINCIPAL
YEAR AMORTIZATION MATURITY PAYMENTS
---- ------------ --------- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
1998............................................... $ 3,934 $ 13,076 $ 17,010
1999............................................... 7,772 3,567 11,339
2000............................................... 8,997 8,520 17,517
2001............................................... 9,566 29,190 38,756
2002............................................... 9,381 46,762 56,143
2003............................................... 8,634 114,982 123,616
2004............................................... 6,876 36,085 42,961
2005............................................... 6,305 33,416 39,721
2006............................................... 7,716 103,922 111,638
2007............................................... 2,475 14,335 16,810
2008............................................... 1,679 91,166 92,845
2009............................................... 426 -- 426
2010............................................... 345 -- 345
2011............................................... 375 -- 375
2012............................................... 407 -- 407
2013............................................... 442 -- 442
2014............................................... 39 -- 39
------- -------- --------
Total.................................... $75,369 $495,021 $570,390
======= ======== ========
</TABLE>
Construction Debt. The Company also has an $8 million construction loan to
fund building improvements which matures in July 2000. Borrowings under the
construction loan bear interest at LIBOR plus 275
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<PAGE> 80
basis points, or the greater of the prime rate or the federal funds rate plus 50
basis points, at the borrower's option. The balance of the construction loan
outstanding at June 30, 1998 was $5.6 million.
INSURANCE
The Company and AMB Investment Management carry joint blanket coverage for
Properties owned by the Company and Properties managed by AMB Investment
Management, with a single aggregate policy limit and deductible. Management
believes that its Properties are covered adequately by commercial general
liability insurance, including excess liability coverage, and commercial "all
risks" property insurance, including loss of rents coverage, with commercially
reasonable deductibles, limits and policy terms and conditions customarily
carried for similar properties. There are, however, certain types of losses
which may be uninsurable or not economically insurable, such as losses due to
loss of rents caused by strikes, nuclear events or acts of war. Should an
uninsured loss occur, the Company could lose both its invested capital in and
anticipated profits from the property.
The Company insures its properties for earthquake or earth movement. A
number of both the Industrial and Retail Properties are located in areas that
are known to be subject to earthquake activity. This is focused in California
where as of June 30, 1998, there are 26 Industrial Properties aggregating 10.5
million rentable square feet and 11 Retail Properties aggregating 1.9 million
square feet. Through an annual analysis prepared by outside consultants, the
Company determines appropriate limits of earthquake coverage to secure. Coverage
is on a replacement cost basis, subject to the maximum limit purchased which the
Company believes is adequate and appropriate given both exposure and cost
considerations. Therefore, no assurance can be given that material losses in
excess of insurance proceeds will not occur in the future. See "Risk Factors --
General Real Estate Risks -- Uninsured Losses from Seismic Activity."
The Company has insurance for loss in the event of damage to its properties
for earthquake activity, which consists of a sublimit of $10,000,000 per
occurrence for earthquake coverage provided as part of the "All Risk Property
Policy" with a primary insurer, with $90,000,000 per occurrence for losses in
excess of the $10,000,000 sublimit. The per occurrence deductible for this
coverage in California is 5% of the values applied separately to each building
subject to a minimum deductible of $100,000 (to the extent that such amount is
greater than 5% of the values at each location), and the deductible for
Properties outside of California is $25,000.
GOVERNMENT REGULATIONS
Many laws and governmental regulations are applicable to the Properties and
changes in these laws and regulations, or their interpretation by agencies and
the courts, occur frequently.
Costs of Compliance with Americans with Disabilities Act. Under the ADA,
all places of public accommodation are required to meet certain federal
requirements related to access and use by disabled persons. Compliance with the
ADA might require removal of structural barriers to handicapped access in
certain public areas where such removal is "readily achievable." Noncompliance
with the ADA could result in the imposition of fines or an award of damages to
private litigants.
Environmental Matters. Under Environmental Laws, a current or previous
owner or operator of real estate may be liable for contamination resulting from
the presence or discharge of hazardous or toxic substances or petroleum products
at such property, and may be required to investigate and clean-up such
contamination at such property or such contamination which has migrated from
such property. Such laws typically impose liability and clean-up responsibility
without regard to whether the owner or operator knew of or caused the presence
of the contaminants, and the liability under such laws has been interpreted to
be joint and several unless the harm is divisible and there is a reasonable
basis for allocation of responsibility. In addition, the owner or operator of a
site may be subject to claims by third parties based on personal injury,
property damage and/or other costs, including investigation and clean-up costs,
resulting from environmental contamination present at or emanating from a site.
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<PAGE> 81
Environmental Laws also govern the presence, maintenance and removal of
ACBM. Such laws require that ACBM be properly managed and maintained, that those
who may come into contact with ACBM be adequately apprised or trained and that
special precautions, including removal or other abatement, be undertaken in the
event ACBM is disturbed during renovation or demolition of a building. Such laws
may impose fines and penalties on building owners or operators for failure to
comply with these requirements and may allow third parties to seek recovery from
owners or operators for personal injury associated with exposure to asbestos
fibers. Some of the Properties may contain ACBM.
Some of the Properties are leased or have been leased, in part, to owners
and operators of dry cleaners that operate on-site dry cleaning plants, to
owners and operators of gas stations or to owners or operators of other
businesses that use, store or otherwise handle petroleum products or other
hazardous or toxic substances. Some of these Properties contain, or may have
contained, underground storage tanks for the storage of petroleum products and
other hazardous or toxic substances. These operations create a potential for the
release of petroleum products or other hazardous or toxic substances. Some of
the Properties are adjacent to or near other properties that have contained or
currently contain underground storage tanks used to store petroleum products or
other hazardous or toxic substances. In addition, certain of the Properties are
on or are adjacent to or near other properties upon which others, including
former owners or tenants of the Properties, have engaged or may in the future
engage in activities that may release petroleum products or other hazardous or
toxic substances.
All of the Properties were subject to a Phase I or similar environmental
assessments by independent environmental consultants at the time of acquisition
or shortly after acquisition. Phase I assessments are intended to discover and
evaluate information regarding the environmental condition of, the surveyed
property and surrounding properties. Phase I assessments generally include an
historical review, a public records review, an investigation of the surveyed
site and surrounding properties, and preparation and issuance of a written
report, but do not include soil sampling or subsurface investigations and
typically do not include an asbestos survey. The Company may perform additional
Phase II testing if recommended by the independent environmental consultant.
Phase II testing may include the collection and laboratory analysis of soil and
groundwater samples, completion of surveys for ACBM, and any other testing that
the consultant considers prudent in order to test for the presence of hazardous
materials. Some of the Company's environmental assessments of the Properties do
not contain a comprehensive review of the past uses of the Properties and/or the
surrounding properties.
None of the environmental assessments of the Properties has revealed any
environmental liability that the Company believes would have a material adverse
effect on the Company's financial condition or results of operations taken as a
whole, nor is the Company aware of any such material environmental liability.
Nonetheless, it is possible that the Company's assessments do not reveal all
environmental liabilities and that there are material environmental liabilities
of which the Company is unaware. Moreover, there can be no assurance that (i)
future laws, ordinances or regulations will not impose any material
environmental liability or (ii) the current environmental condition of the
Properties will not be affected by tenants, by the condition of land or
operations in the vicinity of the Properties (such as releases from underground
storage tanks), or by third parties unrelated to the Company. If the costs of
compliance with the various environmental laws and regulations, now existing or
hereafter adopted, exceed the Company's budgets for such items, the Company's
ability to pay dividends to holders of the Series B Preferred Stock could be
adversely affected.
Other Regulations. The Properties are also subject to various Federal,
state and local regulatory requirements such as state and local fire and life
safety requirements. Failure to comply with these requirements could result in
the imposition of fines by governmental authorities or awards of damages to
private litigants. The Company believes that the Properties are currently in
substantial compliance with all such regulatory requirements. However, there can
be no assurance that these requirements will not be changed or that new
requirements will not be imposed which would require significant unanticipated
expenditures by the Company, which expenditure could have an adverse effect on
the Company's results of operations and financial condition.
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<PAGE> 82
Risk of Property Tax Reassessment. Certain local real property tax
assessors may seek to reassess certain of the Properties as a result of the
Formation Transactions and the transfer of interests that occurred in connection
therewith. In jurisdictions such as California, where Proposition 13 limits the
assessor's ability to reassess real property so long as there is no change in
ownership, the assessed value could increase by as much as the full value of any
appreciation that has occurred during the AMB Predecessors' period of ownership.
Where appropriate, the Company would contest vigorously any such reassessment.
Subject to market conditions, current leases may permit the Company to pass
through to tenants a portion of the effect of any increases in real estate taxes
resulting from any such reassessment.
MANAGEMENT AND EMPLOYEES
The Company conducts substantially all of its operations through the
Operating Partnership. AMB Investment Management independently conducts third
party portfolio management activities and related operations and Headlands
Realty Corporation invests in properties and may in the future acquire interests
in entities that engage in the management, leasing and development of properties
and similar activities. The Company generally has full, exclusive and complete
responsibility and discretion in the management and control of the Operating
Partnership.
As of August 31, 1998, the Company employed 133 persons, 102 of whom were
located at the Company's headquarters in San Francisco and 31 of whom were
located in the Company's Boston office.
LEGAL PROCEEDINGS
Neither the Company nor any of the Properties is subject to any material
litigation nor, to the Company's knowledge, is any material litigation
threatened against any of them, other than routine litigation arising in the
ordinary course of business, which is generally expected to be covered by
liability insurance, or to have an immaterial effect on financial results.
POLICIES WITH RESPECT TO CERTAIN ACTIVITIES
The following is a discussion of the policies with respect to investments,
financing and certain other activities of the Company. These policies and those
set forth under "Certain Relationships and Related Transactions -- Conflicts of
Interest" have been determined by the Board of Directors of the Company and may
be amended or revised from time to time at the discretion of the Board of
Directors without notice to or a vote of the stockholders of the Company or the
limited partners of the Operating Partnership, except that changes in certain
policies with respect to conflicts of interest must be consistent with legal
requirements. Such legal requirements include those arising from fiduciary
principles under the Maryland General Corporation Law ("MGCL"), including
Section 2-419 thereof (which provides procedures for approval of interested
director transactions), and the Delaware Revised Uniform Limited Partnership
Act, and the judicial decisions under each of such statutes. All references in
the following discussion to the "Company" include the Operating Partnership
unless otherwise indicated.
INVESTMENT POLICIES
Investments in Real Estate or Interests in Real Estate. The Company
currently plans to continue to conduct substantially all of its investment
activities through the Operating Partnership. The Company's investment
objectives are to increase FFO and the value of the Properties, and to acquire
established income-producing industrial properties and community shopping
centers with FFO growth potential. Additionally, where prudent and possible, the
Company may develop new properties and seek to renovate or reposition the
existing Properties and any newly-acquired properties. The Company's business is
focused on industrial properties and community shopping centers, but the Company
may invest in other types of properties which represent investment opportunities
at the discretion of management. In addition, the Company may invest in other
property types in connection with industrial and retail acquisition and
development opportunities. Where appropriate, and subject to REIT qualification
rules, the Operating Partnership may sell or otherwise dispose of certain of the
Properties.
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<PAGE> 83
The Company expects to pursue its investment objectives through the direct
and indirect ownership of properties and ownership interests in other entities.
The Company also may participate with other entities in property ownership
through joint ventures or other types of coownership. The Company focuses on
properties in those markets where the Company currently has operations and in
new markets selectively targeted by management. However, future investments,
including the activities described below, will not be limited to any geographic
area or to a specified percentage of the Company's assets.
Equity investments may be subject to existing mortgage financing and other
indebtedness or such financing or indebtedness may be incurred in connection
with acquiring investments. Any such financing or indebtedness will have
priority over the Company's equity interest in such property. See "Business and
Operating Strategies -- AMB Investment Management."
Investments in Real Estate Mortgages. While the Company emphasizes equity
real estate investments, it may, in its discretion, invest in mortgages, deeds
of trust and other similar interests. The Company does not presently intend to
invest significantly in mortgages or deeds of trust, but may acquire such
interests as a strategy for acquiring ownership of a property or the economic
equivalent thereof, subject to the investment restrictions applicable to REITs.
In addition, the Company may invest in mortgage-related securities and/or may
seek to issue securities representing interests in such mortgage-related
securities as a method of raising additional funds.
Securities of or Interests in Persons Primarily Engaged in Real Estate
Activities and Other Issuers. Subject to the gross income and asset tests
necessary for REIT qualification, the Company also may invest in securities of
entities engaged in real estate activities or securities of other issuers,
including for the purpose of exercising control over such entities. To date, the
Company has not invested in any such securities. In selecting such investments
in the future, if any, the Company expects to consider the same factors used to
identify individual properties for investment -- companies with properties
located in in-fill locations -- as well as other factors which the Company may
consider to be relevant, including, among others, historical performance,
financial condition and management. The Company may acquire all or substantially
all of the securities or assets of other REITs or similar entities where such
investments would be consistent with the Company's investment policies. In any
event, the Company does not intend that its investments in securities will
require it to register as an "investment company" under the Investment Company
Act of 1940, as amended.
FINANCING POLICIES
In addition to the limitations on indebtedness under the Credit Facility,
since the IPO, the Company has maintained and presently intends to continue to
maintain a Debt-to-Total Market Capitalization Ratio of approximately 45% or
less. This policy differs from conventional mortgage debt-to-equity ratios which
are asset-based ratios. The Company, however, may from time to time re-evaluate
this policy and decrease or increase such ratio in light of then current
economic conditions, relative costs to the Company of debt and equity capital,
market values of its properties, growth and acquisition opportunities and other
factors. There is no limit on the Debt-to-Total Market Capitalization Ratio
imposed by either the Charter or Bylaws or the Partnership Agreement. To the
extent the Board of Directors determines to obtain additional capital, the
Company may issue equity securities, or cause the Operating Partnership to issue
additional Units or debt securities, or retain earnings (subject to provisions
in the Code requiring distributions of taxable income to maintain REIT status),
or a combination of these methods. Pursuant to the Partnership Agreement the net
proceeds of all equity capital raised by the Company will be contributed to the
Operating Partnership in exchange for additional general partner interests
therein.
To the extent the Board of Directors determines to obtain debt financing in
addition to the existing mortgage indebtedness and the Senior Debt Securities,
the Company intends to do so generally through mortgages on its properties and
the Credit Facility; however, the Company may also issue or cause the Operating
Partnership to issue additional debt securities in the future. Such indebtedness
may be recourse, non-recourse or cross-collateralized and may contain
cross-default provisions. The net proceeds of any debt securities issued by the
Company will be lent to the Operating Partnership on substantially the same
terms
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<PAGE> 84
and conditions as are incurred by the Company. The Company does not have a
policy limiting the number or amount of mortgages that may be placed on any
particular property, but mortgage financing instruments usually limit additional
indebtedness on such properties. In the future, the Company may seek to extend,
expand, reduce or renew the Credit Facility, or obtain new credit facilities or
lines of credit, subject to its general policy on debt capitalization, for the
purpose of making acquisitions or capital improvements or providing working
capital or meeting the taxable income distribution requirements for REITs under
the Code.
LENDING POLICIES
The Company may consider offering purchase money financing in connection
with the sale of Properties where the provision of such financing will increase
the value received by the Company for the property sold. The Company may also
make loans to the Operating Partnership, the Preferred Stock Subsidiaries and
joint ventures and other entities in which it or the Operating Partnership has
an equity interest.
CONFLICT OF INTEREST POLICIES
Officers and Directors of the Company. Without the unanimous approval of
the disinterested directors, the Company and its subsidiaries will not (i)
acquire from or sell to any director, officer or employee of the Company, or any
entity in which a director, officer or employee of the Company owns more than a
1% interest, or acquire from or sell to any affiliate of any of the foregoing,
any assets or other property, (ii) make any loan to or borrow from any of the
foregoing persons or (iii) engage in any other material transaction with any of
the foregoing persons. Each transaction of the type described above will be in
all respects on such terms as are, at the time of the transaction and under the
circumstances then prevailing, fair and reasonable to the Company and its
subsidiaries in the opinion of the disinterested directors. For purposes of this
paragraph, "disinterested directors" means those Independent Directors who do
not have an interest in the transaction in question.
Policies Applicable to All Directors. Under Maryland law, each director is
obligated to offer to the Company any opportunity (with certain limited
exceptions) which comes to such director and which the Company could reasonably
be expected to have an interest in developing or acquiring. The Company has
adopted certain policies relating to such matters applicable to Independent
Directors (as defined) actively engaged in industrial and retail real estate
which generally limit directly competitive activities by such directors. In
addition, under the MGCL, any contract or other transaction between a
corporation and any director or any other corporation, firm or other entity in
which the director is a director or has a material financial interest may be
void or voidable. However, the MGCL provides that any such contract or
transaction will not be void or voidable if (i) it is authorized, approved or
ratified, after disclosure of, or with knowledge of, the common directorship or
interest, by the affirmative vote of a majority of disinterested directors (even
if the disinterested directors constitute less than a quorum) or by the
affirmative vote of a majority of the votes cast by disinterested stockholders
or (ii) it is fair and reasonable to the corporation.
POLICIES WITH RESPECT TO OTHER ACTIVITIES
The Company may, but does not presently intend to, make investments other
than as previously described. The Company makes real property investments only
through the Company and the Operating Partnership, except to the extent
necessary to establish financing partnerships or similar vehicles established
substantially for the benefit of the Company or the Operating Partnership. The
Company has authority to offer its shares of Common Stock or other equity or
debt securities of the Operating Partnership in exchange for property and to
repurchase or otherwise reacquire its shares of Common Stock or any other
securities and may engage in such activities in the future. Similarly, the
Operating Partnership may offer additional Units or other equity interests in
the Operating Partnership that are exchangeable for shares of Common Stock or
Preferred Stock in exchange for property. The Operating Partnership also may
make loans to joint ventures in which it may participate in the future. Neither
the Company nor the Operating Partnership will engage in trading, underwriting
or the agency distribution or sale of securities of other issuers.
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POLICIES WITH RESPECT TO INVESTMENT ADVISORY SERVICES
Uninvested commitments of clients of AMB Investment Management which
existed upon consummation of the IPO, any additional amounts committed by these
clients and any amounts committed by investors which become clients of AMB
Investment Management will generally be invested only in properties in which the
Company also invests, on a co-investment basis. See "Business and Operating
Strategies -- AMB Investment Management." AMB Investment Management may also
assume management of assets already owned by existing or new clients and manage
such assets on a separate account basis. To the extent that transactions arise
between the Company and a client of AMB Investment Management, it is anticipated
that AMB Investment Management generally will not exercise decision-making
authority on behalf of the client, and the client will act through its own
representatives. Similarly, it is expected that the terms of co-investment
arrangements between the Company and clients of AMB Investment Management will
be negotiated on an arm's-length basis at the time the applicable investment
management agreement is entered into, with any subsequent modifications thereto
to be likewise entered into on the basis of arm's-length negotiations with the
client or another representative designated thereby at the time of such
negotiation.
OTHER POLICIES
The Company operates in a manner that does not subject it to regulation
under the Investment Company Act of 1940. The Board of Directors has the
authority, without stockholder approval, to issue additional shares of Common
Stock or other securities and to repurchase or otherwise reacquire shares of
Common Stock or any other securities in the open market or otherwise and may
engage in such activities in the future. The Company may, under certain
circumstances, purchase shares of Common Stock, Series A Preferred Stock or
Series B Preferred Stock in the open market, if such purchases are approved by
the Board of Directors. The Board of Directors has no present intention of
causing the Company to repurchase any of the shares of Common Stock, Series A
Preferred Stock or Series B Preferred Stock, and any such action would be taken
only in conformity with applicable Federal and state laws and the requirements
for qualifying as a REIT under the Code and the Treasury Regulations. The
Company expects to issue shares of Common Stock to holders of Units upon
exercise of their exchange rights set forth in the Partnership Agreement. The
Company may in the future make loans to joint ventures in which it participates
in order to meet working capital or other capital needs. The Company has not
engaged in trading, underwriting or agency distribution or sale of securities of
other issuers other than the Operating Partnership, nor has the Company invested
in the securities of other issuers other than the Operating Partnership, the
Preferred Stock Subsidiaries, the Joint Ventures and certain other entities
formed to hold properties for local law purposes. The Company from time to time
evaluates investment opportunities in other real estate related entities and may
in the future invest in one or more of these entities.
At all times, the Company intends to make investments in such a manner as
to be consistent with the requirements of the Code for the Company to qualify as
a REIT unless, because of changing circumstances or changes in the Code (or in
Treasury Regulations), the Board of Directors determines that it is no longer in
the best interests of the Company to qualify as a REIT and such determination is
approved by the affirmative vote of holders owning at least two-thirds of the
shares of the Company's capital stock outstanding and entitled to vote thereon.
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<PAGE> 86
MANAGEMENT
The Company's Board of Directors is comprised currently of the nine
directors included in the table below. Directors are elected on an annual basis.
The collective background and experience of the directors provide the Company
with advice and guidance in a number of areas, including corporate governance,
strategic planning, capital markets and property acquisition and management.
The Company believes that an independent Board of Directors, whose
interests are aligned with those of the stockholders, is essential to the
creation of long-term stockholder value. Six of the Company's nine directors are
not employed by, or otherwise affiliated with, the Company ("Independent
Directors"). To demonstrate the alignment of their interests with those of
stockholders, the Independent Directors who became directors upon consummation
of the IPO waived cash retainers and instead received options to purchase shares
of Common Stock at the initial public offering price.
The following table lists the Executive Officers and directors of the
Company, with their biographies following the table:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
T. Robert Burke............................ 56 Chairman of the Board of Directors
Hamid R. Moghadam.......................... 42 President, Chief Executive Officer and
Director
Douglas D. Abbey........................... 48 Chairman of the Investment Committee and
Director
Luis A. Belmonte........................... 57 Managing Director, Industrial Division
S. Davis Carniglia......................... 47 Managing Director and Chief Financial
Officer
John H. Diserens........................... 44 Managing Director, Retail Division
Bruce H. Freedman.......................... 49 Managing Director, Industrial Division
David S. Fries............................. 34 Managing Director and General Counsel
Jean Collier Hurley........................ 58 Managing Director, Investor Relations and
Corporate Communications
Craig A. Severance......................... 46 Managing Director, Acquisitions
Daniel H. Case, III........................ 40 Director
Robert H. Edelstein, Ph.D. ................ 54 Director
Lynn M. Sedway............................. 56 Director
Jeffrey L. Skelton, Ph.D. ................. 48 Director
Thomas W. Tusher........................... 57 Director
Caryl B. Welborn........................... 47 Director
</TABLE>
T. Robert Burke, one of the founders of AMB, is a Director of the Company
and has been the Chairman of the Board of AMB since 1994. He has 29 years of
experience in real estate and is a member of the Investment Committee. Mr. Burke
was on the board of directors of CIF and of VAF. He was formerly a senior real
estate partner with Morrison & Foerster LLP and, for two years, served as that
firm's Managing Partner for Operations. Mr. Burke graduated from Stanford
University and holds a J.D. degree from Stanford Law School. He is a member of
the Board of Directors of NAREIT, is on the Board of the Stanford Management
Company and is a Trustee of Stanford University. He is also a member of the
Urban Land Institute and is the former Chairman of the Board of Directors of the
Pension Real Estate Association.
Hamid R. Moghadam, one of the founders of AMB, is a Director of the Company
and is the President and Chief Executive Officer of the Company. Mr. Moghadam
has 16 years of experience in real estate acquisitions, dispositions, investment
analysis, finance and development, and is a member of the Investment Committee.
He was on the board of directors of CIF and of VAF. Mr. Moghadam holds
bachelor's and master's degrees in civil engineering and construction
management, respectively, from the Massachusetts Institute of Technology and an
M.B.A. degree from the Graduate School of Business at Stanford University. He is
Vice Chairman of the board of directors of the National Realty Committee, a
member of the Young Presidents' Organization, has served on the Advisory
Committee of the Massachusetts Institute of Technology Center for Real Estate
and is a Trustee of the Bay Area Discovery Museum.
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<PAGE> 87
Douglas D. Abbey, one of the founders of AMB, is a Director of the Company
and is Chairman of the Investment Committee and is responsible for directing the
economic research used to determine the Company's investment strategy, as well
as the market research for property acquisitions. Mr. Abbey has 23 years of
experience in asset management, acquisitions and real estate research. He is a
graduate of Amherst College and has a master's degree in city planning from the
University of California at Berkeley. He is a trustee of the Urban Land
Institute, is the chair of the Urban Land Institute's Commercial Retail Council
and Research Committee, serves on the Policy Advisory Board for the Center for
Real Estate and Urban Economics at the University of California at Berkeley, is
on the Editorial Board for the Journal of Real Estate Investment Trusts and is a
Trustee of Golden Gate University.
Luis A. Belmonte is a Managing Director of the Company and co-head of the
Industrial Division. He specializes in industrial property development and
redevelopment, and is a member of the Investment Committee. He joined AMB in
1990 and has over 30 years of experience in development, redevelopment, finance,
construction, and management of commercial and industrial projects. He was a
partner with Lincoln Property Company, where he built a portfolio of 18 million
square feet of buildings. Mr. Belmonte received his bachelor's degree from the
University of Santa Clara. He is a member of the Urban Land Institute, an
associate member of the Society of Industrial Realtors, former President of the
San Francisco chapter of NAIOP, The Association for Commercial Real Estate, and
serves as Chairman of the California Commercial Council.
S. Davis Carniglia is a Managing Director and Chief Financial Officer of
the Company and is a member of the Investment Committee. He joined AMB in 1992
and has 23 years of experience in real estate accounting, taxation, forecasting
and financing. Mr. Carniglia was formerly a tax and real estate consulting
partner with KPMG/Peat Marwick, where he was responsible for that firm's San
Francisco Bay Area real estate practice, and was an appraisal/valuation partner.
Mr. Carniglia has a bachelor's degree in economics from Pomona College and a
J.D. degree from Hastings College of Law. He is a Certified Public Accountant,
and a member of the State Bar of California, Financial Executives Institute,
Urban Land Institute, NAREIT and Bay Area Mortgage Association.
John H. Diserens is a Managing Director and head of the Retail Division of
the Company and is a member of the Investment Committee. He has over 21 years of
experience in asset and property management for institutional investors. In his
eight years at AMB, he has been responsible for the asset management of all
properties, including over 40 community shopping centers. Prior to joining AMB,
Mr. Diserens was a Vice President and a divisional manager with Property
Management Systems, one of the nation's largest asset and property management
firms, responsible for a diversified portfolio in excess of 10 million square
feet. Mr. Diserens holds a bachelor's degree in economics and accounting from
Macquarie University of Sydney, Australia, and has completed the Executive
Program at the Graduate School of Business of Stanford University. He is a
member of the International Council of Shopping Centers, Association of Foreign
Investors in U.S. Real Estate, National Association of Real Estate Investment
Managers ("NAREIM"), Institute of Real Estate Management, and is on the board of
NAREIM.
Bruce H. Freedman is a Managing Director and co-head of the Industrial
Division of the Company and is a member of the Investment Committee. He joined
AMB in 1995 and has over 28 years of experience in real estate finance and
investment. Before joining the Company, he served as a Principal and President
of Allmerica Realty Advisors from 1993 to 1995 and as Principal for Aldrich,
Eastman & Waltch (AEW) from 1986 to 1992. At Allmerica, he was responsible for
business operation and management of a $250 million equity real estate
portfolio, and at AEW he managed a team of 20 people which invested, managed and
accounted for over $1 billion of institutional client assets. Mr. Freedman is a
cum laude graduate of Babson College. He is a member of the Urban Land
Institute, Real Estate Finance Association and NAREIM, and holds the CRE
designation from the American Society of Real Estate Counselors.
David S. Fries is a Managing Director and General Counsel of the Company
and is the Vice Chairman of the Investment Committee. Prior to joining AMB in
1998, he was a real estate partner with the international law firms of Orrick,
Herrington & Sutcliffe LLP and Morrison & Foerster LLP, where he focused on the
real estate, securities and financing issues affecting REITs, the acquisition of
large real estate portfolios and the
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<PAGE> 88
negotiation of complex joint venture arrangements. Mr. Fries holds a bachelor's
degree in political science from the University of Pennsylvania and a J.D.
degree from Stanford Law School. He is a member of the State Bar of California
and NAREIT and a past President of The Belden Club.
Jean Collier Hurley is a Managing Director responsible for Investor
Relations and Corporate Communications. Prior to joining AMB in 1990, Ms. Hurley
was a Vice President with Crocker National Bank where she provided financing for
major national and international corporations. Ms. Hurley holds a bachelor's
degree in business management and a master of science in marketing and design
from San Diego State University, and holds an M.B.A. degree in Finance from the
University of California at Berkeley, Graduate School of Business. Ms. Hurley is
a member of NAREIT and the National Investor Relations Institute.
Craig A. Severance is a Managing Director and a member of the Investment
Committee, and is responsible for property acquisitions and information
technology. He has managed the screening of all property submissions and has
developed the Company's proprietary property submissions database. Before
joining AMB in 1986, he was a Vice President with the investment real estate
group at Bank of America, where he represented domestic and foreign
institutional investors in major commercial property acquisitions. Mr. Severance
has a bachelor's degree in economics from Middlebury College, and holds an
M.B.A. degree from the Graduate School of Business at Stanford University. He is
a member of the International Council of Shopping Centers.
Daniel H. Case, III is a Director of the Company and is President and Chief
Executive Officer of the Hambrecht & Quist Group. After joining Hambrecht &
Quist in 1981, he co-founded the business which became Hambrecht & Quist
Guaranty Finance in 1983. Mr. Case was named co-director of mergers and
acquisitions of Corporate Finance in 1986, and became a managing director and
head of Investment Banking in December 1987. In October 1991, he was elected to
the board of directors of Hambrecht & Quist. In April 1992, he was elected
President and Co-Chief Executive Officer. He became Chief Executive Officer in
October 1994. Mr. Case also serves as a director of Rational Software
Corporation, Electronic Arts, the Securities Industry Association, and the Bay
Area Council. Mr. Case was named as one of the "100 Global Leaders for Tomorrow"
by the World Economics Forum and one of the "Top 50 Innovators in Technology" by
Time Magazine. He has a bachelor's degree in economics and public policy from
Princeton University and studied management at the University of Oxford as a
Rhodes Scholar.
Robert H. Edelstein, Ph.D. is a Director of the Company and was an
independent director of CIF. He has been a director of TIS Mortgage Investment
Company, a NYSE-listed mortgage REIT, since 1988, and has been the Chairholder
of Professorship of Real Estate Development and Co-Chairman of the Fisher Center
for Real Estate and Urban Economics at the Haas School of Business, University
of California at Berkeley since 1985. Prior to joining the faculty at Berkeley
in 1985, Dr. Edelstein was a Professor of Finance at The Wharton School and
Director of the Real Estate Center for 15 years. He is active in research and
consulting in urban real estate economics, real estate finance, real estate
property taxation, environmental economics, energy economics, public finance and
urban financial problems. Dr. Edelstein received his bachelor's, master's and
Ph.D. degrees in economics, with specialization fields in statistics and
econometrics, from Harvard University. He is President of The American Real
Estate and Urban Economics Association, an ex officio member of Lambda Alpha
(honorary real estate association), the Urban Land Institute and The Society for
Real Estate Finance.
Lynn M. Sedway is a Director of the Company and was an independent director
of CIF. She is principal and founder of the Sedway Group, a 20-year old real
estate economics firm headquartered in San Francisco. Ms. Sedway is recognized
throughout the real estate investment industry as an expert in urban and real
estate economics. She currently directs and has ultimate responsibility for the
activities of her firm, including market analysis, property valuation,
development and redevelopment analysis, acquisition and disposition strategies,
and public policy issues. Ms. Sedway received her bachelor's degree in economics
at the University of Michigan and an M.B.A. degree from the University of
California at Berkeley, Graduate School of Business, where she is also a guest
lecturer. She is a trustee of the Urban Land Institute, the Policy Advisory
Board of the Fisher Center for Real Estate and Urban Economics, and the San
Francisco Chamber of Commerce.
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Ms. Sedway is a member of The International Council of Shopping Centers and the
American Society of Real Estate Counselors.
Jeffrey L. Skelton, Ph.D. is a Director of the Company and was an
independent director of VAF. He is President and Chief Executive Officer of
Symphony Asset Management, the asset management subsidiary of BARRA, Inc., a
financial software company. Prior to joining BARRA, Inc. in 1994, he was with
Wells Fargo Nikko Investment Advisors from January 1991 to December 1993, where
he served in a variety of capacities, including Chief Research Officer, Vice
Chairman, Co-Chief Investment Officer and Chief Executive of Wells Fargo Nikko
Investment Advisors Limited in London. Dr. Skelton has a Ph.D. in Mathematical
Economics and Finance and an M.B.A. degree from the University of Chicago, and
was an Assistant Professor of Finance at the University of California at
Berkeley, Graduate School of Business. He is a frequent speaker in professional
forums and is the author of a number of works published in academic and
professional journals.
Thomas W. Tusher is a Director of the Company and was an independent
director of VAF. He was President and Chief Operating Officer of Levi Strauss &
Co. from 1984 through 1996. Previously, he was President of Levi Strauss
International from 1976 to 1984. Mr. Tusher began his career at Levi Strauss in
1969. He was a director of the publicly-held Levi Strauss & Co. from 1978 to
1985, and was named a director of the privately-controlled Levi Strauss & Co. in
1989. Prior to joining Levi Strauss & Co., Mr. Tusher was with Colgate Palmolive
from 1965 to 1969. Mr. Tusher has a bachelor's degree from the University of
California at Berkeley and an M.B.A. degree from the Graduate School of Business
at Stanford University. He is a director of Cakebread Cellars and Dash America
(Pearl Izumi). He is a former director of Great Western Financial Corporation
and the San Francisco Chamber of Commerce. He is also Chairman Emeritus and a
member of the advisory board of the Walter A. Haas School of Business at the
University of California at Berkeley. Mr. Tusher is also a director of the World
Wildlife Fund and a member of the Advisory Council of the Graduate School of
Business at Stanford University.
Caryl B. Welborn is a Director of the Company and was an independent
director of VAF. She is a commercial real estate attorney in San Francisco, and
prior to starting her own firm in 1995, she was a partner with Morrison &
Foerster LLP for 13 years. Ms. Welborn has a bachelor's degree from Stanford
University and a J.D. degree from the Law School at the University of California
at Los Angeles. She is a program chair and frequent lecturer on real estate
issues nationally, and has published numerous articles in professional
publications. Ms. Welborn is an officer and board member of the American College
of Real Estate Lawyers. She has held leadership positions in the American Bar
Association's Real Property, Probate and Trust Section. In addition, Ms. Welborn
has acted as an American Bar Association advisor regarding revision of the
Uniform Partnership Act.
COMMITTEES OF THE BOARD OF DIRECTORS
Audit Committee. The Audit Committee consists of three Independent
Directors, Ms. Welborn, the Chairman, and Messrs. Edelstein and Skelton. The
Audit Committee makes recommendations concerning the engagement of independent
public accountants, reviews with the independent public accountants the plans
and results of the audit engagement, approves professional services provided by
the independent public accountants, reviews the independence of the independent
public accountants, considers the range of audit and non-audit fees and reviews
the adequacy of the Company's internal accounting controls.
Executive Committee. The Executive Committee consists of Mr. Case, the
Chairman, Messrs. Skelton, Moghadam and Burke and Ms. Sedway. The Executive
Committee has the authority within certain parameters to acquire, dispose of and
finance investments for the Company (including the issuance by the Operating
Partnership of additional Units or other equity interests) and approve the
execution of contracts and agreements, including those related to the borrowing
of money by the Company, and generally exercises all other powers of the Board
of Directors except as prohibited by law.
Compensation Committee. The Compensation Committee consists of three
Independent Directors, Mr. Tusher, the Chairman, Mr. Skelton and Ms. Sedway. The
Compensation Committee determines compensation for the Company's executive
officers, and reviews and makes recommendations concerning
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proposals by management with respect to compensation, bonus, employment
agreements and other benefits and policies respecting such matters for the
executive officers of the Company.
The Board of Directors does not have a nominating committee; rather, the
entire Board of Directors performs the function of such a committee.
COMPENSATION OF THE BOARD OF DIRECTORS
In lieu of cash compensation, each Independent Director receives, upon
initial election to the Board of Directors and upon each election thereafter,
options to purchase Common Stock, at an exercise price equal to the fair market
value at the date of grant (in the case of options granted upon consummation of
the IPO, at the price to the public in the IPO). All of such options vest
immediately upon grant. The initial grant of such options upon initial election
covers 20,000 shares of Common Stock, and each subsequent grant covers 15,000
shares of Common Stock for each Independent Director. The initial grant for each
Independent Director appointed to serve immediately following the consummation
of the IPO covered 26,250 shares of Common Stock representing the grant to each
Independent Director with respect to their initial election to the Board of
Directors plus an additional grant of options to purchase 6,250 shares of Common
Stock with respect to the period from the date of the IPO through the date of
their initial election, but such Independent Directors will not be granted
options upon re-election in 1998. In addition, Independent Directors are paid
$1,250 for each meeting in excess of six meetings of the Board of Directors
attended during each annual term and are reimbursed for reasonable expenses
incurred to attend director and committee meetings. Officers of the Company who
are directors are not paid any compensation in respect of their service as
directors.
EXECUTIVE COMPENSATION
The following table sets forth the estimated annual base salaries and other
compensation paid for the period of November 26, 1997 through December 31, 1997
to the Chief Executive Officer and certain of the Company's other executive
officers who, on an annualized basis, have a total annual salary and bonus in
excess of $100,000 (collectively, the "Named Executive Officers"). The Company
has entered into employment agreements with certain of its Executive Officers as
described below. See "-- Employment Agreements."
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------------------
SECURITIES
ANNUAL COMPENSATION UNDERLYING
----------------------------------- OPTIONS
1997 OTHER ANNUAL RESTRICTED GRANTED IN
SALARY 1997 COMPENSATION STOCK 1997 STOCK BONUS
NAME AND PRINCIPAL POSITION ($)(1) BONUS($)(2) ($) AWARD($)(2) (#)(4) (#)(2)
--------------------------- ------ ----------- ------------ ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
T. Robert Burke
Chairman of the Board............. 16,645 -- 2,800 -- 225,000 --
Hamid R. Moghadam
President and Chief Executive
Officer......................... 40,362 -- (3) -- 500,000 --
Douglas D. Abbey
Chairman of Investment
Committee....................... 21,389 -- 2,800 -- 250,000 --
S. Davis Carniglia
Chief Financial Officer........... 21,389 -- 2,800 -- 130,000 --
Craig A. Severance
Managing Director, Acquisitions... 21,389 -- 2,800 -- 130,000 --
John H. Diserens
Managing Director, Retail
Division........................ 21,389 -- 2,800 -- 130,000 --
</TABLE>
- ---------------
(1) Represents the actual amount of compensation paid from November 26, 1997
through December 31, 1997. Annual base compensation paid in 1997 was
$150,000 for Mr. Burke, $400,000 for Mr. Moghadam and $200,000 for each of
Messrs. Abbey, Carniglia, Severance and Diserens.
(2) The amount of any such bonus has been determined by the Compensation
Committee of the Board of Directors. Pursuant to the executive's employment
agreement, at the executive's option such executive may receive restricted
shares of common stock, or options to purchase common stock, in lieu of any
cash
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bonus, the number of such shares or options to be determined as set forth in
such employee's employment agreement. See "-- Employment Agreements."
(3) The aggregate amount of the perquisites and other personal benefits,
securities or property for Mr. Moghadam is less than the lesser of either
$50,000 or 10% of his total salary and bonus paid in 1997.
(4) Options to purchase an aggregate of 3,111,250 shares of Common Stock (net of
forfeitures) have been granted to directors, executive officers and other
employees of the Company as of December 31, 1997. Such options vest pro rata
in annual installments over a four-year period. An additional 2,638,750
shares of Common Stock are reserved for issuance under the Stock Incentive
Plan.
OPTION GRANTS IN LAST FISCAL YEAR
The following table shows certain information relating to options to
purchase shares of Common Stock granted to the Named Executive Officers during
1997.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
INDIVIDUAL GRANTS(1) ANNUAL RATES OF
--------------------------------------------- COMMON STOCK
PERCENT OF PRICE APPRECIATION
NUMBER OF SHARES OF TOTAL OPTIONS FOR OPTION
COMMON STOCK GRANTED TO TERM(2)(000S)
UNDERLYING OPTIONS EMPLOYEES IN EXERCISE EXPIRATION ---------------------
NAME GRANTED(#) FISCAL YEAR(3) PRICE PER SHARE DATE 5% 10%
---- ------------------- -------------- --------------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
T. Robert Burke............. 225,000 7.2% $21.00 11/25/07 $2,972 $ 7,531
Hamid R. Moghadam........... 500,000 16.0% 21.00 11/25/07 6,605 16,735
Douglas D. Abbey............ 250,000 8.0% 21.00 11/25/07 3,303 8,368
S. Davis Carniglia.......... 130,000 4.2% 21.00 11/25/07 1,717 4,351
Craig A. Severance.......... 130,000 4.2% 21.00 11/25/07 1,717 4,351
John H. Diserens............ 130,000 4.2% 21.00 11/25/07 1,717 4,351
</TABLE>
- ---------------
(1) All options granted in 1997 become exercisable in four equal installments
(rounded to the nearest whole share of Common Stock) beginning on the first
anniversary of the date of grant and have a term of ten years. The option
exercise price is equal to the fair market value of the Common Stock on the
date of grant.
(2) In accordance with the rules of the SEC, these amounts are the hypothetical
gains or "option spreads" that would exist for the respective options based
on assumed rates or annual compound share price appreciation of 5% and 10%
from the date the options were granted over the full option term. No gain to
the optionee is possible without an increase in the price of Common Stock,
which would benefit all stockholders.
(3) The total number of shares of Common Stock underlying such options used in
such calculation are net of forfeitures.
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AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table sets forth certain information concerning exercised and
unexercised options held by the Named Executive Officers at December 31, 1997.
No options were exercised by the Named Executive Officers in 1997.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS AT OPTIONS AT
DECEMBER 31, 1997 DECEMBER 31, 1997
--------------------------- ------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE(1)
---- ----------- ------------- ----------- ----------------
<S> <C> <C> <C> <C>
T. Robert Burke..................................... -- 225,000 -- $ 928,125
Hamid R. Moghadam................................... -- 500,000 -- 2,062,125
Douglas D. Abbey.................................... -- 250,000 -- 1,031,250
S. Davis Carniglia.................................. -- 130,000 -- 536,250
Craig A. Severance.................................. -- 130,000 -- 536,250
John H. Diserens.................................... -- 130,000 -- 536,250
</TABLE>
- ---------------
(1) Based on a price per share of Common Stock of $25.125, the last reported
sales price per share on the New York Stock Exchange on December 31, 1997,
less the exercise price of in-the-money options.
EMPLOYMENT AGREEMENTS
Each of the persons who served as an Executive Officer at the time of the
IPO entered into an employment agreement with the Company. The employment
agreements have an initial term of one year (three years in the case of Mr.
Moghadam) and are subject to automatic one-year extensions following the
expiration of the initial term. On July 14, 1998, the Compensation Committee
decided not to extend the employment agreement for each such Executive Officer
at the expiration of the initial term and to enter into agreements which will
provide such Executive Officers with certain benefits in the event of a change
of control of the Company. Upon the termination of the employment agreements,
all such Executive Officers will be employed on an at-will basis on terms to be
determined by the Compensation Committee. Prior to termination of the employment
agreements, such agreements will continue to provide for annual base
compensation with the amount of any bonus to be determined by the Compensation
Committee, based on certain performance targets, up to 150% of the applicable
annual base compensation in the case of Messrs. Burke, Abbey and Moghadam, and
100% of the applicable annual base compensation in the case of Messrs.
Carniglia, Diserens and Severance. The performance targets to be used to
determine executive bonuses for the calendar year ending December 31, 1998 have
not been finalized by the Compensation Committee. However, such performance
targets are expected to include operating results and acquisition activity. The
employment agreements provide that the executive has the right to elect to
receive restricted stock or stock options in lieu of such executive's bonus. The
number of shares of restricted stock to be so issued will equal 125% of the
amount of the bonus, divided by the then current market price of the stock. The
number of options to purchase shares of Common Stock so granted will be
determined based on 150% of the amount of the bonus and the current market price
of the Common Stock, using the "Black-Scholes" option-pricing methodology. Such
restricted stock and options to purchase Common Stock will vest ratably over a
three-year period. The employment agreements also provide that the executive
will receive certain insurance benefits and be able to participate in the
Company's employee benefit plans, including the Stock Incentive Plan (as defined
below), and that, in the event of the executive's death, the executive's estate
will receive certain compensation payments. The executive also is entitled to
receive severance during the term of the employment agreement and for one year
thereafter in the event of a termination of the executive's employment resulting
from a disability, by the Company without "cause" or by the executive for "good
reason." "Cause" means (i) gross negligence or willful misconduct, (ii) an
uncured breach of any of the employee's material duties under the employment
agreement, (iii) fraud or other conduct against the material best interests of
the Company or (iv) a conviction of a felony if such conviction has a material
adverse effect on the Company. "Good reason" means (a) a substantial adverse
change in the nature or scope of the employee's responsibilities and authority
under the employment agreement or (b) an uncured breach by the Company of any of
its material obligations
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under the employment agreement. Severance benefits include base compensation at
the amounts provided in the employment agreement and bonus based on the most
recent amount paid, as well as certain continuing insurance and other benefits.
Such employment agreements also contain a non-competition agreement
pursuant to which each executive agrees that he or she will not engage in any
activities, directly or indirectly, in respect of commercial real estate, and
will not make any investment in respect of industrial or retail real estate,
other than through ownership of not more than 5% of the outstanding shares of a
public company engaged in such activities and through existing investments as
described under the caption "Certain Relationships and Related Transactions."
Such restrictions apply during the term of the employment agreements and for a
one-year period thereafter. Upon termination of the employment agreements due to
their non-renewal (as discussed above), the Executive Officers subject to such
employment agreements will enter into non-competition agreements on the same
terms as the non-competition provisions contained in the employment agreements.
STOCK INCENTIVE PLAN
The Company adopted the Stock Option and Incentive Plan (the "Stock
Incentive Plan") to (i) enable executive officers, employees and directors of
the Company, the Operating Partnership and AMB Investment Management to
participate in the ownership of the Company, (ii) attract and retain executive
officers, other key employees (those employees which from time-to-time are
recognized for exceptional contributions to the Company and its subsidiaries,
including the Operating Partnership) and directors of the Company, the Operating
Partnership and AMB Investment Management and (iii) provide incentives to such
persons to maximize the Company's performance and its cash flow available for
distribution. The Stock Incentive Plan provides for the award to such officers
and key employees (subject to the Ownership Limit, or such other limit as
provided in the Company's Charter or as otherwise permitted by the Board of
Directors) of a broad variety of stock-based compensation alternatives such as
non-qualified stock options, incentive stock options, restricted stock and stock
appreciation rights, and provides for the grant to Independent Directors and
directors of AMB Investment Management of non-qualified stock options.
The Compensation Committee, which is comprised solely of Independent
Directors, has the authority to determine the terms of options and restricted
shares of common stock granted under the Stock Incentive Plan, including, among
other things, the individuals who shall receive such grants, the times when they
shall receive them, whether an incentive stock option or non-qualified option
shall be granted and the number of shares to be subject to each grant.
The Company has reserved 5,750,000 shares of Common Stock for issuance
under the Stock Incentive Plan and, as of August 31, 1998, had granted to
certain directors, officers and employees options to purchase 3,133,750 shares
of Common Stock (net of forfeitures). Such options have a ten-year term and vest
pro rata in annual installments over a four-year period with respect to initial
grants. There is no limit on the number of awards that may be granted to any one
individual so long as the (i) aggregate fair market value (determined at the
time of grant) of shares with respect to which an incentive stock option is
first exercisable by an optionee during any calendar year cannot exceed
$100,000, (ii) grant does not violate the Ownership Limit or cause the Company
to fail to qualify as a REIT for Federal income tax purposes and (iii) maximum
number of shares of Common Stock for which stock options and stock appreciation
rights may be issued during any fiscal year to any participant in the Stock
Incentive Plan shall not exceed 1,000,000. See "Description of Capital Stock --
Restrictions on Ownership and Transfer." The Company plans to limit future
grants under the Stock Incentive Plan to the Company's directors and officers
and a limited number of other employees.
Restricted Stock. Restricted stock may be sold to participants at various
prices (but not below par value) and is subject to such restrictions as may be
determined by the Compensation Committee. Restricted stock typically may be
repurchased by the Company at the original price if certain conditions or
restrictions are removed or expire. Purchasers of restricted stock will have
voting rights and receive distributions prior to the time when the restrictions
lapse. To date the Company has granted 5,712 restricted shares of Common Stock.
The Company has no present plans to grant restricted shares of Common Stock
other than with respect
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to additional shares which may be issued to, and at the option of, certain
employees in lieu of annual cash bonus compensation.
Administration of the Stock Incentive Plan. The Stock Incentive Plan is
administered by the Board of Directors and/or the Compensation Committee. No
person is eligible to serve on the Compensation Committee unless such person is
an Independent Director. The Committee has complete discretion to determine
(subject to (i) the Ownership Limit contained in the Charter and (ii) a limit
against granting options or stock appreciation rights for more than 1,000,000
shares to any person in any year) which eligible individuals are to receive
option or other stock grants, the number of shares subject to each such grant,
the status of any granted option as either an incentive option or a
non-qualified stock option under the Federal tax laws, the exercise schedule to
be in effect for the grant, the maximum term for which any granted option is to
remain outstanding and, subject to the specific terms of the Stock Incentive
Plan, any other terms of the grant.
Eligibility. All employees of the Company may, at the discretion of the
Compensation Committee, be granted incentive and non-qualified stock options to
purchase shares of Common Stock at an exercise price not less than 100% of the
fair market value of such shares on the grant date. Directors of the Company,
employees of the Operating Partnership, employees and directors of AMB
Investment Management, consultants and other persons who are not regular
salaried employees of the Company are not eligible to receive incentive stock
options, but are eligible to receive non-qualified stock options. In addition,
all employees and consultants of the Company, the Operating Partnership and AMB
Investment Management are eligible for awards of restricted stock and grants of
stock appreciation rights.
Purchase Price of Shares Subject to Options. The exercise price of the
shares of Common Stock subject to each option shall be set by the Compensation
Committee; provided, however, that the exercise price per share of an option
shall be not less than 100% of the fair market value of such shares on the date
such option is granted; provided, further, that, in the case of an incentive
stock option, the exercise price per share shall not be less than 110% of the
fair market value of such shares on the date such option is granted to an
individual then owning (within the meaning of Section 424(d) of the Code) more
than 10% of the total combined voting power of all classes of stock of the
Company, any subsidiary or any parent corporation ("greater than 10%
stockholders").
Non-Assignability. Options may be transferred only by will or by the laws
of descent and distribution. During a participant's lifetime, options are
exercisable only by the participant.
Terms and Exercisability of Options. Unless otherwise determined by the
Board of Directors or the Compensation Committee, all options granted under the
Stock Incentive Plan are subject to the following conditions: (i) options will
be exercisable in installments, on a cumulative basis, at the rate of
thirty-three and one-third percent (33 1/3%) each year beginning on the first
anniversary of the date of the grant of the option, until the options expire or
are terminated (other than options granted at the time of the IPO, which vest
ratably over four years) and (ii) following an optionee's termination of
employment, the optionee shall have the right to exercise any outstanding vested
options for a specified period.
To the extent the aggregate fair market value of stock with respect to
which "incentive stock options" (within the meaning of Section 422 of the Code,
but without regard to Section 422(d) of the Code) are exercisable for the first
time by an optionee during any calendar year exceeds $100,000, such options
shall be taxed as non-qualified stock options. The rule set forth in the
preceding sentence shall be applied by taking options into account in the order
in which they were granted. For this purpose, the fair market value of stock
shall be determined as of the time that the option with respect to such stock is
granted.
Options are exercisable in whole or in part by written notice to the
Company, specifying the number of shares being purchased and accompanied by
payment of the purchase price for such shares. The option price may be paid: (i)
in cash or by certified or cashier's check payable to the order of the Company,
(ii) by delivery of shares of Common Stock already owned by, and in the
possession of, the optionee or (iii) if authorized by the Board of Directors or
the Compensation Committee or if specified in the option agreement for the
option being exercised, by a recourse promissory note made by the optionee in
favor of the Company or through installment payments to the Company.
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<PAGE> 95
On the date the option price is to be paid, the optionee must make full
payment to the Company of all amounts that must be withheld by the Company for
Federal, state or local tax purposes.
Termination of Employment; Death or Permanent Disability. If an option
holder ceases to be employed by the Company for any reason other than the
optionee's death or permanent disability, such optionee's stock option shall
expire three months after the date of such cessation of employment unless by its
terms it expires sooner; provided, however, that during such period after
cessation of employment, such stock option may be exercised only to the extent
it was exercisable according to such option's terms on the date of cessation of
employment. If an optionee dies or becomes permanently disabled while the
optionee is employed by the Company, such optionee's option shall expire twelve
months after the date of such optionee's death or permanent disability unless by
its terms it expires sooner. During such period after death, such stock option
may, to the extent it remain unexercised upon the date of such death, be
exercised by the person or persons to whom the optionee's rights under such
stock option are transferred under the laws of descent and distribution.
Acceleration of Exercisability. In the event the Company is acquired by
merger, consolidation or asset sale, each outstanding option which is not to be
assumed by the successor corporation or replaced with a comparable option to
purchase shares of the capital stock of the successor corporation will, at the
election of the Board of Directors (or if so provided in an option or other
agreement with an optionee), automatically accelerate in full.
Adjustments. In the event any change is made to the Common Stock issuable
under the Stock Incentive Plan by reason of any recapitalization, stock
dividend, stock split, combination of shares, exchange of shares or other change
in corporate structure effected without the Company's receipt of consideration,
appropriate adjustment will be made to (i) the maximum number and class of
shares issuable under the Stock Incentive Plan and (ii) the number and/or class
of shares and price per share in effect under each outstanding option.
Amendments to the Stock Incentive Plan. The Board of Directors may at any
time suspend or terminate the Stock Incentive Plan. The Board of Directors or
Compensation Committee may also at any time amend or revise the terms of the
Stock Incentive Plan; provided that no such amendment or revision shall, unless
appropriate stockholder approval of such amendment or revision is obtained, (i)
increase the maximum number of shares which may be acquired pursuant to options
granted under the Stock Incentive Plan (except for adjustments as described in
the foregoing paragraph) or (ii) change the minimum purchase price required
under the Stock Incentive Plan.
Termination. The Stock Incentive Plan will terminate on December 31, 2007,
unless sooner terminated by the Board of Directors.
Registration Statement on Form S-8. The shares of Common Stock underlying
options granted under the Stock Incentive Plan and restricted shares of Common
Stock are subject to an effective Registration Statement on Form S-8.
401(K) PLAN
Effective November 26, 1997, the Company established its Section 401(k)
Savings/Retirement Plan (the "401(k) Plan") to cover eligible employees of the
Company, the Operating Partnership and any designated affiliate. The 401(k) Plan
permits eligible employees of the Company to defer up to 10% of their annual
compensation, subject to certain limitations imposed by the Code. The employees'
elective deferrals are immediately vested and non-forfeitable upon contributions
to the 401(k) Plan. The Company currently makes matching contributions to the
401(k) Plan in an amount equal to 50% of the first 3.5% of annual compensation
deferred by each employee; however, it has reserved the right to make greater
matching contributions or discretionary profit sharing contributions in the
future. Participants vest immediately in the matching contributions by the
Company. Discretionary contributions are subject to three-year vesting whereby
100% vests after the third year. Employees of the Company are eligible to
participate in the 401(k) Plan if they meet certain requirements concerning
minimum period of credited service. The Company's contribution to the 401(k)
Plan for the period ended December 31, 1997 was $144,971. The 401(k) Plan
qualifies under
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Section 401 of the Code so that contributions by employees to the 401(k) Plan,
and income earned on plan contributions, are not taxable to employees until
withdrawn from the 401(k) Plan.
LIMITATION OF DIRECTORS' AND OFFICERS' LIABILITY
The Operating Partnership's officers and the Company's officers and
directors are indemnified under Maryland law, the Charter and the Partnership
Agreement against certain liabilities. The Charter and Bylaws require the
Company to indemnify its directors and officers to the fullest extent permitted
from time to time by the MGCL. See "Certain Provisions of Maryland Law and of
the Company's Charter and Bylaws -- Limitation of Directors' and Officers'
Liability".
INDEMNIFICATION AGREEMENTS
The Company enters into indemnification agreements with each of its
Executive Officers and directors. The indemnification agreements require, among
other matters, that the Company indemnify its Executive Officers and directors
to the fullest extent permitted by law and reimburse the Executive Officers and
directors for all related expenses as incurred, subject to return if it is
subsequently determined that indemnification is not permitted. Under the
agreements, the Company must also indemnify and reimburse all expenses as
incurred by Executive Officers and directors seeking to enforce their rights
under the indemnification agreements and may cover executive officers and
directors under the Company's directors' and officers' liability insurance.
Although the form of indemnification agreement offers substantially the same
scope of coverage afforded by law, it provides greater assurance to directors
and Executive Officers that indemnification will be available, because, as a
contract, it cannot be modified unilaterally in the future by the Board of
Directors or the stockholders to eliminate the rights it provides.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has engaged in the following transactions and relationships
with certain of the Executive Officers, directors and persons who hold more than
5% of the outstanding shares of Common Stock.
FORMATION TRANSACTIONS
In connection with the Formation Transactions, CIF, VAF and the Company's
predecessor, AMB, effected a series of mergers pursuant to which such entities
merged into the Company with the institutional stockholders of CIF and VAF and
the Company's executive officers (the former stockholders of AMB), receiving an
aggregate of 4,746,624 shares of Common Stock, with a total value at the time of
the IPO of $99.7 million, and the right to receive in the Company's second year
of operation up to 4,241,803 limited partnership Units (the "Performance
Units"). The issuance of such Units is dependent upon the future trading price
of and dividends on the shares of Common Stock. See "Description of Certain
Provisions of the Partnership Agreement of the Operating
Partnership -- Performance Units." In addition, such executive officers received
the right to receive certain investment management fees earned by AMB Investment
Management, subject to certain limitations. Through September 25, 1998, payments
in the amount of $4.7 million have been made to the Company's executive officers
in respect of the right to receive such investment management fees.
In addition, certain Individual Account Investors, former investment
management clients of AMB including Ameritech Pension Trust ("Ameritech"), City
and County of San Francisco Employees' Retirement System ("CCSFERS") and
Southern Company System Master Retirement Trust ("Southern Company"),
contributed certain real property interests to the Company. In exchange for such
contribution of properties, Ameritech, CCSFERS and Southern Company received
12,441,580, 6,772,640 and 8,032,415 shares of Common Stock, respectively, with a
total value at the time of the IPO of $626.7 million. See "Principal
Stockholders."
In connection with consummation of the Formation Transactions, the Company
assumed the $4.0 million revolving credit facility of AMB, of which
approximately $1.1 million was outstanding upon completion of the
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<PAGE> 97
Formation Transactions, relieving three of the Company's Executive Officers,
Messrs. Abbey, Moghadam and Burke, of their respective obligations with respect
to the partial guaranty of such indebtedness. The proceeds of such indebtedness
were used by AMB to acquire certain assets historically used in AMB's operations
from AMB Investments, Inc. ("AMBI"), an entity owned equally by Messrs. Abbey,
Moghadam and Burke. The Company also assumed a $791,925 note payable of AMBI to
WPF as consideration for the transfer to the Company of AMBI's general partner
interest in WPF (which the Company believed had a value equal to or greater than
the face amount of such note at the time such note payable was assumed).
OTHER RELATED TRANSACTIONS
During 1990, 1991, 1994, 1995 and 1996, Craig A. Severance, John H.
Diserens, S. Davis Carniglia, Jean C. Hurley and Bruce H. Freedman issued notes
to AMB in consideration of the acquisition of shares of AMB common stock in the
principal amounts of $189,472, $243,866, $132,237, $342,806 and $307,071,
respectively. The notes bore interest at an annual rate of prime plus 1.0%. The
principal amount of the notes and accrued interest thereon were repaid in full
by all stockholders prior to the IPO.
In January 1993, AMBI, AMB, AMB Corporate Real Estate Advisors, Inc.
("AMBCREA"), AMB Development L.P., AMB Development, Inc. and AMB Institutional
Housing Partners entered into an agreement for the purpose of the parties
thereto to work together to accomplish separate business purposes while sharing
certain support and other resources. Under the Intercompany Agreement, each
party to the agreement (each, an "AMB Intercompany Party") is permitted to use
the term "AMB" as a part of its name. Each AMB Intercompany Party also agreed,
among other things, to do business in a specified aspect of real estate and
finance; to use its best efforts to refer business opportunities outside of its
own line of business to other AMB Intercompany Parties; to provide intercompany
loans; and to utilize personnel of another AMB Intercompany Party for a fee. In
addition, under the Intercompany Agreement, AMBI agreed to: (i) provide common
business services, resources and support, including employees, benefits,
services contracts and financial management and reporting to each AMB
Intercompany Party; (ii) purchase all fixed assets and rent them to the AMB
Intercompany Parties for a fee; (iii) act as lessee for office space for each
AMB Intercompany Party; (iv) employ all employees of each AMB Intercompany
Party, fix such employees' salaries, bonuses and benefits, and charge such costs
to the appropriate AMB Intercompany Party; and (v) pay for the direct and
indirect costs of operation of each AMB Intercompany Party and charge each AMB
Intercompany Party its allocated share. The total amount paid to AMBI by AMB
during the years ended December 31, 1994, 1995, 1996 and 1997 was $9,940,762,
$13,564,178, $16,842,615 and $19,358,000, respectively, which equaled the
expenses incurred by AMBI allocable to AMB for each such year.
As part of the Formation Transactions, the Company acquired AMBI's assets
(other than its leasehold interest for office space and certain office
equipment) and employed the employees utilized in its business, and all other
AMBI employees were transferred to AMBCREA. Accordingly, upon consummation of
the IPO, the Intercompany Agreement was modified so that it applies only to the
office space and certain office equipment leased by AMBI, which is used by the
Company, the Operating Partnership and AMB Investment Management, respectively,
for fees equal to an allocation of AMBI's cost thereof. AMB Institutional
Housing Partners, AMB Development, Inc. and AMB Development L.P. are continuing
to use the name "AMB" pursuant to royalty-free license arrangements with the
Company. See "-- Conflicts of Interest."
CONFLICTS OF INTEREST
The Executive Officers and directors of the Company may be subject to a
number of conflicts of interest. See "Risk Factors -- Conflicts of Interest" and
"Policies with Respect to Certain Activities -- Conflict of Interest Policies."
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of shares of Common Stock as of August 31, 1998 by (i) each director,
(ii) each Executive Officer, (iii) all directors and Executive Officers of the
Company as a group and (iv) each person or entity which is the beneficial owner
of 5% or more of the outstanding shares of Common Stock. Except as indicated
below, all of such shares of Common Stock are owned directly, and the indicated
person or entity has sole voting and investment power. As of August 31, 1998,
none of the Company's executive officers and directors or its 5% stockholders
owned any Units of the Operating Partnership.
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF SHARES OF OUTSTANDING SHARES
NAME AND ADDRESS OF BENEFICIAL OWNER(1) BENEFICIALLY OWNED(2)(3) OF COMMON STOCK(2)(3)
--------------------------------------- ------------------------ ---------------------
<S> <C> <C>
T. Robert Burke..................................... 933,539 1.1%
Hamid R. Moghadam................................... 1,523,483 1.8
Douglas D. Abbey.................................... 1,187,745 1.4
S. Davis Carniglia.................................. 256,877 *
Craig A. Severance.................................. 363,864 *
John H. Diserens.................................... 316,682 *
Daniel H. Case, III................................. 10,000 *
Robert H. Edelstein, Ph.D........................... 952 *
Lynn M. Sedway...................................... 3,152 *
Jeffrey L. Skelton, Ph.D............................ 952 *
Thomas W. Tusher.................................... 25,952 *
Caryl B. Welborn.................................... 7,952 *
Ameritech Pension Trust(4).......................... 12,441,580 14.5
City and County of San Francisco Employees'
Retirement System(5).............................. 6,722,640 7.8
Southern Company System Master Retirement
Trust(6).......................................... 6,032,415 7.0
All directors and Executive Officers as a Group (16
persons).......................................... 5,091,311 5.9%
</TABLE>
- ---------------
* Represents less than 1.0% of outstanding shares of Common Stock.
(1) Unless otherwise indicated, the address for each of the persons listed is
c/o AMB Property Corporation, 505 Montgomery Street, San Francisco,
California 94111.
(2) For purposes of this table, a person or a group of persons is deemed to have
"beneficial ownership" as of a given date of any shares which such person
has the right to acquire within 60 days after such date. For purposes of
computing the percentage of outstanding shares held by each person or group
of persons named above on a given date, any shares which such person or
persons has the right to acquire within 60 days after such date are deemed
to be outstanding, but are not assumed to be outstanding for the purpose of
computing the percentage ownership of any other person.
(3) Includes shares issuable upon exercise of stock options as follows: Mr.
Burke, 56,250; Mr. Moghadam, 125,000; Mr. Abbey, 62,500; Mr. Carniglia,
32,500; Mr. Severance, 32,500; and Mr. Diserens, 32,500. Excludes (i)
options to purchase 1,246,250 shares of Common Stock granted to Executive
Officers and directors which are not exercisable within 60 days and (ii)
3,781,459 Performance Units which are not exercisable or were not earned
within 60 days of the date of this filing. See "Description of Certain
Provisions of the Partnership Agreement of the Operating
Partnership -- Performance Units."
(4) Reflects shares held by State Street Bank and Trust Company, as trustee, the
voting and investment power with respect to which are held by Ameritech
Pension Trust. The address of Ameritech Pension Trust for this purpose is
225 W. Randolph, HQ13A, Chicago, Illinois 60606, Attn.: Director -- Real
Estate.
(5) The address of the City and County of San Francisco Employees' Retirement
System is 1155 Market Street, San Francisco, California 94103.
(6) The address of Southern Company System Master Retirement Trust is 270
Peachtree Street N.W., Suite 1900 BIN 924, Atlanta, Georgia 30303.
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SERIES B PREFERRED STOCK
The summary of the terms of the Company's Preferred Stock and Series B
Preferred Stock set forth below does not purport to be complete and is subject
to and qualified in its entirety by reference to the Charter of the Company (the
"Charter"), including the Articles Supplementary establishing the terms of the
Series A Preferred Stock (the "Series A Articles Supplementary") and the
Articles Supplementary establishing the terms of the Series B Preferred Stock
(the "Series B Articles of Supplementary"), the Bylaws of the Company and the
MGCL. Copies of the Charter, inclusive of the Series A Articles Supplementary
and the Series B Articles Supplementary, and the Bylaws have been included or
incorporated by reference as exhibits to the Registration Statement of which
this Prospectus is a part and may be obtained as described under "Available
Information."
PREFERRED STOCK GENERALLY
The Charter provides that the Company is authorized to issue 100,000,000
shares of Preferred Stock, of which 4,600,000 shares are designated as Series A
Preferred Stock and 3,450,000 shares are designated as Series B Preferred Stock.
As of August 31, 1998, 4,000,000 shares of Series A Preferred Stock and no
shares of Series B Preferred Stock were issued and outstanding.
The Charter authorizes the Board of Directors to issue 100,000,000 shares
of Preferred Stock, to classify any unissued shares of Preferred Stock and to
reclassify any previously classified but unissued shares of Preferred Stock of
any class from time to time, in one or more classes, as authorized by the Board
of Directors. Prior to issuance of shares of Preferred Stock of each class the
Board of Directors is required by Maryland law and the Charter to set the terms,
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends or other distributions, qualifications and terms or
conditions of redemption for each such class. Thus, the Board, without
stockholder approval, could authorize the issuance of shares of Preferred Stock
with terms and conditions which could have the effect of delaying, deferring or
preventing a transaction or a change in control of the Company that might
involve a premium price for holders of shares of Preferred Stock or shares of
Common Stock or otherwise be in the stockholders' best interest, or that could
adversely affect the rights and powers of the Series B Preferred Stock. See
"-- Power to Issue Additional Common Stock and Preferred Stock" below.
On July 23, 1998, the Company filed Articles Supplementary establishing a
class of Preferred Stock designated as the "8 1/2% Series A Cumulative
Redeemable Preferred Stock," designating 4,600,000 shares of Series A Preferred
Stock and setting forth the rights, preference and privileges of the Series A
Preferred Stock. Presently, 4,000,000 shares of Series A Preferred Stock are
outstanding. Such shares are validly issued, fully paid and nonassessable. The
Series A Preferred Stock is not convertible into or exchangeable for any other
property or securities of the Company. The Series A Preferred Stock is listed on
the NYSE under the symbol "AMB Pr A."
SERIES B PREFERRED STOCK GENERALLY
The Board of Directors of the Company has adopted Articles Supplementary
establishing the terms of the Series B Preferred Stock as a class of Preferred
Stock, designated as the % Series B Cumulative Redeemable Preferred Stock.
When issued, the Series B Preferred Stock will be validly issued, fully paid and
nonassessable.
In connection with the Offering, the Company, in accordance with the terms
of the Partnership Agreement, will contribute or otherwise transfer the net
proceeds of the sale of the Series B Preferred Stock to the Operating
Partnership and the Operating Partnership will issue to the Company %
Series B Cumulative Redeemable Preferred Units (the "Series B Preferred Units")
that mirror the rights, preferences and other terms of the Series B Preferred
Stock. The Operating Partnership will be required to make all required
distributions on such Series B Preferred Units prior to any distribution of cash
or assets to the holders of any other Units or any other equity interests in the
Operating Partnership, except for any other series of Preference Units ranking
on a parity with such Series B Preferred Units as to dividends or voluntary or
involuntary liquidation, dissolution or winding up of the Operating Partnership
(including the Series A
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Preferred Units). Upon consummation of the Offering, the Operating Partnership
will have no Preference Units, other than the Series A Preferred Units and the
Series B Preferred Units, outstanding or any other equity interests ranking
prior to any other Units or any other equity interests in the Operating
Partnership.
Application has been made to list the Series B Preferred Stock on the NYSE,
subject to official notice of issuance. If so approved, trading of the Series B
Preferred Stock on the NYSE is expected to commence within a 30-day period after
the date of initial delivery of the Series B Preferred Stock. See
"Underwriters."
RANKING
The Series B Preferred Stock will rank, with respect to dividends and upon
voluntary or involuntary liquidation, dissolution or winding up of the Company,
(a) senior to all classes or series of Common Stock and to all equity securities
of the Company the terms of which provide that such equity securities shall rank
junior to such Series B Preferred Stock; (b) on a parity with all equity
securities issued by the Company other than those referred to in clauses (a) and
(c) (including the Series A Preferred Stock); and (c) junior to all equity
securities issued by the Company which rank senior to the Series B Preferred
Stock. The term "equity securities" does not include convertible debt
securities.
DIVIDENDS
Holders of the Series B Preferred Stock shall be entitled to receive, when
and as authorized by the Board of Directors out of funds legally available
therefor, cumulative preferential cash dividends at the rate of % of the
liquidation preference per annum (equivalent to $ per annum per share).
Dividends on the Series B Preferred Stock offered hereby shall accumulate on a
daily basis, computed on the basis of a 360-day year consisting of twelve 30-day
months, and be cumulative from the date of original issuance and shall be
payable quarterly in equal amounts in arrears on the 15th day of each
, , and , or, if not a
Business Day, the next succeeding Business Day (each, a "Dividend Payment
Date"), commencing on , 1998. Dividends will be payable to
holders of record as they appear in the share records of the Company at the
close of business on the applicable record date (each a "Dividend Record Date"),
which shall be a date designated by the Board of Directors of the Company for
the payment of dividends that is not more than 30 nor less than 10 days prior to
the applicable payment date. Any dividend payable on the Series B Preferred
Stock for any portion of a dividend period shall be prorated and computed on the
basis of a 360-day year of twelve 30-day months.
No dividends on the Series B Preferred Stock shall be authorized by the
Board of Directors of the Company or be paid or set apart for payment by the
Company at such time as the terms and provisions of any agreement of the
Company, including any agreement relating to its indebtedness, prohibits such
authorization, payment or setting apart for payment or provides that such
authorization, payment or setting apart for payment would constitute a breach
thereof or a default thereunder, or if such authorization or payment shall be
restricted or prohibited by law. Covenants in the Company's Credit Facility
provide generally that it may not pay distributions in excess of 95% of FFO in
any year, but such covenants permit the Company, upon certain circumstances, to
pay distributions in an amount necessary to maintain its qualification as a
REIT. The Company does not believe that these covenants will have any adverse
impact on the Company's ability to pay dividends in respect of the Series B
Preferred Stock or in the normal course of business to its stockholders in
amounts necessary to maintain its qualification as a REIT. In addition, the
Charter contains provisions which would prohibit or limit dividends on the
Common Stock in the event that full cumulative dividends are not paid on the
Series B Preferred Stock.
Except as provided below, unless full cumulative dividends on the Series B
Preferred Stock have been or contemporaneously are declared and paid or declared
and a sum sufficient for the payment thereof set apart for payment for all past
dividend periods and the then current dividend period, no dividends (other than
in Common Stock or other equity securities of the Company ranking junior to the
Series B Preferred Stock as to dividends and upon voluntary or involuntary
liquidation, dissolution and winding up of the Company) shall be declared or
paid or set aside for payment or other dividend be declared or made upon the
Common Stock or any other equity securities of the Company ranking as to
distributions or upon voluntary or involuntary
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liquidation, dissolution or winding up of the Company junior to or on a parity
with the Series B Preferred Stock (including the Series A Preferred Stock), nor
shall any Common Stock or any other equity securities of the Company ranking
junior to or on a parity with the Series B Preferred Stock as to dividends or
upon voluntary or involuntary liquidation, dissolution or winding up of the
Company (including the Series A Preferred Stock) be redeemed, purchased or
otherwise acquired for any consideration (or any monies be paid to or made
available for a sinking fund for the redemption of any such securities) by the
Company (except by conversion into or exchange for other equity securities of
the Company ranking junior to the Series B Preferred Stock as to dividends and
upon voluntary or involuntary liquidation, dissolution and winding up of the
Company and pursuant to the provisions of the Charter providing for limitations
on ownership and transfer in order to ensure that the Company remains qualified
as a REIT). When dividends are not paid in full (or a sum sufficient for such
full payment is not so set apart) upon Series B Preferred Stock and any other
equity securities ranking as to dividends on a parity with the Series B
Preferred Stock (including the Series A Preferred Stock), all dividends declared
upon Series B Preferred Stock and any other equity securities of the Company
ranking on a parity with the Series B Preferred Stock as to dividends and upon
voluntary or involuntary liquidation, dissolution or winding up of the Company
(including the Series A Preferred Stock) will be declared pro rata so that the
amount of dividends declared per share of Series B Preferred Stock and each such
other equity securities shall in all cases bear to each other the same ratio
that accumulated dividends per share of Series B Preferred Stock and such other
equity securities (which shall not include any accumulation in respect of unpaid
dividends for prior dividend periods if such other equity securities do not have
a cumulative dividend) bear to each other. No interest, or sum of money in lieu
of interest, shall be payable in respect of any dividend payment or payments on
Series B Preferred Stock which may be in arrears.
Notwithstanding the foregoing, dividends on the Series B Preferred Stock
will accumulate whether or not restrictions exist in respect thereof, whether or
not there are funds legally available for the payment thereof and whether or not
such dividends are declared. Accumulated but unpaid dividends on the Series B
Preferred Stock will not bear interest and holders of the Series B Preferred
Stock will not be entitled to any dividends in excess of full cumulative
dividends as described above. Any dividend payment made on the Series B
Preferred Stock shall first be credited against the earliest accumulated but
unpaid dividend due with respect to such shares which remains payable.
If the Company properly designates any portion of a dividend as a "capital
gain dividend," a holder's share of such capital gain dividend would be an
amount which bears the same ratio to the total amount of dividends (as
determined for Federal income tax purposes) paid to such holder for the year as
the aggregate amount designated as a capital gain dividend bears to the
aggregate amount of all dividends (as determined for Federal income tax
purposes) paid on all classes of shares of the Company's capital stock for the
year.
LIQUIDATION PREFERENCE
In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Company, the holders of the Series B Preferred Stock will be
entitled to receive out of the assets of the Company legally available for
distribution to its stockholders remaining after payment or provision for
payment of all debts and liabilities of the Company, a liquidation preference,
in cash, of $25.00 per share, plus an amount equal to any accumulated and unpaid
dividends to the date of such payment, before any distribution of assets is made
to holders of Common Stock or any other equity securities that rank junior to
the Series B Preferred Stock as to voluntary or involuntary liquidation. After
payment of the full amount of the liquidating distributions to which they are
entitled, the holders of the Series B Preferred Stock will have no right or
claim to any of the remaining assets of the Company. The consolidation or merger
of the Company with or into any other entity, a merger of another entity with or
into the Company, a statutory share exchange by the Company or the sale, lease,
transfer or conveyance of all or substantially all of the property or business
of the Company shall not be deemed to constitute a liquidation, dissolution or
winding up of the Company.
If, upon any such voluntary or involuntary liquidation, dissolution or
winding up, the assets of the Company are insufficient to make full payment to
holders of the Series B Preferred Stock and the corresponding amounts payable on
all shares of other classes or series of equity securities of the Company
ranking on a parity with the Series B Preferred Stock as to liquidation rights
(including the Series A Preferred
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Stock), then the holders of the Series B Preferred Stock and all other such
classes or series of equity securities will share ratably in any such
distribution of assets in proportion to the full liquidating distributions to
which they would otherwise be respectively entitled. In determining whether a
distribution (other than upon voluntary or involuntary liquidation, dissolution
or winding up of the Company) by dividend, redemption or other acquisition of
shares of stock of the Company or otherwise is permitted under the MGCL, no
effect shall be given to amounts that would be needed, if the Company were to be
dissolved at the time of the distribution, to satisfy the preferential rights
upon dissolution of holders of shares of the Series B Preferred Stock, whose
preferential rights upon dissolution are superior to those receiving the
distribution.
OPTIONAL REDEMPTION
The Series B Preferred Stock will not be redeemable prior to
, 2003. On and after , 2003, the
Company, at its option upon not less than 30 or more than 60 days' written
notice, may redeem the Series B Preferred Stock, in whole or from time to time
in part, for cash, at a redemption price of $25.00 per share, plus all
accumulated and unpaid dividends thereon to the date fixed for redemption. The
redemption price of the Series B Preferred Stock (other than any portion thereof
consisting of accumulated and unpaid dividends) will be payable solely from the
sale proceeds of other equity securities of the Company and not from any other
source. For purposes of the preceding sentence, "equity securities" means any
equity securities (including Common Stock and Preferred Stock), depositary
shares in respect of any of the foregoing, interests, participations, or other
ownership interests (however designated) and any rights (other than debt
securities convertible into or exchangeable for equity securities) or options to
purchase any of the foregoing. Holders of shares of Series B Preferred Stock to
be redeemed shall surrender such shares of Series B Preferred Stock at the place
designated in the notice of redemption and shall be entitled to the redemption
price and any accumulated and unpaid dividends payable upon such redemption upon
such surrender. If notice of redemption of any shares of Series B Preferred
Stock has been given and if the funds necessary for such redemption have been
set aside by the Company in trust for the benefit of the holders thereof, then
from and after the redemption date dividends on such shares of Series B
Preferred Stock will cease to accumulate and any such shares of Series B
Preferred Stock will no longer be deemed outstanding and all rights of the
holders thereof will terminate, except the right to receive the redemption price
(including accumulated and unpaid dividends up to the redemption date). If fewer
than all of the outstanding shares of Series B Preferred Stock are to be
redeemed, the shares of Series B Preferred Stock to be redeemed shall be
selected pro rata (as nearly as may be practicable without creating fractional
shares), by lot or by any other equitable method determined by the Company. If
such redemption is to be by lot and, as a result of such redemption, any holder
of shares of Series B Preferred Stock would become a holder of a number of
shares of Series B Preferred Stock in excess of the Ownership Limit because such
holder's shares of Series B Preferred Stock were not redeemed, or were only
redeemed in part, then, except as otherwise provided in the Charter, the Company
will redeem the requisite number of shares of Series B Preferred Stock of such
holder such that no holder will hold in excess of the Ownership Limit subsequent
to such redemption. See "-- Restrictions on Ownership and Transfer."
Notwithstanding the foregoing, unless full cumulative dividends on all
outstanding shares of Series B Preferred Stock shall have been or
contemporaneously are declared and paid or declared and a sum sufficient for the
payment thereof set apart for payment for all past dividend periods and the then
current dividend period, no shares of Series B Preferred Stock shall be redeemed
unless all outstanding shares of Series B Preferred Stock are simultaneously
redeemed; provided, however, that the foregoing shall not prevent the purchase
or acquisition of shares of Series B Preferred Stock pursuant to a purchase or
exchange offer made on the same terms to holders of all outstanding shares of
Series B Preferred Stock. In addition, unless full cumulative dividends on all
outstanding shares of Series B Preferred Stock have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
set apart for payment for all past dividend periods and the then current
dividend period, the Company shall not purchase or otherwise acquire directly or
indirectly any shares of Series B Preferred Stock or any equity securities of
the Company ranking junior to or on a parity with the Series B Preferred Stock
as to dividends or upon voluntary or involuntary liquidation, dissolution or
winding up of the Company (including the Series A Preferred Stock) (except by
conversion into or exchange for equity securities of the Company ranking junior
to the Series B
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Preferred Stock as to dividends and upon voluntary or involuntary liquidation,
dissolution or winding up of the Company).
The foregoing provisions shall not prevent the acquisition by the Company
of shares of Series B Preferred Stock pursuant to the provisions of the Series B
Articles Supplementary providing for limitations on ownership and transfer in
order to ensure that the Company remains qualified as a REIT for federal income
tax purposes. See "-- Restrictions on Ownership and Transfer."
Notice of redemption will be given by publication in a newspaper of general
circulation in The City of New York, such publication to be made once a week for
two successive weeks commencing not less than 30 nor more than 60 days' prior to
the redemption date. A similar notice will be mailed by the Company, postage
prepaid, not less than 30 nor more than 60 days' prior to the redemption date,
addressed to the respective holders of record of the Series B Preferred Stock to
be redeemed at their respective addresses as they appear on the share transfer
records of the Company. No failure to give such notice or any defect therein or
in the mailing thereof shall affect the validity of the proceedings for the
redemption of any shares of Series B Preferred Stock except as to the holder to
whom notice was defective or not given. Each notice shall state: (i) the
redemption date; (ii) the redemption price; (iii) the number of shares of Series
B Preferred Stock to be redeemed; (iv) the place or places where the
certificates evidencing shares of Series B Preferred Stock are to be surrendered
for payment of the redemption price; and (v) that dividends on the Series B
Preferred Stock to be redeemed will cease to accumulate on such redemption date.
If fewer than all the shares of Series B Preferred Stock held by any holder are
to be redeemed, the notice mailed to such holder shall also specify the number
of shares of Series B Preferred Stock to be redeemed from such holder.
The holders of shares of Series B Preferred Stock at the close of business
on a Dividend Record Date will be entitled to receive the dividend payable with
respect to the shares of Series B Preferred Stock held on the corresponding
Dividend Payment Date notwithstanding the redemption thereof between such
Dividend Record Date and the corresponding Dividend Payment Date or the
Company's default in the payment of the dividend due. Except as provided above,
the Company will make no payment or allowance for unpaid dividends, whether or
not in arrears, on the shares of Series B Preferred Stock to be redeemed.
The Series B Preferred Stock will not have a stated maturity and will not
be subject to any sinking fund or mandatory redemption provisions.
VOTING RIGHTS
Holders of the Series B Preferred Stock will not have any voting rights,
except as described below.
In any matter in which the holders of Series B Preferred Stock are entitled
to vote (as expressly provided herein), including any action by written consent,
each share of Series B Preferred Stock shall be entitled to one vote, which may
be directed by the holder thereof (or by any proxy or proxies of such holder).
Whenever dividends on any shares of the Series B Preferred Stock remain
unpaid for six or more quarterly periods (whether or not consecutive) (a
"Preferred Dividend Default"), the holders of the Series B Preferred Stock
(voting as a single class with all other equity securities of the Company
ranking on a parity with the Series B Preferred Stock as to dividends and upon
voluntary or involuntary liquidation, dissolution or winding up of the Company
upon which like voting rights have been conferred and are exercisable, including
the Series A Preferred Stock ("Parity Preferred Shares")) will be entitled to
vote for the election of two additional directors of the Company who will be
elected to serve for a one-year term (or until such director's term of office
terminates as set forth below). Such elections shall be held at a special
meeting called by the holders of record of at least 20% of the outstanding
Series B Preferred Stock or the holders of shares of any other series or class
of Parity Preferred Shares with respect to which dividends are so unpaid (unless
such request is received less than 90 days before the date fixed for the next
annual or special meeting of stockholders) or, if the request for a special
meeting is received by the Company less than 90 days before the date fixed for
the next annual or special meeting of stockholders, at the next annual or
special meeting of stockholders, and at each subsequent annual meeting of
stockholders until all dividends accumulated on the Series B Preferred Stock for
all past dividend periods and the dividend for the then current dividend period
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shall have been fully paid or declared and a sum sufficient for the payment
thereof set aside for payment in full.
If and when all accumulated dividends and the dividend for the then current
dividend period on the Series B Preferred Stock shall have been paid in full or
declared by the Company and set aside for payment in full, the holders of Series
B Preferred Stock shall be divested of the voting rights set forth in the
immediately preceding paragraph (subject to revesting in the event of each and
every Preferred Dividend Default) and, if all accumulated dividends and the
dividend for the then current dividend period have been paid in full or declared
by the Company and set aside for payment in full on all other series or classes
of Parity Preferred Shares upon which like voting rights have been conferred and
are exercisable, the term of office of each director so elected shall terminate.
So long as a Preferred Dividend Default shall continue, any vacancy in the
office of a director so elected may be filled by written consent of the director
so elected remaining in office or, if there is no such remaining director, by
vote of holders of a majority of the outstanding Series B Preferred Stock and
any series of Parity Preferred Shares upon which like voting rights have been
conferred and are exercisable (voting as a single class). Any director elected
by the holders of Series B Preferred Stock and any other such Parity Preferred
Shares may be removed at any time with or without cause by the vote of, and
shall not be removed otherwise than by the vote of, the holders of a majority of
the outstanding Series B Preferred Stock when they only have the voting rights
set forth in the immediately preceding paragraph and, when Parity Preferred
Shares are issued and outstanding, by a majority vote of the Series B Preferred
Stock and all Series B and classes of Parity Preferred Shares upon which like
voting rights have been conferred and are exercisable (voting as a single
class).
So long as any Series B Preferred Stock remain outstanding, the Company
will not, without the affirmative vote or consent of the holders of at least
two-thirds of the Series B Preferred Stock outstanding at the time, given in
person or by proxy, either in writing or at a meeting (the Series B Preferred
Stock voting separately as a class), (i) authorize or create, or increase the
authorized or issued amount of, any class or series of stock ranking senior to
the Series B Preferred Stock with respect to payment of dividends or the
distribution of assets upon voluntary or involuntary liquidation, dissolution or
winding up or reclassify any authorized stock of the Company into such shares,
or create, authorize or issue any obligation or security convertible into,
exchangeable or exercisable for, or evidencing the right to purchase, any such
stock; or (ii) amend, alter or repeal the provisions of the Charter, whether an
Event or otherwise, so as to materially and adversely affect any right,
preference, privilege or voting power of the Series B Preferred Stock or the
holders thereof; provided, however, with respect to the occurrence of any of the
Events set forth in (ii) above, so long as shares of Series B Preferred Stock
remain outstanding with the terms thereof materially unchanged, taking into
account that upon the occurrence of such an Event, the Company may not be the
surviving entity, the occurrence of any such Event shall not be deemed to
materially and adversely affect such rights, preferences, privileges or voting
powers of holders of Series B Preferred Stock; and, provided further, that (x)
any increase in the amount of the authorized Preferred Stock or the creation or
issuance of any other class or series of Preferred Stock, or (y) any increase in
the amount of authorized Series B Preferred Stock or any other class or series
of Preferred Stock, in each case ranking on a parity with or junior to the
Series B Preferred Stock with respect to payment of dividends and the
distribution of assets upon voluntary or involuntary liquidation, dissolution or
winding up, shall not be deemed to materially and adversely affect such rights,
preferences, privileges or voting powers.
The foregoing voting provisions will not apply if, at or prior to the time
when the act with respect to which such vote would otherwise be required shall
be effected, all outstanding shares of Series B Preferred Stock shall have been
redeemed or called for redemption upon proper notice and sufficient funds shall
have been deposited in trust to effect such redemption.
CONVERSION RIGHTS
The Series B Preferred Stock will not be convertible into or exchangeable
for any other property or securities of the Company.
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POWER TO ISSUE ADDITIONAL COMMON SHARES AND PREFERRED SHARES
The Company believes that the power of the Board of Directors to issue
additional authorized but unissued Common Stock or Preferred Stock and to
classify or reclassify unissued Common Stock or Preferred Stock and thereafter
to cause the Company to issue such classified or reclassified Common Stock or
Preferred Stock provides the Company with increased flexibility in structuring
possible future financings and acquisitions and in meeting other needs which
might arise. The additional classes or series of Preferred Stock, as well as the
Common Stock, are available for issuance without further action by the Company's
stockholders, unless such action is required by applicable law or the rules of
any stock exchange or automated quotation system on which the Company's
securities may be listed or traded. Although the Board of Directors has no
intention at the present time of doing so, it could authorize the Company to
issue a class or series that could, depending upon the terms of such class or
series, delay, defer or prevent a transaction or a change in control of the
Company that might involve a premium price for holders of Common Stock or
otherwise be in their best interest, or that could adversely affect the rights
and voting power of the Series B Preferred Stock.
RESTRICTIONS ON OWNERSHIP AND TRANSFER
In order for the Company to qualify as a REIT under the Code, the Company's
capital stock is subject to certain restrictions on ownership and transfer. See
"Description of Capital Stock -- Restrictions on Ownership and Transfer."
TRANSFER AGENT, REGISTRAR, CONVERSION AGENT AND DIVIDEND DISBURSING AGENT
The transfer agent, registrar and dividend disbursing agent for the Common
Stock, Series A Preferred Stock and Series B Preferred Stock is BankBoston,
N.A., an affiliate of First National Bank of Boston.
DESCRIPTION OF CAPITAL STOCK
The following summary of the terms of the Company's capital stock does not
purport to be complete and is subject to and qualified in its entirety by
reference to the MGCL and the Charter, including the Series A Articles
Supplementary and the Series B Articles Supplementary, and the Bylaws, copies of
which are filed as exhibits to the Registration Statement of which this
Prospectus is a part. See "Additional Information."
COMMON STOCK
The Charter provides that the Company is authorized to issue 500,000,000
shares of Common Stock. As of August 31, 1998, 85,874,513 shares of Common Stock
were issued and outstanding. Each outstanding share of Common Stock entitles the
holder to one vote on all matters presented to stockholders for a vote,
including the election of directors, and, except as otherwise required by law
and except as provided in any resolution adopted by the Board of Directors with
respect to any other class or series of stock establishing the designation,
powers, preferences and relative, participating, optional or other special
rights and powers of such series, the holders of such shares possess the
exclusive voting power, subject to the provisions of the Charter regarding the
ownership of shares of Common Stock in excess of the Ownership Limit or such
other limit as provided therein or as otherwise permitted by the Board of
Directors. Holders of shares of Common Stock do not have any conversion,
exchange, sinking fund, redemption or appraisal rights or any preemptive rights
to subscribe for any securities of the Company or cumulative voting rights in
the election of directors. All shares of Common Stock that are issued and
outstanding are duly authorized, fully paid and nonassessable. Subject to the
preferential rights of any other shares or series or classes of stock, including
the Series A Preferred Stock and the Series B Preferred Stock (see "-- Preferred
Stock"), and to the provisions of the Charter regarding ownership of shares of
Common Stock in excess of the Ownership Limit, or such other limit as provided
therein or as otherwise permitted by the Board of Directors, distributions may
be paid to the holders of shares of Common Stock if and when authorized and
declared by the Board of Directors of the Company out of funds legally available
therefor. The Company intends to continue to make quarterly distributions on
outstanding shares of Common Stock.
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Under the MGCL, stockholders are generally not liable for the Company's
debts or obligations. If the Company is liquidated, subject to the right of any
holders of Preferred Stock, including the Series A Preferred Stock and the
Series B Preferred Stock (see "-- Preferred Stock") to receive preferential
distributions, each outstanding share of Common Stock will be entitled to
participate pro rata in the assets remaining after payment of, or adequate
provision for, all known debts and liabilities of the Company, including debts
and liabilities arising out of its status as general partner of the Operating
Partnership.
Subject to the provisions of the Charter regarding the ownership of shares
of Common Stock in excess of the Ownership Limit, or such other limit as
provided therein or as otherwise permitted by the Board of Directors described
below, all shares of Common Stock have equal distribution, liquidation and
voting rights, and have no preference or exchange rights.
Under the MGCL, a Maryland corporation generally cannot dissolve, amend its
charter, merge, sell all or substantially all of its assets, engage in a share
exchange or engage in similar transactions outside the ordinary course of
business unless approved by the affirmative vote of stockholders holding at
least two-thirds of the shares entitled to vote on the matter unless a lesser
percentage (but not less than a majority of all of the votes entitled to be cast
on the matter) is set forth in the corporation's charter. Under the MGCL, the
term "substantially all of the Company's assets" is not defined and is,
therefore, subject to Maryland common law and to judicial interpretation and
review in the context of the unique facts and circumstances of any particular
transaction. The Charter does not provide for a lesser percentage in any such
situation.
The Charter authorizes the Board of Directors to reclassify any unissued
shares of Common Stock into other classes or series of classes of stock and to
establish the number of shares in each class or series and to set the
preferences, conversion and other rights, voting powers, restrictions,
limitations and restrictions on ownership, limitations as to dividends or other
distributions, qualifications and terms or conditions of redemption for each
such class or series.
PREFERRED STOCK
Preferred Stock may be issued from time to time, in one or more classes or
series, as authorized by the Board of Directors. Upon consummation of the
Offering, no Preferred Stock other than the Series A Preferred Stock and the
Series B Preferred Stock will be issued or outstanding. Prior to the issuance of
shares of each class or series of Preferred Stock, the Board of Directors is
required by the MGCL and the Charter to fix for each class or series the terms,
preferences, conversion or other rights, voting powers, restrictions,
limitations as to distributions, qualifications and terms or conditions of
redemption, as permitted by Maryland law. Because the Board of Directors has the
power to establish the preferences, powers and rights of each class or series of
Preferred Stock, it may afford the holders of any class or series of Preferred
Stock preferences, powers and rights, voting or otherwise, senior to the rights
of holders of shares of Common Stock. The issuance of Preferred Stock, including
the Series B Preferred Stock offered hereby, could have the effect of delaying
or preventing a change of control of the Company that might involve a premium
price for holders of shares of Common Stock or otherwise be in their best
interest. See "Series B Preferred Stock."
The Series A Preferred Stock ranks, with respect to dividends and upon
voluntary or involuntary liquidation, dissolution or winding up of the Company,
(a) senior to all classes or series of Common Stock and to all equity securities
of the Company the terms of which provide that such equity securities shall rank
junior to such Series A Preferred Stock; (b) on a parity with all equity
securities issued by the Company other than those referred to in clauses (a) and
(c) (including the Series B Preferred Stock); and (c) junior to all equity
securities issued by the Company which rank senior to the Series A Preferred
Stock. The term "equity securities" does not include convertible debt
securities.
Holders of the Series A Preferred Stock are entitled to receive, when and
as authorized by the Board of Directors out of funds legally available therefor,
cumulative preferential cash dividends at the rate of 8 1/2% of the liquidation
preference per annum (equivalent to $2.125 per annum per share of Series A
Preferred Stock). Dividends on the Series A Preferred Stock accumulate on a
daily basis and are payable quarterly in arrears commencing on October 15, 1998.
Except as provided below, unless full cumulative dividends on the Series A
Preferred Stock have been or contemporaneously are declared and paid or declared
and a sum sufficient for
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the payment thereof set apart for payment for all past dividend periods and the
then current dividend period, no dividends (other than in Common Stock or other
equity securities of the Company ranking junior to the Series A Preferred Stock
as to dividends and upon voluntary or involuntary liquidation, dissolution and
winding up of the Company) may be declared or paid or set aside for payment or
other dividend be declared or made upon the Common Stock or any other equity
securities of the Company ranking as to distributions or upon voluntary or
involuntary liquidation, dissolution or winding up of the Company junior to or
on a parity with the Series A Preferred Stock (including the Series B Preferred
Stock), nor may any Common Stock or any other equity securities of the Company
ranking junior to or on a parity with the Series A Preferred Stock as to
dividends or upon voluntary or involuntary liquidation, dissolution or winding
up of the Company (including the Series B Preferred Stock) be redeemed,
purchased or otherwise acquired for any consideration (or any monies be paid to
or made available for a sinking fund for the redemption of any such securities)
by the Company (except by conversion into or exchange for other equity
securities of the Company ranking junior to the Series A Preferred Stock as to
dividends and upon voluntary or involuntary liquidation, dissolution and winding
up of the Company and pursuant to the provisions of the Charter providing for
limitations on ownership and transfer in order to ensure that the Company
remains qualified as a REIT). When dividends are not paid in full (or a sum
sufficient for such full payment is not so set apart) upon Series A Preferred
Stock and any other equity securities ranking as to dividends on a parity with
the Series A Preferred Stock (including the Series B Preferred Stock), all
dividends declared upon Series A Preferred Stock and any other equity securities
of the Company ranking on a parity with the Series A Preferred Stock as to
dividends and upon voluntary or involuntary liquidation, dissolution or winding
up of the Company (including the Series B Preferred Stock) will be declared pro
rata so that the amount of dividends declared per share of Series A Preferred
Stock and each such other equity securities shall in all cases bear to each
other the same ratio that accumulated dividends per share of Series A Preferred
Stock and such other equity securities (which shall not include any accumulation
in respect of unpaid dividends for prior dividend periods if such other equity
securities do not have a cumulative dividend) bear to each other. Dividends on
the Series A Preferred Stock will accumulate whether or not there are funds
legally available for the payment of such dividends and whether or not such
dividends are declared. If the Company designates any portion of a dividend as a
"capital gain dividend," a holder's share of such capital gain dividend will be
an amount that bears the same ratio to the total amount of dividends (as
determined for Federal income tax purposes) paid to such holder for the year as
the aggregate amount designated as a capital gain dividend bears to the
aggregate amount of all dividends (as determined for Federal income tax
purposes) paid on all classes of shares for the year.
In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Company, the holders of the Series A Preferred Stock are
entitled to receive out of the assets of the Company legally available for
distribution to its stockholders remaining after payment or provision for
payment of all debts and liabilities of the Company, a liquidation preference,
in cash, of $25.00 per share, plus an amount equal to any accumulated and unpaid
dividends to the date of such payment, before any distribution of assets is made
to holders of Common Stock or any other equity securities that rank junior to
the Series A Preferred Stock as to voluntary or involuntary liquidation. After
payment of the full amount of the liquidating distributions to which they are
entitled, the holders of the Series A Preferred Stock will have no right or
claim to any of the remaining assets of the Company. The consolidation or merger
of the Company with or into any other entity, a merger of another entity with or
into the Company, a statutory share exchange by the Company or the sale, lease,
transfer or conveyance of all or substantially all of the property or business
of the Company do not constitute a liquidation, dissolution or winding up of the
Company for purposes of triggering the liquidation preference.
If, upon any such voluntary or involuntary liquidation, dissolution or
winding up, the assets of the Company are insufficient to make full payment to
holders of the Series A Preferred Stock and the corresponding amounts payable on
all shares of other classes or series of equity securities of the Company
ranking on a parity with the Series A Preferred Stock as to liquidation rights
(including the Series B Preferred Stock), then the holders of the Series A
Preferred Stock and all other such classes or series of equity securities will
share ratably in any such distribution of assets in proportion to the full
liquidating distributions to which they would otherwise be respectively
entitled.
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The Series A Preferred Stock has no stated maturity and is not subject to
mandatory redemption or any sinking fund. The Series A Preferred Stock will not
be redeemable prior to July 27, 2003. On and after July 27, 2003, the Series A
Preferred Stock will be redeemable for cash at the option of the Company, in
whole or from time to time in part, at a redemption price of $25.00 per share,
plus accumulated and unpaid dividends thereon, if any, to the redemption date.
The redemption price (other than the portion thereof consisting of accumulated
and unpaid dividends) will be payable solely out of the sale proceeds of other
equity securities of the Company, which may include other classes or series of
Preferred Stock, and from no other source. In certain circumstances related to
the Company's maintenance of its ability to qualify as a REIT for Federal income
tax purposes, the Company may redeem shares of Series A Preferred Stock. See
"-- Restrictions on Ownership and Transfer."
Holders of Series A Preferred Stock have no voting rights, except as
described below. If dividends on the Series A Preferred Stock remain unpaid for
six or more quarterly periods (whether or not consecutive), holders of the
Series A Preferred Stock (voting separately as a class with all other classes or
series of equity securities of the Company upon which like voting rights have
been conferred and are exercisable, including the Series B Preferred Stock) will
be entitled to vote for the election of two additional directors to serve on the
Board of Directors until all dividend arrearages with respect to the Series A
Preferred Stock are eliminated. So long as any shares of Series A Preferred
Stock remain outstanding, the Company may not, without the affirmative vote or
consent of the holders of at least two-thirds of the shares of Series A
Preferred Stock outstanding at the time, given in person or by proxy, either in
writing or at a meeting (the Series A Preferred Stock voting separately as a
class), (i) authorize or create, or increase the authorized or issued amount of,
any class or series of stock ranking senior to the Series A Preferred Stock with
respect to payment of dividends or the distribution of assets upon voluntary or
involuntary liquidation, dissolution or winding up or reclassify any authorized
stock of the Company into such shares, or create, authorize or issue any
obligation or security convertible into, exchangeable or exercisable for, or
evidencing the right to purchase, any such stock; or (ii) amend, alter or repeal
the provisions of the Charter, whether by merger or consolidation (each, an
"Event") or otherwise, so as to materially and adversely affect any right,
preference, privilege or voting power of the Series A Preferred Stock or the
holders thereof; provided, however, with respect to the occurrence of any of the
Events set forth in (ii) above, so long as shares of Series A Preferred Stock
remain outstanding with the terms thereof materially unchanged, taking into
account that upon the occurrence of such an Event, the Company may not be the
surviving entity, the occurrence of any such Event shall not be deemed to
materially and adversely affect such rights, preferences, privileges or voting
powers of holders of Series A Preferred Stock; and, provided further, that (x)
any increase in the amount of the authorized Preferred Stock or the creation or
issuance of any other class or series of Preferred Stock, or (y) any increase in
the amount of authorized Series A Preferred Stock or any other class or series
of Preferred Stock, in each case ranking on a parity with or junior to the
Series A Preferred Stock with respect to payment of dividends and the
distribution of assets upon voluntary or involuntary liquidation, dissolution or
winding up, shall not be deemed to materially and adversely affect such rights,
preferences, privileges or voting powers.
In connection with the sale of Series A Preferred Shares, the Company, in
accordance with the terms of the Partnership Agreement, contributed the net
proceeds of the sale of the Series A Preferred Shares to the Operating
Partnership and the Operating Partnership issued to the Company 8 1/2% Series A
Cumulative Redeemable Preferred Units (the "Series A Preferred Units") that
mirror the rights, preferences and other terms of the Series A Preferred Stock.
The Operating Partnership is required to make all required distributions on such
Series A Preferred Units prior to any distribution of cash or assets to the
holders of any other Units or any other equity interests in the Operating
Partnership, except for any other series of Preference Units ranking on a parity
with such Series A Preferred Units as to dividends or voluntary or involuntary
liquidation, dissolution or winding up of the Operating Partnership (including
the Series B Preferred Units, as defined below). The Operating Partnership has
no Preference Units, other than the Series A Preferred Units and the Series B
Preferred Units, outstanding or any other equity interests ranking prior to any
other Units or any other equity interests in the Operating Partnership.
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RESTRICTIONS ON OWNERSHIP AND TRANSFER
For the Company to qualify as a REIT under the Code, no more than 50% in
value of all classes of its outstanding shares of capital stock, including
shares of the Company's Common Stock, Series A Preferred Stock and Series B
Preferred Stock, may be owned, actually or constructively, by five or fewer
individuals (as defined in the Code to include certain entities) during the last
half of a taxable year (other than the first year for which an election to be
treated as a REIT has been made) or during a proportionate part of a shorter
taxable year. In addition, if the Company, or an owner of 10% or more of the
Company, actually or constructively owns 10% or more of a tenant of the Company
(or a tenant of any partnership or limited liability company in which the
Company is a partner or member, respectively), the rent received by the Company
(either directly or through any such partnership or limited liability company)
from such tenant will not be qualifying income for purposes of the gross income
tests for REITs contained in the Code. A REIT's stock also must be beneficially
owned by 100 or more persons during at least 335 days of a taxable year of 12
months or during a proportionate part of a shorter taxable year (other than the
first year for which an election to be treated as a REIT has been made).
Because the Board of Directors believes it is desirable for the Company to
qualify as a REIT, the Charter, subject to certain exceptions as discussed
below, provides that no person may own, or be deemed to own by virtue of the
attribution provisions of the Code, more than 9.8% (by value or number of
shares, whichever is more restrictive) of each of the Common Stock, the Series A
Preferred Stock and the Series B Preferred Stock . The constructive ownership
rules under the Code are complex and may cause Common Stock, Series A Preferred
Stock or Series B Preferred Stock owned actually or constructively by a group of
related individuals and/or entities to be owned constructively by one individual
or entity. As a result, the acquisition of less than 9.8% of the Common Stock,
Series A Preferred Stock or Series B Preferred Stock (or the acquisition of an
interest in an entity that owns, actually or constructively, Common Stock,
Series A Preferred Stock or Series B Preferred Stock) by an individual or
entity, could, nevertheless cause that individual or entity, or another
individual or entity, to own constructively in excess of 9.8% of the outstanding
Common Stock, Series A Preferred Stock or Series B Preferred Stock, as the case
may be, and thus subject such Common Stock, Series A Preferred Stock or Series B
Preferred Stock to the applicable Ownership Limit. The Board of Directors may,
but in no event will be required to, waive the applicable Ownership Limit with
respect to a particular stockholder if it determines that such ownership will
not jeopardize the Company's status as a REIT and the Board of Directors
otherwise decides such action would be in the best interest of the Company. As a
condition of such waiver, the Board of Directors may require an opinion of
counsel satisfactory to it and/or undertakings or representations from the
applicant with respect to preserving the REIT status of the Company The Board of
Directors has waived the Ownership Limit applicable to the Common Stock with
respect to Ameritech Pension Trust, allowing it to own up to 14.9% of the Common
Stock. However, such waiver was conditioned upon the receipt of undertakings and
representations from Ameritech Pension Trust requested by the Board of Directors
which are reasonably necessary to conclude that such ownership would not cause
the Company to fail to qualify as a REIT.
The Charter further prohibits (a) any person from actually or
constructively owning Common Stock, Series A Preferred Stock or Series B
Preferred Stock that would result in the Company being "closely held" under
Section 856(h) of the Code or otherwise cause the Company to fail to qualify as
a REIT and (b) any person from transferring Common Stock, Series A Preferred
Stock or Series B Preferred Stock if such transfer would result in shares of
Common Stock, Series A Preferred Stock or Series B Preferred Stock being owned
by fewer than 100 persons. The Charter also provides that any person who
acquires or attempts or intends to acquire actual or constructive ownership of
Common Stock, Series A Preferred Stock or Series B Preferred Stock that will or
may violate any of the foregoing restrictions on transferability and ownership
is required to give notice immediately to the Company and provide the Company
with such other information as it may request in order to determine the effect
of such transfer on the Company's status as a REIT. The foregoing restrictions
on transferability and ownership will not apply if the Board of Directors
determines that it is no longer in the best interest of the Company to attempt
to qualify, or to continue to qualify, as a REIT. Except as otherwise described
above, any change in the applicable Ownership Limit would require an amendment
to
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the Charter, which requires the affirmative vote of holders owning at least
two-thirds of the shares of the Company's capital stock outstanding and entitled
to vote thereon.
Pursuant to the Charter, if any purported transfer of shares of stock of
the Company or any other event would otherwise result in any person violating an
Ownership Limit, such other limit as permitted by the Board of Directors or the
other restrictions in the Charter, then any such purported transfer will be void
and of no force or effect with respect to the purported transferee (the
"Prohibited Transferee") as to that number of shares that exceeds the applicable
Ownership Limit or such other limit (referred to as "excess shares") and the
Prohibited Transferee will acquire no right or interest (or, in the case of any
event other than a purported transfer, the person or entity holding record title
to any such shares in excess of the applicable Ownership Limit (the "Prohibited
Owner") will cease to own any right or interest) in such excess shares. Any such
excess shares described above will be transferred automatically, by operation of
law, to a trust, the beneficiary of which will be a qualified charitable
organization selected by the Company (the "Beneficiary"). Such automatic
transfer will be deemed to be effective as of the close of business on the
Business Day (as defined in the Charter) prior to the date of such violating
transfer or event. Within 20 days of receiving notice from the Company of the
transfer of shares to the trust, the trustee of the trust (who will be
designated by the Company and be unaffiliated with the Company and any
Prohibited Transferee or Prohibited Owner) will be required to sell such excess
shares to a person or entity who could own such shares without violating the
applicable Ownership Limit, or such other limit as permitted by the Board of
Directors, and distribute to the Prohibited Transferee an amount equal to the
lesser of the price paid by the Prohibited Transferee for such excess shares or
the sales proceeds received by the trust for such excess shares. In the case of
any excess shares resulting from any event other than a transfer, or from a
transfer for no consideration (such as a gift), the trustee will be required to
sell such excess shares to a qualified person or entity and distribute to the
Prohibited Owner an amount equal to the lesser of the applicable Market Price
(as defined in the Charter) of such excess shares as of the date of such event
or the sales proceeds received by the trust for such excess shares. In either
case, any proceeds in excess of the amount distributable to the Prohibited
Transferee or Prohibited Owner, as applicable, will be distributed to the
Beneficiary. Prior to a sale of any such excess shares by the trust, the trustee
will be entitled to receive, in trust for the Beneficiary, all dividends and
other distributions paid by the Company with respect to such excess shares, and
also will be entitled to exercise all voting rights with respect to such excess
shares. Subject to Maryland law, effective as of the date that such shares have
been transferred to the trust, the trustee will have the authority (at the
trustee's sole discretion) (i) to rescind as void any vote cast by a Prohibited
Transferee or Prohibited Owner, as applicable, prior to the discovery by the
Company that such shares have been automatically transferred to the trust and
(ii) to recast such vote in accordance with the desires of the trustee acting
for the benefit of the Beneficiary. However, if the Company has already taken
irreversible corporate action, then the trustee shall not have the authority to
rescind and recast such vote. Any dividend or other distribution paid to the
Prohibited Transferee or Prohibited Owner (prior to the discovery by the Company
that such shares had been automatically transferred to a trust as described
above) will be required to be repaid to the trustee upon demand for distribution
to the Beneficiary. If the transfer to the trust as described above is not
automatically effective (for any reason) to prevent violation of the applicable
Ownership Limit or such other limit as provided in the Charter or as otherwise
permitted by the Board of Directors, then the Charter provides that the transfer
of the excess shares will be void ab initio.
In addition, shares of stock held in the trust shall be deemed to have been
offered for sale to the Company, or its designee, at a price per share equal to
the lesser of (i) the price per share in the transaction that resulted in such
transfer to the trust (or, in the case of a devise or gift, the applicable
Market Price at the time of such devise or gift) and (ii) the applicable Market
Price on the date the Company, or its designee, accepts such offer. The Company
shall have the right to accept such offer until the trustee has sold the shares
held in the trust. Upon such a sale to the Company, the interest of the
Beneficiary in the shares sold shall terminate and the trustee shall distribute
the net proceeds of the sale to the Prohibited Transferee or Prohibited Owner.
If any purported transfer of shares would cause the Company to be
beneficially owned by fewer than 100 persons, the Charter provides that such
transfer will be null and void in its entirety and the intended transferee will
acquire no rights to the stock.
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All certificates representing shares will bear a legend referring to the
restrictions described above. The foregoing ownership limitations could delay,
defer or prevent a transaction or a change in control of the Company that might
involve a premium price for the shares or otherwise be in the best interest of
stockholders.
Under the Charter, owners of outstanding shares must, upon demand of the
Company, provide a completed questionnaire to the Company containing information
regarding ownership of such shares, as set forth in the Treasury Regulations. In
addition, each stockholder shall upon demand be required to disclose to the
Company in writing such information as the Company may request in order to
determine the effect, if any, of such stockholder's actual and constructive
ownership of shares of Common Stock and/or Series A Preferred Stock on the
Company's status as a REIT and to ensure compliance with each Ownership Limit,
or such other limit as provided in the Charter or as otherwise permitted by the
Board of Directors.
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CERTAIN PROVISIONS OF MARYLAND LAW AND OF
THE COMPANY'S CHARTER AND BYLAWS
The following paragraphs summarize certain provisions of the MGCL and the
Company's Charter and Bylaws. Such paragraphs do not, however, purport to be
complete and are subject to and qualified in their entirety by reference to the
MGCL and the Charter and Bylaws.
BOARD OF DIRECTORS
The Charter provides that the number of directors of the Company shall be
established by the Bylaws but shall not be less than the minimum number required
by the MGCL, which in the case of the Company is three. The Bylaws currently
provide that the Board of Directors consist of not fewer than five nor more than
13 members which are elected to a one-year term at each annual meeting of the
Company's stockholders. Any vacancy (except for a vacancy caused by removal)
will be filled by a majority of the entire Board of Directors. The Bylaws
provide that a majority of the Board must be "Independent Directors." An
"Independent Director" is a director who is not an employee, officer or
affiliate of the Company or a subsidiary or division thereof, or a relative of a
principal executive officer, or who is not an individual member of an
organization acting as advisor, consultant or legal counsel, receiving
compensation on a continuing basis from the Company in addition to director's
fees.
REMOVAL OF DIRECTORS
While the Charter and the MGCL empower the stockholders to fill vacancies
in the Board of Directors that are caused by the removal of a director, the
Charter precludes stockholders from removing incumbent directors except upon a
substantial affirmative vote. Specifically, the Charter provides that a director
may be removed only for cause and only by the affirmative vote of at least
two-thirds of the votes entitled to be cast in the election of directors,
subject to the rights of the holders of shares of Series A Preferred Stock to
elect and remove directors elected by such holders under certain circumstances.
See "Series A Preferred Stock -- Voting Rights." Under the MGCL, the term
"cause" is not defined and is, therefore, subject to Maryland common law and to
judicial interpretation and review in the context of the unique facts and
circumstances of any particular situation. This provision, when coupled with the
provision in the Bylaws authorizing the Board of Directors to fill vacant
directorships, precludes stockholders from removing incumbent directors except
upon a substantial affirmative vote and filling the vacancies created by such
removal with their own nominees.
OPT OUT OF BUSINESS COMBINATIONS AND CONTROL SHARE ACQUISITION STATUTES
The Company has elected in its Bylaws not to be governed by the "control
share acquisition" provisions of the MGCL (Sections 3-701 through 3-709), and
the Board of Directors has adopted, by irrevocable resolution of the Board of
Directors, not to be governed by the "business combination" provision of the
MGCL (Section 3-602), each of which could have the effect of delaying or
preventing a change of control of the Company. The Bylaws provide that the
Company cannot at a future date determine to be governed by either such
provision without the approval of a majority of the outstanding shares entitled
to vote. In addition, such irrevocable resolution adopted by the Board of
Directors may only be changed by the approval of a majority of the outstanding
shares entitled to vote.
AMENDMENT TO THE CHARTER AND BYLAWS
The Charter may not be amended without the affirmative vote of at least
two-thirds of the shares of capital stock outstanding and entitled to vote
thereon voting together as a single class. Other than provisions of the Bylaws
(i) opting out of the control share acquisition statute, (ii) requiring approval
by the Independent Directors of transactions involving executive officers,
directors or any limited partners of the Operating Partnership and their
affiliates and (iii) those governing amendment of the Bylaws, each of which may
be amended only with the approval of a majority of the shares of capital stock
entitled to vote, the Bylaws may be amended by the vote of a majority of the
Board of Directors or the shares of the Company's capital stock entitled to vote
thereon.
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MEETINGS OF STOCKHOLDERS
The Bylaws provide for annual meetings of stockholders to elect the Board
of Directors and transact such other business as may properly be brought before
the meeting. Special meetings of stockholders may be called by the President,
the Board of Directors, the Chairman of the Board and/or at the request in
writing of the holders of 50% or more of the outstanding stock of the Company
entitled to vote.
The MGCL provides that any action required or permitted to be taken at a
meeting of stockholders may be taken without a meeting by unanimous written
consent, if such consent sets forth such action and is signed by each
stockholder entitled to vote on the matter and a written waiver of any right to
dissent is signed by each stockholder entitled to notice of the meeting but not
entitled to vote at it.
ADVANCE NOTICE OF DIRECTOR NOMINATIONS AND NEW BUSINESS
The Bylaws provide that (i) with respect to an annual meeting of
stockholders, nominations of persons for election to the Board of Directors and
the proposal of business to be considered by stockholders may be made only (a)
pursuant to the Company's notice of the meeting, (b) by or at the direction of
the Board of Directors or (c) by a stockholder who is entitled to vote at the
meeting and has complied with the advance notice procedures set forth in the
Bylaws, and (ii) with respect to special meetings of stockholders, only the
business specified in the Company's notice of meeting may be brought before the
meeting of stockholders.
The provisions in the Charter on amendments thereto and the advance notice
provisions of the Bylaws could have the effect of discouraging a takeover or
other transaction in which holders of some, or a majority, of the shares of
Common Stock might receive a premium for their shares of Common Stock over the
then prevailing market price or which such holders might believe to be otherwise
in their best interests.
DISSOLUTION OF THE COMPANY
Under the MGCL, the Company may be dissolved by (i) the affirmative vote of
a majority of the entire Board of Directors declaring such dissolution to be
advisable and directing that the proposed dissolution be submitted for
consideration at any annual or special meeting of stockholders and (ii) upon
proper notice, stockholder approval by the affirmative vote of the holders of
two-thirds of the total number of shares of capital stock outstanding and
entitled to vote thereon voting as a single class.
LIMITATION OF DIRECTORS' AND OFFICERS' LIABILITY
The Company's officers and directors are indemnified under the MGCL, the
Charter and the Partnership Agreement against certain liabilities. The Charter
and Bylaws require the Company to indemnify its directors and officers to the
fullest extent permitted from time to time by the MGCL.
The MGCL permits a corporation to indemnify its directors and officers and
certain other parties against judgments, penalties, fines, settlements and
reasonable expenses actually incurred by them in connection with any proceeding
to which they may be made a party by reason of their service in those or other
capacities unless it is established that (i) the act or omission of the director
or officer was material to the matter giving rise to the proceeding and was
committed in bad faith or was the result of active and deliberate dishonesty,
(ii) the director or officer actually received an improper personal benefit in
money, property or services or (iii) in the case of any criminal proceeding, the
director or officer had reasonable cause to believe that the act or omission was
unlawful. Indemnification may be made against judgments, penalties, fines,
settlements and reasonable expenses actually incurred by the director or officer
in connection with the proceeding; provided, however, that if the proceeding is
one by or in the right of the corporation, indemnification may not be made with
respect to any proceeding in which the director or officer has been adjudged to
be liable to the corporation. In addition, a director or officer may not be
indemnified with respect to any proceeding charging improper personal benefit to
the director or officer in which the director or officer was adjudged to be
liable on the basis that personal benefit was received. The termination of any
proceeding by conviction, or upon a plea of nolo contendere or its equivalent,
or an entry of any order of probation prior to judgment, creates a rebuttable
presumption that the director or officer did not meet the requisite standard of
conduct required for indemnification to be permitted.
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The MGCL permits the charter of a Maryland corporation to include a
provision limiting the liability of its directors and officers to the
corporation and its stockholders for money damages, subject to specified
restrictions, and the Company's Charter contains this provision. The MGCL does
not, however, permit the liability of directors and officers to the corporation
or its stockholders to be limited to the extent that (i) it is proved that the
person actually received an improper personal benefit in money, property or
services, (ii) a judgment or other final adjudication is entered in a proceeding
based on a finding that the person's action, or failure to act, was committed in
bad faith or was the result of active and deliberate dishonesty and was material
to the cause of action adjudicated in the proceeding or (iii) in the case of any
criminal proceeding, the director had reasonable cause to believe that the act
or failure to act was unlawful. This provision does not limit the ability of the
Company or its stockholders to obtain other relief, such as an injunction or
rescission.
The Partnership Agreement also provides for indemnification of the Company,
as general partner, and its officers and directors to the same extent
indemnification is provided to officers and directors of the Company in its
Charter, and limits the liability of the Company and its officers and directors
to the Operating Partnership and the partners of the Operating Partnership to
the same extent liability of officers and directors of the Company to the
Company and its stockholders is limited under the Charter. See "Description of
Certain Provisions of the Partnership Agreement of the Operating
Partnership -- Exculpation and Indemnification of the Company."
Insofar as indemnification for liability arising under the Securities Act
may be permitted to directors, officers or persons controlling the Company
pursuant to the foregoing provisions, the Company has been informed that in the
opinion of the SEC, such indemnification is against public policy as expressed
in the Securities Act and is therefore unenforceable.
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DESCRIPTION OF CERTAIN PROVISIONS OF THE
PARTNERSHIP AGREEMENT OF THE OPERATING PARTNERSHIP
Substantially all of the Company's assets are held, and all of its
operations are conducted, by or through the Operating Partnership. The Company
is the sole general partner of the Operating Partnership and owned, as of June
30, 1998, a 95.8% interest therein. The right and power to manage the Operating
Partnership is vested exclusively in the Company, as sole general partner. The
interest in the Operating Partnership allocated to the Company is designated as
a general partner interest. Except with respect to distributions of cash and
allocations of income and loss, and except as otherwise noted herein and
elsewhere in this Prospectus, the description herein of Units is also applicable
to Performance Units, and holders of Performance Units are treated as limited
partners. The following summary of the Second Amended and Restated Agreement of
Limited Partnership of the Operating Partnership (the "Partnership Agreement")
and the descriptions of certain provisions set forth elsewhere in this
Prospectus are qualified in their entirety by reference to the Partnership
Agreement, which is filed as an exhibit to the Registration Statement of which
this Prospectus is a part.
GENERAL
Holders of Units hold limited partnership interests in the Operating
Partnership, and all holders of partnership interests (including the Company in
its capacity as general partner) are entitled to share in cash distributions
from, and in the profits and losses of, the Operating Partnership. The number of
units of the general partnership (the "GP Units") held by the Company is
approximately equal to the total number of shares of Common Stock, Series A
Preferred Stock and Series B Preferred Stock outstanding. Accordingly, the
distributions paid by the Company per share outstanding are expected to be equal
to the distributions per Unit paid on the outstanding Units. The Units have not
been registered pursuant to Federal or state securities laws, and they will not
be listed on the NYSE or any other exchange or quoted on any national market
system. However, the shares of Common Stock that may be issued by the Company
upon redemption of the Units may be sold in registered transactions, or
transactions exempt from registration under the Securities Act. The limited
partners of the Operating Partnership have the rights to which limited partners
are entitled under the Partnership Agreement and the Partnership Act. The
Partnership Agreement imposes certain restrictions on the transfer of Units, as
described below.
PURPOSE, BUSINESS AND MANAGEMENT
The Operating Partnership is organized as a Delaware limited partnership
pursuant to the terms of the Partnership Agreement. The Company is the sole
general partner of the Operating Partnership and conducts substantially all of
its business through the Operating Partnership, except for investment advisory
services (which are conducted through AMB Investment Management) and certain
other activities conducted through Headlands Realty Corporation. The Operating
Partnership owns 100% of the non-voting preferred stock of AMB Investment
Management and Headlands Realty Corporation (representing approximately 95% of
the economic interest in each entity) and certain Executive Officers and an
officer of AMB Investment Management and certain Executive Officers and a
director of Headlands Realty Corporation own all of the outstanding voting
common stock of AMB Investment Management and Headlands Realty Corporation,
respectively (representing approximately 5% of the economic interest in each
entity).
The primary purpose of the Operating Partnership is, in general, to
acquire, purchase, own, operate, manage, develop, redevelop, invest in, finance,
refinance, sell, lease and otherwise deal with industrial and retail properties
and assets related thereto, and interests therein. The Operating Partnership is
authorized to conduct any business that may be lawfully conducted by a limited
partnership formed under the Partnership Act, except that the Partnership
Agreement requires the business of the Operating Partnership to be conducted in
such a manner that will permit the Company to be classified as a REIT under
Section 856 of the Code, unless the Company ceases to qualify as a REIT for
reasons other than the conduct of the business of the Operating Partnership.
Subject to the foregoing limitation, the Operating Partnership may enter into
partnerships, joint ventures or similar arrangements and may own interests
directly or indirectly in any other entity.
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The Company, as the general partner of the Operating Partnership, has the
exclusive power and authority to conduct the business of the Operating
Partnership, subject to the consent of the limited partners in certain limited
circumstances (as discussed below) and except as expressly limited in the
Partnership Agreement.
The Company has the right to make all decisions and take all actions with
respect to the Operating Partnership's acquisition and operation of the
Properties and all other assets and businesses of or related to the Partnership.
No limited partner may take part in the conduct or control of the business or
affairs of the Operating Partnership by virtue of being a holder of Units. In
particular, each limited partner expressly acknowledged in the Partnership
Agreement that the Company, as general partner, is acting on behalf of the
Operating Partnership's limited partners and the Company's stockholders
collectively, and is under no obligation to consider the tax consequences to
limited partners when making decisions for the benefit of the Operating
Partnership. The Company intends to make decisions in its capacity as general
partner of the Operating Partnership so as to maximize the profitability of the
Company and the Operating Partnership as a whole, independent of the tax effects
on the limited partners. The Company and the Operating Partnership have no
liability to a limited partner as a result of any liabilities or damages
incurred or suffered by, or benefits not derived by, a limited partner as a
result of an action or inaction of the Company as general partner of the
Operating Partnership as long as the Company acted in good faith. Limited
partners have no right or authority to act for or to bind the Operating
Partnership.
Limited partners of the Operating Partnership have no authority to transact
business for, or participate in the management activities or decisions of, the
Operating Partnership, except as provided in the Partnership Agreement or as
required by applicable law.
ENGAGING IN OTHER BUSINESSES; CONFLICTS OF INTEREST
The Company may not conduct any business other than in connection with the
ownership, acquisition and disposition of Operating Partnership interests as a
general partner and the management of the business of the Operating Partnership,
its operation as a public reporting company with a class (or classes) of
securities registered under the Exchange Act, its operation as a REIT and such
activities as are incidental to such activities (including, without limitation,
ownership of any interest in AMB Property Holding Corporation, AMB Property
Holding II Corporation, the Preferred Stock Subsidiaries or a title holding,
management or finance subsidiary organized as a partnership, limited liability
company or corporation) without the consent of the holders of a majority of the
limited partnership interests. Except as may otherwise be agreed to in writing,
each limited partner, and its affiliates, is free to engage in any business or
activity, even if such business or activity competes with or is enhanced by the
business of the Operating Partnership. The Partnership Agreement does not
prevent another person or entity that acquires control of the Company in the
future from conducting other businesses or owning other assets, even though such
businesses or assets may be ones that it would be in the best interests of the
limited partners for the Operating Partnership to own. The Company, in the
exercise of its power and authority under the Partnership Agreement, may
contract and otherwise deal with or otherwise obligate the Operating Partnership
to entities in which the Company or any one or more of the officers, directors
or stockholders of the Company may have an ownership or other financial
interest, whether direct or indirect.
REIMBURSEMENT OF THE COMPANY; TRANSACTIONS WITH THE COMPANY AND ITS AFFILIATES
The Company does not receive any compensation for its services as general
partner of the Operating Partnership. The Company, however, as a partner in the
Operating Partnership, has the same right to allocations and distributions as
other partners of the Operating Partnership. In addition, the Operating
Partnership reimburses the Company for all expenses it incurs relating to its
activities as general partner, its continued existence and qualification as a
REIT and all other liabilities incurred by the Company in connection with the
pursuit of its business and affairs. The Company may retain such persons or
entities as it shall determine (including itself, any entity in which the
Company has an interest, or any entity with which it is affiliated) to provide
services to or on behalf of the Operating Partnership. The Company is entitled
to reimbursement from the Operating Partnership for its out of pocket expenses
(other than amounts paid or payable to the Company or any entity in which the
Company has an interest or with which it is affiliated)
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incurred in connection with Operating Partnership business. Such expenses
include those incurred in connection with the administration and activities of
the Operating Partnership, such as the maintenance of the Operating Partnership
books and records, management of the Operating Partnership property and assets,
and preparation of information regarding the Operating Partnership provided to
the partners in the preparation of their individual tax returns. Except as
expressly permitted by the Partnership Agreement, however, affiliates of the
Company will not engage in any transactions with the Operating Partnership
except on terms that are fair and reasonable and no less favorable to the
Operating Partnership than would be obtained from an unaffiliated third party.
EXCULPATION AND INDEMNIFICATION OF THE COMPANY
The Partnership Agreement generally provides that the Company, as general
partner of the Operating Partnership, will incur no liability to the Operating
Partnership or any limited partner for losses sustained, liabilities incurred,
or benefits not derived as a result of errors in judgment or for any mistakes of
fact or law or for anything which it may do or refrain from doing in connection
with the business and affairs of the Operating Partnership if the Company
carried out its duties in good faith. The Company's liability in any event is
limited to its interest in the Operating Partnership. Without limiting the
foregoing, the Company has no liability for the loss of any limited partner's
capital. In addition, the Company is not responsible for any misconduct,
negligent act or omission of any consultant, contractor or agent of the
Operating Partnership or of the Company and has no obligation other than to use
good faith in the selection of all such contractors, consultants and agents. The
Company may consult with counsel, accountants, appraisers, management
consultants, investment bankers, and other consultants and advisors selected by
it. An opinion by any such consultant on a matter which the Company believes to
be within such consultant's professional or expert competence is deemed to be
complete protection as to any action taken or omitted to be taken by the Company
based on such opinion and in good faith.
The Partnership Agreement also requires the Operating Partnership to
indemnify the Company, the directors and officers of the Company, and such other
persons as the Company may from time to time designate against any loss or
damage, including reasonable legal fees and court costs incurred by such person
by reason of anything it may do or refrain from doing for or on behalf of the
Operating Partnership or in connection with its business or affairs unless it is
established that: (i) the act or omission of the indemnified person was material
to the matter giving rise to the proceeding and either was committed in bad
faith or was the result of active and deliberate dishonesty; (ii) the
indemnified person actually received an improper personal benefit in money,
property or services; or (iii) in the case of any criminal proceeding, the
indemnified person had reasonable cause to believe that the act or omission was
unlawful. Any such indemnification claims must be satisfied solely out of the
assets of the Operating Partnership.
SALES OF ASSETS; LIQUIDATION
Under the Partnership Agreement, the Company, as general partner, generally
has the exclusive authority to determine whether, when and on what terms the
assets of the Operating Partnership (including the Properties) will be sold.
However, the Company has agreed, in connection with the contribution of
Properties from taxable Investors in the Formation Transactions and certain
property acquisitions for Units (with an estimated aggregate value of
approximately $253.7 million), not to dispose of certain assets in a taxable
sale or exchange for a mutually agreed upon period and, thereafter, to use
commercially reasonable or best efforts to minimize the adverse tax consequences
of any such sale. The Company may enter into similar or other agreements in
connection with other acquisitions of properties for Units.
A merger of the Operating Partnership with another entity generally
requires an affirmative vote of the holders of a majority of the outstanding
percentage interest (including that held directly or indirectly by the Company),
subject to certain consent rights of holders of Units as described below under
"Amendment of the Partnership Agreement." A dissolution or liquidation of the
Operating Partnership, including a sale or disposition of all or substantially
all of the Operating Partnership's assets and properties, also requires the
consent of a majority of all Units held by limited partners, including
Performance Units.
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CAPITAL CONTRIBUTION
The Partnership Agreement provides that if the Operating Partnership
requires additional funds at any time or from time to time in excess of funds
available to the Operating Partnership from borrowings or capital contributions,
the Company may borrow such funds from a financial institution or other lender
or through public or private debt offerings and lend such funds to the Operating
Partnership on the same terms and conditions as are applicable to the Company's
borrowing of such funds. As an alternative to borrowing funds required by the
Operating Partnership, the Company may contribute the amount of such required
funds as an additional capital contribution to the Operating Partnership. If the
Company so contributes additional capital to the Operating Partnership, the
Company's partnership interest in the Operating Partnership will be increased on
a proportionate basis. Conversely, the partnership interests of the limited
partners will be decreased on a proportionate basis in the event of additional
capital contributions by the Company. See "Policies With Respect to Certain
Activities -- Financing Policies."
DISTRIBUTIONS; ALLOCATIONS OF INCOME AND LOSS
The Partnership Agreement generally provides for the quarterly distribution
of Available Cash (as defined below), as determined in the manner provided in
the Partnership Agreement, to the partners of the Operating Partnership in
proportion to their percentage interests in the Operating Partnership (which for
any partner is determined by the number of Units it owns relative to the total
number of Units outstanding). If any Preference Units are outstanding,
distributions shall be paid to holders of such Preference Units in accordance
with the rights of each class of Preference Units (and, within each such class,
pro rata in proportion to the respective percentage interest of each holder),
with any remaining Available Cash distributed in accordance with the previous
sentence. "Available Cash" is generally defined as net cash flow from
operations, plus any reduction in reserves, and minus interest and principal
payments on debt, capital expenditures, any additions to reserves and other
adjustments. Other than as described below, neither the Company nor the limited
partners are currently entitled to any preferential or disproportionate
distributions of Available Cash with respect to the Units.
In connection with the sale of the Series A Preferred Shares, the
Partnership Agreement was amended to provide for preferred distributions of cash
and preferred allocations of income to the Company in an amount equal to the
dividends payable by the Company on the Series A Preferred Stock and in
connection with the Offering, the Partnership Agreement will be further amended
to provide for preferred distributions of cash and preferred allocations of
income to the Company in an amount equal to the dividends payable by the Company
on the Series B Preferred Stock. As a consequence, the Company will receive
distributions from the Operating Partnership sufficient to pay dividends on the
Series A Preferred Stock and the Series B Preferred Stock before any other
partner in the Operating Partnership receives a distribution. In addition, if
necessary, income will be specially allocated to the Company and losses will be
allocated to the other partners of the Operating Partnership in amounts
necessary to ensure that, to the extent possible, the balance in the Company's
capital account will at all times be equal to or in excess of the amount payable
by the Company on the Series A Preferred Stock and the Series B Preferred Stock
upon liquidation or redemption. See "Material Federal Income Tax
Consequences -- Tax Aspects of the Operating Partnership and the Joint
Ventures -- Allocations of Operating Partnership Income, Gain, Loss and
Deduction."
REMOVAL OF THE GENERAL PARTNER; TRANSFERABILITY OF THE COMPANY'S INTERESTS;
TREATMENT OF UNITS IN SIGNIFICANT TRANSACTIONS
The general partner may not be removed by the limited partners, with or
without cause, other than with the consent of the general partner. The
Partnership Agreement provides that the Company may not voluntarily withdraw
from the Operating Partnership, without the consent of the limited partners.
However, except as set forth below, the Company may transfer or assign its
general partner interest in connection with a merger, consolidation or sale of
substantially all the assets of the Company without limited partner consent.
Neither the Company nor the Operating Partnership may engage in any merger,
consolidation or other combination with or into another person, or effect any
reclassification, recapitalization or change of its
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outstanding equity interests, and the Company may not sell all or substantially
all of its assets (each a "Termination Transaction") unless in connection with
the Termination Transaction all holders of Units either will receive, or will
have the right to elect to receive, for each Unit an amount of cash, securities
or other property equal to the product of the number of shares of Common Stock
into which each Unit is then exchangeable and the greatest amount of cash,
securities or other property paid to the holder of one Share in consideration of
one Share pursuant to the Termination Transaction. If, in connection with the
Termination Transaction, a purchase, tender or exchange offer shall have been
made to and accepted by the holders of the outstanding shares of Common Stock,
each holder of Units will receive, or will have the right to elect to receive,
the greatest amount of cash, securities or other property which such holder
would have received had it exercised its right to redemption and received shares
of Common Stock in exchange for its Units immediately prior to the expiration of
such purchase, tender or exchange offer and had thereupon accepted such
purchase, tender or exchange offer. Performance Units issued or to be issued
will also have the benefit of such provisions, irrespective of the capital
account then applicable thereto.
A Termination Transaction may also occur if the following conditions are
met: (i) substantially all of the assets directly or indirectly owned by the
surviving entity are held directly or indirectly by the Operating Partnership or
another limited partnership or limited liability company which is the survivor
of a merger, consolidation or combination of assets with the Operating
Partnership (in each case, the "Surviving Partnership"); (ii) the holders of
Units, including the holders of Performance Units issued or to be issued, own a
percentage interest of the Surviving Partnership based on the relative fair
market value of the net assets of the Operating Partnership and the other net
assets of the Surviving Partnership immediately prior to the consummation of
such transaction; (iii) the rights, preferences and privileges of such holders
in the Surviving Partnership, including the holders of Performance Units issued
or to be issued, are at least as favorable as those in effect immediately prior
to the consummation of such transaction and as those applicable to any other
limited partners or non-managing members of the Surviving Partnership (except,
as to Performance Units, for such differences with Units regarding liquidation,
redemption or exchange as are described herein); and (iv) such rights of the
limited partners, including the holders of Performance Units issued or to be
issued, include at least one of the following: (a) the right to redeem their
interests in the Surviving Partnership for the consideration available to such
persons pursuant to the preceding paragraph; or (b) the right to redeem their
Units for cash on terms equivalent to those in effect immediately prior to the
consummation of such transaction, or, if the ultimate controlling person of the
Surviving Partnership has publicly traded common equity securities, such common
equity securities, with an exchange ratio based on the relative fair market
value of such securities and the Common Stock. For purposes of this paragraph,
the determination of relative fair market values and rights, preferences and
privileges of the limited partners shall be reasonably determined by the Board
of Directors as of the time of the Termination Transaction and, to the extent
applicable, the values shall be no less favorable to the holders of Units than
the relative values reflected in the terms of the Termination Transaction.
In addition, in the event of a Termination Transaction, the arrangements
with respect to Performance Units and Performance Shares will be equitably
adjusted to reflect the terms of the transaction, including, to the extent that
the shares are exchanged for consideration other than publicly traded common
equity, the transfer or release of remaining Performance Shares, and resulting
issuance of any Performance Units, as of the consummation of the Termination
Transaction or set forth in the applicable Supplement.
REDEMPTION/EXCHANGE RIGHTS
Holders of Units have the right, commencing generally on or before the
first anniversary of such holder becoming a limited partner of the Operating
Partnership (or such other date agreed to by the Operating Partnership and the
Unit holders), to require the Operating Partnership to redeem part or all of
their Units for cash (based upon the fair market value of an equivalent number
of shares of Common Stock at the time of such redemption) or the Company may
elect to exchange such Units for shares of Common Stock (on a one-for-one basis,
subject to adjustment in the event of stock splits, stock dividends, issuance of
certain rights, certain extraordinary distributions and similar events). The
Company presently anticipates that it will elect to issue shares of Common Stock
in exchange for Units in connection with each such redemption request, rather
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than having the Operating Partnership pay cash. With each such redemption or
exchange, the Company's percentage ownership interest in the Operating
Partnership will increase. This redemption/exchange right may be exercised by
limited partners from time to time, in whole or in part, subject to the
limitations that such right may not be exercised at any time to the extent such
exercise would result in any person actually or constructively owning shares of
Common Stock in excess of the Ownership Limit or such other amount as permitted
by the Board of Directors, as applicable, assuming common stock was issued in
such exchange. Holders of Performance Units also have limited
redemption/exchange rights, as discussed under the caption "-- Performance
Units" below.
PERFORMANCE UNITS
Notwithstanding the foregoing discussion of distributions and allocations
of income or loss of the Operating Partnership, depending on the trading price
of the Common Stock after November 26, 1998 (the first anniversary of the IPO),
certain of the officers, in their capacity as limited partners of the Operating
Partnership, may receive Performance Units as of each of February 26, May 26,
August 26 and November 26, 1999. The Performance Units are similar to Units in
many respects, including (i) the right to share in operating distributions, and
allocations of operating income and loss, of the Operating Partnership on a pro
rata basis with Units; and (ii) certain redemption and exchange rights,
including limited rights to cause the Operating Partnership to redeem such
Performance Units for cash or, at the Company's option, to exchange such units
for shares of Common Stock. Any such redemption rights, however, will be
dependent upon an increase in the value of the assets of the Operating
Partnership (in some cases measured by reference to the trading price of the
shares of Common Stock) subsequent to the issuance of such Performance Units.
Without such an increase, the holders of Performance Units will not be entitled
to receive any proceeds upon the liquidation of the Operating Partnership or the
redemption of their Performance Units.
If any Performance Units are issued to such officers, in their capacity as
limited partners of the Operating Partnership, an equal number of GP Units
allocable to the Company and Units allocable to Performance Investors who are
limited partners in the Operating Partnership will be transferred to the
Operating Partnership. In addition, if any of the Company's GP Units are
transferred to the Operating Partnership as a result of the issuance of
Performance Units, an equal number of shares of Common Stock (the "Performance
Shares") will be transferred by Company stockholders to the Company from the
applicable Performance Investors. Accordingly, no Company stockholder or limited
partner in the Operating Partnership (other than Performance Investors, to the
extent of their obligations to transfer Performance Shares to the Company or the
Operating Partnership, as applicable) will be diluted as a result of the
issuance of Performance Units to such officers.
REGISTRATION RIGHTS
The Company has granted to limited partners certain registration rights
(collectively, the "Registration Rights") with respect to the shares of Common
Stock issuable upon exchange of Units or otherwise (the "Registrable Shares").
The Company has agreed to file and generally keep continuously effective
beginning on or before one year after issuance of Units a registration statement
covering the issuance of shares of Common Stock upon exchange of such Units and
the resale thereof. Pursuant to the terms and conditions of such Registration
Rights, prior to the date upon which such Units would be eligible for resale
under Rule 144(k) under the Securities Act, as such rule may be amended from
time to time (or any similar rule or regulation hereafter adopted by the SEC),
each limited partner generally is limited to resales of Registrable Shares to
the number of Registrable Shares which otherwise would be eligible for resale by
such Investor pursuant to Rule 144, assuming such Registrable Shares were issued
on the same date as the respective Units were issued. The shelf registration
statement will also cover Shares issuable upon exchange of Performance Units.
The Company may also agree to provide the Registration Rights or other
registration rights to any other person who may become an owner of Units,
provided such person provides the Company with satisfactory undertakings. The
Company will bear expenses incident to its registration obligations upon
exercise of the Registration Rights, including the payment of Federal securities
law and state Blue Sky registration fees, except that it will not bear any
underwriting discounts or commissions or transfer taxes relating to registration
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of Registrable Shares. The Company may agree, from time to time, to grant
additional registration rights in connection with other transactions.
DUTIES AND CONFLICTS
Except as otherwise set forth in "Policies with Respect to Certain
Activities -- Conflicts of Interest Policies" and "Management -- Employment
Agreements," any limited partner of the Operating Partnership may engage in
other business activities outside the Operating Partnership, including business
activities that directly compete with the Operating Partnership.
MEETINGS; VOTING
Meetings of the limited partners may be called by the Company, on its own
motion, or upon written request of limited partners owning at least 25% of the
then outstanding Units. Limited partners may vote either in person or by proxy
at meetings. Any action that is required or permitted to be taken by the limited
partners may be taken either at a meeting of the limited partners or without a
meeting if consents in writing setting forth the action so taken are signed by
limited partners owning not less than the minimum number of Units that would be
necessary to authorize or take such action at a meeting of the limited partners
at which all limited partners entitled to vote on such action were present. On
matters for which limited partners are entitled to vote, each limited partner
has a vote equal to the number of Units the limited partner holds. A transferee
of Units who has not been admitted as a substituted limited partner with respect
to such Units will have no voting rights with respect to such Units, even if
such transferee holds other Units as to which it has been admitted as a limited
partner. The Partnership Agreement does not provide for annual meetings of the
limited partners, and the Company does not anticipate calling such meetings.
AMENDMENT OF THE PARTNERSHIP AGREEMENT
Amendments to the Partnership Agreement may be proposed by the Company or
by limited partners owning at least 25% of the then outstanding Units entitled
to vote. Generally, the Partnership Agreement may be amended with the approval
of the Company, as general partner, and partners (including the Company) holding
a majority of the percentage interest of the partnership. Certain provisions
regarding, among other things, the rights and duties of the Company as general
partner (e.g., restrictions on the Company's power to conduct businesses other
than as denoted herein) or the dissolution of the Operating Partnership, may not
be amended without the approval of a majority of the percentage interests of the
partnership. Notwithstanding the foregoing, the Company, as general partner, has
the power, without the consent of the limited partners, to amend the Partnership
Agreement as may be required to, among other things, (i) add to the obligations
of the Company as general partner or surrender any right or power granted to the
Company as general partner, (ii) reflect the admission, substitution,
termination or withdrawal of partners in accordance with the terms of the
Partnership Agreement, (iii) establish the rights, powers, duties and
preferences of any additional partnership interests issued in accordance with
the terms of the Partnership Agreement, (iv) reflect a change of an
inconsequential nature that does not materially adversely affect any limited
partner, or cure any ambiguity, correct or supplement any provisions of the
Partnership Agreement not inconsistent with law or with other provisions of the
Partnership Agreement, or make other changes concerning matters under the
Partnership Agreement that are not otherwise inconsistent with the Partnership
Agreement or applicable law or (v) satisfy any requirements of Federal, state or
local law.
Certain amendments, including amendments effected directly or indirectly
through a merger or sale of assets of the Operating Partnership or otherwise,
that would, among other things, (i) convert a limited partner's interest into a
general partner's interest, (ii) modify the limited liability of a limited
partner, (iii) alter the interest of a partner in profits or losses, or the
rights to receive any distributions (except as permitted under the Partnership
Agreement with respect to the admission of new partners or the issuance of
additional Units, either of which actions will have the effect of changing the
percentage interests of the partners and thus altering their interests in
profits, losses and distributions) or (iv) alter the limited partner's
redemption right, must be approved by the Company and each limited partner that
would be adversely affected by such amendment. Such protections apply to both
holders of Units and holders of Performance
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Units. In addition, no amendment may be effected, directly or indirectly,
through a merger or sale of assets of the Operating Partnership or otherwise,
which would adversely affect the rights of former stockholders of the
Predecessor to receive Performance Units as described herein.
BOOKS AND REPORTS
The Operating Partnership's books and records are maintained at the
principal office of the Operating Partnership, which is located at 505
Montgomery Street, San Francisco, California 94111. All elections and options
available to the Operating Partnership for Federal or state income tax purposes
may be taken or rejected by the Operating Partnership in the sole discretion of
the Company. The limited partners have the right, subject to certain
limitations, to receive copies of the most recent SEC filings by the Company,
the Operating Partnership's Federal, state and local income tax returns, a list
of limited partners, the Partnership Agreement, the partnership certificate and
all amendments thereto and certain information about the capital contributions
of the partners. The Company may keep confidential from the limited partners any
information that the Company believes to be in the nature of trade secrets or
other information the disclosure of which the Company in good faith believes is
not in the best interests of the Operating Partnership or which the Operating
Partnership is required by law or by agreements with unaffiliated third parties
to keep confidential.
The Company will use reasonable efforts to furnish to each limited partner,
within 90 days after the close of each taxable year, the tax information
reasonably required by the limited partners for Federal and state income tax
reporting purposes.
TERM
The Operating Partnership will continue in full force and effect for
approximately 99 years or until sooner dissolved pursuant to the terms of the
Partnership Agreement.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following summary of material Federal income tax consequences regarding
the Company and the Offering is based on current law, is for general information
only and is not tax advice. The information set forth below, to the extent that
it constitutes matters of law, summaries of legal matters or legal conclusions,
is the opinion of Latham & Watkins, tax counsel to the Company. This discussion
does not purport to deal with all aspects of taxation that may be relevant to
particular stockholders in light of their personal investment or tax
circumstances, or to certain types of stockholders subject to special treatment
under the Federal income tax laws, including, without limitation, certain
financial institutions, life insurance companies, dealers in securities or
currencies, stockholders holding Series B Preferred Stock as part of a
conversion transaction, as part of a hedge or hedging transaction, or as a
position in a straddle for tax purposes, tax-exempt organizations (except to the
extent discussed under the heading "-- Taxation of Tax-Exempt Stockholders") or
foreign corporations, foreign partnerships and persons who are not citizens or
residents of the United States (except to the extent discussed under the heading
"-- Taxation of Non-U.S. Stockholders"). In addition, the summary below does not
consider the effect of any foreign, state, local or other tax laws that may be
applicable to prospective stockholders.
The information in this section is based on the Code, current, temporary
and proposed Treasury Regulations promulgated thereunder, the legislative
history of the Code, current administrative interpretations and practices of the
IRS (including its practices and policies as expressed in certain private letter
rulings which are not binding on the IRS except with respect to the particular
taxpayers who requested and received such rulings), and court decisions, all as
of the date hereof. No assurance can be given that future legislation, Treasury
Regulations, administrative interpretations and practices and/or court decisions
will not alter the Code or existing interpretations thereof, and any such change
could apply retroactively to transactions preceding the date of the change. The
Company has not requested, and does not plan to request, any ruling from the IRS
concerning the tax treatment of the Company or the Operating Partnership. Thus,
no assurance can be provided that the statements set forth herein (which are, in
any event, not binding on the IRS or courts) will not be challenged by the IRS
or will be sustained by a court if so challenged.
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EACH PROSPECTIVE PURCHASER IS ADVISED TO CONSULT HIS OR HER TAX ADVISOR
REGARDING THE TAX CONSEQUENCES TO HIM OR HER OF THE ACQUISITION, OWNERSHIP AND
SALE OF THE SERIES B PREFERRED STOCK, INCLUDING THE FEDERAL, STATE, LOCAL,
FOREIGN AND OTHER TAX CONSEQUENCES OF SUCH ACQUISITION, OWNERSHIP AND SALE AND
OF POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
TAXATION OF THE COMPANY
General. The Company elected to be taxed as a REIT under Sections 856
through 860 of the Code, commencing with its taxable year ended December 31,
1997. The Company believes that, commencing with its taxable year ended December
31, 1997, it has been organized and has operated in such a manner as to qualify
for taxation as a REIT under the Code commencing with such taxable year, and the
Company intends to continue to operate in such a manner, but no assurance can be
given that it has operated or will continue to operate in such a manner so as to
qualify or remain qualified.
These sections of the Code and the corresponding Treasury Regulations are
highly technical and complex. The following sets forth the material aspects of
the sections that govern the Federal income tax treatment of a REIT and its
stockholders. This summary is qualified in its entirety by the applicable Code
provisions, rules and regulations promulgated thereunder, and administrative and
judicial interpretations thereof.
Latham & Watkins has acted as tax counsel to the Company in connection with
the Offering, and the Company's election to be taxed as a REIT. In the opinion
of Latham & Watkins, commencing with the Company's taxable year ended December
31, 1997, the Company has been organized and has operated in conformity with the
requirements for qualification as a REIT, and its method of operation will
enable it to continue to meet the requirements for qualification and taxation as
a REIT under the Code. It must be emphasized that this opinion is based on
various factual assumptions relating to the organization and operation of the
Company, the Operating Partnership, and their subsidiaries, and is conditioned
upon certain representations made by such parties and certain other persons as
to factual matters. In addition, this opinion is based upon the factual
representations of the Company concerning its business and properties as set
forth in this Prospectus. Moreover, such qualification and taxation as a REIT
depends upon the Company's ability to meet (through actual annual operating
results, asset composition, distribution levels and diversity of stock
ownership) the various qualification tests imposed under the Code and discussed
below, the results of which have not been and will not be reviewed by Latham &
Watkins. Accordingly, no assurance can be given that the actual results of the
Company's operations for any particular taxable year will satisfy such
requirements. Further, the anticipated income tax treatment described in this
Prospectus may be changed, perhaps retroactively, by legislative, administrative
or judicial action at any time. See "-- Failure of the Company to Qualify as a
REIT." With respect to certain legal matters relating to Maryland law, Latham &
Watkins has relied upon the opinion of Ballard Spahr Andrews & Ingersoll,
counsel for the Company.
If the Company qualifies for taxation as a REIT, it generally will not be
subject to Federal corporate income taxes on its net income that is currently
distributed to stockholders. This treatment substantially eliminates the "double
taxation" (at the corporate and stockholder levels) that generally results from
investment in a regular corporation. However, the Company will be subject to
Federal income tax as follows. First, the Company will be required to pay tax at
regular corporate rates on any undistributed "REIT taxable income," including
undistributed net capital gains. Second, under certain circumstances, the
Company may be subject to the "alternative minimum tax" on its items of tax
preference. Third, if the Company has (i) net income from the sale or other
disposition of "foreclosure property" (defined generally as property acquired by
the Company through foreclosure or otherwise after a default on a loan secured
by the property or a lease of the property) which is held primarily for sale to
customers in the ordinary course of business or (ii) other nonqualifying income
from foreclosure property, it will be subject to tax at the highest corporate
rate on such income. Fourth, if the Company has net income from prohibited
transactions (which are, in general, certain sales or other dispositions of
property held primarily for sale to customers in the ordinary course of business
other than foreclosure property), such income will be subject to a 100% tax.
Fifth, if the Company should fail to satisfy the 75% gross income test or the
95% gross income test (as discussed below), but has nonetheless
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maintained its qualification as a REIT because certain other requirements have
been met, it will be subject to a 100% tax on an amount equal to (a) the gross
income attributable to the greater of the amount by which the Company fails the
75% or 95% test multiplied by (b) a fraction intended to reflect the Company's
profitability. Sixth, if the Company should fail to distribute during each
calendar year at least the sum of (i) 85% of its REIT ordinary income for such
year, (ii) 95% of its REIT capital gain net income for such year and (iii) any
undistributed taxable income from prior periods, the Company would be subject to
a 4% excise tax on the excess of such required distribution over the amounts
actually distributed. Seventh, with respect to any asset (a "Built-In Gain
Asset") acquired by the Company from a corporation which is or has been a C
corporation (i.e., generally a corporation subject to full corporate-level tax)
in a transaction in which the basis of the Built-In Gain Asset in the hands of
the Company is determined by reference to the basis of the asset in the hands of
the C corporation, if the Company recognizes gain on the disposition of such
asset during the ten-year period (the "Recognition Period") beginning on the
date on which such asset was acquired by the Company, then, to the extent of the
Built-In Gain (i.e., the excess of (a) the fair market value of such asset over
(b) the Company's adjusted basis in such asset, determined as of the beginning
of the Recognition Period), such gain will be subject to tax at the highest
regular corporate rate pursuant to Treasury Regulations that have not yet been
promulgated. The results described above with respect to the recognition of
Built-In Gain assume that the Company will make an election pursuant to IRS
Notice 88-19 and that the availability or nature of such election is not
modified as proposed in President Clinton's 1999 Federal Budget Proposal.
Requirements for Qualification. The Code defines a REIT as a corporation,
trust or association (i) which is managed by one or more trustees or directors;
(ii) the beneficial ownership of which is evidenced by transferable shares, or
by transferable certificates of beneficial interest; (iii) which would be
taxable as a domestic corporation but for Sections 856 through 859 of the Code;
(iv) which is neither a financial institution nor an insurance company subject
to certain provisions of the Code; (v) the beneficial ownership of which is held
by 100 or more persons; (vi) during the last half of each taxable year not more
than 50% in value of the outstanding stock of which is owned, actually or
constructively, by five or fewer individuals (as defined in the Code to include
certain entities); and (vii) which meets certain other tests, described below,
regarding the nature of its income and assets and the amount of its
distributions. The Code provides that conditions (i) to (iv), inclusive, must be
met during the entire taxable year and that condition (v) must be met during at
least 335 days of a taxable year of twelve months, or during a proportionate
part of a taxable year of less than twelve months. Conditions (v) and (vi) will
not apply until after the first taxable year for which an election is made to be
taxed as a REIT. For purposes of conditions (v) and (vi), pension funds and
certain other tax-exempt entities are treated as individuals, subject to a
"look-through" exception for pension funds in the case of condition (vi).
The Company believes that the conditions set forth above have been
satisfied. The Company believes that it has issued sufficient shares of Common
Stock with sufficient diversity of ownership pursuant to the Formation
Transactions and the IPO to allow it to satisfy conditions (v) and (vi). In
addition, the Charter provides for restrictions regarding the transfer and
ownership of shares, which restrictions are intended to assist the Company in
continuing to satisfy the share ownership requirements described in (v) and (vi)
above. Such ownership and transfer restrictions are described under the caption
"Description of Capital Stock -- Restrictions on Ownership and Transfer." These
restrictions, however, may not ensure that the Company will, in all cases, be
able to satisfy the share ownership requirements described above. If the Company
fails to satisfy such share ownership requirements, the Company's status as a
REIT will terminate; provided, however, if the Company complies with the rules
contained in the applicable Treasury Regulations requiring the Company to
attempt to ascertain the actual ownership of its shares, and the Company does
not know, and would not have known through the exercise of reasonable diligence,
whether it failed to meet the requirement set forth in condition (vi) above, the
Company will be treated as having met such requirement. See "-- Failure of the
Company to Qualify as a REIT." In addition, a corporation may not elect to
become a REIT unless its taxable year is the calendar year. The Company has a
calendar taxable year.
Termination of S Status. Prior to its merger into the Company, AMB
believed that it validly elected to be taxed as an S corporation and that such
election had not been revoked or otherwise terminated (except as provided
below). In order to allow the Company to become a REIT, AMB revoked its S
election shortly
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before its merger into the Company. If AMB was not an S corporation in 1997 (the
calendar year in which the Formation Transactions occurred), the Company likely
would not qualify as a REIT for its taxable year ended December 31, 1997 and
perhaps subsequent years. See "Failure of the Company to Qualify as a REIT." In
connection with the IPO, Latham & Watkins rendered an opinion regarding AMB's
Federal income tax status as an S corporation, which opinion was based upon
certain representations made by AMB as to factual matters and upon the opinion
of counsel for certain shareholders of AMB, with respect to matters relating to
the tax status of such shareholders.
Ownership of Interests in Partnerships and Qualified REIT Subsidiaries. In
the case of a REIT which is a partner in a partnership, Treasury Regulations
provide that the REIT will be deemed to own its proportionate share of the
assets of the partnership and will be deemed to be entitled to the income of the
partnership attributable to such share. In addition, the character of the assets
and gross income of the partnership shall retain the same character in the hands
of the REIT for purposes of Section 856 of the Code, including satisfying the
gross income tests and the asset tests. Thus, the Company's proportionate share
of the assets and items of income of the Operating Partnership (including the
Operating Partnership's share of such items of any subsidiary partnerships,
including the Joint Ventures) will be treated as assets and items of income of
the Company for purposes of applying the requirements described herein. The
rules described above will also apply to a REIT's membership interest in a
limited liability company which is taxable as a partnership for income tax
purposes. Accordingly, references to partnerships and their partners in this
discussion of material Federal income tax consequences shall include limited
liability companies and their members, respectively. A summary of the rules
governing the Federal income taxation of partnerships and their partners is
provided below in " -- Tax Aspects of the Operating Partnership and the Joint
Ventures." The Company has direct control of the Operating Partnership and
operates it consistently with the requirements for qualification as a REIT. The
Company, however, is a limited partner or non-managing member in certain of the
Joint Ventures. If a Joint Venture takes or expects to take actions which could
jeopardize the Company's status as a REIT or subject the Company to tax, the
Company may be forced to dispose of its interest in such Joint Venture. In
addition, it is possible that a Joint Venture could take an action which could
cause the Company to fail a REIT income or asset test, and that the Company
would not become aware of such action in a time frame which would allow it to
dispose of its interest in the Joint Venture or take other corrective action on
a timely basis. In such a case, the Company could fail to qualify as a REIT. The
Company owns 100% of the stock of two subsidiaries that are qualified REIT
subsidiaries (each, a "QRS") and may acquire stock of one or more new
subsidiaries. A corporation will qualify as a QRS if 100% of its stock is held
by the Company. A QRS will not be treated as a separate corporation, and all
assets, liabilities and items of income, deduction and credit of a QRS will be
treated as assets, liabilities and such items (as the case may be) of the
Company for all purposes of the Code, including the REIT qualification tests.
For this reason, references under "Material Federal Income Tax Consequences" to
the income and assets of the Company shall include the income and assets of any
QRS. A QRS will not be subject to Federal income tax and the Company's ownership
of the voting stock of a QRS will not violate the restrictions against ownership
of securities of any one issuer which constitute more than 10% of such issuer's
voting securities or more than 5% of the value of the Company's total assets, as
described below under "-- Asset Tests."
Income Tests. In order to maintain its qualification as a REIT, the
Company annually must satisfy two gross income requirements. First, at least 75%
of the Company's gross income (excluding gross income from prohibited
transactions) for each taxable year must be derived directly or indirectly from
investments relating to real property or mortgages on real property (including
"rents from real property" and, in certain circumstances, interest) or from
certain types of temporary investments. Second, at least 95% of the Company's
gross income (excluding gross income from prohibited transactions) for each
taxable year must be derived from such real property investments, dividends,
interest and gain from the sale or disposition of stock or securities (or from
any combination of the foregoing).
Rents received by the Company will qualify as "rents from real property" in
satisfying the gross income requirements for a REIT described above only if
several conditions are met. First, the amount of rent must not be based in whole
or in part on the income or profits of any person. However, an amount received
or accrued generally will not be excluded from the term "rents from real
property" solely by reason of it being based on a
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fixed percentage or percentages of receipts or sales. Second, the Code provides
that rents received from a tenant will not qualify as "rents from real property"
in satisfying the gross income tests if the REIT, or an actual or constructive
owner of 10% or more of the REIT, actually or constructively owns 10% or more of
such tenant (a "Related Party Tenant"). Third, if rent attributable to personal
property leased in connection with a lease of real property is greater than 15%
of the total rent received under the lease, then the portion of rent
attributable to such personal property will not qualify as "rents from real
property." Finally, for rents received to qualify as "rents from real property,"
the REIT generally must not operate or manage the property or furnish or render
services to the tenants of such property (subject to a 1% de minimis exception),
other than through an independent contractor from whom the REIT derives no
revenue; provided, however, the REIT may directly perform certain services that
are "usually or customarily rendered" in connection with the rental of space for
occupancy only and are not otherwise considered "rendered to the occupant" of
the property. The Company does not and will not, and as general partner of the
Operating Partnership, has not and will not permit the Operating Partnership to
(i) charge rent for any property that is based in whole or in part on the income
or profits of any person (except by reason of rent being based on a percentage
of receipts or sales, as described above), (ii) rent any property to a Related
Party Tenant, (iii) derive rental income attributable to personal property
(other than personal property leased in connection with the lease of real
property, the amount of which is less than 15% of the total rent received under
the lease) or (iv) perform services considered to be rendered to the occupant of
the property, other than through an independent contractor from whom the Company
derives no revenue. Notwithstanding the foregoing, the Company may have taken
and may continue to take certain of the actions set forth in (i) through (iv)
above to the extent such actions will not, based on the advice of tax counsel to
the Company, jeopardize the Company's status as a REIT.
The term "interest" generally does not include any amount received or
accrued (directly or indirectly) if the determination of such amount depends in
whole or in part on the income or profits of any person. However, an amount
received or accrued generally will not be excluded from the term "interest"
solely by reason of it being based on a fixed percentage or percentages of
receipts or sales. The Company has not derived and does not expect to derive
significant amounts of interest that fail to qualify under the 75% or 95% gross
income tests.
The Investment Management Partnership conducts the asset management
business and receives fees (including incentive fees) in exchange for the
provision of certain services to asset management clients. In addition,
Headlands Realty Corporation may provide certain services in exchange for a fee
or derive other income which would not qualify under the REIT gross income
tests. Such fees and other income do not accrue to the Company, but the Company
derives its allocable share of dividend income from the Preferred Stock
Subsidiaries through its interest in the Operating Partnership. Such dividend
income qualifies under the 95%, but not the 75%, REIT gross income test. The
Operating Partnership may provide certain management or administrative services
to the Investment Management Partnership and Headlands Realty Corporation. The
fees derived by the Operating Partnership as a result of the provision of such
services will be nonqualifying income to the Company under both the 95% and 75%
REIT income tests. The amount of such dividend and fee income will depend on a
number of factors which cannot be determined with certainty, including the level
of services provided by the Investment Management Partnership, Headlands Realty
Corporation and the Operating Partnership. The Company will monitor the amount
of the dividend income from the Preferred Stock Subsidiaries and the fee income
described above, and will take actions intended to keep this income (and any
other nonqualifying income) within the limitations of the REIT income tests.
However, there can be no assurance that such actions will in all cases prevent
the Company from violating a REIT income test.
If the Company fails to satisfy one or both of the 75% or 95% gross income
tests for any taxable year, it may nevertheless qualify as a REIT for such year
if it is entitled to relief under certain provisions of the Code. These relief
provisions will be generally available if the Company's failure to meet such
tests was due to reasonable cause and not due to willful neglect, the Company
attaches a schedule of the sources of its income to its Federal income tax
return, and any incorrect information on the schedule was not due to fraud with
intent to evade tax. It is not possible, however, to state whether in all
circumstances the Company would be entitled to the benefit of these relief
provisions. For example, if the Company fails to satisfy the gross income tests
because nonqualifying income that the Company intentionally incurs exceeds the
limits on such income,
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the IRS could conclude that the Company's failure to satisfy the tests was not
due to reasonable cause. If these relief provisions are inapplicable to a
particular set of circumstances involving the Company, the Company would not
qualify as a REIT. As discussed above in "Material Federal Income Tax
Consequences -- Taxation of the Company -- General," even if these relief
provisions apply, a 100% tax would be imposed on an amount equal to (a) the
gross income attributable to the greater of the amount by which the Company
failed the 75% or 95% test multiplied by (b) a fraction intended to reflect the
Company's profitability.
Any gain realized by the Company on the sale of any property held as
inventory or other property held primarily for sale to customers in the ordinary
course of business (including the Company's share of any such gain realized by
the Operating Partnership) will be treated as income from a prohibited
transaction that is subject to a 100% penalty tax. Such prohibited transaction
income may also have an adverse effect upon the Company's ability to satisfy the
income tests for qualification as a REIT. Under existing law, whether property
is held as inventory or primarily for sale to customers in the ordinary course
of a trade or business is a question of fact that depends on all the facts and
circumstances with respect to the particular transaction. The Company holds the
Properties for investment with a view to long-term appreciation, engages in the
business of acquiring, developing, owning and operating the Properties (and
other properties) and makes such occasional sales of the Properties as are
consistent with the Company's investment objectives. There can be no assurance,
however, that the IRS might not contend that one or more of such sales is
subject to the 100% penalty tax.
Asset Tests. The Company, at the close of each quarter of its taxable
year, must also satisfy three tests relating to the nature of its assets. First,
at least 75% of the value of the Company's total assets must be represented by
real estate assets (including (i) its allocable share of assets held by
partnerships in which the Company owns a direct or indirect interest, including
the Operating Partnership and the Joint Ventures and (ii) stock or debt
instruments held for not more than one year purchased with the proceeds of a
stock offering or long-term (at least five years) public debt offering of the
Company), cash, cash items and government securities. Second, not more than 25%
of the Company's total assets may be represented by securities other than those
in the 75% asset class. Third, of the investments included in the 25% asset
class, the value of any one issuer's securities owned by the Company may not
exceed 5% of the value of the Company's total assets and the Company may not own
more than 10% of any one issuer's outstanding voting securities.
As described above, the Operating Partnership owns 100% of the non-voting
preferred stock of each of the Preferred Stock Subsidiaries, and by virtue of
its ownership of interests in the Operating Partnership, the Company is
considered to own its pro rata share of such stock. See "Structure of the
Company." The stock of each of the Preferred Stock Subsidiaries held by the
Company (through the Operating Partnership) is not a qualifying real estate
asset. The Operating Partnership does not and will not own any of the voting
securities of either of the Preferred Stock Subsidiaries, and therefore the
Company (through the Operating Partnership) will not be considered to own more
than 10% of the voting securities of either of the Preferred Stock Subsidiaries.
In addition, the Company believes (and has represented to tax counsel to the
Company for purposes of its opinion, as described above) that the value of its
pro rata share of the securities of each of the Preferred Stock Subsidiaries
held by the Operating Partnership does not, in either case, exceed 5% of the
total value of the Company's assets, and will not exceed such amount in the
future. Tax counsel, in rendering its opinion as to the qualification of the
Company as a REIT, has relied on the representation of the Company to such
effect. No independent appraisals have been obtained to support this conclusion.
There can be no assurance that the IRS will not contend that the value of the
securities of one or both of the Preferred Stock Subsidiaries held by the
Company (through the Operating Partnership) exceeds the 5% value limitation. The
5% value test must be satisfied not only on the date that the Company (directly
or through the Operating Partnership) acquires securities in the applicable
Preferred Stock Subsidiary, but also each time the Company increases its
ownership of securities of such Preferred Stock Subsidiary, including as a
result of increasing its interest in the Operating Partnership. For example, the
Company's indirect ownership of securities of each Preferred Stock Subsidiary
will increase as a result of the Company's capital contributions to the
Operating Partnership (such as the contribution of the net proceeds of the
Offering) or as limited partners exercise their redemption/exchange rights.
Although the Company believes that it presently satisfies the 5% value test and
plans to take steps to ensure that it satisfies such test for any quarter with
respect to which retesting is to occur,
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there can be no assurance that such steps will always be successful, or will not
require a reduction in the Operating Partnership's overall interest in either or
both of the Preferred Stock Subsidiaries.
In addition, President Clinton's 1999 Federal budget proposal contains a
provision which would amend the REIT asset tests so as to prohibit REITs from
owning stock of a corporation possessing more than 10% of the vote or value of
all classes of stock of the corporation (other than a QRS or another REIT). This
proposal would be effective with respect to stock acquired on or after the date
of the first Congressional committee action with respect to the proposal (the
"Action Date"). In addition, to the extent that a REIT's stock ownership is
grandfathered by virtue of this effective date, such grandfathered status would
terminate if the subsidiary corporation engages in a trade or business that it
is not engaged in on the Action Date or acquires substantial new assets on or
after such date. Accordingly, if this provision of the budget proposal is
enacted in its present form, the Company's stock ownership in each of the
Preferred Stock Subsidiaries would be grandfathered, but such grandfathered
status would terminate as to a Preferred Stock Subsidiary if it engages in a
trade or business that it is not engaged in on the Action Date or acquires
substantial new assets on or after such date, even if such activities are
undertaken prior to the adoption of the proposal. It is presently uncertain
whether any proposal regarding REIT subsidiaries, such as the Preferred Stock
Subsidiaries, will be enacted, or if enacted, what the terms of such proposal
(including its effective date) will be.
After initially meeting the asset tests at the close of any quarter, the
Company will not lose its status as a REIT for failure to satisfy the asset
tests at the end of a later quarter solely by reason of changes in asset values.
If the failure to satisfy the asset tests results from an acquisition of
securities or other property during a quarter (including as a result of the
Company increasing its interest in the Operating Partnership), the failure can
be cured by the disposition of sufficient nonqualifying assets within 30 days
after the close of that quarter. The Company intends to maintain adequate
records of the value of its assets to ensure compliance with the asset tests and
to take such other actions within 30 days after the close of any quarter as may
be required to cure any noncompliance. If the Company fails to cure
noncompliance with the asset tests within such time period, the Company would
cease to qualify as a REIT.
Annual Distribution Requirements. The Company, in order to qualify as a
REIT, is required to distribute dividends (other than capital gain dividends) to
its stockholders in an amount at least equal to (i) the sum of (a) 95% of the
Company's "REIT taxable income" (computed without regard to the dividends paid
deduction and by excluding the Company's net capital gain) and (b) 95% of the
excess of the net income, if any, from foreclosure property over the tax imposed
on such income, minus (ii) the excess of the sum of certain items of noncash
income (i.e., income attributable to leveled stepped rents, original issue
discount or purchase money debt, or a like-kind exchange that is later
determined to be taxable) over 5% of "REIT taxable income" as described in
clause (i)(a) above. In addition, if the Company disposes of any Built-In Gain
Asset during its Recognition Period, the Company will be required, pursuant to
Treasury Regulations which have not yet been promulgated, to distribute at least
95% of the Built-In Gain (after tax), if any, recognized on the disposition of
such asset. Such distributions must be paid in the taxable year to which they
relate, or in the following taxable year if declared before the Company timely
files its tax return for such year and if paid on or before the first regular
dividend payment after such declaration. Such distributions are taxable to
holders of the Company's capital stock (other than tax-exempt entities, as
discussed below) in the year in which paid, even though such distributions
relate to the prior year for purposes of the Company's 95% distribution
requirement. The amount distributed must not be preferential -- i.e., each
holder of shares of Common Stock must receive the same distribution per share,
and each holder of shares of Series B Preferred Stock must receive the same
distribution per share. To the extent that the Company does not distribute all
of its net capital gain or distributes at least 95%, but less than 100%, of its
"REIT taxable income," as adjusted, it will be subject to tax thereon at regular
ordinary and capital gain corporate tax rates. The Company currently makes
timely distributions sufficient to satisfy these annual distribution
requirements. In this regard, the Partnership Agreement authorizes the Company,
as general partner, to take such steps as may be necessary to cause the
Operating Partnership to distribute to its partners an amount sufficient to
permit the Company to meet these distribution requirements.
It is expected that the Company's REIT taxable income will be less than its
cash flow due to the allowance of depreciation and other non-cash charges in
computing REIT taxable income. Accordingly, the
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Company anticipates that it will generally have sufficient cash or liquid assets
to enable it to satisfy the distribution requirements described above. It is
possible, however, that the Company, from time to time, may not have sufficient
cash or other liquid assets to meet these distribution requirements due to
timing differences between (i) the actual receipt of income and actual payment
of deductible expenses and (ii) the inclusion of such income and deduction of
such expenses in arriving at taxable income of the Company. In the event that
such timing differences occur, in order to meet the distribution requirements,
the Company may find it necessary to arrange for short-term, or possibly
long-term, borrowings or to pay dividends in the form of taxable stock
dividends.
If the Company fails to meet the 95% distribution test due to certain
adjustments (e.g., an increase in the Company's income or a decrease in its
deduction for dividends paid) by reason of a judicial decision or by agreement
with the IRS, the Company may be able to pay a "deficiency dividend" to its
stockholders in the taxable year of the adjustment, which dividend would relate
back to the year being adjusted. In such case, the Company would also be
required to pay interest to the IRS and would be subject to any applicable
penalty provisions.
Furthermore, if the Company should fail to distribute during each calendar
year (or in the case of distributions with declaration and record dates falling
in the last three months of the calendar year, by the end of the following
January) at least the sum of (i) 85% of its REIT ordinary income for such year,
(ii) 95% of its REIT capital gain income for such year and (iii) any
undistributed taxable income from prior periods, the Company would be subject to
a 4% excise tax on the excess of such required distribution over the amounts
actually distributed. Any REIT taxable income and net capital gain on which this
excise tax is imposed for any year is treated as an amount distributed during
that year for purposes of calculating such tax.
Earnings and Profits Distribution Requirement. In order to qualify as a
REIT, the Company cannot have at the end of any taxable year any undistributed
"earnings and profits" that are attributable to a "C corporation" taxable year
(i.e., a year in which a corporation is neither a REIT nor an S corporation). In
connection with the Formation Transactions, the Company succeeded to various tax
attributes of AMB, CIF and VAF (if the mergers of CIF and VAF into AMB (the
"Private REIT Mergers") were treated as tax-free reorganizations under the
Code), including any undistributed C corporation earnings and profits of such
corporations. If AMB qualified as an S corporation for each year in which its
activities would have created earnings and profits, and each of CIF and VAF
qualified as a REIT during its existence and its Merger into the Company was
treated as a tax-free reorganization under the Code, then such corporations
would not have any undistributed C corporation earnings and profits. If,
however, (i) either CIF or VAF failed to qualify as a REIT throughout the
duration of its existence, or (ii) AMB failed to qualify as an S corporation for
any year in which its activities would have created earnings and profits, then
the Company would have acquired undistributed C corporation earnings and profits
that, if not distributed by the Company prior to the end of its first taxable
year, would prevent the Company from qualifying as a REIT.
The Company believes that each of CIF and VAF qualified as a REIT
throughout the duration of its existence and that, in any event, neither CIF nor
VAF had any undistributed C corporation earnings and profits at the time of the
applicable Private REIT Merger. The Company believes that AMB qualified as an S
corporation since its 1989 taxable year and that its activities prior to such
year did not create any earnings and profits. In addition, in connection with
the IPO, counsel to CIF and VAF rendered opinions with respect to each such
corporation's qualification as a REIT for Federal income tax purposes, and
Latham & Watkins rendered an opinion with respect to AMB's status as an S
corporation for Federal income tax purposes. Such opinions were based on certain
representations and assumptions. There can be no assurance, however, that the
IRS would not contend otherwise on a subsequent audit of one or more of AMB, CIF
or VAF.
FAILURE OF THE COMPANY TO QUALIFY AS A REIT
If the Company fails to qualify for taxation as a REIT in any taxable year,
and the relief provisions do not apply, the Company will be subject to tax
(including any applicable alternative minimum tax) on its taxable income at
regular corporate rates. Distributions to stockholders in any year in which the
Company fails to qualify will not be deductible by the Company nor will they be
required to be made. As a result, the
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Company's failure to qualify as a REIT would substantially reduce the cash
available for distribution by the Company to its stockholders. In addition, if
the Company fails to qualify as a REIT, all distributions to stockholders will
be taxable as ordinary income to the extent of the Company's current and
accumulated earnings and profits and, subject to certain limitations of the
Code, corporate distributees may be eligible for the dividends-received
deduction. Unless entitled to relief under specific statutory provisions, the
Company would also be disqualified from taxation as a REIT for the four taxable
years following the year during which qualification was lost. It is not possible
to state whether in all circumstances the Company would be entitled to such
statutory relief. In addition, a Federal budget proposal contains a provision
which, if enacted in its present form, would result in the immediate taxation of
all gain inherent in a C corporation's assets upon an election by the
corporation to become a REIT in taxable years beginning after January 1, 1999,
and thus could effectively preclude the Company from re-electing to be taxed as
a REIT following a loss of its REIT status.
TAX ASPECTS OF THE OPERATING PARTNERSHIP AND THE JOINT VENTURES
General. Substantially all of the Company's investments are held
indirectly through the Operating Partnership. In addition, the Operating
Partnership holds certain of its investments indirectly through the Joint
Ventures. In general, partnerships are "pass-through" entities which are not
subject to Federal income tax. Rather, partners are allocated their
proportionate shares of the items of income, gain, loss, deduction and credit of
a partnership, and are potentially subject to tax thereon, without regard to
whether the partners receive a distribution from the partnership. The Company
includes in its income its proportionate share of the foregoing partnership
items for purposes of the various REIT income tests and in the computation of
its REIT taxable income. Moreover, for purposes of the REIT asset tests, the
Company includes its proportionate share of assets held by the Operating
Partnership and the Joint Ventures. See "-- Taxation of the Company -- Ownership
of Partnership Interests by a REIT."
Entity Classification. The Company's interests in the Operating
Partnership and the Joint Ventures involve special tax considerations, including
the possibility of a challenge by the IRS of the status of any of such
partnerships as a partnership (as opposed to an association taxable as a
corporation) for Federal income tax purposes. If the Operating Partnership or
any of the Joint Ventures were treated as an association, it would be taxable as
a corporation and therefore be subject to an entity-level tax on its income. In
such a situation, the character of the Company's assets and items of gross
income would change and preclude the Company from satisfying the asset tests and
possibly the income tests (see "Taxation of the Company -- Requirements for
Qualification" and "-- Asset Tests" and "-- Income Tests"), and, in turn, would
prevent the Company from qualifying as a REIT. See "-- Taxation of the
Company -- Failure of the Company to Qualify as a REIT" above for a discussion
of the effect of the Company's failure to meet such tests for a taxable year. In
addition, a change in the status of the Operating Partnership or any of the
Joint Ventures for tax purposes might be treated as a taxable event, in which
case the Company might incur a tax liability without any related cash
distributions.
The IRS has issued certain Treasury Regulations (the "Final Regulations")
which provide that a domestic business entity not otherwise classified as a
corporation and which has at least two members (an "Eligible Entity") may elect
to be taxed as a partnership for Federal income tax purposes. The Final
Regulations apply for tax periods beginning on or after January 1, 1997 (the
"Effective Date"). The Company has not requested, and does not intend to
request, a ruling from the IRS that the Operating Partnership or any of the
Joint Ventures will be treated as a partnership for Federal income tax purposes.
However, the Company believes that the Operating Partnership and each of the
Joint Ventures will be so treated.
Allocations of Operating Partnership Income, Gain, Loss and Deduction. The
Partnership Agreement provides for preferred distributions of cash and preferred
allocations of income to the Company in an amount equal to the dividends payable
by the Company on the Series A Preferred Stock and will be amended to provide
for preferred distributions of cash and preferred allocations of income to the
Company in an amount equal to the dividends payable by the Company on the Series
B Preferred Stock. As a consequence, the Company will receive distributions from
the Operating Partnership sufficient to pay dividends on Series A Preferred
Stock and the Series B Preferred Stock before any other partner in the Operating
Partnership receives a distribution. In addition, if necessary, income will be
specially allocated to the Company and losses
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will be allocated to the other partners of the Operating Partnership in amounts
necessary to ensure that the balance in the Company's capital account will at
all times be equal to or in excess of the amount payable by the Company on the
Series A Preferred Stock and the Series B Preferred Stock upon liquidation or
redemption. All remaining items of operating income and loss will be allocated
to the holders of Common Units in proportion to the number of Units or
Performance Units held by each such Unitholder. All remaining items of gain or
loss relating to the disposition of the Operating Partnership's assets upon
liquidation will be allocated first to the partners in the amounts necessary, in
general, to equalize the Company's and the limited partners' per unit capital
accounts, with any special allocation of gain to the holders of Performance
Units being offset by a reduction in the gain allocation to the Company and
Unitholders which were Performance Investors. Certain limited partners have
agreed to guarantee debt of the Operating Partnership, either directly through a
guarantee or indirectly through an agreement to make capital contributions to
the Operating Partnership under limited circumstances. As a result of these
guarantees or contribution agreements, and notwithstanding the foregoing
discussion of allocations of income and loss of the Operating Partnership to
holders of Common Units, such limited partners could under limited circumstances
be allocated a disproportionate amount of net loss upon a liquidation of the
Operating Partnership, which net loss would have otherwise been allocable to the
Company.
Although a partnership agreement will generally determine the allocation of
income and loss among partners, such allocations will be disregarded for tax
purposes if they do not comply with the provisions of Section 704(b) of the Code
and the Treasury Regulations promulgated thereunder. Generally, Section 704(b)
and the Treasury Regulations promulgated thereunder require that partnership
allocations respect the economic arrangement of the partners. Accordingly, as
required by Section 704(b) of the Code, the Partnership Agreement provides for
certain "regulatory" allocations which, among other things, may defer the
allocation of losses to the limited partners of the Operating Partnership. If an
allocation is not respected under Section 704(b) of the Code for Federal income
tax purposes, the item subject to the allocation will be reallocated in
accordance with the partners' interests in the partnership, which will be
determined by taking into account all of the facts and circumstances relating to
the economic arrangement of the partners with respect to such item. The
allocations of taxable income and loss provided for in the Partnership Agreement
are intended to comply with the requirements of Section 704(b) of the Code and
the Treasury Regulations promulgated thereunder.
Pursuant to Section 704(c) of the Code, income, gain, loss and deduction
attributable to appreciated or depreciated property that is contributed to a
partnership in exchange for an interest in the partnership must be allocated in
a manner such that the contributing partner is charged with, or benefits from,
respectively, the unrealized gain or unrealized loss associated with the
property at the time of the contribution. The amount of such unrealized gain or
unrealized loss is generally equal to the difference between the fair market
value of contributed property at the time of contribution and the adjusted tax
basis of such property at such time (a "Book-Tax Difference"). Such allocations
are solely for Federal income tax purposes and do not affect the book capital
accounts or other economic or legal arrangements among the partners. The
Operating Partnership was formed by way of contributions of property (such as
the property contributed by certain Individual Account Investors, property
contributed by the Company, which the Company acquired as successor to CIF and
VAF, if the Private REIT Mergers qualified as tax-free reorganizations, and
property contributed by certain other parties subsequent to the Formation
Transactions), and subsequent to its formation has received additional
contributions of property, which had a fair market value which differed from its
adjusted tax basis at the time of contribution. Consequently, the Partnership
Agreement requires that allocations relating to such properties be made in a
manner consistent with Section 704(c) of the Code.
In general, the partners of the Operating Partnership who contributed
assets having an adjusted tax basis less than their fair market value at the
time of contribution will be allocated depreciation deductions for tax purposes
which are lower than such deductions would have been if determined on a pro rata
basis. In addition, in the event of the disposition of any of the contributed
assets which have such a Book-Tax Difference, all income attributable to such
Book-Tax Difference generally will be allocated to such contributing partners.
These allocations will tend to eliminate the Book-Tax Difference over the life
of the Operating Partnership. However, the special allocation rules of Section
704(c) do not always entirely eliminate the Book-Tax
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Difference on an annual basis or with respect to a specific taxable transaction
such as a sale. Thus, the carryover basis of the contributed assets in the hands
of the Operating Partnership may cause the Company or other partners to be
allocated lower depreciation and other deductions, and possibly an amount of
taxable income in the event of a sale of such contributed assets in excess of
the economic or book income allocated to it as a result of such sale. Such an
allocation might cause the Company or other partners to recognize taxable income
in excess of cash proceeds, which might adversely affect the Company's ability
to comply with the REIT distribution requirements. See "-- Taxation of the
Company -- Requirements for Qualification" and "-- Annual Distribution
Requirements."
Treasury Regulations under Section 704(c) of the Code provide a partnership
with a choice of several methods of accounting for Book-Tax Differences,
including retention of the "traditional method" or the election of certain
methods which would permit any distortions caused by a Book-Tax Difference to be
entirely rectified on an annual basis or on a specific taxable transaction such
as a sale. The Operating Partnership and the Company intend to use the
"traditional method" to account for Book-Tax Differences with respect to the
Properties which have previously been contributed to the Operating Partnership,
but they have not yet determined which method they will use to account for
Book-Tax Differences with respect to properties to be contributed to the
Operating Partnership in the future.
With respect to any property purchased for cash by the Operating
Partnership, such property will initially have a tax basis equal to its fair
market value, and Section 704(c) of the Code will not apply.
TAXATION OF TAXABLE U.S. STOCKHOLDERS GENERALLY
As used herein, the term "U.S. Stockholder" means a holder of shares of
Series B Preferred Stock who (for United States Federal income tax purposes) (i)
is a citizen or resident of the United States, (ii) is a corporation,
partnership or other entity created or organized in or under the laws of the
United States or of any state thereof or the District of Columbia (unless, in
the case of a partnership, Treasury Regulations provide otherwise), (iii) is an
estate the income of which is subject to United States Federal income taxation
regardless of its source or (iv) is a trust the administration of which is
subject to the primary supervision of a United States court and which has one or
more United States persons who have the authority to control all substantial
decisions of the trust. Notwithstanding the preceding sentence, to the extent
provided in regulations, certain trusts in existence on August 20, 1996, and
treated as United States persons prior to such date that elect to continue to be
treated as United States persons, shall also be considered U.S. Stockholders.
Dividends and Other Distributions. As long as the Company qualifies as a
REIT, distributions made by the Company out of its current or accumulated
earnings and profits (and not designated as capital gain dividends) will
constitute dividends taxable to taxable U.S. Stockholders as ordinary income.
Such distributions will not be eligible for the dividends-received deduction
otherwise available with respect to dividends received by U.S. Stockholders that
are corporations. For purposes of determining whether distributions are out of
current or accumulated earnings and profits, the earnings and profits of the
Company will be allocated first to the Series A Preferred Stock and Series B
Preferred Stock and then to the Company's Common Stock.
If the Company properly designates any portion of a dividend as a "capital
gain dividend," a holder's share of such capital gain dividend would be an
amount which bears the same ratio to the total amount of dividends paid to such
holder for the year as the aggregate amount designated as a capital gain
dividend bears to the aggregate amount of all dividends paid on all classes of
shares of the Company's capital stock for the year. Distributions made by the
Company that are treated as capital gain dividends will be taxable to taxable
U.S. Stockholders as gains (to the extent that they do not exceed the Company's
actual net capital gain for the taxable year) from the sale or disposition of a
capital asset. Depending upon the period of time that the Company held the
assets to which such gains were attributable, and upon certain designations, if
any, which may be made by the Company, such gains may be taxable to
non-corporate U.S. Stockholders at a rate of either 20%, 25% or, with respect to
certain gains from sales of assets prior to January 1, 1998 (if any), 28%. U.S.
Stockholders that are corporations may, however, be required to treat up to 20%
of certain capital gain dividends as ordinary income.
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To the extent that the Company makes distributions (not designated as
capital gain dividends) in excess of its current and accumulated earnings and
profits, such distributions will be treated first as a tax-free return of
capital to each U.S. Stockholder, reducing the adjusted basis which such U.S.
Stockholder has in his or her shares of Series B Preferred Stock for tax
purposes by the amount of such distribution (but not below zero), with
distributions in excess of a U.S. Stockholder's adjusted basis in his shares
taxable as capital gains (provided that the shares have been held as a capital
asset). With respect to non-corporate U.S. Stockholders, amounts described as
being treated as capital gains in the preceding sentence will be taxable as
long-term capital gains if the shares to which such gains are attributable have
been held for more than one year, or short-term capital gains if such shares
have been held for one year or less. Dividends declared by the Company in
October, November or December of any year and payable to a stockholder of record
on a specified date in any such month shall be treated as both paid by the
Company and received by the stockholder on December 31 of such year; provided
that the dividend is actually paid by the Company on or before January 31 of the
following calendar year. Stockholders may not include in their own income tax
returns any net operating losses or capital losses of the Company.
Distributions made by the Company and gain arising from the sale or
exchange by a U.S. Stockholder of shares of Series B Preferred Stock will not be
treated as passive activity income, and, as a result, U.S. Stockholders
generally will not be able to apply any "passive losses" against such income or
gain. Distributions made by the Company (to the extent they do not constitute a
return of capital) generally will be treated as investment income for purposes
of computing the investment interest limitation. Gain arising from the sale or
other disposition of Series B Preferred Stock (or distributions treated as
such), however, will not be treated as investment income under certain
circumstances.
The Company may elect to retain, rather than distribute as a capital gain
dividend, its net long-term capital gains. In such event, the Company would pay
tax on such retained net long-term capital gains. In addition, to the extent
designated by the Company, a U.S. Stockholder generally would (i) include its
proportionate share of such undistributed long-term capital gains in computing
its long-term capital gains in its return for its taxable year in which the last
day of the Company's taxable year falls (subject to certain limitations as to
the amount so includable), (ii) be deemed to have paid the capital gains tax
imposed on the Company on the designated amounts included in such U.S.
Stockholder's long-term capital gains, (iii) receive a credit or refund for such
amount of tax deemed paid by it, (iv) increase the adjusted basis of its shares
of Series B Preferred Stock by the difference between the amount of such
includable gains and the tax deemed to have been paid by it and (v) in the case
of a U.S. Stockholder that is a corporation, appropriately adjust its earnings
and profits for the retained capital gains in accordance with Treasury
Regulations to be prescribed by the IRS.
Upon any sale, exchange or other disposition of Series B Preferred Stock to
or with a person other than the Company, a U.S. Stockholder will generally
recognize gain or loss for federal income tax purposes in an amount equal to the
difference between (i) the amount of cash and the fair market value of any other
property received on such sale or other disposition and (ii) the holder's
adjusted tax basis in such shares of Series B Preferred Stock for tax purposes.
Such gain or loss will be capital gain or loss if the shares have been held by
the U.S. Stockholder as a capital asset, and, in the case of a non-corporate
U.S. Stockholder, will be long-term gain or loss if such shares have been held
for more than one year. In general, any loss recognized by a U.S. Stockholder
upon the sale or other disposition of shares of Series B Preferred Stock that
have been held for six months or less (after applying certain holding period
rules) will be treated as a long-term capital loss, to the extent of
distributions received by such U.S. Stockholder from the Company which were
required to be treated as long-term capital gains.
Redemption of Series B Preferred Stock. A redemption of shares of the
Series B Preferred Stock will be treated under Section 302 of the Code as a
distribution taxable as a dividend (to the extent of the Company's current and
accumulated earnings and profits) at ordinary income rates unless the redemption
satisfies one of the tests set forth in Section 302(b) of the Code and is
therefore treated as a sale or exchange of the redeemed shares. The redemption
will be treated as a sale or exchange if it (i) is "substantially
disproportionate" with respect to the holder, (ii) results in a "complete
termination" of the holder's stock interest in the Company or (iii) is "not
essentially equivalent to a dividend" with respect to the holder, all within the
meaning of
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Section 302(b) of the Code. In determining whether any of these tests have been
met, shares of capital stock (including Common Stock, Series A Preferred Stock
and Series B Preferred Stock and other equity interests in the Company)
considered to be owned by the holder by reason of certain constructive ownership
rules set forth in the Code, as well as shares of capital stock actually owned
by the holder, must generally be taken into account. Because the determination
as to whether any of the alternative tests of Section 302(b) of the Code will be
satisfied with respect to any particular holder of the Series B Preferred Stock
depends upon the facts and circumstances at the time that the determination must
be made, prospective holders of the Series B Preferred Stock are advised to
consult their own tax advisors to determine such tax treatment.
If a redemption of shares of the Series B Preferred Stock is not treated as
a distribution taxable as a dividend to a particular holder, it will be treated,
as to that holder, as a taxable sale or exchange. As a result, such holder will
recognize gain or loss for federal income tax purposes in an amount equal to the
difference between (i) the amount of cash and the fair market value of any
property received (less any portion thereof attributable to accumulated and
declared but unpaid dividends, which will be taxable as a dividend to the extent
of the Company's current and accumulated earnings and profits) and (ii) the
holder's adjusted basis in the shares of the Series B Preferred Stock for tax
purposes. Such gain or loss will be capital gain or loss if the shares have been
held as a capital asset, and, in the case of a non-corporate U.S. Stockholder,
will be mid-term or long-term capital gain or loss if such shares have been held
for more than one year or more than eighteen months, respectively. In general,
any loss recognized by a U.S. Stockholder upon a redemption treated as a sale or
exchange of shares of Series B Preferred Stock that have been held for six
months or less (after applying certain holding period rules) will be treated as
long-term capital loss, to the extent of distributions received by such U.S.
Stockholder from the Company which were required to be treated as long-term
capital gains.
If a redemption of shares of the Series B Preferred Stock is treated as a
distribution taxable as a dividend, the amount of the distribution will be
measured by the amount of cash and the fair market value of any property
received by the holder. The holder's adjusted basis in the redeemed shares of
the Series B Preferred Stock for tax purposes will be transferred to the
holder's remaining shares of capital stock in the Company, if any. If the holder
owns no other shares of capital stock in the Company, such basis may, under
certain circumstances, be transferred to a related person or it may be lost
entirely.
Backup Withholding. The Company reports to its U.S. Stockholders and the
IRS the amount of dividends paid during each calendar year, and the amount of
tax withheld, if any. Under the backup withholding rules, a stockholder may be
subject to backup withholding at the rate of 31% with respect to dividends paid
unless such holder (i) is a corporation or comes within certain other exempt
categories and, when required, demonstrates this fact, or (ii) provides a
taxpayer identification number, certifies as to no loss of exemption from backup
withholding, and otherwise complies with applicable requirements of the backup
withholding rules. A U.S. Stockholder that does not provide the Company with his
correct taxpayer identification number may also be subject to penalties imposed
by the IRS. Backup withholding is not an additional tax. Any amount paid as
backup withholding will be creditable against the stockholder's income tax
liability. In addition, the Company may be required to withhold a portion of
capital gain distributions to any stockholders who fail to certify their
non-foreign status to the Company. See "-- Taxation of Non-U.S. Stockholders."
Taxation of Tax-Exempt Stockholders. The IRS has ruled that amounts
distributed as dividends by a qualified REIT do not constitute unrelated
business taxable income ("UBTI") when received by a tax-exempt entity. Based on
that ruling, provided that a tax-exempt stockholder (except certain tax-exempt
stockholders described below) has not held its shares of Series B Preferred
Stock as "debt financed property" within the meaning of the Code and such shares
are not otherwise used in a trade or business, the dividend income from the
Company will not be UBTI to a tax-exempt stockholder. Similarly, income from the
sale of Series B Preferred Stock will not constitute UBTI unless such tax-exempt
stockholder has held such shares as "debt financed property" within the meaning
of the Code or has used the shares in a trade or business.
For tax-exempt stockholders which are social clubs, voluntary employee
benefit associations, supplemental unemployment benefit trusts or qualified
group legal services plans exempt from Federal income taxation
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under Code Sections 501(c)(7), (c)(9), (c)(17) or (c)(20), respectively, income
from an investment in the Company will constitute UBTI unless the organization
is able to properly deduct amounts set aside or placed in reserve for certain
purposes so as to offset the income generated by its investment in the Company.
Such prospective investors should consult their own tax advisors concerning
these "set aside" and reserve requirements.
Notwithstanding the above, however, a portion of the dividends paid by a
"pension held REIT" shall be treated as UBTI as to any trust which (i) is
described in Section 401(a) of the Code, (ii) is tax-exempt under Section 501(a)
of the Code and (iii) holds more than 10% (by value) of the interests in the
REIT. Tax-exempt pension funds that are described in Section 401(a) of the Code
are referred to below as "qualified trusts."
A REIT is a "pension held REIT" if (i) it would not have qualified as a
REIT but for the fact that Section 856(h)(3) of the Code provides that stock
owned by qualified trusts shall be treated, for purposes of the "not closely
held" requirement, as owned by the beneficiaries of the trust (rather than by
the trust itself), and (ii) either (a) at least one such qualified trust holds
more than 25% (by value) of the interests in the REIT, or (b) one or more such
qualified trusts, each of which owns more than 10% (by value) of the interests
in the REIT, hold in the aggregate more than 50% (by value) of the interests in
the REIT. The percentage of any REIT dividend treated as UBTI is equal to the
ratio of (i) the UBTI earned by the REIT (treating the REIT as if it were a
qualified trust and therefore subject to tax on UBTI) to (ii) the total gross
income of the REIT. A de minimis exception applies where the percentage is less
than 5% for any year. The provisions requiring qualified trusts to treat a
portion of REIT distributions as UBTI will not apply if the REIT is able to
satisfy the "not closely held" requirement without relying upon the
"look-through" exception with respect to qualified trusts. As a result of
certain limitations on transfer and ownership of Common Stock, Series A
Preferred Stock and Series B Preferred Stock contained in the Charter and the
Series A Articles Supplementary and the Series B Articles Supplementary, the
Company does not expect to be classified as a "pension held REIT."
TAXATION OF NON-U.S. STOCKHOLDERS
The rules governing United States Federal income taxation of the ownership
and disposition of stock by persons that are, for purposes of such taxation,
nonresident alien individuals, foreign corporations, foreign partnerships or
foreign estates or trusts (collectively, "Non-U.S. Stockholders") are complex,
and no attempt is made herein to provide more than a brief summary of such
rules. Accordingly, the discussion does not address all aspects of United States
Federal income tax and does not address state, local or foreign tax consequences
that may be relevant to a Non-U.S. Stockholder in light of its particular
circumstances, including, for example, if the investment in the Company is
connected to the conduct by a Non-U.S. Stockholder of a U.S. trade or business.
In addition, this discussion is based on current law, which is subject to
change, and assumes that the Company qualifies for taxation as a REIT.
Prospective Non-U.S. Stockholders should consult with their own tax advisors to
determine the impact of Federal, state, local and foreign income tax laws with
regard to an investment in the Series B Preferred Stock, including any reporting
requirements.
Distributions. Distributions by the Company to a Non-U.S. Stockholder that
are neither attributable to gain from sales or exchanges by the Company of
United States real property interests nor designated by the Company as capital
gains dividends will be treated as dividends of ordinary income to the extent
that they are made out of current or accumulated earnings and profits of the
Company. Such distributions ordinarily will be subject to withholding of United
States Federal income tax on a gross basis (that is, without allowance of
deductions) at a 30% rate or such lower rate as may be specified by an
applicable income tax treaty, unless the dividends are treated as effectively
connected with the conduct by the Non-U.S. Stockholder of a United States trade
or business or, if an income tax treaty applies, as attributable to a United
States permanent establishment of the Non-U.S. Stockholder. Dividends that are
effectively connected with such a United States trade or business (or, if an
income tax treaty applies, that are attributable to a United States permanent
establishment of the Non-U.S. Stockholder) will be subject to tax on a net basis
(that is, after allowance of deductions) at graduated rates, in the same manner
as U.S. Stockholders are taxed with respect to such dividends and are generally
not subject to withholding. Any such dividends received by a Non-U.S.
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Stockholder that is a corporation may also be subject to an additional branch
profits tax at a 30% rate or such lower rate as may be specified by an
applicable income tax treaty.
Pursuant to current Treasury Regulations, dividends paid to an address in a
country outside the United States are generally presumed to be paid to a
resident of such country for purposes of determining the applicability of
withholding discussed above and the applicability of a tax treaty rate. Under
certain treaties, lower withholding rates generally applicable to dividends do
not apply to dividends from a REIT, such as the Company. Certain certification
and disclosure requirements must be satisfied to be exempt from withholding
under the effectively connected income and permanent establishment exemptions
discussed above.
Distributions in excess of current and accumulated earnings and profits of
the Company will not be taxable to a Non-U.S. Stockholder to the extent that
such excess distributions do not exceed the adjusted basis of the stockholder's
Series B Preferred Stock, but rather will reduce the adjusted basis of such
stock. If, at the time of the distribution, the Company is not a
"domestically-controlled REIT," then the Series B Preferred Stock will
constitute a "United States real property interest" and the distribution will
therefore be subject to the Foreign Investment in Real Property Tax Act of 1980
("FIRPTA"). See "-- Sale of Series B Preferred Stock" below. For FIRPTA
withholding purposes (discussed below), such distributions (i.e., distributions
that are not made out of earnings and profits) will be treated as consideration
for the sale or exchange of shares of Series B Preferred Stock. To the extent
that such distributions exceed the adjusted basis of a Non-U.S. Stockholder's
Series B Preferred Stock, they will give rise to gain from the sale or exchange
of his or her stock, the tax treatment of which is described below. If it cannot
be determined at the time a distribution is made whether or not such
distribution will be in excess of current and accumulated earnings and profits,
the distribution will generally be treated as a dividend for withholding
purposes. However, amounts thus withheld are generally refundable if it is
subsequently determined that such distribution was, in fact, in excess of
current and accumulated earnings and profits of the Company. A Non-U.S.
Stockholder may obtain such a refund by filing the appropriate claim for refund
with the IRS.
Distributions to a Non-U.S. Stockholder that are designated by the Company
at the time of distribution as capital gains dividends (other than those arising
from the disposition of a United States real property interest) generally will
not be subject to United States Federal income taxation, unless (i) investment
in the Series B Preferred Stock is effectively connected with the Non-U.S.
Stockholder's United States trade or business (or, if an income tax treaty
applies, is attributable to a United States permanent establishment of the
Non-U.S. Stockholder), in which case the Non-U.S. Stockholder will be subject to
the same treatment as domestic stockholders with respect to such gain (except
that a stockholder that is a foreign corporation may also be subject to the 30%
branch profits tax, as discussed above) or (ii) the Non-U.S. Stockholder is a
nonresident alien individual who is present in the United States for 183 days or
more during the taxable year and has a "tax home" in the United States, in which
case the nonresident alien individual will be subject to a 30% tax on the
individual's capital gains.
Distributions to a Non-U.S. Stockholder that are attributable to gain from
sales or exchanges by the Company of United States real property interests will
cause the Non-U.S. Stockholder to be treated as recognizing such gain as income
effectively connected with a United States trade or business. A Non-U.S.
Stockholder would thus generally be entitled to offset its gross income by
allowable deductions and would pay tax on the resulting taxable income at the
same rates applicable to domestic stockholders (subject to a special alternative
minimum tax in the case of nonresident alien individuals). Also, such gain may
be subject to a 30% branch profits tax in the hands of a Non-U.S. Stockholder
that is a corporation and is not entitled to treaty relief or exemption, as
discussed above. The Company is required to withhold tax equal to 35% of the
amount of any such distribution. That amount is creditable against the Non-U.S.
Stockholder's United States Federal income tax liability. To the extent that
such withholding exceeds the actual tax owed by the Non-U.S. Stockholder, the
Non-U.S. Stockholder may claim a refund from the IRS.
The Company or any nominee (e.g., a broker holding shares in street name)
may rely on a certificate of non-foreign status on Form W-8 or Form W-9 to
determine whether withholding is required on gains realized from the disposition
of United States real property interests. A domestic person who holds shares of
Series B
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Preferred Stock on behalf of a Non-U.S. Stockholder will generally bear the
burden of withholding, provided that the Company has properly provided a
required notice and certain other requirements are met.
Sale of Series B Preferred Stock. Gain recognized by a Non-U.S. Stockholder
upon the sale or exchange of shares of Series B Preferred Stock generally will
not be subject to United States taxation unless such shares constitute a "United
States real property interest" within the meaning of FIRPTA. The Series B
Preferred Stock will not constitute a "United States real property interest" so
long as the Company is a "domestically-controlled REIT." A
"domestically-controlled REIT" is a REIT in which at all times during a
specified testing period less than 50% in value of its stock is held directly or
indirectly by Non-U.S. Stockholders. The Company believes that it will be a
"domestically-controlled REIT," and therefore that the sale of shares of Series
B Preferred Stock will not be subject to taxation under FIRPTA. However, because
the shares of Common Stock, Series A Preferred Stock and Series B Preferred
Stock will be publicly traded, no assurance can be given that the Company will
continue to be a "domestically-controlled REIT." Notwithstanding the foregoing,
gain from the sale or exchange of shares of Series B Preferred Stock not
otherwise subject to FIRPTA will be taxable to a Non-U.S. Stockholder if (i) the
Non-U.S. Stockholder is a nonresident alien individual who is present in the
United States for 183 days or more during the taxable year and has a "tax home"
in the United States, in which case the nonresident alien individual will be
subject to a 30% United States withholding tax on the amount of such
individual's gain, or (ii) the investment in Series B Preferred Stock is
effectively connected with the non-U.S. Stockholder's United States trade or
business, in which case the Non-U.S. Stockholder will be subject to tax in the
same manner as U.S. Stockholders with respect to such gain (except that a 30%
branch profits tax may also apply as discussed above).
If the Company does not qualify as, or ceases to be, a
"domestically-controlled REIT," gain arising from the sale or exchange by a
Non-U.S. Stockholder of shares of Series B Preferred Stock would be subject to
United States taxation under FIRPTA as a sale of a "United States real property
interest" unless the shares are "regularly traded" (as defined by applicable
Treasury Regulations) on an established securities market (e.g., the New York
Stock Exchange) and the selling Non-U.S. Stockholder held no more than 5% (after
applying certain constructive ownership rules) of the shares of Series B
Preferred Stock during the shorter of (i) the period during which the taxpayer
held such shares or (ii) the five-year period ending on the date of the
disposition of such shares. If gain on the sale or exchange of shares of Series
B Preferred Stock were subject to taxation under FIRPTA, the Non-U.S.
Stockholder may be subject to regular United States income tax with respect to
such gain in the same manner as a U.S. Stockholder (subject to any applicable
alternative minimum tax, a special alternative minimum tax in the case of
nonresident alien individuals and the possible application of the 30% branch
profits tax in the case of foreign corporations), and the purchaser of the stock
would be required to withhold and remit to the IRS 10% of the purchase price.
The 10% withholding tax will not apply if the shares are "regularly traded" on
an established securities market.
Backup Withholding Tax and Information Reporting. Backup withholding tax
(which generally is a withholding tax imposed at the rate of 31% on certain
payments to persons that fail to furnish certain information under the United
States information reporting requirements) and information reporting will
generally not apply to distributions paid to Non-U.S. Stockholders outside the
United States that are treated as (i) dividends subject to the 30% (or lower
treaty rate) withholding tax discussed above, (ii) capital gains dividends or
(iii) distributions attributable to gain from the sale or exchange by the
Company of United States real property interests. As a general matter, backup
withholding and information reporting will not apply to a payment of the
proceeds of a sale of Series B Preferred Stock by or through a foreign office of
a foreign broker. Information reporting (but not backup withholding) will apply,
however, to a payment of the proceeds of a sale of Series B Preferred Stock by a
foreign office of a broker that (a) is a United States person, (b) derives 50%
or more of its gross income for certain periods from the conduct of a trade or
business in the United States or (c) is a "controlled foreign corporation"
(generally, a foreign corporation controlled by United States stockholders) for
United States tax purposes, unless the broker has documentary evidence in its
records that the holder is a Non-U.S. Stockholder and certain other conditions
are met, or the stockholder otherwise establishes an exemption. Payment to or
through a United States office of a broker of the proceeds of a sale of Series B
Preferred Stock is subject to both backup withholding and information reporting
unless the stockholder certifies under penalty of perjury that the stockholder
is a Non-U.S. Stockholder, or otherwise
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establishes an exemption. Backup withholding is not an additional tax. A
Non-U.S. Stockholder may obtain a refund of any amounts withheld under the
backup withholding rules by filing the appropriate claim for refund with the
IRS.
New Withholding Regulations. Final regulations dealing with withholding tax
on income paid to foreign persons and related matters (the "New Withholding
Regulations") were recently promulgated. In general, the New Withholding
Regulations do not significantly alter the substantive withholding and
information reporting requirements, but unify current certification procedures
and forms and clarify reliance standards. For example, the New Withholding
Regulations provide a certification rule under which a foreign stockholder who
wishes to claim the benefit of an applicable treaty rate with respect to
dividends received from a United States corporation will be required to satisfy
certain certification and other requirements. In addition, the New Withholding
Regulations require a corporation that is a REIT to treat as a dividend the
portion of a distribution that is not designated as a capital gain dividend or
return of basis and apply the 30% withholding tax (subject to any applicable
deduction or exemption) to such portion, and to apply the FIRPTA withholding
rules (discussed above) with respect to the portion of the distribution
designated by the REIT as capital gain dividend. The New Withholding Regulations
will generally be effective for payments made after December 31, 1999, subject
to certain transition rules. THE DISCUSSION SET FORTH ABOVE IN "TAXATION OF
NON-U.S. STOCKHOLDERS" DOES NOT TAKE THE NEW WITHHOLDING REGULATIONS INTO
ACCOUNT. PROSPECTIVE NON-U.S. STOCKHOLDERS ARE STRONGLY URGED TO CONSULT THEIR
OWN TAX ADVISORS WITH RESPECT TO THE NEW WITHHOLDING REGULATIONS.
TAX LIABILITIES AND ATTRIBUTES INHERITED FROM PREDECESSORS
Pursuant to the Formation Transactions, the Company succeeded to certain of
the assets and liabilities of the entities which participated in the Formation
Transactions, including potential tax liabilities of such entities. For
instance, as a result of the Private REIT Mergers and the merger of AMB into the
Company, the Company acquired all of the assets and liabilities of CIF, VAF and
AMB, including any tax liabilities of such corporations. The tax treatment of
the Private REIT Mergers is not certain. However, the Company intends to take
the position that such mergers qualified as tax-free reorganizations under the
Code. If either of the Private REIT Mergers did not qualify as a tax-free
reorganization under the Code, such Private REIT Merger would be treated as a
taxable sale by CIF or VAF (each a "Private REIT") of its assets to the Company
in exchange for shares of Common Stock of the Company, followed by the Private
REIT's distribution to its stockholders of such shares in a taxable liquidation.
In this case, such Private REIT would recognize gain on this deemed taxable
sale. However, assuming each Private REIT at all times qualified for taxation as
a REIT, in calculating its taxable income, it should be entitled to a deduction
in an amount equal to the lesser of (i) its earnings and profits for its taxable
year ending with the Private REIT Merger (including the earnings and profits
arising from the deemed sale of the assets to the Company) or (ii) the fair
market value of the Private REIT Merger consideration it was deemed to
distribute to its stockholders as a result of the Private REIT Merger. As a
result of such deduction, it is expected that neither CIF nor VAF would be
taxable on a material amount of gain for Federal income tax purposes as a result
of such transactions. If either or both of CIF and VAF recognized any such gain
or failed to qualify as a REIT, or if AMB failed to qualify as an S corporation,
for any year prior to the Formation Transactions, the Company could have assumed
a material Federal income tax liability. In addition, because many of the
properties owned by CIF and VAF had fair market values in excess of their bases,
if the Private REIT Mergers were treated as tax-free reorganizations under
Section 368(a) of the Code, the Company's basis in the assets received pursuant
to the applicable Private REIT Merger was lower than it would have been had such
Private REIT Merger not been so treated. This lower basis would cause the
Company to have lower depreciation deductions and higher gain on sale with
respect to such properties than would be the case if such properties had been
acquired in a taxable transaction.
The Built-in Gain rules described under the caption "-- Taxation of the
Company -- General" above would apply (i) with respect to any assets acquired by
the Company from a Private REIT in connection with the Private REIT Mergers if
such Private REIT Mergers qualified as tax-free reorganizations under the Code
and if a Private REIT failed to qualify, for any reason, as a REIT at any time
during its existence, and/or
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(ii) with respect to AMB's assets on the Company's election to be taxed as a
REIT, if AMB failed to qualify, for any reason, as an S corporation at any time
after AMB's acquisition of any of its assets and prior to its revocation of such
election in connection with the Formation Transactions. In such case, if the
Company failed to make a valid election pursuant to Notice 88-19, a Private REIT
would recognize taxable gain on the Private REIT Merger under the Built-in Gain
rules, notwithstanding that the Private REIT Merger otherwise qualified as a
tax-free reorganization under the Code, and the Company would be required to
recognize taxable gain with respect to AMB's assets on its election to be taxed
as a REIT under the Built-in Gain rules, notwithstanding that the Company
otherwise qualified as a REIT. The liability for any tax due with respect to the
gain described above would be assumed by the Company as a result of the Mergers.
The Company believes that (i) each of the Private REITs qualified as a REIT
throughout its existence and (ii) AMB qualified as an S corporation since its
1989 taxable year and that it did not own any assets prior to such date.
However, the Company has made a protective election under Notice 88-19 with
respect to each of the Private REIT Mergers, and its election to be taxed as a
REIT, in order to avoid the adverse consequences that otherwise could result
from such events.
OTHER TAX CONSEQUENCES
The Company and its stockholders may be subject to state or local taxation
in various state or local jurisdictions, including those in which it or they
transact business or reside. The state and local tax treatment of the Company
and its stockholders may not conform to the Federal income tax consequences
discussed above. Consequently, prospective stockholders should consult their own
tax advisors regarding the effect of state and local tax laws on an investment
in the Company. In addition, the Preferred Stock Subsidiaries will not qualify
as REITs or as partnerships and, accordingly, will be subject to Federal, state
and local income taxes on its taxable income at regular corporate rates. As a
result, the Preferred Stock Subsidiaries will only be able to distribute out
their net after-tax earnings to their stockholders, including the Operating
Partnership, thereby reducing the cash available for distribution by the Company
to its stockholders.
ERISA CONSIDERATIONS
The following is a summary of material considerations arising under ERISA
and the prohibited transaction provisions of Section 4975 of the Code that may
be relevant to a prospective purchaser (including, with respect to the
discussion contained in "-- Status of the Company under ERISA," a prospective
purchaser that is not an employee benefit plan, another tax-qualified retirement
plan or an individual retirement account, individual retirement annuity, medical
savings account or education individual retirement account (collectively, an
"IRA")). This discussion does not purport to deal with all aspects of ERISA or
Section 4975 of the Code or, to the extent not preempted, state law that may be
relevant to particular employee benefit plan stockholders (including plans
subject to Title I of ERISA, other employee benefit plans and IRAs subject to
the prohibited transaction provisions of Section 4975 of the Code, and
governmental plans and church plans that are exempt from ERISA and Section 4975
of the Code but that may be subject to state law requirements) in light of their
particular circumstances.
A FIDUCIARY MAKING THE DECISION TO INVEST IN SHARES OF SERIES B PREFERRED
STOCK ON BEHALF OF A PROSPECTIVE PURCHASER WHICH IS AN ERISA PLAN, A TAX
QUALIFIED RETIREMENT PLAN, AN IRA OR OTHER EMPLOYEE BENEFIT PLAN IS ADVISED TO
CONSULT ITS OWN LEGAL ADVISOR REGARDING THE SPECIFIC CONSIDERATIONS ARISING
UNDER ERISA, SECTION 4975 OF THE CODE, AND (TO THE EXTENT NOT PRE-EMPTED) STATE
LAW WITH RESPECT TO THE PURCHASE, OWNERSHIP OR SALE OF SHARES OF SERIES B
PREFERRED STOCK BY SUCH PLAN OR IRA. Plans should also consider the entire
discussion under the heading "Material Federal Income Tax Consequences," as
material contained therein is relevant to any decision by an employee benefit
plan, tax-qualified retirement plan or IRA to purchase the Series B Preferred
Stock.
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EMPLOYEE BENEFIT PLANS, TAX-QUALIFIED RETIREMENT PLANS AND IRAS
Each fiduciary of an employee benefit plan subject to Title I of ERISA (an
"ERISA Plan") should carefully consider whether an investment in shares of
Series B Preferred Stock is consistent with its fiduciary responsibilities under
ERISA. In particular, the fiduciary requirements of Part 4 of Title I of ERISA
require (i) an ERISA Plan's investments to be prudent and in the best interests
of the ERISA Plan, its participants and beneficiaries, (ii) an ERISA Plan's
investments to be diversified in order to reduce the risk of large losses,
unless it is clearly prudent not to do so, (iii) an ERISA Plan's investments to
be authorized under ERISA and the terms of the governing documents of the ERISA
Plan and (iv) that the fiduciary not cause the ERISA Plan to enter into
transactions prohibited under Section 406 of ERISA. In determining whether an
investment in shares of Series B Preferred Stock is prudent for purposes of
ERISA, the appropriate fiduciary of an ERISA Plan should consider all of the
facts and circumstances, including whether the investment is reasonably
designed, as a part of the ERISA Plan's portfolio for which the fiduciary has
investment responsibility, to meet the objectives of the ERISA Plan, taking into
consideration the risk of loss and opportunity for gain (or other return) from
the investment, the diversification, cash flow and funding requirements of the
ERISA Plan, and the liquidity and current return of the ERISA Plan's portfolio.
A fiduciary should also take into account the nature of the Company's business,
the length of the Company's operating history and other matters described under
"Risk Factors."
The fiduciary of an IRA or of an employee benefit plan not subject to Title
I of ERISA because it is a governmental or church plan (if no election has been
made under Section 410(d) of the Code) or because it does not cover common law
employees (a "Non-ERISA Plan") should consider that such an IRA or Non-ERISA
Plan may only make investments that are either authorized or not prohibited by
the appropriate governing documents, not prohibited under Section 4975 of the
Code and permitted under applicable state law.
STATUS OF THE COMPANY UNDER ERISA
A prohibited transaction may occur if the assets of the Company are deemed
to be assets of the investing ERISA Plans and disqualified persons deal with
such assets. In certain circumstances where an ERISA Plan holds an interest in
an entity, the assets of the entity are deemed to be ERISA Plan assets (the
"look-through rule"). Under such circumstances, any person that exercises
authority or control with respect to the management or disposition of such
assets is an ERISA Plan fiduciary. ERISA Plan assets are not defined in ERISA or
the Code, but the United States Department of Labor has issued regulations,
effective March 13, 1987 (the "Regulations"), that outline the circumstances
under which an ERISA Plan's interest in an entity will be subject to the
look-through rule.
The Regulations apply only to the purchase by an ERISA Plan of an "equity
interest" in an entity, such as stock of a REIT. However, the Regulations
provide an exception to the look-through rule for equity interests that are
"publicly-offered securities." The Regulations also provide exceptions to the
look-through rule for equity interests in certain types of entities, including
any entity which qualifies as either a "real estate operating company" (a
"REOC") or a "venture capital operating company" (a "VCOC").
Under the Regulations, a "publicly-offered security" is a security that is
(i) freely transferable, (ii) part of a class of securities that is widely-held
and (iii) either (a) part of a class of securities that is registered under
section 12(b) or 12(g) of the Exchange Act or (b) sold to an ERISA Plan as part
of an offering of securities to the public pursuant to an effective registration
statement under the Securities Act and the class of securities of which such
security is a part is registered under the Exchange Act within 120 days (or such
longer period allowed by the SEC) after the end of the fiscal year of the issuer
during which the offering of such securities to the public occurred. Whether a
security is considered "freely transferable" depends on the facts and
circumstances of each case. Under the Regulations, if the security is part of an
offering in which the minimum investment is $10,000 or less, then, (i) any
restriction on or prohibition against any transfer or assignment of such
security for the purposes of preventing a termination or reclassification of the
entity for Federal or state tax purposes will not ordinarily prevent the
security from being considered freely transferable and (ii) limitations or
restrictions on the transfer or assignment of a security which are created or
imposed by
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persons other than the issuer of the security or persons acting for or on behalf
of the issuer will ordinarily not prevent the security from being considered
freely transferable. A class of securities is considered "widely-held" if it is
a class of securities that is owned by 100 or more investors independent of the
issuer and of one another.
Under the Regulations, a REOC is defined as an entity (i) which on certain
testing dates has at least 50% of its assets (other than short-term investments
pending long-term commitment or distribution to investors), valued at cost,
invested in real estate which is managed or developed and with respect to which
the entity has the right to substantially participate directly in the management
or development activities and (ii) which, in the ordinary course of its
business, is engaged directly in real estate management or development
activities. A VCOC is defined as an entity (i) which on certain testing dates
has at least 50% of its assets (other than short-term investments pending
long-term commitment or distribution to investors), valued at cost, invested in
one or more operating companies with respect to which the entity has management
rights and (ii) which, in the ordinary course of its business, actually
exercises its management rights with respect to one or more of the operating
companies in which it invests.
The Series B Preferred Stock of the Company is expected to meet the
criteria of the publicly-offered securities exception to the look-through rule.
First, the Series B Preferred Stock should be considered to be freely
transferable, as the minimum investment will be less than $10,000 and the only
restrictions upon its transfer are those required under Federal tax laws to
maintain the Company's status as a REIT, resale restrictions under applicable
Federal securities laws with respect to securities not purchased in the Offering
and those owned by the Company's officers, directors and other affiliates, and
voluntary restrictions agreed to by the Company and Morgan Stanley & Co.
Incorporated, on behalf of the Underwriters, in connection with the Offering.
Second, the Series B Preferred Stock is expected to be held by 100 or more
investors and it is expected that at least 100 or more of these investors will
be independent of the Company and of one another. Third, the Series B Preferred
Stock will be part of an offering of securities to the public pursuant to an
effective registration statement under the Securities Act and will be registered
under the Exchange Act within 120 days after the end of the fiscal year of the
Company during which the offering of such securities to the public occurs. In
addition, the Company has obtained management rights with respect to the
Operating Partnership and conducts its affairs in such a manner that it will
qualify as either a REOC or VCOC under the Regulations. Accordingly, the Company
believes that if an ERISA Plan purchases the Series B Preferred Stock, the
Company's assets should not be deemed to be ERISA Plan assets and, therefore,
that any person who exercises authority or control with respect to the Company's
assets should not be an ERISA Plan fiduciary.
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UNDERWRITERS
Under the terms and subject to the conditions in the Underwriting Agreement
dated the date hereof (the "Underwriting Agreement"), the Underwriters named
below, for whom Morgan Stanley & Co. Incorporated, Smith Barney Inc., Goldman,
Sachs & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated and Lehman
Brothers Inc. are acting as representatives (the "Representatives"), have
severally agreed to purchase, and the Company has agreed to sell to them,
severally, the respective number of shares of Series B Preferred Stock set forth
opposite the names of such Underwriters below:
<TABLE>
<CAPTION>
NUMBER
OF
NAME SHARES
---- ---------
<S> <C>
Morgan Stanley & Co. Incorporated...........................
Smith Barney Inc. ..........................................
Goldman, Sachs & Co. .......................................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated....................................
Lehman Brothers Inc. .......................................
---------
Total............................................. 3,000,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the Series B Preferred Stock
offered hereby are subject to the approval of certain legal matters by their
counsel and to certain other conditions. The Underwriters are obligated to take
and pay for all of the shares of Series B Preferred Stock offered hereby if any
such shares are taken.
The Underwriters propose to offer part of the Series B Preferred Stock
directly to the public at the public offering price set forth on the cover page
of this Prospectus and part to certain dealers at a price that represents a
concession not in excess of $ a share. Any Underwriter may allow, and any
such dealer may reallow, a concession to certain other dealers not in excess of
$ a share. After the initial offering of the Series B Preferred Stock, the
offering price and other selling terms may from time to time be varied by the
Underwriters.
The Company has granted to the Underwriters an option, exercisable for 30
days after the date hereof, to purchase up to 450,000 additional shares of
Series B Preferred Stock to cover over-allotments, if any, at the public
offering price less the underwriting discount set forth on the cover page of
this Prospectus. If the Underwriters exercise this option, each Underwriter will
have a firm commitment, subject to certain conditions, to purchase approximately
the same percentage thereof which the number of shares of Series B Preferred
Stock to be purchased by such Underwriter bears to the total number of shares of
Series B Preferred Stock, as shown in the foregoing table.
The Company has agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act, or to
contribute to payments the Underwriters may be required to make in respect of
such liabilities.
Application has been made to list the Series B Preferred Stock on the NYSE.
If so approved, trading of the Series B Preferred Stock on the NYSE is expected
to commence within the 30-day period after initial delivery thereof. The
Underwriters have advised the Company that they intend to make a market in the
Series B Preferred Stock prior to the commencement of trading on the NYSE. The
Underwriters will have no obligation to make a market in the Series B Preferred
Stock, however, and may cease market-making activities, if commenced, at any
time.
The Company has agreed that, without the prior written consent of Morgan
Stanley & Co. Incorporated on behalf of the Underwriters, it will not, during
the period ending 30 days after the date of this Prospectus, (i) offer, pledge,
sell, contract to sell, sell any option or contract to purchase, purchase any
option or contract to sell, grant any option, right or warrant to purchase, lend
or otherwise transfer or dispose of, directly or indirectly, any shares of
Series B Preferred Stock, any other equity securities of the Company which are
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substantially similar to the Series B Preferred Stock (other than any securities
of the Company which are convertible into Common Stock) or any securities
convertible into or exercisable or exchangeable for shares of Series B Preferred
Stock or any other equity securities of the Company which are substantially
similar to the Series B Preferred Stock (other than any securities of the
Company which are convertible into Common Stock) or (ii) enter into any swap or
other arrangement that transfers to another, in whole or in part, any of the
economic consequences of ownership of any shares of Series B Preferred Stock,
any other equity securities of the Company which are substantially similar to
the Series B Preferred Stock (other than any securities of the Company which are
convertible into Common Stock) or any securities convertible into or exercisable
or exchangeable for shares of Series B Preferred Stock or any other equity
securities of the Company which are substantially similar to the Series B
Preferred Stock (other than any securities of the Company which are convertible
into Common Stock), whether any such transaction described in clause (i) or (ii)
above is to be settled by delivery of Series B Preferred Stock, other
securities, in cash or otherwise. The restrictions described in this paragraph
do not apply to the sale of Series B Preferred Stock to the Underwriters.
In order to facilitate the Offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Series B Preferred Stock. Specifically, the Underwriters may stabilize the price
of the Series B Preferred Stock and the Underwriters may bid for, and purchase,
the Series B Preferred Stock in the open market. Finally, the underwriting
syndicate may reclaim selling concessions allowed to an Underwriter or a dealer
for distributing the Series B Preferred Stock in the Offering, if the syndicate
repurchases previously distributed Series B Preferred Stock in transactions to
cover syndicate short positions, in stabilization transactions or otherwise. Any
of these activities may stabilize or maintain the market price of the Series B
Preferred Stock above independent market levels. The Underwriters are not
required to engage in these activities, and may end any of these activities at
any time.
LEGAL MATTERS
Certain legal matters in connection with the Offering will be passed upon
for the Company by Latham & Watkins, San Francisco, California. Certain legal
matters will be passed upon for the Underwriters by Gibson, Dunn & Crutcher LLP,
Los Angeles, California. Certain legal matters relating to Maryland law,
including the validity of the issuance of the shares of Series B Preferred Stock
offered hereby, will be passed upon for the Company by Ballard Spahr Andrews &
Ingersoll, Baltimore, Maryland. In addition, the description of Federal income
tax consequences contained in this Prospectus under the caption "Material
Federal Income Tax Consequences" is, to the extent that it constitutes matters
of law, summaries of legal matters or legal conclusions, the opinion of Latham &
Watkins, tax counsel to the Company.
EXPERTS
The audited financial statements and schedule included in this Prospectus
and elsewhere in the Registration Statement, to the extent and for the periods
indicated in their reports have been audited by Arthur Andersen LLP, independent
public accountants, and are included herein in reliance upon the authority of
said firm as experts in accounting and auditing in giving said reports.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange
Act and, in accordance therewith, files reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission"). Such
reports, proxy statements and other information can be inspected and copied at
the public reference facilities maintained by the Commission at Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, and at the following regional
offices of the Commission: Seven World Trade Center, Suite 1300, New York, New
York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Copies of such materials can be obtained by mail from the
Public Reference Section of the Commission, at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. The Commission
maintains a World Wide Web site on the Internet at http://www.sec.gov that
contains reports,
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proxy statements and other information regarding registrants that file
electronically with the Commission. In addition, reports, proxy statements and
other information concerning the Company can be inspected at the New York Stock
Exchange, Inc., 20 Broad Street, New York, New York 10005.
This Prospectus constitutes a part of a Registration Statement on Form S-11
(together with amendments and exhibits thereto, the "Registration Statement")
filed by the Registrants with the Commission under the Securities Act. The
Prospectus omits certain of the information contained in the Registration
Statement, and reference is hereby made to the Registration Statement for
further information with respect to the Registrants and the securities offered
hereby. Any statements contained herein concerning the provisions of any
document filed as an exhibit to the Registration Statement or otherwise filed
with the Commission are not necessarily complete, and in each instance reference
is made to the copy of such document so filed. Each such statement is qualified
in its entirety by such reference.
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GLOSSARY
"ACBM" means asbestos-containing building materials.
"ADA" means the Americans with Disabilities Act of 1990.
"affiliate" has the meaning given to it in the Securities Act.
"AMB" means AMB Institutional Realty Advisors, Inc., a California
corporation.
"AMB Intercompany Party" means a party to the Intercompany Agreement.
"AMB Predecessors" means collectively, AMB and certain real estate
investment funds, trusts, corporations and partnerships that prior to the IPO
owned the Properties, including CIF, VAF, WPF and the Individual Account
Investors.
"AMB Property Corporation" means AMB Property Corporation, a Maryland
corporation with its principal office at 505 Montgomery Street, San Francisco,
California 94111.
"AMBCREA" means AMB Corporate Real Estate Advisors, Inc., a California
corporation.
"AMBI" means AMB Investments, Inc., a California corporation.
"AMB Investment Management" means AMB Investment Management Corporation, a
Maryland corporation, of which the Company owns 100% of the non-voting preferred
stock (representing 95% of its economic value) and certain of the Executive
Officers own 100% of the outstanding voting common stock (representing 5% of its
economic value) with its operations conducted through the Investment Management
Partnership and which, through the Investment Management Partnership, provides
the real estate advisory services to the Company and to certain of AMB's clients
which did not participate in the Formation Transactions.
"Anchor Tenants" means retail tenants occupying more than 10,000 rentable
square feet and all grocery stores and drugstores.
"Annualized Base Rent" means the monthly contractual rent under existing
leases at June 30, 1998, multiplied by 12. This amount excludes expense
reimbursements and rental abatements for industrial and retail properties as
well as percentage rents for retail properties.
"Built-in Gain Asset" means an asset acquired by the Company from a
corporation which is or has been a C Corporation.
"Bylaws" means the bylaws of the Company.
"Charter" means the Articles of Incorporation of the Company, as
supplemented by the Articles Supplementary filed with the State Department of
Assessments and Taxation of Maryland establishing the terms of the Series A
Preferred Stock and the Articles Supplementary filed with the State Department
of Assessments and Taxation of Maryland establishing the terms of the Series B
Preferred Stock, and as further supplemented, and as amended or restated, from
time to time.
"CIF" means AMB Current Income Fund, Inc., a Maryland corporation.
"Code" means the Internal Revenue Code of 1986.
"Common Stock" means shares of common stock, par value $.01 per share, of
the Company.
"Common Units" means units of the Operating Partnership designated as
common units pursuant to the Partnership Agreement.
"Company" means AMB Property Corporation and its subsidiaries, including
AMB Property, L.P. and its subsidiaries and, with respect to the period prior to
the IPO, unless the context requires otherwise, the AMB Predecessors.
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"Credit Facility" means the Operating Partnership's unsecured $500 million
credit facility among the Operating Partnership, MGT and a syndicate of 12 other
banks.
"Debt-to-Total Market Capitalization Ratio" means the ratio calculated
based on the Company's total consolidated debt and its pro rata share of
unconsolidated debt as a percentage of the market value of outstanding shares of
Common Stock plus the value of the liquidation preference of outstanding shares
of Preferred Stock and Units (not owned by the Company) plus the Company's total
consolidated debt and its pro rata share of unconsolidated debt.
"Eastern region" means the Eastern region of the United States as defined
by the National Council of Real Estate Investment Fiduciaries which includes the
states of Connecticut, Delaware, Kentucky, Maine, Maryland, Massachusetts, New
Hampshire, New Jersey, New York, North Carolina, Pennsylvania, Rhode Island,
South Carolina, Vermont, West Virginia and the District of Columbia.
"Environmental Laws" means the Federal, state and local laws and
regulations relating to the protection of the environment.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Executive Officer" means an officer of the Operating Partnership and the
Company named in the table under the caption "Management."
"expense reimbursements" means each tenant's share of taxes, insurance and
operating expenses to be reimbursed to the Company.
"FASB" means the Financial Accounting Standards Board.
"Final Regulations" means certain finalized and published Treasury
Regulations which provide that an Eligible Entity may elect to be taxed as a
partnership for Federal income tax purposes.
"FIRPTA" means the Foreign Investment in Real Property Tax Act of 1980.
"Formation Transactions" means certain transactions in which the Company,
the Operating Partnership and AMB Investment Management engaged in to enable the
Company to continue and grow the real estate operations of the AMB Predecessors
and to enable the Company to qualify as a REIT for Federal income tax purposes
commencing with its taxable year ended December 31, 1997.
"forward-looking statements" means statements relating to, without
limitation, future economic performance, plans and objectives of management for
future operations and projections of revenue and other financial items, which
can be identified by the use of forward-looking terminology such as "believes,"
"expects," "may," "will," "should," "seeks," "approximately," "intends,"
"plans," "pro forma," "estimates," or "anticipates" or the negative thereof or
other variations thereon or comparable terminology.
"Funds from Operations" or "FFO" means income (loss) from operations before
disposal of real estate properties, minority interests and extraordinary items
plus depreciation and amortization, excluding depreciation of furniture,
fixtures and equipment and the Company's share of the FFO of unconsolidated
joint ventures less FFO attributable to minority interests in consolidated joint
ventures which are not convertible into shares of Common Stock, Series A
Preferred Stock and Series B Preferred Stock dividends.
"GAAP" means generally accepted accounting principles.
"GP Units" means units of the Operating Partnership representing the
general partnership interest therein, with generally identical rights to
distributions as the Units.
"greater than 10% stockholder" means an individual owning (within the
meaning of Section 424(d) of the Code) more than ten percent of the total
combined voting power of all classes of stock of the Company, any subsidiary or
any parent corporation.
"Indemnity Consideration" means the shares of Common Stock or Units issued
or cash paid pursuant to any indemnification obligation.
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"Indemnity Escrow" means an escrow available to provide for an
indemnification commitment into which the Indemnity Consideration was deposited.
"Independent Director" means a director who is not an employee, officer or
affiliate of the Company or a subsidiary or division thereof, or a relative of
an Executive Officer, or who is not an individual member of an organization
acting as advisor, consultant or legal counsel, receiving compensation on a
continuing basis from the Company in addition to director's fees.
"Individual Account Investors" means certain individual account investors,
each of which has assets under management with AMB pursuant to an investment
advisory agreement.
"Industrial Properties" means the industrial buildings comprised
principally of warehouse distribution facilities which are owned by the Company.
"in-fill" means those markets which are typified by significant population
densities and low availability of land which could be developed into competitive
industrial or retail properties, as applicable. Such properties allow for a more
precise analysis of their trade areas and competition than properties located in
areas which are undergoing substantial real estate development.
"Intercompany Agreement" means that certain agreement dated January 1,
1993, as amended, entered into by and among AMBI, AMB, AMBCREA, AMB Properties,
AMB Development, Inc., AMB Institutional Housing Partners and other related or
commonly controlled business entities as may become parties thereto from to
time.
"Investment Committee" means that certain management committee which
reviews and approves each investment of the Company and the Operating
Partnership.
"Investment Management Partnership" means AMB Investment Management Limited
Partnership, a Maryland limited partnership, of which AMB Investment Management
is the sole general partner and owns the entire capital interests, and through
which the operations of AMB Investment Management are conducted.
"Investors" means the CIF Stockholders, VAF Stockholders, WPF Investors and
the Individual Account Investors.
"IPO" means the initial public offering of the Company's common stock.
"IRA" means an individual retirement account.
"IRS" means the United States Internal Revenue Service.
"Joint Ventures" means the joint ventures, limited liability companies and
partnerships in which the Operating Partnership (or a subsidiary thereof) is a
venturer or partner, respectively, with certain third parties.
"look-through rule" means under certain circumstances, where an investing
plan holds an interest in an entity and the assets of the entity are deemed to
be Plan assets.
"MGCL" means Maryland General Corporation Law.
"MGT" means Morgan Guaranty Trust Company of New York.
"Midwestern region," means the Midwestern region of the United States as
defined by the National Council of Real Estate Investment Fiduciaries which
includes the states of Illinois, Iowa, Indiana, Kansas, Michigan, Minnesota,
Missouri, Nebraska, North Dakota, Ohio, South Dakota and Wisconsin.
"Named Executive Officers" means the Company's Chief Executive Officer and
the four other most highly compensated executive officers.
"NAIOP" means the National Association of Industrial and Office Parks.
"NAREIM" means the National Association of Real Estate Investment Managers.
"NAREIT" means the National Association of Real Estate Investment Trusts.
137
<PAGE> 148
"New Withholding Regulations" means final regulations which were recently
promulgated which deal with withholding tax on income paid to foreign persons
and related matters.
"Non-Anchor Tenant" refers to all tenants which are not Anchor Tenants.
"Non-ERISA Plan" means the fiduciary of an IRA or of an employee benefit
plan not subject to Title I of ERISA because it is a governmental or church plan
or because it does not cover common law employees.
"NYSE" means the New York Stock Exchange.
"Offering" means the offering of the Series B Preferred Stock made hereby.
"Operating Partnership" means AMB Property, L.P., a Delaware limited
partnership of which the Company is the general partner.
"Ownership Limit" means, with respect to the Common Stock, actual or
constructive ownership by any person of more than 9.8% of the issued and
outstanding shares of Common Stock (subject to certain exceptions), with respect
to the Series A Preferred Stock, actual or constructive ownership by any person
of more than 9.8% of the issued and outstanding shares of the Series A Preferred
Stock and, with respect to the Series B Preferred Stock, actual or constructive
ownership by any person of more than 9.8% of the issued and outstanding shares
of the Series B Preferred Stock, in each case, by value or number of shares,
whichever is more restrictive.
"Partnership Act" means the Delaware Uniform Limited Partnership Act.
"Partnership Agreement" means the partnership agreement of the Operating
Partnership.
"percentage rents" means the rents calculated as a percentage of a tenant's
gross sales above predetermined thresholds.
"Performance Investors" means those investors which, immediately prior to
the IPO, owned assets (either directly or through CIF, VAF or WPF) which were
subject to advisory agreements with AMB and included an incentive fee provision
or, in the case of WPF, a "catch up adjustment."
"Performance Shares" means the specified portion of the Shares issuable in
the Formation Transactions to Performance Investors.
"Performance Units" means units of the Operating Partnership issued to
certain officers and employees of the Operating Partnership.
"Plan" means an ERISA Plan, a tax-qualified retirement plan or other
employee benefit plan.
"Preference Units" means the preferred units and other partnership
interests of different classes and series of the Operating Partnership having
such rights, preferences and other privileges, variations and designations as
may be determined by the Company in its capacity as general partner of the
Operating Partnership.
"Preferred Stock" means preferred stock, $0.01 par value per share, which
the Charter of the Company authorize the Board of Directors to cause the Company
to issue, in series, and to establish the preferences, rights and other terms of
any series so issued.
"Preferred Stock Subsidiaries" means AMB Investment Management and
Headlands Realty Corporation.
"Prohibited Owner" means the person or entity holding shares in excess of
the Ownership Limit or such other limit.
"Prohibited Transferee" means, with respect to any purported sale,
transfer, gift, assignment, devise or other disposition of shares of capital
stock of the Company (or other event) which results in a transfer to a trust, as
provided in the Charter, the record holder of such shares if such sale,
transfer, gift, assignment, devise or other disposition had been valid under the
Charter, unless such record holder would have acquired or owned shares of
capital stock of the Company for another person who is the beneficial transferee
or owner of such shares, in which case the Prohibited Transferee shall be such
person.
138
<PAGE> 149
"Properties" means the Industrial Properties and the Retail Properties.
"property operating expenses" means real estate taxes and insurance,
repairs and maintenance and property operating expenses.
"Prospectus" means the prospectus to be used in connection with the
Offering of the Series B Preferred Stock.
"QRS" means a qualified REIT subsidiary.
"Recognition Period" means, with respect to a Built-in Gain Asset, a
10-year period beginning on the date on which the Company acquired such asset.
"Registrable Shares" means the Shares issuable upon exchange of Units or
otherwise, the holder of which has certain registration rights with respect to
those Shares.
"Registration Rights" means certain registration rights with respect to the
Shares issuable upon exchange of Units or otherwise granted to investors who
received Units in connection with the Formation Transactions.
"Regulations" means regulations issued by the United States Department of
Labor, effective as of March 13, 1987.
"REIT" means a real estate investment trust under the Code.
"Related Party Tenant" means a tenant in which a REIT, or an actual or
constructive owner of 10% or more of the REIT actually or constructively owns
10% or more of such tenant.
"REOC" means an entity (i) which on certain testing dates has at least 50%
of its assets (other than short-term investments pending long-term commitment or
distribution to investors), valued at cost, invested in real estate which is
managed or developed and with respect to which the entity has the right to
substantially participate directly in the management or development activities
and (ii) which, in the ordinary course of its business, is engaged directly in
real estate management or development activities.
"restricted securities" has the meaning given to it in Rule 144 under the
Securities Act.
"Restricted Shares" means the "restricted securities" under the meaning of
Rule 144 of the Securities Act consisting of the Shares held or to be held by
Investors and the Shares reserved for issuance upon redemption of Units by
Investors who elect to receive Units in exchange for their respective real
property interests.
"Retail Properties" means the retail properties comprised principally of
community shopping centers which are owned by the Company.
"Rule 144" means the rule adopted by the SEC that permits holders of
restricted securities as well as affiliates of an issuer of the securities,
pursuant to certain conditions and subject to certain restrictions, to sell
their securities publicly without registration under the Securities Act.
"San Francisco Bay Area" means the area comprised of the nine counties in
immediate proximity to the San Francisco Bay.
"SEC" or "Commission" means the Securities and Exchange Commission.
"Section 401(k) Plan" means the Company's Section 401(k) savings/retirement
plan.
"Secured Facility" means a 12-year non-recourse secured financing facility
due December 12, 2008 which is secured by six Properties.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Debt Securities" means $400 million aggregate principal amount of
senior debt securities sold by the Operating Partnership in an underwritten
offering on June 30, 1998.
139
<PAGE> 150
"Series A Preferred Stock" means the Company's 8 1/2% Series A Cumulative
Redeemable Preferred Stock, par value $.01 per share.
"Series B Preferred Stock" means the Company's % Series B Cumulative
Redeemable Preferred Stock, par value $.01 per share.
"Series A Preferred Unit" means the 8 1/2% Series A Cumulative Redeemable
Preferred Units issued by the Operating Partnership to the Company in exchange
for the net proceeds of the sale of the Series A Preferred Stock.
"Series B Preferred Unit" means the % Series B Cumulative Redeemable
Preferred Units issued by the Operating Partnership to the Company in exchange
for the net proceeds of the sale of the Series B Preferred Stock.
"Southern region" means the Southern region of the United States as defined
by the National Council of Real Estate Investment Fiduciaries which includes the
states of Alabama, Arkansas, Florida, Georgia, Louisiana, Mississippi, Oklahoma,
Tennessee and Texas.
"stabilization" means when capital improvements for repositioning,
development and redevelopment programs have been completed and in effect for a
sufficient period of time (but in no case more than 12 months after shell
completion) to achieve market occupancy of at least 95%.
"Stock Incentive Plan" means the Stock Option and Incentive Plan
established by the Company.
"Subsidiaries" means the subsidiaries of AMB Property Corporation and AMB
Property, L.P.
"Surviving Partnership" means a limited partnership or limited liability
company which is the surviving entity of a merger, consolidation or combination
of assets with the Operating Partnership.
"Tax-Exempt Stockholder" means a stockholder exempt from taxation under the
Code.
"Termination Transaction" means, with respect to the Company, any merger,
consolidation or other combination with or into another person, a sale of all or
substantially all of its assets or any reclassification, recapitalization or
change of its outstanding equity interests, unless in connection with such
transaction, all holders of Units either will receive, or will have the right to
elect to receive, for each Unit an amount of cash, securities or other property
equal to the product of the number of Shares into which each Unit is then
exchangeable and the greatest amount of cash, securities or other property paid
to the holder of one Share in consideration of one Share pursuant to such
transaction.
"Transferee" means an assignee, legatee, distributee or other transferee of
all or any portion of a partner's interest in the Operating Partnership.
"Treasury Regulations" means the IRS regulations.
"UBTI" or "unrelated business taxable income" means unrelated business
taxable income as defined in Section 512 of the Code.
"Underwriters" means those underwriters named herein for whom Morgan
Stanley & Co. Incorporated, Smith Barney Inc., Goldman, Sachs & Co., Merrill
Lynch, Pierce, Fenner & Smith Incorporated and Lehman Brothers Inc. are acting
as representatives.
"Underwriting Agreement" means that certain underwriting agreement pursuant
to which the Underwriters have severally agreed to purchase, and the Company has
agreed to sell to them, severally, the number of shares of the Series B
Preferred Stock as set forth on the table under the caption "Underwriters"
herein.
"Unitholder" means a holder of Units or Performance Units.
"Units" means Common Units and Preference Units of the Operating
Partnership.
"U.S. Stockholder" means a holder of shares of Series B Preferred Stock who
(for United States Federal income tax purposes) (i) is a citizen or resident of
the United States, (ii) is a corporation, partnership, or other entity created
or organized in or under the laws of the United States or of any state thereof,
(iii) is an
140
<PAGE> 151
estate, the income of which is subject to United States Federal income taxation
regardless of its source or (iv) is a trust the administration of which is
subject to the primary supervision of a United States court and which has one or
more United States persons who have the authority to control all substantial
decisions of the trust. Notwithstanding the preceding sentence, to the extent
provided in regulations, certain trusts in existence on August 20, 1996, and
treated as United States persons prior to such date that elect to continue to be
treated as United States persons, shall also be considered U.S. Stockholders.
"VAF" means AMB Value Added Fund, Inc., a Maryland corporation.
"VCOC" means an entity (i) which on certain testing dates has at least 50%
of its assets (other than short-term investments pending long-term commitment or
distribution to investors), valued at cost invested in one or more operating
companies with respect to which the entity has management rights and (ii) which,
in the ordinary course of its business, actually exercises its management rights
with respect to one or more of the operating companies in which it invests.
"Western region" means the Western region of the United States as defined
by the National Council of Real Estate Investment Fiduciaries which includes the
states of Alaska, Arizona, California, Colorado, Hawaii, Montana, Nevada, New
Mexico, Oregon, Utah, Washington and Wyoming.
"White Paper" means the White Paper on Funds from Operations approved by
the Board of Governors of the NAREIT in March 1995.
"WPF" means AMB Western Properties Fund-I, a California limited
partnership.
141
<PAGE> 152
INDEX TO FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
AMB PROPERTY CORPORATION
-- Background............................................. F-4
-- Pro forma condensed consolidated balance sheet as of
June 30, 1998.......................................... F-5
-- Notes to pro forma condensed consolidated balance
sheet.................................................. F-6
-- Pro forma condensed consolidated statement of
operations for the six months ended June 30, 1998...... F-7
-- Notes to pro forma condensed consolidated statement of
operations............................................. F-8
-- Pro forma condensed consolidated statement of
operations for the year ended December 31, 1997........ F-11
-- Notes to pro forma condensed consolidated statement of
operations............................................. F-12
HISTORICAL FINANCIAL INFORMATION
AMB PROPERTY CORPORATION -- June 30, 1998
-- Consolidated balance sheets as of December 31, 1997 and
June 30, 1998 (unaudited).............................. F-18
-- Consolidated statements of operations for the six and
three months ended June 30, 1997 and 1998
(unaudited)............................................ F-19
-- Consolidated statements of cash flows for the six
months ended June 30, 1997 and 1998 (unaudited)........ F-20
-- Consolidated statements of stockholders' equity for the
six months ended June 30, 1998 (unaudited)............. F-21
-- Notes to consolidated financial statements
(unaudited)............................................ F-22
AMB PROPERTY CORPORATION -- December 31, 1996 and 1997
-- Report of independent public accountants............... F-27
-- Consolidated balance sheets as of December 31, 1996 and
1997................................................... F-28
-- Consolidated statements of operations for the years
ended December 31, 1995, 1996 and 1997................. F-29
-- Consolidated statements of cash flows for the years
ended December 31, 1995, 1996 and 1997................. F-30
-- Consolidated statements of stockholders' equity for the
years ended December 31, 1995, 1996 and 1997........... F-31
-- Notes to consolidated financial statements............. F-32
-- Schedule III -- Consolidated Real Estate and
Accumulated Depreciation as of December 31, 1997....... F-41
AMB CONTRIBUTED PROPERTIES -- December 31, 1995, 1996 and
1997
-- Report of independent public accountants............... F-46
-- Combined balance sheets as of December 31, 1995 and
1996 and September 30, 1997 (unaudited)................ F-47
-- Combined statements of operations for the years ended
December 31, 1994, 1995 and 1996, the nine months ended
September 30, 1996 (unaudited) and the period from
January 1, 1997 to November 25, 1997(unaudited)........ F-48
-- Combined statements of owners' equity for the years
ended December 31, 1994, 1995 and 1996 and the nine
months ended September 30, 1997 (unaudited)............ F-49
</TABLE>
F-1
<PAGE> 153
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
-- Combined statements of cash flows for the years ended
December 31, 1994, 1995 and 1996, the nine months ended
September 30, 1996 (unaudited) and the period from
January 1, 1997 to November 25, 1997(unaudited)........ F-50
-- Notes to combined financial statements................. F-51
Boston Industrial Portfolio
-- Report of independent public accountants............... F-57
-- Combined statements of revenues and certain expenses
for the year ended December 31, 1997 and for the period
from January 1, 1998 to March 27, 1998 (unaudited)..... F-58
-- Notes to combined statements of revenues and certain
expenses............................................... F-59
The Jamesburg Property
-- Report of independent public accountants............... F-61
-- Statements of revenues and certain expenses for the
year ended December 31, 1997 and for the period from
January 1, 1998 to March 20, 1998 (unaudited).......... F-62
-- Notes to statements of revenues and certain expenses... F-63
Orlando Central Park
-- Report of independent public accountants............... F-64
-- Statements of revenues and certain expenses for the
year ended December 31, 1997 and for the period from
January 1, 1998 to March 24, 1998 (unaudited).......... F-65
-- Notes to statements of revenues and certain expenses... F-66
Totem Lake Malls
-- Report of independent public accountants............... F-67
-- Statements of revenues and certain expenses for the
year ended December 31, 1997 and for the period from
January 1, 1998 to March 6, 1998 (unaudited)........... F-68
-- Notes to statements of revenues and certain expenses... F-69
Garland Industrial Portfolio
-- Report of independent public accountants............... F-70
-- Combined statements of revenues and certain expenses
for the year ended December 31, 1997 and for the period
from January 1, 1998 to June 18, 1998.................. F-71
-- Notes to statements of revenues and certain expenses... F-72
Minnetonka Industrial Portfolio
-- Report of independent public accountants............... F-73
-- Combined statements of revenues and certain expenses
for the year ended December 31, 1997 and for the period
from January 1, 1998 to June 18, 1998 (unaudited)...... F-74
-- Notes to combined statements of revenues and certain
expenses............................................... F-75
Crysen Corridor Warehouse
-- Report of independent public accountants............... F-77
-- Statements of revenues and certain expenses for the
year ended December 31, 1997 and for the period from
January 1, 1998 to June 30, 1998 (unaudited)........... F-78
-- Notes to statements of revenues and certain expenses... F-79
</TABLE>
F-2
<PAGE> 154
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Amberjack Portfolio
-- Report of independent public accountants............... F-81
-- Combined statements of revenues and certain expenses
for the year ended December 31, 1997 and the period
from January 1, 1998 to June 30, 1998 (unaudited)...... F-82
-- Notes to statements of revenues and certain expenses... F-83
Willow Lake Portfolio
-- Report of independent public accountants............... F-84
-- Combined statements of revenues and certain expenses
for the year ended December 31, 1997 and the period
from January 1, 1998 to June 30, 1998 (unaudited)...... F-85
-- Notes to statements of revenues and certain expenses... F-86
Willow Park Portfolio
-- Report of independent public accountants............... F-88
-- Combined statements of revenues and certain expenses
for the year ended December 31, 1997 and the period
from January 1, 1998 to June 30, 1998 (unaudited)...... F-89
-- Notes to statements of revenues and certain expenses... F-90
Cabot Industrial Portfolio
-- Report of independent public accountants............... F-92
-- Combined statements of revenues and certain expenses
for the year ended December 31, 1996 and the period
from January 1, 1997 to December 30, 1997
(unaudited)............................................ F-93
-- Notes to combined statements of revenue and certain
expenses............................................... F-94
Cabot Business Park
-- Report of independent public accountants............... F-96
-- Statements of revenues and certain expenses for the
year ended December 31, 1996 and the period from
January 1, 1997 to September 15, 1997 (unaudited)...... F-97
-- Notes to statements of revenues and certain expenses... F-98
Manhattan Village Shopping Center
-- Report of independent public accountants............... F-99
-- Statements of revenues and certain expenses for the
year ended December 31, 1996 and for the period from
January 1, 1997 to August 19, 1997 (unaudited)......... F-100
-- Notes to statements of revenues and certain expenses... F-101
Weslayan Plaza
-- Report of independent public accountants............... F-102
-- Statements of revenues and certain expenses for the
year ended December 31, 1996 and for the period from
January 1, 1997 to September 30, 1997 (unaudited)...... F-103
-- Notes to statements of revenues and certain expenses... F-104
Silicon Valley R&D Portfolio
-- Report of independent public accountants............... F-105
-- Statements of revenues and certain expenses for the
year ended December 31, 1996 and for the period from
January 1, 1997 to September 30, 1997 (unaudited)...... F-106
-- Notes to statements of revenues and certain expenses... F-107
</TABLE>
F-3
<PAGE> 155
AMB PROPERTY CORPORATION
PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
BACKGROUND
The accompanying unaudited pro forma condensed consolidated balance sheet
as of June 30, 1998 has been prepared to reflect: (i) the acquisition of
properties subsequent to June 30, 1998, (ii) the sale of Series A Preferred
Shares and the application of the net proceeds therefrom, (iii) the Offering and
the application of the net proceeds therefrom and (iv) certain other adjustments
as if such transactions and adjustments had occurred on June 30, 1998. The
accompanying unaudited pro forma condensed consolidated statements of operations
for the year ended December 31, 1997 and the six months ended June 30, 1998 have
been prepared to reflect: (i) the incremental effect of the acquisition of
properties during 1998 and 1997, (ii) the incremental effect of the disposition
or partial disposition of properties during 1997, (iii) the IPO and Formation
Transactions, (iv) pro forma debt and other adjustments resulting from the sale
of Senior Debt Securities, the sale of Series A Preferred Shares and the
Offering and the application of the resulting net proceeds and (v) certain other
adjustments as if such transactions and adjustments had occurred on January 1,
1997.
These unaudited pro forma condensed consolidated statements should be read
in connection with the historical combined financial statements and notes
thereto of the AMB Contributed Properties and the consolidated financial
statements and notes thereto of AMB Property Corporation included elsewhere in
this Prospectus. In the opinion of management, the pro forma condensed
consolidated financial information provides for all adjustments necessary to
reflect the effects of the IPO and Formation Transactions, the sale of Senior
Debt Securities, the sale of Series A Preferred Shares and the Offering and the
application of the resulting net proceeds, property acquisitions and
dispositions and certain other transactions.
The pro forma information is unaudited and is not necessarily indicative of
the consolidated results that would have occurred if the transactions and
adjustments reflected therein had been consummated in the period or on the date
presented, or on any particular date in the future, nor does it purport to
represent the financial position, results of operations or changes in cash flows
for future periods.
F-4
<PAGE> 156
AMB PROPERTY CORPORATION
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1998
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
SALE OF
SERIES A
PROPERTY PREFERRED PRE-OFFERING
COMPANY(1) ACQUISITIONS(2) SHARES PRO FORMA OFFERING(4) PRO FORMA
---------- --------------- --------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investments in real estate, net... $2,967,621 $258,859 $ -- $3,226,480 $ -- $3,226,480
Cash and cash equivalents......... 29,167 (7,031) -- 22,136 -- 22,136
Other assets...................... 36,318 -- -- 36,318 -- 36,318
---------- -------- --------- ---------- ----------- ----------
Total assets............. $3,033,106 $251,828 $ -- $3,284,934 $ -- $3,284,934
========== ======== ========= ========== =========== ==========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Secured debt...................... $ 592,430 $ 71,506 $ -- $ 663,936 $ -- $ 663,936
Unsecured credit facilities....... 137,000 163,850 (96,850) 204,000 (71,600) 132,400
Senior debt securities............ 400,000 -- -- 400,000 -- 400,000
Other liabilities................. 84,508 -- -- 84,508 -- 84,508
---------- -------- --------- ---------- ----------- ----------
Total liabilities........ 1,213,938 235,356 (96,850) 1,352,444 (71,600) 1,280,844
---------- -------- --------- ---------- ----------- ----------
Minority interests................ 149,751 16,472 -- 166,223 -- 166,223
---------- -------- --------- ---------- ----------- ----------
Stockholders' Equity
Series A Preferred Stock........ -- -- 96,850 96,850 -- 96,850
Series B Preferred Stock........ -- -- -- -- 71,600 71,600
Common Shares................... 859 -- -- 859 -- 859
Additional paid-in capital...... 1,668,558 -- -- 1,668,558 -- 1,668,558
Retained earnings............... -- -- -- -- -- --
---------- -------- --------- ---------- ----------- ----------
Total equity............. 1,669,417 -- 96,850 1,766,267 71,600 1,837,867
---------- -------- --------- ---------- ----------- ----------
Total liabilities and
stockholder's equity... $3,033,106 $251,828 $ -- $3,284,934 $ -- $3,284,934
========== ======== ========= ========== =========== ==========
</TABLE>
F-5
<PAGE> 157
AMB PROPERTY CORPORATION
NOTES TO PRO FORMA
CONDENSED CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1998
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
1. Reflects the historical consolidated balance sheet of AMB Property
Corporation as of June 30, 1998. See the historical consolidated financial
statements and notes thereto of AMB Property Corporation included elsewhere in
this Prospectus.
2. Reflects property acquisitions subsequent to June 30, 1998 for an
estimated total purchase price of approximately $258,859, including estimated
acquisition costs. The Company has funded these acquisitions through (i)
borrowings under its Credit Facility of approximately $163,850, (ii) cash on
hand of approximately $7,031 (iii) the issuance of Operating Partnership Units
in the amount of approximately $16,472, and (iv) the assumption of approximately
$71,506 in secured debt. Property acquisitions include the following properties:
<TABLE>
<CAPTION>
PROPERTY NAME ACQUISITION PRICE
------------- -----------------
<S> <C>
Suffolk Industrial............................ $ 7,746
Chemway Industrial............................ 11,733
Amberjack Portfolio........................... 78,468
Willow Lake Portfolio......................... 60,489
Willow Park Portfolio......................... 100,423
--------
$258,859
========
</TABLE>
3. Reflects the effect of (i) the sale of Series A Preferred Shares in the
amount of $100,000, resulting in net proceeds of approximately $96,850 after
payment of approximately $3,150 of offering costs and underwriting fees and (ii)
the repayment of borrowings under the Credit Facility of approximately $96,850
using the net proceeds of the sale of Series A Preferred Shares.
4. Reflects the effect of the Offering, including (i) the issuance of
Series B Preferred Stock in the amount of $75,000, resulting in assumed net
proceeds of approximately $71,600 after payment of approximately $3,400 of
offering costs and underwriting fees and (ii) the repayment of borrowings under
the Credit Facility of approximately $71,600.
F-6
<PAGE> 158
AMB PROPERTY CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
1998 PROPERTY DEBT ADJUSTMENTS
COMPANY(1) ACQUISITIONS(2) AND OFFERINGS(3) PRO FORMA
-------------- --------------- ---------------- -----------
<S> <C> <C> <C> <C>
REVENUES
Rental revenue.......................... $ 159,003 $29,918 $ -- $ 188,921
Interest and other income............... 1,796 2,543 -- 4,339
----------- ------- -------- -----------
Total revenues................ 160,799 32,461 -- 193,260
----------- ------- -------- -----------
OPERATING EXPENSES
Real estate taxes and property operating
expenses.............................. 42,504 7,667 -- 50,171
Interest expense........................ 27,561 -- 12,650 40,211
Depreciation and amortization........... 25,302 4,213 -- 29,515
General, administrative and other....... 5,862 -- -- 5,862
----------- ------- -------- -----------
Total operating expenses...... 101,229 11,880 12,650 125,759
----------- ------- -------- -----------
Income from operations before minority
interests............................. 59,570 20,581 (12,650) 67,501
Minority interests' share of net
income................................ (3,686) (1,749) -- (5,435)
----------- ------- -------- -----------
Net income.................... 55,884 18,832 (12,650) 62,066(4)
Preferred stock dividends............... -- -- (7,438) (7,438)
----------- ------- -------- -----------
Net income available to common
stockholders.......................... $ 55,884 $18,832 $(20,088) $ 54,628
=========== ======= ======== ===========
Net income per share
Basic................................. $ 0.65 $ 0.64
=========== ===========
Diluted............................... $ 0.65 $ 0.63
=========== ===========
Weighted average shares outstanding
Basic................................. 85,874,513 85,874,513
=========== ===========
Diluted............................... 86,222,175 86,284,736
=========== ===========
</TABLE>
F-7
<PAGE> 159
AMB PROPERTY CORPORATION
NOTES TO PRO FORMA
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
1. Reflects the historical consolidated operations of AMB Property
Corporation for the six months ended June 30, 1998. See the historical
consolidated financial statements and notes thereto of AMB Property Corporation
included elsewhere in this Prospectus.
2. Reflects the incremental effects of properties acquired subsequent to
December 31, 1997 based on the operations of such properties for periods prior
to acquisition by the Company. Below is a summary of the incremental effect of
such properties:
<TABLE>
<CAPTION>
REAL ESTATE TAXES REVENUES IN
AND PROPERTY EXCESS OF
RENTAL AND OPERATING CERTAIN
OTHER REVENUES EXPENSES EXPENSES
-------------- ----------------- -----------
<S> <C> <C> <C>
Boston Industrial Portfolio........................... $ 2,853 $ (108) $ 2,745
Jamesburg Property.................................... 1,466 (543) 923
Orlando Central Park.................................. 804 (260) 544
Totem Lake Malls...................................... 758 (277) 481
Garland Industrial Portfolio.......................... 1,966 (412) 1,554
Minnetonka Industrial Portfolio....................... 2,022 (768) 1,254
Crysen Corridor Warehouse............................. 248 (62) 186
Amberjack Portfolio................................... 5,078 (1,844) 3,234
Willow Lake Portfolio................................. 2,712 (629) 2,083
Willow Park Portfolio................................. 6,514 (1,338) 5,176
Other properties...................................... 5,497 (1,426) 4,071
------- ------- -------
$29,918 $(7,667) $22,251
======= ======= =======
</TABLE>
Four of the property acquisitions, Jamesburg Property, Corporate Park
Industrial, Garland Industrial Portfolio and Minnetonka Industrial Portfolio,
represent a joint venture with a client of AMB Investment Management in which
the Company owns a controlling 50.0005% interest. The joint venture acquisitions
are accounted for on a consolidated basis and, accordingly, minority interest of
$1,749 has been reflected relative to these acquisitions.
See the statements of revenues and certain expenses of Boston Industrial
Portfolio, Jamesburg Property, Orlando Central Park, Totem Lake Malls, Garland
Industrial Portfolio, Minnetonka Industrial Portfolio, Crysen Corridor
Warehouse, Amberjack Portfolio, Willow Lake Portfolio and Willow Park Portfolio
included elsewhere in this Prospectus.
F-8
<PAGE> 160
AMB PROPERTY CORPORATION
NOTES TO PRO FORMA
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (CONTINUED)
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
The following table sets forth the incremental revenues and certain
expenses for periods prior to acquisition for other properties acquired in 1998,
but not included in the statements of revenues and certain expenses of the
Boston Industrial Portfolio, Jamesburg Property, Orlando Central Park, Totem
Lake Malls, Garland Industrial Portfolio, Minnetonka Industries Portfolio,
Crysen Corridor Warehouse, Amberjack Portfolio, Willow Lake Portfolio and Willow
Park Portfolio included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
REAL ESTATE
TAXES AND
PROPERTY REVENUES IN
RENTAL OPERATING EXCESS OF
PROPERTY ACQUIRED REVENUES EXPENSES CERTAIN EXPENSES
----------------- -------- ----------- ----------------
<S> <C> <C> <C>
Wilsonville....................... $ 167 $ (41) $ 126
Atlanta South Phase III........... 116 (30) 86
Mansfield Industrial Portfolio.... 71 (2) 69
Corporate Park Industrial......... 757 (130) 627
Cascade........................... 44 (11) 33
Northridge........................ 108 (43) 65
Minneapolis Industrial
Portfolio....................... 592 (230) 362
Houston Service Center............ 706 (249) 457
Meadowridge Business Park......... 1,058 (238) 820
Northwest Business Center......... 323 (75) 248
Forbes............................ -- -- --
Southfield........................ -- -- --
Suffolk........................... 165 (42) 123
Alsip Industrial.................. 374 (106) 268
Suffolk Industrial................ 427 (108) 319
Chemway Industrial................ 589 (121) 468
------- ------- ------
$ 5,497 $(1,426) $4,071
======= ======= ======
</TABLE>
Two of the acquisitions above, Forbes and Southfield, represent the
purchase of vacant buildings which are in the process of being leased. As such,
no property operations have been reflected in the accompanying pro forma
statement of operations relative to these acquisitions.
Also reflects the acquisition of a non-controlling unconsolidated limited
partnership interest in an existing real estate joint venture which owns the
DuPage Elk Grove Property. As such, the Company's share of equity in earnings of
this joint venture of $2,543 is included in interest and other income in the
accompanying pro forma statement of operations.
Also reflects the estimated incremental depreciation and amortization of
the 1998 property acquisitions based on estimated useful lives of 40 years.
F-9
<PAGE> 161
AMB PROPERTY CORPORATION
NOTES TO PRO FORMA
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (CONTINUED)
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
3. Reflects an adjustment to derive pro forma interest expense, which is
based upon the pro forma debt balances as of June 30, 1998. The calculation of
pro forma interest expense is as follows:
<TABLE>
<S> <C>
Secured debt, pro forma balance of $647,137 (before premium
of $16,799), assumed interest rate of 7.91%............... $25,595
Credit Facility, pro forma balance of $132,400, assumed
interest rate of 6.59%.................................... 4,362
Senior Debt Securities, pro forma balance of $400,000,
weighted average interest rate of 7.175%.................. 14,350
Amortization of debt premium, actual amounts amortized
during the period......................................... (1,769)
Amortization of deferred financing costs, $6,434 balance, 3
to 17 year terms.......................................... 495
Unused Credit Facility fees, unused pro forma balance of
$367,600, fee of 0.15%.................................... 276
Capitalized interest, actual amounts capitalized during the
period.................................................... (3,098)
-------
Pro forma interest expense.................................. $40,211
=======
</TABLE>
The net change in interest expense is the result of the repayment of
borrowings on the Credit Facility of approximately $168,450 with the net
proceeds from the sale of the Senior Debt Securities, the sale of Series A
Preferred Shares and the Offering.
Also reflects the payment of pro forma Series A Preferred Stock dividends
at a dividend rate of 8.5% and Series B Preferred Stock dividends at an assumed
dividend rate.
4. The pro forma taxable income of the Company for the twelve months ended
June 30, 1998 is approximately $110,797, which is based upon pro forma income
from operations before minority interest of approximately $117,230, plus book
depreciation and amortization of approximately $53,651 less other book/tax
differences of approximately $7,092 and less tax depreciation and amortization
of approximately $52,992.
F-10
<PAGE> 162
AMB PROPERTY CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
AMB IPO AND
CONTRIBUTED 1997 PROPERTY 1997 PROPERTY FORMATION 1997 AS
COMPANY(1) PROPERTIES(2) ACQUISITIONS(3) DISPOSITIONS(4) TRANSACTIONS(5) ADJUSTED
---------- ------------- --------------- --------------- --------------- ----------
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Rental revenue............... $ 26,465 $207,391 $47,554 ($1,200) $ 2,455 $ 282,665
Interest and other income.... 29,597 1,217 176 -- (28,981) 2,009
---------- -------- ------- ------- -------- ----------
Total revenues....... 56,062 208,608 47,730 (1,200) (26,526) 284,674
---------- -------- ------- ------- -------- ----------
OPERATING EXPENSES
Real estate taxes and
property operating
expenses................... 8,899 72,452 10,815 (363) (10,325) 81,478
Interest expense............. 3,528 45,009 -- (75) (3,033) 45,429
Depreciation and
amortization............... 4,195 32,616 -- (157) 9,232 45,886
General, administrative and
other...................... 20,555 823 -- -- (13,400) 7,978
---------- -------- ------- ------- -------- ----------
Total operating
expenses........... 37,177 150,900 10,815 (595) (17,526) 180,771
---------- -------- ------- ------- -------- ----------
Income from operations before
disposal of real estate and
minority interests......... 18,885 57,708 36,915 (605) (9,000) 103,903
Gain on disposal of real
estate..................... -- 360 -- (360) -- --
---------- -------- ------- ------- -------- ----------
Income from operations before
minority interests......... 18,885 58,068 36,915 (965) (9,000) 103,903
Minority interests' share of
net income................. (657) (884) (296) -- (2,558) (4,395)
---------- -------- ------- ------- -------- ----------
Net income................... 18,228 57,184 36,619 (965) (11,558) 99,508
Preferred Stock Dividends.... -- -- -- -- --
---------- -------- ------- ------- -------- ----------
Net income available to
common stockholders........ $ 18,228 $ 57,184 $36,619 $ (965) $(11,558) $ 99,508
========== ======== ======= ======= ======== ==========
Net income per share
Basic...................... $ 1.39 $ 1.16
========== ==========
Diluted.................... $ 1.38 $ 1.16
========== ==========
Weighted average shares
outstanding
Basic...................... 13,140,218 85,874,513
========== ==========
Diluted.................... 13,168,036 86,156,556
========== ==========
<CAPTION>
PRO FORMA
DEBT
ADJUSTMENTS
1998 PROPERTY AND
ACQUISITIONS(6) OFFERINGS(7) PRO FORMA
--------------- ------------ ----------
<S> <C> <C> <C>
REVENUES
Rental revenue............... $79,850 $ -- $ 362,515
Interest and other income.... 5,086 -- 7,095
------- -------- ----------
Total revenues....... 84,936 -- 369,610
------- -------- ----------
OPERATING EXPENSES
Real estate taxes and
property operating
expenses................... 20,923 -- 102,401
Interest expense............. -- 37,633 83,062
Depreciation and
amortization............... 11,744 -- 57,630
General, administrative and
other...................... -- -- 7,978
------- -------- ----------
Total operating
expenses........... 32,667 37,633 251,071
------- -------- ----------
Income from operations before
disposal of real estate and
minority interests......... 52,269 (37,633) 118,539
Gain on disposal of real
estate..................... -- -- --
------- -------- ----------
Income from operations before
minority interests......... 52,269 (37,633) 118,539
Minority interests' share of
net income................. (5,152) -- (9,547)
------- -------- ----------
Net income................... 47,117 (37,633) 108,992
Preferred Stock Dividends.... -- (14,875) (14,875)
------- -------- ----------
Net income available to
common stockholders........ $47,117 $(52,508) $ 94,117
======= ======== ==========
Net income per share
Basic...................... $ 1.10
==========
Diluted.................... $ 1.09
==========
Weighted average shares
outstanding
Basic...................... 85,874,513
==========
Diluted.................... 86,156,556
==========
</TABLE>
F-11
<PAGE> 163
AMB PROPERTY CORPORATION
NOTES TO PRO FORMA
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
1. Reflects the historical consolidated operations of AMB Property
Corporation for the period from November 26, 1997 to December 31, 1997. See the
historical consolidated financial statements and notes thereto of AMB Property
Corporation included elsewhere in this Prospectus.
2. Reflects the historical combined operations of the AMB Contributed
Properties for the period from January 1, 1997 to November 25, 1997. See the
historical combined financial statements and notes thereto of the AMB
Contributed Properties included elsewhere in this Prospectus.
3. Reflects the incremental effects of properties acquired during the year
ended December 31, 1997 based on the historical operations of such properties
for periods prior to acquisition by the Company or the owners of the AMB
Contributed Properties. Below is a summary of the incremental effect of such
properties:
<TABLE>
<CAPTION>
SILICON VALLEY
CABOT INDUSTRIAL CABOT MANHATTAN WESLAYAN R&D OTHER
PORTFOLIO BUSINESS PARK VILLAGE PLAZA PORTFOLIO PROPERTIES TOTAL
---------------- ------------- --------- -------- -------------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Rental revenues.......... $22,995 $4,734 $ 5,467 $3,259 $2,958 $ 8,141 $ 47,554
Real estate taxes and
property operating
expenses............... (4,775) (895) (1,928) (990) (311) (1,916) (10,815)
------- ------ ------- ------ ------ ------- --------
Pro forma effect......... $18,220 $3,839 $ 3,539 $2,269 $2,647 $ 6,225 $ 36,739
======= ====== ======= ====== ====== ======= ========
</TABLE>
One of the acquisitions above, Manhattan Village, represents the
acquisition of a property and the formation of several joint ventures that own
the property, in which the Company owns a 90% interest. The joint venture is
accounted for on a consolidated basis, and accordingly, a 10% minority interest
has been reflected relative to this acquisition.
See the statements of revenues and certain expenses of Cabot Industrial
Portfolio, Cabot Business Park, Manhattan Village, Weslayan Plaza and Silicon
Valley R&D Portfolio included elsewhere in this Prospectus.
F-12
<PAGE> 164
AMB PROPERTY CORPORATION
NOTES TO PRO FORMA
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
The following table sets forth the incremental revenues and certain
expenses for periods prior to acquisition for other properties acquired in 1997
but not included in the statements of revenues and certain expenses for Cabot
Industrial Portfolio, Cabot Business Park, Manhattan Village, Weslayar Plaza and
Silicon Valley R & D Portfolio. See "Business and Properties."
<TABLE>
<CAPTION>
REAL ESTATE
TAXES AND
PROPERTY REVENUES IN
RENTAL OPERATING EXCESS OF
PROPERTY ACQUIRED REVENUES EXPENSES CERTAIN EXPENSES
----------------- -------- ----------- ----------------
<S> <C> <C> <C>
Shady Oak.............................. $ 326 $ (70) $ 256
Metric Center.......................... 635 (50) 585
Southfield............................. 171 (40) 131
Atlanta South Phase II................. 109 (57) 52
O'Hare Industrial Portfolio
(Ardmore)............................ 265 (74) 191
Windsor Court.......................... 151 (53) 98
Beacon Building 8...................... 765 (180) 585
Greenleaf.............................. 177 (74) 103
Boulden................................ 1,070 (269) 801
Mid-Atlantic Business Center........... 1,537 (414) 1,123
Brittania Business Park................ 1,058 (212) 846
Rockford Road.......................... 64 (6) 58
Patuxent............................... 509 (113) 396
Executive.............................. 588 (175) 413
Acer Distribution...................... 716 (129) 587
------- ------- -------
$ 8,141 $(1,916) $ 6,225
======= ======= =======
</TABLE>
4. Reflects the incremental effects of the disposition or partial
disposition of properties during 1997, based upon the historical operations of
such properties. See Note 7 to the historical combined financial statements of
the AMB Contributed Properties included elsewhere in this Prospectus.
5. Reflects the effects of the application of purchase accounting as a
result of the IPO and Formation Transactions, resulting in pro forma expense
adjustments as follows: (i) an increase in depreciation expense of $9,232, (ii)
the reclassification of certain property-related expenses from general and
administrative expense to property operating expense (due to the internalization
of management) of approximately $5,196 and (iii) a net increase in general,
administrative and other expenses of $5,958, after reclassification of
property-related expenses. Such changes are based upon actual expenses incurred
during 1997 adjusted for (a) the estimated changes in costs due to operating as
a public entity including investor relations, accounting and legal fees and
other costs related to the internalization of management and (b) certain
reclassifications to reflect the Company's new organizational structure as a
result of the IPO. Estimated depreciation and amortization has been based upon
asset lives of 5 to 40 years.
Also reflects the elimination of advisory fees charged by the Company's
predecessor, AMB, to the owners of the AMB Contributed Properties of $15,521
(excluding approximately $2,027 in real estate acquisition fees paid to AMB
which have been accounted for as acquisition costs by the owners of the AMB
Contributed Properties and accordingly capitalized as investments in real
estate). Also reflects the elimination of investment management and advisory
fees earned by AMB of $28,756 and related expenses of $19,358
F-13
<PAGE> 165
AMB PROPERTY CORPORATION
NOTES TO PRO FORMA
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
resulting from the change in the Company's operations from an investment manager
to a real estate operating company.
Also reflects an adjustment to historical interest expense to derive 1997
as adjusted interest expense, which is based upon the Company's debt balances as
of December 31, 1997. The calculation of 1997 as adjusted interest expense is as
follows:
<TABLE>
<S> <C>
Secured debt, balance of $517,366 (before premium of
$18,286),
assumed interest rate of 7.82%............................ $40,458
Credit Facility, balance of $150,000, assumed interest rate
of 6.90%.................................................. 10,350
Amortization of debt premium, $18,286 balance, 8 year
term...................................................... (2,924)
Amortization of financing costs, $900 balance, 3 year
term...................................................... 300
Unused Credit Facility fees, unused balance of $350,000, fee
of 0.20%.................................................. 700
Capitalized interest, average historical construction in
process of $48,303, overall weighted average interest rate
of 7.5%................................................... (3,455)
-------
1997 as adjusted interest expense........................... $45,429
=======
</TABLE>
Also reflects an adjustment to record rental revenues on a straight-line
basis for the Properties from January 1, 1997, the assumed date of acquisition
by the Company. Rental income has not been included for any properties for
periods prior to completion of their construction and availability for
occupancy. The pro forma straight-line rent adjustment for the year ended
December 31, 1997 is calculated as the difference between (i) pro forma
straight-line rental revenues of $5,447 and (ii) historical straight-line rental
revenues of $2,992.
Also reflects an adjustment to reflect the incremental effect of
establishing the Company's investment in AMB Investment Management, the income
from which is included in interest and other income. The pro forma operations of
AMB Investment Management and the Company's share of AMB Investment Management's
net income based upon its 95% economic interest are as follows:
<TABLE>
<S> <C>
Advisory revenues........................................... $ 5,487
General and administrative expenses......................... (4,465)
Depreciation and amortization............................... (72)
-------
Income before income taxes.................................. 950
Income taxes (at assumed effective tax rate of 40%)......... (380)
-------
Income before minority interest............................. 570
Minority interest........................................... (17)
-------
Net income.................................................. $ 553
-------
Company's share of net income............................... $ 525
=======
</TABLE>
Advisory revenues consist of actual fees earned by AMB for the period from
January 1, 1997 to November 25, 1997 from the assets that are managed by AMB
Investment Management and the actual results of AMB Investment Management for
the period from November 26, 1997 to December 31, 1997.
General and administrative expenses consist of direct costs and indirect
costs allocated to AMB Investment Management by the Company. Such indirect costs
have been allocated based upon the percentage of total assets managed by AMB
Investment Management.
F-14
<PAGE> 166
AMB PROPERTY CORPORATION
NOTES TO PRO FORMA
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
In addition to its share of AMB Investment Management's net income, the
Company received an acquisition fee for acquisition services provided to AMB
Investment Management in 1997. The pro forma fee for 1997 amounts to $750.
6. Reflects the incremental effects of properties acquired subsequent to
December 31, 1997 based on the operations of such properties for periods prior
to acquisition by the Company. Below is a summary of the incremental effect of
such properties:
<TABLE>
<CAPTION>
REAL ESTATE TAXES REVENUES IN
RENTAL AND PROPERTY EXCESS OF
REVENUES OPERATING EXPENSES CERTAIN EXPENSES
-------- ------------------ ----------------
<S> <C> <C> <C>
Boston Industrial Portfolio......... $10,403 $ (802) $ 9,601
Jamesburg Property.................. 6,774 (2,510) 4,264
Orlando Central Park................ 3,249 (1,069) 2,180
Totem Lake Malls.................... 2,822 (1,293) 1,529
Garland Industrial Portfolio........ 4,159 (961) 3,198
Minnetonka Industrial Portfolio..... 4,294 (1,622) 2,672
Crysen Corridor Warehouse........... 536 (113) 423
Amberjack Portfolio................. 9,527 (3,142) 6,385
Willow Lake Portfolio............... 5,214 (1,231) 3,983
Willow Park Portfolio............... 10,119 (2,213) 7,906
Other properties.................... 22,753 (5,967) 16,786
------- -------- -------
$79,850 $(20,923) $58,927
======= ======== =======
</TABLE>
Four of the property acquisitions, Jamesburg Property, Corporate Park
Industrial, Garland Industrial Portfolio and Minnetonka Industrial Portfolio,
represent joint ventures with a client of AMB Investment Management in which the
Company owns a controlling 50.0005% interest. The joint venture acquisitions are
accounted for on a consolidated basis and, accordingly, a minority interest of
$5,152 has been reflected relative to these acquisitions.
See the statements of revenues and certain expenses of Boston Industrial
Portfolio, Jamesburg Property, Orlando Central Park, Totem Lake Malls, Garland
Industrial Portfolio, Minnetonka Industrial Portfolio, Crysen Corridor
Warehouse, Amberjack Portfolio, Willow Lake Portfolio and Willow Park Portfolio
included elsewhere in this Prospectus.
F-15
<PAGE> 167
AMB PROPERTY CORPORATION
NOTES TO PRO FORMA
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
The following table sets forth the incremental revenues and certain
expenses for periods prior to acquisition for other properties acquired in 1998
but not included in the statements of revenues and certain expenses for Boston
Industrial Portfolio, Jamesburg Property, Orlando Central Park, Totem Lake
Malls, Garland Industrial Portfolio, Minnetonka Industrial Portfolio, Crysen
Corridor Warehouse, Amberjack Portfolio, Willow Lake Portfolio and Willow Park
Portfolio.
<TABLE>
<CAPTION>
REAL
ESTATE
TAXES AND
PROPERTY REVENUES IN
RENTAL OPERATING EXCESS OF
PROPERTY ACQUIRED REVENUES EXPENSES CERTAIN EXPENSES
----------------- -------- --------- ----------------
<S> <C> <C> <C>
Wilsonville................................. $ 2,026 $ (500) $ 1,526
Atlanta South Phase III..................... 773 (200) 573
Mansfield Industrial Portfolio.............. 343 (12) 331
Corporate Park Industrial................... 3,241 (572) 2,669
Cascade..................................... 1,065 (259) 806
Northridge.................................. 1,332 (534) 798
Minneapolis Industrial Portfolio............ 2,468 (881) 1,587
Houston Service Center...................... 2,740 (965) 1,775
Meadowridge Business Park................... 4,104 (923) 3,181
Northwest Business Center................... 1,252 (292) 960
Forbes...................................... -- -- --
Southfield.................................. -- -- --
Suffolk..................................... 655 (221) 434
Alsip Industrial............................ 725 (204) 521
Suffolk Industrial.......................... 853 (214) 639
Chemway Industrial.......................... 1,176 (190) 986
------- ------- -------
$22,753 $(5,967) $16,786
======= ======= =======
</TABLE>
Also reflects the acquisition of a non-controlling limited partnership
interest in an existing unconsolidated real estate joint venture which owns the
DuPage Elk Grove Property. As such, the Company's share of equity in earnings of
this joint venture of $5,086 is included in interest and other income in the
accompanying pro forma statement of operations.
Also reflects estimated depreciation and amortization of the 1998 property
acquisitions based on estimated useful lives of 40 years.
F-16
<PAGE> 168
AMB PROPERTY CORPORATION
NOTES TO PRO FORMA
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
7. Reflects an adjustment to derive pro forma interest expense, which is
based upon the pro forma debt balances as of June 30, 1998. The calculation of
pro forma interest expense is as follows:
<TABLE>
<S> <C>
Secured debt, pro forma balance of $647,137 (before premium
of $16,799), assumed interest rate of 7.91%............... $51,190
Credit Facility, pro forma balance of $132,400, assumed
interest rate
of 6.59%.................................................. 8,725
Senior Debt Securities, pro forma balance of $400,000,
weighted average interest rate of 7.175%.................. 28,700
Amortization of deferred financing costs, $6,434 balance, 3
to 17 year terms.......................................... 990
Amortization of debt premium, $16,799 balance, 8 year
term...................................................... (2,976)
Unused Credit Facility fees, unused pro forma balance of
$367,600, fee of 0.15%.................................... 551
Capitalized interest, average construction in process of
$48,303, overall weighted average assumed interest rate of
7.5%...................................................... (4,118)
-------
Pro forma interest expense.................................. $83,062
=======
</TABLE>
The net change in interest expense is the result of the repayment of
borrowings on the Credit Facility of approximately $168,450 with the net
proceeds from the sale of Series A Preferred Shares and the Offering.
Also reflects the payment of pro forma Series A Preferred Stock dividends
at a dividend rate of 8.5% and Series B Preferred Stock dividends at an assumed
dividend rate.
F-17
<PAGE> 169
AMB PROPERTY CORPORATION
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1997 AND JUNE 30, 1998
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, 1997 JUNE 30, 1998
----------------- -------------
<S> <C> <C>
Investments in real estate:
Land...................................................... $ 550,635 $ 654,926
Buildings and improvements................................ 1,822,516 2,163,452
Construction in progress.................................. 69,848 111,346
---------- ----------
Total investments in properties................... 2,442,999 2,929,724
Accumulated depreciation and amortization................. (4,153) (29,252)
---------- ----------
Net investments in properties..................... 2,438,846 2,900,472
Investment in unconsolidated joint venture................ -- 67,149
---------- ----------
Net investments in real estate.................... 2,438,846 2,967,621
Cash and cash equivalents................................... 39,968 29,167
Other assets................................................ 27,441 36,318
---------- ----------
Total assets...................................... $2,506,255 $3,033,106
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Debt:
Unsecured credit facilities............................... $ 150,000 $ 137,000
Senior debt securities.................................... -- 400,000
Secured debt.............................................. 535,652 592,430
---------- ----------
Total debt........................................ 685,652 1,129,430
Other liabilities........................................... 49,350 84,508
Payable to affiliates....................................... 38,071 --
---------- ----------
Total liabilities................................. 773,073 1,213,938
Commitments and contingencies............................... -- --
Minority interests.......................................... 65,152 149,751
Stockholders' equity:
Common stock, $0.01 par value, 500,000,000 shares
authorized, 85,874,513 issued and outstanding.......... 859 859
Additional paid-in capital................................ 1,667,171 1,668,558
Retained earnings......................................... -- --
---------- ----------
Total stockholders' equity........................ 1,668,030 1,669,417
---------- ----------
Total liabilities and stockholders' equity........ $2,506,255 $3,033,106
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-18
<PAGE> 170
AMB PROPERTY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX AND THREE MONTHS ENDED JUNE 30, 1997 AND 1998
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED FOR THE THREE MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- ---------------------------
1997 1998 1997 1998
---------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
REVENUES
Rental revenues....................... $ -- $ 159,003 $ -- $ 84,401
Investment management and other
income............................. 11,083 1,796 5,971 613
---------- ----------- ---------- -----------
Total revenues................ 11,083 160,799 5,971 85,014
OPERATING EXPENSES
Property operating expenses........... -- 21,231 -- 11,227
Real estate taxes..................... -- 21,273 -- 11,025
General and administrative............ -- 5,862 -- 3,144
Interest, including amortization...... -- 27,561 -- 15,720
Depreciation and amortization......... -- 25,302 -- 13,516
Investment management expenses........ 8,319 -- 4,446 --
---------- ----------- ---------- -----------
Total operating expenses...... 8,319 101,229 4,446 54,632
---------- ----------- ---------- -----------
Income from operations before
minority interests.......... 2,764 59,570 1,525 30,382
Minority interests' share of net
income............................. -- (3,686) -- (2,404)
---------- ----------- ---------- -----------
Net income available to common
stockholders................ $ 2,764 $ 55,884 $ 1,525 $ 27,978
========== =========== ========== ===========
INCOME PER SHARE OF COMMON STOCK
Basic................................. $ 0.54 $ 0.65 $ 0.30 $ 0.33
========== =========== ========== ===========
Diluted............................... $ 0.54 $ 0.65 $ 0.30 $ 0.32
========== =========== ========== ===========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING
Basic................................. 5,079,855 85,874,513 5,079,855 85,874,513
========== =========== ========== ===========
Diluted............................... 5,079,855 86,222,175 5,079,855 86,253,456
========== =========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-19
<PAGE> 171
AMB PROPERTY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1998
(UNAUDITED, DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
JUNE 30,
------------------------
1997 1998
--------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.................................................. $ 2,764 $ 55,884
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................. -- 25,302
Straight-line rents....................................... -- (5,489)
Amortization of debt premiums and financing costs......... -- (1,274)
Minority interests' share of net income................... -- 3,686
Equity in income of AMB Investment Management............. -- 95
Changes in assets and liabilities:
Other assets.............................................. 236 (6,958)
Other liabilities......................................... 2,816 4,474
------- ---------
Net cash provided by operating activities.............. 5,816 75,720
CASH FLOWS FROM INVESTING ACTIVITIES
Cash paid for property acquisitions......................... -- (246,213)
Additions to land and building improvements................. -- (16,922)
Additions to tenant improvements and leasing costs.......... -- (4,965)
Additions to construction in progress....................... -- (25,319)
Acquisition of interest in unconsolidated joint venture..... -- (67,149)
Reduction of payable to affiliates in connection with
Formation Transactions.................................... -- (38,071)
------- ---------
Net cash used in investing activities.................. -- (398,639)
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings on unsecured credit facilities................... -- 382,000
Borrowings on secured debt.................................. -- 16,914
Payments on unsecured credit facilities..................... -- (395,000)
Payments on secured debt.................................... -- (59,545)
Proceeds from issuance of senior debt securities............ -- 399,166
Dividends paid to shareholders.............................. -- (29,413)
Distributions to minority interests......................... -- (2,004)
Deferred offering costs..................................... (2,291) --
Distributions to stockholders of Predecessor................ (5,754) --
Principal payment of notes receivable from stockholders of
Predecessor............................................... 363 --
------- ---------
Net cash provided by (used in) financing activities.... (7,682) 312,118
Net decrease in cash and cash equivalents................... (1,866) (10,801)
Cash and cash equivalents at beginning of period............ 2,783 39,968
------- ---------
Cash and cash equivalents at end of period.................. $ 917 $ 29,167
======= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest.................................................. $ -- $ 26,583
======= =========
Property acquisitions:
Acquisitions of properties................................ $ -- $ 434,353
Assumption of secured debt................................ -- (99,623)
Minority interests' contribution.......................... -- (88,517)
------- ---------
Cash paid for property acquisitions....................... $ -- $ 246,213
======= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-20
<PAGE> 172
AMB PROPERTY CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(UNAUDITED, DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK
------------------- ADDITIONAL
NUMBER PAID-IN RETAINED
OF SHARES AMOUNT CAPITAL EARNINGS TOTAL
---------- ------ ---------- -------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1997.............. 85,874,513 $859 $1,667,171 $ -- $1,668,030
Net income.............................. -- -- -- 55,884 55,884
Reallocation of Limited Partners'
interests in Operating Partnership... -- -- 4,328 -- 4,328
Distributions declared to AMB Property
Corporation stockholders............. -- -- (2,941) (55,884) (58,825)
---------- ---- ---------- -------- ----------
BALANCE AT JUNE 30, 1998.................. 85,874,513 $859 $1,668,558 $ -- $1,669,417
========== ==== ========== ======== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-21
<PAGE> 173
AMB PROPERTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND UNIT AMOUNTS)
1. ORGANIZATION AND FORMATION
AMB Property Corporation, a Maryland corporation (the "Company"), commenced
operations as a fully integrated real estate company effective with the
completion of its initial public offering (the "IPO") on November 26, 1997. The
Company expects to be taxed as a real estate investment trust ("REIT") under
Sections 856 through 860 of the Internal Revenue Code of 1986 (the "Code"), as
amended. The Company, through its controlling interest in its subsidiary AMB
Property, L.P., a Delaware limited partnership (the "Operating Partnership"), is
engaged in the acquisition, ownership, operation, management, renovation,
expansion and development of industrial buildings and community shopping centers
in target markets nationwide. Unless the context otherwise requires, the
"Company" means AMB Property Corporation, the Operating Partnership and its
other controlled subsidiaries.
The Company and the Operating Partnership were formed shortly before
consummation of the IPO. AMB Institutional Realty Advisors, Inc., a California
corporation and registered investment advisor (the "Predecessor") formed AMB
Property Corporation, a wholly owned subsidiary, and merged with and into the
Company (the "Merger") in exchange for 4,746,616 shares of the Company's Common
Stock. In addition, the Company and the Operating Partnership acquired, through
a series of mergers and other transactions, 31.8 million rentable square feet of
industrial property and 6.3 million rentable square feet of retail property in
exchange for 65,022,185 shares of the Company's Common Stock, 2,542,163 limited
partner interests ("LP Units") in the Operating Partnership, the assumption of
debt and, to a limited extent, cash. The net assets of the Predecessor and the
properties acquired with Common Stock were contributed to the Operating
Partnership in exchange for 69,768,801 units. The purchase method of accounting
was applied to the acquisition of the properties. Collectively, the Merger and
the other formation transactions described above are referred to as the
"Formation Transactions."
On November 26, 1997, the Company completed its IPO of 16,100,000 shares of
Common Stock, $0.01 par value per share (the "Common Stock") for $21.00 per
share, resulting in gross offering proceeds of approximately $338,100. Net of
underwriters' commission and offering costs aggregating $38,068, the Company
received approximately $300,032 in proceeds from the IPO. The net proceeds of
the IPO were used to repay indebtedness, to purchase interests from certain
investors who elected not to receive shares or units in connection with the
Formation Transactions, to fund property acquisitions, and for general corporate
working capital requirements.
As of June 30, 1998, the Company owned an approximate 95.8% general partner
interest in the Operating Partnership. The remaining 4.2% limited partner
interest is owned by nonaffiliated investors. For local law purposes, properties
in certain states are owned through limited partnerships and limited liability
companies owned 99% by the Operating Partnership and 1% by a wholly owned
subsidiary of the Company. The ownership of such properties through such
entities does not materially affect the Company's overall ownership of the
interests in the properties. As the sole general partner of the Operating
Partnership, the Company has the full, exclusive and complete responsibility and
discretion in the day-to-day management and control of the Operating
Partnership.
In connection with the Formation Transactions, the Operating Partnership
formed AMB Investment Management, Inc., a Maryland corporation ("AMB Investment
Management"). The Operating Partnership purchased 100% of AMB Investment
Management's non-voting preferred stock (representing a 95% economic interest
therein). Certain executive officers of the Company collectively purchased 100%
of the Investment Management Subsidiary's voting common stock (representing a 5%
economic interest therein). The Operating Partnership accounts for its
investment in AMB Investment Management using the equity method of accounting.
AMB Investment Management was formed to succeed to the Predecessor's investment
management business of providing real estate investment management services on a
fee basis to clients.
F-22
<PAGE> 174
AMB PROPERTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND UNIT AMOUNTS)
As of June 30, 1998, the Company owned 500 industrial buildings and retail
centers, consisting of 463 industrial buildings (the "Industrial Properties")
and 37 retail centers (the "Retail Properties") located in 28 markets throughout
the United States. The Industrial Properties, principally warehouse distribution
buildings, encompass approximately 47.7 million rentable square feet and, as of
June 30, 1998, were 95.1% leased to over 1,200 tenants. The Retail Properties,
principally grocer-anchored community shopping centers, encompass approximately
6.8 million rentable square feet and, as of the same date, were 95.0% leased to
over 900 tenants. The Industrial Properties and the Retail Properties
collectively are referred to as the "Properties."
2. INTERIM FINANCIAL STATEMENTS
The consolidated financial statements included herein have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission.
Accordingly, certain information and note disclosures normally included in the
annual financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. The consolidated financial
statements for prior periods have been reclassified to conform to current
classifications with no effect on results of operations. In the opinion of
management, the accompanying unaudited consolidated financial statements contain
all adjustments, of a normal recurring nature, necessary for a fair presentation
of the Company's consolidated financial position and results of operations for
the interim periods.
The interim financial information for the six months and for the three
months ended June 30, 1997, represents the results of the Predecessor, an
investment manager. The Predecessor's revenues consisted primarily of fees
earned in connection with real estate investment management services. As such,
information presented for the six months and for the three months ended June 30,
1997 and 1998 is not comparable given the differences in lines of business
between the Company and the Predecessor.
The interim results of the six and three months ended June 30, 1997 and
1998 are not necessarily indicative of the results expected for the entire year.
These financial statements should be read in conjunction with the financial
statements and the notes thereto included in the Company's Annual Report on Form
10-K for the year ended December 31, 1997.
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.
F-23
<PAGE> 175
AMB PROPERTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND UNIT AMOUNTS)
3. DEBT
In connection with the Formation Transactions, the Company assumed certain
secured debt with an aggregate principal value of $517,031 and a fair value of
$535,613. The difference between the principal value and the fair value was
recorded as a debt premium. The debt premium is being amortized into interest
expense over the term of the related debt instruments using the effective
interest method. As of June 30, 1998, the unamortized debt premium was $16,799.
As of June 30, 1998, debt, excluding unamortized debt premiums, consists of the
following:
<TABLE>
<S> <C>
Unsecured credit facilities, variable interest at LIBOR plus
90 basis points (6.59% at June 30, 1998), $50,000 due July
1998, remainder due November 2000......................... $ 137,000
Senior debt securities, weighted average interest rate of
7.18%, due June 2008, June 2015 and June 2018............. 400,000
Secured debt, varying interest rates from 4.00% to 10.38%
due November 1998 to January 2014......................... 575,631
----------
Total Debt........................................ $1,112,631
==========
</TABLE>
Secured debt generally requires monthly principal and interest payments.
The secured debt is secured by deeds of trust on certain Properties. All of the
secured debt bears interest at fixed rates, except for two loans totaling $9,173
which bear interest at variable rates. The secured debt has various financial
and non-financial covenants. Additionally, certain of the secured debt is
cross-collateralized. The weighted-average fixed interest rate on secured debt
at June 30, 1998, was 7.91%.
The Company has a $500,000 unsecured revolving credit agreement (the
"Credit Facility") with Morgan Guaranty Trust Company of New York as agent, and
a syndicate of twelve other banks. The Credit Facility has a term of three
years, and is subject to a fee that accrues on the daily average undrawn funds,
which varies between 15 and 25 basis points of the undrawn funds based on the
Company's credit rating (15 basis points at June 30, 1998). The Credit Facility
has various financial and non-financial covenants. In addition, in April 1998,
the Company obtained a $50,000 unsecured acquisition facility from NationsBank,
bearing interest at LIBOR plus 90 basis points (6.59% at June 30, 1998). The
$50,000 unsecured acquisition facility was repaid in July 1998.
Capitalized interest related to construction projects for the six and three
months ended June 30, 1998, was $3,098 and $1,845, respectively. There was no
capitalized interest for periods prior to the Formation Transactions.
The scheduled maturities of the secured debt as of June 30, 1998 are as
follows:
<TABLE>
<S> <C>
1998...................................... $ 16,939
1999...................................... 11,188
2000...................................... 13,192
2001...................................... 38,698
2002...................................... 54,364
Thereafter................................ 441,250
--------
$575,631
========
</TABLE>
F-24
<PAGE> 176
AMB PROPERTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND UNIT AMOUNTS)
In June 1998, the Company issued $400,000 aggregate principal amount of
unsecured notes ("Senior Debt Securities") in an underwritten public offering,
the net proceeds of which were used to repay amounts outstanding under the
unsecured credit facilities. As of June 30, 1998, the Senior Debt Securities
consisted of the following:
<TABLE>
<CAPTION>
PRINCIPAL INTEREST
AMOUNT RATE MATURITY
--------- -------- ---------
<S> <C> <C> <C>
2008 Notes...................................... $175,000 7.10% June 2008
2015 Notes -- Putable/Callable 2005............. 100,000 6.90 June 2015
2018 Notes...................................... 125,000 7.50 June 2018
-------- ----
Total/Weighted Average................ $400,000 7.18%
======== ====
</TABLE>
Interest on the Senior Debt Securities is payable semiannually in each June
and December commencing December 1998. The 2015 notes are putable and callable
in June 2005.
4. MINORITY INTERESTS
Minority interests in the Company represent the limited partnership
interests in the Operating Partnership and interests held by certain third
parties (some of which are Institutional Alliance Partners(TM)) in 14 real
estate joint ventures that are consolidated for financial reporting purposes.
Such investments are consolidated because (i) the Company owns a majority
interest, or (ii) the Company holds significant control over the entity through
a 50% or greater ownership interest combined with the ability to control major
operating decisions such as approval of budgets, selection of property managers
and changes in financing.
The following table sets forth the minority interest ownership held by
certain joint ventures, Institutional Alliance Partners(TM) and the limited
partners' interests in the Operating Partnership as of June 30, 1998.
<TABLE>
<S> <C>
Minority Interest -- Joint Ventures......................... $ 15,649
Minority Interest -- Institutional Alliance Partners(TM).... 61,031
Minority Interest -- Limited Partners....................... 73,071
--------
$149,751
========
</TABLE>
5. STOCKHOLDERS' EQUITY
On June 19, 1998, the Company and the Operating Partnership declared a
quarterly cash distribution of $0.3425 per share of common stock and operating
partnership unit, payable on July 9, 1998, to stockholders and unitholders of
record as of June 30, 1998.
6. EARNINGS PER SHARE
The Company's only dilutive securities outstanding for the six and three
months ended June 30, 1998 were stock options issued under its stock incentive
plan. The effect of the stock options was to increase weighted average shares
outstanding by 347,662 and 378,943 shares for the six and three months ended
June 30, 1998, respectively. Such dilution was computed using the treasury stock
method. The Predecessor had no dilutive securities outstanding during the six
months ended June 30, 1997.
F-25
<PAGE> 177
AMB PROPERTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND UNIT AMOUNTS)
7. PRO FORMA INFORMATION
The following summary unaudited pro forma financial information for the six
and three months ended June 30, 1997 has been prepared as if the Formation
Transactions, the IPO (as described in Note 1) and property acquisitions and
dispositions during the year ended December 31, 1997 had occurred on January 1,
1997. The pro forma financial information does not purport to present the
consolidated results that would have occurred if the aforementioned transactions
had been consummated on January 1, 1997, nor does it purport to be indicative of
the consolidated results of operations for future periods.
<TABLE>
<CAPTION>
FOR THE SIX FOR THE THREE
MONTHS ENDED MONTHS ENDED
JUNE 30, 1997 JUNE 30, 1997
------------- -------------
<S> <C> <C>
Total revenues.................................... $ 139,232 $ 70,610
Income from operations before minority
interests....................................... 49,809 25,482
Net income available to common stockholders....... 47,109 23,767
Income Per Share of Common Stock
Basic........................................... $ 0.55 $ 0.28
=========== ===========
Diluted......................................... $ 0.55 $ 0.28
=========== ===========
Weighted Average Common Shares Outstanding
Basic........................................... 85,874,513 85,874,513
=========== ===========
Diluted......................................... 85,874,513 85,874,513
=========== ===========
</TABLE>
8. SUBSEQUENT EVENTS
On July 27, 1998, the Company sold 4,000,000 shares of 8.5% Series A
cumulative redeemable preferred stock for $100,000 in an underwritten public
offering. The net proceeds of $96,850 from the offering were used to repay
borrowings under the Credit Facility, for property acquisitions and for other
general corporate purposes.
F-26
<PAGE> 178
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
AMB Property Corporation:
We have audited the accompanying consolidated balance sheets of AMB
Property Corporation and subsidiaries as of December 31, 1996 and 1997, and the
related consolidated statements of income, stockholders' equity and cash flows
for each of the three years in the period ended December 31, 1997. These
financial statements and the schedule referred to below are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements and the 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 AMB Property Corporation and
subsidiaries as of December 31, 1996 and 1997, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
1997, in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index to the
financial statements is presented for purposes of complying with the Securities
and Exchange Commission rules and is not a required part of the basic financial
statements. This schedule has been subjected to the auditing procedures applied
in the audits of the basic financial statements and, in our opinion, fairly
states in all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
San Francisco, California
January 27, 1998
F-27
<PAGE> 179
AMB PROPERTY CORPORATION
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1996 AND 1997
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
1996 1997
------ ----------
<S> <C> <C>
ASSETS
Investments in real estate:
Land and improvements..................................... $ -- $ 550,635
Buildings and improvements................................ -- 1,822,516
Construction in progress.................................. -- 69,848
------ ----------
Total investments in real estate.................. -- 2,442,999
Accumulated depreciation and amortization................. -- (4,153)
------ ----------
Net investments in real estate.................... -- 2,438,846
Cash and cash equivalents................................... 3,093 39,968
Other assets................................................ 3,992 27,441
------ ----------
Total assets...................................... $7,085 $2,506,255
====== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Debt:
Secured debt.............................................. $ -- $ 535,652
Unsecured credit facility................................. -- 150,000
------ ----------
Total debt........................................ -- 685,652
Other liabilities........................................... 648 49,350
Payable to affiliates....................................... -- 38,071
------ ----------
Total liabilities................................. 648 773,073
------ ----------
Commitments and contingencies............................... -- --
Minority interests.......................................... 137 65,152
Stockholders' equity:
Preferred stock of AMB Property Corporation, $.01 par
value, 100,000,000 shares authorized, none issued or
outstanding............................................ -- --
Common stock of AMB Property Corporation, $.01 par value,
500,000,000 shares authorized, 85,874,513 issued and
outstanding............................................ -- 859
Additional paid-in capital of AMB Property Corporation.... -- 1,667,171
Common stock of Predecessor, no par value, 500,000,000
shares authorized, 5,181,450 issued and outstanding.... 1,349 --
Additional paid-in capital of Predecessor................. 1,298 --
Notes receivable from stockholders of Predecessor......... (869) --
Retained earnings......................................... 4,522 --
------ ----------
Total stockholders' equity........................ 6,300 1,668,030
------ ----------
Total liabilities and stockholders' equity........ $7,085 $2,506,255
====== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-28
<PAGE> 180
AMB PROPERTY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
1995 1996 1997
---------- ---------- -----------
<S> <C> <C> <C>
REVENUES
Rental revenues..................................... $ -- $ -- $ 26,465
Investment management and other income.............. 16,865 23,991 29,597
---------- ---------- -----------
Total revenues.............................. 16,865 23,991 56,062
OPERATING EXPENSES
Property operating expenses......................... -- -- 5,312
Real estate taxes................................... -- -- 3,587
Interest............................................ -- -- 3,528
Depreciation and amortization....................... -- -- 4,195
General and administrative.......................... -- -- 1,197
Investment management expenses...................... 13,569 16,851 19,358
---------- ---------- -----------
Total operating expenses.................... 13,569 16,851 37,177
---------- ---------- -----------
Income from operations before minority
interests................................. 3,296 7,140 18,885
Minority interests' share of net income............... (34) (137) (657)
---------- ---------- -----------
Net income available to common
stockholders.............................. $ 3,262 $ 7,003 $ 18,228
========== ========== ===========
INCOME PER SHARE OF COMMON STOCK
Basic............................................ $ 0.64 $ 1.38 $ 1.39
========== ========== ===========
Diluted.......................................... $ 0.64 $ 1.38 $ 1.38
========== ========== ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic............................................ 5,079,855 5,079,855 13,140,218
========== ========== ===========
Diluted.......................................... 5,079,855 5,079,855 13,168,036
========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-29
<PAGE> 181
AMB PROPERTY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1996 1997
------- ------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.................................................. $ 3,262 $ 7,003 $ 18,228
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................. -- -- 4,195
Straight-line rents....................................... -- -- (901)
Amortization of debt premiums and financing costs......... -- -- (266)
Minority interests' share of net income................... 34 137 657
Equity in income of AMB Investment Management............. -- -- (61)
Changes in assets and liabilities:
Other assets.............................................. (1,538) (249) (11,873)
Other liabilities......................................... 429 (25) 2,301
------- ------- ---------
Net cash provided by operating activities......... 2,187 6,866 12,280
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to properties..................................... -- -- (222,497)
Additions to buildings improvements and leasing costs....... -- -- (1,769)
Additions to construction in progress....................... -- -- (2,606)
Cash paid for property in Formation Transactions, net of
cash acquired............................................. -- -- (5,935)
------- ------- ---------
Net cash used for investing activities............ -- -- (232,807)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock (net of $21,091 commission)........ -- -- 317,009
Borrowings on Credit Facility............................... 750 -- 150,000
Borrowings on secured debt.................................. -- -- 850
Repayment of Credit Facility................................ (750) -- (182,000)
Payments on secured debt.................................... -- -- (516)
Payment of financing fees................................... -- -- (900)
Dividends paid to Predecessor stockholders.................. (2,925) (5,262) (16,404)
Distributions paid to AMB Property Corporation
stockholders.............................................. -- -- (11,506)
Distributions to minority interests of Predecessor.......... -- (34) --
Principal payment of notes receivable from stockholders of
Predecessor............................................... 56 318 869
------- ------- ---------
Net cash provided by (used in) financing
activities...................................... (2,869) (4,978) 257,402
------- ------- ---------
Net increase (decrease) in cash and cash equivalents........ (682) 1,888 36,875
Cash and cash equivalents at beginning of period............ 1,887 1,205 3,093
------- ------- ---------
Cash and cash equivalents at end of period.................. $ 1,205 $ 3,093 $ 39,968
======= ======= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-30
<PAGE> 182
AMB PROPERTY CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(IN THOUSANDS, EXCEPT SHARES)
<TABLE>
<CAPTION>
COMMON STOCK NOTES
------------------- ADDITIONAL RECEIVABLE
NUMBER OF PAID-IN RETAINED FROM
SHARES AMOUNT CAPITAL EARNINGS STOCKHOLDERS TOTAL
---------- ------ ---------- -------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
PREDECESSOR
Balance at December 31, 1994........... 4,978,260 $ 699 $ 1,298 $ 2,444 $(593) $ 3,848
Net income........................... -- -- -- 3,262 -- 3,262
Dividends declared and paid.......... -- -- -- (2,925) -- (2,925)
Principal payment of notes receivable
from stockholders.................. -- -- -- -- 56 56
Issuance of common stock for notes... 101,595 343 -- -- (343) --
---------- ------ ---------- -------- ----- ----------
Balance at December 31, 1995........... 5,079,855 1,042 1,298 2,781 (880) 4,241
Net income........................... -- -- -- 7,003 -- 7,003
Dividends declared and paid.......... -- -- -- (5,262) -- (5,262)
Principal payment of notes receivable
from stockholders.................. -- -- -- -- 318 318
Issuance of common stock for notes... 101,595 307 -- -- (307) --
---------- ------ ---------- -------- ----- ----------
Balance at December 31, 1996........... 5,181,450 1,349 1,298 4,522 (869) 6,300
AMB PROPERTY CORPORATION
Net income........................... -- -- -- 18,228 -- 18,228
Dividends declared and paid to
Predecessor stockholders........... -- (990) (1,298) (14,116) -- (16,404)
Principal payment of notes receivable
from stockholders.................. -- -- -- -- 869 869
Exchange of Predecessor shares for
shares of AMB Property Corporation,
net................................ (434,834) (312) 312 -- -- --
Issuance of common stock for
Properties......................... 65,022,185 651 1,369,740 -- -- 1,370,391
Issuance of common stock, net of
offering costs of $38,068.......... 16,100,000 161 299,871 -- -- 300,032
Issuance of restricted stock......... 5,712 -- 120 -- -- 120
---------- ------ ---------- -------- ----- ----------
Distributions paid to AMB Property
Corporation stockholders........... -- -- (2,872) (8,634) -- (11,506)
---------- ------ ---------- -------- ----- ----------
Balance at December 31, 1997........... 85,874,513 $ 859 $1,667,171 $ -- $ -- $1,668,030
========== ====== ========== ======== ===== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-31
<PAGE> 183
AMB PROPERTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND SQUARE FEET DATA)
1. ORGANIZATION AND FORMATION OF COMPANY
AMB Property Corporation, a Maryland corporation (the "Company"), commenced
operations as a fully integrated real estate company effective with the
completion of its initial public offering (the "Offering") on November 26, 1997.
The Company will elect to be taxed as a real estate investment trust ("REIT")
under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended
(the "Code"). The Company, through its controlling interest in its subsidiary
AMB Property, L.P., a Delaware limited partnership (the "Operating
Partnership"), is engaged in the ownership, operation, management, acquisition,
renovation, expansion, and development of industrial properties and community
shopping centers in target markets nationwide. Unless the context otherwise
requires, the "Company" shall include AMB Property Corporation, the Operating
Partnership and their controlled subsidiaries.
The Company and the Operating Partnership were formed shortly before
consummation of the Offering. AMB Institutional Realty Advisors, Inc., a
California corporation and registered investment advisor (the "Predecessor"),
formed AMB Property Corporation, a wholly owned subsidiary, and merged with and
into the Company (the "Merger") in exchange for 4,746,616 shares of the
Company's Common Stock being issued to the former stockholders of the
Predecessor. In addition, the Company and the Operating Partnership acquired,
through a series of mergers and other transactions, 31.8 million rentable square
feet of industrial property and 6.3 million rentable square feet of retail
property in exchange for 65,022,185 shares of the Company's Common Stock,
2,542,163 units representing limited partnership interests in the Operating
Partnership, the assumption of debt, and to a limited extent, cash. The net
assets of the Predecessor and the properties acquired with Common Stock were
contributed to the Operating Partnership for 69,768,801 units. The purchase
method of accounting was applied to the acquisition of the properties.
Collectively, the Merger and the other formation transactions described above
are referred to as the "Formation Transactions."
On November 26, 1997, the Company completed its Offering of 16,100,000
shares of Common Stock, $0.01 par value per share (the "Common Stock") for
$21.00 per share, resulting in gross offering proceeds of approximately
$338,100. Net of underwriters' commission and offering costs aggregating
$38,068, the Company received approximately $300,032 in proceeds from the
Offering. The net proceeds of the Offering were used to repay indebtedness, to
purchase interests from certain investors who elected not to receive shares or
units in connection with the Formation Transactions, to fund property
acquisitions, and for general corporate purposes, including working capital.
As of December 31, 1997, the Company owned an approximate 97.1% general
partner interest in the Operating Partnership. The remaining 2.9% limited
partner interest was owned by unaffiliated investors. For local law purposes,
properties in certain states are owned through limited partnerships and limited
liability companies owned 99% by the Operating Partnership and 1% by a wholly
owned subsidiary of the Company. The ownership of such Properties through such
entities does not materially affect the Company's overall ownership of the
interests in the Properties. As the sole general partner of the Operating
Partnership, the Company has the full, exclusive and complete responsibility and
discretion in the management and control of the Operating Partnership.
In connection with the Formation Transactions, the Operating Partnership
formed AMB Investment Management Corporation, a Maryland corporation ("AMB
Investment Management"). The Operating Partnership purchased 100% of AMB
Investment Management's non-voting preferred stock (representing a 95% economic
interest). Certain Executive Officers and an officer of AMB Investment
Management collectively purchased 100% of AMB Investment Management's voting
common stock (representing a 5% economic interest therein). The Operating
Partnership accounts for its investment in AMB Investment Management using the
equity method of accounting. AMB Investment Management was formed to succeed to
the Predecessor's investment management business of providing real estate
investment management services on a fee basis to clients.
F-32
<PAGE> 184
AMB PROPERTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND SQUARE FEET DATA)
As of December 31, 1997, the Company owned 37.3 million rentable square
feet of industrial properties (the "Industrial Properties"), principally
warehouse distribution properties, that were 95.7% leased and 6.2 million
rentable square feet of retail properties (the "Retail Properties"), principally
grocer-anchored community shopping centers, that were 96.1% leased. The
Industrial Properties and the Retail Properties collectively are referred to as
the "Properties."
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
These financial statements have been prepared in accordance with generally
accepted accounting principles using the accrual method of accounting. 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.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the financial
position, results of operations and cash flows of the Company, its wholly owned
qualified REIT subsidiaries, the Operating Partnership, and eight joint ventures
(the "Joint Ventures") in which the Company has a controlling interest.
Third-party equity interests in the Operating Partnership and the Joint Ventures
are reflected as minority interests in the consolidated financial statements.
All significant intercompany amounts have been eliminated.
BASIS OF PRESENTATION
The consolidated financial statements of the Company for 1997 include the
results of operations of the Company, including property operations for the
period from November 26, 1997 (the commencement of operations as a fully
integrated real estate company) to December 31, 1997 and the results of the
Company's Predecessor, an investment manager, for the period from January 1,
1997 to November 25, 1997.
INVESTMENTS IN REAL ESTATE
Investments in real estate are stated at depreciated cost and are reviewed
for impairment on a property-by-property basis whenever events or changes in
circumstances indicate that the carrying amount of a property may not be
recoverable. Impairment is recognized when estimated expected future cash flows
(undiscounted and without interest charges)are less than the carrying amount of
the property. To the extent an impairment has occurred, the excess of the
carrying amount of the property over its estimated fair value will be charged to
income. As of December 31, 1997, there were no impairments of the carrying
values of the Properties.
Depreciation and amortization are calculated using the straight-line method
over the estimated useful lives of the investments. The estimated lives are as
follows:
<TABLE>
<S> <C>
Land improvements................................... 5 to 40 years
Buildings and improvements.......................... 5 to 40 years
Tenant improvements and leasing costs............... Term of the related lease
</TABLE>
The cost of buildings and improvements includes the purchase price of the
property or interest in property, legal fees and acquisition costs and interest,
property taxes, and other costs incurred during the period of construction.
F-33
<PAGE> 185
AMB PROPERTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND SQUARE FEET DATA)
Expenditures for maintenance and repairs are charged to operations as
incurred. Significant renovations or betterments that extend the economic useful
life of assets are capitalized.
Project costs directly associated with the development and construction of
a real estate project are capitalized as construction in progress. In addition,
interest, real estate taxes and other costs are capitalized during the
construction period.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash held in financial institutions and
other highly liquid short-term investments with original maturities of three
months or less. Cash and cash equivalents as of December 31, 1997 include
restricted cash of $8,074, which represents amounts held in escrow in connection
with property purchases and capital improvements.
DEFERRED FINANCING
Costs incurred in connection with financing are capitalized and amortized
to interest expense on a straight-line basis (which approximates the effective
interest method) over the term of the related loan. As of December 31, 1997,
deferred financing fees were $871, net of accumulated amortization of $29. Such
amounts are included in Other Assets on the consolidated balance sheet.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments include short-term investments,
accounts receivable, accounts payable, accrued expenses, construction loans
payable, mortgage debt, secured debt, unsecured notes payable and an unsecured
credit facility. The fair value of these instruments approximates its carrying
or contract values.
DEBT PREMIUMS
In connection with the Formation Transactions, the Company assumed certain
secured debt with an aggregate principal value of $517,031 and a fair value of
$535,613. The difference between the principal value and the fair value was
recorded as a debt premium. The debt premium is being amortized into interest
expense over the term of the related debt instrument using the effective
interest method. As of December 31, 1997, the unamortized debt premium was
$18,286.
MINORITY INTERESTS
Minority interests in the Company represent the limited partnership
interests in the Operating Partnership and interests held by certain third
parties in eight real estate joint ventures that are consolidated for financial
reporting purposes. Such investments are consolidated because (i) the Company
owns a majority owner interest, or (ii) the Company has significant control over
the entity through a 50% or greater ownership interest combined with the ability
to control major operating decisions such as approval of budgets, selection of
property managers and change in financing.
The following table sets forth the minority interest ownership held by
certain joint ventures ("Minority Interest -- Joint Ventures") and the limited
partnership interests in the Operating Partnership ("Minority
Interest -- Limited Partners") as of December 31, 1997.
<TABLE>
<S> <C>
Minority Interest -- Joint Ventures................ $15,784
Minority Interest -- Limited Partners.............. 49,368
-------
$65,152
=======
</TABLE>
F-34
<PAGE> 186
AMB PROPERTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND SQUARE FEET DATA)
REVENUES
The Company, as a lessor, retains substantially all of the benefits and
risks of ownership of the Properties and accounts for its leases as operating
leases. Rental revenues are recognized on a straight-line basis over the term of
the leases.
Reimbursements from tenants for real estate taxes and other recoverable
operating expenses are recognized as revenue in the period the applicable
expenses are incurred.
INVESTMENT MANAGEMENT AND OTHER INCOME
Investment management income consists primarily of professional fees
generated from the Predecessors' real estate investment management services for
periods prior to the Formation Transactions and the Company's equity in the
earnings of AMB Investment Management for periods subsequent to the Formation
Transactions. Other income consists primarily of interest income on cash and
cash equivalents.
INVESTMENT MANAGEMENT EXPENSE
Investment management expense represents the operating expenses of the
Predecessor for periods prior to November 26, 1997 and consists of salaries and
benefits and other management related expenses.
EARNINGS PER SHARE
For purposes of calculating diluted earnings per share for the year ended
December 31, 1997, no adjustment to net income available to common stockholders
was necessary, as the Company's only dilutive securities outstanding for such
period were stock options issued under its stock incentive plan. The effect of
the stock options was to increase weighted average shares outstanding by 27,818
shares for the year ended December 31, 1997. Such dilution was computed using
the treasury stock method. The Predecessor had no dilutive securities
outstanding during the years ended December 31, 1995 and 1996.
RECLASSIFICATIONS
The consolidated financial statements for prior periods have been
reclassified to conform with current classifications with no effect on results
of operations.
FUTURE ACCOUNTING PRONOUNCEMENTS
In June of 1997, the FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information." This statement, effective for
financial statements for periods beginning after December 15, 1997, requires
that a public business enterprise report financial and descriptive information
about its reportable operating segments. Generally, information is required to
be reported on the basis that it is used internally for evaluating segment
performance and deciding how to allocate resources to segments. The Company
expects to adopt this SFAS in 1998 to the extent applicable.
3. TRANSACTIONS WITH AFFILIATES
As discussed in "Organization and Formation of the Company," the Operating
Partnership formed AMB Investment Management (which conducts its operations
through the Investment Management Partnership) for the purpose of carrying on
the operations of the Predecessor. The Company and the Investment Management
Partnership have an agreement that allows for the sharing of certain costs and
employees. Additionally, the Company provides the Investment Management
Partnership with certain acquisition-related services.
F-35
<PAGE> 187
AMB PROPERTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND SQUARE FEET DATA)
As part of the Formation Transactions, the Operating Partnership was
required to pay an amount equal to the net working capital balances at November
25, 1997 of the Predecessor and the acquired properties to the owners of said
entities. As of December 31, 1997, the Company owed approximately $37,808 to
owners related to these working capital distributions. Such amount is included
in Payable to affiliates on the consolidated balance sheet and was paid
subsequent to year-end.
The Company and the Investment Management Partnership share common office
space under lease obligations of an affiliate of the Predecessor. Such lease
obligations are charged to the Company and the Investment Management Partnership
at cost. For the period ended December 31, 1995, 1996 and 1997, the Company paid
approximately $435, $510 and $700, respectively for occupancy costs related to
the lease obligations of the affiliate.
4. DEBT
As of December 31, 1997, debt, excluding unamortized debt premiums,
consists of the following:
<TABLE>
<S> <C>
Secured debt, varying coupon interest
rates from 7.01% to 10.38%, due
November 1998 to December 2008............................ $ 517,366
Unsecured credit facility, variable
interest at LIBOR plus 110 basis points (7.10% at
December 31, 1997) due November 2000...................... 150,000
----------
Total Debt........................................ $ 667,366
==========
</TABLE>
Secured debt generally requires monthly principal and interest payments.
The secured debt is secured by deeds of trust and mortgages on 48 Properties.
The carrying value of real estate investments pledged as collateral under deeds
of trust and mortgages for the secured debt is $1,049,003 as of December 31,
1997. All of the secured debt bears interest at fixed rates, except for one loan
which bears interest at either LIBOR plus 275 basis points (8.75% at December
31, 1997) or prime plus 50 basis points, at the borrower's option. The secured
debt has various financial and non-financial covenants. Additionally, certain of
the secured debt is cross-collateralized.
The Company has a $500,000 unsecured revolving credit agreement (the
"Credit Facility") with Morgan Guaranty Trust Company of New York as agent, and
a syndicate of 12 other banks. The Credit Facility has a term of three years,
and is subject to a fee that accrues on the daily average undrawn funds, which
varies between 15 and 25 basis points of the undrawn funds based on the
Company's credit rating. The Credit Facility has various financial and
non-financial covenants.
The weighted-average fixed interest rate on secured debt at December 31,
1997 was 7.82%. Interest capitalized related to construction projects for the
period from November 26, 1997 to December 31, 1997 was $448. There was no
capitalized interest for periods prior to the Formation Transactions.
The scheduled maturities of the secured debt as of December 31, 1997 are as
follows:
<TABLE>
<S> <C>
1998...................................................... $ 19,390
1999...................................................... 9,666
2000...................................................... 11,862
2001...................................................... 35,654
2002...................................................... 43,967
Thereafter................................................ 396,827
--------
$517,366
========
</TABLE>
F-36
<PAGE> 188
AMB PROPERTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND SQUARE FEET DATA)
5. LEASING ACTIVITY
Future minimum rental income due under noncancelable leases in effect at
December 31, 1997 with tenants is as follows:
<TABLE>
<S> <C>
1998..................................................... $ 214,400
1999..................................................... 188,926
2000..................................................... 160,592
2001..................................................... 128,241
2002..................................................... 101,733
Thereafter............................................... 459,070
----------
$1,252,962
==========
</TABLE>
In addition to minimum rental payments, certain tenants pay reimbursements
for their pro rata share of specified operating expenses, which amounted to
$5,267 for the period from November 26, 1997 to December 31, 1997. These amounts
are included as rental income and operating expenses in the accompanying
consolidated statements of operations. Certain of the leases also provide for
the payment of additional rent based on a percentage of the tenant's revenues.
Some leases contain options to renew. No individual tenant accounts for greater
than 2% of rental revenues.
6. INCOME TAXES
The Company intends to be taxed as a REIT under the Code for the fiscal
year ended December 31, 1997. To qualify as a REIT, the Company must meet a
number of organizational and operational requirements, including a requirement
that it currently distribute at least 95% of its taxable income. It is
management's intention to adhere to these requirements and maintain the
Company's REIT status. As a REIT, the Company generally will not be subject to
corporate level federal income tax on net income it distributes currently to its
stockholders. As such, no provision for federal income taxes has been included
in the accompanying consolidated financial statements. If the Company fails to
qualify as a REIT in any taxable year, it will be subject to federal income
taxes at regular corporate rates (including any applicable alternative minimum
tax) and may not be able to qualify as a REIT for four subsequent taxable years.
Even if the Company qualifies for taxation as a REIT, the Company may be subject
to certain state and local taxes on its income and property and to federal
income and excise taxes on its undistributed taxable income.
For federal income tax purposes, cash distributions paid to stockholders
may be characterized as ordinary income, return of capital (generally
non-taxable) or capital gains. On December 8, 1997, the Company declared a
distribution of $0.134 per common share, payable on December 29, 1997 to
stockholders of record on December 18, 1997. The distribution covered the period
from November 26, 1997 through December 31, 1997. For Federal income tax
purposes, 100% of the distribution was ordinary income.
Prior to the Merger, the Predecessor conducted its business as an S
corporation, and therefore was exempt from federal income taxes under Subchapter
S of the Code. Under this election federal income taxes were paid by the
stockholders of the Predecessor.
7. STOCK INCENTIVE PLAN AND 401(k) PLAN
STOCK INCENTIVE PLAN
In November 1997, the Company established a Stock Option and Incentive Plan
(the "Stock Incentive Plan") for the purpose of attracting and retaining
eligible officers, directors and employees. The Company has reserved for
issuance 5,750,000 shares of Common Stock under the Stock Incentive Plan. In
November 1997, the Company granted 3,153,750 non-qualified options to certain
directors, officers and employees. Each option
F-37
<PAGE> 189
AMB PROPERTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND SQUARE FEET DATA)
is exchangeable for one share of the Common Stock and has an exercise price
equal to $21.00, the market price at the date of grant. The options have a
10-year term and vest pro rata in annual installments over a four-year period
from the date of grant.
The Company applies APB Opinion No. 25, "Accounting for Stock Issued to
Employees" and related interpretations in accounting for its Stock Incentive
Plan. Opinion 25 measures compensation cost using the intrinsic value based
method of accounting. Under this method, compensation cost is the excess, if
any, of the quoted market price of the stock at the date of grant over the
amount an employee must pay to acquire the stock. Accordingly, no compensation
cost has been recognized for the Stock Incentive Plan, as the option price for
all option grants in 1997 was equal to the market price as of the date of grant.
However, if the Company had measured compensation cost using the fair value
based method prescribed in SFAS 123, "Accounting for Stock-Based Compensation,"
the impact on pro forma net income and earnings per share would not have been
material.
The fair value of each option grant was estimated at the date of grant
using the Black-Scholes option-pricing model with the following assumptions used
for grants in 1997: dividend yield of 6.52%, expected volatility of 18.75%,
risk-free interest rate of 5.86%, and expected lives of 10 years.
Following is a summary of the option activity for the year ended December
31, 1997:
<TABLE>
<CAPTION>
SHARES
UNDER REMAINING
OPTION EXERCISE CONTRACTUAL
(000) PRICE LIFE
-------- -------- -----------
<S> <C> <C> <C>
Outstanding, 11/25/97................................. -- -- --
Granted............................................... 3,154 $21.0 10 years
Exercised............................................. -- -- --
Forfeited............................................. (10) -- --
------ ----- --------
Outstanding, 12/31/97................................. 3,144 $21.0 10 years
====== ===== ========
Options exercisable at year-end....................... 184 $21.0
====== =====
Fair value of options granted during the year......... $ 2.28
======
</TABLE>
RESTRICTED STOCK
In 1997, the Company sold 5,712 restricted shares of its Common Stock to
certain independent directors for $0.01 per share in cash.
401(k) PLAN
In November 1997, the Company established a Section 401(k)
Savings/Retirement Plan (the "Section 401(k) Plan"), which is a continuation of
the Section 401(k) plan of the Predecessor, to cover eligible employees of the
Company and any designated affiliate. The Section 401(k) Plan permits eligible
employees of the Company to defer up to 10% of their annual compensation,
subject to certain limitations imposed by the Code. The employees' elective
deferrals are immediately vested and non-forfeitable upon contribution to the
Section 401(k) Plan. The Company matches the employee contributions to the
Section 401(k)Plan in an amount equal to 50% of the first 3.5% of annual
compensation deferred by each employee and may also make discretionary
contributions to the plan. As of December 31, 1997, the Company's accrual for
401(k) match was $140. Such amount was included in Other liabilities on the
consolidated balance sheet.
Except for the Section 401(k) Plan, the Company offers no other
post-retirement or post-employment benefits to its employees.
F-38
<PAGE> 190
AMB PROPERTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND SQUARE FEET DATA)
8. SUPPLEMENTAL INFORMATION TO STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1995 1996 1997
---- ---- ----------
<S> <C> <C> <C>
Cash paid for interest................................... $-- $-- $ 2,509
=== === ==========
Non-cash transactions:
Acquisitions of properties in Formation Transactions... $-- $-- $2,216,137
Assumption of debt..................................... -- -- (717,613)
Cash acquired.......................................... -- -- (43,978)
Other assumed assets and liabilities................... -- -- (13,862)
Minority interest...................................... -- -- (64,358)
Shares issued.......................................... -- -- (1,370,391)
--- --- ----------
Net cash paid, net of cash acquired...................... $-- $-- $ 5,935
=== === ==========
</TABLE>
9. PRO FORMA INFORMATION (UNAUDITED)
The following unaudited pro forma condensed consolidated statement of
operations has been prepared as if the Formation Transactions, the Offering (as
described in Note 1) and certain property acquisitions and dispositions in 1997
had occurred on January 1, 1996. In the opinion of management, the pro forma
condensed consolidated statement of operations does not purport to present the
consolidated results that would have occurred if the aforementioned transactions
had been consummated on January 1, 1996, nor does it purport to present the
consolidated results of operations for future periods.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1996 1997
------------ ------------
<S> <C> <C>
Total revenues............................................ $ 265,550 $ 284,674
Income from operations before minority interests.......... 90,694 103,903
Net income available to common stockholders............... 87,313 99,508
INCOME PER SHARE OF COMMON STOCK
Basic................................................... $ 1.02 $ 1.16
=========== ===========
Diluted................................................. $ 1.01 $ 1.15
=========== ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic................................................... 85,874,513 85,874,513
=========== ===========
Diluted................................................. 86,156,556 86,156,556
=========== ===========
</TABLE>
10. COMMITMENTS AND CONTINGENCIES
LITIGATION
In the normal course of business, from time to time, the Company is
involved in legal actions relating to the ownership and operations of its
Properties. In management's opinion, the liabilities, if any, that may
ultimately result from such legal actions are not expected to have a materially
adverse effect on the consolidated financial position, results of operations, or
cash flows of the Company.
ENVIRONMENTAL MATTERS
The Company follows the policy of monitoring its Properties for the
presence of hazardous or toxic substances. The Company is not aware of any
environmental liability with respect to the Properties that would
F-39
<PAGE> 191
AMB PROPERTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND SQUARE FEET DATA)
have a material adverse effect on the Company's business, assets or results of
operations. There can be no assurance that such a material environmental
liability does not exist. The existence of any such material environmental
liability could have a material adverse effect on the Company's results of
operations and cash flow.
GENERAL UNINSURED LOSSES
The Company carries comprehensive liability, fire, flood, environmental,
extended coverage and rental loss insurance with policy specifications, limits
and deductibles customarily carried for similar properties. There are, however,
certain types of extraordinary losses that may be either uninsurable or not
economically insurable. Should an uninsured loss occur, the Company could lose
its investment in, and anticipated profits and cash flows from, a property.
Certain of the Properties are located in areas that are subject to
earthquake activity; the Company has therefore obtained limited earthquake
insurance.
11. OPERATING PARTNERSHIP
As of December 31, 1997 the Company owned a 97.1% general partner interest
in the Operating Partnership. Therefore, the Company consolidates the Operating
Partnership and records the remaining 2.9% limited partner interests as minority
interest in the consolidated financial statements.
The Operating Partnership commenced operations as a fully integrated real
estate company on November 26, 1997 upon completion of the Formation
Transactions. For financial reporting purposes, AMB Institutional Realty
Advisors, Inc. is not considered to be the predecessor of the Operating
Partnership. The following table sets forth summary financial information of the
Operating Partnership as of and for the period from November 26, 1997 to
December 31, 1997 (in thousands, except unit data):
<TABLE>
<S> <C>
Investments in real estate, net............................. $2,438,846
Total assets................................................ 2,506,255
Debt........................................................ 685,652
Partners' capital........................................... 1,717,398
Revenues.................................................... 27,110
Income from operations before minority interest............. 9,291
Net income.................................................. 9,174
Total units................................................. 88,416,676
Net income per unit......................................... $0.10
</TABLE>
Following is a statement of partners' capital of the Operating Partnership
from November 26, 1997 (inception) to December 31, 1997 (in thousands, except
unit data):
<TABLE>
<CAPTION>
GENERAL PARTNER LIMITED PARTNERS
----------------------- -------------------
UNITS AMOUNT UNITS AMOUNT TOTAL
---------- ---------- --------- ------- ----------
<S> <C> <C> <C> <C> <C>
November 25, 1997.... -- $ -- -- $ -- $ --
Contributions...... 85,874,513 1,670,902 2,542,163 49,169 1,720,071
Net income......... -- 8,634 -- 540 9,174
Distributions...... -- (11,506) -- (341) (11,847)
---------- ---------- --------- ------- ----------
December 31, 1997.... 85,874,513 $1,668,030 2,542,163 $49,368 $1,717,398
========== ========== ========= ======= ==========
</TABLE>
F-40
<PAGE> 192
AMB PROPERTY CORPORATION
SCHEDULE III
CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
COSTS
CAPITALIZED
SUBSEQUENT TO
INITIAL COST TO COMPANY ACQUISITION
----------------------- ---------------
PROPERTY LOCATION TYPE ENCUMBRANCES(1) LAND BUILDING LAND BUILDING
-------- -------- ---- --------------- --------- ----------- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C>
72nd Avenue................ WA IND $ -- $ 1,298 $ 4,008 $ -- $ --
Acer Distribution Center... CA IND -- 3,146 9,479 -- --
Activity Distribution
Center................... CA IND 5,400 3,736 11,248 -- --
Alvarado Business Center... CA IND -- 7,906 23,757 -- 75
Amwiler-Gwinnett Industrial
Portfolio................ GA IND 14,360 6,641 19,964 -- 4
Ardenwood Corporate Park... CA IND 10,339 7,321 22,002 -- --
Artesia Industrial
Portfolio................ CA IND 54,742 23,860 71,620 -- 907
Atlanta South.............. GA IND -- 6,550 19,691 -- --
Beacon Industrial Park..... FL IND -- 10,466 31,437 -- --
Belden Avenue.............. IL IND -- 5,019 15,186 -- --
Bensenville................ IL IND 44,593 20,799 62,438 -- 19
Blue Lagoon................ FL IND 11,916 4,945 14,875 -- 23
Boulden.................... DE IND -- 2,807 8,462 -- 36
Brightseat Road............ MD IND -- 1,557 4,841 -- --
Britannia Business Park.... FL IND -- 3,199 9,637 -- 37
Cabot Business Park........ MA IND -- 16,017 48,091 -- 7
Chancellor................. FL IND 2,987 1,587 4,802 -- --
Chicago Industrial......... IL IND 3,522 1,574 4,761 -- --
Commerce................... CA IND -- 2,197 6,653 -- --
Corporate Square........... MN IND -- 4,024 12,113 -- 16
Crossroads Industrial...... IL IND -- 2,583 7,789 -- --
Dixie Highway.............. KY IND -- 1,700 5,149 -- --
Dock's Corner.............. NJ IND -- 2,050 6,190 -- --
Dock's Corner II........... NJ IND -- 2,272 6,917 -- --
Dowe Industrial............ CA IND -- 2,665 8,034 -- --
East Walnut Drive.......... CA IND -- 964 2,918 -- --
Elk Grove Village
Industrial............... IL IND -- 7,713 23,179 -- 8
Empire Drive............... KY IND -- 1,590 4,815 -- --
Executive Drive............ IL IND -- 1,399 4,236 -- --
Fairway Drive Industrial... CA IND -- 1,954 5,479 -- --
<CAPTION>
GROSS AMOUNT CARRIED AT 12/31/97
----------------------------------
YEAR OF DEPRECIABLE
TOTAL ACCUMULATED CONSTRUCTION OR LIFE
PROPERTY LAND BUILDING COSTS(2) DEPRECIATION ACQUISITION (YEARS)
-------- -------- ---------- ---------- ------------ --------------- -----------
<S> <C> <C> <C> <C> <C> <C>
72nd Avenue................ $ 1,298 $ 4,008 $ 5,306 $ 9 1997 5-40
Acer Distribution Center... 3,146 9,479 12,625 22 1997 5-40
Activity Distribution
Center................... 3,736 11,248 14,984 26 1997 5-40
Alvarado Business Center... 7,906 23,832 31,738 54 1997 5-40
Amwiler-Gwinnett Industrial
Portfolio................ 6,641 19,968 26,609 46 1997 5-40
Ardenwood Corporate Park... 7,321 22,002 29,323 50 1997 5-40
Artesia Industrial
Portfolio................ 23,860 72,527 96,387 165 1997 5-40
Atlanta South.............. 6,550 19,691 26,241 45 1997 5-40
Beacon Industrial Park..... 10,466 31,437 41,903 72 1997 5-40
Belden Avenue.............. 5,019 15,186 20,205 35 1997 5-40
Bensenville................ 20,799 62,457 83,256 143 1997 5-40
Blue Lagoon................ 4,945 14,898 19,843 34 1997 5-40
Boulden.................... 2,807 8,498 11,305 19 1997 5-40
Brightseat Road............ 1,557 4,841 6,398 11 1997 5-40
Britannia Business Park.... 3,199 9,674 12,873 22 1997 5-40
Cabot Business Park........ 16,017 48,098 64,115 110 1997 5-40
Chancellor................. 1,587 4,802 6,389 11 1997 5-40
Chicago Industrial......... 1,574 4,761 6,335 11 1997 5-40
Commerce................... 2,197 6,653 8,850 15 1997 5-40
Corporate Square........... 4,024 12,129 16,153 28 1997 5-40
Crossroads Industrial...... 2,583 7,789 10,372 18 1997 5-40
Dixie Highway.............. 1,700 5,149 6,849 12 1997 5-40
Dock's Corner.............. 2,050 6,190 8,240 14 1997 5-40
Dock's Corner II........... 2,272 6,917 9,189 16 1997 5-40
Dowe Industrial............ 2,665 8,034 10,699 18 1997 5-40
East Walnut Drive.......... 964 2,918 3,882 7 1997 5-40
Elk Grove Village
Industrial............... 7,713 23,187 30,900 53 1997 5-40
Empire Drive............... 1,590 4,815 6,405 11 1997 5-40
Executive Drive............ 1,399 4,236 5,635 10 1997 5-40
Fairway Drive Industrial... 1,954 5,479 7,433 13 1997 5-40
</TABLE>
F-41
<PAGE> 193
<TABLE>
<CAPTION>
COSTS
CAPITALIZED
SUBSEQUENT TO
INITIAL COST TO COMPANY ACQUISITION
----------------------- ---------------
PROPERTY LOCATION TYPE ENCUMBRANCES(1) LAND BUILDING LAND BUILDING
-------- -------- ---- --------------- --------- ----------- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Hampden Road............... MA IND -- 2,200 6,678 -- --
Harvest Business Park...... WA IND 3,826 2,371 7,153 -- 51
Hewlett Packard
Distribution............. CA IND 3,437 1,668 5,043 -- --
Holton Drive............... KY IND -- 2,633 7,972 -- --
Industrial Drive........... OH IND -- 1,743 5,410 -- --
International Multifoods... CA IND -- 1,613 4,879 -- --
Itasca Industrial
Portfolio................ IL IND -- 6,416 19,289 -- 213
Janitrol................... OH IND -- 1,797 5,576 -- --
Jasmine Avenue............. CA IND -- 3,157 9,562 -- --
Kent Centre................ WA IND -- 3,042 9,165 -- 23
Kingsport Industrial
Park..................... WA IND 18,161 7,919 23,798 -- 96
L.A. County Industrial
Portfolio (3)............ CA IND -- 11,128 33,423 -- 17
Lake Michigan Industrial
Portfolio................ IL IND -- 2,886 8,699 -- --
Laurelwood................. CA IND -- 2,750 8,538 -- --
Lincoln Industrial
Center................... TX IND -- 671 2,052 -- --
Linder Skokie.............. IL IND -- 2,938 8,854 -- --
Lisle Industrial........... IL IND -- 2,290 6,911 -- --
Lonestar................... TX IND 17,773 7,129 21,428 -- --
McDaniel Drive............. TX IND -- 1,537 4,659 -- --
Melrose Park............... IL IND -- 2,936 9,190 -- --
Metric Center.............. TX IND -- 10,968 32,944 -- 45
Mid-Atlantic Business
Center................... PA IND -- 6,581 19,783 -- 36
Milmont Page............... CA IND -- 3,201 9,642 -- 94
Minneapolis Distribution
Portfolio................ MN IND -- 7,018 21,093 -- 95
Minneapolis Industrial
IV....................... MN IND 8,346 4,938 14,854 -- 42
Minneapolis Industrial V... MN IND 7,952 4,426 13,317 -- 46
Moffett Business Center.... CA IND 12,883 5,892 17,716 -- --
Moffett Park R&D
Portfolio................ CA IND -- 14,807 44,462 -- 598
N. Glenville Avenue........ TX IND -- 1,094 3,316 -- --
Norcross/ Brookhollow
Portfolio................ GA IND -- 3,721 11,180 -- --
Northpointe Commerce....... CA IND -- 1,773 5,358 -- --
Northwest Distribution
Center................... WA IND -- 2,234 6,743 -- 7
O'Hare Industrial
Portfolio................ IL IND -- 7,357 22,112 -- 156
Pacific Business Center.... CA IND 10,679 5,417 16,291 -- 16
<CAPTION>
GROSS AMOUNT CARRIED AT 12/31/97
----------------------------------
YEAR OF DEPRECIABLE
TOTAL ACCUMULATED CONSTRUCTION OR LIFE
PROPERTY LAND BUILDING COSTS(2) DEPRECIATION ACQUISITION (YEARS)
-------- -------- ---------- ---------- ------------ --------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Hampden Road............... 2,200 6,678 8,878 15 1997 5-40
Harvest Business Park...... 2,371 7,204 9,575 16 1997 5-40
Hewlett Packard
Distribution............. 1,668 5,043 6,711 12 1997 5-40
Holton Drive............... 2,633 7,972 10,605 18 1997 5-40
Industrial Drive........... 1,743 5,410 7,153 12 1997 5-40
International Multifoods... 1,613 4,879 6,492 11 1997 5-40
Itasca Industrial
Portfolio................ 6,416 19,502 25,918 44 1997 5-40
Janitrol................... 1,797 5,576 7,373 13 1997 5-40
Jasmine Avenue............. 3,157 9,562 12,719 22 1997 5-40
Kent Centre................ 3,042 9,188 12,230 21 1997 5-40
Kingsport Industrial
Park..................... 7,919 23,894 31,813 54 1997 5-40
L.A. County Industrial
Portfolio (3)............ 11,128 33,440 44,568 76 1997 5-40
Lake Michigan Industrial
Portfolio................ 2,886 8,699 11,585 20 1997 5-40
Laurelwood................. 2,750 8,538 11,288 19 1997 5-40
Lincoln Industrial
Center................... 671 2,052 2,723 5 1997 5-40
Linder Skokie.............. 2,938 8,854 11,792 20 1997 5-40
Lisle Industrial........... 2,290 6,911 9,201 16 1997 5-40
Lonestar................... 7,129 21,428 28,557 49 1997 5-40
McDaniel Drive............. 1,537 4,659 6,196 11 1997 5-40
Melrose Park............... 2,936 9,190 12,126 21 1997 5-40
Metric Center.............. 10,968 32,989 43,957 75 1997 5-40
Mid-Atlantic Business
Center................... 6,581 19,819 26,400 45 1997 5-40
Milmont Page............... 3,201 9,736 12,937 22 1997 5-40
Minneapolis Distribution
Portfolio................ 7,018 21,188 28,206 48 1997 5-40
Minneapolis Industrial
IV....................... 4,938 14,896 19,834 34 1997 5-40
Minneapolis Industrial V... 4,426 13,363 17,789 30 1997 5-40
Moffett Business Center.... 5,892 17,716 23,608 40 1997 5-40
Moffett Park R&D
Portfolio................ 14,807 45,060 59,867 101 1997 5-40
N. Glenville Avenue........ 1,094 3,316 4,410 8 1997 5-40
Norcross/ Brookhollow
Portfolio................ 3,721 11,180 14,901 26 1997 5-40
Northpointe Commerce....... 1,773 5,358 7,131 12 1997 5-40
Northwest Distribution
Center................... 2,234 6,750 8,984 15 1997 5-40
O'Hare Industrial
Portfolio................ 7,357 22,268 29,625 51 1997 5-40
Pacific Business Center.... 5,417 16,307 21,724 37 1997 5-40
</TABLE>
F-42
<PAGE> 194
<TABLE>
<CAPTION>
COSTS
CAPITALIZED
SUBSEQUENT TO
INITIAL COST TO COMPANY ACQUISITION
----------------------- ---------------
PROPERTY LOCATION TYPE ENCUMBRANCES(1) LAND BUILDING LAND BUILDING
-------- -------- ---- --------------- --------- ----------- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Pagemill & Dillworth....... TX IND -- 1,877 5,690 -- --
Patuxent................... MD IND -- 1,696 5,127 -- --
Penn James
Office/Warehouse......... MN IND -- 1,991 6,013 -- 103
Pennsy Drive............... MD IND -- 657 2,011 -- 203
Presidents Drive........... FL IND -- 1,124 3,446 -- --
Presidents Drive II........ FL IND -- 2,563 7,861 -- --
Preston Court.............. MD IND -- 2,313 7,192 -- --
Production Drive........... KY IND -- 425 1,286 -- --
Santa Barbara Court........ MD IND -- 1,617 5,029 -- --
Shiloh Road................ TX IND -- 1,813 5,495 -- --
Silicon Valley R&D
Portfolio................ CA IND -- 8,024 24,205 -- --
South Bay Industrial....... CA IND 20,791 14,992 45,016 -- 465
Southfield................. GA IND -- 7,073 21,259 -- 106
Stadium Business Park...... CA IND 4,909 3,768 11,345 -- 48
Systematics................ CA IND -- 911 2,773 -- --
Texas Industrial Portfolio
(4)...................... TX IND -- 10,806 32,499 -- 218
Twin Cities................ MN IND -- 4,873 14,638 -- --
Two South Middlesex........ NJ IND -- 2,247 6,781 -- --
Valwood.................... TX IND 4,351 1,983 5,989 -- 12
Valwood Parkway II......... TX IND -- 2,219 6,729 -- --
Viscount................... FL IND -- 984 3,016 -- --
Weigman Road............... CA IND -- 1,563 4,852 -- --
West Kiest................. TX IND -- 1,395 4,231 -- --
West North Carrier......... TX IND 3,522 1,375 4,165 -- 85
Windsor Court.............. IL IND -- 766 2,338 -- --
Yosemite Drive............. CA IND -- 2,350 7,297 -- --
Zanker/Charcot
Industrial............... CA IND -- 5,282 15,887 -- 202
Applewood Village Shopping
Center................... CO RET -- 6,716 26,903 -- --
Arapahoe Village Shopping
Center................... CO RET 11,083 3,795 15,220 -- --
Aurora Marketplace......... WA RET -- 3,243 13,013 -- 4
BayHill Shopping Center.... CA RET -- 2,844 11,417 -- 64
Brentwood Commons.......... IL RET 5,460 1,810 7,280 -- 1
Civic Center Plaza......... IL RET 13,689 5,113 20,492 -- 42
Corbins Corner Shopping
Center................... CT RET -- 6,438 25,791 -- 3
<CAPTION>
GROSS AMOUNT CARRIED AT 12/31/97
----------------------------------
YEAR OF DEPRECIABLE
TOTAL ACCUMULATED CONSTRUCTION OR LIFE
PROPERTY LAND BUILDING COSTS(2) DEPRECIATION ACQUISITION (YEARS)
-------- -------- ---------- ---------- ------------ --------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Pagemill & Dillworth....... 1,877 5,690 7,567 13 1997 5-40
Patuxent................... 1,696 5,127 6,823 12 1997 5-40
Penn James
Office/Warehouse......... 1,991 6,116 8,107 14 1997 5-40
Pennsy Drive............... 657 2,214 2,871 5 1997 5-40
Presidents Drive........... 1,124 3,446 4,570 8 1997 5-40
Presidents Drive II........ 2,563 7,861 10,424 18 1997 5-40
Preston Court.............. 2,313 7,192 9,505 16 1997 5-40
Production Drive........... 425 1,286 1,711 3 1997 5-40
Santa Barbara Court........ 1,617 5,029 6,646 11 1997 5-40
Shiloh Road................ 1,813 5,495 7,308 13 1997 5-40
Silicon Valley R&D
Portfolio................ 8,024 24,205 32,229 55 1997 5-40
South Bay Industrial....... 14,992 45,481 60,473 103 1997 5-40
Southfield................. 7,073 21,365 28,438 49 1997 5-40
Stadium Business Park...... 3,768 11,393 15,161 26 1997 5-40
Systematics................ 911 2,773 3,684 6 1997 5-40
Texas Industrial Portfolio
(4)...................... 10,806 32,717 43,523 74 1997 5-40
Twin Cities................ 4,873 14,638 19,511 33 1997 5-40
Two South Middlesex........ 2,247 6,781 9,028 15 1997 5-40
Valwood.................... 1,983 6,001 7,984 14 1997 5-40
Valwood Parkway II......... 2,219 6,729 8,948 15 1997 5-40
Viscount................... 984 3,016 4,000 7 1997 5-40
Weigman Road............... 1,563 4,852 6,415 11 1997 5-40
West Kiest................. 1,395 4,231 5,626 10 1997 5-40
West North Carrier......... 1,375 4,250 5,625 10 1997 5-40
Windsor Court.............. 766 2,338 3,104 5 1997 5-40
Yosemite Drive............. 2,350 7,297 9,647 17 1997 5-40
Zanker/Charcot
Industrial............... 5,282 16,089 21,371 36 1997 5-40
Applewood Village Shopping
Center................... 6,716 26,903 33,619 61 1997 5-40
Arapahoe Village Shopping
Center................... 3,795 15,220 19,015 35 1997 5-40
Aurora Marketplace......... 3,243 13,017 16,260 30 1997 5-40
BayHill Shopping Center.... 2,844 11,481 14,325 26 1997 5-40
Brentwood Commons.......... 1,810 7,281 9,091 17 1997 5-40
Civic Center Plaza......... 5,113 20,534 25,647 47 1997 5-40
Corbins Corner Shopping
Center................... 6,438 25,794 32,232 59 1997 5-40
</TABLE>
F-43
<PAGE> 195
<TABLE>
<CAPTION>
COSTS
CAPITALIZED
SUBSEQUENT TO
INITIAL COST TO COMPANY ACQUISITION
----------------------- ---------------
PROPERTY LOCATION TYPE ENCUMBRANCES(1) LAND BUILDING LAND BUILDING
-------- -------- ---- --------------- --------- ----------- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Eastgate Plaza............. WA RET -- 2,122 8,529 -- 59
Five Points Shopping
Center................... CA RET -- 5,412 21,687 -- 96
Granada Village............ CA RET 15,678 6,533 26,172 -- 251
Kendall Mall............... FL RET 25,162 7,069 28,316 -- 16
La Jolla Village........... CA RET 19,245 6,936 27,785 -- 16
Lakeshore Plaza Shopping
Center................... CA RET 13,839 6,706 26,865 -- 74
Latham Farms............... NY RET 38,833 12,327 49,350 -- 23
Long Gate Shopping
Center................... MD RET -- 9,662 38,677 -- --
Manhattan Village Shopping
Center................... CA RET -- 16,484 66,578 -- 230
Pleasant Hill Shopping
Center................... CA RET -- 5,403 21,654 -- 13
Rancho San Diego Village
Shopping Center.......... CA RET -- 2,645 10,621 -- 2
Randall's Dairy Ashford.... TX RET -- 2,542 10,179 -- --
Randall's Austin Parkway... TX RET -- 2,139 8,563 -- --
Randall's Commons
Memorial................. TX RET -- 2,053 8,221 -- 1
Randall's Woodway.......... TX RET -- 3,075 12,313 -- --
Riverview Plaza Shopping
Center................... IL RET -- 2,656 10,663 -- --
Rockford Road Plaza........ MN RET -- 4,333 17,371 -- 35
Shoppes at Lago Mar........ FL RET 5,932 2,051 8,246 -- 66
Silverado Plaza Shopping
Center................... CA RET 5,203 1,928 7,753 -- --
Southwest Pavilion......... NV RET -- 1,575 8,140 -- 30
The Plaza at Delray........ FL RET 23,455 6,968 27,914 -- 4
Twin Oaks Shopping
Center................... CA RET -- 2,399 9,637 -- 47
Weslayan Plaza............. TX RET -- 7,842 31,409 -- 76
Woodlawn Point Shopping
Center................... GA RET 4,823 2,318 9,312 -- --
Ygnacio Plaza.............. CA RET 8,365 3,021 12,114 -- 38
-------- -------- ---------- ---- ------
$455,256 $550,635 $1,817,216 $ -- $5,300
======== ======== ========== ==== ======
<CAPTION>
GROSS AMOUNT CARRIED AT 12/31/97
----------------------------------
YEAR OF DEPRECIABLE
TOTAL ACCUMULATED CONSTRUCTION OR LIFE
PROPERTY LAND BUILDING COSTS(2) DEPRECIATION ACQUISITION (YEARS)
-------- -------- ---------- ---------- ------------ --------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Eastgate Plaza............. 2,122 8,588 10,710 20 1997 5-40
Five Points Shopping
Center................... 5,412 21,783 27,195 50 1997 5-40
Granada Village............ 6,533 26,423 32,956 60 1997 5-40
Kendall Mall............... 7,069 28,332 35,401 65 1997 5-40
La Jolla Village........... 6,936 27,801 34,737 63 1997 5-40
Lakeshore Plaza Shopping
Center................... 6,706 26,939 33,645 61 1997 5-40
Latham Farms............... 12,327 49,373 61,700 113 1997 5-40
Long Gate Shopping
Center................... 9,662 38,677 48,339 88 1997 5-40
Manhattan Village Shopping
Center................... 16,484 66,808 83,292 152 1997 5-40
Pleasant Hill Shopping
Center................... 5,403 21,667 27,070 49 1997 5-40
Rancho San Diego Village
Shopping Center.......... 2,645 10,623 13,268 24 1997 5-40
Randall's Dairy Ashford.... 2,542 10,179 12,721 23 1997 5-40
Randall's Austin Parkway... 2,139 8,563 10,702 20 1997 5-40
Randall's Commons
Memorial................. 2,053 8,222 10,275 19 1997 5-40
Randall's Woodway.......... 3,075 12,313 15,388 28 1997 5-40
Riverview Plaza Shopping
Center................... 2,656 10,663 13,319 24 1997 5-40
Rockford Road Plaza........ 4,333 17,406 21,739 40 1997 5-40
Shoppes at Lago Mar........ 2,051 8,312 10,363 19 1997 5-40
Silverado Plaza Shopping
Center................... 1,928 7,753 9,681 18 1997 5-40
Southwest Pavilion......... 1,575 8,170 9,745 19 1997 5-40
The Plaza at Delray........ 6,968 27,918 34,886 64 1997 5-40
Twin Oaks Shopping
Center................... 2,399 9,684 12,083 22 1997 5-40
Weslayan Plaza............. 7,842 31,485 39,327 72 1997 5-40
Woodlawn Point Shopping
Center................... 2,318 9,312 11,630 21 1997 5-40
Ygnacio Plaza.............. 3,021 12,152 15,173 26 1997 5-40
-------- ---------- ---------- ------
$550,635 $1,822,516 $2,373,151 $4,153
======== ========== ========== ======
</TABLE>
F-44
<PAGE> 196
AMB PROPERTY CORPORATION
SCHEDULE III (CONTINUED)
CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1997
(IN THOUSANDS)
A summary of activity for real estate and accumulated depreciation for the
year ended December 31, 1997 is as follows:
<TABLE>
<CAPTION>
1997(5)
----------
<S> <C>
INVESTMENTS IN REAL ESTATE:
Balance at beginning of year.............................. $ --
Acquisition of Properties(6)........................... 2,367,851
Improvements........................................... 5,300
----------
Balance at end of year.................................... $2,373,151
==========
ACCUMULATED DEPRECIATION:
Balance at beginning of year.............................. $ --
Depreciation expense................................... 4,153
----------
Balance at end of year.................................... $ 4,153
==========
</TABLE>
- ---------------
(1) As of December 31, 1997, Properties with a net book value of $170,979 serve
as collateral for outstanding indebtedness under a secured debt facility of
$73,000.
(2) As of December 31, 1997, the aggregate cost for federal income tax purposes
of investments in real estate was approximately $2,231,504.
(3) Consists of two properties with seven buildings in Los Angeles and one
building in Anaheim.
(4) Consists of two properties with five buildings in Houston and 18 buildings
in Dallas.
(5) The Company was formed in November 1997. Since the Company did not own real
estate prior to the Formation Transaction, a reconciliation of activity for
real estate and accumulated depreciation is not provided for the years ended
December 31, 1996 and 1995.
(6) As discussed in the "Notes to Consolidated Financial Statements --
Organization and Formation of the Company," the Company and the Operating
Partnership acquired Properties with a value of $2,216,137 in exchange for
shares of the Company's common stock and units in the Operating Partnership.
F-45
<PAGE> 197
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To AMB Property Corporation:
We have audited the accompanying combined balance sheets of the AMB
Contributed Properties as of December 31, 1995 and 1996, and the related
combined statements of operations, owners' equity and cash flows for the years
ended December 31, 1994, 1995 and 1996. These combined financial statements are
the responsibility of the management of the AMB Contributed Properties. Our
responsibility is to express an opinion on these combined financial statements
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, the 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 combined financial statements referred to above present
fairly, in all material respects, the financial position of the AMB Contributed
Properties as of December 31, 1995 and 1996, and the results of their operations
and their cash flows for the years ended December 31, 1994, 1995 and 1996, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
San Francisco, California
March 27, 1998
F-46
<PAGE> 198
AMB CONTRIBUTED PROPERTIES
COMBINED BALANCE SHEETS
AS OF DECEMBER 31, 1995 AND 1996
AND SEPTEMBER 30, 1997 (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30, 1997
------------------------ --------------------------
1995 1996 HISTORICAL AS ADJUSTED
---------- ---------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Investments in real estate:
Land and land improvements................ $ 252,627 $ 431,869 $ 502,385 $ 502,385
Buildings and improvements................ 754,623 1,157,464 1,367,162 1,367,162
Construction in progress.................. 11,431 26,758 31,615 31,615
---------- ---------- ---------- ----------
Total investments in real estate..... 1,018,681 1,616,091 1,901,162 1,901,162
Less -- accumulated depreciation..... (33,726) (61,704) (87,836) (87,836)
---------- ---------- ---------- ----------
Net investments in real estate....... 984,955 1,554,387 1,813,326 1,813,326
Cash and cash equivalents................. 110,474 33,120 46,055 13,168
Accounts receivable, net.................. 9,646 13,842 17,112 17,112
Deferred rent receivable.................. 3,465 5,899 8,347 8,347
Deferred financing and leasing costs,
net..................................... 6,281 13,840 15,130 15,130
Prepaid expenses and other assets......... 2,360 1,471 4,905 4,905
---------- ---------- ---------- ----------
Total assets.................... $1,117,181 $1,622,559 $1,904,875 $1,871,988
========== ========== ========== ==========
LIABILITIES AND OWNERS' EQUITY
Debt:
Mortgage loans.......................... $ 254,067 $ 403,321 $ 443,324 $ 443,324
Secured debt facility................... -- 73,000 73,000 73,000
Secured line of credit.................. -- 46,313 43,613 43,613
Unsecured line of credit................ -- 25,500 181,300 181,300
---------- ---------- ---------- ----------
Total debt...................... 254,067 548,134 741,237 741,237
Accounts payable and other liabilities.... 11,395 14,298 19,662 19,662
Accounts payable to affiliates............ 529 2,713 3,117 3,117
Accrued real estate taxes................. 7,240 8,465 16,278 16,278
Security deposits payable................. 2,141 6,714 8,202 8,202
Unearned rental income.................... 896 1,703 2,354 2,354
---------- ---------- ---------- ----------
Total liabilities............... 276,268 582,027 790,850 790,850
Commitments and contingencies............. -- -- -- --
Minority interests........................ 3,714 12,931 16,224 16,224
Owners' equity............................ 838,007 1,028,377 1,098,526 1,065,639
Note receivable from owner................ (808) (776) (725) (725)
---------- ---------- ---------- ----------
Total owners' equity............ 837,199 1,027,601 1,097,801 1,064,914
---------- ---------- ---------- ----------
Total liabilities and owners'
equity........................ $1,117,181 $1,622,559 $1,904,875 $1,871,988
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-47
<PAGE> 199
AMB CONTRIBUTED PROPERTIES
COMBINED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996,
THE NINE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED) AND
THE PERIOD FROM JANUARY 1, 1997 TO NOVEMBER 25, 1997 (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS JANUARY 1,
FOR THE YEARS ENDED DECEMBER 31, ENDED 1997 TO
---------------------------------- SEPTEMBER 30, NOVEMBER 25,
1994 1995 1996 1996 1997
-------- --------- --------- ------------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES
Rental revenues.................. $50,893 $106,180 $166,415 $120,146 $207,391
Interest and other income........ 789 2,069 1,538 1,066 1,217
------- -------- -------- -------- --------
Total revenues......... 51,682 108,249 167,953 121,212 208,608
OPERATING EXPENSES
Rental expenses.................. 7,216 15,210 22,646 16,013 28,057
Real estate taxes................ 6,361 15,431 23,167 17,460 29,749
Interest expense................. 12,023 20,533 26,867 18,927 45,009
Depreciation and amortization.... 8,812 17,524 28,591 20,549 32,616
Asset management fees to
affiliate...................... 3,167 6,250 9,508 6,593 14,646
General, administrative and
other.......................... 350 782 838 586 823
------- -------- -------- -------- --------
Total operating
expenses............. 37,929 75,730 111,617 80,128 150,900
Income from operations before
disposal of properties and
minority interests............. 13,753 32,519 56,336 41,084 57,708
Gain (loss) on disposition of
properties..................... -- -- (1,471) 43 360
------- -------- -------- -------- --------
Income from operations before
minority interests............. 13,753 32,519 54,865 41,127 58,068
Minority interests' share of
(income) loss.................. (559) 12 (465) (678) (884)
------- -------- -------- -------- --------
Net income....................... $13,194 $ 32,531 $ 54,400 $ 40,449 $ 57,184
======= ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-48
<PAGE> 200
AMB CONTRIBUTED PROPERTIES
COMBINED STATEMENTS OF OWNERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996 AND
THE NINE MONTHS ENDED SEPTEMBER 30, 1997 (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NOTE
OWNERS' RECEIVABLE
EQUITY FROM OWNER TOTAL
---------- ---------- ----------
<S> <C> <C> <C>
Balance at December 31, 1993............................ $ 208,810 $(767) $ 208,043
Contributions......................................... 312,241 -- 312,241
Distributions......................................... (43,367) -- (43,367)
Net income............................................ 13,194 -- 13,194
---------- ----- ----------
Balance at December 31, 1994............................ 490,878 (767) 490,111
Contributions......................................... 392,662 -- 392,662
Distributions......................................... (78,064) -- (78,064)
Increase in note receivable from owner................ -- (41) (41)
Net income............................................ 32,531 -- 32,531
---------- ----- ----------
Balance at December 31, 1995............................ 838,007 (808) 837,199
Contributions......................................... 253,322 -- 253,322
Distributions......................................... (117,352) -- (117,352)
Principal reduction on note receivable from owner..... -- 32 32
Net income............................................ 54,400 -- 54,400
---------- ----- ----------
Balance at December 31, 1996............................ 1,028,377 (776) 1,027,601
Contributions......................................... 112,912 -- 112,912
Distributions......................................... (89,598) -- (89,598)
Principal reduction on note receivable from owner..... -- 51 51
Net income............................................ 46,835 -- 46,835
---------- ----- ----------
Balance at September 30, 1997........................... $1,098,526 $(725) $1,097,801
========== ===== ==========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-49
<PAGE> 201
AMB CONTRIBUTED PROPERTIES
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996,
THE NINE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED) AND
THE PERIOD FROM JANUARY 1, 1997 TO NOVEMBER 25, 1997 (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS JANUARY 1,
FOR THE YEARS ENDED DECEMBER 31, ENDED 1997 TO
--------------------------------- SEPTEMBER 30, NOVEMBER 25,
1994 1995 1996 1996 1997
--------- --------- --------- ------------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................... $ 13,194 $ 32,531 $ 54,400 $ 40,449 $ 57,184
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization...... 8,812 17,524 28,591 20,549 32,616
Amortization of deferred financing
costs........................... 138 217 479 360 1,088
Straight-line rents................ (1,404) (2,061) (2,434) (1,826) (2,965)
Minority interests' share of net
income (loss)................... 559 (12) 465 678 884
(Gain) loss on disposition of
properties...................... -- -- 1,471 (43) (360)
Increase in accounts receivable and
other assets.................... (776) (5,603) (3,307) (1,116) (14,166)
Increase (decrease) in payable to
affiliates...................... 1,001 (472) 2,184 (1,413) 615
Increase in accounts payable and
other liabilities............... 6,998 10,284 9,069 8,405 16,890
--------- --------- --------- --------- ---------
Net cash provided by operating
activities.................... 28,522 52,408 90,918 66,043 91,786
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to properties.............. (345,042) (352,984) (566,278) (220,685) (315,303)
Additions to leasing costs........... (1,898) (2,741) (6,002) (3,732) (4,548)
--------- --------- --------- --------- ---------
Net cash used for investing
activities...................... (346,940) (355,725) (572,280) (224,417) (319,851)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on debt................... 125,527 59,852 331,023 121,342 188,886
Payments on debt..................... (20,534) (7,744) (36,956) (29,054) (52,004)
Additions to financing fees.......... (836) (816) (3,248) (3,077) (244)
Capital distributions................ (43,367) (78,064) (117,352) (85,437) (90,107)
Capital contributions................ 312,241 384,596 231,491 -- 187,192
Contributions by minority
interests.......................... 150 457 556 78,824 7,980
Distributions to minority
interests.......................... (368) (2,994) (1,538) (1,463) (2,528)
Decrease (increase) in note
receivable from owner.............. (767) (41) 32 83 (17)
--------- --------- --------- --------- ---------
Net cash provided by financing
activities......................... 372,046 355,246 404,008 81,218 239,158
Net increase (decrease) in cash and
equivalents........................ 53,628 51,929 (77,354) (77,156) 11,093
Cash and cash equivalents at
beginning of period................ 4,917 58,545 110,474 110,474 33,120
--------- --------- --------- --------- ---------
Cash and cash equivalents at end of
period............................. $ 58,545 $ 110,474 $ 33,120 $ 33,318 $ 44,213
========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-50
<PAGE> 202
AMB CONTRIBUTED PROPERTIES
NOTES TO COMBINED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. ORGANIZATION AND BASIS OF PRESENTATION
The accompanying combined financial statements represent a combination of
the assets, liabilities and operations of 96 properties (the "Properties")
located throughout the United States, which are owned by certain real estate
investment funds, trusts and partnerships. Collectively, the combination of the
operations of the investments in the Properties is referred to as the "AMB
Contributed Properties." During the periods presented, the AMB Contributed
Properties were all managed by AMB Institutional Realty Advisors, Inc. ("AMB"),
the investment manager, under separate investment management agreements (the
"Agreements"). AMB Contributed Properties is not a legal entity. A summary of
the various entities that own the Properties, the number of properties and
square footage as of November 25, 1997 is as follows:
<TABLE>
<CAPTION>
NUMBER
OF
PROPERTY OWNER PROPERTIES SQUARE FOOTAGE
-------------- ---------- --------------
<S> <C> <C>
AMB Current Income Fund, Inc.(1)............................ 34 14,866,408
AMB Value Added Fund, Inc................................... 5 1,740,103
AMB Western Properties Fund-I............................... 8 1,118,907
Ameritech Pension Trust..................................... 11 4,398,878
City and County of San Francisco Employees' Retirement
System.................................................... 12 3,933,608
First Allmerica Financial Life Insurance Company............ 1 484,370
Milwaukee Employe's Retirement System(1).................... 1 285,480
Southern Company System Master Retirement Trust............. 20 8,427,537
SPP Investment Management................................... 1 699,512
Various Family Trusts....................................... 3 510,298
-- ----------
Total............................................. 96 36,465,101
== ==========
</TABLE>
- ---------------
(1) AMB Current Income Fund, Inc. and Milwaukee Employe's Retirement System own
respective interests in a limited liability company of 66.7% and 33.3%. The
principal asset of the limited liability company is a 2,512,465 square foot
property. The property is included in AMB Current Income Fund, Inc.'s number
of properties and square footage above.
On November 25, 1997, the owners of the AMB Contributed Properties and AMB
completed a business combination plan whereby the owners of the Properties
contributed their property to AMB Property Corporation, a public real estate
company (the "Company"), in exchange for shares in AMB Property Corporation, or
units in a subsidiary partnership, AMB Property, L.P. (the "Operating
Partnership") or, in certain limited circumstances, cash (the "Formation
Transactions"). The allocation of ownership interests among the owners of the
AMB Contributed Properties and AMB was based on the agreed-upon relative values
of net assets contributed. The initial allocation among these entities may
change pending the resolution of certain future performance criteria of the
Company.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
These financial statements have been prepared in accordance with generally
accepted accounting principles using the accrual method of accounting. 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.
F-51
<PAGE> 203
AMB CONTRIBUTED PROPERTIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
INVESTMENTS IN REAL ESTATE
Investments in real estate are stated at depreciated cost and are reviewed
for impairment on a property-by-property basis whenever events or changes in
circumstances indicate that the carrying amount of a property may not be
recoverable. Impairment is recognized when estimated expected future cash flows
(undiscounted and without interest charges)are less than the carrying amount of
the property. To the extent an impairment has occurred, the excess of the
carrying amount of the property over its estimated fair value will be charged to
income. As of December 31, 1997, there were no impairments of the carrying
values of the Properties.
Depreciation and amortization are calculated using the straight-line method
over the estimated useful lives of the investments. The estimated lives are as
follows:
<TABLE>
<S> <C>
Land improvements................................... 5 to 40 years
Buildings and improvements.......................... 5 to 40 years
Tenant improvements and leasing costs............... Term of the related lease
</TABLE>
The cost of buildings and improvements includes the purchase price of the
property or interest in property, legal fees and acquisition costs and interest,
property taxes, and other costs incurred during the period of construction.
Expenditures for maintenance and repairs are charged to operations as
incurred. Significant renovations or betterments that extend the economic useful
life of assets are capitalized.
Project costs directly associated with the development and construction of
a real estate project are capitalized as construction in progress. In addition,
interest, real estate taxes and other costs are capitalized during the
construction period.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash held in financial institutions and
other highly liquid short-term investments with original maturities of three
months or less. Cash and cash equivalents as of December 31, 1995 and 1996 and
September 30, 1997 (unaudited) include restricted cash of $77,593, $11,042, and
$1,740, respectively, which represent amounts held in escrow in connection with
property purchases and capital improvements.
DEFERRED FINANCING AND LEASING COSTS
Costs incurred in connection with financing or leasing are capitalized and
amortized to interest expense and depreciation and amortization, respectively,
on a straight-line basis (which approximates the effective interest method in
the case of financing costs) over the term of the related loan or lease for
periods generally ranging from six months to 10 years. Unamortized costs are
charged to expense upon the early repayment of the related debt or upon the
early termination of the lease. Accumulated amortization as of December 31, 1995
and 1996 and September 30, 1997 (unaudited) was $1,239, $2,930 and $5,487,
respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Based on the borrowing rates currently available to the Properties, the
fair value of its debt at September 30, 1997 (unaudited) (with a carrying amount
of $741,237) was approximately $760,000. Such valuation is based on the current
rates offered to the AMB Contributed Properties for debt of the same remaining
maturities. The carrying amount of cash and cash equivalents approximates fair
value.
F-52
<PAGE> 204
AMB CONTRIBUTED PROPERTIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
MINORITY INTERESTS
Minority interests in the AMB Contributed Properties represent interests
held by certain entities in eight real estate limited partnerships and limited
liability companies that are consolidated for financial reporting purposes. Such
investments are consolidated because (i) the Company owns a controlling general
partner's interest or holds a majority member interest, or (ii) the Company as
limited partner holds significant control over the entity through a 50% or
greater ownership interest combined with the ability to control major operating
decisions such as approval of budgets, selection of property managers and change
in financing. Further, in all cases, the Company has the ability to preclude a
sale or refinancing proposed by any other partner.
REVENUES
All leases are classified as operating leases. Rental revenues are
recognized on a straight-line basis over the term of the leases. Deferred rent
receivable represents the excess of rental revenue recognized on a straight-line
basis over cash received under the applicable lease provisions.
INTEREST AND OTHER INCOME
Interest and other income primarily represents interest income on cash and
cash equivalents.
NEW ACCOUNTING PRONOUNCEMENTS
In June of 1997, the FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information." This statement, effective for
financial statements for periods beginning after December 15, 1997, requires
that a public business enterprise report financial and descriptive information
about its reportable operating segments. Generally, information is required to
be reported on the basis that it is used internally for evaluating segment
performance and deciding how to allocate resources to segments. This statement
is not applicable to the AMB Contributed Properties, as they are not public
business enterprises.
3. NOTE RECEIVABLE FROM OWNER
An affiliate of AMB held a 1% general partnership interest in AMB Western
Properties Fund-I. The general partner's capital contribution was made through a
note payable to AMB Western Properties Fund-I. The note accrues interest at
9.29%, payable from the general partner's quarterly cash distributions. At
December 31, 1995 and 1996 and September 30, 1997 (unaudited), outstanding
principal and interest on the note totaled $808, $776 and $725, respectively.
4. TRANSACTIONS WITH INVESTMENT MANAGER
The owners of the AMB Contributed Properties are obligated to pay AMB
acquisition fees and asset management fees, as defined in the Agreements. For
the years ended December 31, 1994, 1995 and 1996, the nine months ended
September 30, 1996 (unaudited) and the period from January 1, 1997 to November
25, 1997 (unaudited), the AMB Contributed Properties incurred expenses of
$3,167, $6,250, $9,508, $6,593 and $14,646, respectively, related to asset
management of the Properties. In addition, acquisition fees paid to AMB of
$3,521, $3,884, $4,849, $2,053 and $2,989 were capitalized to investments in
real estate in the accompanying combined balance sheets for the years ended
December 31, 1994, 1995 and 1996, for the nine months ended September 30, 1996
(unaudited) and the period from January 1, 1997 to November 25, 1997
(unaudited), respectively. At December 31, 1995 and 1996 and September 30, 1997
(unaudited), total acquisition and asset management fees payable to AMB were
$529, $2,713 and $3,024, respectively.
F-53
<PAGE> 205
AMB CONTRIBUTED PROPERTIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
Certain owners of the AMB Contributed Properties are also obligated to pay
incentive management fees to AMB during ownership and upon disposition of the
Properties to the extent that operations of the Properties and their fair values
meet certain criteria. In connection with the Formation Transaction the owners
of the AMB Contributed Properties agreed to terminate their respective existing
incentive management fee agreements with AMB. One of the owners of the AMB
Contributed Properties agreed to and paid a final incentive management fee of
$3,011.
5. DEBT
As of December 31, 1995 and 1996 and September 30, 1997 (unaudited), debt
consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- SEPTEMBER 30,
1995 1996 1997
-------- -------- -------------
(UNAUDITED)
-------------
<S> <C> <C> <C>
Mortgage loans, varying interest rates from 7.0%
to 10.4%, due November 1998 to December 2008... $254,067 $403,321 $443,324
Secured debt facility, fixed interest at 7.53%,
due December 2008.............................. -- 73,000 73,000
Secured line of credit, variable interest at
LIBOR plus 50 basis points (6.2% at September
30, 1997), due October 1998.................... -- 46,313 43,613
Unsecured line of credit, variable interest at
LIBOR plus 150 basis points (7.2% at September
30, 1997), due August 1999..................... -- 25,500 181,300
-------- -------- --------
Total debt............................. $254,067 $548,134 $741,237
======== ======== ========
</TABLE>
The unsecured line of credit had total availability of $200,000 as of
September 30, 1997 (unaudited). The unsecured line includes a one-year option to
extend and a fee on average unused funds of 25 basis points.
The secured debt facility and secured line of credit in aggregate had total
availability of $116,613 as of September 30, 1997.
Mortgage loans generally require monthly principal and interest payments.
The mortgage loans are secured by deeds of trust or mortgages on 42 Properties.
The net book value of real estate investments pledged as collateral under deeds
of trust or mortgages for mortgage loans and the secured debt facility at
December 31, 1995 and 1996 and September 30, 1997 (unaudited) is $475,783,
$934,233 and $935,074, respectively. In addition, Properties with a net book
value of $129,192, $147,452 and $146,853 as of December 31, 1995 and 1996 and
September 30, 1997 (unaudited), respectively, are part of a collateral pool for
cross-collateralized mortgage debt of one of the Property owners. As such
mortgage is deemed to be debt of the real estate investment fund rather than of
the Properties and as such Properties were contributed to the Company free of
debt, the debt is not reflected in the accompanying combined financial
statements.
Also included in mortgage loans is a construction loan with a balance of
$1,928 as of September 30, 1997 (unaudited). Such loan matures in 2000, has
total availability of $8,000 and bears interest at LIBOR plus 275 basis points
or prime plus 50 basis points at the borrower's option.
The secured line is collateralized by capital subscriptions receivable of
$149,436 at September 30, 1997 (unaudited) from the owners of AMB Value Added
Fund, Inc. which have been netted against owners' equity in the accompanying
combined financial statements.
The weighted-average fixed interest rate on debt at September 30, 1997
(unaudited) was 7.87%. Interest capitalized related to construction projects for
the years ended December 31, 1994, 1995 and 1996, for the
F-54
<PAGE> 206
AMB CONTRIBUTED PROPERTIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
nine months ended September 30, 1996 (unaudited) and for the period from January
1, 1997 to November 25, 1997 (unaudited) was $132, $105, $1,134, $537 and
$1,092, respectively.
The scheduled maturities of all debt outstanding as of September 30, 1997
are as follows:
<TABLE>
<S> <C>
1997 (three months)......................................... $ 1,536
1998........................................................ 63,002
1999........................................................ 190,966
2000........................................................ 9,285
2001........................................................ 35,654
Thereafter.................................................. 440,794
--------
$741,237
========
</TABLE>
6. LEASING ACTIVITY
Future minimum rentals due under noncancelable operating leases with
tenants in effect at September 30, 1997 (unaudited) are as follows:
<TABLE>
<S> <C>
1997 (three months)......................................... $ 43,059
1998........................................................ 178,488
1999........................................................ 158,878
2000........................................................ 138,977
2001........................................................ 117,644
Thereafter.................................................. 509,810
----------
$1,146,856
==========
</TABLE>
In addition to minimum rental payments, certain tenants pay reimbursements
for their pro rata share of specified operating expenses, which reimbursements
amounted to $9,077, $21,008, $33,805, $26,176 and $44,574 for the years ended
December 31, 1994, 1995 and 1996, for the nine months ended September 30, 1996
(unaudited) and for the period from January 1, 1997 to November 25, 1997
(unaudited), respectively. These amounts are included as rental income and
operating expenses in the accompanying combined statements of operations.
Certain of the leases also provide for the payment of additional rent based on a
percentage of the tenant's revenues. Some leases contain options to renew. No
individual tenant accounts for greater than 10% of rental revenues.
7. PROPERTY DISPOSITIONS
During the year ended December 31, 1996 and period from January 1, 1997 to
November 25, 1997 (unaudited), the AMB Contributed Properties disposed of
certain Properties. The accompanying combined financial statements include the
operations of such Properties for periods prior to their disposition. The
following table sets forth the revenues and expenses of the disposed Properties
included in the accompanying
F-55
<PAGE> 207
AMB CONTRIBUTED PROPERTIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
combined financial statements for the years ended December 31, 1994, 1995 and
1996, the nine months ended September 30, 1996 (unaudited) and the period from
January 1, 1997 to November 25, 1997 (unaudited).
<TABLE>
<CAPTION>
NINE MONTHS JANUARY 1,
YEARS ENDED DECEMBER 31, ENDED 1997 TO
---------------------------- SEPTEMBER 30, NOVEMBER 25,
1994 1995 1996 1996 1997
------ ------- ------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Revenues........................ $1,248 $ 2,170 $ 2,624 $ 1,909 $1,200
Expenses........................ (489) (1,005) (1,475) (1,075) (595)
------ ------- ------- ------- ------
Net Income.................... $ 759 $ 1,165 $ 1,149 $ 834 $ 605
====== ======= ======= ======= ======
</TABLE>
8. INCOME TAXES
The Properties are owned by entities that are generally not subject to
federal income taxes, including tax-exempt master trusts, real estate investment
trusts and partnerships. Accordingly, no provision for income taxes has been
made in the accompanying combined financial statements.
9. COMMITMENTS AND CONTINGENCIES
ENVIRONMENTAL MATTERS
The owners of the AMB Contributed Properties follow the policy of
monitoring its properties for the presence of hazardous or toxic substances. The
owners of the AMB Contributed Properties are not aware of any environmental
liability with respect to the Properties that would have a material adverse
effect on the AMB Contributed Properties' business, assets or results of
operations; however, there can be no assurance that a material environmental
liability does not exist. The existence of any such material environmental
liability could have a material adverse effect on the AMB Contributed
Properties' results of operations and cash flow.
GENERAL UNINSURED LOSSES
The AMB Contributed Properties generally carry comprehensive liability,
fire, flood, extended coverage and rental loss insurance with policy
specifications, limits and deductibles customarily carried for similar
properties. There are, however, certain types of extraordinary losses that may
be either uninsurable, or not economically insurable. Should an uninsured loss
occur, the AMB Contributed Properties could lose its investment in, and
anticipated profits and cash flows from, a property.
Certain of the AMB Contributed Properties are located in areas that are
subject to earthquake activity; the AMB Contributed Properties have therefore
obtained limited earthquake insurance.
10. AS ADJUSTED BALANCE SHEET (UNAUDITED)
The as adjusted balance sheet as of September 30, 1997 reflects a cash
distribution of approximately $32,887 to the owners of the AMB Contributed
Properties. Such distribution was made in connection with the formation of the
Company and was paid subsequent to December 31, 1997. The distribution was
determined based upon the net working capital position of the Properties as of
November 25, 1997.
F-56
<PAGE> 208
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To AMB Property Corporation:
We have audited the accompanying combined statement of revenues and certain
expenses of the Boston Industrial Portfolio (as defined in Note 1) for the year
ended December 31, 1997. This combined financial statement is the responsibility
of the management of the Boston Industrial Portfolio. Our responsibility is to
express an opinion on this combined financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the combined statement of revenues and
certain expenses is free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the combined
statement of revenues and certain expenses. 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
audit provides a reasonable basis for our opinion.
The accompanying combined statement of revenues and certain expenses has
been prepared for the purpose of complying with Rule 3-14 of the Securities and
Exchange Commission's rules and regulations, as described in Note 1, and is not
intended to be a complete presentation of the revenues and expenses of the
Boston Industrial Portfolio.
In our opinion, the combined statement of revenues and certain expenses
referred to above presents fairly, in all material respects, the revenues and
certain expenses of the Boston Industrial Portfolio for the year ended December
31, 1997, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
San Francisco, California
March 27, 1998
F-57
<PAGE> 209
BOSTON INDUSTRIAL PORTFOLIO
COMBINED STATEMENTS OF REVENUES AND CERTAIN EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1997 AND FOR THE PERIOD FROM JANUARY 1, 1998
TO MARCH 27, 1998 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1998
------- -----------
(UNAUDITED)
<S> <C> <C>
REVENUES:
Rental revenues........................................ $10,395 $2,847
Other income........................................... 8 6
------- ------
10,403 2,853
CERTAIN EXPENSES:
Property operating expenses............................... 306 30
Real estate taxes......................................... 496 78
------- ------
802 108
------- ------
REVENUES IN EXCESS OF CERTAIN EXPENSES...................... $ 9,601 $2,745
======= ======
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-58
<PAGE> 210
BOSTON INDUSTRIAL PORTFOLIO
NOTES TO COMBINED STATEMENTS OF REVENUES AND CERTAIN EXPENSES
(UNAUDITED, DOLLARS IN THOUSANDS)
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
PROPERTIES ACQUIRED
The accompanying combined statements of revenues and certain expenses
include the combined operations of the Boston Industrial Portfolio (the
"Portfolio"). AMB Property Corporation (the "Company") acquired the following
properties from an unrelated party on March 27, 1998 for an aggregate purchase
price of $85,356 and one building with a value of $2,444, which is to be
acquired.
<TABLE>
<CAPTION>
PROPERTY NAME LOCATION RENTABLE SQUARE FEET
------------- -------- --------------------
<S> <C> <C>
Braintree Industrial Braintree, MA 976,634
Braintree Office Braintree, MA 120,000
Stoughton Industrial Stoughton, MA 632,675
Arsenal Street Watertown, MA 191,850
Bedford Street Middleborough, MA 40,018
Brockton Industrial Brockton, MA 300,114
Collins Street Attleboro, MA 152,730
Hartwell Avenue Lexington, MA 40,800
United Drive West Bridgewater, MA 315,000
Mazzeo Randolph, MA 88,420
---------
2,858,241
=========
</TABLE>
BASIS OF PRESENTATION
The accompanying combined statements of revenues and certain expenses are
not representative of the actual operations of the Portfolio for the period
presented. Certain expenses may not be comparable to the expenses expected to be
incurred by the Company in the proposed future operations of the Portfolio;
however, the Company is not aware of any material factors relating to the
Portfolio that would cause the reported financial information not to be
indicative of future operating results. Excluded expenses consist of interest,
depreciation and amortization and other costs not directly related to the future
operations of the Portfolio.
The combined statements of revenues and certain expenses have been prepared
for the purpose of complying with Rule 3-14 of the Securities and Exchange
Commission's rules and regulations.
The financial information presented for the period from January 1, 1998 to
March 27, 1998 is not audited. In the opinion of management, the unaudited
financial information contains all adjustments, consisting of normal recurring
accruals, necessary for a fair presentation of the combined statement of
revenues and certain expenses for the Portfolio.
REVENUE RECOGNITION
All leases are classified as operating leases. Rental revenues are
recognized on a straight-line basis over the terms of the leases. No individual
tenant accounted for greater than 10% of revenues.
USE OF ESTIMATES
The preparation of the combined statements of revenues and certain expenses
in conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of revenues
and expenses during the periods presented. Actual results could differ from
those estimates.
F-59
<PAGE> 211
BOSTON INDUSTRIAL PORTFOLIO
NOTES TO COMBINED STATEMENTS OF REVENUES AND CERTAIN EXPENSES (CONTINUED)
(UNAUDITED, DOLLARS IN THOUSANDS)
2. LEASING ACTIVITY
Future minimum rental revenue due under non-cancelable operating lease with
tenants in effect as of December 31, 1997 is as follows:
<TABLE>
<S> <C>
1998........................................................ $ 10,746
1999........................................................ 10,283
2000........................................................ 9,284
2001........................................................ 8,864
2002........................................................ 6,381
Thereafter.................................................. 28,196
--------
Total............................................. $ 73,754
========
</TABLE>
In addition to minimum rental payments, tenants pay reimbursements for
their pro rata share of specified operating expenses, which amounted to $610 and
$153 for the year ended December 31, 1997 and for the period from January 1,
1998 to March 27, 1998 (unaudited), respectively. These amounts are included in
rental revenues in the accompanying combined statements of revenues and certain
expenses. Certain leases contain options to renew.
F-60
<PAGE> 212
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To AMB Property Corporation:
We have audited the accompanying statement of revenues and certain expenses
of the Jamesburg Property (as defined in Note 1), for the year ended December
31, 1997. This financial statement is the responsibility of the management of
the Jamesburg Property. Our responsibility is to express an opinion on this
financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statement of revenues and certain
expenses is free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the statement of
revenues and certain expenses. 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
audit provides a reasonable basis for our opinion.
The accompanying statement of revenues and certain expenses has been
prepared for the purpose of complying with Rule 3-14 of the Securities and
Exchange Commission's rules and regulations, as described in Note 1, and is not
intended to be a complete presentation of the revenues and expenses of the
Jamesburg Property.
In our opinion, the statement of revenues and certain expenses referred to
above presents fairly, in all material respects, the revenues and certain
expenses of the Jamesburg Property for the year ended December 31, 1997, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
San Francisco, California
March 27, 1998
F-61
<PAGE> 213
THE JAMESBURG PROPERTY
STATEMENTS OF REVENUES AND CERTAIN EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1997 AND FOR THE PERIOD FROM JANUARY 1, 1998
TO MARCH 20, 1998 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1998
------ -----------
(UNAUDITED)
<S> <C> <C>
REVENUES
Rental revenues........................................... $6,774 $1,466
Other income.............................................. -- --
------ ------
6,774 1,466
CERTAIN EXPENSES
Property operating expenses............................... 1,720 372
Real estate taxes......................................... 790 171
------ ------
2,510 543
------ ------
REVENUES IN EXCESS OF CERTAIN EXPENSES...................... $4,264 $ 923
====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-62
<PAGE> 214
THE JAMESBURG PROPERTY
NOTES TO STATEMENTS OF REVENUES AND CERTAIN EXPENSES
(UNAUDITED DOLLARS IN THOUSANDS)
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PROPERTIES ACQUIRED
The accompanying statements of revenues and certain expenses include the
operations of the Jamesburg Property (the "Property") acquired by AMB Property
Corporation (the "Company") from an unrelated party on March 20, 1998 for an
initial purchase price of $46,802. The Property is located in Dayton, New Jersey
and includes 821,712 rentable square feet.
BASIS OF PRESENTATION
The accompanying statements of revenues and certain expenses are not
representative of the actual operations of the Property for the period
presented. Certain expenses may not be comparable to the expenses expected to be
incurred by the Company in the proposed future operations of the Property;
however, the Company is not aware of any material factors relating to the
Property that would cause the reported financial information not to be
indicative of future operating results. Excluded expenses consist of interest,
depreciation and amortization and other costs not directly related to the future
operations of the Property.
The statements of revenues and certain expenses have been prepared for
purposes of complying with Rule 3-14 of the Securities and Exchange Commission's
rules and regulations.
The financial information presented for the period from January 1, 1998 to
March 20, 1998 is not audited. In the opinion of management, the unaudited
financial information contains all adjustments, consisting of normal recurring
accruals, necessary for a fair presentation of the statement of revenues and
certain expenses for the Property.
REVENUE RECOGNITION
All leases are classified as operating leases. Rental revenues are
recognized on a straight-line basis over the terms of the leases. No individual
tenant accounted for greater than 10% of revenues.
USE OF ESTIMATES
The preparation of the statements of revenues and certain expenses in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of revenues and
expenses during the periods presented. Actual results could differ from those
estimates.
2. LEASING ACTIVITY
Future minimum rental revenues due under non-cancelable operating lease
with tenants in effect as of December 31, 1997 is as follows:
<TABLE>
<S> <C>
1998........................................................ $ 4,783
1999........................................................ 4,404
2000........................................................ 2,480
2001........................................................ 2,085
2002........................................................ 1,080
Thereafter.................................................. 1,712
-------
Total............................................. $16,544
=======
</TABLE>
In addition to minimum rental payments, tenants pay reimbursements for
their pro rata share of specified operating expenses, which amounted to $2,143
and $536 for the year ended December 31, 1997 and for the period from January 1,
1998 to March 20, 1998 (unaudited), respectively. These amounts are included in
rental revenues in the accompanying statements of revenues and certain expenses.
Certain leases contain options to renew.
F-63
<PAGE> 215
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To AMB Property Corporation:
We have audited the accompanying statement of revenues and certain expenses
of Orlando Central Park, for the year ended December 31, 1997. This financial
statement is the responsibility of the management of the Orlando Central Park.
Our responsibility is to express an opinion on this financial statement based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statement of revenues and certain
expenses is free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the statement of
revenues and certain expenses. 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
audit provides a reasonable basis for our opinion.
The accompanying statement of revenues and certain expenses has been
prepared for the purpose of complying with Rule 3-14 of the Securities and
Exchange Commission's rules and regulations, as described in Note 1, and is not
intended to be a complete presentation of the revenues and expenses of Orlando
Central Park.
In our opinion, the statement of revenues and certain expenses referred to
above presents fairly, in all material respects, the revenues and certain
expenses of Orlando Central Park for the year ended December 31, 1997, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
San Francisco, California
March 27, 1998
F-64
<PAGE> 216
ORLANDO CENTRAL PARK
STATEMENTS OF REVENUES AND CERTAIN EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1997 AND FOR THE PERIOD FROM JANUARY 1, 1998
TO MARCH 24, 1998 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1998
------- -----------
(UNAUDITED)
<S> <C> <C>
REVENUES
Rental revenues........................................... $ 3,194 $ 792
Other income.............................................. 55 12
------- ------
3,249 804
CERTAIN EXPENSES
Property operating expenses............................... 693 166
Real estate taxes......................................... 376 94
------- ------
1,069 260
------- ------
REVENUES IN EXCESS OF CERTAIN EXPENSES...................... $ 2,180 $ 544
======= ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-65
<PAGE> 217
ORLANDO CENTRAL PARK
NOTES TO STATEMENTS OF REVENUES AND CERTAIN EXPENSES
(UNAUDITED, DOLLARS IN THOUSANDS)
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PROPERTIES ACQUIRED
The accompanying statements of revenues and certain expenses include the
operations of Orlando Central Park (the "Property") acquired by AMB Property
Corporation (the "Company") from an unrelated party on March 24, 1998 for an
initial purchase price of $30,300. The Property is located in Orlando, Florida
and includes 791,386 rentable square feet.
BASIS OF PRESENTATION
The accompanying statements of revenues and certain expenses are not
representative of the actual operations of the Property for the period
presented. Certain expenses may not be comparable to the expenses incurred by
the Company in the proposed future operations of the Property; however, the
Company is not aware of any material factors relating to the Property that would
cause the reported financial information not to be indicative of future
operating results. Excluded expenses consist of interest, depreciation and
amortization and other costs not directly related to the future operations of
the Property.
The statements of revenues and certain expenses have been prepared for the
purpose of complying with Rule 3-14 of the Securities and Exchange Commission's
rules and regulations.
The financial information presented for the period from January 1, 1998 to
March 24, 1998 is not audited. In the opinion of management, the unaudited
financial information contains all adjustments, consisting of normal recurring
accruals, necessary for a fair presentation of the statement of revenues and
certain expenses for the Property.
REVENUE RECOGNITION
All leases are classified as operating leases. Rental revenues are
recognized on a straight-line basis over the terms of the leases. No individual
tenant accounted for greater than 10% of revenues.
USE OF ESTIMATES
The preparation of the statements of revenues and certain expenses in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of revenues and
expenses during the periods presented. Actual results could differ from those
estimates.
2. LEASING ACTIVITY
Future minimum rental revenues due under non-cancelable operating leases
with tenants in effect as of December 31, 1997 is as follows:
<TABLE>
<S> <C>
1998........................................................ $1,981
1999........................................................ 1,475
2000........................................................ 1,014
2001........................................................ 412
2002........................................................ 294
Thereafter.................................................. --
------
Total............................................. $5,176
======
</TABLE>
In addition to minimum rental payments, tenants pay reimbursements for
their pro rata share of specified operating expenses, which amounted to $140 and
$35 for the year ended December 31, 1997 and for the period from January 1, 1998
to March 24, 1998 (unaudited), respectively. These amounts are included in
rental revenues in the accompanying statements of revenues and certain expenses.
Certain leases contain options to renew.
F-66
<PAGE> 218
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To AMB Property Corporation:
We have audited the accompanying statement of revenues and certain expenses
of Totem Lake Malls (as defined in Note 1), for the year ended December 31,
1997. This financial statement is the responsibility of the management of the
Totem Lake Malls. Our responsibility is to express an opinion on this financial
statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statement of revenues and certain
expenses is free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the statement of
revenues and certain expenses. 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
audit provides a reasonable basis for our opinion.
The accompanying statement of revenues and certain expenses has been
prepared for the purpose of complying with Rule 3-14 of the Securities and
Exchange Commission's rules and regulations, as described in Note 1, and is not
intended to be a complete presentation of the revenues and expenses of Totem
Lake Malls.
In our opinion, the statement of revenues and certain expenses referred to
above presents fairly, in all material respects, the revenues and certain
expenses of Totem Lake Malls for the year ended December 31, 1997, in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
San Francisco, California
March 27, 1998
F-67
<PAGE> 219
TOTEM LAKE MALLS
STATEMENTS OF REVENUES AND CERTAIN EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1997 AND FOR THE PERIOD FROM JANUARY 1, 1998
TO MARCH 6, 1998 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1998
------ -----------
(UNAUDITED)
<S> <C> <C>
REVENUES
Rental revenues........................................... $2,749 $742
Other income.............................................. 73 16
------ ----
2,822 758
CERTAIN EXPENSES
Property operating expenses............................... 1,041 235
Real estate taxes......................................... 252 42
------ ----
1,293 277
------ ----
REVENUES IN EXCESS OF CERTAIN EXPENSES...................... $1,529 $481
====== ====
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-68
<PAGE> 220
TOTEM LAKE MALLS
NOTES TO STATEMENTS OF REVENUES AND CERTAIN EXPENSES
(DOLLARS IN THOUSANDS)
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PROPERTIES ACQUIRED
The accompanying statements of revenues and certain expenses include the
operations of Totem Lake Malls (the "Property") acquired by AMB Property
Corporation (the "Company") from an unrelated party on March 6, 1998 for an
initial purchase price of $26,000. The Property is located in Seattle,
Washington and includes 290,204 rentable square feet.
BASIS OF PRESENTATION
The accompanying statements of revenues and certain expenses are not
representative of the actual operations of the Property for the period
presented. Certain expenses may not be comparable to the expenses expected to be
incurred by the Company in the proposed future operations of the Property;
however, the Company is not aware of any material factors relating to the
Property that would cause the reported financial information not to be
indicative of future operating results. Excluded expenses consist of interest,
depreciation and amortization and other costs not directly related to the future
operations of the Property.
The statements of revenues and certain expenses have been prepared for the
purpose of complying with Rule 3-14 of the Securities and Exchange Commission's
rules and regulations.
The financial information presented for the period from January 1, 1998 to
March 6, 1998 is not audited. In the opinion of management, the unaudited
financial information contains all adjustments, consisting of normal recurring
accruals, necessary for a fair presentation of the statement of revenues and
certain expenses for the Portfolio.
REVENUE RECOGNITION
All leases are classified as operating leases. Rental revenues are
recognized on a straight-line basis over the terms of the leases. No individual
tenant accounted for greater than 10% of revenues.
USE OF ESTIMATES
The preparation of the statements of revenues and certain expenses in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of revenues and
expenses during the periods presented. Actual results could differ from those
estimates.
2. LEASING ACTIVITY
Future minimum rental revenue due under non-cancelable operating leases
with tenants in effect as of December 31, 1997 is as follows:
<TABLE>
<S> <C>
1998........................................................ $ 1,739
1999........................................................ 1,620
2000........................................................ 1,633
2001........................................................ 1,549
2002........................................................ 929
Thereafter.................................................. 4,515
--------
Total............................................. $ 11,985
========
</TABLE>
In addition to minimum rental payments, tenants pay reimbursements for
their pro rata share of specified operating expenses, which amounted to $457 and
$114 for the year ended December 31, 1997 and for the period from January 1,
1998 to March 6, 1998 (unaudited), respectively. These amounts are included in
rental revenues in the accompanying statements of revenues and certain expenses.
Certain leases contain options to renew.
F-69
<PAGE> 221
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To AMB Property Corporation:
We have audited the accompanying statement of revenues and certain expenses
of the Garland Industrial Portfolio (as defined in Note 1) for the year ended
December 31, 1997. This financial statement is the responsibility of the
management of the Garland Industrial Portfolio. Our responsibility is to express
an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statement of revenues and certain
expenses is free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the statement of
revenues and certain expenses. 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
audit provides a reasonable basis for our opinion.
The accompanying statement of revenues and certain expenses was prepared
for the purpose of complying with Rule 3-14 of the Securities and Exchange
Commission's rules and regulations, as described in Note 1, and is not intended
to be a complete presentation of the revenues and expenses of the Garland
Industrial Portfolio.
In our opinion, the statement of revenues and certain expenses referred to
above presents fairly, in all material respects, the revenues and certain
expenses of the Garland Industrial Portfolio for the year ended December 31,
1997, in conformity with generally accounting principles.
ARTHUR ANDERSEN LLP
San Francisco, California,
April 21, 1998
F-70
<PAGE> 222
GARLAND INDUSTRIAL PORTFOLIO
STATEMENTS OF REVENUES AND CERTAIN EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1997 AND
FOR THE PERIOD FROM JANUARY 1, 1998 TO JUNE 18, 1998 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1998
------ -----------
(UNAUDITED)
<S> <C> <C>
REVENUES
Rental revenues........................................... $4,133 $1,957
Other income.............................................. 26 9
------ ------
4,159 1,966
CERTAIN EXPENSES
Property operating expenses............................... 280 80
Real estate taxes......................................... 681 332
------ ------
961 412
------ ------
REVENUES IN EXCESS OF CERTAIN EXPENSES...................... $3,198 $1,554
====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-71
<PAGE> 223
GARLAND INDUSTRIAL PORTFOLIO
NOTES TO STATEMENTS OF REVENUES
AND CERTAIN EXPENSES
(DOLLARS IN THOUSANDS)
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PROPERTIES ACQUIRED
The accompanying statements of revenues and certain expenses include the
operations of the Garland Industrial Portfolio (the "Portfolio") acquired by AMB
Property Corporation (the "Company") from an unrelated party on June 18, 1998
for an initial purchase price of $32,650. The Portfolio is located in the
Dallas, Texas area and includes 11 buildings comprising 1,019,200 rentable
square feet.
Basis of Presentation
The accompanying statements of revenues and certain expenses are not
representative of the actual operations of the Portfolio for the periods
presented. Certain expenses may not be comparable to the expenses expected to be
incurred by the Company in the proposed future operations of the Portfolio;
however, the Company is not aware of any material factors relating to these
Portfolio that would cause the reported financial information not to be
indicative of future operating results. Excluded expenses consist of interest,
depreciation and amortization and other costs not directly related to the future
operations of the Portfolio.
The statements of revenues and certain expenses have been prepared for the
purpose of complying with Rule 3-14 of the Securities and Exchange Commission's
rules and regulations.
The financial information presented for the period from January 1, 1998 to
June 18, 1998 is not audited. In the opinion of management, the unaudited
financial information contains all adjustments, consisting of normal recurring
accruals, necessary for a fair presentation of the statement of revenues and
certain expenses for the Portfolio.
Revenue Recognition
All leases are classified as operating leases, and rental revenue is
recognized on a straight-line basis over the terms of the leases.
Uses 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 revenues and expenses during the
periods presented. Actual results could differ from those estimates.
2. LEASING ACTIVITY
Future minimum rental revenues due under on non-cancelable operating leases
with tenants in effect as of December 31, 1997 is as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
- ---- -------
<S> <C>
1998........................................................ $ 4,300
1999........................................................ 2,765
2000........................................................ 2,019
2001........................................................ 1,242
2002........................................................ 1,071
Thereafter.................................................. 2,099
-------
Total............................................. $13,496
=======
</TABLE>
In addition to minimum rental payments, tenants pay reimbursements for
their pro rata share of specified operating expenses, which amounted to $322 and
$142 for the year ended December 31, 1997 and for the period from January 1,
1998 to June 18, 1998 (unaudited). Certain leases contain options to renew.
F-72
<PAGE> 224
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To AMB Property Corporation:
We have audited the accompanying combined statement of revenues and certain
expenses of the Minnetonka Industrial Portfolio (as defined in Note 1) for the
year ended December 31, 1997. This combined financial statement is the
responsibility of the management of the Minnetonka Industrial Portfolio. Our
responsibility is to express an opinion on this combined financial statement
based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the combined statement of revenues and
certain expenses is free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the combined
statement of revenues and certain expenses. 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
audit provides a reasonable basis for our opinion.
The accompanying combined statement of revenues and certain expenses has
been prepared for the purpose of complying with Rule 3-14 of the Securities and
Exchange Commission's rules and regulations, as described in Note 1, and is not
intended to be a complete presentation of the revenues and expenses of the
Minnetonka Industrial Portfolio.
In our opinion, the combined statement of revenues and certain expenses
referred to above presents fairly, in all material respects, the revenues and
certain expenses of the Minnetonka Industrial Portfolio for the year ended
December 31, 1997, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
San Francisco, California
May 1, 1998
F-73
<PAGE> 225
MINNETONKA INDUSTRIAL PORTFOLIO
COMBINED STATEMENTS OF REVENUES AND CERTAIN EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1997 AND FOR THE PERIOD FROM JANUARY 1, 1998
TO JUNE 30, 1998 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1998
------ -----------
(UNAUDITED)
<S> <C> <C>
REVENUES:
Rental revenues........................................ $4,262 $2,014
Other income........................................... 32 8
------ ------
4,294 2,022
CERTAIN EXPENSES:
Property operating expenses............................... 626 282
Real estate taxes......................................... 996 486
------ ------
1,622 768
------ ------
REVENUES IN EXCESS OF CERTAIN EXPENSES...................... $2,672 $1,254
====== ======
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-74
<PAGE> 226
MINNETONKA INDUSTRIAL PORTFOLIO
NOTES TO COMBINED STATEMENTS OF REVENUES AND CERTAIN EXPENSES
(UNAUDITED, DOLLARS IN THOUSANDS)
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PROPERTIES ACQUIRED
The accompanying combined statements of revenues and certain expenses
include the combined operations of the Minnetonka Industrial Portfolio (the
"Portfolio") acquired by AMB Property Corporation (the "Company") from an
unrelated party on June 30, 1998 for an aggregate purchase price of $26,759. The
Portfolio is located in the Minnetonka, Minnesota area and includes 10 buildings
comprising 515,951 rentable square feet.
BASIS OF PRESENTATION
The accompanying combined statements of revenues and certain expenses are
not representative of the actual operations of the Portfolio for the period
presented. Certain expenses may not be comparable to the expenses expected to be
incurred by the Company in the proposed future operations of the Portfolio;
however, the Company is not aware of any material factors relating to the
Portfolio that would cause the reported financial information not to be
indicative of future operating results. Excluded expenses consist of interest,
depreciation and amortization and other costs not directly related to the future
operations of the Portfolio.
The combined statements of revenues and certain expenses have been prepared
for the purpose of complying with Rule 3-14 of the Securities and Exchange
Commission's rules and regulations.
The financial information presented for the six months ended June 30, 1998
is not audited. In the opinion of management, the unaudited financial
information contains all adjustments, consisting of normal recurring accruals,
necessary for a fair presentation of the combined statement of revenues and
certain expenses for the Portfolio.
REVENUE RECOGNITION
All leases are classified as operating leases. Rental revenues are
recognized on a straight-line basis over the terms of the leases. No individual
tenant accounted for greater than 10% of revenues.
USE OF ESTIMATES
The preparation of the combined statements of revenues and certain expenses
in conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of revenues
and expenses during the periods presented. Actual results could differ from
those estimates.
2. LEASING ACTIVITY
Future minimum rental revenues due under non-cancelable operating leases
with tenants in effect as of December 31, 1997 is as follows:
<TABLE>
<S> <C>
1998........................................................ $2,628
1999........................................................ 2,038
2000........................................................ 1,386
2001........................................................ 1,033
2002........................................................ 790
Thereafter.................................................. 696
------
Total............................................. $8,571
======
</TABLE>
In addition to minimum rental payments, tenants pay reimbursements for
their pro rata share of specified operating expenses, which amounted to $1,517
and $836 for the year ended December 31, 1997 and for the period from January 1,
1998 to June 30, 1998 (unaudited), respectively. Certain leases contain options
to renew.
F-75
<PAGE> 227
MINNETONKA INDUSTRIAL PORTFOLIO
NOTES TO COMBINED STATEMENTS OF REVENUES AND CERTAIN EXPENSES (CONTINUED)
(UNAUDITED, DOLLARS IN THOUSANDS)
3. MORTGAGE PAYABLE
In connection with the purchase of the Portfolio, the Company assumed
certain mortgages with an aggregate principal value of $12,759 as of December
31, 1997. The mortgages require monthly principal and interest payments and are
secured by deeds of trust on certain of the Portfolio properties. The mortgages
bear interest at fixed rates ranging from 8.25% to 9.5% and are due between June
2005 and January 2007. The mortgages have various financial and non-financial
covenants. The weighted-average fixed interest on this secured debt at December
31, 1997 was 8.69%.
The scheduled maturities of the mortgages as of December 31, 1997 are as
follows:
<TABLE>
<S> <C>
1998........................................................ $ 125
1999........................................................ 301
2000........................................................ 328
2001........................................................ 357
2002........................................................ 390
Thereafter.................................................. 11,258
-------
Total............................................. $12,759
=======
</TABLE>
F-76
<PAGE> 228
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To AMB Property Corporation:
We have audited the accompanying statement of revenues and certain expenses
of Crysen Corridor Warehouse (as defined in Note 1), for the year ended December
31, 1997. This financial statement is the responsibility of the management of
the Crysen Corridor Warehouse. Our responsibility is to express an opinion on
this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statement of revenues and certain
expenses is free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the statement of
revenues and certain expenses. 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
audit provides a reasonable basis for our opinion.
The accompanying statement of revenues and certain expenses has been
prepared for the purpose of complying with Rule 3-14 of the Securities and
Exchange Commission's rules and regulations, as described in Note 1, and is not
intended to be a complete presentation of the revenues and expenses of Crysen
Corridor Warehouse.
In our opinion, the statement of revenues and certain expenses referred to
above presents fairly, in all material respects, the revenues and certain
expenses of Crysen Corridor Warehouse for the year ended December 31, 1997, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
San Francisco, California
February 24, 1998
F-77
<PAGE> 229
CRYSEN CORRIDOR WAREHOUSE
STATEMENTS OF REVENUES AND CERTAIN EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1997 AND FOR THE PERIOD FROM JANUARY 1, 1998
TO JUNE 30, 1998 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1998
---- -----------
(UNAUDITED)
<S> <C> <C>
REVENUES
Rental revenues........................................... $526 $236
Other income.............................................. 10 12
---- ----
536 248
CERTAIN EXPENSES
Property operating expenses............................... 46 28
Real estate taxes......................................... 67 34
---- ----
113 62
---- ----
REVENUES IN EXCESS OF CERTAIN EXPENSES...................... $423 $186
==== ====
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-78
<PAGE> 230
CRYSEN CORRIDOR WAREHOUSE
NOTES TO STATEMENTS OF REVENUES AND CERTAIN EXPENSES
(UNAUDITED DOLLARS IN THOUSANDS)
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PROPERTIES ACQUIRED
The accompanying statements of revenues and certain expenses include the
operations of Crysen Corridor Warehouse (the "Property") acquired by AMB
Property Corporation (the "Company") from an unrelated party on June 30, 1998
for an initial purchase price of $5,700. The Property is located in Howard
County, Maryland and includes 150,000 rentable square feet.
BASIS OF PRESENTATION
The accompanying statements of revenues and certain expenses are not
representative of the actual operations of the Property for the period
presented. Certain expenses may not be comparable to the expenses expected to be
incurred by the Company in the proposed future operations of the Property;
however, the Company is not aware of any material factors relating to the
Property that would cause the reported financial information not to be
indicative of future operating results. Excluded expenses consist of interest,
depreciation and amortization and other costs not directly related to the future
operations of the Property.
The statements of revenues and certain expenses have been prepared for the
purpose of complying with Rule 3-14 of the Securities and Exchange Commission's
rules and regulations.
The financial information presented for the six months ended June 30, 1998
is not audited. In the opinion of management, the unaudited financial
information contains all adjustments, consisting of normal recurring accruals,
necessary for a fair presentation of the combined statement of revenues and
certain expenses for the Property.
REVENUE RECOGNITION
All leases are classified as operating leases. Rental revenues are
recognized on a straight-line basis over the terms of the leases. The property
is leased to two tenants, which together accounted for 100% of rental revenues.
USE OF ESTIMATES
The preparation of the statements of revenues and certain expenses in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of revenues and
expenses during the periods presented. Actual results could differ from those
estimates.
2. LEASING ACTIVITY
Future minimum rental revenues due under non-cancelable operating leases
with tenants in effect as of December 31, 1997 are as follows:
<TABLE>
<S> <C>
1998........................................................ $ 408
1999........................................................ 426
2000........................................................ 432
2001........................................................ 442
2002........................................................ 368
Thereafter.................................................. --
------
Total............................................. $2,076
======
</TABLE>
In addition to minimum rental payments, tenants pay reimbursements for
their pro rata share of specified operating expenses, which amounted to $36 and
$12 for the year ended December 31, 1997 and for the period from January 1, 1998
to June 30, 1998 (unaudited), respectively. Certain leases contain options to
renew.
F-79
<PAGE> 231
CRYSEN CORRIDOR WAREHOUSE
NOTES TO STATEMENTS OF REVENUES AND CERTAIN EXPENSES (CONTINUED)
3. MORTGAGE PAYABLE
In connection with the purchase of the Property, the Company assumed a
mortgage payable with an aggregate principal value of $3,500 as of December 31,
1997. The mortgage requires monthly principal and interest payments and is
secured by the deed of trust on the Property. The mortgage is due in December 1,
2005 and bears interest at a variable rate.
The scheduled maturities of the mortgage as of December 31, 1997 are as
follows:
<TABLE>
<S> <C>
1998........................................................ $ 100
1999........................................................ 100
2000........................................................ 100
2001........................................................ 200
2002........................................................ 200
Thereafter.................................................. 2,800
------
Total............................................. $3,500
======
</TABLE>
F-80
<PAGE> 232
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To AMB Property Corporation:
We have audited the accompanying combined statement of revenues and certain
expenses of the Amberjack Portfolio (as defined in Note 1) for the year ended
December 31, 1997. This financial statement is the responsibility of the
management of the Amberjack Portfolio. Our responsibility is to express an
opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statement of revenues and certain
expenses is free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the statement of
revenues and certain expenses. 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
audit provides a reasonable basis for our opinion.
The accompanying statement of revenues and certain expenses was prepared
for the purpose of complying with Rule 3-14 of the Securities and Exchange
Commission's rules and regulations, as described in Note 1, and is not intended
to be a complete presentation of the revenues and expenses of the Amberjack
Portfolio.
In our opinion, the combined statement of revenues and certain expenses
referred to above presents fairly, in all material respects, the revenues and
certain expenses of the Amberjack Portfolio for the year ended December 31,
1997, in conformity with generally accounting principles.
ARTHUR ANDERSEN LLP
San Francisco, California,
July 9, 1998
F-81
<PAGE> 233
AMBERJACK PORTFOLIO
STATEMENTS OF REVENUES AND CERTAIN EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1997 AND
FOR THE PERIOD FROM JANUARY 1, 1998 TO JUNE 30, 1998 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1998
------ -----------
(UNAUDITED)
<S> <C> <C>
REVENUES
Rental revenues........................................... $9,509 $5,064
Other income.............................................. 18 14
------ ------
9,527 5,078
CERTAIN EXPENSES
Property operating expenses............................... 1,898 847
Real estate taxes......................................... 1,244 997
------ ------
3,142 1,844
------ ------
REVENUES IN EXCESS OF CERTAIN EXPENSES...................... $6,385 $3,234
====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-82
<PAGE> 234
AMBERJACK PORTFOLIO
NOTES TO STATEMENTS OF REVENUES
AND CERTAIN EXPENSES
(DOLLARS IN THOUSANDS)
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PROPERTIES ACQUIRED
The accompanying combined statements of revenues and certain expenses
include the combined operations (see "Basis of Presentation" below) of the
Amberjack Portfolio (the "Portfolio"). AMB Property Corporation (the "Company")
acquired the Portfolio, which includes 44 industrial buildings aggregating 2.1
million square feet, from an unrelated party on July 31, 1998 for an initial
purchase price of $78.5 million.
Basis of Presentation
The accompanying statements of revenues and certain expenses are not
representative of the actual operations of the Portfolio for the periods
presented. Certain expenses may not be comparable to the expenses expected to be
incurred by the Company in the proposed future operations of the Portfolio;
however, the Company is not aware of any material factors relating to these
Portfolio that would cause the reported financial information not to be
indicative of future operating results. Excluded expenses consist of interest,
depreciation and amortization and other costs not directly related to the future
operations of the Portfolio.
The combined statements of revenues and certain expenses have been prepared
for the purpose of complying with Rule 3-14 of the Securities and Exchange
Commission's rules and regulations.
The financial information presented for the six months ended June 30, 1998
is not audited. In the opinion of management, the unaudited financial
information contains all adjustments, consisting of normal recurring accruals,
necessary for a fair presentation of the combined statement of revenues and
certain expenses for the Portfolio.
Revenue Recognition
All leases are classified as operating leases, and rental revenue is
recognized on a straight-line basis over the terms of the leases.
Uses 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 revenues and expenses during the
periods presented. Actual results could differ from those estimates.
2. LEASING ACTIVITY
The following is a schedule of future minimum rental revenues due under
non-cancelable operating leases with tenants in effect as of December 31, 1997
is as follows:
<TABLE>
<S> <C>
1998........................................................ $ 7,564
1999........................................................ 5,376
2000........................................................ 3,599
2001........................................................ 2,522
2002........................................................ 1,386
Thereafter.................................................. 1,169
-------
Total............................................. $21,616
=======
</TABLE>
In addition to minimum rental payments, tenants pay reimbursements for
their pro rata share of specified operating expenses, which amounted to $1,287
and $665 for the year ended December 31, 1997 and for the six months ended June
30, 1998 (unaudited). Certain leases contain options to renew.
F-83
<PAGE> 235
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To AMB Property Corporation:
We have audited the accompanying statement of revenues and certain expenses
of the Willow Lake Portfolio (as defined in Note 1) for the year ended December
31, 1997. This financial statement is the responsibility of the management of
the Willow Lake Portfolio. Our responsibility is to express an opinion on this
financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statement of revenues and certain
expenses is free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the statement of
revenues and certain expenses. 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
audit provides a reasonable basis for our opinion.
The accompanying statement of revenues and certain expenses was prepared
for the purpose of complying with Rule 3-14 of the Securities and Exchange
Commission's rules and regulations, as described in Note 1, and is not intended
to be a complete presentation of the revenues and expenses of the Willow Lake
Portfolio.
In our opinion, the statement of revenues and certain expenses referred to
above presents fairly, in all material respects, the revenues and certain
expenses of the Willow Lake Portfolio for the year ended December 31, 1997, in
conformity with generally accounting principles.
ARTHUR ANDERSEN LLP
San Francisco, California,
July 21, 1998
F-84
<PAGE> 236
WILLOW LAKE PORTFOLIO
STATEMENTS OF REVENUES AND CERTAIN EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1997 AND
FOR THE PERIOD FROM JANUARY 1, 1998 TO JUNE 30, 1998 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1998
------ -----------
(UNAUDITED)
<S> <C> <C>
REVENUES
Rental revenues........................................... $5,198 $2,707
Other income.............................................. 16 5
------ ------
5,214 2,712
CERTAIN EXPENSES
Property operating expenses............................... 646 286
Real estate taxes......................................... 585 343
------ ------
1,231 629
------ ------
REVENUES IN EXCESS OF CERTAIN EXPENSES...................... $3,983 $2,083
====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-85
<PAGE> 237
WILLOW LAKE PORTFOLIO
NOTES TO STATEMENTS OF REVENUES
AND CERTAIN EXPENSES
(DOLLARS IN THOUSANDS)
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PROPERTIES ACQUIRED
The accompanying statements of revenues and certain expenses include the
operations of the Willow Lake Portfolio (the "Portfolio") acquired by AMB
Property Corporation (the "Company") from an unrelated party on June 18, 1998
for an initial purchase price of $60.5 million (unaudited). The Portfolio is
located in the Memphis, Tennessee and includes 12 industrial buildings
comprising 1.4 million rentable square feet.
Basis of Presentation
The accompanying statements of revenues and certain expenses are not
representative of the actual operations of the Portfolio for the periods
presented. Certain expenses may not be comparable to the expenses expected to be
incurred by the Company in the proposed future operations of the Portfolio;
however, the Company is not aware of any material factors relating to these
Portfolio that would cause the reported financial information not to be
indicative of future operating results. Excluded expenses consist of interest,
depreciation and amortization and other costs not directly related to the future
operations of the Portfolio.
The statements of revenues and certain expenses have been prepared for the
purpose of complying with Rule 3-14 of the Securities and Exchange Commission's
rules and regulations.
The financial information presented for the six months ended June 30, 1998
is not audited. In the opinion of management, the unaudited financial
information contains all adjustments, consisting of normal recurring accruals,
necessary for a fair presentation of the combined statement of revenues and
certain expenses for the Portfolio.
Revenue Recognition
All leases are classified as operating leases, and rental revenue is
recognized on a straight-line basis over the terms of the leases.
Uses 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 revenues and expenses during the
periods presented. Actual results could differ from those estimates.
2. LEASING ACTIVITY
Future minimum rental revenues due under non-cancelable operating leases
with tenants in effect as of December 31, 1997 is as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
- ---- -------
<S> <C>
1998........................................................ $ 5,342
1999........................................................ 4,679
2000........................................................ 3,532
2001........................................................ 2,608
2002........................................................ 1,222
Thereafter.................................................. 2,798
-------
Total............................................. $23,181
=======
</TABLE>
In addition to minimum rental payments, tenants pay reimbursements for
their pro rata share of specified operating expenses, which amounted to $666 and
$286 for the year ended December 31, 1997 and for the six months ended June 30,
1998 (unaudited). Certain leases contain options to renew.
F-86
<PAGE> 238
WILLOW LAKE PORTFOLIO
NOTES TO STATEMENTS OF REVENUES
AND CERTAIN EXPENSES
(DOLLARS IN THOUSANDS)
3. MORTGAGES PAYABLE
In connection with the purchase of the Portfolio, the Company assumed
certain mortgages with an aggregate principal value of $38,055 as of December
31, 1997. The mortgages require monthly principal and interest payments and are
secured by deeds of trust on certain of the Portfolio properties. The mortgages
bear interest at fixed rates ranging from 7.87% to 9.00% and are due between
October 2002 and January 2011. The mortgages have various financial and
non-financial covenants. The weighted-average fixed interest rate on this
secured debt at December 31, 1997 was 8.10%.
The scheduled maturities of the mortgages as of December 31, 1997 are as
follows:
<TABLE>
<S> <C>
1998........................................................ $ 121
1999........................................................ 511
2000........................................................ 555
2001........................................................ 602
2002........................................................ 9,241
Thereafter.................................................. 27,025
-------
Total............................................. $38,055
=======
</TABLE>
F-87
<PAGE> 239
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To AMB Property Corporation:
We have audited the accompanying statement of revenues and certain expenses
of the Willow Park Portfolio (as defined in Note 1) for the year ended December
31, 1997. This financial statement is the responsibility of the management of
the Willow Park Portfolio. Our responsibility is to express an opinion on this
financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statement of revenues and certain
expenses is free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the statement of
revenues and certain expenses. 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
audit provides a reasonable basis for our opinion.
The accompanying statement of revenues and certain expenses was prepared
for the purpose of complying with Rule 3-14 of the Securities and Exchange
Commission's rules and regulations, as described in Note 1, and is not intended
to be a complete presentation of the revenues and expenses of the Willow Park
Portfolio.
In our opinion, the statement of revenues and certain expenses referred to
above presents fairly, in all material respects, the revenues and certain
expenses of the Willow Park Portfolio for the year ended December 31, 1997, in
conformity with generally accounting principles.
ARTHUR ANDERSEN LLP
San Francisco, California,
June 8, 1998
F-88
<PAGE> 240
WILLOW PARK PORTFOLIO
STATEMENTS OF REVENUES AND CERTAIN EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1997 AND
FOR THE PERIOD FROM JANUARY 1, 1998 TO JUNE 30, 1998 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1998
------- -----------
(UNAUDITED)
<S> <C> <C>
REVENUES
Rental revenues........................................... $10,119 $6,514
Other income.............................................. -- --
------- ------
10,119 6,514
CERTAIN EXPENSES
Property operating expenses............................... 443 222
Real estate taxes......................................... 1,770 1,116
------- ------
2,213 1,338
------- ------
REVENUES IN EXCESS OF CERTAIN EXPENSES...................... $ 7,906 $5,176
======= ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-89
<PAGE> 241
WILLOW PARK PORTFOLIO
NOTES TO STATEMENTS OF REVENUES
AND CERTAIN EXPENSES
(DOLLARS IN THOUSANDS)
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PROPERTIES ACQUIRED
The accompanying statements of revenues and certain expenses include the
operations of the Willow Park Portfolio (the "Portfolio") acquired by AMB
Property Corporation (the "Company") from an unrelated party on September 24,
1998 for an initial purchase price of approximately $100 million. The Portfolio
is located in the San Francisco Bay Area and includes 21 industrial buildings
comprising 1.0 million rentable square feet.
Basis of Presentation
The accompanying statements of revenues and certain expenses are not
representative of the actual operations of the Portfolio for the periods
presented. Certain expenses may not be comparable to the expenses expected to be
incurred by the Company in the proposed future operations of the Portfolio;
however, the Company is not aware of any material factors relating to these
Portfolio that would cause the reported financial information not to be
indicative of future operating results. Excluded expenses consist of interest,
depreciation and amortization and other costs not directly related to the future
operations of the Portfolio.
The statements of revenues and certain expenses have been prepared for the
purpose of complying with Rule 3-14 of the Securities and Exchange Commission's
rules and regulations.
The financial information presented for the six months ended June 30, 1998
is not audited. In the opinion of management, the unaudited financial
information contains all adjustments, consisting of normal recurring accruals,
necessary for a fair presentation of the combined statement of revenues and
certain expenses for the Portfolio.
Revenue Recognition
All leases are classified as operating leases, and rental revenue is
recognized on a straight-line basis over the terms of the leases:
Uses 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 revenues and expenses during the
periods presented. Actual results could differ from those estimates.
2. LEASING ACTIVITY
Future minimum rental revenues due under non-cancelable operating leases
with tenants in effect as of December 31, 1997 is as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
- ---- -------
<S> <C>
1998........................................................ $ 8,707
1999........................................................ 8,291
2000........................................................ 7,579
2001........................................................ 6,976
2002........................................................ 5,358
Thereafter.................................................. 3,387
-------
Total............................................. $40,298
=======
</TABLE>
In addition to minimum rental payments, tenants pay reimbursements for
their pro rata share of specified operating expenses, which amounted to $1,589
and $1,162 for the year ended December 31, 1997 and for the six months ended
June 30, 1998 (unaudited). Certain leases contain options to renew.
F-90
<PAGE> 242
WILLOW PARK PORTFOLIO
NOTES TO STATEMENTS OF REVENUES
AND CERTAIN EXPENSES
(DOLLARS IN THOUSANDS)
3. MORTGAGES PAYABLE
In connection with the purchase of the Portfolio, the Company assumed
certain mortgages with an aggregate principal value of $33,451 as of December
31, 1997. The mortgages require monthly principal and interest payments and are
secured by deeds of trust on certain of the Portfolio properties. The mortgages
bear interest at rates ranging from 7.85% to 8.59% and are due between August
2000 and May 2007. The mortgages have various financial and non-financial
covenants. The weighted-average fixed interest rate on secured debt at December
31, 1997 was 8.33%.
The scheduled maturities of the mortgages payable as of December 31, 1997
are as follows:
<TABLE>
<S> <C>
1998........................................................ $366
1999........................................................ 1,793
2000........................................................ 7,455
2001........................................................ 910
2002........................................................ 998
Thereafter.................................................. 21,929
-------
Total............................................. $33,451
=======
</TABLE>
F-91
<PAGE> 243
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To AMB Property Corporation:
We have audited the accompanying combined statement of revenues and certain
expenses of the Cabot Industrial Portfolio (as defined in Note 1) for the year
ended December 31, 1996. This combined financial statement is the responsibility
of the management of the AMB Contributed Properties. Our responsibility is to
express an opinion on this combined financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the combined statement of revenues and
certain expenses is free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the combined
statement of revenues and certain expenses. 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
audit provides a reasonable basis for our opinion.
The accompanying combined statement of revenues and certain expenses was
prepared for the purpose of complying with Rule 3-14 of the Securities and
Exchange Commission's rules and regulations, as described in Note 1, and is not
intended to be a complete presentation of the revenues and expenses of the Cabot
Industrial Portfolio.
In our opinion, the combined statement of revenues and certain expenses
referred to above presents fairly, in all material respects, the revenues and
certain expenses of the Cabot Industrial Portfolio for the year ended December
31, 1996, in conformity with generally accounting principles.
ARTHUR ANDERSEN LLP
San Francisco, California,
October 29, 1997
F-92
<PAGE> 244
CABOT INDUSTRIAL PORTFOLIO
COMBINED STATEMENTS OF REVENUES AND CERTAIN EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1996 AND
FOR THE PERIOD FROM JANUARY 1, 1997 TO DECEMBER 30, 1997 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1997
------- -----------
(UNAUDITED)
<S> <C> <C>
REVENUES
Rental revenues........................................... $21,821 $22,843
Other income.............................................. 197 152
------- -------
22,018 22,995
CERTAIN EXPENSES
Property operating expenses............................... 1,418 1,476
Real estate taxes......................................... 2,391 3,299
------- -------
3,809 4,775
------- -------
REVENUES IN EXCESS OF CERTAIN EXPENSES...................... $18,209 $18,220
======= =======
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-93
<PAGE> 245
CABOT INDUSTRIAL PORTFOLIO
NOTES TO COMBINED STATEMENTS OF REVENUES
AND CERTAIN EXPENSES
(DOLLARS IN THOUSANDS)
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Properties Acquired
The accompanying combined statements of revenues and certain expenses
include the combined operations (see "Basis of Presentation" below) of the Cabot
Industrial Portfolio (the "Portfolio"). AMB Property Corporation (the "Company")
acquired the following 28 properties from an unrelated party on December 30,
1997 for an aggregate purchase price of $216.7 million.
<TABLE>
<CAPTION>
PROPERTY NAME LOCATION RENTABLE SQUARE FEET
------------- -------- --------------------
<S> <C> <C>
Hampden Road Mansfield, MA 204,117
Dock's Corner II South Brunswick, NJ 212,335
Santa Barbara Court Elkridge, MD 166,820
Preston Court Jessup, MD 178,880
Brightseat Road Landover, MD 121,785
President's Drive Orlando, FL 129,372
President's Drive II Orlando, FL 302,400
Viscount Orlando, FL 114,846
Dixie Highway Florence, KY 209,680
Production Drive Florence, KY 50,729
Empire Drive Florence, KY 199,440
Industrial Drive Columbus, OH 225,433
Holton Drive Florence, KY 268,525
Janitrol Columbus, OH 240,000
Belden Avenue Addison, IL 346,233
Pagemill & Dillworth Dallas, TX 217,803
McDaniel Drive Carrollton, TX 157,500
Shiloh Road Garland, TX 192,720
N. Glenville Avenue Richardson, TX 109,000
West Kiest Dallas, TX 248,698
Valwood Parkway II Carrollton, TX 254,209
72nd Avenue Kent, WA 125,654
Wiegman Road Hayward, CA 148,559
Yosemite Drive Milpitas, CA 169,195
Laurelwood Santa Clara, CA 155,500
Commerce Fontana, CA 254,414
East Walnut Drive City of Industry, CA 85,871
Jasmine Avenue Fontana, CA 410,208
---------
5,499,926
=========
</TABLE>
Basis of Presentation
The accompanying combined statements of revenues and certain expenses are
not representative of the actual operations of the Portfolio for the periods
presented. Certain expenses may not be comparable to the expenses expected to be
incurred by the Company in the proposed future operations of the Portfolio;
however, the Company is not aware of any material factors relating to these
Portfolio that would cause the reported
F-94
<PAGE> 246
CABOT INDUSTRIAL PORTFOLIO
NOTES TO COMBINED STATEMENTS OF REVENUES
AND CERTAIN EXPENSES (CONTINUED)
(DOLLARS IN THOUSANDS)
financial information not to be indicative of future operating results. Excluded
expenses consist of interest, depreciation and amortization and other costs not
directly related to the future operations of the Portfolio.
The combined statements of revenues and certain expenses have been prepared
for the purpose of complying with Rule 3-14 of the Securities and Exchange
Commission's rules and regulations.
The financial information presented for the period from January 1, 1997 to
December 30, 1997 is not audited. In the opinion of management, the unaudited
financial information contains all adjustments, consisting of normal recurring
accruals, necessary for a fair presentation of the statement of revenues and
certain expenses for the Portfolio.
Revenue Recognition
All leases are classified as operating leases, and rental revenue is
recognized on a straight-line basis over the terms of the leases.
Uses 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 revenues and expenses during the
periods presented. Actual results could differ from those estimates.
2. LEASING ACTIVITY
Future minimum rental revenues due under non-cancelable operating leases
with tenants in effect as of December 31, 1997 is as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
- ---- -------
<S> <C>
1998........................................................ $16,476
1999........................................................ 14,502
2000........................................................ 11,336
2001........................................................ 7,335
2002........................................................ 5,514
Thereafter.................................................. 14,353
-------
Total............................................. $69,516
=======
</TABLE>
In addition to minimum rental payments, tenants pay reimbursements for
their pro rata share of specified operating expenses, which amounted to $2,641
and $2,688 for the year ended December 31, 1996 and for the period from January
1, 1997 to December 30, 1997 (unaudited). Certain leases contain options to
renew.
F-95
<PAGE> 247
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Owners of the
AMB Contributed Properties:
We have audited the accompanying statement of revenues and certain expenses
of Cabot Business Park (as defined in Note 1) for the year ended December 31,
1996. This financial statement is the responsibility of the management of the
AMB Contributed Properties. Our responsibility is to express an opinion on this
financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statement of revenues and certain
expenses is free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the statement of
revenues and certain expenses. 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
audit provides a reasonable basis for our opinion.
The accompanying statement of revenues and certain expenses was prepared
for the purpose of complying with Rule 3-14 of the Securities and Exchange
Commission's rules and regulations, as described in Note 1, and is not intended
to be a complete presentation of the revenues and expenses of Cabot Business
Park.
In our opinion, the statement of revenues and certain expenses referred to
above presents fairly, in all material respects, the revenues and certain
expenses of Cabot Business Park for the year ended December 31, 1996, in
conformity with generally accounting principles.
ARTHUR ANDERSEN LLP
San Francisco, California,
October 29, 1997
F-96
<PAGE> 248
CABOT BUSINESS PARK
STATEMENTS OF REVENUES AND CERTAIN EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1996 AND
FOR THE PERIOD FROM JANUARY 1, 1997 TO SEPTEMBER 15, 1997 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1997
------- -----------
(UNAUDITED)
<S> <C> <C>
REVENUES
Rental revenues........................................... $ 6,399 $ 4,730
Other income.............................................. 2 4
------- -------
6,401 4,734
CERTAIN EXPENSES
Property operating expenses............................... 500 342
Real estate taxes......................................... 783 553
------- -------
1,283 895
------- -------
REVENUES IN EXCESS OF CERTAIN EXPENSES...................... $ 5,118 $ 3,839
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-97
<PAGE> 249
CABOT BUSINESS PARK
NOTES TO STATEMENTS OF REVENUES
AND CERTAIN EXPENSES
(DOLLARS IN THOUSANDS)
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Properties Acquired
The accompanying statements of revenues and certain expenses include the
operations (see "Basis of Presentation" below) of Cabot Business Park (the
"Property") acquired by the owners of the AMB Contributed Properties (the
"Company") from an unrelated party on September 15, 1997 for an initial purchase
price of $64,108. The property is located in Mansfield, Massachusetts and
includes 1,071,517 rentable square feet.
Basis of Presentation
The accompanying statements of revenues and certain expenses are not
representative of the actual operations of the Property for the periods
presented. Certain expenses may not be comparable to the expenses expected to be
incurred by the Company in the proposed future operations of the Property;
however, the Company is not aware of any material factors relating to the
Property that would cause the reported financial information not to be
indicative of future operating results. Excluded expenses consist of interest,
depreciation and amortization and other costs not directly related to the future
operations of the Property.
The statements of revenues and certain expenses have been prepared for the
purpose of complying with Rule 3-14 of the Securities and Exchange Commission's
rules and regulations.
The financial information presented for the period from January 1, 1997 to
September 15, 1997 is not audited. In the opinion of management, the unaudited
financial information contains all adjustments, consisting of normal recurring
accruals, necessary for a fair presentation of the statement of revenues and
certain expenses for the Portfolio.
Revenue Recognition
All leases are classified as operating leases, and rental revenue is
recognized on a straight-line basis over the terms of the leases.
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 revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2. LEASING ACTIVITY
Future minimum rental revenue due under non-cancelable operating leases
with tenants in effect as of December 31, 1996 is as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
- ---- -------
<S> <C>
1997........................................................ $ 6,373
1998........................................................ 5,608
1999........................................................ 6,055
2000........................................................ 6,165
2001........................................................ 6,307
Thereafter.................................................. 6,673
-------
Total............................................. $37,181
=======
</TABLE>
In addition to minimum rental payments, tenants pay reimbursements for
their pro rata share of specified operating expenses, which amounted to $1,042
and $774 for the year ended December 31, 1996 and for the period from January 1,
1997 to September 15, 1997 (unaudited). Certain leases contain options to renew.
F-98
<PAGE> 250
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Owners of the
AMB Contributed Properties:
We have audited the accompanying statement of revenues and certain expenses
of the Manhattan Village Shopping Center (as defined in Note 1) for the year
ended December 31, 1996. This financial statement is the responsibility of the
management of the AMB Contributed Properties. Our responsibility is to express
an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statement of revenues and certain
expenses is free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the statement of
revenues and certain expenses. 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
audit provides a reasonable basis for our opinion.
The accompanying statement of revenues and certain expenses was prepared
for the purpose of complying with Rule 3-14 of the Securities and Exchange
Commission's rules and regulations, as described in Note 1, and is not intended
to be a complete presentation of the revenues and expenses of Manhattan Village
Shopping Center.
In our opinion, the statement of revenues and certain expenses referred to
above presents fairly, in all material respects, the revenues and certain
expenses of the Manhattan Village Shopping Center for the year ended December
31, 1996, in conformity with generally accounting principles.
ARTHUR ANDERSEN LLP
San Francisco, California,
October 17, 1997
F-99
<PAGE> 251
MANHATTAN VILLAGE SHOPPING CENTER
STATEMENTS OF REVENUES AND CERTAIN EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1996 AND
FOR THE PERIOD FROM JANUARY 1, 1997 TO AUGUST 19, 1997 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1997
------ -----------
(UNAUDITED)
<S> <C> <C>
REVENUES
Rental revenues........................................... $8,197 $5,467
Other income.............................................. 19 --
------ ------
8,216 5,467
CERTAIN EXPENSES
Property operating expenses............................... 2,119 1,485
Real estate taxes......................................... 978 443
------ ------
3,097 1,928
------ ------
REVENUES IN EXCESS OF CERTAIN EXPENSES...................... $5,119 $3,539
====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-100
<PAGE> 252
MANHATTAN VILLAGE SHOPPING CENTER
NOTES TO STATEMENTS OF REVENUES
AND CERTAIN EXPENSES
(DOLLARS IN THOUSANDS)
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Properties Acquired
The accompanying statements of revenues and certain expenses include the
operations of the Manhattan Village Shopping Center (the "Property") acquired by
the owners of the AMB Contributed Properties (the "Company") from an unrelated
party on August 19, 1997 for an initial purchase price of $79,300. The Property
is located in Manhattan Beach, California and includes 423,950 rentable square
feet.
Basis of Presentation
The accompanying statements of revenues and certain expenses are not
representative of the actual operations of the Property for the periods
presented. Certain expenses may not be comparable to the expenses expected to be
incurred by the Company in the proposed future operations of the Property;
however, the Company is not aware of any material factors relating to the
Property that would cause the reported financial information not to be
indicative of future operating results. Excluded expenses consist of interest,
depreciation and amortization and other costs not directly related to the future
operations of the Property.
The statements of revenues and certain expenses have been prepared for the
purpose of complying with Rule 3-14 of the Securities and Exchange Commission's
rules and regulations.
The financial information presented for the period from January 1, 1997 to
August 19, 1997 is not audited. In the opinion of management, the unaudited
financial information contains all adjustments, consisting of normal recurring
accruals, necessary for a fair presentation of the statement of revenues and
certain expenses for the Property.
Revenue Recognition
All leases are classified as operating leases, and rental revenue is
recognized on a straight-line basis over the terms of the leases.
Uses 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 revenues and expenses during the
periods presented. Actual results could differ from those estimates.
2. LEASING ACTIVITY
Future minimum rental revenues due under non-cancelable operating leases
with tenants in effect as of December 31, 1996 is as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
- ---- -------
<S> <C>
1997........................................................ $ 6,546
1998........................................................ 7,287
1999........................................................ 8,566
2000........................................................ 8,756
2001........................................................ 9,005
Thereafter.................................................. 20,473
-------
Total............................................. $60,633
=======
</TABLE>
In addition to minimum rental payments, tenants pay reimbursements for
their pro rata share of specified operating expenses, which amounted to $2,502
and $1,995 for the year ended December 31, 1996 and for the nine months ended
August 19, 1997 (unaudited). Certain leases contain options to renew.
F-101
<PAGE> 253
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Owners of the
AMB Contributed Properties:
We have audited the accompanying statement of revenues and certain expenses
of the Weslayan Plaza (as defined in Note 1) for the year ended December 31,
1996. This financial statement is the responsibility of management of the AMB
Contributed Properties. Our responsibility is to express an opinion on this
financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statement of revenues and certain
expenses is free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the statement of
revenues and certain expenses. 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
audit provides a reasonable basis for our opinion.
The accompanying statement of revenues and certain expenses was prepared
for the purpose of complying with Rule 3-14 of the Securities and Exchange
Commission's rules and regulations, as described in Note 1, and is not intended
to be a complete presentation of the revenues and expenses of Weslayan Plaza.
In our opinion, the statement of revenues and certain expenses referred to
above presents fairly, in all material respects, the revenues and certain
expenses of the Weslayan Plaza for the year ended December 31, 1996, in
conformity with generally accounting principles.
ARTHUR ANDERSEN LLP
San Francisco, California,
October 17, 1997
F-102
<PAGE> 254
WESLAYAN PLAZA
STATEMENTS OF REVENUES AND CERTAIN EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1996 AND
FOR THE PERIOD FROM JANUARY 1, 1997 TO SEPTEMBER 30, 1997 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1997
------ -----------
(UNAUDITED)
<S> <C> <C>
REVENUES
Rental revenues........................................... $4,619 $3,259
Other income.............................................. 19 --
------ ------
4,638 3,259
CERTAIN EXPENSES
Property operating expenses............................... 539 496
Real estate taxes......................................... 659 494
------ ------
1,198 990
------ ------
REVENUES IN EXCESS OF CERTAIN EXPENSES...................... $3,440 $2,269
====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-103
<PAGE> 255
WESLAYAN PLAZA
NOTES TO STATEMENTS OF REVENUES
AND CERTAIN EXPENSES
(DOLLARS IN THOUSANDS)
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Properties Acquired
The accompanying statements of revenues and certain expenses include the
operations of Weslayan Plaza (the "Property") acquired by the owners of the AMB
Contributed Properties (the "Company") from an unrelated party, on September 30,
1997 for an initial purchase price of $37,393. The Property is located in
Houston, Texas, and includes 216,870 rentable square feet.
Basis of Presentation
The accompanying statements of revenues and certain expenses are not
representative of the actual operations of the Property for the periods
presented. Certain expenses may not be comparable to the expenses expected to be
incurred by the Company in the proposed future operations of the Property;
however, the Company is not aware of any material factors relating to the
Property that would cause the reported financial information not to be
indicative of future operating results. Excluded expenses consist of interest,
depreciation and amortization and other costs not directly related to the future
operations of the Property.
The statements of revenues and certain expenses have been prepared for the
purpose of complying with Rule 3-14 of the Securities and Exchange Commission's
rules and regulations.
The financial information presented for the period from January 1, 1997 to
September 30, 1997 is not audited. In the opinion of management, the unaudited
financial information contains all adjustments, consisting of normal recurring
accruals, necessary for a fair presentation of the statement of revenues and
certain expenses for the Portfolio.
Revenue Recognition
All leases are classified as operating leases, and rental revenue is
recognized on a straight-line basis over the terms of the leases.
Uses 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 revenues and expenses during the
periods presented. Actual results could differ from those estimates.
2. LEASING ACTIVITY
Future minimum rental revenues due under non-cancelable operating leases
with tenants in effect as of December 31, 1996 is as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
---- -------
<S> <C>
1997........................................................ $ 3,576
1998........................................................ 3,171
1999........................................................ 2,168
2000........................................................ 1,715
2001........................................................ 1,213
Thereafter.................................................. 5,956
-------
Total............................................. $17,799
=======
</TABLE>
In addition to minimum rental payments, tenants pay reimbursements for
their pro rata share of specified operating expenses, which amounted to $864,584
and $449,425 for the year ended December 31, 1996 and for the period from
January 1, 1997 to December 30, 1997 (unaudited). Certain leases contain options
to renew.
F-104
<PAGE> 256
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Owners of the
AMB Contributed Properties:
We have audited the accompanying statement of revenues and certain expenses
of the Silicon Valley R&D Portfolio (as defined in Note 1) for the year ended
December 31, 1996. This financial statement is the responsibility of the
management of the AMB Contributed Properties. Our responsibility is to express
an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statement of revenues and certain
expenses is free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the statement of
revenues and certain expenses. 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
audit provides a reasonable basis for our opinion.
The accompanying statement of revenues and certain expenses was prepared
for the purpose of complying with Rule 3-14 of the Securities and Exchange
Commission's rules and regulations, as described in Note 1, and is not intended
to be a complete presentation of the revenues and expenses of the Silicon Valley
R&D Portfolio.
In our opinion, the statement of revenues and certain expenses referred to
above presents fairly, in all material respects, the revenues and certain
expenses of the Silicon Valley R&D Portfolio for the year ended December 31,
1996, in conformity with generally accounting principles.
ARTHUR ANDERSEN LLP
San Francisco, California,
October 17, 1997
F-105
<PAGE> 257
SILICON VALLEY R&D PORTFOLIO
STATEMENTS OF REVENUES AND CERTAIN EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1996 AND
FOR THE PERIOD FROM JANUARY 1, 1997 TO SEPTEMBER 30, 1997 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1997
------ -----------
(UNAUDITED)
<S> <C> <C>
REVENUES
Rental revenues........................................... $2,546 $2,958
Other income.............................................. 2 --
------ ------
2,548 2,958
CERTAIN EXPENSES
Property operating expenses............................... 306 190
Real estate taxes......................................... 199 121
------ ------
505 311
------ ------
REVENUES IN EXCESS OF CERTAIN EXPENSES...................... $2,043 $2,647
====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-106
<PAGE> 258
SILICON VALLEY R&D PORTFOLIO
NOTES TO STATEMENTS OF REVENUES
AND CERTAIN EXPENSES
(DOLLARS IN THOUSANDS)
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PROPERTIES ACQUIRED
The accompanying statements of revenues and certain expenses include the
operations of the Silicon Valley R&D Portfolio (the "Portfolio") acquired by the
owners of the AMB Contributed Properties (the "Company") from an unrelated party
on November 25, 1997 for an initial purchase price of $29,850. The Portfolio is
located throughout the greater San Jose, California area and includes 5
buildings comprising 287,228 rentable square feet.
Basis of Presentation
The accompanying statements of revenues and certain expenses are not
representative of the actual operations of the Portfolio for the periods
presented. Certain expenses may not be comparable to the expenses expected to be
incurred by the Company in the proposed future operations of the Portfolio;
however, the Company is not aware of any material factors relating to these
Portfolio that would cause the reported financial information not to be
indicative of future operating results. Excluded expenses consist of interest,
depreciation and amortization and other costs not directly related to the future
operations of the Portfolio.
The statements of revenues and certain expenses have been prepared for the
purpose of complying with Rule 3-14 of the Securities and Exchange Commission's
rules and regulations.
The financial information presented for the period from January 1, 1997 to
September 30, 1997 is not audited. In the opinion of management, the unaudited
financial information contains all adjustments, consisting of normal recurring
accruals, necessary for a fair presentation of the statement of revenues and
certain expenses for the Portfolio.
Revenue Recognition
All leases are classified as operating leases, and rental revenue is
recognized on a straight-line basis over the terms of the leases.
Uses 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 revenues and expenses during the
periods presented. Actual results could differ from those estimates.
2. LEASING ACTIVITY
Future minimum rental revenues due under non-cancelable operating leases
with tenants in effect as of November 25, 1997 is as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
- ---- -------
<S> <C>
1997........................................................ $ 2,175
1998........................................................ 1,507
1999........................................................ 1,404
2000........................................................ 1,289
2001........................................................ 629
Thereafter.................................................. 156
-------
Total............................................. $ 7,160
=======
</TABLE>
In addition to minimum rental payments, tenants pay reimbursements for
their pro rata share of specified operating expenses, which amounted to $430 and
$501 for the year ended December 31, 1996 and for the nine months ended November
25, 1997 (unaudited). Certain leases contain options to renew.
F-107
<PAGE> 259
[AMB LOGO]
<PAGE> 260
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 31. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the fees and expenses in connection with the
issuance and distribution of the securities being registered hereunder. Except
for the SEC registration fee, all amounts are estimates.
<TABLE>
<S> <C>
SEC Registration Fee........................................ $ 25,444
Rating Agency Fees and Expenses............................. 300,000
NYSE Fees and Expenses...................................... 100,000
Printing and Engraving Expenses............................. 200,000
Legal Fees and Expenses..................................... 200,000
Accounting Fees and Expenses................................ 75,000
Blue Sky Fees and Expenses.................................. 15,000
Miscellaneous Expenses...................................... 84,556
----------
Total............................................. $1,000,000
==========
</TABLE>
All of the costs identified above will be paid by the Company.
ITEM 32. SALES TO SPECIAL PARTIES
See Item 33.
ITEM 33. RECENT SALES OF UNREGISTERED SECURITIES
In connection with its formation, the Company issued 4,746,624 unregistered
shares of Common Stock to AMB for a purchase price of $21.00 per share. In
connection with the Formation Transactions, the Company issued an aggregate of
69,963,529 shares of Common Stock in connection with the mergers of certain
corporations, and the Operating Partnership issued 2,386,910 limited partnership
Units in consideration for the contribution of certain Properties.
In January 1995, AMB issued 101,595 shares of its common stock to one of
its officers, for total consideration of $342,806, and in December 1996, it
issued 101,595 shares of common stock to one of its officers, for total
consideration of $307,071.
All of the above sales were made to "accredited investors" as defined in
Regulation D under the Securities Act in transactions not involving a public
offering pursuant to Regulation D.
ITEM 34. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 2-418 of the MGCL permits a corporation to indemnify its directors
and officers and certain other parties against judgments, penalties, fines,
settlements, and reasonable expenses actually incurred by them in connection
with any proceeding to which they may be made a party by reason of their service
in those or other capacities unless it is established that (i) the act or
omission of the director or officer was material to the matter giving rise to
the proceeding and (a) was committed in bad faith or (b) was the result of
active and deliberate dishonesty; (ii) the director or officer actually received
an improper personal benefit in money, property or services; or (iii) in the
case of any criminal proceeding, the director or officer had reasonable cause to
believe that the act or omission was unlawful. Indemnification may be made
against judgments, penalties, fines, settlements and reasonable expenses
actually incurred by the director or officer in connection with the proceeding;
provided, however, that if the proceeding is one by or in the right of the
corporation, indemnification may not be made with respect to any proceeding in
which the director or officer has been adjudged to be liable to the corporation.
In addition, a director or officer may not be indemnified with respect to any
proceeding charging improper personal benefit to the director or officer,
whether or not involving action in the director's or officer's official
capacity, in which the director or officer was adjudged to be liable on the
II-1
<PAGE> 261
basis that personal benefit was received. The termination of any proceeding by
conviction, or upon a plea of nolo contendere or its equivalent, or an entry of
any order of probation prior to judgment, creates a rebuttable presumption that
the director or officer did not meet the requisite standard of conduct required
for indemnification to be permitted.
In addition, Section 2-418 of the MGCL requires that, unless prohibited by
its charter, a corporation indemnify any director or officer who is made a party
to any proceeding by reason of service in that capacity against reasonable
expenses incurred by the director or officer in connection with the proceeding,
in the event that the director or officer is successful, on the merits or
otherwise, in the defense of the proceeding.
The Company's Charter and Bylaws provide in effect for the indemnification
by the Company of the directors and officers of the Company to the fullest
extent permitted by applicable law. The Company has purchased directors' and
officers' liability insurance for the benefit of its directors and officers.
The Company has entered into indemnification agreements with each of its
executive officers and directors. The indemnification agreements require, among
other matters, that the Company indemnify its executive officers and directors
to the fullest extent permitted by law and reimburse the executive officers and
directors for all related expenses as incurred, subject to return if it is
subsequently determined that indemnification is not permitted.
ITEM 35. TREATMENT OF PROCEEDS FROM STOCK BEING REGISTERED
Not applicable.
ITEM 36. FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES AND EXHIBITS
(a)(1) FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Pro Forma Financial Information (Unaudited)
AMB Property Corporation
Pro forma condensed consolidated balance sheet as of June
30, 1998
Notes to pro forma condensed consolidated balance sheet
Pro forma condensed consolidated statement of operations
for the six months ended June 30, 1998
Notes to pro forma condensed consolidated statement of
operations
Pro forma condensed consolidated statement of operations
for the year ended December 31, 1997
Notes to pro forma condensed consolidated statement of
operations
Historical Financial Information
AMB Property Corporation -- June 30, 1998
Consolidated balance sheets as of December 31, 1997 and
June 30, 1998 (unaudited)
Consolidated statements of operations for the six months
ended June 30, 1997 and 1998 (unaudited)
Consolidated statements of cash flows for the six months
ended June 30, 1997 and 1998 (unaudited)
Consolidated statements of stockholders' equity for the
six months ended June 30, 1998 (unaudited)
Notes to consolidated financial statements (unaudited)
AMB Property Corporation -- December 31, 1996 and 1997
Report of independent public accountants
Consolidated balance sheets as of December 31, 1996 and
1997
Consolidated statement of operations for the years ended
December 31, 1995, 1996 and 1997, the nine months ended
September 30, 1996 (unaudited) and the period from
January 1, 1997 to November 25, 1997
Consolidated statement of stockholders' equity for the
years ended December 31, 1995, 1996 and 1997
Consolidated statement of cash flows for the years ended
December 31, 1995, 1996 and 1997
</TABLE>
II-2
<PAGE> 262
<TABLE>
<S> <C>
Notes to consolidated financial statements
AMB Contributed Properties -- December 31, 1995, 1996 and
1997
Report of independent public accountants
Combined balance sheets as of December 31, 1995 and 1996
and September 30, 1997 (unaudited)
Combined statements of operations for the years ended
December 31, 1994, 1995 and 1996, the nine months ended
September 30, 1996 (unaudited) and the period from
January 1, 1997 to November 25, 1997 (unaudited)
Combined statements of owners' equity for the years ended
December 31, 1994, 1995 and 1996 and the nine months
ended September 30, 1997 (unaudited)
Combined statements of cash flows for the years ended
December 31, 1994, 1995 and 1996, the nine months ended
September 30, 1996 (unaudited) and the period from
January 1, 1997 to November 25, 1997 (unaudited)
Notes to combined financial statements
The 1997 and 1998 Acquired Properties
Boston Industrial Portfolio
Report of independent public accountants
Combined statements of revenues and certain expenses for
the year ended December 31, 1997 and for the period
from January 1, 1998 to March 27, 1998 (unaudited)
Notes to combined statement of revenues and certain
expenses
The Jamesburg Property
Report of independent public accountants
Statements of revenues and certain expenses for the year
ended December 31, 1997 and for the period from January
1, 1998 to March 20, 1998 (unaudited)
Notes to statements of revenues and certain expenses
Orlando Central Park
Report of independent public accountants
Statements of revenues and certain expenses for the year
ended December 31, 1997 and for the period from January
1, 1998 to March 24, 1998 (unaudited)
Notes to statements of revenues and certain expenses
Totem Lake Malls
Report of independent public accountants
Statements of revenues and certain expenses for the year
ended December 31, 1997 and for the period from January
1, 1998 to March 6, 1998 (unaudited)
Notes to statements of revenues and certain expenses
Garland Industrial Portfolio
Report of independent public accountants
Combined statements of revenues and certain expenses for
the year ended December 31, 1997 and for the period
from January 1, 1998 to June 18, 1998
Notes to combined statements of revenues and certain
expenses
Minnetonka Industrial Portfolio
Report of independent public accountants
Combined statements of revenues and certain expenses for
the year ended December 31, 1997 and for the period
from January 1, 1998 to June 30, 1998 (unaudited)
Notes to combined statements of revenues and certain
expenses
Crysen Corridor Warehouse
Report of independent public accountants
Statements of revenues and certain expenses for the year
ended December 31, 1997 and for the period from January
1, 1998 to June 30, 1998 (unaudited)
Notes to statements of revenues and certain expenses
</TABLE>
II-3
<PAGE> 263
<TABLE>
<S> <C>
Amberjack Portfolio
Report of independent public accountants
Combined statements of revenues and certain expenses for
the year ended December 31, 1997 and for the period
from January 1, 1998 to June 30, 1998 (unaudited)
Notes to combined statements of revenues and certain
expenses
Willow Lake Portfolio
Report of independent public accountants
Combined statements of revenues and certain expenses for
the year ended December 31, 1997 and for the period
from January 1, 1998 to June 30, 1998 (unaudited)
Notes to combined statements of revenues and certain
expenses
Willow Park Portfolio
Report of independent public accountants
Combined statements of revenues and certain expenses for
the year ended December 31, 1997 and for the period
from January 1, 1998 to June 30, 1998 (unaudited)
Notes to combined statements of revenues and certain
expenses
Cabot Industrial Portfolio
Report of independent public accountants
Combined statements of revenues and certain expenses for
the year ended December 31, 1996 and for the period
from January 1, 1997 to December 30, 1997 (unaudited)
Notes to Combined statements of revenue and certain
expenses
Cabot Business Park
Report of independent public accountants
Statements of revenues and certain expenses for the year
ended December 31, 1996 and for the period from January
1, 1997 to September 15, 1997 (unaudited)
Notes to statements of revenue and certain expenses
Manhattan Village Shopping Center
Report of independent public accountants
Statements of revenues and certain expenses for the year
ended December 31, 1997 and for the period from January
1, 1997 to August 19, 1997 (unaudited)
Notes to statements of revenues and certain expenses
Weslayan Plaza
Report of independent public accountants
Statements of revenues and certain expenses for the year
ended December 31, 1997 and for the period from January
1, 1997 to September 30, 1997 (unaudited)
Notes to statement of revenues and certain expenses
Silicon Valley R&D Portfolio
Report of independent public accountants
Statements of revenues and certain expenses for the year
ended December 31, 1996 and for the period from January
1, 1997 to September 30, 1997 (unaudited)
Notes to statements of revenues and certain expenses
</TABLE>
(a)(2) FINANCIAL STATEMENT SCHEDULE
Historical Financial Information -- AMB Property Corporation
Schedule III -- Historical Consolidated Real Estate and Accumulated
Depreciation.
II-4
<PAGE> 264
(B) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
*1.1 Form of Underwriting Agreement.
3.1 Articles of Incorporation of the Registrant (incorporated by
reference to Exhibit 3.1 of the Company's Registration
Statement on Form S-11 (No. 333-35915)).
3.2 Articles Supplementary establishing and fixing the rights
and preferences of the Series A Cumulative Redeemable
Preferred Stock (incorporated by reference to Exhibit 3.4(4)
of the Company's Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 1998).
*3.3 Articles Supplementary establishing and fixing the rights
and preferences of the Series B Cumulative Redeemable
Preferred Stock.
3.4 Bylaws of the Registrant (incorporated by reference to
Exhibit 3.2 of the Company's Registration Statement on Form
S-11 (No. 333-35915)).
*3.5 Specimen Stock Certificate for the Series B Cumulative
Redeemable Preferred Stock.
4.1 Indenture (the "Indenture") by and among the Operating
Partnership, the Company and State Street Bank and Trust
Company of California, N.A., as trustee (incorporated by
reference to Exhibit 4.1 of the Company's Registration
Statement on Form S-11 (No. 333-49163)).
4.2 First Supplemental Indenture, by and among the Operating
Partnership, the Company and State Street Bank and Trust
Company of California, N.A., as trustee (incorporated by
reference to Exhibit 4.2 to the Company's Registration
Statement on Form S-11 (No. 333-49163)).
4.3 Second Supplemental Indenture, by and among the Operating
Partnership, the Company and State Street Bank and Trust
Company of California, N.A., as trustee (incorporated by
reference to Exhibit 4.3 to the Company's Registration
Statement on Form S-11 (No. 333-49163)).
4.4 Third Supplemental Indenture, by and among the Operating
Partnership, the Company and State Street Bank and Trust
Company of California, N.A., as trustee (incorporated by
reference to Exhibit 4.4 to the Company's Registration
Statement on Form S-11 (No. 333-49163)).
4.5 Specimen of 7.10% Notes due 2008 (included in the First
Supplemental Indenture incorporated by reference as Exhibit
4.2 to the Company's Registration Statement on Form S-11
(No. 333-49163)).
4.6 Specimen of 7.50% Notes due 2018 (included in the Second
Supplemental Indenture incorporated by reference as Exhibit
4.3 to the Company's Registration Statement on Form S-11
(No. 333-49163)).
4.7 Specimen of 6.90% Reset Put Securities due 2015 (included in
the Third Supplemental Indenture incorporated by reference
as Exhibit 4.4 to the Company's Registration Statement on
Form S-11 (No. 333-49163)).
*5.1 Opinion of Ballard Spahr Andrews & Ingersoll, LLP.
*8.1 Opinion of Latham & Watkins.
*10.1 Third Amended and Restated Agreement of Limited Partnership
of AMB Property, L.P.
10.2 Form of Registration Rights Agreement among the Registrant
and the persons named therein. (incorporated by reference to
Exhibit 10.2 to the Company's Registration Statement on Form
S-11 (No. 333-35915)).
10.3 Second Amended and Restated Revolving Credit Agreement,
dated as of November 26, 1997.
10.4 Amendment to Second Amended and Restated Revolving Credit
Agreement made as of May 29, 1998.
10.5 Form of Employment Agreement between AMB Property
Corporation and certain of its executive officers
(incorporated by reference to Exhibit 10.4 to the Company's
Registration Statement on Form S-11 (No. 333-35915)).
</TABLE>
II-5
<PAGE> 265
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
10.6 The 1997 Stock Option and Incentive Plan of the Registrant
(incorporated by reference to Exhibit 10.5 of the Company's
Registration Statement on Form S-11 (No. 333-35915)).
10.7 Calculation Agency Agreement between the Operating
Partnership and Morgan Stanley & Co. Incorporated
(incorporated by reference to Exhibit 10.6 to the Company's
Registration Statement on Form S-11 (No. 333-49163)).
12.1 Statement regarding computation of ratios.
21.1 Subsidiaries of the Registrant.
*23.1 Consent of Ballard Spahr Andrews & Ingersoll, LLP (included
in Exhibit 5.1 above).
*23.2 Consent of Latham & Watkins (included in Exhibit 8.1 above).
23.3 Consent of Arthur Andersen LLP.
24.1 Power of Attorney (included herein on signature page).
27.1 Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
ITEM 37. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers, and controlling
persons of the Registrant pursuant to the provisions described under Item 34
above, or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer,
or controlling person of the registrant in the successful defense of any action,
suit, or proceeding) is asserted by such director, officer, or controlling
person in connection with the securities registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
The Registrant hereby undertakes:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of Prospectus filed as part of the
Registration Statement in reliance upon Rule 430A and contained in the form
of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act shall be deemed to be part of the Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
The Registrant hereby undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
II-6
<PAGE> 266
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-11 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned thereunto duly
authorized in the City of San Francisco, State of California, on the 29th day of
September, 1998.
AMB PROPERTY CORPORATION
By: /s/ HAMID R. MOGHADAM
------------------------------------
Hamid R. Moghadam
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints jointly and severally, Hamid R. Moghadam,
S. Davis Carniglia, David S. Fries, John T. Roberts, Jr., and Michael A. Coke
and each of them, his attorney-in-fact, each with the power of substitution, for
him in any and all capacities, to sign any and all amendments to this
Registration Statement (including post effective amendments), and to sign any
registration statement for the same offering covered by this Registration
Statement that is to be effective upon filing pursuant to Rule 462(b)
promulgated under the Securities Act of 1933, and all post-effective amendments
thereto, and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that each of said attorneys-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ T. ROBERT BURKE
- ------------------------------------------
T. Robert Burke Chairman of the Board and Director September 29, 1998
/s/ HAMID R. MOGHADAM
- ------------------------------------------
Hamid R. Moghadam President, Chief Executive Officer September 29, 1998
and Director (Principal Executive
Officer)
/s/ DOUGLAS D. ABBEY
- ------------------------------------------
Douglas D. Abbey Chairman of Investment Committee and September 29, 1998
Director
/s/ S. DAVIS CARNIGLIA
- ------------------------------------------
S. Davis Carniglia Chief Financial Officer (Principal September 29, 1998
Financial Officer)
</TABLE>
II-7
<PAGE> 267
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ MICHAEL A. COKE
- ------------------------------------------
Michael A. Coke Vice President and Director of September 29, 1998
Financial Management Reporting
(Principal Accounting Officer)
- ------------------------------------------
Daniel H. Case, III Director September 29, 1998
- ------------------------------------------
Robert H. Edelstein, Ph.D. Director September 29, 1998
/s/ LYNN M. SEDWAY
- ------------------------------------------
Lynn M. Sedway Director September 29, 1998
/s/ JEFFREY L. SKELTON, PH.D.
- ------------------------------------------
Jeffrey L. Skelton, Ph.D. Director September 29, 1998
- ------------------------------------------
Thomas W. Tusher Director September 29, 1998
/s/ CARYL B. WELBORN
- ------------------------------------------
Caryl B. Welborn Director September 29, 1998
</TABLE>
II-8
<PAGE> 268
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
*1.1 Form of Underwriting Agreement.
3.1 Articles of Incorporation of the Registrant (incorporated by
reference to Exhibit 3.1 of the Company's Registration
Statement on Form S-11 (No. 333-35915)).
3.2 Articles Supplementary establishing and fixing the rights
and preferences of the Series A Cumulative Redeemable
Preferred Stock (incorporated by reference to Exhibit 3.4(4)
of the Company's Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 1998).
*3.3 Articles Supplementary establishing and fixing the rights
and preferences of the Series B Cumulative Redeemable
Preferred Stock
3.4 Bylaws of the Registrant (incorporated by reference to
Exhibit 3.2 of the Company's Registration Statement on Form
S-11 (No. 333-35915)).
*3.5 Specimen Stock Certificate for the Series B Cumulative
Redeemable Preferred Stock.
4.1 Indenture (the "Indenture") by and among the Operating
Partnership, the Company and State Street Bank and Trust
Company of California, N.A., as trustee (incorporated by
reference to Exhibit 4.1 of the Company's Registration
Statement on Form S-11 (No. 333-49163)).
4.2 First Supplemental Indenture, by and among the Operating
Partnership, the Company and State Street Bank and Trust
Company of California, N.A., as trustee (incorporated by
reference to Exhibit 4.2 to the Company's Registration
Statement on Form S-11 (No. 333-49163)).
4.3 Second Supplemental Indenture, by and among the Operating
Partnership, the Company and State Street Bank and Trust
Company of California, N.A., as trustee (incorporated by
reference to Exhibit 4.3 to the Company's Registration
Statement on Form S-11 (No. 333-49163)).
4.4 Third Supplemental Indenture, by and among the Operating
Partnership, the Company and State Street Bank and Trust
Company of California, N.A., as trustee (incorporated by
reference to Exhibit 4.4 to the Company's Registration
Statement on Form S-11 (No. 333-49163)).
4.5 Specimen of 7.10% Notes due 2008 (included in the First
Supplemental Indenture incorporated by reference as Exhibit
4.2 to the Company's Registration Statement on Form S-11
(No. 333-49163)).
4.6 Specimen of 7.50% Notes due 2018 (included in the Second
Supplemental Indenture incorporated by reference as Exhibit
4.3 to the Company's Registration Statement on Form S-11
(No. 333-49163)).
4.7 Specimen of 6.90% Reset Put Securities due 2015 (included in
the Third Supplemental Indenture incorporated by reference
as Exhibit 4.4 to the Company's Registration Statement on
Form S-11 (No. 333-49163)).
*5.1 Opinion of Ballard Spahr Andrews & Ingersoll, LLP.
*8.1 Opinion of Latham & Watkins.
*10.1 Third Amended and Restated Agreement of Limited Partnership
of AMB Property, L.P.
10.2 Form of Registration Rights Agreement among the Registrant
and the persons named therein. (incorporated by reference to
Exhibit 10.2 to the Company's Registration Statement on Form
S-11 (No. 333-35915)).
10.3 Second Amended and Restated Revolving Credit Agreement,
dated as of November 26, 1997.
10.4 Amendment to Second Amended and Restated Revolving Credit
Agreement made as of May 29, 1998.
10.5 Form of Employment Agreement between AMB Property
Corporation and certain of its executive officers
(incorporated by reference to Exhibit 10.4 to the Company's
Registration Statement on Form S-11 (No. 333-35915)).
</TABLE>
<PAGE> 269
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
10.6 The 1997 Stock Option and Incentive Plan of the Registrant
(incorporated by reference to Exhibit 10.5 of the Company's
Registration Statement on Form S-11 (No. 333-35915)).
10.7 Calculation Agency Agreement between the Operating
Partnership and Morgan Stanley & Co. Incorporated
(incorporated by reference to Exhibit 10.6 to the Company's
Registration Statement on Form S-11 (No. 333-49163)).
12.1 Statement Regarding Computation of Ratios.
21.1 Subsidiaries of the Registrant.
*23.1 Consent of Ballard Spahr Andrews & Ingersoll, LLP (included
in Exhibit 5.1 above).
*23.2 Consent of Latham & Watkins (included in Exhibit 8.1 above).
23.3 Consent of Arthur Andersen LLP.
24.1 Power of Attorney (included herein on signature page).
27.1 Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
<PAGE> 1
Exhibit 10.3
SECOND AMENDED AND RESTATED
REVOLVING CREDIT AGREEMENT
dated as of November 26, 1997
among
AMB PROPERTY, L.P.
The Banks Listed Herein
and
MORGAN GUARANTY TRUST COMPANY OF NEW YORK
as Agent
and
COMMERZBANK AKTIENGESELLSCHAFT, LOS ANGELES BRANCH
FLEET NATIONAL BANK
NATIONSBANK OF TEXAS, N.A. and
PNC BANK, NATIONAL ASSOCIATION
as Co-Agents
<PAGE> 2
TABLE OF CONTENTS
Page
----
ARTICLE I
DEFINITIONS......................................................2
SECTION 1.1. Definitions......................................................2
SECTION 1.2. Accounting Terms and Determinations.............................24
SECTION 1.3. Types of Borrowings.............................................25
ARTICLE II
THE CREDITS...................................................................25
SECTION 2.1. Commitments to Lend............................................25
SECTION 2.2. Notice of Borrowing............................................25
SECTION 2.3. Notice to Banks; Funding of Loans..............................26
SECTION 2.4. Notes..........................................................27
SECTION 2.5. Maturity of Loans..............................................28
SECTION 2.6. Interest Rates.................................................28
SECTION 2.7. Fees...........................................................29
SECTION 2.8. Mandatory Expiration...........................................30
SECTION 2.9. Mandatory Prepayment...........................................30
SECTION 2.10. Optional Prepayments...........................................31
SECTION 2.11. General Provisions as to Payments..............................32
SECTION 2.12. Funding Losses.................................................33
SECTION 2.13. Computation of Interest and Fees...............................33
SECTION 2.14. Use of Proceeds................................................33
ARTICLE III
CONDITIONS....................................................................34
SECTION 3.1. Closing........................................................34
SECTION 3.2. Borrowings.....................................................37
SECTION 3.3. Borrowing Base Properties......................................39
SECTION 3.4. Conditions Precedent to New Acquisitions
and Additional Real Property Assets............................40
ARTICLE IV
REPRESENTATIONS AND WARRANTIES................................................42
SECTION 4.1. Existence and Power............................................42
SECTION 4.2. Power and Authority............................................42
SECTION 4.3. No Violation...................................................42
SECTION 4.4. Financial Information..........................................43
SECTION 4.5. Litigation.....................................................44
SECTION 4.6. Compliance with ERISA..........................................44
SECTION 4.7. Environmental Matters..........................................44
SECTION 4.8. Taxes..........................................................45
SECTION 4.9. Full Disclosure................................................45
SECTION 4.10. Solvency.......................................................46
i
<PAGE> 3
Page
----
SECTION 4.11. Use of Proceeds; Margin Regulations............................46
SECTION 4.12. Governmental Approvals.........................................46
SECTION 4.13. Investment Company Act; Public Utility
Holding Company Act............................................46
SECTION 4.14. Closing Date Transactions......................................46
SECTION 4.15. Representations and Warranties in Loan
Documents......................................................46
SECTION 4.16. Patents, Trademarks, Etc.......................................47
SECTION 4.17. Ownership of Property..........................................47
SECTION 4.18. No Default.....................................................47
SECTION 4.19. Licenses, Etc..................................................47
SECTION 4.20. Compliance With Law............................................48
SECTION 4.21. No Burdensome Restrictions.....................................48
SECTION 4.22. Brokers' Fees..................................................48
SECTION 4.23. Labor Matters..................................................48
SECTION 4.24. Insurance......................................................48
SECTION 4.25. Organizational Documents.......................................48
SECTION 4.26. Principal Offices..............................................48
ARTICLE V
AFFIRMATIVE AND NEGATIVE COVENANTS............................................49
SECTION 5.1. Information....................................................49
SECTION 5.2. Payment of Obligations.........................................53
SECTION 5.3. Maintenance of Property; Insurance.............................53
SECTION 5.4. Conduct of Business and Maintenance of
Existence......................................................53
SECTION 5.5. Compliance with Laws...........................................53
SECTION 5.6. Inspection of Property, Books and
Records........................................................54
SECTION 5.7. Existence......................................................54
SECTION 5.8. Certain Requirements for the Borrowing
Base Properties................................................54
SECTION 5.9. Financial Covenants............................................54
SECTION 5.10. Restriction on Fundamental Changes.............................56
SECTION 5.11. Liens; Release of Liens........................................57
SECTION 5.12. Sale of Borrowing Base Properties..............................57
SECTION 5.13. Changes in Business............................................58
SECTION 5.14. Fiscal Year; Fiscal Quarter....................................58
SECTION 5.15. Margin Stock...................................................58
SECTION 5.16. Restrictions on Recourse Debt..................................58
SECTION 5.17. Covenant Restrictions..........................................58
ARTICLE VI
DEFAULTS......................................................................58
SECTION 6.1. Events of Default...............................................58
SECTION 6.2. Rights and Remedies.............................................61
SECTION 6.3. Notice of Default...............................................62
ii
<PAGE> 4
Page
----
ARTICLE VII
THE AGENT.....................................................................62
SECTION 7.1. Appointment and Authorization...................................62
SECTION 7.2. Agent and Affiliates............................................63
SECTION 7.3. Action by Agent.................................................63
SECTION 7.4. Consultation with Experts.......................................63
SECTION 7.5. Liability of Agent..............................................63
SECTION 7.6. Indemnification.................................................64
SECTION 7.7. Credit Decision.................................................64
SECTION 7.8. Successor Agent.................................................64
ARTICLE VIII
CHANGE IN CIRCUMSTANCES.......................................................65
SECTION 8.1. Basis for Determining Interest Rate Inadequate or Unfair........65
SECTION 8.2. Illegality......................................................65
SECTION 8.3. Increased Cost and Reduced Return...............................66
SECTION 8.4. Taxes...........................................................68
SECTION 8.5. Base Rate Loans Substituted for Affected
Euro-Dollar Loans...............................................70
ARTICLE IX
MISCELLANEOUS.................................................................70
SECTION 9.1. Notices.........................................................70
SECTION 9.2. No Waivers......................................................70
SECTION 9.3. Expenses; Indemnification.......................................71
SECTION 9.4. Sharing of Set-Offs.............................................72
SECTION 9.5. Amendments and Waivers..........................................73
SECTION 9.6. Successors and Assigns..........................................73
SECTION 9.7. Collateral......................................................75
SECTION 9.8. Governing Law; Submission to
Jurisdiction....................................................76
Section 9.9. Marshalling; Recapture..........................................76
SECTION 9.10. Counterparts; Integration;
Effectiveness...................................................77
SECTION 9.11. WAIVER OF JURY TRIAL............................................77
SECTION 9.12. Survival........................................................77
SECTION 9.13. Domicile of Loans...............................................77
SECTION 9.14. Limitation of Liability.........................................77
SECTION 9.15. Recourse........................................................77
SECTION 9.16. Confidentiality.................................................78
iii
<PAGE> 5
Page
----
EXHIBITS AND SCHEDULES
Exhibit A - Note
Exhibit B - Borrowing Base Properties
Exhibit C - Assignment and Assumption Agreement
Exhibit D - Form of Borrowing Base Property Certifi
cate
Exhibit E - Form of Subsidiary Guaranty
Schedule 4.17(a) - Real Property Assets
Schedule 4.17(b) - Liens
iv
<PAGE> 6
SECOND AMENDED AND RESTATED
REVOLVING CREDIT AGREEMENT
THIS SECOND AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT
dated as of November 26, 1997 by and among AMB PROPERTY, L.P., a Delaware
limited partnership (the "Borrower"), the BANKS listed on the signature pages
hereof and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Agent and COMMERZBANK
AKTIENGESELLSCHAFT, LOS ANGELES BRANCH, FLEET NATIONAL BANK, NATIONSBANK OF
TEXAS, N.A. and PNC BANK, NATIONAL ASSOCIATION, as Co-Agents.
R E C I T A L S
WHEREAS, certain of the Banks previously agreed to make
available to AMB Current Income Fund, Inc. a revolving credit facility upon the
terms and conditions set forth in that certain Revolving Credit Agreement, dated
as of October 25, 1996, as amended by that certain First Amendment to Revolving
Credit Agreement, dated as of January 17, 1997 and as amended and restated in
its entirety pursuant to that certain Amended and Restated Revolving Credit
Agreement, dated as of August 8, 1997 (as so amended and amended and restated,
the "Existing Credit Agreement");
WHEREAS, the Borrower assumed the rights, duties and
obligations of AMB Current Income Fund, Inc. under the Existing Credit Agreement
pursuant to that certain Assumption Agreement dated as of November 26, 1997; and
WHEREAS, the Borrower and the Banks wish to amend and restate
the provisions of the Existing Credit Agreement in their entirety, as
hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual agreements,
provisions and covenants contained herein, the parties hereby amend and restate
the Existing Credit Agreement and agree as follows:
A G R E E M E N T
I. The Existing Credit Agreement is hereby amended, restated,
replaced and modified so that all of
<PAGE> 7
the terms and conditions of the aforesaid Existing Credit Agreement shall be
restated and replaced in their entirety as set forth herein, and the Borrower
agrees to comply with and be subject to all of the terms, covenants and
conditions of this Agreement.
II. This Agreement shall be binding upon and inure to the
benefit of the parties hereto, and their respective successors and assigns, and
shall be deemed to be effective as of the date hereof.
III. Any reference to the Existing Credit Agreement in any
other instrument or document executed in connection with the Existing Credit
Agreement shall be deemed to refer to this Agreement.
ARTICLE I
DEFINITIONS
SECTION 1.1. Definitions. The following terms, as used herein,
have the following meanings:
"Acquisition Price" means (i) the purchase price of a Real
Property Asset as set forth in the applicable purchase and sale agreement, (ii)
increases or reductions to such purchase price as provided in such purchase and
sale agreement or the final closing statement, and (iii) reasonable closing
costs to the extent incurred by Borrower or any Consolidated Subsidiary of
Borrower in connection with such acquisition, including but not limited to,
brokerage fees, attorneys fees and expenses, due diligence expenses, appraisal
fees, engineering and environmental fees, title insurance premiums, survey
preparation costs, and recording fees.
"Adjusted EBITDA" means EBITDA minus (i) an adjustment to
exclude the effects of straight-lining of rents, and minus (ii) an amount equal
to appropriate reserves for replacements of not less than $.50 per square foot
per annum for each Real Property Asset that is primarily a retail use property
and not less than $.35 per square foot per annum for each Real Property Asset
that is primarily an industrial use property.
2
<PAGE> 8
"Adjusted London Interbank Offered Rate" has the meaning set
forth in Section 2.6(b).
"Adjustment Date" shall mean the earlier to occur of (i) the
date that the General Partner and/or the Borrower receives a public credit
rating for its unsecured senior long term indebtedness from either S&P or
Moody's and (ii) the date which is nine months following the Closing Date.
"Administrative Questionnaire" means, with respect to each
Bank, an administrative questionnaire in the form prepared by the Agent and
submitted to the Agent (with a copy to the Borrower) duly completed by such
Bank.
"Agent" means Morgan Guaranty Trust Company of New York in its
capacity as agent for the Banks hereunder, and its successors in such capacity.
"Agreement" means this Second Amended and Restated Revolving
Credit Agreement, as the same may from time to time hereafter be modified,
supplemented or amended, as permitted herein.
"Applicable Interest Rate" means (i) with respect to any Fixed
Rate Indebtedness, the fixed interest rate applicable to such Fixed Rate
Indebtedness at the time in question, and (ii) with respect to any Floating Rate
Indebtedness, the lesser of (x) the rate at which the interest rate applicable
to such Floating Rate Indebtedness could be fixed, at the time of calculation,
by Borrower entering into an unsecured interest rate swap agreement (or, if such
rate is incapable of being fixed by entering into an unsecured interest rate
swap agreement at the time of calculation, a reasonably determined fixed rate
equivalent), or (y) the rate at which the interest rate applicable to such
Floating Rate Indebtedness is actually capped, at the time of calculation, if
Borrower has entered into an interest rate cap agreement with respect thereto.
"Applicable Lending Office" means, with respect to any Bank,
(i) in the case of its Domestic Loans, its Domestic Lending Office and (ii) in
the case of its Euro-Dollar Loans, its Euro-Dollar Lending Office.
3
<PAGE> 9
"Applicable Margin" means, prior to the Adjustment Date, 1.10%
with respect to each Euro-Dollar Loan and 0.125% with respect to each Base Rate
Loan. From and after the Adjustment Date, the Applicable Margin with respect to
each Euro-Dollar Loan and each Base Rate Loan shall mean the respective
percentages per annum determined, at any time, based on the range into which the
Borrower's Credit Rating (if any) then falls, in accordance with the table set
forth below. Any change in the Borrower's Credit Rating shall be effective
immediately as of the date on which any of the Rating Agencies announces a
change in the Borrower's Credit Rating or the date on which the Borrower (or, as
applicable, the General Partner) has no Credit Rating, whichever is applicable.
In the event that the Borrower (or, as applicable, the General Partner) receives
two (2) Credit Ratings that are not equivalent, the Applicable Margin shall be
determined by the lower of such two (2) Credit Ratings. In the event that
Borrower (or, as applicable, the General Partner) receives more than two (2)
Credit Ratings and such Credit Ratings are not equivalent, the Applicable Margin
shall be determined by the lower of the two (2) highest ratings, provided that
each of said two (2) highest ratings shall be Investment Grade Ratings and at
least one of which shall be an Investment Grade Rating from S&P or Moody's. In
the event that only one of the Rating Agencies shall have set Borrower's Credit
Rating, then the Applicable Margin shall be based on such rating only.
<TABLE>
<CAPTION>
Range of Applicable
Borrower's Margin for Applicable
Credit Rating Base Rate Margin for Euro
(S&P/Moody's Loans Dollar Loans
Ratings) (% per annum) (% per annum)
- -------------- ------------- ---------------
<S> <C> <C>
BBB+/Baa1 0.000 0.90
BBB/Baa2 0.000 1.00
BBB-/Baa3 0.125 1.15
Non-Invest-
ment Grade or
no rating 0.250 1.20
</TABLE>
"Approved Bank" shall mean a bank which has (i)(a) a minimum
net worth of $500,000,000 and/or (b) total assets of $10,000,000,000, and (ii) a
minimum long term debt rating
4
<PAGE> 10
of (a) BBB+ or higher by S&P, and (b) Baa1 or higher by Moody's.
"Approved Uses" has the meaning set forth in Section 2.14.
"Assignee" has the meaning set forth in Section 9.6(c).
"Bank" means each bank listed on the signature pages hereof,
each Assignee which becomes a Bank pursuant to Section 9.6(c), and their
respective successors.
"Bankruptcy Code" means Title 11 of the United States Code,
entitled "Bankruptcy", as amended from time to time, and any successor statute
or statutes.
"Base Rate" means, for any day, a rate per annum equal to the
higher of (i) the Prime Rate for such day or (ii) the sum of 1/2 of 1% plus the
Federal Funds Rate for such day.
"Base Rate Loan" means a Loan to be made by a Bank as a Base
Rate Loan in accordance with the applicable Notice of Borrowing or pursuant to
Article VIII.
"Benefit Arrangement" means at any time an employee benefit
plan within the meaning of Section 3(3) of ERISA which is not a Plan or a
Multiemployer Plan and which is maintained or otherwise contributed to by any
member of the ERISA Group.
"Borrower" means AMB Property, L.P., a Delaware limited
partnership.
"Borrower's Credit Rating" means the rating assigned by the
Rating Agencies to the General Partner's or the Borrower's senior unsecured long
term indebtedness.
"Borrowing" means a borrowing hereunder consisting of Loans
made to the Borrower at the same time by the Banks pursuant to Article II. A
Borrowing is (i) a "Domestic Borrowing" if such Loans are Domestic Loans or (ii)
a "Euro-Dollar Borrowing" if such Loans are Euro-Dollar Loans.
"Borrowing Base Net Operating Cash Flow" means as of any date
of determination with respect to the Borrowing
5
<PAGE> 11
Base Properties, Property Income for the previous four consecutive quarters
including the quarter then ended, but less (x) Property Expenses with respect to
the Borrowing Base Properties for the previous four consecutive quarters
including the quarter then ended, and (y) appropriate reserves for replacements
of not less than $.50 per square foot per annum for each Borrowing Base Property
that is primarily a retail use property and not less than $.35 per square foot
per annum for each Borrowing Base Property that is primarily an industrial use
property. For purposes of Section 5.1(m) hereof, the calculation of Borrowing
Base Net Operating Cash Flow shall be made separately as to each Borrowing Base
Property.
"Borrowing Base Properties" has the meaning set forth in
Section 3.3.
"Borrowing Base Properties Value" means the aggregate of the
Gross Asset Values of the Borrowing Base Properties.
"Capital Expenditures" means, for any period, the sum of all
expenditures (whether paid in cash or accrued as a liability) which are
capitalized on the balance sheet of the Borrower in accordance with GAAP, but
exclusive, however, with respect to any Real Property Asset acquired by the
Borrower or a Consolidated Subsidiary within the previous twelve months, of
those expenditures which the Borrower makes, or reasonably projects (as of the
date of determination) to make, within twelve months after the date of such
acquisition and excluding all expenditures made with respect to the acquisition
of such Real Property Asset by the Borrower or such Consolidated Subsidiary.
"Cash and Cash Equivalents" means (i) cash, (ii) direct
obligations of the United States Government, including, without limitation,
treasury bills, notes and bonds, (iii) interest bearing or discounted
obligations of Federal agencies and Government sponsored entities or pools of
such instruments offered by Approved Banks and dealers, including, without
limitation, Federal Home Loan Mortgage Corporation participation sale
certificates, Government National Mortgage Association modified pass-through
certificates, Federal National Mortgage Association bonds and notes, Federal
Farm Credit System securities, (iv) time deposits, domestic and Eurodollar
certificates of deposit, bankers acceptances, commercial paper rated at least
A-1 by S&P and
6
<PAGE> 12
P-1 by Moody's Investors Service, Inc., and/or guaranteed by an Aa rating by
Moody's Investors Service, Inc., an AA rating by S&P, or better rated credit,
floating rate notes, other money market instruments and letters of credit each
issued by Approved Banks, (v) obligations of domestic corporations, including,
without limitation, commercial paper, bonds, debentures, and loan
participations, each of which is rated at least AA by S&P, and/or Aa2 by Moody's
Investors Service, Inc., and/or unconditionally guaranteed by an AA rating by
S&P, an Aa2 rating by Moody's, or better rated credit, (vi) obligations issued
by states and local governments or their agencies, rated at least MIG-1 by
Moody's Investors Service, Inc. and/or SP-1 by S&P and/or guaranteed by an
irrevocable letter of credit of an Approved Bank, (vii) repurchase agreements
with major banks and primary government securities dealers fully secured by U.S.
Government or agency collateral equal to or exceeding the principal amount on a
daily basis and held in safekeeping, and (viii) real estate loan pool
participations, guaranteed by a Person with an AA rating given by S&P or an Aa2
rating given by Moody's Investors Service, Inc., or better rated credit.
"Closing Date" means November 26, 1997.
"Code" means the Internal Revenue Code of 1986, as amended, or
any successor statute.
"Combined Gross Asset Value" shall be the aggregate Gross
Asset Value of all Real Property Assets owned, directly or indirectly, by the
Borrower, the General Partner and the Consolidated Subsidiaries; with respect to
Real Property Assets held in Minority Holdings or Joint Ventures or Subsidiaries
which are not Consolidated, only the portion of such Real Property Asset that is
allocable, in accordance with GAAP, to Borrower's interest shall be included in
Combined Gross Asset Value.
"Commitment" means, with respect to each Bank, the amount set
forth opposite the name of such Bank on the signature pages hereof (and for each
Bank which is an Assignee, the amount set forth in the Assumption Agreement
entered into pursuant to Section 9.6(c) as the Assignee's Commitment), as such
amount may be reduced from time to time pursuant to Section 2.10(c) or in
connection with an assignment to an Assignee.
7
<PAGE> 13
"Commitment Fee" has the meaning set forth in Section 2.7(a).
"Commitment Fee Percentage" means, prior to the Adjustment
Date, 0.20%. From and after the Adjustment Date, the Commitment Fee Percentage
shall be the applicable percentage per annum determined, at any time, based on
the range into which Borrower's Credit Rating (if any) then falls, in accordance
with the following table. Any change in the Commitment Fee Percentage shall be
effective immediately as of the date on which any of the Rating Agencies
announces a change in the Borrower's Credit Rating or the date on which the
Borrower (or, as applicable, the General Partner) has no Credit Rating,
whichever is applicable. In the event that Borrower (or, as applicable, the
General Partner) receives two (2) Credit Ratings that are not equivalent, the
Commitment Fee Percentage shall be determined by the lower of such two (2)
Credit Ratings. In the event that Borrower (or, as applicable, the General
Partner) receives more than two (2) Credit Ratings, and such Credit Ratings are
not equivalent, the Commitment Fee Percentage shall be determined by the lower
of the two (2) highest ratings, provided that each of said two (2) highest
ratings shall be Investment Grade Ratings and at least one of which shall be an
Investment Grade Rating from S&P or Moody's. In the event that only one of the
Rating Agencies shall have set Borrower's Credit Rating, then the Commitment Fee
Percentage shall be based on such rating only.
<TABLE>
<CAPTION>
Range of
Borrower's
Credit Rating
(S&P/Moody's Commitment Fee Percentage
Ratings) (% per annum)
- ------------- --------------------------
<S> <C>
BBB+/Baa1 0.15
BBB/Baa2 0.20
BBB-/Baa3 0.25
Non-Invest-
ment Grade or
no rating 0.25
</TABLE>
"Confirmation of Guaranty" means that certain Confirmation of
Guaranty, dated as of the date hereof, by the General Partner, AMB Property II,
L.P. and Long Gate LLC.
"Consolidated" means "consolidated" in accordance with GAAP.
"Consolidated Subsidiary" means at any date any Subsidiary of
the Borrower that is Consolidated on the financial statements of the Borrower
and the General Partner.
"Consolidated Tangible Net Worth" means at any date the
consolidated stockholders' or partners' equity of
8
<PAGE> 14
the Borrower, the General Partner, and the Consolidated Subsidiaries less their
Consolidated Intangible Assets, all determined as of such date. For purposes of
this definition "Intangible Assets" means with respect to any such intangible
assets, the amount (to the extent reflected in determining such consolidated
stockholders' equity) of (i) all write-ups in the book value of any asset owned
by the Borrower or a Consolidated Subsidiary and (ii) all unamortized debt
discount and expense, unamortized deferred charges, goodwill, patents,
trademarks, service marks, trade names, anticipated future benefit of tax loss
carry-forwards, copy rights, organization or developmental expenses and other
intangible assets.
"Construction Asset Cost" shall mean, with respect to
Development Projects in which construction has begun (as evidenced by obtaining
a permit to commence such construction by the applicable governmental authority)
but has not yet been substantially completed (substantial completion shall be
deemed to mean not less than 90% completion, as such completion shall be
evidenced by a certificate of occupancy or its equivalent and the commencement
of the payment of rent by tenants of such Development Project), the aggregate,
good faith estimated cost of construction of such improvements (including land
acquisition costs).
"Contingent Obligation" as to any Person means, without
duplication, (i) any contingent obligation of such Person required to be shown
on such Person's balance sheet in accordance with GAAP, and (ii) any obligation
required to be disclosed in the footnotes to such Person's financial statements
in accordance with GAAP, guaranteeing partially or in whole any non-recourse
Debt, lease, dividend or other obligation, exclusive of contractual indemnities
(including, without limitation, any indemnity or price-adjustment provision
relating to the purchase or sale of securities or other assets) and guarantees
of non-monetary obligations (other than guarantees of completion) which have not
yet been called on or quantified, of such Person or of any other Person. The
amount of any Contingent Obligation described in clause (ii) shall be deemed to
be (a) with respect to a guaranty of interest or interest and principal, or
operating income guaranty, the sum of all payments required to be made
thereunder (which in the case of an operating income guaranty shall be deemed to
be equal to the debt service for the note secured thereby), calculated at the
Applicable Interest Rate, through (i) in the case of an interest or interest and
principal guaranty, the stated date of maturity of the obligation (and
commencing on the date interest could first be payable thereunder), or (ii) in
the case of an operating income guaranty, the date through which such guaranty
will remain in effect, and (b) with respect to all guarantees not covered by the
preceding clause (a), an amount equal to the stated or determinable amount of
the primary obligation in respect of which such guaranty is made or, if not
stated or determinable, the maximum reasonably anticipated liability
9
<PAGE> 15
in respect thereof (assuming such Person is required to perform thereunder) as
recorded on the balance sheet and on the footnotes to the most recent financial
statements of Borrower required to be delivered pursuant to Section 4.4 hereof.
Notwithstanding anything contained herein to the contrary, guarantees of
completion shall not be deemed to be Contingent Obligations unless and until a
claim for payment or performance has been made thereunder by the person entitled
to performance or payment thereunder, at which time any such guaranty of
completion shall be deemed to be a Contingent Obligation in an amount equal to
any such claim. Subject to the preceding sentence, (i) in the case of a joint
and several guaranty given by such Person and another Person (but only to the
extent such guaranty is directly or indirectly recourse to such Person), the
amount of the guaranty, to the extent it is directly or indirectly recourse to
such Person, shall be deemed to be 100% thereof unless and only to the extent
that such other Person has delivered Cash or Cash Equivalents to secure all or
any part of such Person's guaranteed obligations, (ii) in the case of joint and
several guarantees given by a Person in whom Borrower owns an interest (which
guarantees are non-recourse to Borrower), to the extent the guarantees, in the
aggregate, exceed 15% of Combined Gross Asset Value, the amount which is the
lesser of (x) the amount in excess of 15% or (y) the amount of Borrower's
interest therein shall be deemed to be a Contingent Obligation of Borrower, and
(iii) in the case of any other guaranty, (whether or not joint and several) of
an obligation otherwise constituting Debt of such Person, the amount of such
guaranty shall be deemed to be only that amount in excess of the amount of the
obligation constituting Indebtedness of such Person. Notwithstanding any thing
contained herein to the contrary, "Contingent Obligations" shall not be deemed
to include guarantees of Unused Commitments or of construction loans to the
extent the same have not been drawn.
"Debt" of any Person means, without duplication, (A) as shown
on such Person's balance sheet (i) all indebtedness of such Person for borrowed
money or for the deferred purchase price of property and, (ii) all indebtedness
of such Person evidenced by a note, bond, debenture or similar instrument
(whether or not disbursed in full in the case of a construction loan), (B) the
face amount of all letters of credit issued for the account of such Person and,
without duplication, all unreimbursed amounts drawn thereunder, (C) all
Contingent Obligations of such Person, (D) all payment obligations of such
Person under any interest rate protection agreement (including, without
limitation, any interest rate swaps, caps, floors, collars and similar
agreements) and currency swaps and similar agreements which were not entered
into specifically in connection with Debt set forth in clauses (A), (B) or (C)
hereof. For purposes of this Agreement, Debt (other than Contingent Obligations)
of the Borrower shall be deemed to include only Debt of the Borrower, the
General Partner, and their Consolidated
10
<PAGE> 16
Subsidiaries plus the Borrower's and/or the General Partner's respective pro
rata share (without duplication) (such pro rata share being based upon the
Borrower's or the General Partner's percentage ownership interest as shown on
their annual financial statements) of the Debt of any Person in which the
Borrower or the General Partner, directly or indirectly, owns an interest,
provided that such Debt is nonrecourse, both directly and indirectly, to the
Borrower, the General Partner or any Consolidated Subsidiary.
"Debt Service" shall mean, measured as of the last day of each
calendar quarter, an amount equal to the sum of (i) interest (whether accrued,
paid or capitalized) actually payable by the Borrower, the General Partner, and
their Consolidated Subsidiaries, together with the Borrower's and the General
Partner's respective pro rata shares of such interest actually payable by
Minority Holdings and Joint Ventures, on their Debt for the previous four
consecutive quarters including the quarter then ended, plus (ii) scheduled
payments of principal on Debt of the Borrower, the General Partner, and their
Consolidated Subsidiaries (and the Borrower's and the General Partner's
respective pro rata share of such payments on Debt of Minority Holdings and
Joint Ventures), whether or not actually paid (excluding balloon payments) for
the previous four consecutive quarters including the quarter then ended.
"Default" means any condition or event which constitutes an
Event of Default or which with the giving of notice or lapse of time or both
would, unless cured or waived, become an Event of Default.
"Development Projects" shall have the meaning set forth in
Section 5.1(l) hereof.
"Domestic Business Day" means any day except a Saturday,
Sunday or other day on which commercial banks in New York City and/or San
Francisco, California are authorized by law to close.
"Domestic Lending Office" means, as to each Bank, its office
located at its address set forth on the signature pages hereto or such other
office as such Bank may hereafter designate as its Domestic Lending Office by
notice to the Borrower and the Agent.
"Domestic Loans" means Base Rate Loans.
"EBITDA" means income from operations of the Borrower, the
General Partner and the Consolidated, Subsidiaries before disposal of properties
and minority interests, plus interest expense, income taxes, depreciation and
amortization.
"Effective Date" means the date this Agreement becomes
effective in accordance with Section 9.10.
11
<PAGE> 17
"Environmental Affiliate" means any partnership, or joint
venture, trust or corporation in which an equity interest is owned by the
Borrower or the General Partner, either directly or indirectly.
"Environmental Approvals" means any permit, license, approval,
ruling, variance, exemption or other authorization required under applicable
Environmental Laws by a court or governmental agency having jurisdiction.
"Environmental Claim" means, with respect to any Person, any
written notice, claim, demand or similar communication by any other Person
having jurisdiction alleging potential liability for investigatory costs,
cleanup costs, governmental response costs, natural resources damage, property
damages, personal injuries, fines or penalties arising out of, based on or
resulting from (i) the presence, or release into the environment, of any
Hazardous Substances at any location, whether or not owned by such Person or
(ii) circumstances forming the basis of any violation, of any applicable
Environmental Law, in each case as to which there is a reasonable possibility of
an adverse determination with respect thereto and which, if adversely
determined, would have a Material Adverse Effect on the Borrower or the General
Partner.
"Environmental Laws" means any and all federal, state, local
and foreign statutes, laws, judicial decisions, regulations, ordinances, rules,
judgments, orders, decrees, plans, injunctions, permits, concessions, grants,
franchises, licenses, agreements and other governmental restrictions relating to
the environment, the effect of the environment on human health or to emissions,
discharges or releases of pollutants, contaminants, Hazardous Substances or
wastes into the environment including, without limitation, ambient air, surface
water, ground water, or land, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of pollutants, contaminants, Hazardous Substances or wastes or the
clean-up or other remediation thereof.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended, or any successor statute.
"ERISA Group" means the Borrower, the General Partner, any
Subsidiary and all members of a controlled group of corporations and all trades
or businesses (whether or not incorporated) under common control which, together
with the Borrower, the General Partner or any Subsidiary, are treated as a
single employer under Section 414 of the Internal Revenue Code.
"Euro-Dollar Business Day" means any Domestic Business Day on
which commercial banks are open for international business (including dealings
in dollar deposits) in London.
12
<PAGE> 18
"Euro-Dollar Lending Office" means, as to each Bank, its
office, branch or affiliate located at its address set forth on the signature
pages hereto, or such other office, branch or affiliate of such Bank as it may
hereafter designate as its Euro-Dollar Lending Office by notice to the Borrower
and the Agent.
"Euro-Dollar Loan" means a Loan to be made by a Bank as a
Euro-Dollar Loan in accordance with the applicable Notice of Borrowing.
"Event of Default" has the meaning set forth in Section 6.1.
"Existing Credit Agreement" has the meaning set forth in the
recitals of this Agreement.
"Federal Funds Rate" means, for any day, the rate per annum
(rounded upward, if necessary, to the nearest 1/100th of 1%) equal to the
weighted average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds brokers on such
day, as published by the Federal Reserve Bank of New York on the Domestic
Business Day next succeeding such day, provided that (i) if such day is not a
Domestic Business Day, the Federal Funds Rate for such day shall be such rate on
such transactions on the next preceding Domestic Business Day as so published on
the next succeeding Domestic Business Day, and (ii) if no such rate is so
published on such next succeeding Domestic Business Day, the Federal Funds Rate
for such day shall be the average rate quoted to Morgan Guaranty Trust Company
of New York on such day on such transactions as determined by the Agent.
"Federal Reserve Board" means the Board of Governors of the
Federal Reserve System as constituted from time to time.
"Fixed Charges" means with respect to any fiscal period, the
sum of (a) interest expense according to GAAP (including capitalized interest)
payable during such period, plus (b) the aggregate of all scheduled principal
payments on Debt according to GAAP payable during that fiscal period and for
Debt guaranteed under a Contingent Obligation (but excluding balloon payments of
principal due upon the stated maturity of a Debt), plus (c) the aggregate of all
dividends payable on the Borrower's, the General Partner's or any Consolidated
Subsidiary's preferred partnership interests or preferred stock (as applicable),
to the extent such charges are paid or incurred, as applicable, by Borrower, the
General Partner, and their Consolidated Subsidiaries or, with respect to
Minority Holdings and Joint Ventures, in each case to the extent of Borrower's,
the General Partner's or the applicable Consolidated Subsidiary's allocable
share of such payments. For the purposes of this definition, (i) interest on
Fixed Rate Indebtedness shall be the actual
13
<PAGE> 19
interest payable on such Debt and (ii) interest on Floating Rate Indebtedness
shall be assumed to be the greater of (A) the actual interest payable on such
Debt or (B) an assumed interest rate per annum to be approved by the Agent for
tax-exempt Debt and an assumed interest rate of nine percent (9%) per annum for
non-tax-exempt Debt, except that, if any of the foregoing in (A) or (B) above is
subject to an interest rate cap agreement purchased by the Borrower, the General
Partner or a Consolidated Subsidiary, the interest rate shall be assumed to be
the lower of the actual interest payable on such Debt or the capped rate of such
interest rate cap agreement. In no event shall any dividends payable on the
General Partner's or any Consolidated Subsidiary's common stock be included in
Fixed Charges.
"Fixed Rate Indebtedness" means all Debt which accrues
interest at a fixed rate.
"Floating Rate Indebtedness" means all Debt which is not Fixed
Rate Indebtedness and which is not a Contingent Obligation or an Unused
Commitment.
"Funds From Operations" means net income (computed in
accordance with GAAP) before extraordinary items, 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.
"GAAP" means generally accepted accounting principles
recognized as such in the opinions and pronouncements of the Accounting
Principles Board and the American Institute of Certified Public Accountants and
Board or in such other statements by such other entity as may be approved by a
significant segment of the accounting profession, which are applicable to the
circumstances as of the date of determination.
"General Partner" means AMB Property Corporation, a Maryland
corporation qualified as a real estate investment trust and the sole general
partner of the Borrower.
"General Partner Guaranty" means the Unconditional Guaranty
Agreement of the General Partner dated as of November 26, 1997 delivered to the
Agent in connection with assumption of the Existing Credit Agreement by the
Borrower.
"Gross Asset Value" shall mean (i) with respect to a Real
Property Asset that was acquired, directly or indirectly, within the twelve (12)
months prior to the date of determination, (A) prior to the first full quarter
following such acquisition, the Acquisition Price of such Real Property Asset
plus any Capital Expenditures actually incurred by the Borrower or its
Subsidiary in connection with such Real
14
<PAGE> 20
Property Asset (which, for the purpose of this definition shall include any
expenditures that would have been considered Capital Expenditures except that
they were made with respect to the acquisition by the Borrower or its
Consolidated Subsidiaries of any interest in a Real Property Asset within twelve
months after the date such interest in asset was acquired) and (B) from and
after the first full quarter following such acquisition, the lesser of (x) the
amount in clause (i)(A) above and (y) the Net Operating Cash Flow applicable to
such Real Property Asset (provided that such Net Operating Cash Flow shall be
calculated on an annualized basis based upon the actual amount of Net Operating
Cash Flow for the period of Borrower's ownership of such Real Property Asset),
in each case capitalized at an annual interest rate of 9.5% if such Real
Property Asset is primarily a retail use property and 9.25% if such Real
Property Asset is primarily an industrial use property; and (ii) with respect to
a Real Property Asset that was acquired, directly or indirectly by the Borrower
more than twelve (12) months prior to the date of determination, the Net
Operating Cash Flow applicable to such Real Property Asset capitalized at an
annual interest rate of 9.5% if such Real Property Asset is primarily a retail
use property and 9.25% if such Real Property Asset is primarily an industrial
use property.
"Guaranty" shall mean each of the General Partner Guaranty and
any Subsidiary Guaranty.
"Hazardous Substances" means any toxic, radioactive, caustic
or otherwise hazardous substance, identified as such as a matter of
Environmental Law, including petroleum, its derivatives, by-products and other
hydrocarbons, or any substance having any constituent elements displaying any of
the foregoing characteristics.
"Improved Asset" means a Real Property Asset upon which
material construction of material improvements has commenced or upon which
material improvements have been constructed.
"Indemnitee" has the meaning set forth in Section 9.3(b).
"Interest Period" means: (1) with respect to each Euro-Dollar
Borrowing, the period commencing on the date of such Borrowing and ending one,
two, three or six months thereafter, as the Borrower may elect in the applicable
Notice of Borrowing; provided that:
(a) any Interest Period which would otherwise end on a day
which is not a Euro-Dollar Business Day shall be extended to the next
succeeding Euro-Dollar Business Day unless such Euro-Dollar Business
Day falls in another calendar month, in which case such Interest Period
shall end on the next preceding Euro-Dollar Business Day;
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<PAGE> 21
(b) any Interest Period which begins on the last Euro-Dollar
Business Day of a calendar month (or on a day for which there is no
numerically corresponding day in the calendar month at the end of such
Interest Period) shall, subject to clause (c) below, end on the last
Euro-Dollar Business Day of a calendar month; and
(c) if any Interest Period includes a date on which a payment
of principal of the Loans is required to be made under Section 2.9 but
does not end on such date, then (i) the principal amount (if any) of
each Euro-Dollar Loan required to be repaid on such date shall have an
Interest Period ending on such date and (ii) the remainder (if any) of
each such Euro-Dollar Loan shall have an Interest Period determined as
set forth above.
(2) with respect to each Base Rate Borrowing, the period commencing on the date
of such Borrowing and ending 30 days thereafter; provided that:
(a) any Interest Period (other than an Interest Period
determined pursuant to clause (b) below) which would otherwise end on a
day which is not a Euro-Dollar Business Day shall be extended to the
next succeeding Euro-Dollar Business Day; and
(b) if any Interest Period includes a date on which a payment
of principal of the Loans is required to be made under Section 2.9 but
does not end on such date, then (i) the principal amount (if any) of
each Base Rate Loan required to be repaid on such date shall have an
Interest Period ending on such date and (ii) the remainder (if any) of
each such Base Rate Loan shall have an Interest Period determined as
set forth above.
"Investment Grade Rating" means a rating for a Person's senior
long-term unsecured debt of BBB- or better from S&P, and a rating of Baa3 or
better from Moody's, if ratings from both Rating Agencies are obtained.
"Joint Ventures" means partnerships, corporations or other
entities held or owned jointly by the Borrower or a Consolidated Subsidiary of
Borrower and one or more Persons which Persons are not Consolidated with
Borrower.
"Lien" means, with respect to any asset, any mortgage, lien,
pledge, charge, security interest or encumbrance of any kind, or any other type
of preferential arrangement that has the practical effect of creating a security
interest, in respect of such asset. For the purposes of this Agreement, the
Borrower or any Subsidiary shall be deemed to own subject to a Lien any asset
which it has acquired or holds subject to the interest of a vendor or lessor
under
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<PAGE> 22
any conditional sale agreement, capital lease or other title retention agreement
relating to such asset.
"Loan" means a Domestic Loan or a Euro-Dollar Loan and "Loans"
means Domestic Loans or Euro-Dollar Loans or any combination of the foregoing.
"Loan Amount" shall mean the amount of Five Hundred Million
Dollars ($500,000,000).
"Loan Documents" means this Agreement, the Notes, the General
Partner Guaranty and the Subsidiary Guaranties.
"London Interbank Offered Rate" has the meaning set forth in
Section 2.6(b).
"Mandatory Prepayment Event" has the meaning set forth in
Section 2.9(c).
"Margin Stock" shall have the meaning provided such term in
Regulation U and Regulation G of the Federal Reserve Board.
"Material Adverse Effect" means a material adverse effect upon
(i) the business, operations, properties or assets of the Borrower, the General
Partner, and their Consolidated Subsidiaries or (ii) the ability of the Borrower
to pay debt service on the Loans, as such debt service becomes due from time to
time.
"Material Plan" means at any time a Plan or Plans having
aggregate Unfunded Liabilities in excess of $5,000,000.
"Maturity Date" shall have the meaning set forth in Section
2.8.
"Maximum Loan Amount" means the Loan Amount, as the Loan
Amount may be reduced pursuant to Section 2.10(c).
"Minority Holdings" means partnerships and corporations held
or owned by the Borrower which are not Consolidated with Borrower on Borrower's
financial statements.
"Moody's" means Moody's Investors Service, Inc. and its
successors.
"Morgan" means Morgan Guaranty Trust Company of New York, in
its individual capacity.
"Multiemployer Plan" means at any time an employee pension
benefit plan within the meaning of Section 4001(a)(3) of ERISA to which any
member of the ERISA Group is then making or accruing an obligation to make
contributions or has within the preceding five plan years made contributions,
including for these purposes any Person which
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<PAGE> 23
ceased to be a member of the ERISA Group during such five year period.
"Net Operating Cash Flow" means, as of any date of
determination, with respect to all Real Property Assets, Minority Holdings and
Joint Ventures of Borrower, the General Partner, and their Consolidated
Subsidiaries (with respect to Minority Holdings and Joint Ventures, the
Borrower's, the General Partner's or the applicable Consolidated Subsidiary's
allocable share only), Property Income for the previous four consecutive
quarters including the quarter then ended, but less (x) Property Expenses with
respect to all such Real Property Assets, Minority Holdings and Joint Ventures
(with respect to Minority Holdings and Joint Ventures, the Borrower's, the
General Partner's or the applicable Consolidated Subsidiary's allocable share
only) for the previous four consecutive quarters including the quarter then
ended and (y) appropriate reserves for replacements of not less than $.50 per
square foot per annum for each Real Property Asset that is primarily a retail
use property and not less than $.35 per square foot per annum for each Real
Property Asset that is primarily an industrial use property.
"New Acquisitions" has the meaning set forth in Section 2.14.
"Non-Recourse Debt" means Debt of a Person for which the right
of recovery of the obligee thereof is limited to recourse against the Real
Property Assets securing such Debt (subject to such limited exceptions as fraud,
misappropriation, misapplication and environmental indemnities as are usual and
customary in similar transactions at the time such Debt is incurred).
"Notes" means promissory notes of the Borrower, substantially
in the form of Exhibit A hereto, evidencing the obligation of the Borrower to
repay the Loans, as the same may be amended, supplemented, modified or restated
from time to time, and "Note" means any one of such promissory notes issued
hereunder.
"Notice of Borrowing" has the meaning set forth in Section
2.2.
"Obligations" means all obligations, liabilities and
indebtedness of every nature of the Borrower, from time to time owing to any
Bank under or in connection with this Agreement or any other Loan Document.
"PBGC" means the Pension Benefit Guaranty Corporation or any
entity succeeding to any or all of its functions under ERISA.
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<PAGE> 24
"Parent" means, with respect to any Bank, any Person
controlling such Bank.
"Participant" has the meaning set forth in Section 9.6(b).
"Permitted Liens" means (a) Liens to secure the performance of
statutory obligations, surety or appeal bonds, performance bonds, completion
bonds, government contracts or other obligations of a like nature, including
Liens in connection with workers' compensation, unemployment insurance and other
types of statutory obligations or to secure the performance of tenders, bids,
leases, contracts (other than for the repayment of Debt) and other similar
obligations incurred in the ordinary course of business; (b) Liens for taxes,
assessments or governmental charges or claims that are not yet delinquent or
that are being contested in good faith by appropriate proceedings promptly
instituted and diligently concluded; provided, that any reserve or other
appropriate provision as shall be required in conformity with GAAP shall have
been made therefor; (c) Liens on property of either Borrower or any Subsidiary
thereof in favor of the Federal or any state government to secure certain
payments pursuant to any contract, statute or regulation; (d) easements
(including, without limitation, reciprocal easement agreements and utility
agreements), rights of way, covenants, consents, reservations, encroachments,
variations and zoning and other restrictions, charges or encumbrances (whether
or not recorded), which do not interfere materially with the ordinary conduct of
the business of the Borrower or any Subsidiary thereof and which do not
materially detract from the value of the property to which they attach or
materially impair the use thereof by the Borrower or Subsidiary; (e) statutory
Liens of carriers, warehousemen, mechanics, suppliers, materialmen, repairmen or
other Liens imposed by law and arising in the ordinary course of business, for
sums not then due and payable (or which, if due and payable are being contested
in good faith and with respect to which adequate reserves are being maintained
to the extent required by GAAP); (f) Liens not otherwise permitted by this
definition and incurred in the ordinary course of business of the Borrower or
any Subsidiary with respect to obligations which do not exceed $100,000 in
principal amount with respect to any Separate Parcel and do not exceed
$1,000,000 in principal amount in the aggregate, in each case at any one time
outstanding; and (g) the interests of lessees and lessors under leases of real
or personal property made in the ordinary course of business which would not
have a material adverse effect on the Borrower, the General Partner, and their
Consolidated Subsidiaries taken as a whole.
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"Person" means an individual, a corporation, a partnership, an
association, a trust, limited liability company or any other entity or
organization, including a government or political subdivision or an agency or
instrumentality thereof.
"Plan" means at any time an employee pension benefit plan
(other than a Multiemployer Plan) which is covered by Title IV of ERISA or
subject to the minimum funding standards under Section 412 of the Internal
Revenue Code and either (i) is maintained, or contributed to, by any member of
the ERISA Group for employees of any member of the ERISA Group or (ii) has at
any time within the preceding five years been maintained, or contributed to, by
any Person which was at such time a member of the ERISA Group for employees of
any Person which was at such time a member of the ERISA Group.
"Plan Asset Regulations" means the Department of Labor
Regulation Section 2510.3-101, 29 C.F.R. Section 2510.3-101.
"Prime Rate" means the rate of interest publicly announced by
Morgan Guaranty Trust Company of New York in New York City from time to time as
its Prime Rate.
"Pro-Forma Debt Service" means as of any date of
determination, an amount equal to the greater of (x) the product of: (A) the
average Unsecured Debt outstanding at the end of each of the previous four
quarters, including the quarter then ended, as set forth on the Borrower's
balance sheet, and (B) the Treasury Rate plus 1.75%, plus an amount equal to the
principal that would be required to be repaid by applying a 25 year mortgage
style amortization schedule thereto; and (y) Debt Service for Unsecured Debt for
the previous four quarters including the quarter then ended.
"Property Expenses" means, when used with respect to any Real
Property Asset, the costs of maintaining such Real Property Asset, including,
without limitation, taxes, insurance, repairs and maintenance, but excluding
depreciation, amortization and interest costs and Capital Expenditures.
"Property Income" means, when used with respect to any Real
Property Asset, revenues therefrom (including, without limitation, lease
termination fees appropriately amortized), less deferred rents receivable,
calculated, in each case, in accordance with GAAP.
"Rated Unsecured Debt" means, Investment Grade Debt which is
Unsecured Debt and which has an Investment Grade Rating.
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<PAGE> 26
"Rating Agencies" means, collectively, S&P and Moody's, Duff &
Phelps Credit Rating Co., and Fitch Investor Services, or any successor to the
foregoing.
"Real Property Assets" means the real property assets or
interests therein (including interests in participating mortgages in which the
Borrower's interest therein is characterized as equity according to GAAP)
currently owned, directly or indirectly by the Borrower or its Consolidated
Subsidiaries (including the form the real property asset is held, such as a
partnership, limited liability company or corporation) and listed on Schedule
4.17(a) annexed hereto, as such may be modified from time to time to reflect
sales, transfers, assignments, conveyances, acquisitions and purchases of real
property assets.
"Recourse Debt" means Debt of a Person that is not
Non-Recourse Debt.
"Reference Bank" means the principal London offices of Morgan
Guaranty Trust Company of New York.
"Regulation U" means Regulation U of the Board of Governors of
the Federal Reserve System, as in effect from time to time.
"Required Banks" means at any time Banks having at least
66-2/3% of the aggregate amount of the Commitments or, if the Commitments shall
have been terminated, holding Notes evidencing at least 66-2/3% of the aggregate
unpaid principal amount of the Loans.
"Required Occupancy Level" means, with respect to any
Borrowing Base Property, that during any twelve (12) month period, no less than
an average of 85% of the rentable square feet of such Borrowing Base Property is
occupied by tenants pursuant to written leases for which no default has occurred
beyond applicable notice and cure periods.
"Secured Debt" means Debt of a Person that is secured by a
Lien.
"Separate Parcel" means a Real Estate Asset that is a single,
legally subdivided, separately zoned parcel that can be legally transferred or
conveyed separate and distinct from any other Real Estate Asset without benefit
of any other Real Estate Asset.
"Solvent" as to any Person shall mean that such Person is not
"insolvent" within the meaning of Section 101(32) of the Bankruptcy Code or
Section 271 of the Debtor and Creditor Law of the State of New York.
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<PAGE> 27
"Subsidiary" means any corporation or other entity of which
securities or other ownership interests having ordinary voting power to elect a
majority of the board of directors or other persons performing similar functions
are at the time directly or indirectly owned by the Borrower or the General
Partner.
"Subsidiary Guaranty" shall mean a guaranty, in substantially
the form of Exhibit E attached hereto, executed by each Subsidiary Guarantor.
"Subsidiary Guarantor" means AMB Property II, L.P., Long Gate
LLC, and any other Wholly-Owned Subsidiary of the Borrower that owns a Borrowing
Base Property and provides a Subsidiary Guaranty as required pursuant to Section
3.3 hereof.
"S&P" means Standard & Poors Ratings Group and its successors.
"Term" has the meaning set forth in Section 2.8.
"Termination Event" shall mean (i) a "reportable event", as
such term is described in Section 4043 of ERISA (other than a "reportable event"
not subject to the provision for 30-day notice to the PBGC), or an event
described in Section 4062(e) of ERISA, (ii) the withdrawal by any member of the
ERISA Group from a Multiemployer Plan during a plan year in which it is a
"substantial employer" (as defined in Section 4001(a)(2) of ERISA), or the
incurrence of liability by any member of the ERISA Group under Section 4064 of
ERISA upon the termination of a Multiemployer Plan, (iii) the filing of a notice
of intent to terminate any Plan under Section 4041 of ERISA, other than in a
standard termination within the meaning of Section 4041 of ERISA, or the
treatment of a Plan amendment as a distress termination under Section 4041 of
ERISA, (iv) the institution by the PBGC of proceedings to terminate, impose
liability (other than for premiums under Section 4007 of ERISA) in respect of,
or cause a trustee to be appointed to administer, any Plan or (v) any other
event or condition that might reasonably constitute grounds for the termination
of, or the appointment of a trustee to administer, any Plan or the imposition of
any liability or encumbrance or Lien on the Real Property Assets or any member
of the ERISA Group under ERISA.
"Title Company" means, with respect to each Borrowing Base
Property, a title insurance company of recognized national standing.
"Title Commitment" means, for each Borrowing Base Property, an
ALTA fee or leasehold title commitment or title
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policy issued by the Title Company at the time of acquisition by the Borrower
or, if applicable, a Wholly-Owned Subsidiary.
"Total Liabilities" means, without duplication, all
liabilities (determined in accordance with GAAP) and all other Debt (to the
extent such Debt is not a "liability" as determined in accordance with GAAP) of
the Borrower, the General Partner, and their Consolidated Subsidiaries and
Borrower's pro rata share of liabilities (including the pro rata share of Debt)
of Minority Holdings and Joint Ventures, based on Borrower's percentage
ownership of such Minority Holdings and Joint Ventures.
"Treasury Rate" means, as of any date, a rate equal to the
annual yield to maturity on the U.S. Treasury Constant Maturity Series with a
ten year maturity, as such yield is reported in Federal Reserve Statistical
Release H.15 -- Selected Interest Rates, published most recently prior to the
date the applicable Treasury Rate is being determined. Such yield shall be
determined by straight line linear interpolation between the yields reported in
Release H.15, if necessary. In the event Release H.15 is no longer published,
the Agent shall select, in its reasonable discretion, an alternate basis for the
determination of Treasury yield for U.S. Treasury Constant Maturity Series with
ten year maturities.
"UCC Searches" has the meaning set forth in Section 3.1(m).
"Unfunded Liabilities" means, with respect to any Plan at any
time, the amount (if any) by which (i) the value of all benefit liabilities
under such Plan, determined on a plan termination basis using the assumptions
prescribed by the PBGC for purposes of Section 4044 of ERISA, exceeds (ii) the
fair market value of all Plan assets allocable to such liabilities under Title
IV of ERISA (excluding any accrued but unpaid contributions), all determined as
of the then most recent valuation date for such Plan, but only to the extent
that such excess represents a potential liability of a member of the ERISA Group
to the PBGC or any other Person under Title IV of ERISA.
"Unimproved Assets" means Real Property Assets (i) upon which
no material construction of material improvements has been commenced and (ii)
which are either not contiguous to an Improved Asset or, if contiguous to an
Improved Asset, were not acquired at the same time as the Improved Asset, or if
contiguous to an Improved Asset and acquired at the same time as an Improved
Asset, the net operating income (capitalized in accordance with industry
standard) of the Improved Asset was, at time of acquisition, insufficient to
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support the acquisition price of such Improved Asset plus an 8% rate of return
on the investment; all Unimproved Assets will continue to be deemed Unimproved
Assets until such time as the chief financial officer or chief accounting
officer of Borrower shall certify to the Agent that material construction of
material improvements has commenced thereon.
"Unimproved Land Value" means the aggregate Gross Asset Value
of Unimproved Assets.
"United States" means the United States of America, including
the states and the District of Columbia, but excluding its territories and
possessions.
"Unsecured Assets" means assets of a Person which are not
subject to a Lien (other than Permitted Liens).
"Unsecured Debt" means Debt of a Person which is not secured
by a Lien.
"Unsecured Senior Debt" means the Obligations and other
Unsecured Debt of the Borrower, the General Partner and their Consolidated
Subsidiaries.
"Unused Commitments" means an amount equal to all unadvanced
funds (other than unadvanced funds in connection with any construction loan)
which any third party is obligated to advance to the Borrower or otherwise,
pursuant to any loan document, written instrument or otherwise.
"Unused Facility" shall mean the amount, calculated daily, by
which the Commitments exceed the sum of the outstanding principal amount of the
Loans.
"Wholly-Owned Subsidiary" shall mean a Consolidated Subsidiary
that is 100% owned, directly or indirectly, by the Borrower; provided that a
Consolidated Subsidiary shall also be deemed to be a "Wholly-Owned Subsidiary"
hereunder if the General Partner also wholly owns, directly or indirectly, a
minority position in such Consolidated Subsidiary (in addition to the General
Partner's indirect interest in such Consolidated Subsidiary as a result of the
General Partner's ownership interest in the Borrower) and the Borrower owns all
the remaining interests in such Consolidated Subsidiary.
SECTION 1.2. Accounting Terms and Determinations. Unless
otherwise specified herein, all accounting terms used herein shall be
interpreted, all accounting determinations hereunder shall be made, and all
financial statements required to be delivered hereunder shall be prepared in
accordance with GAAP as in effect from time to time, applied on a basis
consistent (except for changes concurred in by the
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Borrower's independent public accountants) with the most recent audited
Consolidated financial statements of the Borrower, the General Partner, and
their Consolidated Subsidiaries delivered to the Banks; provided that, if the
Borrower notifies the Agent that the Borrower wishes to amend any covenant in
Article V to eliminate the effect of any change in GAAP on the operation of such
covenant (or if the Agent notifies the Borrower that the Required Banks wish to
amend Article V for such purpose), then the Borrower's compliance with such
covenant shall be determined on the basis of GAAP in effect immediately before
the relevant change in GAAP became effective, until either such notice is
withdrawn or such covenant is amended in a manner satisfactory to the Borrower
and the Required Banks.
SECTION 1.3. Types of Borrowings. The term "Borrowing" denotes
the aggregation of Loans of one or more Banks to be made to the Borrower
pursuant to Article II on a single date and for a single Interest Period.
Borrowings are classified for purposes of this Agreement by reference to the
pricing of Loans comprising such Borrowing (e.g., a "Euro-Dollar Borrowing" is a
Borrowing comprised of Euro-Dollar Loans).
ARTICLE II
THE CREDITS
SECTION 2.1. Commitments to Lend. During the Term, each Bank
severally agrees, on the terms and conditions set forth in this Agreement, to
make loans to the Borrower pursuant to this Section from time to time in amounts
such that the aggregate principal amount of Loans by such Bank at any one time
outstanding shall not exceed the amount of its Commitment. The aggregate amount
of Loans to be made hereunder shall not exceed the Maximum Loan Amount. At no
time shall there be more than ten (10) Euro-Dollar Loans outstanding. Each
Borrowing under this subsection (a) shall be in an aggregate principal amount of
not less than $5,000,000, or an integral multiple of $1,000,000 in excess
thereof (except that any such Borrowing may be in the aggregate amount available
in accordance with Section 3.2(c)) and shall be made from the several Banks
ratably in proportion to their respective Commitments. Upon the expiration of
the Term, the Banks shall have no further obligation to make loans to Borrower.
Within the foregoing limits, the Borrower may borrow under this Section, repay,
or to the extent required by Section 2.9 or permitted by Section 2.10, prepay
Loans and reborrow at any time during the Term.
SECTION 2.2. Notice of Borrowing. The Borrower shall give the
Agent notice (a "Notice of Borrowing") not
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later than 1:00 p.m. (New York City time) (y) one (1) Domestic Business Day
before each Base Rate Borrowing, or (z) three (3) Euro-Dollar Business Days
before each Euro-Dollar Borrowing, as applicable, specifying:
(a) the date of such Borrowing, which shall be a Domestic
Business Day in the case of a Domestic Borrowing or a Euro-Dollar Business Day
in the case of a Euro-Dollar Borrowing,
(b) the aggregate amount of such Borrowing,
(c) whether the Loans comprising such Borrowing are to be Base
Rate Loans or Euro-Dollar Loans, and
(d) in the case of a Euro-Dollar Borrowing, the duration of
the Interest Period applicable thereto, subject to the provisions of the
definition of Interest Period, except that no Interest Period shall extend
beyond the Maturity Date, as such may be extended pursuant to Section 2.8
hereof.
SECTION 2.3. Notice to Banks; Funding of Loans.
(a) Upon receipt of a Notice of Borrowing, the Agent shall
promptly notify each Bank of the contents thereof and of such Bank's share (if
any) of such Borrowing and such Notice of Borrowing shall thereafter only be
revocable by the Borrower no later than (y) with respect to a Base Rate
Borrowing, 5:00 p.m. (New York City time) one Domestic Business Day before each
Base Rate Borrowing or (z) with respect to a Euro-Dollar Borrowing, 3:00 p.m.
(New York City time) three (3) Euro-Dollar Business Days before each Euro-Dollar
Borrowing. Upon the expiration of such applicable time periods, the Notice of
Borrowing shall not thereafter be revocable by Borrower.
(b) Not later than 2:00 p.m. (New York City time) on the date
of each Borrowing as indicated in the Notice of Borrowing, each Bank
participating therein shall (except as provided in subsection (c) of this
Section) make available its share of such Borrowing, in Federal or other funds
immediately available in New York City, to the Agent at its address referred to
in Section 9.1. Unless the Agent determines that any applicable condition
specified in Article III has not been satisfied, the Agent will make the funds
so received from the Banks available to the Borrower at the Agent's aforesaid
address.
(c) Unless the Agent shall have received notice from a Bank
prior to the date of any Borrowing that such Bank will not make available to the
Agent such Bank's share of such Borrowing, the Agent may assume that such Bank
has
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<PAGE> 32
made such share available to the Agent on the date of such Borrowing in
accordance with subsection (b) of this Section 2.3 and the Agent may, in
reliance upon such assumption, make available to the Borrower on such date a
corresponding amount. If and to the extent that such Bank shall not have so made
such share available to the Agent, such Bank and the Borrower severally agree to
repay to the Agent forthwith within ten (10) days after demand therefore such
corresponding amount together with interest thereon, for each day from the date
such amount is made available to the Borrower until the date such amount is
repaid to the Agent, at (i) in the case of the Borrower, a rate per annum equal
to the higher of the Federal Funds Rate and the interest rate applicable thereto
pursuant to Section 2.6 and (ii) in the case of such Bank, the Federal Funds
Rate. If such Bank shall repay to the Agent such corresponding amount, such
amount so repaid shall constitute such Bank's Loan included in such Borrowing
for purposes of this Agreement. The failure of any Bank to make any Loan on a
date of Borrowing hereunder shall not relieve any other Bank of any obligation
hereunder to make a Loan on such date. Notwithstanding the foregoing and any
other provision to the contrary contained herein, if any Bank shall have failed
to fund its share of a previously requested Loan on the applicable date of
Borrowing and Borrower provides a new Notice of Borrowing as a result of such
failure to fund, then, if necessary to make such Borrowing, Borrower shall be
permitted a single additional Loan (beyond that permitted by Section 2.1, if a
Euro-Dollar Loan) and the $5,000,000 minimum Borrowing limit elsewhere referred
to in the Credit Agreement shall not apply to such new Borrowing.
SECTION 2.4. Notes.
(a) The Loans of each Bank shall be evidenced by a single Note
payable to the order of such Bank for the account of its Applicable Lending
Office in an amount equal to the aggregate unpaid principal amount of such
Bank's Loans.
(b) Each Bank may, by notice to the Borrower and the Agent,
request that its Loans of a particular type be evidenced by a separate Note in
an amount equal to the aggregate unpaid principal amount of such Bank's Loans.
Each such Note shall be in substantially the form of Exhibit A hereto with
appropriate modifications to reflect the fact that it evidences solely Loans of
the relevant type for such Bank. Each reference in this Agreement to the "Note"
of such Bank shall be deemed to refer to and include any or all of such Notes,
as the context may require.
(c) Upon receipt of each Bank's Note pursuant to Section
3.1(a), the Agent shall forward such Note to such
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<PAGE> 33
Bank. Each Bank shall record the date, amount, type and maturity of each Loan
made by it and the date and amount of each payment of principal made by the
Borrower with respect thereto, and may, if such Bank so elects in connection
with any transfer or enforcement of its Note, endorse on the schedule forming a
part thereof appropriate notations to evidence the foregoing information with
respect to each such Loan then outstanding; provided that the failure of any
Bank to make any such recordation or endorsement shall not affect the
obligations of the Borrower hereunder or under the Notes. Each Bank is hereby
irrevocably authorized by the Borrower so to endorse its Note and to attach to
and make a part of its Note a continuation of any such schedule as and when
required which continuation shall be deemed correct absent manifest error.
SECTION 2.5. Maturity of Loans. Each Loan included in any
Borrowing shall mature, and the principal amount thereof shall be due and
payable, on the last day of the Interest Period applicable to such Borrowing.
SECTION 2.6. Interest Rates.
(a) Each Base Rate Loan shall bear interest on the outstanding
principal amount thereof for each day from the date such Loan is made until the
date it is repaid at a rate per annum equal to the Base Rate plus the Applicable
Margin for Base Rate Loans for such day. Such interest shall be payable for each
Interest Period on the last day thereof.
(b) Each Euro-Dollar Loan shall bear interest on the
outstanding principal amount thereof, for each day during the Interest Period
applicable thereto, at a rate per annum equal to the sum of the Applicable
Margin for Euro-Dollar Loans for such day plus the Adjusted London Interbank
Offered Rate applicable to such Interest Period. Such interest shall be payable
for each Interest Period on the last day thereof and, if such Interest Period is
longer than three months, at intervals of three months after the first day
thereof.
The "Adjusted London Interbank Offered Rate" applicable to any
Interest Period means a rate per annum equal to the quotient obtained (rounded
upward, if necessary, to the next higher 1/100 of 1%) by dividing (i) the
applicable London Interbank Offered Rate by (ii) 1.00 minus the Euro-Dollar
Reserve Percentage.
The "London Interbank Offered Rate" applicable to any Interest
Period means the average (rounded upward, if necessary, to the next higher 1/16
of 1%) of the respective rates per annum at which deposits in dollars are
offered to
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the Reference Bank in the London interbank market at approximately 11:00 a.m.
(London time) two Euro-Dollar Business Days before the first day of such
Interest Period in an amount approximately equal to the principal amount of the
Euro-Dollar Loan of the Reference Bank to which such Interest Period is to apply
and for a period of time comparable to such Interest Period.
"Euro-Dollar Reserve Percentage" means for any day that
percentage (expressed as a decimal) which is in effect on such day, as
prescribed by the Board of Governors of the Federal Reserve System (or any
successor) for determining the maximum reserve requirement for a member bank of
the Federal Reserve System in New York City with deposits exceeding five billion
dollars in respect of "Eurocurrency liabilities" (or in respect of any other
category of liabilities which includes deposits by reference to which the
interest rate on Euro-Dollar Loans is determined or any category of extensions
of credit or other assets which includes loans by a non-United States office of
any Bank to United States residents). The Adjusted London Interbank Offered Rate
shall be adjusted automatically on and as of the effective date of any change in
the Euro-Dollar Reserve Percentage.
(c) In the event that, and for so long as, any Event of
Default shall have occurred and be continuing, the outstanding principal amount
of the Loans, and, to the extent permitted by applicable law, overdue interest
in respect of all Loans, shall bear interest at the annual rate of the sum of
the Prime Rate and four percent (4%).
(d) The Agent shall determine each interest rate applicable to
the Loans hereunder. The Agent shall give prompt notice to the Borrower and the
participating Banks of each rate of interest so determined, and its
determination thereof shall be conclusive in the absence of manifest error.
(e) The Reference Bank agrees to use its best efforts to
furnish quotations to the Agent as contemplated by this Section. If the
Reference Bank does not furnish a timely quotation, the provisions of Section
8.1 shall apply.
SECTION 2.7. Fees.
(a) Commitment Fee. During the Term, the Borrower shall pay
Agent for the account of the Banks ratably in proportion to their respective
Commitments a commitment fee (the "Commitment Fee") accruing at a per annum rate
equal to the then applicable Commitment Fee Percentage on the daily average
undrawn Commitments. The Commitment Fee
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shall be payable quarterly in arrears on each October 31, January 31, April 30,
and July 31 during the Term.
(b) Fees Non-Refundable. All fees set forth in this Section
2.7 shall be deemed to have been earned as such fees accrue in accordance with
the provisions of this Agreement and shall be non-refundable when paid. The
obligation of the Borrower to pay such fees in accordance with the provisions of
this Agreement shall be binding upon the Borrower and shall inure to the benefit
of the Agent and the Banks regardless of whether any Loans are actually made.
SECTION 2.8. Mandatory Expiration. The term (the "Term") of
the Commitments shall terminate and expire on the date which is the third
anniversary of the Closing Date (or, if such date is not a Domestic Business
Day, then the next succeeding Domestic Business Day) (the "Maturity Date"). Upon
the date of the termination of the Term, any Loans then outstanding (together
with accrued interest thereon) shall be due and payable.
SECTION 2.9. Mandatory Prepayment.
(a) In the event that a Borrowing Base Property (or any
Separate Parcel that originally formed a part of a Borrowing Base Property) is
sold, transferred or released from the restrictions of Section 5.11 hereof, in
accordance with this Agreement, the Borrower shall simultaneously with such
sale, transfer or release, prepay an amount equal to in the event of a sale or
transfer, 100% of the net proceeds of such sale or transfer or in the event of a
release, such amount as shall be required for the Borrower to remain in
compliance with this Agreement. Notwithstanding the foregoing, a simultaneous
like-kind exchange under Section 1031 of the Internal Revenue Code will not be
subject to the provisions of this Section 2.9(a) provided that the exchanged
property has qualified as a New Acquisition and any "boot" associated therewith
shall be applied to prepayment of the Loans. Sale of a property in violation of
this Section 2.9 shall constitute an Event of Default.
(b) Any prepayment pursuant to this Section 2.9 shall be
applied first to any Base Rate Loans then outstanding, then to any Euro-Dollar
Loans with the shortest remaining Interest Periods. In connection with the
prepayment of a Euro-Dollar Loan prior to the maturity thereof, the Borrower
shall also pay any applicable expenses pursuant to Section 2.12. Each such
prepayment shall be applied to prepay ratably the Loans of the Banks.
Notwithstanding the foregoing, in the event any Mandatory Prepayment Event would
result in the Borrower incurring expenses pursuant to Section 2.12, at
Borrower's written request to be delivered on the date of any prepayment
pursuant to this Section 2.9 (if
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Borrower fails to deliver such a request, then such expenses pursuant to Section
2.12, if any, shall be immediately due and payable), the Agent shall create an
interest-bearing escrow account with Agent or Agent's designee to receive funds
that would have been applied to pre-pay Euro-Dollar Loans prior to the end of
the applicable Interest Periods, which funds will be held by Agent or Agent's
designee until the earlier of (x) an Event of Default hereunder (in which event
such funds shall be immediately applied without notice to the outstanding
Euro-Dollar Loans) or (y) such time as an Interest Period shall end whereupon
the Agent shall apply such funds to pay the Euro-Dollar Loan relating to such
expiring Interest Period or (z) Agent has received a Notice of Borrowing with
respect to such escrowed funds together with a certificate of the Borrower's
chief financial officer or chief accounting officer certifying that upon the
distribution of such funds to Borrower as new Loans, the Borrower will be in
compliance with the requirements of Section 5.9 and containing information
required by Section 5.1(c)(i) and (ii) hereof to establish such compliance.
(c) Any event referred to in Section 2.9(a) that results in a
required prepayment of the Loans pursuant to this Section 2.9 shall be referred
to as a "Mandatory Prepayment Event".
SECTION 2.10. Optional Prepayments.
(a) The Borrower may, upon at least five (5) Domestic Business
Days' notice to the Agent, prepay any Base Rate Borrowing in whole at any time,
or from time to time in part in amounts aggregating not less than One Million
Dollars ($1,000,000) or any larger multiple of One Million Dollars ($1,000,000),
by paying the principal amount to be prepaid together with accrued interest
thereon to the date of prepayment. Each such optional prepayment shall be
applied to prepay ratably the Loans of the several Banks included in such
Borrowing.
(b) Except as provided in Section 8.2, the Borrower may not
prepay all or any portion of the principal amount of any Euro-Dollar Loan prior
to the maturity thereof unless the Borrower shall also pay any applicable
expenses pursuant to Section 2.12. Notice of such prepayment shall be delivered
to Agent by Borrower, upon at least five (5) Domestic Business Days notice. Each
such optional prepayment shall be in the amounts set forth in Section 2.10(a)
above and shall be applied to prepay ratably the Loans of the Banks included.
(c) The Borrower may cancel all or any portion of the
Commitments by the delivery to Agent of a notice of cancellation within the
applicable time periods and minimum
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amounts set forth in Sections 2.10(a) and (b) above if there are Loans then
outstanding or, if there are no Loans outstanding at such time, upon at least
five (5) Domestic Business Days notice to Agent, whereupon, in either event,
such Commitments so designated by Borrower shall terminate on the date set forth
in such notice of cancellation, and, if there are any Loans then outstanding in
excess of the Commitments after giving effect to such termination, Borrower
shall prepay such Loans outstanding on such date in accordance with the
requirements of Section 2.10(a) and (b).
(d) Upon receipt of a notice of prepayment or cancellation
from Borrower pursuant to this Section, the Agent shall promptly notify each
Bank of the contents there of and of such Bank's ratable share (if any) of such
prepayment or cancellation and such notice shall thereafter be revocable by the
Borrower no later than 10:00 a.m. (New York City time) three (3) Domestic
Business Days before the date originally set forth by Borrower in the applicable
notice of prepayment or cancellation as the prepayment or cancellation date.
Upon the expiration of such time period, the notice of prepayment or
cancellation shall be irrevocable.
(e) Any amounts prepaid pursuant to Sections 2.10(a) or (b)
may be reborrowed. Any amounts cancelled pursuant to Section 2.10(c) may not be
reborrowed.
SECTION 2.11. General Provisions as to Payments.
(a) The Borrower shall make each payment of principal of, and
interest on, the Loans and of fees required hereunder, not later than 1:00 p.m.
(New York City time) on the date when due, in Federal or other funds immediately
available in New York City, to the Agent at its address referred to in Section
9.1. The Agent will promptly distribute to each Bank its ratable share of each
such payment received by the Agent for the account of the Banks. Whenever any
payment of principal of, or interest on, the Base Rate Loans or of fees required
hereunder shall be due on a day which is not a Domestic Business Day, the date
for payment thereof shall be extended to the next succeeding Domestic Business
Day. Whenever any payment of principal of, or interest on, the Euro-Dollar Loans
shall be due on a day which is not a Euro-Dollar Business Day, the date for
payment thereof shall be extended to the next succeeding Euro-Dollar Business
Day unless such Euro-Dollar Business Day falls in another calendar month, in
which case the date for payment thereof shall be the next preceding Euro-Dollar
Business Day. If the date for any payment of principal is extended by operation
of law or otherwise, interest thereon shall be payable for such extended time.
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(b) Unless the Agent shall have received notice from the
Borrower prior to the date on which any payment is due to the Banks hereunder
that the Borrower will not make such payment in full, the Agent may assume that
the Borrower has made such payment in full to the Agent on such date and the
Agent may, in reliance upon such assumption, cause to be distributed to each
Bank on such due date an amount equal to the amount then due such Bank. If and
to the extent that the Borrower shall not have so made such payment, each Bank
shall repay to the Agent forthwith on demand such amount distributed to such
Bank together with interest thereon, for each day from the date such amount is
distributed to such Bank until the date such Bank repays such amount to the
Agent, at the Federal Funds Rate.
SECTION 2.12. Funding Losses. If the Borrower makes any
payment of principal with respect to any Euro-Dollar Loan (pursuant to Article
II, VI or VIII or otherwise) on any day other than the last day of the Interest
Period applicable thereto, or the last day of an applicable period fixed
pursuant to Section 2.6(b), or if the Borrower fails to borrow any Euro-Dollar
Loans, after notice has been given to any Bank in accordance with Section 2.3(a)
and not revoked as permitted in this Agreement, then and only then shall
Borrower reimburse each Bank within 15 days after demand therefor for any
resulting loss or expense reasonably incurred by it (or by an existing or
prospective Participant in the related Loan), including (without limitation) any
loss incurred in obtaining, liquidating or employing deposits from third
parties, but excluding loss of margin for the period after any such payment or
failure to borrow, provided that such Bank shall have delivered to the Borrower
a certificate signed by an authorized officer of such Bank as to the amount of
such loss or expense reasonably incurred, which certificate shall be conclusive
in the absence of manifest error.
SECTION 2.13. Computation of Interest and Fees. Interest based
on the Prime Rate hereunder shall be computed on the basis of a year of 365 days
(or 366 days in a leap year) and paid for the actual number of days elapsed
(including the first day but excluding the last day). All other interest and
fees shall be computed on the basis of a year of 360 days and paid for the
actual number of days elapsed (including the first day but excluding the last
day).
SECTION 2.14. Use of Proceeds. The Borrower shall use the
proceeds of the Loans solely for (i) the acquisition by Borrower (either
directly or indirectly through Subsidiaries) of real estate properties (or
interests therein) which are primarily industrial (including
warehouse/distribution, light industrial and light assembly)
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or retail (including neighborhood or community shopping centers and similar
sub-regional properties) with land adjacent or incidental thereto (the "New
Acquisitions"), (ii) such other costs and expenses attendant with such
acquisitions and improvements, including, without limitation, closing costs,
attorneys' fees and expenses and other professional fees, architectural fees,
due diligence expenses, title insurance premiums, survey preparation costs,
recording fees, appraisal fees, engineering and environmental fees, licensing
and regulatory filing fees, brokerage commissions, leasing commissions,
reasonable tenant improvement costs, (iii) construction, renovation,
rehabilitation and alteration of Real Property Assets or other Capital
Expenditures, and (iv) general working capital needs of Borrower or Consolidated
Subsidiaries of Borrower not to exceed a maximum amount of $50,000,000 with
respect to such working capital needs (collectively, "Approved Uses").
ARTICLE III
CONDITIONS
SECTION 3.1. Closing. The closing hereunder shall occur on the date
(the "Closing Date") when each of the following conditions is satisfied (or
waived by the Agent), each document to be dated the Closing Date unless
otherwise indicated:
(a) the Borrower shall have executed and delivered to the Agent a Note
for the account of each Bank dated on or before the Closing Date complying with
the provisions of Section 2.4;
(b) the Borrower and Agent shall have executed and delivered to the
Agent a duly executed original of this Agreement;
(c) the General Partner, AMB Property II, L.P. and Long Gate LLC shall
each have executed and delivered the Confirmation of Guaranty;
(d) Agent shall have received an enforceability opinion of Latham &
Watkins, New York and California counsel for the Borrower, and opinions as to
the due authority, execution and delivery of the Loan Documents (other than any
Subsidiary Guaranty) by Latham & Watkins and Ballard Spahr Andrews & Ingersoll,
in each case reasonably acceptable to the Agent, the Banks and their counsel;
(e) Agent shall have received all documents Agent may reasonably
request relating to the existence of the Borrower, the General Partner and any
Subsidiary Guarantor, the
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authority for and the validity of this Agreement and the other Loan Documents,
and any other matters relevant hereto, all in form and substance reasonably
satisfactory to the Agent. Such documentation shall include, without limitation,
the partnership agreement and certificate of limited partnership of Borrower,
the articles of incorporation and by-laws of the General Partner and the
organizational and formation documents of any Subsidiary Guarantor, each as
amended, modified or supplemented to the Closing Date, certified to be true,
correct and complete by a senior officer of the Borrower as of a date not more
than twenty (20) days prior to the Closing Date, together with a good standing
certificate from the Secretary of State (or the equivalent thereof) of the State
or States in which Borrower, the General Partner and any Subsidiary Guarantor
are incorporated and from the Secretary of State (or the equivalent thereof) of
each other State in which a Borrowing Base Property is located and in which any
of the Borrower, the General Partner or a Subsidiary Guarantor is required to be
qualified to transact business, each to be dated not more than twenty (20) days
prior to the Closing Date;
(f) Agent shall have received all certificates, agreements and other
documents referred to in this Section 3.1 and Section 3.2, unless otherwise
specified, in sufficient counterparts, satisfactory in form and substance to the
Agent in its sole discretion;
(g) Borrower, the General Partner and each Subsidiary Guarantor shall
have taken all actions required to authorize the execution and delivery of this
Agreement and the other Loan Documents to which it is a party and the
performance thereof by the Borrower, the General Partner and such Subsidiary
Guarantors, as applicable;
(h) Agent shall be satisfied that the Borrower is not subject to any
present or contingent Environmental Claim which could have a Material Adverse
Effect;
(i) Agent shall have received a pro forma Consolidated balance sheet of
the Borrower, the General Partner, and their Consolidated Subsidiaries for the
period ended September 30, 1997;
(j) if applicable, Agent shall have received wire transfer instructions
in connection with any Loans to be made on the Closing Date;
(k) Agent shall have received, for its and any other Bank's account,
(i) all fees due and payable pursuant to Section 2.7 hereof on or before the
Closing Date, and (ii) the reasonable fees and expenses accrued through the
Closing Date of Skadden, Arps, Slate, Meagher & Flom LLP;
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(l) Agent shall have received copies of all consents, licenses and
approvals, if any, required in connection with the execution, delivery and
performance by the Borrower, the General Partner and any Subsidiary Guarantor,
and the validity and enforceability, of the Loan Documents, or in connection
with any of the transactions contemplated thereby, and such consents, licenses
and approvals shall be in full force and effect in all material respects;
(m) Agent shall have received satisfactory reports of UCC
(collectively, the "UCC Searches"), tax lien, and judgment searches conducted by
a search firm reasonably acceptable to Agent with respect to the Borrowing Base
Properties, the Borrower, the General Partner and any Subsidiary Guarantor, such
searches to be conducted by Borrower's counsel in each of the locations
specified by the Agent;
(n) the Agent shall have received with respect to each Borrowing Base
Property that was not a Borrowing Base Property under the Existing Credit
Agreement, a copy of the engineer's inspection report obtained in connection
with the acquisition of such Borrowing Base Property;
(o) the Agent shall have received with respect to each Borrowing Base
Property that was not a Borrowing Base Property under the Existing Credit
Agreement, (i) a description of the Borrowing Base Property, (ii) two years of
historical cash flow operating statements with respect to such Borrowing Base
Property, if available, (iii) five years of cash flow projections (including
capital expenditures), (iv) a map and site plan, (v) an investment memorandum
prepared by the Borrower (or a predecessor of the Borrower) in connection with
the acquisition of the Borrowing Base Property (which memorandum shall include,
but not be limited to, an analysis prepared by the Borrower or such predecessor
of the credit quality and viability of each existing tenant of such Borrowing
Base Property which occupies more than 15% of such Borrowing Base Property or
accounts for more than 15% of the base rentals of such Borrowing Base Property),
and (vi) to the extent obtained by the Borrower or, as applicable, a
predecessor, in connection with such acquisition, evidence of zoning compliance
(which evidence can include a "lawyer's letter" from a local counsel engaged by
Borrower at the time of acquisition);
(p) the Agent shall have received certificates of insurance with
respect to each Borrowing Base Property demonstrating the coverage required
under this Agreement;
(q) the Agent shall have received with respect to each Borrowing Base
Property that was not a Borrowing Base Property under the Existing Credit
Agreement, a copy of the Title Commitment obtained by the Borrower or, as
applicable,
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the Wholly-Owned Subsidiary that owns or leases each such Borrowing Base
Property in connection with the acquisition of each such Borrowing Base
Property;
(r) the Agent shall have received a compliance certificate from
Borrower's chief financial officer or chief accounting officer certifying
compliance with Section 5.9 hereof containing such information as is required by
Section 5.1(c)(i) and (ii);
(s) the Agent shall have received with respect to each Borrowing Base
Property that was not a Borrowing Base Property under the Existing Credit
Agreement, a copy of the environmental report obtained by the Borrower or the
Wholly-Owned Subsidiary that owns or leases each such Borrowing Base Property in
connection with the acquisition of each such Borrowing Base Property;
(t) the Agent shall have received with respect to each Borrowing Base
Property such additional information with respect to each Borrowing Base
Property, the tenants of such Borrowing Base Property, and, if applicable, the
Wholly-Owned Subsidiary that owns such Borrowing Base Property, as the Agent or
any Bank shall reasonably request; and
(u) the Agent shall have received a certificate of the chief financial
officer or the chief accounting officer of the Borrower certifying that the
"Formation Transactions," as defined in the Form S-11 filed with the Securities
and Exchange Commission in connection with the initial public offering of the
common stock of the General Partner, shall have been consummated.
Agent shall promptly notify Borrower and the Banks of the Closing Date.
SECTION 3.2. Borrowings. The obligation of any Bank to make a Loan on
the occasion of any Borrowing is subject to the satisfaction of the following
conditions:
(a) the Closing Date shall have occurred on or prior to November 26,
1997;
(b) receipt by Agent of a Notice of Borrowing as required by Section
2.2;
(c) immediately after such Borrowing, the aggregate outstanding
principal amount of the Loans will not exceed the Maximum Loan Amount;
(d) immediately after such Borrowing, the aggregate outstanding
principal amount of the Loans will not exceed the aggregate amount of the
Commitments (as reduced pursuant
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to Section 2.10(c)) and with respect to each Bank, such Bank's pro rata portion
of the Loans will not exceed such Bank's Commitment (as reduced pursuant to
Section 2.10(c)).
(e) immediately before and after such Borrowing, no Default or Event of
Default shall have occurred and be continuing both before and after giving
effect to the making of such Loans;
(f) the representations and warranties of the Borrower contained in
this Agreement shall be true and correct in all material respects on and as of
the date of such Borrowing both before and after giving effect to the making of
such Loans;
(g) no law or regulation shall have been adopted, no order, judgment or
decree of any governmental authority shall have been issued, and no litigation
shall be pending or threatened, which does or, with respect to any threatened
litigation, seeks to enjoin, prohibit or restrain, the making or repayment of
the Loans or the consummation of the transactions contemplated by this
Agreement;
(h) no event, act or condition shall have occurred after the Closing
Date which, in the reasonable judgment of the Agent or the Banks, as the case
may be, has had or is likely to have a Material Adverse Effect;
(i) the Agent shall have theretofore received duly and validly executed
Subsidiary Guaranties from each Wholly-Owned Subsidiary that owns a Borrowing
Base Property;
(j) receipt by the Agent of a certificate of the chief financial
officer or the chief accounting officer of the Borrower certifying that as of
the date of such Borrowing, the Borrower is in compliance Section 5.9 and
containing such information as is required by Section 5.1(c) (i) and (ii); and
(k) receipt by the Agent of a certificate of the chief financial
officer or the chief accounting officer of the Borrower certifying that Borrower
shall receive the proceeds of the Loan and will use the proceeds of such Loan
for Approved Uses and briefly describing such Approved Uses.
Each Borrowing hereunder shall be deemed to be a representation and warranty by
the Borrower on the date of such Borrowing as to the facts specified in clauses
(c), (d), (e), (f), (g) and (i) of this Section.
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SECTION 3.3. Borrowing Base Properties.
(a) For purposes of this Agreement, the term "Borrowing Base
Properties" shall mean (i) the Real Property Assets listed in Exhibit B attached
hereto and made a part hereof, each of which shall be 100% owned in fee (or
leasehold in the case of assets listed as such on Exhibit B) by the Borrower or
any Wholly-Owned Subsidiary of the Borrower and each of which is not subject to
any Lien (other than Permitted Liens), subject to adjustment as set forth
herein, together with (ii) each New Acquisition or Real Property Asset submitted
by Borrower for inclusion as a "Borrowing Base Property" hereunder and made a
"Borrowing Base Property" pursuant to the terms hereof and of Section 3.4. Each
Borrowing Base Property (1) shall be 100% owned in fee or leasehold by the
Borrower or a Wholly-Owned Subsidiary of the Borrower, (2) shall not be subject
to a Lien (other than Permitted Liens), and (3) shall not be an interest in a
participating mortgage, all as certified by Borrower pursuant to a certificate
in substantially the form of Exhibit D attached hereto delivered to Agent at the
time that Borrower submits a New Acquisition or Real Property Asset for
inclusion as a Borrowing Base Property. In addition, with respect to any
proposed Borrowing Base Property which is owned by a Wholly-Owned Subsidiary of
Borrower, Borrower shall cause such Wholly-Owned Subsidiary to deliver to the
Agent a Subsidiary Guaranty at the time that such New Acquisition or Real
Property Asset is submitted for inclusion as a Borrowing Base Property.
(b) Except as set forth in clause (c) below, Real Property
Assets (i) which have been released from this Agreement and the other Loan
Documents as of such date in accordance with Sections 5.11 or Section 5.12 or
any other provision of this Agreement, or (ii) which have failed to maintain the
Required Occupancy Level for any twelve month period, shall be excluded as
"Borrowing Base Properties" for purposes of this Agreement.
(c) Notwithstanding the foregoing clause (b), Separate Parcels
which, for a period of no longer than twelve months, do not maintain the
Required Occupancy Level but which otherwise satisfy the requirements set forth
in Section 3.3(a) or Section 3.4 for inclusion as Borrowing Base Properties may
be included as Borrowing Base Properties provided that the aggregate Gross Asset
Value for such Separate Parcels shall not constitute more than ten percent (10%)
of the aggregate Gross Asset Value of the remaining Borrowing Base Properties,
as of any date of determination. In the event that the aggregate Gross Asset
Value of such Separate Parcels would, as of any date, constitute more than ten
percent of the Gross Asset Value of the remaining Borrowing Base Properties,
only those Separate Parcels for
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which the aggregate Gross Asset Value would constitute 10% or less shall be
deemed to be included as Borrowing Base Properties hereunder.
SECTION 3.4. Conditions Precedent to New Acquisitions and Additional
Real Property Assets.
(a) Until such time as Borrower or the General Partner shall
receive at least one (1) Investment Grade Rating from either S&P or Moody's, any
New Acquisition or Real Property Asset desired by Borrower to be included as a
Borrowing Base Property will require the approval of the Required Banks. The
approval right set forth in this clause (a) shall be of no force or effect for
so long as Borrower's Credit Rating is an Investment Grade Rating.
Notwithstanding the foregoing, if Borrower or the General Partner receives a
rating that is not an Investment Grade Rating from either S&P or Moody's, until
such time as Borrower or the General Partner has received an Investment Grade
Rating from each of S&P and Moody's, any New Acquisition or Real Property Asset
desired by Borrower to be included as a Borrowing Base Property will require the
approval of the Required Banks.
(b) For so long as the approval of the Required Banks is
required pursuant to clause (a) above, the Borrower shall submit to the Agent
the materials set forth below (the "Due Diligence Package") relating to each New
Acquisition or Real Property Asset that the Borrower desires to be added to the
Borrowing Base Properties. The Due Diligence Package shall include (i) a
description of the Real Property Asset or New Acquisition, (ii) two years of
historical cash flow operating statements, if available, (iii) five years of
cash flow projections (including capital expenditures), (iv) a map and site
plan, (v) if such New Acquisition or Real Property Asset was acquired by the
Borrower (or a predecessor of the Borrower) within the prior twelve month
period, an investment memorandum prepared by the Borrower or such predecessor in
connection with the acquisition of the Borrowing Base Property by Borrower or
such predecessor (which memorandum shall include, but not be limited to, an
analysis prepared by the Borrower or such predecessor of the credit quality and
viability of each existing tenant of such Borrowing Base Property which occupies
more than 15% of such Borrowing Base Property or accounts for more than 15% of
the base rentals of such Borrowing Base Property), (vi) to the extent obtained
by the Borrower or, as applicable, a Wholly-Owned Subsidiary in connection with
any New Acquisition, evidence of zoning compliance (which evidence can include a
"lawyer's letter" from a local counsel engaged by Borrower at the time of
acquisition), (vii) a copy of the engineer's inspection report obtained by the
Borrower or, if applicable, a Wholly-Owned Subsidiary in connection with the
acquisition of such New Acquisition or Real Property Asset,
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(viii) a copy of the Title Commitment obtained by the Borrower or, if
applicable, a Wholly-Owned Subsidiary that owns or leases (or will own or lease)
each such New Acquisition or Real Property Asset, (ix) a copy of the
environmental report obtained by the Borrower or, if applicable, a Wholly-Owned
Subsidiary, in connection with the acquisition of each such Borrowing Base
Property and (x) such additional information with respect to each New
Acquisition or Real Property Asset, the tenants of such New Acquisition or Real
Property Asset, and if applicable, the Wholly-Owned Subsidiary that owns or
leases such New Acquisition or Real Property Asset, as the Agent or any Bank
shall reasonably request. The Borrower shall permit the Agent at all reasonable
times and upon reasonable prior notice to make an inspection of such New
Acquisition or Real Property Asset.
(c) Notwithstanding the foregoing clause (b), the Due
Diligence Package with respect to any Real Property Asset to be added as a
Borrowing Base Property within thirty (30) days after the Closing Date shall
include only (i) a description of the Real Property Asset, (ii) two years of
historical cash flow operating statements, if available, (iii) five years of
cash flow projections (including capital expenditures), (iv) a map and site
plan, and (v) if such Real Property Asset was acquired by the Borrower (or a
predecessor of the Borrower) within the prior twelve month period, an investment
memorandum prepared by the Borrower (or such predecessor) in connection with the
acquisition of the Borrowing Base Property by Borrower or such predecessor
(which memorandum shall include, but not be limited to, an analysis prepared by
the Borrower or such predecessor of the credit quality and viability of each
existing tenant of such Borrowing Base Property which occupies more than 15% of
such Borrowing Base Property or accounts for more than 15% of the base rentals
of such Borrowing Base Property) and (vi) such additional information with
respect to such Real Property Asset, the tenants of such Real Property Asset,
and, if applicable, the Wholly-Owned Subsidiary that owns or leases such New
Acquisition or Real Property Asset, as the Agent or any Bank shall reasonably
request. The Borrower shall permit the Agent at all reasonable times and upon
reasonable prior notice to make an inspection of such Real Property Asset.
(d) The Borrower shall distribute a copy of each item
constituting the Due Diligence Package by overnight mail to each of the Banks
for their review and approval. Failure to respond to the Agent in writing by any
Bank within ten (10) Domestic Business Days after receipt of the Due Diligence
Package, shall be deemed to be an approval by such Bank of such New Acquisition
or Real Property Asset for inclusion as a Borrowing Base Property.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES
In order to induce the Agent and each of the other Banks which may
become a party to this Agreement to make the Loans, the Borrower makes the
following representations and warranties as of the Closing Date. Such
representations and warranties, shall survive the effectiveness of this
Agreement, the execution and delivery of the other Loan Documents and the making
of the Loans.
SECTION 4.1. Existence and Power. The General Partner is a real estate
investment trust, duly formed, validly existing and in good standing as a
corporation under the laws of Maryland. The Borrower is a limited partnership
duly formed, validly existing and in good standing under the laws of Delaware.
Each of the Borrower, the General Partner and each Subsidiary Guarantor has all
powers and all material governmental licenses, authorizations, consents and
approvals required to own its property and assets and carry on its business as
now conducted or as it presently proposes to conduct and has been duly qualified
and is in good standing in every jurisdiction in which the failure to be so
qualified and/or in good standing is likely to have a Material Adverse Effect.
SECTION 4.2. Power and Authority. Each of the Borrower, the General
Partner and each Subsidiary Guarantor has the partnership or corporate (as
applicable) power and authority to execute, deliver and carry out the terms and
provisions of each of the Loan Documents to which it is a party and has taken
all necessary corporate action to authorize the execution and delivery on behalf
of, as applicable, the Borrower, the General Partner and such Subsidiary
Guarantor and the performance by the Borrower, the General Partner and such
Subsidiary Guarantor of such Loan Documents to which it is a party. Each of the
Borrower, the General Partner and each Subsidiary Guarantor has duly executed
and delivered each Loan Document to which it is a party, and each such Loan
Document constitutes the legal, valid and binding obligation of such party,
enforceable in accordance with its terms, except as enforceability may be
limited by applicable insolvency, bankruptcy or other laws affecting creditors
rights generally, or general principles of equity, whether such enforceability
is considered in a proceeding in equity or at law.
SECTION 4.3. No Violation. Neither the execution, delivery or
performance by or on behalf of the Borrower, the General Partner or any
Subsidiary Guarantor of the Loan Documents to which it is a party, nor
compliance by the Borrower, the General Partner or any Subsidiary Guarantor with
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the terms and provisions thereof nor the consummation of the transactions
contemplated by the Loan Documents, (i) will contravene any applicable provision
of any material law, statute, rule, regulation, order, writ, injunction or
decree of any court or governmental instrumentality or (ii) will conflict, in
any material respect, with or result in any breach of, any of the terms,
covenants, conditions or provisions of, or constitute a material default under,
or result in the creation or imposition of (or the obligation to create or
impose) any Lien upon any of the property or assets of the Borrower, the General
Partner or any of their Consolidated Subsidiaries pursuant to the terms of any
indenture, mortgage, deed of trust, subscription agreement or other agreement or
other instrument to which the Borrower, the General Partner, any Subsidiary
Guarantor (or of any partnership of which any such party is a partner) or any of
their Consolidated Subsidiaries is a party or by which it or any of its property
or assets is bound or to which it is subject, or (iii) will cause a default by
the Borrower, the General Partner or any Subsidiary Guarantor under any
subscription agreement or any other organizational document of any Person in
which the Borrower, the General Partner or any Consolidated Subsidiary has an
interest, or cause a default under the partnership agreement, articles of
incorporation or by laws (as applicable) of the Borrower, the General Partner or
any Consolidated Subsidiary.
SECTION 4.4. Financial Information.
(a) The Consolidated balance sheet of the Borrower, the General
Partner, and their Consolidated Subsidiaries dated December 31, 1996 and the
related Consolidated statements of the Borrower's financial position for the
fiscal year then ended, audited by Arthur Andersen & Co., L.L.P., a copy of
which has been delivered to the Agent fairly present, in conformity with GAAP,
the Consolidated financial position of the Borrower, the General Partner, and
their Consolidated Subsidiaries of such date and their results of operations and
cash flows for such fiscal year.
(b) The Consolidated balance sheet of the Borrower, the General
Partner, and their Consolidated Subsidiaries for the period ending September 30,
1997, a copy of which has been delivered to the Agent, fairly present, in
conformity with GAAP, the Consolidated financial position of the Borrower, the
General Partner, and their Consolidated Subsidiaries as of such date and their
Consolidated results of operations and cash flows for such period.
(c) Since September 30, 1997, (i) there has been no material adverse
change in the business, financial position or results of operations of the
Borrower, the General Partner, and their Consolidated Subsidiaries and (ii)
except
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as previously disclosed to the Agent, none of the Borrower, the General Partner
or any of their Consolidated Subsidiaries has incurred any material indebtedness
or guaranty.
SECTION 4.5. Litigation. There is no material action, suit or
proceeding pending against, or to the actual knowledge of the Borrower, after
due inquiry, threatened against or adversely affecting, (i) the Borrower, the
General Partner or any of their Subsidiaries, (ii) the Loan Documents or any of
the transactions contemplated by the Loan Documents or (iii) any of its assets,
before any court or arbitrator or any governmental body, agency or official in
which there is a reasonable possibility of an adverse decision which could,
individually, or in the aggregate materially adversely affect the business,
Consolidated financial position or Consolidated results of operations of the
Borrower, the General Partner or their Consolidated Subsidiaries or which in any
manner draws into question the validity of this Agreement or the other Loan
Documents.
SECTION 4.6. Compliance with ERISA.
(a) The transactions contemplated by the Loan Documents will not
constitute a nonexempt prohibited transaction (as such term is defined in
Section 4975 of the Code or Section 406 of ERISA) that could subject the Agent
or the Banks to any tax or penalty or prohibited transactions imposed under
Section 4975 of the Code or Section 502(i) of ERISA.
(b) Each member of the ERISA Group has fulfilled its obligations under
the minimum funding standards of ERISA and the Internal Revenue Code with
respect to each Plan and is in compliance in all material respects with the
presently applicable provisions of ERISA and the Internal Revenue Code with
respect to each Plan. No member of the ERISA Group has (i) sought a waiver of
the minimum funding standard under Section 412 of the Internal Revenue Code in
respect of any Plan, (ii) failed to make any contribution or payment to any Plan
or Multiemployer Plan or in respect of any Benefit Arrangement, or made any
amendment to any Plan or Benefit Arrangement, which has resulted or could result
in the imposition of a Lien or the posting of a bond or other security under
ERISA or the Internal Revenue Code or (iii) incurred any liability under Title
IV of ERISA other than a liability to the PBGC for premiums under Section 4007
of ERISA.
SECTION 4.7. Environmental Matters. In the ordinary course of its
business, the Borrower conducts a periodic review of the effect of Environmental
Laws on the business, operations and properties of the Borrower and its
Subsidiaries, including, without limitation, the Real Property
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Assets, in the course of which it seeks to identify and evaluate applicable
liabilities and costs (including, without limitation, any capital or operating
expenditures required as a matter of Environmental Law for clean-up or closure
of properties presently or previously owned, any capital or operating
expenditures required as a matter of Environmental Law to achieve or maintain
compliance with Environmental Law or as a condition of any license, permit or
contract to which Borrower is a party or a beneficiary, any related constraints
on operating activities, including any periodic or permanent shutdown of any
facility or reduction in the level of or change in the nature of operations
conducted thereat, any costs or liabilities in connection with off-site disposal
of wastes or Hazardous Substances, and any actual or potential liabilities to
third parties, including employees, and any related costs and expenses). On the
basis of this review, the Borrower has reasonably concluded that such associated
potential liabilities and costs, including the costs of compliance with
Environmental Laws, are unlikely to have a Material Adverse Effect.
SECTION 4.8. Taxes. The Borrower, the General Partner and their
Subsidiaries have filed all United States Federal income tax returns and all
other material tax returns which are required to be filed by them and have paid
all taxes due and payable pursuant to such returns or pursuant to any assessment
received by the Borrower or any Subsidiary. The charges, accruals and reserves
on the books of the Borrower, the General Partner and their Subsidiaries in
respect of taxes or other governmental charges are, in the reasonable judgment
of the Borrower, adequate.
SECTION 4.9. Full Disclosure. All information heretofore furnished by
or on behalf of the Borrower, the General Partner and their Subsidiaries to the
Agent or any Bank for purposes of or in connection with this Agreement or any
transaction contemplated hereby is, and all such information hereafter furnished
by the Borrower or the General Partner or any Subsidiary Guarantor to the Agent
or any Bank will be, true and accurate in all material respects on the date as
of which such information is stated. The Borrower and the General Partner have
disclosed to the Banks in writing any and all facts which, in Borrower's and the
General Partner's reasonable judgment, materially and adversely affect or may
affect (to the extent the Borrower and the General Partner can now reasonably
foresee), the business, operations or financial condition of the Borrower, the
General Partner, and their Consolidated Subsidiaries, taken as a whole, or the
ability of the Borrower or the General Partner or any Subsidiary Guarantor to
perform its obligations under this Agreement or the other Loan Documents in any
material respect.
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SECTION 4.10. Solvency. On the Closing Date and after giving effect to
the transactions contemplated by the Loan Documents occurring on the Closing
Date, each of Borrower, the General Partner and any Subsidiary Guarantor will be
Solvent.
SECTION 4.11. Use of Proceeds; Margin Regulations. All proceeds of the
Loans will be used by the Borrower only in accordance with the provisions of
this Agreement. No part of the proceeds of any Loan will be used by the Borrower
to purchase or carry any Margin Stock or to extend credit to others for the
expressed purpose of purchasing or carrying any Margin Stock. Neither the making
of any Loan nor the use of the proceeds thereof will violate or be inconsistent
with the provisions of Regulations G, T, U or X of the Federal Reserve Board.
SECTION 4.12. Governmental Approvals. No order, consent, approval,
license, authorization, or validation of, or filing, recording or registration
with, or exemption by, any governmental or public body or authority, or any
subdivision thereof, is required to authorize, or is required in connection with
the execution, delivery and performance of any Loan Document or the consummation
of any of the transactions contemplated thereby other than those that have
already been duly made or obtained and remain in full force and effect.
SECTION 4.13. Investment Company Act; Public Utility Holding Company
Act. The Borrower is not (x) an "investment company" or a company "controlled"
by an "investment company", within the meaning of the Investment Company Act of
1940, as amended, (y) a "holding company" or a "subsidiary company" of a
"holding company" or an "affiliate" of either a "holding company" or a
"subsidiary company" within the meaning of the Public Utility Holding Company
Act of 1935, as amended, or (z) subject to any other federal or state law or
regulation which purports to restrict or regulate its ability to borrow money.
SECTION 4.14. Closing Date Transactions. On the Closing Date and
immediately prior to the making of the Loans, the transactions (other than the
making of the Loans) intended to be consummated on the Closing Date will have
been consummated in accordance with all applicable laws. All material consents
and approvals of, and all material filings and registrations with, and all other
material actions by, any Person required in order to make or consummate such
transactions have been obtained, given, filed or taken and are in full force and
effect.
SECTION 4.15. Representations and Warranties in Loan Documents. All
representations and warranties made by the Borrower in the Loan Documents are
true and correct in all
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material respects as of the date of this Agreement and as of any date that
Borrower is expressly obligated to confirm the same under this Agreement.
SECTION 4.16. Patents, Trademarks, Etc. The Borrower, the General
Partner, and their Consolidated Subsidiaries have obtained and hold in full
force and effect all patents, trademarks, service marks, trade names, copyrights
and other such rights, free from burdensome restrictions, which are necessary
for the operation of their business as presently conducted, the impairment of
which is likely to have a Material Adverse Effect. To the Borrower's knowledge,
no material product, process, method, substance, part or other material
presently sold by or employed by the Borrower or its Consolidated Subsidiaries
in connection with such business infringes any patent, trademark, service mark,
trade name, copyright, license or other such right owned by any other Person.
There is not pending or, to the Borrower's or the General Partner's knowledge,
threatened any claim or litigation against or affecting the Borrower, the
General Partner or their Consolidated Subsidiaries contesting any of their
respective rights to sell or use any such product, process, method, substance,
part or other material.
SECTION 4.17. Ownership of Property. Schedule 4.17(a) attached hereto
and made a part hereof sets forth all the real property owned or leased by the
Borrower and Persons in which the Borrower, directly or indirectly, owns an
interest as of the Closing Date. As of the Closing Date, the Borrower and such
Persons have good and insurable fee simple title (or leasehold title if so
designated on Schedule 4.17(a) to all of such real property, subject to
customary encumbrances and liens as of the date of this Agreement. As of the
date of this Agreement, there are no mortgages, deeds of trust, indentures, debt
instruments or other agreements creating a Lien against any of the Real Property
Assets except as disclosed on Schedule 4.17(b).
SECTION 4.18. No Default. No Default or Event of Default exists under
or with respect to any Loan Document. The Borrower (nor the General Partner nor
any Consolidated Subsidiary) is not in default in any material respect beyond
any applicable grace period under or with respect to any other material
agreement, instrument or undertaking to which it is a party or by which it or
any of its property is bound in any respect, the existence of which default is
likely to result in a Material Adverse Effect.
SECTION 4.19. Licenses, Etc. Each of the Borrower, the General Partner
and each of their Consolidated Subsidiaries) has obtained and holds in full
force and effect, all material franchises, licenses, permits, certificates,
authorizations, qualifications, accreditations, ease-
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ments, rights of way and other consents and approvals which are necessary for
the operation of its business as presently conducted, the absence of which is
likely to have a Material Adverse Effect.
SECTION 4.20. Compliance With Law. The Borrower, the General Partner
and each of their Consolidated Subsidiaries and each of the Real Property Assets
is in compliance with all material laws, rules, regulations, orders, judgments,
writs and decrees, including, without limitation, all building and zoning
ordinances and codes, the failure to comply with which is likely to have a
Material Adverse Effect.
SECTION 4.21. No Burdensome Restrictions. The Borrower, the General
Partner and each of their Consolidated Subsidiaries is not a party to any
agreement or instrument or subject to any other obligation or any charter or
corporate or partnership restriction, as the case may be, which, individually or
in the aggregate, is likely to have a Material Adverse Effect except in the
event of a default there under.
SECTION 4.22. Brokers' Fees. Neither the Borrower nor the General
Partner has dealt with any broker or finder with respect to the transactions
contemplated by the Loan Documents or otherwise in connection with this
Agreement.
SECTION 4.23. Labor Matters. There are no collective bargaining
agreements or Multiemployer Plans covering any employees of the Borrower, the
General Partner, or any of their Consolidated Subsidiaries.
SECTION 4.24. Insurance. The Borrower, the General Partner and each of
its Consolidated Subsidiaries currently maintains all insurance which is
required to be maintained by Section 5.3 hereof.
SECTION 4.25. Organizational Documents. The documents delivered
pursuant to Section 3.1(e) constitute, as of the Closing Date, all of the
organizational documents (together with all amendments and modifications
thereof) of the Borrower. The Borrower represents that it has delivered to the
Agent true, correct and complete copies of each of the documents set forth in
Section 3.1(e).
SECTION 4.26. Principal Offices. The principal office, chief executive
office and principal place of business of each of the Borrower, the General
Partner and each Subsidiary Guarantor is 505 Montgomery Street, San Francisco,
California.
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ARTICLE V
AFFIRMATIVE AND NEGATIVE COVENANTS
The Borrower covenants and agrees that, so long as any Bank has any
Commitment hereunder or any Obligations remain unpaid:
SECTION 5.1. Information. The Borrower will deliver to each of the
Banks:
(a) as soon as reasonably available and in any event within 95 days
after the end of each fiscal year of the Borrower, a Consolidated balance sheet
of the Borrower, the General Partner, and their Consolidated Subsidiaries as of
the end of such fiscal year and the related Consolidated statements of
operations for such fiscal year prepared by Arthur Andersen & Co., L.L.P. or
other independent public accountants of nationally recognized standing;
(b) as soon as available and in any event within 50 days after the end
of each of the first three quarters of each fiscal year of the Borrower, (i) a
Consolidated balance sheet of the Borrower, the General Partner, and their
Consolidated Subsidiaries as of the end of such quarter and the related
Consolidated statements of operations for such quarter and for the portion of
the Borrower's fiscal year ended at the end of such quarter, all certified
(subject to normal year-end adjustments) as to fairness of presentation, GAAP
and consistency by the chief financial officer or the chief accounting officer
of the Borrower; (ii) an acquisition status report, with respect to each Real
Property Asset acquired during such quarter, in form reasonably satisfactory to
the Agent, setting forth all acquisition activity during such quarterly period,
including a description of such Real Property Asset and the Acquisition Price
thereof and (iii) such other information reasonably requested by the Agent or
any Bank;
(c) simultaneously with the delivery of each set of financial
statements referred to in clauses (a) and (b) above, a certificate of the chief
financial officer or the chief accounting officer of the Borrower (i) setting
forth in reasonable detail the calculations required to establish whether the
Borrower was in compliance with the requirements of Section 5.9 on the date of
such financial statements; (ii) stating whether any Default, Event of Default or
Mandatory Prepayment Event exists on the date of such certificate and with
respect to a Mandatory Prepayment Event, whether it existed at any time during
the period covered by such financial statements, and, if any Default, Event of
Default or Mandatory Prepayment Event then exists, setting forth the details
thereof and the action which the Borrower is taking
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or proposes to take with respect thereto; and (iii) certifying (x) that such
financial statements fairly present the financial condition and the results of
operations of the Borrower on the dates and for the periods indicated, on the
basis of GAAP, with respect to the Borrower subject, in the case of interim
financial statements, to normally recurring year-end adjustments, and (y) that
such officer has reviewed the terms of the Loan Documents and has made, or
caused to be made under his or her supervision, a review in reasonable detail of
the business and condition of the Borrower during the period beginning on the
date through which the last such review was made pursuant to this Section 5.1(c)
(or, in the case of the first certification pursuant to this Section 5.1(c), the
Closing Date) and ending on a date not more than ten (10) Domestic Business Days
prior to the date of such delivery and that (1) on the basis of such financial
statements and such review of the Loan Documents, no Event of Default existed
under Section 6.1(b) with respect to Section 5.9 at or as of the date of said
financial statements, and (2) on the basis of such review of the Loan Documents
and the business and condition of the Borrower, to the actual knowledge of such
officer, no Default or Event of Default under any other provision of Section 6.1
occurred or, if any such Default or Event of Default has occurred and is then
continuing, specifying the nature and extent thereof and, if continuing, the
action the Borrower proposes to take in respect thereof and (3) on the basis of
such review of the Loan Documents and the business and condition of the
Borrower, no Mandatory Prepayment Event then exists or has existed during the
period since the last review pursuant to this Section 5.1(c). Such certificate
shall set forth the calculations required to establish the matters described in
clause (i) above;
(d) (i) within seven (7) days after the chief financial officer or
chief accounting officer of the Borrower, the General Partner, or any
Consolidated Subsidiary of any of the foregoing obtains knowledge of any Default
or a Mandatory Prepayment Event, if such Default or Mandatory Prepayment Event
is then continuing, a certificate of such officer setting forth the details
thereof and the action which the Borrower is taking or proposes to take with
respect thereto; (ii) promptly and in any event within ten(10) days after the
chief financial officer or chief accounting officer of the Borrower, the General
Partner or any Consolidated Subsidiary of any of the foregoing obtains knowledge
thereof, notice of (x) any litigation or governmental proceeding pending or
actions threatened against the Borrower, the General Partner, any Consolidated
Subsidiary or the Real Property Assets as to which there is a reason able
possibility of an adverse determination and which, if adversely determined, is
likely to individually or in the aggregate, result in a Material Adverse Effect,
and (y) any
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other event, act or condition which is likely to result in a Material Adverse
Effect;
(e) promptly upon the mailing thereof to the shareholders of the
Borrower generally, copies of all financial statements, reports and proxy
statement so mailed;
(f) promptly upon the filing thereof, copies of all registration
statements (other than the exhibits thereto and any registration statements on
Form S-8 or its equivalent) and reports on Forms 10-K, 10-Q and 8-K (or their
equivalents) which the General Partner shall have filed with the Securities and
Exchange Commission;
(g) promptly and in any event within ten (10) Domestic Business Days
after the Borrower obtains actual knowledge of any of the following events, a
certificate of the Borrower, executed by an officer of the Borrower, specifying
the nature of such condition and the Borrower's or, if the Borrower has actual
knowledge thereof, the Environmental Affiliate's proposed initial response
thereto: (i) the receipt by the Borrower, or, if the Borrower has actual
knowledge thereof, any of the Environmental Affiliates of any written
communication, whether from a governmental authority, citizens group, employee
or otherwise, that alleges that the Borrower, or, if the Borrower has actual
knowledge thereof, any of the Environmental Affiliates, is not in compliance
with applicable Environmental Laws, and such noncompliance is likely to have a
Material Adverse Effect, (ii) the Borrower shall obtain actual knowledge that
there exists any Environmental Claim pending or threatened against the Borrower
or any Environmental Affiliate or (iii) the Borrower obtains actual knowledge of
any release, emission, discharge or disposal of any Hazardous Substances that is
likely to form the basis of any Environmental Claim against the Borrower or any
Environmental Affiliate;
(h) within ten (10) Domestic Business Days after receipt of any
material notices or correspondence from any company or agent for any company
providing insurance coverage to the Borrower relating to any material loss of
the Borrower, copies of such notices and correspondence;
(i) no less than ten (10) Domestic Business Days prior to a sale,
transfer or conveyance of any Borrowing Base Property, Borrower shall deliver a
certificate of the chief financial officer or the chief accounting officer of
the Borrower certifying that such officer has reviewed the terms of the Loan
Documents and has made, or caused to be made under his or her supervision, a
review in reasonable detail of the business and condition of the Borrower during
the period beginning on the date through which the last such review was made
pursuant to Section 5.1(c) hereof and ending
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on a date not more than twenty (20) Domestic Business Days prior to the date of
such delivery and that (1) on the basis of such review of the Loan Documents and
assuming such sale, transfer or conveyance is actually consummated, no Mandatory
Prepayment Event exists and no Event of Default exists under Section 6.1(b) with
respect to Section 5.9 at or as of the date of said sale, transfer or conveyance
and (2) on the basis of such review of the Loan Documents and the business and
condition of the Borrower and assuming the Transfer is actually consummated, to
the actual knowledge of such officer, no Default or Event of Default under any
other provision of Section 6.1 occurred or, if any such Default or Event of
Default has occurred and is then continuing, specifying the nature and extent
thereof and, if continuing, the action the Borrower proposes to take in respect
thereof;
(j) within 50 days after the end of each quarter of each fiscal year of
Borrower, an updated Schedule 4.17(a) and 4.17(b), certified by the chief
financial officer or chief accounting officer of the Borrower as true, correct
and complete as of the date such updated schedules are delivered;
(k) within 50 days after June 30 and December 31, a statement
containing a listing of all new construction projects and Real Property Assets
then undergoing significant rehabilitation (collectively, "Development
Projects");
(l) within 30 days after filing of the annual income tax return with
the Internal Revenue Service, a certificate of the chief financial officer or
chief accounting officer of the Borrower certifying that General Partner is
properly classified and continues to qualify as a real estate investment trust
under the Internal Revenue Code and has taken all actions consistent with
maintaining such status;
(m) simultaneously with delivery of the information required by
Sections 5.1(a) and (b), a statement of Borrowing Base Net Operating Cash Flow
with respect to each Borrowing Base Property and a list of all Borrowing Base
Properties;
(n) promptly upon receipt thereof, any notice or communication from any
Rating Agency regarding any change in Borrower's Credit Rating;
(o) from time to time such additional information regarding the
financial position or business of the Borrower and its Subsidiaries as the
Agent, at the request of any Bank, may reasonably request in writing; and
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(p) within 50 days after the end of each quarter of each fiscal year of
Borrower, a certificate of the chief financial officer or chief accounting
officer of Borrower certifying whether or not each Borrowing Base Property has
maintained the Required Occupancy Level for the previous twelve month period (as
of the end of such quarter).
SECTION 5.2. Payment of Obligations. The Borrower, the General Partner
and each of their Consolidated Subsidiaries will pay and discharge, at or before
maturity, all its respective material obligations and liabilities, including,
without limitation, any obligation pursuant to any agreement by which it or any
of its properties is bound and any tax liabilities, except where such tax
liabilities may be contested in good faith by appropriate proceedings, and will
maintain in accordance with GAAP, appropriate reserves for the accrual of any of
the same.
SECTION 5.3. Maintenance of Property; Insurance.
(a) The Borrower will keep (or cause to be kept through its leases at
the respective Real Property Assets), and will cause each Subsidiary to keep,
all property useful and necessary in its business, including without limitation
the Real Property Assets, in good repair, working order and condition, ordinary
wear and tear excepted.
(b) The Borrower currently maintains, or causes its tenants to
maintain, insurance at 100% replacement cost insurance coverage (subject to
customary deductibles) in respect of each of the Real Property Assets, as well
as commercial general liability insurance (including "builders' risk") against
claims for personal, and bodily injury and/or death, to one or more persons, or
property damage, as well as workers' compensation insurance, in each case with
respect to the Real Property Assets with insurers having an A.M. Best
policyholders' rating of not less than A-IX in amounts that prudent owner of
assets such as the Real Property Assets would maintain.
SECTION 5.4. Conduct of Business and Maintenance of Existence. The
Borrower and the General Partner will continue to engage in, and will cause each
Subsidiary Guarantor to continue to engage in, business of the same general type
as now conducted by the Borrower, the General Partner or such Subsidiary
Guarantor, as applicable, and will preserve, renew and keep in full force and
effect, its corporate existence and its respective rights, privileges and
franchises necessary or desirable in the normal conduct of business.
SECTION 5.5. Compliance with Laws. The Borrower and the General Partner
will comply (and will cause each of
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their Subsidiaries to comply) in all material respects with all applicable laws,
ordinances, rules, regulations, and requirements of governmental authorities
(including, without limitation, Environmental Laws, and all zoning and building
codes with respect to the Real Property Assets, all laws, rules and regulations
with respect to the General Partner's status as a real estate investment trust
under the Code and ERISA and the rules and regulations thereunder) except where
the necessity of compliance therewith is contested in good faith by appropriate
proceedings.
SECTION 5.6. Inspection of Property, Books and Records. The Borrower
and the General Partner will keep (and will cause each of their Subsidiaries to
keep) proper books of record and account in which full, true and correct entries
shall be made of all material financial matters and transactions in relation to
its business and activities; and will permit representatives of any Bank at such
Bank's expense to visit and inspect any of its properties (subject to the terms
of the applicable leases), including without limitation the Real Property
Assets, to examine and make abstracts from any of its books and records and to
discuss its affairs, finances and accounts with its officers, employees and
independent public accountants, all at such reasonable times and as often as may
reasonably be desired.
SECTION 5.7. Existence. The Borrower and the General Partner and each
Subsidiary Guarantor shall do or cause to be done, all things reasonably
necessary to preserve and keep in full force and effect its existence and its
tradenames, licenses, permits, certificates, authorizations, qualifications,
accreditations, easements, rights of way and other rights, consents and
approvals the nonexistence of which is likely to have a Material Adverse Effect.
SECTION 5.8. Certain Requirements for the Borrowing Base Properties. At
all times (based upon the average occupancy level for the prior twelve month
period) (i) no single tenant shall account for more than 5% of the aggregate
base rents from the Borrowing Base Properties and (ii) no single Separate Parcel
shall account for more than 15% of the aggregate base rents from the Borrowing
Base Properties, taken as a whole. Notwithstanding the foregoing, (a) the
government of the United States of America and its agencies (including, without
limitation, the General Services Administration) shall be excluded from the
restriction set forth in the first sentence of this Section 5.8 and (b) single
tenants that hold Investment Grade Ratings and are approved by the Agent, in its
sole discretion, may account for up to 10% of the aggregate base rents from the
Borrowing Base Properties.
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SECTION 5.9. Financial Covenants.
(a) Total Liabilities. Total Liabilities will at no time exceed fifty
percent (50%) of the Combined Gross Asset Value, plus the sum of Cash and Cash
Equivalents held by the Borrower, the General Partner or any Consolidated
Subsidiary plus accounts receivable of the Borrower, the General Partner or any
Consolidated Subsidiary, less Intangible Assets (as defined in the definition of
Consolidated Tangible Net Worth) and deferred rents.
(b) Dividends. Neither the Borrower, the General Partner nor any
Consolidated Subsidiary will declare any dividends in excess of 95% of its Funds
From Operations, except that the General Partner may declare dividends in excess
thereof (i) to maintain its status as a real estate investment trust under the
Code or (ii) to distribute 100% of its taxable income (computed in accordance
with the Code).
(c) Limits on Negative Pledge. None of the Borrower, the General
Partner or any Subsidiary will agree to limits on Liens on Unsecured Assets of
the Borrower, the General Partner or such Subsidiary, except as may otherwise be
required pursuant to the terms of this Agreement.
(d) Fixed Rate Indebtedness. All Non-Recourse Debt of the Borrower, the
General Partner and any Subsidiaries shall be Fixed Rate Indebtedness.
(e) Debt Maturity Dates. The stated maturity or termination dates of
any Debt of the Borrower, the General Partner or any Subsidiary shall not be
prior to the Maturity Date; except that Borrower, the General Partner and their
Subsidiaries may incur Debt with earlier maturity or termination dates provided
that the aggregate outstanding amount of such Debt at any one time shall not
exceed five percent (5%) of Combined Gross Asset Value.
(f) Limitation on Secured Debt. Secured Debt of the Borrower, the
General Partner and the Consolidated Subsidiaries shall at no time exceed
thirty-five percent (35%) of Combined Gross Asset Value.
(g) Limitation on Unimproved Land Investment. Unimproved Land Value of
the Borrower, the General Partner, and the Consolidated Subsidiaries, together
with the Borrower's and the General Partner's pro rata shares with respect to
Minority Holdings and Joint Ventures, shall at no time exceed five percent (5%)
of Combined Gross Asset Value.
(h) Minimum Consolidated Tangible Net Worth. Consolidated Tangible Net
Worth of the Borrower, the General
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Partner, and the Consolidated Subsidiaries shall at no time be less than 75% of
the Consolidated Tangible Net Worth of the Borrower, the General Partner, and
the Consolidated Subsidiaries as of the Closing Date, which amount shall be in
creased by an amount equal to ninety percent (90%) of the net proceeds of any
public or private sale by the Borrower of common or preferred stock subsequent
to the Closing Date.
(i) Limitation on Construction Asset Costs. Construction Asset Costs of
the Borrower, the General Partner and their Subsidiaries shall at no time exceed
five percent (5%) of Combined Gross Asset Value.
(j) Limitation on Joint Ventures. The aggregate Gross Asset Value of
Real Property Assets held in Joint Ventures shall at no time exceed thirty-five
percent (35%) of Combined Gross Asset Value.
(k) Fixed Charge Coverage. The ratio of Adjusted EBITDA to Fixed
Charges (for any period of four consecutive fiscal quarters), as of the last day
of any quarter, shall be equal to or greater than 2:1.
(l) Borrowing Base Properties Minimum Debt Service Coverage. As of the
last day of each calendar quarter, the ratio of Borrowing Base Net Operating
Cash Flow to Pro-Forma Debt Service shall be equal to or greater than 2:1.
(m) Borrowing Base Properties Value Unsecured Debt Ratio. The ratio of
Borrowing Base Properties Value to Unsecured Senior Debt shall at no time be
less than 2:1.
SECTION 5.10. Restriction on Fundamental Changes. (a) The Borrower
shall not enter into any merger or consolidation, unless the Borrower is the
surviving entity, or liquidate, wind-up or dissolve (or suffer any liquidation
or dissolution), discontinue its business or convey, lease, sell, transfer or
otherwise dispose of, in one transaction or series of transactions, all or any
substantial part of its business or property, whether now or hereafter acquired.
Subject to other provisions of this Agreement, nothing in this Section 5.10
shall be deemed to prohibit (i) the leasing of portions of the Real Property
Assets or an entire Real Property Asset in the ordinary course of business for
occupancy by the tenants thereunder or (ii) the sale of such Real Property
Assets in the ordinary course of Borrower's business or (iii) the sale of
additional equity interests in the General Partner pursuant to a public or
privately placed equity offering of common or preferred stock or (iv) the
issuance of additional limited partnership interests in the Borrower, subject to
Section 6.1 hereof.
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(b) The Borrower shall not amend its partnership agreement or
certificate of limited partnership and the General Partner shall not amend its
articles of incorporation, by-laws, or other organizational documents without
the Agent's consent, which shall not be unreasonably withheld or delayed.
SECTION 5.11. Liens; Release of Liens. None of the Borrower, the
General Partner or any of their Subsidiaries (including any Subsidiary
Guarantor) shall at any time during the Term directly or indirectly create,
incur, assume or permit to exist any Lien for borrowed monies or any other Lien
(except for Permitted Liens) unless the same is being contested in good faith or
the same is discharged, bonded off or paid within thirty (30) days of filing of
such Lien, on or with respect to any Borrowing Base Property. Notwithstanding
the foregoing, the Borrower may obtain a release from the terms of this
Agreement of any Borrowing Base Property provided that such Borrower has
complied with Section 2.9(a) and prior to or simultaneously with such release
(i) such Borrower shall pay to the Agent any amounts due pursuant to Section
2.9(a), and (ii) Borrower delivers to the Agent a certificate from its chief
financial officer or chief accounting officer certifying that at the time of the
release all of the covenants contained in Sections 5.8 through 5.12, 5.16
through 5.17 are and after giving effect to the transaction shall continue to be
true and accurate in all respects. In the event that Borrower notifies the Agent
that a Separate Parcel that originally formed a part of a Borrowing Base
Property be released from the terms of this Agreement and Borrower otherwise
complies with the provisions hereof with respect thereto, the value of such
Separate Parcel (and the remaining portion of the Borrowing Base Property) will
be determined by Agent at the time of the release in its sole discretion.
SECTION 5.12. Sale of Borrowing Base Properties. Prior to the sale or
transfer of any Borrowing Base Property, the Borrower shall (i) deliver prior
written notice to the Agent, (ii) deliver to the Agent a certificate from its
chief financial officer or chief accounting officer certifying that at the time
of such sale or other disposal (based on pro-forma calculations for the previous
period assuming that such Borrowing Base Property was not a Borrowing Base
Property for the relevant period) all of the covenants contained in Sections 5.8
through 5.12, 5.16 through 5.17 are and after giving effect to the transaction
shall continue to be true and accurate in all respects, and (iii) pay to the
Agent an amount equal to that required pursuant to Section 2.9(a). In the event
that Borrower notifies the Agent that a Separate Parcel that originally formed a
part of a Borrowing Base Property is to be sold or transferred, the value of the
remaining portion of the Borrowing Base Property will be
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determined by Agent at the time of sale or transfer in its sole discretion.
SECTION 5.13. Changes in Business. None of the Borrower, the General
Partner or any Subsidiary Guarantor shall enter into any business which is
substantially different from that conducted by such entity on the Closing Date,
after giving effect to the transactions contemplated by the Loan Documents.
SECTION 5.14. Fiscal Year; Fiscal Quarter. Neither the Borrower nor the
General Partner shall change its fiscal year or any of its fiscal quarters,
without Agent's prior written consent, which consent shall not be unreasonably
withheld or delayed.
SECTION 5.15. Margin Stock. None of the proceeds of the Loan will be
used by Borrower or the General Partner, directly or indirectly, for the
purpose, whether immediate, incidental or ultimate, of buying or carrying any
Margin Stock.
SECTION 5.16. Restrictions on Recourse Debt. Until such time as
Borrower (or the General Partner, as applicable) shall receive at least one (1)
Investment Grade Rating, from either S&P or Moody's, none of the Borrower, the
General Partner, or any Consolidated Subsidiary shall create, incur or guaranty
any Recourse Debt unless such Recourse Debt is Unsecured Debt which has an
Investment Grade Rating. Notwithstanding the foregoing, if Borrower (or the
General Partner, as applicable) receives a rating that is not In vestment Grade
from either S&P or Moody's, until such time as Borrower (or the General Partner,
as applicable) has received an Investment Grade Rating from each of S&P and
Moody's, none of the Borrower, the General Partner, or any Consolidated
Subsidiary shall create, incur or guaranty any Recourse Debt unless such
Recourse Debt is Unsecured Debt which has an Investment Grade Rating.
SECTION 5.17. Covenant Restrictions. No Debt of Borrower, the General
Partner, or any Consolidated Subsidiary incurred after the date hereof shall
contain any covenant or restriction which is more restrictive than any covenant
or restriction contained in this Agreement or any other Loan Documents.
ARTICLE VI
DEFAULTS
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SECTION 6.1. Events of Default. If one or more of the
following events ("Events of Default") shall have occurred
and be continuing:
(a) the Borrower shall fail to (i) pay when due any principal on any
Loan, or (ii) pay when due any interest on any Loan or any fees or any other
amount payable hereunder and such failure shall continue for three (3) Domestic
Business Days;
(b) the Borrower shall fail to observe or perform any covenant
contained in Section 5.3, or Sections 5.8 to 5.17 inclusive;
(c) the Borrower shall fail to observe or perform any covenant or
agreement contained in this Agreement (other than those covered by clause (a) or
(b) above) for 30 days after written notice thereof has been given to the
Borrower by the Agent at the request of any Bank;
(d) any representation, warranty, certification or statement made by
the Borrower in this Agreement or in any certificate, financial statement or
other document delivered pursuant to this Agreement shall prove to have been
incorrect in any material respect when made (or deemed made);
(e) The Borrower, the General Partner or any Consolidated Subsidiary
shall default in the payment when due (whether by scheduled maturity, required
prepayment, acceleration, demand or otherwise) of any amount owing in respect
of any Debt (other than the Obligations) and such default shall continue beyond
the giving of any required notice and the expiration of any applicable grace
period; or the Borrower shall default in the performance or observance of any
material obligation or material conditions with respect to any such Debt or any
other event shall occur or condition exist beyond the giving of any required
notice and the expiration of any applicable grace period, if the effect of such
default, event or condition is to accelerate the maturity of any such
indebtedness or to permit (without any further requirement of notice or lapse of
time) the holder or holders thereof, or any trustee or agent for such holders,
to accelerate the maturity of any such indebtedness, or any such indebtedness
shall become or be declared to be due and payable prior to its stated maturity
other than as a result of a regularly scheduled payment.
(f) the Borrower or the General Partner or any Subsidiary Guarantor
shall commence a voluntary case or other proceeding seeking liquidation,
reorganization or other relief with respect to itself or its debts under any
bankruptcy, insolvency or other similar law now or hereafter in effect or
seeking the appointment of a trustee,
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receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, or shall consent to any such relief or to the
appointment of or taking possession by any such official in an involuntary case
or other proceeding commenced against it, or shall make a general assignment for
the benefit of creditors, or shall fail generally to pay its debts as they
become due;
(g) an involuntary case or other proceeding shall be commenced against
the Borrower, the General Partner or any Subsidiary Guarantor seeking
liquidation, reorganization or other relief with respect to it or its debts
under any bankruptcy, insolvency or other similar law now or hereafter in effect
or seeking the appointment of a trustee, receiver, liquidator, custodian or
other similar official of it or any substantial part of its property, and such
involuntary case or other proceeding shall remain undismissed and unstayed for a
period of 60 days; or an order for relief shall be entered against the Borrower
under the federal bankruptcy laws as now or hereafter in effect;
(h) one or more judgments or decrees in an aggregate amount of Five
Million Dollars ($5,000,000) or more shall be entered by a court or courts of
competent jurisdiction against the Borrower, the General Partner or any Consoli-
dated Subsidiaries (other than any judgment as to which, and only to the extent,
a reputable insurance company has acknowledged coverage of such claim in writing
or has acknowledged in writing its willingness to defend any such claim under a
reservation of rights) and (i) any such judgments or decrees shall not be
stayed, discharged, paid, bonded or vacated within twenty (20) days or (ii)
enforcement proceedings shall be commenced by any creditor on any such
judgments or decrees;
(i) (i) a judgment or decree with respect to any Environmental Claim
shall have been entered against the Borrower or any Environmental Affiliate or
any Real Property Asset by a court of competent jurisdiction, (ii) any release,
emission, discharge or disposal of any Hazardous Substances shall have occurred,
and such event is reasonably likely to form the basis of an Environmental Claim
by a government agency with jurisdiction against the Borrower or any
Environmental Affiliate or any Real Property Asset thereof, or (iii) the
Borrower or the Environmental Affiliates shall have failed to obtain any
Environmental Approval necessary for the ownership, or operation of its
business, property or assets or any such Environmental Approval shall be
revoked, terminated, or otherwise cease to be in full force and effect, in each
case, if the existence of such condition has had or is reasonably likely to have
a Material Adverse Effect;
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(j) the General Partner shall cease to qualify as a real estate
investment trust under the Code;
(k) the Borrower shall cease to be managed by the General Partner or a
Subsidiary of the General Partner;
(l) there shall be a change in the majority of the Board of Directors
of the General Partner during any twelve month period;
(m) any Person (including affiliates of such Person) shall acquire more
than twenty percent (20%) of the common shares of the General Partner;
(n) any Person (including affiliates of such Person) shall acquire more
than twenty percent (20%) of the limited partnership interests of the Borrower;
(o) if, any Termination Event with respect to a Plan shall occur as a
result of which Termination Event or Events any member of the ERISA Group has
incurred or may incur any liability to the PBGC or any other Person and the sum
(determined as of the date of occurrence of such Termination Event) of the
insufficiency of such Plan and the insufficiency of any and all other Plans
with respect to which such a Termination Event shall occur and be continuing
(or, in the case of a Multi-Employer Plan with respect to which a Termination
Event described in clause (ii) of the definition of Termination Event shall
occur and be continuing, the liability of the Borrower and the ERISA Affiliates
related thereto) is equal to or greater than $1,000,000 and in the case of a
Termination Event with respect to a Plan of any ERISA Affiliate other than any
Borrower, the liability therefor could reasonably be asserted against any member
of the ERISA Group; or
(p) if any member of the ERISA Group shall commit a failure described
in Section 402(f)(1) of ERISA or Section 412(n)(1) of the Code and the amount of
the lien determined under Section 402(f)(3) of ERISA or Section 412(n)(3) of the
Code that could reasonably be expected to be imposed on any member of the ERISA
Group or their assets in respect of such failure shall be equal to or greater
than $1,000,000.
SECTION 6.2. Rights and Remedies. (a) Upon the occurrence of any Event
of Default described in Sections 6.1(f) or (g), the Commitments shall
immediately terminate and the unpaid principal amount of, and any and all
accrued interest on, the Loans and any and all accrued fees and other
Obligations hereunder shall automatically become immediately due and payable,
with all additional interest from time to time accrued thereon and without
presentation, demand, or protest or other requirements of any kind
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(including, without limitation, valuation and appraisement, diligence,
presentment, notice of intent to demand or accelerate and notice of
acceleration), all of which are hereby expressly waived by the Borrower; and
upon the occurrence and during the continuance of any other Event of Default,
the Agent may and at the direction of the Required Banks shall (until the Agent
receives such written direction, it may, but shall not be obligated to, take
such action, or refrain from taking such action with respect to such Event of
Default as it shall deem advisable in its sole discretion), by written notice
to the Borrower, terminate the Commitments, and may, and at the direction of the
Required Banks shall (until the Agent receives such written direction, it may,
but shall not be obligated to, take such action, or refrain from taking such
action with respect to such Event of Default as it shall deem advisable in its
sole discretion), in addition to the exercise of all rights and remedies
permitted Agent and the Banks at law or equity, declare the unpaid principal
amount of and any and all accrued and unpaid interest on the Loans and any and
all accrued fees and other Obligations hereunder to be, and the same shall
thereupon be, immediately due and payable with all additional interest from time
to time accrued thereon and without presentation, demand, or protest or other
requirements of any kind other than as provided in the Loan Documents
(including, without limitation, valuation and appraisement, diligence,
presentment, notice of intent to demand or accelerate and notice of
acceleration), all of which are hereby expressly waived by the Borrower to the
extent permitted by law.
(b) Notwithstanding anything to the contrary contained in this
Agreement or in any other Loan Document, the Agent and the Banks each agree that
any exercise or enforcement of the rights and remedies granted the Agent or the
Banks under this Agreement or at law or in equity with respect to this Agreement
or any other Loan Documents shall be commenced and maintained by the Agent on
behalf of the Banks.
SECTION 6.3. Notice of Default. The Agent shall give notice to the
Borrower under Section 6.1(c) promptly upon being requested to do so by any Bank
and shall thereupon notify all the Banks thereof.
ARTICLE VII
THE AGENT
SECTION 7.1. Appointment and Authorization. Each Bank irrevocably
appoints and authorizes the Agent to take such action as agent on its behalf and
to exercise such powers under this Agreement and the other Loan Documents as are
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delegated to the Agent by the terms hereof or thereof, together with all such
powers as are reasonably incidental thereto. Only Agent (and not one or more of
the Banks) shall have the authority to deal directly with the Borrower under
this Agreement and each Bank acknowledges that all notices, demands or requests
from such Bank to Borrower must be forwarded to Agent for delivery to the
Borrower. Each Bank acknowledges that Borrower has no obligation to act or
refrain from acting on instructions or demands of one or more Banks absent
written instructions from Agent in accordance with its rights and authority
hereunder.
SECTION 7.2. Agent and Affiliates. Morgan shall have the same rights
and powers under this Agreement as any other Bank and may exercise or refrain
from exercising the same as though it were not the Agent, and Morgan and its
affiliates may accept deposits from, lend money to, and generally engage in any
kind of business with the Borrower or any Subsidiary or affiliate of the
Borrower as if it were not the Agent hereunder, and the term "Bank" and "Banks"
shall include Morgan in its individual capacity.
SECTION 7.3. Action by Agent. The obligations of the Agent hereunder
are only those expressly set forth herein. Without limiting the generality of
the foregoing, the Agent shall not be required to take any action with respect
to any Default, except as expressly provided in Article VI.
SECTION 7.4. Consultation with Experts. The Agent may consult with
legal counsel (who may be counsel for the Borrower), independent public
accountants and other experts selected by it and shall not be liable for any
action taken or omitted to be taken by it in good faith in accordance with the
advice of such counsel, accountants or experts.
SECTION 7.5. Liability of Agent. Neither the Agent nor any of its
affiliates nor any of their respective directors, officers, agents or employees
shall be liable for any action taken or not taken by it in connection herewith
(i) with the consent or at the request of the Required Banks or (ii) in the
absence of its own gross negligence or willful misconduct. Neither the Agent nor
any of its directors, officers, agents or employees shall be responsible for or
have any duty to ascertain, inquire into or verify (i) any statement, warranty
or representation made in connection with this Agreement or any borrowing
hereunder; (ii) the performance or observance of any of the covenants or agree-
ments of the Borrower; (iii) the satisfaction of any condition specified in
Article III, except receipt of items required to be delivered to the Agent; or
(iv) the validity, effectiveness or genuineness of this Agreement, the other
Loan Documents or any other instrument or writing furnished in connection
herewith. The Agent shall not incur any
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liability by acting in reliance upon any notice, consent, certificate,
statement, or other writing (which may be a bank wire, telex or similar writing)
believed by it to be genuine or to be signed by the proper party or parties.
SECTION 7.6. Indemnification. Each Bank shall, ratably in accordance
with its Commitment, indemnify the Agent, its affiliates and their respective
directors, officers, agents and employees (to the extent not reimbursed by the
Borrower as may be required under this Agreement) against any cost, expense
(including counsel fees and disbursements), claim, demand, action, loss or
liability (except such as result from such indemnitees' gross negligence or
willful misconduct) that such indemnitees may suffer or incur in connection with
this Agreement, the other Loan Documents or any action taken or omitted by such
indemnitees hereunder.
SECTION 7.7. Credit Decision. Each Bank acknowledges that it has,
independently and without reliance upon the Agent or any other Bank, and based
on such documents and information as it has deemed appropriate, made its own
credit analysis and decision to enter into this Agreement. Each Bank also
acknowledges that it will, independently and without reliance upon the Agent or
any other Bank, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking any action under this Agreement.
SECTION 7.8. Successor Agent. The Agent may resign at any time by
giving notice thereof to the Banks and the Borrower. Upon any such resignation,
the Required Banks shall have the right to appoint a successor Agent and,
provided that no Event of Default shall have occurred and be continuing, the
appointment of such successor Agent shall be subject to the consent of Borrower,
which shall not be unreasonably withheld or delayed provided that any such
successor Agent is then a Bank hereunder. Furthermore, in the event that at any
time Morgan is the Agent and Morgan assigns its entire interest as a Bank
hereunder to an Assignee as permitted by Section 9.6(c) hereof, which Assignee
is not an affiliate of Morgan, then Morgan shall offer to resign as Agent, which
resignation shall only become effective if the Required Banks accept such
resignation in writing within twenty (20) Domestic Business Days after it has
been tendered by Morgan. If the Required Banks do not timely accept such
resignation, then the resignation shall be deemed to be withdrawn and Morgan
shall continue as Agent pursuant to the terms hereof. In addition, upon the
affirmative vote of the Required Banks that Agent has acted (or failed to act)
with gross negligence or committed an act of willful misconduct in its capacity
as agent for the Banks hereunder, the Agent shall immediately tender its
resigna-
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tion. If no successor Agent shall have been so appointed by the Required Banks,
and shall have accepted such appointment, within 30 days after the retiring
Agent gives notice of resignation, then the retiring Agent may, on behalf of the
Banks, appoint a successor Agent, which shall be a commercial bank organized or
licensed under the laws of the United States of America or of any State thereof
and having a combined capital and surplus of at least $50,000,000. Upon the
acceptance of its appointment as the Agent hereunder by a successor Agent, such
successor Agent shall thereupon succeed to and become vested with all the rights
and duties of the retiring Agent, and the retiring Agent shall be discharged
from its duties and obligations hereunder. After any retiring Agent's
resignation hereunder as Agent, the provisions of this Article shall inure to
its benefit as to any actions taken or omitted to be taken by it while it was
the Agent.
ARTICLE VIII
CHANGE IN CIRCUMSTANCES
SECTION 8.1. Basis for Determining Interest Rate Inadequate or Unfair.
If on or prior to the first day of any Interest Period for any Euro-Dollar
Borrowing:
(a) the Agent is advised by the Reference Bank that deposits in dollars
(in the applicable amounts) are not being offered to the Reference Bank in the
relevant market for such Interest Period, or
(b) Banks having 50% or more of the aggregate amount of the Commitments
advise the Agent that the Adjusted London Interbank Offered Rate as determined
by the Agent will not adequately and fairly reflect the cost to such Banks of
funding their Euro-Dollar Loans for such Interest Period, the Agent shall
forthwith give notice thereof to the Borrower and the Banks, whereupon until
the Agent notifies the Borrower that the circumstances giving rise to such
suspension no longer exist, the obligations of the Banks to make Europa-Dollar
Loans shall be suspended. Unless the Borrower notifies the Agent at least two
Domestic Business Days before the date of any Euro-Dollar Borrowing for which a
Notice of Borrowing has previously been given that it elects not to borrow on
such date, such Borrowing shall instead be made as a Base Rate Borrowing.
SECTION 8.2. Illegality. If, on or after the date of this Agreement,
the adoption of any applicable law, rule or regulation, or any change in any
applicable law, rule or regulation, or any change in the interpretation or
administration thereof by any governmental authority, central bank
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or comparable agency charged with the interpretation or administration thereof,
or compliance by any Bank (or its Euro-Dollar Lending Office) with any request
or directive (whether or not having the force of law) of any such authority,
central bank or comparable agency shall make it unlawful or impossible for any
Bank (or its Euro-Dollar Lending Office) to make, maintain or fund its
Euro-Dollar Loans and such Bank shall so notify the Agent, the Agent shall
forthwith give notice thereof to the other Banks and the Borrower, whereupon
until such Bank notifies the Borrower and the Agent that the circumstances
giving rise to such suspension no longer exist, the obligation of such Bank to
make Euro-Dollar Loans shall be suspended. Before giving any notice to the Agent
pursuant to this Section, such Bank shall designate a different Euro-Dollar
Lending Office if such designation will avoid the need for giving such notice
and will not, in the judgment of such Bank, be otherwise disadvantageous to such
Bank. If such Bank shall determine that it may not lawfully continue to maintain
and fund any of its outstanding Euro-Dollar Loans to maturity and shall so
specify in such notice, the Borrower shall immediately prepay in full the then
outstanding principal amount of each such Euro-Dollar Loan, together with
accrued interest thereon. Concurrently with prepaying each such Euro-Dollar
Loan, the Borrower shall borrow a Base Rate Loan in an equal principal amount
from such Bank (on which interest and principal shall be payable
contemporaneously with the related Euro-Dollar Loans of the other Banks), and
such Bank shall make such a Base Rate Loan.
SECTION 8.3. Increased Cost and Reduced Return.
(a) If, on or after the date hereof, the adoption of any applicable
law, rule or regulation, or any change in any applicable law, rule or
regulation, or any change in the interpretation or administration thereof by any
governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by any Bank (or its
Applicable Lending Office) with any request or directive (whether or not having
the force of law) of any such authority, central bank or comparable agency shall
impose, modify or deem applicable any reserve (including, without limitation,
any such requirement imposed by the Board of Governors of the Federal Reserve
System (but excluding with respect to any Euro-Dollar Loan any such requirement
reflected in an applicable Euro-Dollar Reserve Percentage)), special deposit,
insurance assessment or similar requirement against assets of, deposits with or
for the account of, or credit extended by, any Bank (or its Applicable Lending
Office) or shall impose on any Bank (or its Applicable Lending Office) or on the
London interbank market any other condition affecting its Euro-Dollar Loans, its
Note, or its obligation to make Euro-Dollar Loans, and
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the result of any of the foregoing is to increase the cost to such Bank (or its
Applicable Lending Office) of making or maintaining any Euro-Dollar Loan, or to
reduce the amount of any sum received or receivable by such Bank (or its
Applicable Lending Office) under this Agreement or under its Note with respect
thereto, by an amount deemed by such Bank to be material, then, within 15 days
after demand by such Bank (with a copy to the Agent), the Borrower shall pay to
such Bank such additional amount or amounts as will compensate such Bank for
such increased cost or reduction; provided, however, that such amounts shall be
no greater than that which such Bank is generally charging other borrowers simi-
larly situated to Borrower.
(b) If any Bank shall have determined that, after the date hereof, the
adoption of any applicable law, rule or regulation regarding capital adequacy,
or any change in any such law, rule or regulation, or any change in the inter-
pretation or administration thereof by any governmental authority, central bank
or comparable agency charged with the interpretation or administration thereof,
or any request or directive regarding capital adequacy (whether or not having
the force of law) of any such authority, central bank or comparable agency, has
or would have the effect of reducing the rate of return on capital of such Bank
(or its Parent) as a consequence of such Bank's obligations hereunder to a
level below that which such Bank (or its Parent) could have achieved but for
such adoption, change, request or directive (taking into consideration its
policies with respect to capital adequacy) by an amount deemed by such Bank to
be material, then from time to time, within 15 days after demand by such Bank
(with a copy to the Agent), the Borrower shall pay to such Bank such additional
amount or amounts as will compensate such Bank (or its Parent) for such
reduction; provided, however, that such amount shall be no greater than that
which such Bank is generally charging other borrowers similarly situated to
Borrower.
(c) Each Bank will promptly notify the Borrower and the Agent of any
event of which it has knowledge, occurring after the date hereof, which will
entitle such Bank to compensation pursuant to this Section and will designate a
different Applicable Lending Office if such designation will avoid the need for,
or reduce the amount of, such compensation and will not, in the judgment of
such Bank, be otherwise disadvantageous to such Bank. A certificate of any Bank
claiming compensation under this Section and setting forth the additional amount
or amounts to be paid to it hereunder shall be conclusive in the absence of
manifest error. In determining such amount, such Bank may use any reasonable
averaging and attribution methods.
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(d) Notwithstanding anything to the contrary contained herein, no Bank
shall demand compensation for any increased cost, reduction or capital referred
to above in Section 8.3(a) or (b) if it shall not at the time be the general
policy and practice of such Bank to demand such compensation in similar
circumstances from similarly situated borrowers.
SECTION 8.4. Taxes.
(a) Any and all payments by the Borrower to or for the account of any
Bank or the Agent hereunder or under any other Loan Document shall be made free
and clear of and without deduction for any and all present or future taxes,
duties, levies, imposts, deductions, charges or withholdings, and all
liabilities with respect thereto, excluding, in the case of each Bank and the
Agent, taxes imposed on its income, and franchise taxes imposed on it, by the
jurisdiction under the laws of which such Bank or the Agent (as the case may
be) is organized or any political subdivision thereof and, in the case of each
Bank, taxes imposed on its income, and franchise or similar taxes imposed on it,
by the jurisdiction of such Bank's Applicable Lending Office or any political
subdivision thereof (all such non-excluded taxes, duties, levies, imposts,
deductions, charges, withholdings and liabilities being hereinafter referred to
as "Taxes"). If the Borrower shall be required by law to deduct any Taxes from
or in respect of any sum payable hereunder or under any Note to any Bank or the
Agent, (i) the sum payable shall be increased as necessary so that after making
all required deductions (including deductions applicable to additional sums
payable under this Section 8.4) such Bank or the Agent (as the case may be)
receives an amount equal to the sum it would have received had no such
deductions been made, (ii) the Borrower shall make such deductions, (iii) the
Borrower shall pay the full amount deducted to the relevant taxation authority
or other authority in accordance with applicable law and (iv) the Borrower shall
furnish to the Agent, at its address referred to in Section 9.1, the original or
a certified copy of a receipt evidencing payment thereof.
(b) In addition, the Borrower agrees to pay any present or future
stamp or documentary taxes and any other excise or property taxes, or charges or
similar levies which arise from any payment made hereunder or under any Note or
from the execution or delivery of, or otherwise with respect to, this Agreement
or any Note (hereinafter referred to as "Other Taxes").
(c) The Borrower agrees to indemnify each Bank and the Agent for the
full amount of Taxes or Other Taxes (including, without limitation, any Taxes
or Other Taxes imposed or asserted by any jurisdiction on amounts payable under
this Section 8.4) paid by such Bank or the Agent (as the case may
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be) and any liability (including penalties, interest and expenses) arising
therefrom or with respect thereto. This indemnification shall be made within 15
days from the date such Bank or the Agent (as the case may be) makes demand
therefor.
(d) Each Bank organized under the laws of a jurisdiction outside the
United States, on or prior to the date of its execution and delivery of this
Agreement in the case of each Bank listed on the signature pages hereof and on
or prior to the date on which it becomes a Bank in the case of each other Bank,
and from time to time thereafter if requested in writing by the Borrower (but
only so long as such Bank remains lawfully able to do so), shall provide the
Borrower with Internal Revenue Service form 1001 or 4224, as appropriate, or any
successor form prescribed by the Internal Revenue Service, certifying that such
Bank is entitled to benefits under an income tax treaty to which the United
States is a party which reduces the rate of withholding tax on payments of
interest or certifying that the income receivable pursuant to this Agreement is
effectively connected with the conduct of a trade or business in the United
States. If the form provided by a Bank at the time such Bank first becomes a
party to this Agreement indicates a United States interest withholding tax rate
in excess of zero, withholding tax at such rate shall be considered excluded
from "Taxes" as defined in Section 8.4(a).
(e) For any period with respect to which a Bank has failed to provide
the Borrower with the appropriate form pursuant to Section 8.4(d) (unless such
failure is due to a change in treaty, law or regulation occurring subsequent to
the date on which a form originally was required to be provided), such Bank
shall not be entitled to indemnification under Section 8.4(a) with respect to
Taxes imposed by the United States; provided, however, that should a Bank, which
is otherwise exempt from or subject to a reduced rate of withholding tax, become
subject to Taxes because of its failure to deliver a form required hereunder,
the Borrower shall take such steps as such Bank shall reasonably request to
assist such Bank to recover such Taxes.
(f) If the Borrower is required to pay additional amounts to or for the
account of any Bank pursuant to this Section 8.4, then such Bank will change the
jurisdiction of its Applicable Lending Office so as to eliminate or reduce any
such additional payment which may thereafter accrue if such change, in the
judgment of such Bank, is not otherwise disadvantageous to such Bank.
(g) If circumstances subsequently change so that it is no longer
unlawful for an affected Bank to make or maintain Euro-Dollar Loans as
contemplated hereunder, such Bank will,
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as soon as reasonably practicable after such Bank becomes aware of such change
in circumstances, notify the Borrower and the Agent and upon receipt of such
notice, the obligations of such Bank to make or continue Euro-Dollar Loans or
to convert Base Rate Loans into Euro-Dollar Loans shall be reinstated.
SECTION 8.5. Base Rate Loans Substituted for Affected Euro-Dollar
Loans. If (i) the obligation of any Bank to make Euro-Dollar Loans has been
suspended pursuant to Section 8.2 or (ii) any Bank has demanded compensation
under Section 8.3 or 8.4 with respect to its Euro-Dollar Loans and the Borrower
shall, by at least five Euro-Dollar Business Days' prior notice to such Bank
through the Agent, have elected that the provisions of this Section shall apply
to such Bank, then, unless and until such Bank notifies the Borrower that the
circumstances giving rise to such suspension or demand for compensation no
longer exist:
(a) all Loans which would otherwise be made by such Bank as Euro-Dollar
Loans shall be made instead as Base Rate Loans (on which interest and principal
shall be payable contemporaneously with the related Euro-Dollar Loans of the
other Banks), and
(b) after each of its Euro-Dollar Loans has been repaid, all payments
of principal which would otherwise be applied to repay such Euro-Dollar Loans
shall be applied to repay its Base Rate Loans instead.
ARTICLE IX
MISCELLANEOUS
SECTION 9.1. Notices. All notices, requests and other communications to
any party hereunder shall be in writing (including bank wire, facsimile,
facsimile transmission or similar writing) and shall be given to such party: (x)
in the case of the Borrower or the Agent, at its address or facsimile number set
forth on the signature pages hereof, (y) in the case of any Bank, at its address
or facsimile number set forth in its Administrative Questionnaire or (z) in the
case of any party, such other address or facsimile number as such party may
hereafter specify for the purpose by notice to the Agent and the Borrower. Each
such notice, request or other communication shall be effective (i) if given by
facsimile, when such facsimile is transmitted to the facsimile number specified
in this Section and the appropriate answer back is received, (ii) if given by
mail, 72 hours after such communication is deposited in the mails with first
class postage prepaid, addressed as aforesaid or
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(iii) if given by any other means, when delivered at the address specified in
this Section; provided that notices to the Agent under Article II or Article
VIII shall not be effective until received.
SECTION 9.2. No Waivers. No failure or delay by the Agent or any Bank
or Borrower in exercising any right, power or privilege hereunder or under any
Note shall operate as a waiver thereof nor shall any single or partial exercise
thereof preclude any other or further exercise thereof or the exercise of any
other right, power or privilege. The rights and remedies herein provided shall
be cumulative and not exclusive of any rights or remedies provided by law.
SECTION 9.3. Expenses; Indemnification.
(a) The Borrower shall pay (i) all reasonable out-of-pocket expenses of
the Agent, including, without limitation, appraisal fees, engineering fees, and
fees and disbursements of Skadden, Arps, Slate, Meagher & Flom LLP, counsel for
the Agent, as well as fees and disbursements of internal counsel, in connection
with the preparation, syndications and administration of this Agreement, the
Loan Documents and the documents and instruments referred to therein, and
further modifications or syndications of the Facility in connection therewith,
the administration of the Loans, any waiver or consent hereunder or any
amendment or modification hereof or any Default or Event of Default hereunder,
and (ii) if an Event of Default occurs, all reasonable out-of-pocket expenses
incurred by the Agent and each Bank, including fees and disbursements of counsel
for the Agent and each of the Banks, in connection with the enforcement of the
Loan Documents and the instruments referred to therein and such Event of
Default and collection, bankruptcy, insolvency and other enforcement proceedings
resulting therefrom.
(b) The Borrower agrees to indemnify the Agent and each Bank, their
respective affiliates and the respective directors, officers, agents and
employees of the foregoing (each an "Indemnitee") and hold each Indemnitee
harmless from and against any and all liabilities, losses, damages, costs and
expenses of any kind, including, without limitation, the reasonable fees and
disbursements of counsel, which may be incurred by such Indemnitee in connection
with any investigative, administrative or judicial proceeding (whether or not
such Indemnitee shall be designated a party thereto) that may at any time
(including, without limitation, at any time following the payment of the
Obligations) be imposed on, asserted against or incurred by any Indemnitee as a
result of, or arising out of, or in any way related to or by reason of, (i) any
of the transactions contemplated by the Loan Documents or the execution,
delivery or performance of any Loan Document, (ii) any violation by the Bor-
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rower or the Environmental Affiliates of any applicable Environmental Law, (iii)
any Environmental Claim arising out of the management, use, control, ownership
or operation of property or assets by the Borrower or any of the Environmental
Affiliates, including, without limitation, all on-site and off-site activities
involving Hazardous Substances, (iv) the breach of any environmental
representation or warranty set forth herein, (v) the grant to the Agent and the
Banks of any Lien in any property or assets of the Borrower or any stock or
other equity interest in the Borrower, and (vi) the exercise by the Agent and
the Banks of their rights and remedies (including, without limitation,
foreclosure) under any agreements creating any such Lien (but excluding, as to
any Indemnitee, any such losses, liabilities, claims, damages, expenses,
obligations, penalties, actions, judgments, suits, costs or disbursements
incurred by reason of (i) the gross negligence or willful misconduct of such
Indemnitee as finally determined by a court of competent jurisdiction, (ii) the
breach of this Agreement by such Indemnitee, as finally determined by a court of
competent jurisdiction and (iii) any investigative, administrative or judicial
proceeding imposed or asserted against any Indemnitee by any bank regulatory
agency or by any equity holder of such Indemnitee). The Borrower's obligations
under this Section shall survive the termination of this Agreement and the
payment of the Obligations.
(c) The Borrower shall pay, and hold the Agent and each of the Banks
harmless from and against, any and all present and future U.S. stamp, recording,
transfer and other similar foreclosure related taxes with respect to the
foregoing matters and hold the Agent and each Bank harmless from and against any
and all liabilities with respect to or resulting from any delay or omission
(other than to the extent attributable to such Bank) to pay such taxes.
SECTION 9.4. Sharing of Set-Offs. In addition to any rights now or
hereafter granted under applicable law or otherwise, and not by way of
limitation of any such rights, upon the occurrence and during the continuance of
any Event of Default, each Bank is hereby authorized at any time or from time to
time, without presentment, demand, protest or other notice of any kind to the
Borrower or to any other Person, any such notice being hereby expressly waived,
to set off and to appropriate and apply any and all deposits (general or
special, time or demand, provisional or final) and any other indebtedness at any
time held or owing by such Bank (including, without limitation, by branches and
agencies of such Bank wherever located) to or for the credit or the account of
the Borrower against and on account of the Obligations of the Borrower then due
and payable to such Bank under this Agreement or under any of the other Loan
Documents, including, without limitation, all interests in
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Obligations purchased by such Bank. Each Bank agrees that if it shall, by
exercising any right of set-off or counterclaim or otherwise, receive payment
of a proportion of the aggregate amount of principal and interest due with
respect to any Note held by it which is greater than the proportion received by
any other Bank in respect of the aggregate amount of principal and interest due
with respect to any Note held by such other Bank, the Bank receiving such
proportionately greater payment shall purchase such participations in the Notes
held by the other Banks, and such other adjustments shall be made, as may be
required so that all such payments of principal and interest with respect to
the Notes held by the Banks shall be shared by the Banks pro rata; provided that
nothing in this Section shall impair the right of any Bank to exercise any right
of set-off or counterclaim it may have and to apply the amount subject to such
exercise to the payment of indebtedness of the Borrower other than its
indebtedness under the Notes. The Borrower agrees, to the fullest extent it may
effectively do so under applicable law, that any holder of a participation in a
Note, whether or not acquired pursuant to the foregoing arrangements, may
exercise rights of set-off or counterclaim and other rights with respect to such
participation as fully as if such holder of a participation were a direct
creditor of the Borrower in the amount of such participation. Notwithstanding
anything to the contrary contained herein, any Bank may, by separate agreement
with the Borrower, waive its right to set off contained herein or granted by law
and any such written waiver shall be effective against such Bank under this
Section 9.4.
SECTION 9.5. Amendments and Waivers. Any provision of this Agreement or
the Notes or other Loan Documents may be amended or waived if, but only if, such
amendment or waiver is in writing and is signed by the Borrower and the Required
Banks (and, if the rights or duties of the Agent are affected thereby, by the
Agent); provided that no such amendment or waiver shall, unless signed by all
the Banks, (i) increase or decrease the Commitment of any Bank (except for a
ratable decrease in the Commitments of all Banks) or subject any Bank to any
additional obligation, or increase the Maximum Loan Amount, (ii) reduce the
principal of or rate of interest on any Loan or any fees hereunder, except as
provided below, (iii) postpone the date fixed for any payment of principal of
or interest on any Loan or any fees hereunder or for any reduction or
termination of any Commitment, (iv) change the percentage of the Commitments or
of the aggregate unpaid principal amount of the Notes, or the number of Banks,
which shall be required for the Banks or any of them to take any action under
this Section or any other provision of this Agreement, (v) release any guarantor
or any Guaranty, (vi) modify any Guaranty, or (vii) modify this Section 9.5.
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SECTION 9.6. Successors and Assigns.
(a) The provisions of this Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and assigns,
except that the Borrower may not assign or otherwise transfer any of its rights
under this Agreement or the other Loan Documents without the prior written
consent of all Banks except as permitted by Section 5.10 hereof.
(b) Any Bank may at any time grant to one or more banks or other
institutions (each a "Participant") participating interests in its Commitment
or any or all of its Loans. In the event of any such grant by a Bank of a par-
ticipating interest to a Participant, whether or not upon notice to the Borrower
and the Agent, such Bank shall remain responsible for the performance of its
obligations hereunder, and the Borrower and the Agent shall continue to deal
solely and directly with such Bank in connection with such Bank's rights and
obligations under this Agreement. Any agreement pursuant to which any Bank may
grant such a participating interest shall provide that such Bank shall retain
the sole right and responsibility to enforce the obligations of the Borrower
hereunder including, without limitation, the right to approve any amendment,
modification or waiver of any provision of this Agreement; provided that such
participation agreement may provide that such Bank will not agree to any
modification, amendment or waiver of this Agreement described in clause (i),
(ii), (iii) or (iv) of Section 9.5 without the consent of the Participant. The
Borrower agrees that each Participant shall, to the extent provided in its
participation agreement, be entitled to the benefits of Article VIII with
respect to its participating interest. An assignment or other transfer which is
not permitted by subsection (c) or (d) below shall be given effect for purposes
of this Agreement only to the extent of a participating interest granted in
accordance with this subsection (b).
(c) Any Bank may at any time assign to one or more banks or other
institutions (each an "Assignee") all, or a proportionate part of all, of its
rights and obligations under this Agreement, the Notes and the other Loan Docu-
ments, and such Assignee shall assume such rights and obligations, pursuant to
an Assignment and Assumption Agreement in substantially the form of Exhibit C
hereto executed by such Assignee and such transferor Bank, with (and subject to)
the subscribed consent of the Borrower and the Agent which consent shall not be
unreasonably withheld; provided that if an Assignee is an affiliate of such
transferor Bank, no such consent shall be required provided that the rating of
such affiliate's senior unsecured indebtedness shall be at least investment
grade at such time (although nothing
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contained herein shall limit the right of any Bank to assign its interest herein
as aforesaid to any successor by merger or consolidation); provided further,
until such time as an Event of Default has occurred and subject to the
provisions of subsection (d) of this Section 9.6 and any reduction pursuant to
Section 2.10(c) hereof, at all times during the Term, Morgan or an affiliate of
Morgan shall retain a minimum Commitment of $10,000,000 unless (i) required by
law, regulation, administrative decree or court order to divest all or any part
of such Commitment or (ii) a lesser amount is consented to by Borrower; and
provided further that, upon the occurrence and during the continuation of an
Event of Default, a Bank may assign its interest herein to an affiliate,
regardless of rating and furthermore that Borrower shall have no right to
consent to any Assignee. Upon execution and delivery of such instrument and
payment by such Assignee to such transferor Bank of an amount equal to the
purchase price agreed between such transferor Bank and such Assignee, such
Assignee shall be a Bank party to this Agreement and shall have all the rights
and obligations of a Bank with a Commitment as set forth in such instrument of
assumption, and the transferor Bank shall be released from its obligations
hereunder to a corresponding extent, and no further consent or action by any
party shall be required. Upon the consummation of any assignment pursuant to
this subsection (c), the transferor Bank, the Agent and the Borrower shall make
appropriate arrangements so that, if required, a new Note is issued to the
Assignee. In connection with any such assignment, the transferor Bank shall pay
to the Agent an administrative fee for processing such assignment in the amount
of $2,500. If the Assignee is not incorporated under the laws of the United
States of America or a state thereof, it shall deliver to the Borrower and the
Agent certification as to exemption from deduction or withholding of any United
States federal income taxes in accordance with Section 8.4.
(d) Any Bank may at any time assign all or any portion of its rights
under this Agreement and its Note to a Federal Reserve Bank. No such assignment
shall release the transferor Bank from its obligations hereunder. Promptly upon
being notified in writing of such transfer, Agent shall notify Borrower thereof.
(e) No Assignee, Participant or other transferee of any Bank's rights
shall be entitled to receive any greater payment under Section 8.3 or 8.4 than
such Bank would have been entitled to receive with respect to the rights trans-
ferred, unless such transfer is made with the Borrower's prior written consent
or by reason of the provisions of Section 8.2, 8.3 or 8.4 requiring such Bank to
designate a different Applicable Lending Office under certain circum-
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stances or at a time when the circumstances giving rise to such greater payment
did not exist.
SECTION 9.7. Collateral. Each of the Banks represents to the Agent and
each of the other Banks that it in good faith is not relying upon any "margin
stock" (as defined in Regulation U) as collateral in the extension or
maintenance of the credit provided for in this Agreement.
SECTION 9.8. Governing Law; Submission to Jurisdiction. (a) THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HEREUNDER AND THEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE
GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.
(b) Any legal action or proceeding with respect to this Agreement or
any other Loan Document and any action for enforcement of any judgment in
respect thereof may be brought in the courts of the State of New York or of the
United States of America for the Southern District of New York, and, by
execution and delivery of this Agreement, the Borrower hereby accepts for itself
and in respect of its property, generally and unconditionally, the non-exclusive
jurisdiction of the aforesaid courts and appellate courts from any thereof. The
Borrower irrevocably consents to the service of process out of any of the
aforementioned courts in any such action or proceeding by the hand delivery, or
mailing of copies thereof by registered or certified mail, postage prepaid, to
the Borrower at its address set forth below. The Borrower hereby irrevocably
waives, to the extent permitted by applicable law, any objection which it may
now or hereafter have to the laying of venue of any of the aforesaid actions or
proceedings arising out of or in connection with this Agreement or any other
Loan Document brought in the courts referred to above and hereby further
irrevocably waives, to the extent permitted by applicable law, and agrees not to
plead or claim in any such court that any such action or proceeding brought in
any such court has been brought in an inconvenient forum. Nothing herein shall
affect the right of the Agent, any Bank or any holder of a Note to serve process
in any other manner permitted by law or to commence legal proceedings or
otherwise proceed against the Borrower in any other jurisdiction.
Section 9.9. Marshalling; Recapture. Neither the Agent nor any Bank
shall be under any obligation to marshall any assets in favor of the Borrower or
any other party or against or in payment of any or all of the Obligations. To
the extent any Bank receives any payment by or on behalf of the Borrower, which
payment or any part thereof is subsequently invalidated, declared to be
fraudulent or preferential, set aside or required to be repaid to the Borrower
or its estate, trustee, receiver, custodian or any other party
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under any bankruptcy law, state or federal law, common law or equitable cause,
then to the extent of such payment or repayment, the Obligation or part thereof
which has been paid, reduced or satisfied by the amount so repaid shall be
reinstated by the amount so repaid and shall be included within the liabilities
of the Borrower to such Bank as of the date such initial payment, reduction or
satisfaction occurred.
SECTION 9.10. Counterparts; Integration; Effectiveness. This Agreement
may be signed in any number of counterparts, each of which shall be an
original, with the same effect as if the signatures thereto and hereto were upon
the same instrument. This Agreement constitutes the entire agreement and
understanding among the parties hereto and supersedes any and all prior
agreements and understandings, oral or written, relating to the subject matter
hereof. This Agreement shall become effective upon receipt by the Agent of
counterparts hereof signed by each of the parties hereto (or, in the case of any
party as to which an executed counterpart shall not have been received, receipt
by the Agent in form satisfactory to it of telegraphic, telex or other written
confirmation from such party of execution of a counterpart hereof by such
party).
SECTION 9.11. WAIVER OF JURY TRIAL. EACH OF THE BORROWER, THE AGENT AND
THE BANKS HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY
IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY.
SECTION 9.12. Survival. All indemnities set forth herein shall survive
the execution and delivery of this Agreement and the other Loan Documents and
the making and repayment of the Loans hereunder.
SECTION 9.13. Domicile of Loans. Each Bank may transfer and carry its
Loans at, to or for the account of any domestic or foreign branch office,
subsidiary or affiliate of such Bank.
SECTION 9.14. Limitation of Liability. No claim may be made by the
Borrower or any other Person against the Agent or any Bank or the affiliates,
directors, officers, employees, attorneys or agent of any of them for any
consequential or punitive damages in respect of any claim for breach of
contract or any other theory of liability arising out of or related to the
transactions contemplated by this Agreement or by the other Loan Documents, or
any act, omission or event occurring in connection therewith; and the Borrower
hereby waives, releases and agrees not to sue upon any claim for any such
damages, whether or not accrued and whether or not known or suspected to exist
in its favor.
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SECTION 9.15. Recourse. All obligations, covenants and agreements of
Borrower contained in or evidenced by this Agreement, the Notes and any Loan
Document shall be fully recourse to Borrower and each and every asset of
Borrower. Notwithstanding the foregoing, no recourse under or upon any
obligation, covenant, or agreement contained in this Agreement or the Note or
any Loan Document shall be had against any officer, director, limited partner,
shareholder or employee of Borrower or of the General Partner (each, a
"Non-Recourse Party") and no such Non-Recourse Party shall be personally liable
for payment of the Loans or other amounts due in respect thereof (all such
liability being expressly waived and released by each Bank and the Agent). In no
event shall the foregoing limitation on recourse with respect to any
Non-Recourse Party be deemed to limit (a) the liability of the General Partner
under the General Partner Guaranty, which shall be fully recourse to the General
Partner and each and every asset of the General Partner or (b) the liability of
any Subsidiary Guarantor under any Subsidiary Guaranty, which shall be fully
recourse to each such Subsidiary Guarantor and each and every asset of each such
Subsidiary Guarantor.
SECTION 9.16. Confidentiality. Each Bank and the Agent agrees that it
shall maintain confidentiality with regard to nonpublic information concerning
the Borrower or the General Partner obtained from the Borrower or the General
Partner pursuant to this Agreement, provided that the Banks and the Agent shall
not be precluded from making disclosure regarding such information: (i) to the
Banks' and Agent's counsel, accountants and other professional advisors (who
are, in each case, subject to this confidentiality agreement), (ii) to
officers, directors, employees, agents and partners of each Bank, and the Agent
who need to know such information (who are, in each case, subject to this
confidentiality agreement), (iii) in response to a subpoena or order of a court
or governmental agency, (iv) to any entity participating or considering
participating in any credit made under this Agreement, provided, the Banks and
Agent shall require that any such entity be subject to this Section 9.16,
however, Banks and Agent shall have no duty to monitor any participating entity
and shall have no liability in the event that any participating entity violates
this Section 9.16, (v) in connection with the enforcement of this Agreement, the
Notes or the other Loan Documents, or (vi) as required by law, GAAP or
applicable regulation. In connection with enforcing its rights pursuant to this
Section 9.16, Borrower and the General Partner shall be entitled to the
equitable remedies of specific performance and injunctive relief against the
Agent or any Bank which shall breach the confidentiality provisions of this
Section 9.16.
78
<PAGE> 84
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
AMB PROPERTY, L.P.,
a Delaware limited partnership
By: AMB PROPERTY CORPORATION, a Maryland
corporation and its sole general
partner
By:_____________________________
Name:
Title:
505 Montgomery Street
San Francisco, CA 94111
Attention: Chief Financial Officer
Facsimile No.: (415) 394-9001
Commitment Agent and Bank
- ---------- --------------
$55,000,000 MORGAN GUARANTY TRUST COMPANY OF NEW YORK
By:_____________________________
Name: Timothy O'Donovan
Title: Vice President
c/o J.P. Morgan Services Inc.
500 Stanton Christiana Road
Newark, DE 19713-2107
Attention: Jennifer Van Landingham
Telecopy: (302) 634-4222
DOMESTIC AND EURO-DOLLAR
LENDING OFFICE:
c/o J.P. Morgan Services Inc.
500 Stanton Christiana Road
Newark, DE 19713-2107
Attention: Jennifer Van Landingham
Telecopy: (302) 634-4222
<PAGE> 85
Signature Page to AMB Property, L.P. Second Amended and Restated
Credit Agreement
Commitment Co-Agent and Bank
- ---------- -----------------
$50,000,000 COMMERZBANK AKTIENGESELLSCHAFT, LOS AN
GELES BRANCH
By:_____________________________
Name:
Title:
By:_____________________________
Name:
Title:
DOMESTIC AND EURO-DOLLAR
LENDING OFFICE:
Commerzbank AG
660 S. Figueroa Street
Los Angeles, California
Attention: Steve Larsen
Telecopy: (213) 623-8223
and to:
Commerzbank AG
Two World Financial Center
New York, NY 10281-1050
Attention: David Schwartz, Vice President
Telecopy: 212-266-7530
<PAGE> 86
Signature Page to AMB Property, L.P. Second Amended and Restated
Credit Agreement
Commitment Co-Agent and Bank
- ---------- -----------------
$50,000,000 FLEET NATIONAL BANK
By:_____________________________
Name:
Title:
DOMESTIC AND EURO-DOLLAR
LENDING OFFICE:
Fleet Bank
111 Westminster Street
Providence, RI 02903
Attention: Debbie Fox
Telecopy: (401) 278-5166
<PAGE> 87
Signature Page to AMB Property, L.P. Second Amended and Restated
Credit Agreement
Commitment Co-Agent and Bank
- ---------- -----------------
$50,000,000 NATIONSBANK OF TEXAS, N.A.
By:_____________________________
Name:
Title:
DOMESTIC AND EURO-DOLLAR LENDING OFFICE:
NationsBank of Texas, N.A.
901 Main Street, 51st Floor
Dallas, Texas 75202-3714
Attn: David Howard
Telecopy: (214) 508-0085
<PAGE> 88
Signature Page to AMB Property, L.P. Second Amended and Restated
Credit Agreement
Commitment Co-Agent and Bank
- ---------- -----------------
$50,000,000 PNC BANK, NATIONAL ASSOCIATION
By:_____________________________
Name:
Title:
DOMESTIC AND EURO-DOLLAR LENDING OFFICE:
PNC Bank
One PNC Plaza
249 Fifth Avenue
Pittsburgh, PA 15222-2707
Attn: David Martens
Telecopy: (412) 762-6500
<PAGE> 89
Signature Page to AMB Property, L.P. Second Amended and Restated
Credit Agreement
Commitment Bank
- ---------- ----
$45,000,000 BANK OF AMERICA, National Trust and Sav
ings Association
By:_____________________________
Name:
Title:
DOMESTIC AND EURO-CURRENCY
LENDING OFFICE:
Bank of America NT & SA
CRESG National 9105
50 California Street, 11th floor
San Francisco, California 94111
Attn: Laurence Hughes
Telecopy: (415) 445-4154
<PAGE> 90
Signature Page to AMB Current Income Fund, Inc. Second Amended and
Restated Credit Agreement
Commitment Bank
- ---------- ----
$35,000,000 DRESDNER BANK AG, NEW YORK AND GRAND
CAYMAN BRANCHES
By:_____________________________
Name:
Title:
By:_____________________________
Name:
Title:
DOMESTIC AND EURO-DOLLAR
LENDING OFFICE:
Dresdner Bank AG
333 South Grand Avenue, Suite 1700
Los Angeles, CA 90071
Attention: Vitol Wiacek
Telecopy: (213) 473-5450
<PAGE> 91
Signature Page to AMB Property, L.P. Second Amended and Restated
Credit Agreement
Commitment Bank
- ---------- ----
$25,000,000 THE BANK OF NOVA SCOTIA, acting through
its San Francisco Agency
By:_____________________________
Name: Paul Stiplosek
Title: Relationship Manager
DOMESTIC AND EURO-DOLLAR
LENDING OFFICE:
Bank of Nova Scotia
580 California Street, 48th floor
San Francisco, CA 94104
Attn: Office Head, Real Estate Banking
Telecopy: (415) 397-0791
<PAGE> 92
Signature Page to AMB Property, L.P. Second Amended and Restated
Credit Agreement
Commitment Bank
- ---------- ----
$30,000,000 CORESTATES BANK, N.A.
By:_____________________________
Name:
Title:
DOMESTIC AND EURO-DOLLAR LENDING OFFICE:
CoreStates Bank
FC 1-8-10-67
1339 Chestnut Street
Philadelphia, PA 19107-7618
Attn: R. Scott Relick, Vice President
Telecopy: 215-786-6381
<PAGE> 93
Signature Page to AMB Property, L.P. Second Amended and Restated
Credit Agreement
Commitment Bank
- ---------- ----
$25,000,000 THE INDUSTRIAL BANK OF JAPAN, LIMITED
LOS ANGELES AGENCY
By:_____________________________
Name:
Title:
By:_____________________________
Name:
Title:
DOMESTIC AND EURO-DOLLAR LENDING OFFICE:
Industrial Bank of Japan, Limited
350 South Grand Avenue, Suite 1500
Los Angeles, CA 90071
Attn: Hiroshi Maekawa
Telecopy: 213-488-9840
<PAGE> 94
Signature Page to AMB Property, L.P. Second Amended and Restated
Credit Agreement
Commitment Bank
- ---------- ----
$15,000,000 UNION BANK OF CALIFORNIA, N.A.
By:_____________________________
Name:
Title:
By:_____________________________
Name:
Title:
DOMESTIC AND EURO-DOLLAR LENDING OFFICE:
Union Bank of California, N.A.
San Francisco Corporate Office
350 California Street, 7th Floor
San Francisco, CA 94104
Attn: Diana Giacomini
Telecopy: 415-433-7438
<PAGE> 95
Signature Page to AMB Property, L.P. Second Amended and Restated
Credit Agreement
Commitment Bank
- ---------- ----
$30,000,000 BANKERS TRUST COMPANY
By:_____________________________
Name:
Title:
DOMESTIC AND EURO-DOLLAR LENDING OFFICE:
BT Alex Brown Company
BT Plaza
130 Liberty Street
New York, New York 10006
Attn: Kathleen McCabe
Fax: (212) 669-0752
<PAGE> 96
Signature Page to AMB Property, L.P. Second Amended and Restated
Credit Agreement
Commitment Bank
- ---------- ----
$40,000,000 SOCIETE GENERALE, Southwest Agency
By:_____________________________
Name: Robert N. Delph
Title: Vice President
DOMESTIC AND EURO-DOLLAR LENDING OFFICE:
Societe Generale
Trammell Crow Center
2001 Ross Avenue, Suite 4800
Dallas, Texas 75201
Attn: Robert N. Delph
Telecopy: (214) 979-2727
<PAGE> 97
Total Commitments
$500,000,000 MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, as Agent
By:_____________________________
Name: Timothy O'Donovan
Title: Vice President
c/o J.P. Morgan Services Inc.
500 Stanton Christiana Road
Newark, DE 19713-2107
Attn: Jennifer Van Landingham
Telecopy: (302) 634-4222
FUNDING INSTRUCTIONS:
Morgan Guaranty Trust Company of
New York
60 Wall Street
New York, New York 10260-0060
ABA # 021 000 238
For Credit to: Loan Department
Account Number 999-99-090
Reference: AMB Property, L.P.
<PAGE> 98
EXHIBIT A
FORM OF NOTE
NOTE
$ ________________ New York, New York
____________, 199_
For value received, AMB Property, L.P., a Delaware limited partnership
(the "Borrower"), promises to pay to the order of ____________ (the "Bank"), for
the account of its Applicable Lending Office, the unpaid principal amount of
each Loan made by the Bank to the Borrower pursuant to the Credit Agreement
referred to below on the last day of the Interest Period relating to such Loan.
The Borrower promises to pay interest on the unpaid principal amount of each
such Loan on the dates and at the rate or rates provided for in the Credit
Agreement. All such payments of principal and interest shall be made in lawful
money of the United States in Federal or other immediately available funds at
the office of Morgan Guaranty Trust Company of New York, 60 Wall Street, New
York, New York.
All Loans made by the Bank, the respective types and maturities thereof
and all repayments of the principal thereof shall be recorded by the Bank and,
if the Bank so elects in connection with any transfer or enforcement hereof,
appropriate notations to evidence the foregoing information with respect to
each such Loan then outstanding may be endorsed by the Bank on the schedule
attached hereto, or on a continuation of such schedule attached to and made a
part hereof; provided that the failure of the Bank to make any such recordation
or endorsement shall not affect the obligations of the Borrower hereunder or
under the Credit Agreement.
This note is one of the Notes referred to in the Second Amended and
Restated Revolving Credit Agreement dated as of November 26, 1997 among the
Borrower, the banks listed on the signature pages thereof and Morgan Guaranty
Trust Company of New York, as Agent and Commerzbank Aktiengesellschaft, Los
Angeles Branch, Fleet National Bank, NationsBank of Texas, N.A. and PNC Bank,
N.A., as Co-Agents (as the same may be amended from time to time, the "Credit
Agreement"). Terms defined in the Credit Agreement are used
A-1
<PAGE> 99
herein with the same meanings. Reference is made to the Credit Agreement for
provisions for the prepayment hereof and the acceleration of the maturity
hereof.
All obligations, covenants and agreements contained or
evidenced in this Note, shall be fully recourse to Borrower and each and every
asset of Borrower. Notwithstanding the foregoing, no recourse under or upon any
obligation, covenant, agreement contained in this Note shall be had against any
Non-Recourse Party (as defined in the Credit Agreement) and no such Non-Recourse
Party shall be personally liable for payment of the Loans or other amounts due
in respect thereof (all such liability being expressly waived and released by
each Bank and the Agent). In no event shall the foregoing limitation on recourse
with respect to any Non-Recourse Party be deemed to limit (a) the liability of
the General Partner under the General Partner Guaranty, which shall be fully
recourse to the General Partner and each and every asset of the General Partner
or (b) the liability of any Subsidiary Guarantor under any Subsidiary Guaranty,
which shall be fully recourse to each such Subsidiary Guarantor and each and
every asset of each such Subsidiary Guarantor.
AMB PROPERTY, L.P.
By: AMB PROPERTY CORPORATION, a
Maryland corporation and its
sole general partner
By: _____________________________
Name:
Title:
A-2
<PAGE> 100
Note (cont'd)
LOANS AND PAYMENTS OF PRINCIPAL
- --------------------------------------------------------------------------------
Amount of
Amount of Type of Principal Maturity Notation
Date Loan Loan Repaid Date Made By
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
A-3
<PAGE> 101
EXHIBIT B
See Attached.
B-1
<PAGE> 102
EXHIBIT C
ASSIGNMENT AND ASSUMPTION AGREEMENT
AGREEMENT dated as of __________, 199_ among [ASSIGNOR] (the "Assignor"),
[ASSIGNEE] (the "Assignee"), AMB PROPERTY, L.P. (the "Borrower") and MORGAN
GUARANTY TRUST COMPANY OF NEW YORK, as Agent (the "Agent").
W I T N E S S E T H
WHEREAS, this Assignment and Assumption Agreement (the "Assignment")
relates to the Second Amended and Restated Revolving Credit Agreement dated as
of November 26, 1997 (the "Credit Agreement") among the Borrower, the Assignor
and the other Banks party thereto, as Banks, and the Agent;
WHEREAS, as provided under the Credit Agreement, the Assignor has a
Commitment to make Loans to the Borrower in an aggregate principal amount at any
time outstanding not to exceed $__________;
WHEREAS, Loans made to the Borrower by the Assignor under the Credit
Agreement in the aggregate principal amount of $____________ are outstanding at
the date hereof; and
WHEREAS, the Assignor proposes to assign to the Assignee all of the
rights of the Assignor under the Credit Agreement in respect of a portion of
its Commitment thereunder in an amount equal to $__________ (the "Assigned
Amount"), together with a corresponding portion of its outstanding Loans, and
the Assignee proposes to accept assignment of such rights and assume the
corresponding obligations from the Assignor on such terms;
NOW, THEREFORE, in consideration of the foregoing and the mutual agreements
contained herein, the parties hereto agree as follows:
SECTION 1. Definitions. All capitalized terms not otherwise defined herein
shall have the respective meanings set forth in the Credit Agreement.
SECTION 2. Assignment. The Assignor hereby assigns and sells to the Assignee all
of the rights of the Assignor under the Credit Agreement to the extent of the
Assigned Amount, and the Assignee hereby accepts such assignment from the
Assignor and assumes all of the obligations of the
C-1
<PAGE> 103
Assignor under the Credit Agreement to the extent of the Assigned Amount,
including the purchase from the Assignor of the corresponding portion of the
principal amount of the Loans made by the Assignor outstanding at the date
hereof. Upon the execution and delivery hereof by the Assignor, the Assignee,
the Borrower and the Agent and the payment of the amounts specified in Section 3
required to be paid on the date hereof (i) the Assignee shall, as of the date
hereof, succeed to the rights and be obligated to perform the obligations of a
Bank under the Credit Agreement with a Commitment in an amount equal to the
Assigned Amount, and (ii) the Commitment of the Assignor shall, as of the date
hereof, be reduced by a like amount and the Assignor released from its
obligations under the Credit Agreement to the extent such obligations have been
assumed by the Assignee. The assignment provided for herein shall be without
recourse to the Assignor.
SECTION 3. Payments. As consideration for the assignment and sale contemplated
in Section 2 hereof, the Assignee shall pay to the Assignor on the date hereof
in Federal funds the amount heretofore agreed between them.* It is understood
that Commitment Fees accrued to the date hereof are for the account of the
Assignor and such fees accruing from and including the date hereof are for the
account of the Assignee. Each of the Assignor and the Assignee hereby agrees
that if it receives any amount under the Credit Agreement which is for the
account of the other party hereto, it shall receive the same for the account of
such other party to the extent of such other party's interest therein and shall
promptly pay the same to such other party.
SECTION 4. Consent of the Borrower and the Agent. This Agreement is conditioned
upon the consent of the Borrower and the Agent to the extent required by Section
9.6(c) of the Credit Agreement. The execution of this Agreement by the Borrower
and the Agent is evidence of this consent (if such consent is required).
Pursuant to Section 9.6(c), the Borrower agrees to execute and deliver a Note
payable to the order of the Assignee to evidence the assignment and assumption
provided for herein.
SECTION 5. Non-Reliance on Assignor. The Assignor makes no representation or
warranty in connection with, and shall
- --------------
Amount should combine principal together with accrued interest and breakage
compensation, if any, to be paid by the Assignee, net of any portion of any
upfront fee to be paid by the Assignor to the Assignee. It may be preferable in
an appropriate case to specify these amounts generically or by formula rather
than as a fixed sum.
C-2
<PAGE> 104
have no responsibility with respect to, the solvency, financial condition, or
statements of the Borrower, or the validity and enforceability of the
obligations of the Borrower in respect of the Credit Agreement or any Note. The
Assignee acknowledges that it has, independently and without reliance on the
Assignor, and based on such documents and information as it has deemed
appropriate, made its own credit analysis and decision to enter into this
Agreement and will continue to be responsible for making its own independent
appraisal of the business, affairs and financial condition of the Borrower.
SECTION 6. Governing Law. This Agreement shall be governed
by and construed in accordance with the laws of the State of New York
SECTION 7. Counterparts. This Agreement may be signed in any
number of counterparts, each of which shall be an original, with the same effect
as if the signatures thereto and hereto were upon the same instrument.
IN WITNESS WHEREOF, the parties have caused this Agreement to
be executed and delivered by their duly authorized officers as of the date
first above written.
[ASSIGNOR]
By:_______________________
Title:
[ASSIGNEE]
By:________________________
Title:
AMB Property, L.P.
By: AMB PROPERTY CORPORATION, a Maryland
corporation and its sole general partner
By:_____________________________
Title:
MORGAN GUARANTY TRUST COMPANY OF NEW YORK
By:________________________
Title:
C-3
<PAGE> 105
EXHIBIT D
FORM OF BORROWING BASE PROPERTY CERTIFICATE
[Date]
To: Morgan Guaranty Trust Company of New York ("Agent"), as Agent for the
Banks party to Second Amended and Restated Revolving Credit Agreement
dated as of November 26, 1997 (the "Credit Agreement") among AMB
Property, L.P., and the Banks party thereto, as banks, the Agent and
Commerzbank Aktiengesellschaft, Los Angeles Branch, Fleet National
Bank, NationsBank of Texas, N.A. and PNC Bank, National Association, as
Co-Agents
Re: [INSERT DESCRIPTION OF THE NEW ACQUISITION OR REAL PROPERTY
ASSET TO BE ADDED TO BORROWING BASE] (the "New Borrowing Base
Property")
The undersigned requests that the above-described New Borrowing Base
Property be added to the "Borrowing Base Properties" under the terms of the
Credit Agreement. Capitalized terms used but not defined herein shall have the
meaning ascribed thereto in the Credit Agreement.
Pursuant to Section 3.3(a) of the Credit Agreement, the undersigned
hereby certifies as follows with respect to the New Borrowing Base Property:
1. The New Borrowing Base Property is 100% owned in [insert
form of ownership: fee/leasehold] by Borrower or a Wholly-Owned Subsidiary of
Borrower.
2. The New Borrowing Base Property is not subject to any Lien,
other than Permitted Liens.
3. The New Borrowing Base Property is not an interest in a
participating mortgage.
Insert if New Borrowing Base Property is owned by any Wholly-Owned Sub-
sidiary which is a distinct corporate or partnership entity (exclusive of mere
title holding entities, such as land trusts): The Wholly-Owned Subsidiary that
owns the New Borrowing Base Property has delivered to the Agent a Subsidiary
Guaranty with respect thereto, as required by Section 3.3 of the Credit
Agreement.
The undersigned acknowledges and agrees that the Agent and the Banks
will be relying on the foregoing certifications in adding the New Borrowing Base
Property as a Borrowing Base Property under the Credit Agreement.
IN WITNESS WHEREOF, the undersigned has caused this
certificate to be duly executed as of the date first above written.
AMB Property, L.P.
By: AMB Property Corporation,
its general partner
By:______________________
Title:___________________
D-1
<PAGE> 106
EXHIBIT E
FORM OF SUBSIDIARY GUARANTY
E-1
<PAGE> 107
SCHEDULE 4.17(a)
REAL PROPERTY ASSETS
Acer Distribution Center
Activity Distribution Center*
Alvarado Business Center
Amwiler-Gwinnett Industrial Portfolio*
Applewood Village Shopping Center
Arapahoe Village Shopping Center*
Ardenwood Corporate Park*
Artesia Industrial Portfolio*
Atlanta South
Aurora Marketplace
Bayhill Shopping Center
Beacon Industrial Park
Bensenville*
Blue Lagoon*
Brentwood Commons*
Cabot Business Park
Chancellor*
Chicago Industrial*
Civic Center Plaza*
Corbins Corner Shopping Center
Corporate Square
Crossroads Industrial
Docks Corner
Dowe Industrial
Eastgate Plaza
Elk Grove Village Industrial
Executive Drive
Fairway Drive Industrial
Five Points Shopping Center
Granada Village*
Harvest Business Park*
Hewlett Packard Distribution*
International Multifoods
Itasca Industrial Portfolio
Kendall Mall*
Kent Centre
Kingsport Industrial Park*
L.A. County Industrial Portfolio
La Jolla Village*
Lake Michigan Industrial Portfolio
Lakeshore Plaza Shopping Center*
Latham Farms*
Lincoln Industrial Center
Linder Skokie
Lisle Industrial
<PAGE> 108
Long Gate Shopping Center
Lonestar*
Manhattan Village Shopping Center
Melrose Park
Mendota Heights*
Metric Center
Milmont Page
Minneapolis Distribution Portfolio
Minneapolis Industrial*
Minneapolis Industrial Portfolio IV*
Moffett Business Center*
Moffett Park R & D Portfolio
Norcross/Brookhollow Portfolio
Northpointe Commerce
Northwest Distribution Center
O'Hare Industrial Portfolio
Pacific Business Center*
Palm Aire
Patuxent
Penn James Office Warehouse
Pennsy Drive
Pleasant Hill Shopping Center
Rancho San Diego Village Shopping Center
Randall's Houston Retail Portfolio
Riverview Plaza Shopping Center
Rockford Road Plaza
Shoppes At Lago Mar*
Silverado Plaza Shopping Center*
South Bay Industrial*
Southfield Southwest Pavilion
Stadium Business Park*
Systematics
Texas Industrial Portfolio
The Plaza At Delray*
Twin Cities
Twin Oaks Shopping Center
Two South Middlesex
Valwood*
Weslayan Plaza
West North Carrier*
Windsor Court
Woodlawn Point Shopping Center*
Ygnacio Plaza*
Zanker/Charcot Industrial
* See Schedule 4.17(b)
2
<PAGE> 109
SCHEDULE 4.17(b)
LIENS
<TABLE>
<CAPTION>
<S> <C>
Activity Distribution Center $ 5,362,000
Amwiler-Gwinnett Industrial Portfolio 14,341,000
Arapahoe Village Shopping Center 10,839,000
Ardenwood Corporate Park 10,000,000
Artesia Industrial Portfolio 54,100,000
Bensenville 41,853,000
Blue Lagoon 11,897,000
Brentwood Commons 5,109,000
Chancellor 2,966,000
Chicago Industrial 3,267,000
Civic Center Plaza 13,668,000
Granada Village 14,669,000
Harvest Business Park 3,661,000
Hewlett Packard Distribution 3,412,000
Kendall Mall 24,780,000
Kingsport Industrial Park 17,584,000
La Jolla Village 18,006,000
Lakeshore Plaza Shopping Center 13,970,000
Latham Farms 37,761,000
Lonestar 17,000,000
Mendota Heights 668,000
Minneapolis Industrial 7,477,000
Minneapolis Industrial Portfolio IV 8,287,000
Moffett Business Center 12,857,000
Pacific Business Center 9,898,000
Shoppes at Lago Mar 5,878,000
Silverado Plaza Shopping Center 4,906,000
South Bay Industrial 19,516,000
Stadium Business Park 4,875,000
The Plaza at Delray 23,000,000
Valwood 4,036,000
West North Carrier 3,267,000
Woodlawn Point Shopping Center 4,659,000
Ygnacio Plaza 7,827,000
</TABLE>
1
<PAGE> 1
Exhibit 10.4
AMENDMENT TO SECOND AMENDED AND RESTATED
REVOLVING CREDIT AGREEMENT
THIS AMENDMENT TO SECOND AMENDED AND RESTATED REVOLVING CREDIT
AGREEMENT (this "Amendment") is made as of May 29, 1998, by and among AMB
PROPERTY, L.P., a Delaware limited partnership (the "Borrower"), the BANKS
listed on the signature pages hereof, and MORGAN GUARANTY TRUST COMPANY OF NEW
YORK, as Agent.
W I T N E S S E T H:
WHEREAS, the Borrower and the Banks have entered into the Second
Amended and Restated Revolving Credit Agreement, dated as of November 26, 1997
(the "Credit Agreement"); and
WHEREAS, the parties desire to modify the Credit Agreement
upon the terms and conditions set forth herein.
NOW THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties do hereby
agree as follows:
1. Definitions. All capitalized terms not otherwise defined
herein shall have the meanings ascribed to them in the Credit Agreement.
2. Guaranties. The final sentence of Section 3.3(a) of the
Credit Agreement is hereby deleted, and all references in the Credit Agreement
to "Subsidiary Guaranties" and "Subsidiary Guarantors" are hereby deemed
<PAGE> 2
deleted. In addition, the Banks hereby confirm that the Unconditional Guaranty
Agreement by AMB Property II, L.P. and Long Gate LLC is hereby terminated and of
no further force or effect.
3. Restrictions on Recourse Debt. The following is hereby
added to Section 5.16: "Notwithstanding anything contained herein to the
contrary, in no event shall the Borrower at any time permit its Consolidated
Subsidiaries, other than AMB Property Corporation, to incur third party Recourse
Debt."
4. Effective Date. This Amendment shall become effective upon
receipt by the Agent of counterparts hereof signed by the Borrower (the date of
such receipt being deemed the "Effective Date").
5. Entire Agreement. This Amendment constitutes the entire and
final agreement among the parties hereto with respect to the subject matter
hereof and there are no other agreements, understandings, undertakings,
representations or warranties among the parties hereto with respect to the
subject matter hereof except as set forth herein.
6. Governing Law. This Amendment shall be governed by, and
construed in accordance with, the law of the State of New York.
2
<PAGE> 3
7. Counterparts. This Amendment may be executed in any number
of counterparts, all of which taken together shall constitute one and the same
agreement, and any of the parties hereto may execute this Amendment by signing
any such counterpart.
8. Headings, Etc. Section or other headings contained in this
Amendment are for reference purposes only and shall not in any way affect the
meaning or interpretation of this Amendment.
9. No Further Modifications. Except as modified herein, all of
the terms and conditions of the Credit Agreement, as modified hereby shall
remain in full force and effect and, as modified hereby, the Borrower confirms
and ratifies all of the terms, covenants and conditions of the Credit Agreement
in all respects.
3
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed by their respective authorized officers as of the
day and year first above written.
Borrower: AMB PROPERTY, L.P.
By: AMB Property Corporation,
its general partner
By:______________________________
Name:
Title:
FOR PURPOSES OF CONFIRMING AND RATIFYING THE CONTINUED EFFECTIVENESS OF THE
UNCONDITIONAL GUARANTY AGREEMENT, DATED AS OF NOVEMBER 26, 1997, BY AMB PROPERTY
CORPORATION:
Confirmed and Ratified:
AMB PROPERTY CORPORATION
By:________________________________
Name:
Title:
4
<PAGE> 5
Agent and Bank: MORGAN GUARANTY TRUST COMPANY OF
NEW YORK, as a Bank and as Agent
By:_________________________________________
Name:
Title:
5
<PAGE> 6
Co-Agent and Bank: COMMERZBANK AKTIENGESELLSCHAFT,
LOS ANGELES BRANCH
By:_________________________________________
Name:
Title:
By:
_________________________________________
Name:
Title:
6
<PAGE> 7
Co-Agent and Bank: FLEET NATIONAL BANK
By:____________________________________
Name:
Title:
7
<PAGE> 8
Co-Agent and Bank: NATIONSBANK, N.A.(f/k/a/ NationsBank
of Texas, N.A.)
By:____________________________________
Name:
Title:
8
<PAGE> 9
Co-Agent and Bank: PNC BANK, NATIONAL ASSOCIATION
By:____________________________________
Name:
Title:
9
<PAGE> 10
Bank: BANK OF AMERICA, NATIONAL TRUST
AND SAVINGS ASSOCIATION
By:___________________________________
Name:
Title:
10
<PAGE> 11
Bank: SOCIETE GENERALE, SOUTHWEST AGENCY
By:
___________________________________
Name:
Title:
11
<PAGE> 12
Bank: DRESDNER BANK AG, NEW YORK AND
GRAND CAYMAN BRANCHES
By:___________________________________
Name:
Title:
By:___________________________________
Name:
Title:
12
<PAGE> 13
Bank: BANKERS TRUST COMPANY
By:___________________________________
Name:
Title:
13
<PAGE> 14
Bank: CORESTATES BANK, N.A.
By:___________________________________
Name:
Title:
14
<PAGE> 15
Bank: THE BANK OF NOVA SCOTIA, ACTING
THROUGH ITS SAN FRANCISCO AGENCY
By:___________________________________
Name:
Title:
15
<PAGE> 16
Bank: THE INDUSTRIAL BANK OF JAPAN,
LIMITED, LOS ANGELES AGENCY
By:__________________________________
Name:
Title:
16
<PAGE> 17
Bank: UNION BANK OF CALIFORNIA, N.A.
By:_________________________________
Name:
Title:
17
<PAGE> 1
EXHIBIT 12.1
AMB PROPERTY CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED
STOCK DIVIDENDS
(IN THOUSANDS, EXCEPT RATIOS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------------------------------------------------
1997 1997 1997
1993 1994 1995 1996 HISTORICAL(1) AS ADJUSTED(2) PRO FORMA(3)
---- ------ ------ ------ ------------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings:
Income (loss) from operations
before minority interests... $798 $2,925 $3,296 $7,140 $18,885 $103,903 $118,539
Interest expense.............. -- -- 4 -- 3,528 45,429 83,062
---- ------ ------ ------ ------- -------- --------
Total earnings.......... $798 $2,925 $3,300 $7,140 $22,413 $149,332 $201,601
==== ====== ====== ====== ======= ======== ========
Fixed charges:
Interest expense(4)........... $ -- $ -- $ 4 $ -- $ 3,528 $ 45,429 $ 83,062
Capitalized interest(5)....... -- -- -- -- 448 3,455 4,118
---- ------ ------ ------ ------- -------- --------
Total fixed charges..... $ -- $ -- $ 4 $ -- $ 3,976 $ 48,884 $ 87,180
==== ====== ====== ====== ======= ======== ========
Series A and Series B Preferred
Stock dividends............... -- -- -- -- -- -- 14,875
---- ------ ------ ------ ------- -------- --------
Total fixed charges and
preferred stock
dividends............. $ -- $ -- $ 4 $ -- $ 3,976 $ 48,884 $102,055
==== ====== ====== ====== ======= ======== ========
Ratio of earnings to fixed
charges....................... N/A N/A 825x N/A 5.6x 3.1x 2.3x
==== ====== ====== ====== ======= ======== ========
Ratio of earnings to fixed
charges and preferred stock
dividends..................... N/A N/A 825x N/A 5.6x 3.1x 2.0x
==== ====== ====== ====== ======= ======== ========
<CAPTION>
FOR THE SIX MONTHS ENDED
JUNE 30,
------------------------------------
1998
1997 1998 PRO
HISTORICAL HISTORICAL FORMA(3)
---------- ---------- ----------
<S> <C> <C> <C>
Earnings:
Income (loss) from operations
before minority interests... $2,764 $59,570 $ 67,501
Interest expense.............. -- 27,561 40,211
------ ------- --------
Total earnings.......... $2,764 $87,131 $107,712
====== ======= ========
Fixed charges:
Interest expense(4)........... $ -- $27,561 $ 40,211
Capitalized interest(5)....... -- 3,098 3,098
------ ------- --------
Total fixed charges..... $ -- $30,659 $ 43,309
====== ======= ========
Series A and Series B Preferred
Stock dividends............... -- -- 7,438
------ ------- --------
Total fixed charges and
preferred stock
dividends............. $ -- $30,659 $ 50,747
====== ======= ========
Ratio of earnings to fixed
charges....................... N/A 2.8x 2.5x
====== ======= ========
Ratio of earnings to fixed
charges and preferred stock
dividends..................... N/A 2.8x 2.1x
====== ======= ========
</TABLE>
- ---------------
(1) Historical ratio of earnings to fixed charges includes the results of the
Predecessor for the period from January 1, 1997 through November 25, 1997,
and the results of the Company subsequent to November 25, 1997, the date of
acquisition by the Company.
(2) As adjusted ratio of earnings to fixed charges has been prepared as if the
Formation Transactions, the IPO and certain 1997 property acquisitions and
dispositions had occurred on January 1, 1997.
(3) Pro forma ratio of earnings to fixed charges has been prepared as if the
1998 property acquisitions, the issuance of Senior Debt Securities, the
issuance of Series A Preferred Stock and the Offering had occurred on
January 1, 1997.
(4) Includes amortization of debt premiums and deferred financing fees.
(5) Historical capitalized interest represents construction interest incurred
subsequent to November 25, 1997, the date of acquisition by the Company.
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
Jurisdiction of Organization
Name of Subsidiary and Type of Entity
- ------------------ ----------------------------
<S> <C>
AMB Property, L.P. Delaware limited partnership
AMB Property Holding Corporation Maryland corporation
AMB Property II, L.P. Delaware limited partnership
Long Gate LLC Delaware limited liability
company
</TABLE>
<PAGE> 1
Exhibit 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
and to all references to our Firm included in or made a part of this
Registration Statement.
/s/ Arthur Andersen LLP
------------------------------------
ARTHUR ANDERSEN LLP
San Francisco, California
September 28, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
<CASH> 29,167
<SECURITIES> 0
<RECEIVABLES> 36,318
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 65,485
<PP&E> 2,929,724
<DEPRECIATION> 29,252
<TOTAL-ASSETS> 3,033,106
<CURRENT-LIABILITIES> 84,508
<BONDS> 1,129,430
0
0
<COMMON> 1,669,417
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 3,033,106
<SALES> 0
<TOTAL-REVENUES> 160,799
<CGS> 0
<TOTAL-COSTS> 42,504
<OTHER-EXPENSES> 5,862
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27,561
<INCOME-PRETAX> 59,570
<INCOME-TAX> 0
<INCOME-CONTINUING> 59,570
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 55,884
<EPS-PRIMARY> 0.65
<EPS-DILUTED> 0.65
</TABLE>
