<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 8, 1998
REGISTRATION NO. 333-49163
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-11
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
<TABLE>
<S> <C> <C>
AMB PROPERTY, L.P.
(EXACT NAME OF ISSUER OF THE NOTES AS SPECIFIED IN ITS CHARTER)
DELAWARE 94-3285362
(STATE OR OTHER (I.R.S. EMPLOYER
JURISDICTION AND ITS NOTES GUARANTOR IDENTIFICATION NO.)
OF INCORPORATION)
MARYLAND AMB PROPERTY CORPORATION 94-3281941
(STATE OR OTHER (I.R.S. EMPLOYER
JURISDICTION IDENTIFICATION NO.)
OF INCORPORATION)
</TABLE>
505 MONTGOMERY STREET
SAN FRANCISCO, CALIFORNIA 94111
(415) 394-9000
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE AND TELEPHONE
NUMBER)
------------------------
S. DAVIS CARNIGLIA
MANAGING DIRECTOR AND
CHIEF FINANCIAL OFFICER
AMB PROPERTY CORPORATION
505 MONTGOMERY STREET
SAN FRANCISCO, CALIFORNIA 94111
(415) 394-9000
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
EDWARD SONNENSCHEIN, JR., ESQ. KENNETH M. DORAN, ESQ.
J. SCOTT HODGKINS, ESQ. GIBSON, DUNN & CRUTCHER LLP
LATHAM & WATKINS 333 SOUTH GRAND AVENUE
633 WEST FIFTH STREET, SUITE 4000 LOS ANGELES, CALIFORNIA 90071
LOS ANGELES, CALIFORNIA 90071 (213) 229-7000
(213) 485-1234
</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 of 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,
please check the following box. [ ]
------------------------
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
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 THE 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.................. Underwriters
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;
Description of Certain Provisions of the
Partnership Agreement of the Operating
Partnership
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.......................................... Certain Federal Income Tax Considerations
Relating to the REPS
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; Description of
Certain Provisions of the Partnership
Agreement of the Operating Partnership
19. Legal Proceedings................................ Business and Properties; Legal Proceedings
20. Security Ownership of Certain Beneficial Owners
and Management................................... Principal Stockholders
21. Directors and Executive Officers................. Management
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
FORM S-11 ITEM NO. AND HEADING LOCATION OR HEADING IN PROSPECTUS
------------------------------ ---------------------------------
<C> <S> <C>
22. Executive Compensation........................... Management
23. Certain Relationships and Related Transactions... Risk Factors; Business and Properties;
Management; Certain Relationships and Related
Transactions; Principal Stockholders
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; 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
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.
PROSPECTUS (Subject to Completion)
Issued June , 1998
$350,000,000
AMB Property, L.P.
Unconditionally Guaranteed by AMB Property Corporation
$ % NOTES DUE 2008
$ % NOTES DUE 2018
$ % RESET PUT SECURITIES (REPS(SM)) DUE 2015 -- PUTABLE/CALLABLE
2005*
------------------------
Interest payable June and December
------------------------
AMB PROPERTY, L.P. (THE "OPERATING PARTNERSHIP"), A DELAWARE LIMITED
PARTNERSHIP, OWNED 159 PROPERTIES AS OF MAY 31, 1998, ENCOMPASSING
APPROXIMATELY 52.1 MILLION SQUARE FEET. AMB PROPERTY CORPORATION (THE
"COMPANY"), A MARYLAND CORPORATION OPERATING AS A REAL ESTATE
INVESTMENT TRUST, IS THE OPERATING PARTNERSHIP'S SOLE GENERAL
PARTNER AND OWNS A 95.9% INTEREST IN THE OPERATING PARTNERSHIP.
------------------------
THE % NOTES DUE 2008 (THE "2008 NOTES"), THE % NOTES DUE 2018 (THE "2018
NOTES") AND THE % RESET PUT SECURITIES (REPS) DUE 2015 -- PUTABLE/CALLABLE
2005 (THE "REPS," AND COLLECTIVELY WITH THE 2008 NOTES AND THE 2018 NOTES, THE
"NOTES") WILL MATURE ON JUNE , 2008, 2018 AND 2015 RESPECTIVELY. BY
PURCHASING THE REPS, EACH PURCHASER AND SUBSEQUENT HOLDER IS DEEMED TO HAVE
IRREVOCABLY AGREED THAT THE REPS WILL BE SUBJECT TO MANDATORY REDEMPTION
FROM THE THEN EXISTING HOLDERS ON JUNE , 2005 EITHER (I) THROUGH THE
EXERCISE OF THE CALL OPTION (AS DEFINED HEREIN) BY MORGAN STANLEY & CO.
INTERNATIONAL LIMITED (THE "CALLHOLDER") OR (II) IN THE EVENT THE
CALLHOLDER DOES NOT EXERCISE THE CALL OPTION, THE AUTOMATIC EXERCISE OF
THE MANDATORY PUT (AS DEFINED HEREIN) BY THE TRUSTEE ON BEHALF OF THE
HOLDERS WITHOUT THEIR CONSENT. SEE "DESCRIPTION OF THE NOTES -- CALL
OPTION AND MANDATORY PUT WITH RESPECT TO THE REPS." THE 2008 NOTES AND
THE 2018 NOTES WILL BE REDEEMABLE AS SET FORTH UNDER "DESCRIPTION OF
NOTES -- REDEMPTION OF THE 2008 NOTES AND THE 2018 NOTES AT THE
OPTION OF THE OPERATING PARTNERSHIP." THE NOTES WILL BE
UNCONDITIONALLY GUARANTEED ON AN UNSECURED BASIS BY THE COMPANY
(THE "GUARANTEE"). THE NOTES WILL RANK PARI PASSU WITH ALL
OUTSTANDING INDEBTEDNESS OF THE OPERATING PARTNERSHIP, AND WILL BE
SUBORDINATED TO THE MORTGAGES AND OTHER SECURED INDEBTEDNESS OF
THE OPERATING PARTNERSHIP AND ALL OF THE OUTSTANDING LIABILITIES
OF THE COMPANY. IN ADDITION, THE GUARANTEE WILL BE SUBORDINATED
TO ALL OF THE MORTGAGES AND OTHER SECURED INDEBTEDNESS OF THE
COMPANY. THE NOTES WILL BE REPRESENTED BY ONE OR MORE GLOBAL
NOTES REGISTERED IN THE NAME OF A NOMINEE OF THE DEPOSITORY
TRUST COMPANY, AS DEPOSITARY (THE "DEPOSITARY"). BENEFICIAL
INTERESTS IN THE NOTES WILL BE SHOWN ON, AND TRANSFERS THEREOF
WILL BE EFFECTED ONLY THROUGH, RECORDS MAINTAINED BY THE
PARTICIPANTS OF THE DEPOSITARY. EXCEPT IN THE LIMITED
CIRCUMSTANCES DESCRIBED IN THIS PROSPECTUS, NOTES IN
CERTIFICATED FORM WILL NOT BE ISSUED IN EXCHANGE FOR THE
GLOBAL NOTES.
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 12 HEREIN FOR A DISCUSSION OF MATERIAL
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE NOTES.
------------------------
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.
------------------------
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND OPERATING
PUBLIC(1) COMMISSIONS(2) PARTNERSHIP(1)(3)(4)
--------- -------------- --------------------
<S> <C> <C> <C>
Per 2008 Note............................................... % % %
Per 2018 Note............................................... % % %
Per 2015 REPS............................................... % % %
Total............................................. $ $ $
</TABLE>
- ---------------
(1) Plus accrued interest, if any, from June , 1998.
(2) The Operating Partnership and the Company have 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 Operating Partnership estimated
at $ .
(4) Represents consideration for the REPS, which includes consideration for
the Call Option.
------------------------
* REPS is a service mark of Morgan Stanley Dean Witter & Co.
------------------------
The Notes 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 Notes will be made on or about June , 1998, through the book-entry
facilities of the Depositary, against payment therefor in immediately available
funds.
------------------------
MORGAN STANLEY DEAN WITTER
GOLDMAN, SACHS & CO.
J.P. MORGAN & CO.
June , 1998
<PAGE> 5
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE NOTES. SUCH
TRANSACTIONS MAY INCLUDE STABILIZING AND THE PURCHASE OF NOTES 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 OR
INCORPORATED HEREIN BY REFERENCE 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
OPERATING PARTNERSHIP, 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 NOTES OFFERED HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR
A SOLICITATION OF ANY OFFER TO BUY THE NOTES 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
OPERATING PARTNERSHIP OR THE COMPANY SINCE THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUMMARY.................................. 1
The Company and the Operating Partnership........... 1
Recent Developments................................. 3
Risk Factors........................................ 3
The Offering........................................ 6
Organization........................................ 7
Business and Operating Strategies................... 8
Summary Financial and Other Data.................... 9
RISK FACTORS........................................ 12
General Real Estate Risks........................... 12
Uncontrollable Factors Affecting Performance and
Value............................................ 12
Concentration of Properties in California.......... 12
Concentration of Properties in Industrial and
Retail Sectors................................... 12
Illiquidity of Real Estate Investments............. 12
Renewal of Leases and Reletting of Space........... 13
Uninsured Loss..................................... 13
Uninsured Losses from Seismic Activity............. 13
Impact on Control Over and Liabilities With Respect
to Properties Owned Through Partnerships and
Joint Ventures................................... 13
Possible Inability to Consummate Acquisitions on
Advantageous Terms............................... 14
Possible Inability to Complete Renovation and
Development on Advantageous Terms................ 14
Limited Restrictions on Total Indebtedness and
Changes of Control................................. 15
Debt Financing...................................... 15
Debt Financing and Existing Debt Maturities........ 15
Impact of Rising Interest Rates and Variable Rate
Debt............................................. 16
Possible Impact of Defaults on Cross-Collateralized
and Cross-Defaulted Debt......................... 16
Ranking of the Notes................................ 16
Optional Redemption of the 2008 Notes or the
2018 Notes......................................... 17
Contingent or Unknown Liabilities................... 17
Conflicts of Interest............................... 18
Continued Involvement of Executive Officers in
Other Real Estate Activities and Investments..... 18
Conflicts of Interest in Connection with Properties
Owned or Controlled by Executive Officers and
Directors........................................ 18
Conflicts Relating to the Operating Partnership.... 19
Influence of Directors, Executive Officers and
Significant Stockholders......................... 19
Failure to Enforce Terms of Certain Agreements..... 20
Use of Net Offering Proceeds to Repay Indebtedness
Owed to Affiliates of Underwriters............... 20
AMB Investment Management........................... 20
Adverse Consequences of Lack of Control Over the
Business of AMB Investment Management............ 20
Uncertainty of AMB Investment Management
Operations....................................... 20
Government Regulations.............................. 20
Cost of Compliance with Americans
with Disabilities Act............................ 21
Environmental Matters.............................. 21
Other Regulations.................................. 22
United States Federal Income Tax Risk............... 22
Absence of Market for the Notes..................... 22
THE COMPANY AND THE OPERATING PARTNERSHIP........... 23
General............................................. 23
Recent Developments................................. 23
BUSINESS AND OPERATING STRATEGIES................... 25
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
National Property Company........................... 25
Two Complementary Property Types.................... 25
Select Market Focus................................. 25
Property Management................................. 26
Disciplined Investment Process...................... 26
Renovation, Expansion and Development............... 27
Financing Strategy.................................. 27
AMB Investment Management........................... 28
STRATEGIES FOR GROWTH............................... 29
Growth Through Operations........................... 29
Growth Through Acquisitions......................... 29
Growth Through Renovation, Expansion and
Development........................................ 29
USE OF PROCEEDS..................................... 30
PRICE RANGE OF COMMON STOCK AND DISTRIBUTION
HISTORY............................................ 30
CAPITALIZATION...................................... 31
SELECTED FINANCIAL AND OTHER DATA................... 32
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS................ 36
General............................................. 36
Company and Predecessor Results of Operations....... 36
Operating Partnership and AMB Contributed Properties
Results of Operations.............................. 37
Liquidity and Capital Resources..................... 40
Inflation........................................... 41
Year 2000 Compliance................................ 41
BUSINESS AND PROPERTIES............................. 43
Industrial Properties............................... 43
Industrial Property Summary......................... 45
Industrial Property Tenant Information.............. 49
Industrial Property Lease Expirations............... 50
Retail Properties................................... 51
Retail Property Summary............................. 54
Retail Property Tenant Information.................. 57
Retail Property Lease Expirations................... 58
Historical Tenant Retention Rates and Rent
Increases.......................................... 59
Recurring Tenant Improvements and Leasing
Commissions........................................ 59
Occupancy and Base Rent............................. 59
Renovation, Expansion and Development Projects In
Progress........................................... 60
Properties Held Through Joint Ventures, Limited
Liability Companies and Partnerships............... 60
Debt Financing...................................... 61
Insurance........................................... 65
Government Regulations.............................. 66
Management and Employees............................ 67
Legal Proceedings................................... 67
POLICIES WITH RESPECT TO CERTAIN ACTIVITIES......... 68
Investment Policies................................. 68
Financing Policies.................................. 69
Lending Policies.................................... 69
Conflict of Interest Policies....................... 69
Policies with Respect to Other Activities........... 70
Policies with Respect to Investment Advisory
Services........................................... 70
Other Policies...................................... 70
MANAGEMENT.......................................... 72
Committees of the Board of Directors................ 75
Compensation of the Board of Directors.............. 76
Executive Compensation.............................. 76
Option Grants in Last Fiscal Year................... 77
</TABLE>
i
<PAGE> 6
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Aggregated Option Exercises in Last Fiscal Year and
Fiscal Year-End Option Values...................... 77
Employment Agreements............................... 77
Stock Incentive Plan................................ 78
401(k) Plan......................................... 81
Limitation of Directors' and Officers' Liability.... 81
Indemnification Agreements.......................... 81
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...... 83
Formation Transactions.............................. 83
Other Related Transactions.......................... 83
Conflicts of Interest............................... 84
PRINCIPAL STOCKHOLDERS.............................. 86
DESCRIPTION OF NOTES................................ 87
General............................................. 87
Denominations, Maturity, Interest, Registration and
Transfer........................................... 88
Guarantee........................................... 89
Redemption of the 2008 Notes and the 2018 Notes at
the Option of the Operating Partnership............ 89
Call Option and Mandatory Put with Respect to
the REPS........................................... 91
Coupon Reset Process if REPS are Called............. 92
Merger, Consolidation or Sale....................... 94
Certain Covenants................................... 94
Definitions......................................... 96
Events of Default, Notice and Waiver................ 98
Modification of the Indenture....................... 99
Discharge, Defeasance and Covenant Defeasance....... 101
Global Notes........................................ 102
MATERIAL FEDERAL INCOME TAX CONSIDERATIONS RELATING
TO THE REPS........................................ 105
Treatment of REPS................................... 105
Backup Withholding.................................. 106
DESCRIPTION OF CERTAIN PROVISIONS OF THE PARTNERSHIP
AGREEMENT OF THE OPERATING PARTNERSHIP............. 107
General............................................. 107
Purpose, Business and Management.................... 107
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Engaging in Other Businesses; Conflicts of
Interest........................................... 108
Reimbursement of the Company; Transactions with the
Company and its Affiliates......................... 108
Exculpation and Indemnification of the Company...... 109
Sales of Assets; Liquidation........................ 109
Capital Contribution................................ 110
Removal of the General Partner; Transferability of
the Company's Interests; Treatment of Units in
Significant Transactions........................... 110
Redemption/Exchange Rights.......................... 111
Performance Units................................... 111
Registration Rights................................. 112
Duties and Conflicts................................ 112
Meetings; Voting.................................... 112
Amendment of the Partnership Agreement.............. 112
Books and Reports................................... 113
Term................................................ 113
CERTAIN PROVISIONS OF MARYLAND LAW AND OF THE
COMPANY'S ARTICLES OF INCORPORATION AND BYLAWS..... 114
Board of Directors.................................. 114
Removal of Directors................................ 114
Opt Out of Business Combinations and Control Share
Acquisition Statutes............................... 114
Amendment to the Articles of Incorporation and
Bylaws............................................. 114
Meetings of Stockholders............................ 115
Advance Notice of Director Nominations and New
Business........................................... 115
Dissolution of the Company.......................... 115
Limitation of Directors' and Officers' Liability.... 115
DESCRIPTION OF CAPITAL STOCK........................ 117
General............................................. 117
Common Stock........................................ 117
Preferred Stock..................................... 118
UNDERWRITERS........................................ 119
LEGAL MATTERS....................................... 120
EXPERTS............................................. 120
AVAILABLE INFORMATION............................... 120
GLOSSARY............................................ 121
INDEX TO FINANCIAL INFORMATION...................... F-1
</TABLE>
AMB and its logo are registered service marks of the Company. All other
trademarks and service marks appearing in this Prospectus are the property of
their respective holders.
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 other
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 certain such
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 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 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), 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 success of the Company
also depends upon economic trends generally, including interest rates, income
tax laws, governmental regulation, legislation, population changes and those
risk factors 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.
ii
<PAGE> 7
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 the context otherwise
requires, the "Company" shall include AMB Property Corporation and its
subsidiaries, including 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 123.
THE COMPANY AND THE OPERATING PARTNERSHIP
AMB Property, L.P. was organized in November 1997 and commenced operations
in connection with the completion of the initial public offering of AMB Property
Corporation, its sole general partner, on November 26, 1997 (the "IPO"), and the
consummation of certain transactions by the Company, the Operating Partnership
and AMB Investment Management (as defined) and their respective predecessors to
enable the Company to continue and grow the real estate operations of the AMB
Predecessors (as defined), to facilitate the IPO and to preserve certain tax
advantages for the existing owners of the Properties (as defined) (the
"Formation Transactions"). AMB Property Corporation is one of the largest
publicly-traded real estate companies in the United States. As of May 31, 1998,
the Company owns 159 Properties, comprised of 122 industrial properties (the
"Industrial Properties") and 37 retail properties (the "Retail Properties")
located in 28 markets throughout the United States (including four Industrial
Properties acquired since March 31, 1998). The Industrial Properties (comprising
427 buildings), principally warehouse distribution properties, encompass
approximately 45.3 million rentable square feet and, as of March 31, 1998, were
94.6% leased to over 1,000 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 94.6% leased to over 900
tenants. See "Business and Properties."
The Operating Partnership conducts substantially all of the Company's
activities and owns substantially all of the economic interests in the
Properties. As of March 31, 1998, the Company owned an approximate 95.9% general
partner interest in the Operating Partnership, with the remaining 4.1% limited
partner interest owned by nonaffiliated investors. As the sole general partner
of the Operating Partnership, the Company has control over the management of the
Operating Partnership and over each of the 116 Properties (comprising
approximately 36.9 million rentable square feet) owned directly by the Operating
Partnership. The Operating Partnership owns 99% of the economic interests in the
remaining 43 Properties (comprising approximately 15.2 million rentable square
feet) through AMB Property II, L.P., a Delaware limited partnership, and Long
Gate LLC, a Delaware limited liability company, and the Company (through a
wholly owned subsidiary) owns a 1% interest.
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 Mr. Hamid R. Moghadam, its Chief Executive
Officer and one of the three founders of the Company. Messrs. 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 22 years of experience in the real estate industry
and have worked together for an average of eight years building the AMB real
estate business. The Company employs 123 individuals, 99 of whom are located in
its San Francisco headquarters and 24 in its Boston office.
1
<PAGE> 8
The following table sets forth certain summary information with respect to
the Properties owned as of March 31, 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..................................... 68 8,729,347 19.9% 92.7% $ 33,435 18.7%
Midwestern.................................. 92 11,199,515 25.5 93.0 39,075 21.9
Southern.................................... 114 11,262,975 25.6 95.2 45,096 25.3
Western..................................... 141 12,772,141 29.0 96.8 60,809 34.1
--- ---------- ----- ---- -------- -----
Total/Weighted Average...................... 415 43,963,978 100.0% 94.6% $178,415 100.0%
=== ========== ===== ==== ======== =====
</TABLE>
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% $14,381 18.8%
Midwestern.................................... 4 710,833 10.4 99.0 7,099 9.3
Southern...................................... 12 1,957,051 28.6 88.8 19,143 25.1
Western....................................... 17 2,907,986 42.4 95.9 35,666 46.8
-- --------- ----- ---- ------- -----
Total/Weighted Average........................ 37 6,848,838 100.0% 94.6% $76,289 100.0%
== ========= ===== ==== ======= =====
</TABLE>
TOTAL PROPERTIES
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE
NUMBER RENTABLE OF TOTAL 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..................................... 72 10,002,315 19.7% 93.3% $ 47,816 18.8%
Midwestern.................................. 96 11,910,348 23.4 93.4 46,174 18.1
Southern.................................... 126 13,220,026 26.0 94.3 64,239 25.2
Western..................................... 158 15,680,127 30.9 96.7 96,475 37.9
--- ---------- ----- ---- -------- -----
Total/Weighted Average...................... 452 50,812,816 100.0% 94.6% $254,704 100.0%
=== ========== ===== ==== ======== =====
</TABLE>
- ---------------
(1) Annualized Base Rent means the monthly contractual amount under existing
leases at March 31, 1998, multiplied by 12. This amount excludes expense
reimbursements and rental abatements.
2
<PAGE> 9
RECENT DEVELOPMENTS
Acquisitions. From April 1, 1998 to May 31, 1998, the Company acquired four
Industrial Properties, comprising 12 buildings and 1.3 million rentable square
feet, for an aggregate purchase price of $56.7 million.
Quarterly Distributions. On March 6, 1998, the Board of Directors of the
Company, in its capacity as general partner of the Operating Partnership,
declared a distribution of $0.3425 per partnership unit, payable April 3, 1998
to partners of record as of March 18, 1998. In addition, the Company's Board of
Directors declared a distribution of $0.3425 per share of the Company's common
stock, par value $.01 per share (the "Common Stock"), payable April 3, 1998 to
stockholders of record as of March 18, 1998.
Investment-Grade Credit Ratings. The Company recently 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 Operating Partnership's $500 million unsecured revolving credit
facility ("Credit Facility") was reduced by 20 basis points to LIBOR plus 90
basis points.
Alliance with Trammell Crow Company. The Company has formed a strategic
alliance with Trammell Crow Company to develop and manage industrial properties
in targeted distribution markets nationwide. The alliance will focus on
multi-tenant freight forwarding facilities adjacent to major airports and
industrial submarkets of targeted metropolitan areas such as Chicago, Seattle
and Northern New Jersey.
RISK FACTORS
An investment in the Notes 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 Notes offered hereby. Each of these matters could have
adverse consequences to the Operating Partnership or the Company. Such risks
include, among others:
- 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 Operating Partnership's and the
Company's financial condition, results of operations and cash flow and,
consequently, their ability to service debt, including the Notes;
- limited indenture provisions limiting the total indebtedness that the
Operating Partnership may incur and protecting noteholders in the event
of a change in control, reorganization, restructuring, merger or similar
transaction involving the Operating Partnership, any of which could
adversely affect the Operating Partnership's financial condition and
results of operations and result in a downgrade of the credit rating of
the Notes, a loss in value of the Notes or an increase in the risk of
default on payments of principal of and interest on the Notes;
- the ability of the Board of Directors to change the Operating
Partnership's and the Company's growth and investment strategy and their
financing, distribution and operating policies without a vote of the
Company's stockholders and, with respect to certain matters, the
Noteholders, which could result in the Operating Partnership becoming
more highly leveraged, resulting in an increase in debt service that
could adversely affect the Operating Partnership's financial condition
and results of operations, and its ability to make payments of principal
of and interest on the Notes, and could increase the risk of default on
such indebtedness by the Operating Partnership;
- the possible failure of investments to perform in accordance with the
Operating Partnership's and 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 Operating Partnership's and the Company's
financial condition, results of operations and cash flow and,
consequently, their ability to service debt, including the Notes;
- although the Notes will be direct, senior obligations of the Operating
Partnership, the Notes will be effectively subordinated to the mortgages
and other secured indebtedness of the Operating Partnership and all
outstanding liabilities of the Operating Partnership's subsidiaries. In
addition, the Guarantee will be subordinated to all of the mortgages and
other secured indebtedness of the Company, and all of the outstanding
liabilities of the Company's subsidiaries; on a pro forma basis giving
effect to the Offering and the application of the net proceeds
therefrom, the total indebtedness of the Operating Partnership and its
subsidiaries as of March 31, 1998 would have been
3
<PAGE> 10
approximately $980.0 million, of which $610.1 million would have been
secured. As of March 31, 1998, the Company had no outstanding
indebtedness (excluding the Company's guaranty of the Credit Facility)
other than indebtedness of the Operating Partnership and its
subsidiaries. Subject to certain limitations, the Operating Partnership,
the Company and their subsidiaries may incur additional indebtedness,
including, but not limited to, mortgage loans, borrowings under the
Credit Facility and other secured indebtedness. Such additional
indebtedness could result in the Operating Partnership becoming more
highly leveraged, resulting in an increase in debt service that could
adversely affect the Operating Partnership's financial condition and
results of operations, and its ability to make payments of principal of
and interest on the Notes, and could increase the risk of default on
such indebtedness by the Operating Partnership;
- the possibility of uninsured losses or losses in excess of insured
limits relating to certain occurrences, including fire, rental loss and
seismic activity which could have an adverse effect on the Operating
Partnership's and the Company's financial condition, results of
operations and cash flow and, consequently, their ability to service
debt, including the Notes;
- in connection with certain of the Operating Partnership's and the
Company's partnerships and joint ventures, the possibility that a
partner or co-venturer may (i) become bankrupt while the Operating
Partnership and the Company and any other remaining partners or joint
venturers remain liable for the liabilities of such partnerships or
joint ventures, (ii) have economic interests inconsistent with those of
the Operating Partnership and the Company or (iii) cause the sale or
refinancing of its interest at a disadvantageous time or on
disadvantageous terms, which could adversely affect the return realized
by the Operating Partnership and the Company on such investments;
- the inability to refinance outstanding indebtedness upon maturity or, in
the case of the REPS, upon exercise of the Mandatory Put, or refinance
such indebtedness on favorable terms, the risks of rising interest rates
in connection with the Operating Partnership's unsecured line of credit
and other variable-rate borrowings and the ability of the Company to
incur more debt without Noteholder approval, thereby increasing its debt
service obligations, which could adversely affect the Company's cash
flow and consequently its ability to satisfy its obligation under its
Guaranty; and
- conflicts of interest in connection with the operations of the Operating
Partnership and the Company including (i) the influence of certain
directors, officers and significant stockholders on the management and
operation of the Operating Partnership and the Company, and as
stockholders, on the outcome of matters submitted to a vote of the
stockholders, (ii) the potential failure to enforce the terms of
agreements, including for the indemnification by certain of the
Executive Officers and other participants in the Formation Transactions
for breaches or representations and warranties relating to the Formation
Transactions, each of which could result in the Operating Partnership
and the Company taking action which is not in the interest of all
holders of the Notes and (iii) the continued involvement of certain of
the Executive Officers and directors in other real estate activities and
investments, including 11 retail development projects in the U.S., a low
income housing apartment, a 75% interest in an office building and less
than 1% partnership interests in other office buildings and residential
developments, which could divert management's attention from the
day-to-day operations of the Operating Partnership and Company; which,
in turn, could adversely affect the Operating Partnership's financial
condition and results of operations, and its ability to make payments of
principal of and interest on the Notes;
- 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 holders of the Notes;
- the potential liability of the Operating Partnership and the Company for
environmental matters and the costs of compliance with certain
government regulations which could have an adverse effect on the
Operating Partnership's and the Company's financial condition, results
of operations and cash flow and, consequently, their ability to service
debt, including the Notes;
- possible adverse consequences of a lack of control over the business of
AMB Investment Management and the uncertainty of AMB Investment
Management operations, which could result in the management of AMB
Investment Management implementing business policies that would not have
been implemented by persons controlling the Operating Partnership and
that are adverse to those of the Operating Partnership or that lead to
adverse financial results, any of which could negatively affect the
Operating Partnership's financial condition and results of operations
and, as a result, its ability to make payments of principal of and
interest on the Notes;
4
<PAGE> 11
- for holders of the REPS, the possibility that the Internal Revenue
Service could successfully assert a Federal income tax treatment for the
REPS different from the manner in which the Operating Partnership
intends to treat the REPS, which could result in holders of REPS being
required to use the accrual method of accounting for tax purposes, to
recognize taxable income in excess of the amount of cash actually
received and to recognize ordinary income or loss rather than capital
gain or loss upon the sale or other taxable disposition of the REPS; and
- the lack of an established trading market for the Notes which could
materially and adversely affect the market price and liquidity of the
Notes.
5
<PAGE> 12
THE OFFERING
Securities Offered.........
$ aggregate principal amount of % Notes
due 2008, $ aggregate principal amount of
% Notes due 2018 and $ aggregate
principal amount of % Reset Put Securities due
2015 -- Putable/Callable 2005.
Maturity...................
June , 2008 with respect to the 2008 Notes, June ,
2018 with respect to the 2018 Notes and June , 2015
with respect to the REPS. For persons holding the REPS
(or an interest therein) on June , 2005 (the "2005
Coupon Reset Date") the effect of the operation of the
Call Option and the Mandatory Put will be that such
holders will be entitled to receive, and will be
required to accept, 100% of the principal amount of
such REPS (plus accrued interest) on the 2005 Coupon
Reset Date.
Interest Payment Dates.....
Interest on the Notes will be payable semiannually on
each June and December , commencing December
, 1998.
Ranking....................
The Notes will be senior unsecured obligations of the
Operating Partnership and will rank equally with the
Operating Partnership's other unsecured and
unsubordinated indebtedness. However, the Notes are
effectively subordinated to mortgages and other
secured indebtedness of the Operating Partnership. See
"Risk Factors -- Ranking of the Notes."
Guarantee..................
The Notes will be fully and unconditionally guaranteed
(the "Guarantee") on an unsecured basis by the Company
except as may be limited to the maximum amount
permitted under applicable federal or state law. The
obligations of the Company under the Guarantee will
rank pari passu with all of its unsecured and
unsubordinated indebtedness and will be effectively
subordinated to all of its mortgages and other secured
indebtedness and all outstanding liabilities of its
subsidiaries. In addition, the Guarantee will be
effectively subordinated to all of the mortgages and
other secured indebtedness of the Company. See "Risk
Factors -- Ranking of the Notes."
Guarantor..................
AMB Property Corporation.
Optional Redemption of the
2008 Notes and the 2018
Notes....................
The 2008 Notes and the 2018 Notes are redeemable at
any time at the option of the Operating Partnership,
in whole or in part, at a redemption price equal to
the greater of (i) 100% of the principal amount of the
2008 Notes and the 2018 Notes being redeemed and (ii)
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 (as
defined) plus basis points, plus, in
either case, accrued and unpaid interest on the
principal amount being redeemed to such redemption
date. See "Description of Notes -- Redemption of the
2008 Notes and the 2018 Notes at the Option of the
Operating Partnership."
Call Option................
The REPS may be called by the Callholder prior to
maturity, as described under "Description of
Notes -- Call Option and Mandatory Put with Respect to
the REPS."
Mandatory Put..............
The REPS will be subject to repayment by the Operating
Partnership prior to maturity if the Callholder elects
not to purchase the REPS pursuant to the Call Option
as described under "Description of Notes -- Call
Option and Mandatory Put with Respect to the REPS."
Taken together, the effect of the Call Option and the
Mandatory Put will be that the holders of the REPS
will be repaid 100% of the principal amount of the
REPS on the 2005 Coupon Reset Date.
Callholder.................
Morgan Stanley & Co. International Limited.
6
<PAGE> 13
Use of Proceeds............
The net proceeds to the Operating Partnership from the
sale of the Notes offered hereby will be used to repay
approximately $348.8 million of borrowings outstanding
under the Credit Facility incurred to fund property
acquisitions and for general purposes.
Covenants..................
The Indenture will restrict, among other things, the
Operating Partnership's ability to incur additional
indebtedness and to merge or consolidate with any
other person or sell, assign, transfer, lease, convey
or otherwise dispose of substantially all of the
assets of the Operating Partnership. See "Description
of Notes -- Certain Covenants."
ORGANIZATION
The Company, the Operating Partnership and their subsidiaries were
organized in a manner to facilitate the Formation Transactions and the IPO. The
Company is the sole general partner of the Operating Partnership. The other
holders of Units in the Operating Partnership are limited partners. The
following diagram illustrates the structure of the Company, the Operating
Partnership and their subsidiaries:
[CHART]
- ---------------
(1) AMB Investment Management conducts its business through the Investment
Management Partnership, of which it is the sole general partner and owns the
entire capital interest. The 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 AMB 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 (none of which are or will be
guarantors of the Notes). 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 Operating Partnership and the
Company are located at 505 Montgomery Street, San Francisco, California 94111,
and their telephone number is (415) 394-9000. The Operating Partnership and the
Company also maintain a regional office in Boston, Massachusetts.
7
<PAGE> 14
BUSINESS AND OPERATING STRATEGIES
The Company focuses its investment activities in industrial hub
distribution markets and retail trade areas throughout the U.S. where
opportunities exist to acquire and develop additional properties on an
advantageous basis. The Company believes that the industrial property sector is
well-positioned to benefit from strong market fundamentals and growth in
international trade, and further believes that the retail property sector will
benefit from limited new construction in "in-fill" locations and from projected
growth in personal income and retail sales levels (in-fill 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 capitalize on these current conditions in the
industrial and retail property sectors by implementing the following business
and operating strategies:
- Financing Strategy. The Company intends to operate with a Debt-to-Total
Market Capitalization Ratio generally of less than 45% and plans to
continue to structure its balance sheet in order to maintain an
investment grade debt rating. Upon consummation of the Offering, the
Operating Partnership's Debt-to-Total Market Capitalization Ratio as of
March 31, 1998 on a pro forma basis would have been approximately 31.2%
(29.9% on an historical basis).
- 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.
- 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.
- Select Market Focus. The Company focuses on acquiring, redeveloping and
operating properties in in-fill locations. 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 the resulting
upward pressure on rents.
- Research-Driven Market Selection. The Company's decisions regarding the
deployment of capital are experience- and research-driven, with
investments 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.
- Property Management. The Company actively manages the Properties through
its experienced staff of regional managers, each of whom has broad
responsibilities for the Properties they manage. The Company typically
outsources property management to a select group of third-party local
managers with whom the Company has established strong relationships.
Management believes that industrial and retail property types do not
typically require on-site property managers and that by utilizing
third-party property managers, the Company is better able to service its
customers and more efficiently manage its costs.
- 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 proposals and transactions.
- Renovation, Expansion and Development. Management believes that
value-added renovation and expansion of 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 risk-adjusted rate of
return than may be obtained from the purchase of stabilized properties.
8
<PAGE> 15
SUMMARY FINANCIAL AND OTHER DATA
The following table sets forth summary 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 three months ended March 31, 1998 and for
the Properties contributed to the Operating Partnership in connection with the
Formation Transactions (the "AMB Contributed Properties") for the years ended
December 31, 1993, 1994, 1995, 1996, the period from January 1, 1997 to November
25, 1997 and the three months ended March 31, 1997, and on an as adjusted basis
for the Operating Partnership 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 Operating Partnership for the year ended December 31,
1997 and for the three months ended March 31, 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 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 and the financial schedules included
elsewhere in this Prospectus.
In the opinion of management, the as adjusted and pro forma condensed
financial information provides for all adjustments necessary to reflect the
adjustments and transactions described above. 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, 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.
9
<PAGE> 16
OPERATING PARTNERSHIP AND AMB CONTRIBUTED PROPERTIES
SUMMARY FINANCIAL AND OTHER DATA
(IN THOUSANDS EXCEPT UNIT DATA, PERCENTAGES AND NUMBER OF PROPERTIES)
<TABLE>
<CAPTION>
AS OF AND FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------------------------------------
OPERATING PARTNERSHIP
------------------------------------
HISTORICAL AS ADJUSTED PRO FORMA
AMB CONTRIBUTED PROPERTIES(1) (2) (3) (4)
-------------------------------------------------------- ---------- ----------- ---------
1993 1994 1995 1996 1997 1997 1997 1997
-------- -------- ---------- ---------- -------- ---------- ----------- ---------
(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 $325,293
Income from operations
before minority
interests.............. 6,871 13,753 32,519 54,865 58,068 9,291 103,903 107,467
Net income............... 6,871 13,194 32,531 54,400 57,184 9,174 102,606 103,396
Net income per unit(5):
Basic.................. $ 0.10 $ 1.16 $ 1.15
Diluted................ 0.10 1.16 1.15
Distributions per unit... 0.13 1.37 1.37
OTHER DATA:
EBITDA(6)................ $ 195,218 $225,556
Cash flows provided
by(used in):
Operating activities... 131,621 138,112
Investing activities... (607,768) (842,337)
Financing activities... 553,199 571,614
Ratio of earnings to
fixed charges(7)....... 3.1x 2.5x
Book debt service
coverage ratio(8)...... 4.3x 3.4x
Cash debt service
coverage ratio(9)...... 3.8x 3.2x
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(10)......... 100,496 201,959 254,067 522,634 535,652
Unsecured notes.......... -- -- -- -- --
Unsecured credit
facility............... -- -- -- 25,500 150,000
Partner's capital........ 208,043 490,111 837,199 1,027,601 1,717,398
PROPERTY DATA:
INDUSTRIAL PROPERTIES
Total rentable square
footage of properties
at end of period....... 5,638 13,364 21,598 29,609 37,329
Number of properties at
end of period.......... 12 28 44 60 95
Occupancy rate at end of
period................. 97.4% 96.9% 97.3% 97.2% 95.7%
RETAIL PROPERTIES
Total rentable square
footage of properties
at end of period....... 1,074 2,422 3,299 5,282 6,216
Number of properties 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
THREE MONTHS ENDED MARCH 31,
-------------------------------------
AMB OPERATING PARTNERSHIP
CONTRIBUTED -----------------------
PROPERTIES PRO FORMA
(1) HISTORICAL (4)
----------- ---------- ----------
1997 1998 1998
----------- ---------- ----------
<S> <C> <C> <C>
OPERATING DATA:
Total revenues........... $54,749 $ 75,785 $ 85,099
Income from operations
before minority
interests.............. 14,217 29,188 30,002
Net income............... 13,997 28,726 28,927
Net income per unit(5):
Basic.................. $ 0.32 $ 0.32
Diluted................ 0.32 0.32
Distributions per unit... 0.34 0.34
OTHER DATA:
EBITDA(6)................ $ 52,815 $ 60,028
Cash flows provided
by(used in):
Operating activities... 34,820 36,906
Investing activities... (199,520) (49,646)
Financing activities... 153,316 (9,063)
Ratio of earnings to
fixed charges(7)....... 3.1x 2.6x
Book debt service
coverage ratio(8)...... 4.5x 3.7x
Cash debt service
coverage ratio(9)...... 3.8x 3.3x
BALANCE SHEET DATA:
Investments in real
estate at cost......... $2,755,882 $2,812,612
Total assets............. 2,798,190 2,856,120
Secured debt(10)......... 610,111 610,111
Unsecured notes.......... -- 350,000
Unsecured credit
facility............... 312,000 19,930
Partner's capital........ 1,741,601 1,741,601
PROPERTY DATA:
INDUSTRIAL PROPERTIES
Total rentable square
footage of properties
at end of period....... 43,964 45,269
Number of properties at
end of period.......... 118 122
Occupancy rate at end of
period................. 94.6% 94.6%
RETAIL PROPERTIES
Total rentable square
footage of properties
at end of period....... 6,849 6,849
Number of properties at
end of period.......... 37 37
Occupancy rate at end of
period................. 94.6% 94.6%
</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 the three months
ended March 31, 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 and the Offering had occurred on
January 1, 1997.
10
<PAGE> 17
(5) Historical, as adjusted and pro forma net income per basic unit for the
year ended December 31, 1997 equals the historical, as adjusted and pro
forma net income divided by 88,416,676, 88,416,678 and 89,523,120 units,
respectively. Historical and pro forma net income per basic unit for the
three months ended March 31, 1998 equals the historical and pro forma net
income divided by 88,428,969 and 89,523,120 units, respectively.
Historical, as adjusted and pro forma net income per diluted unit for the
year ended December 31, 1997 equals the historical, as adjusted and pro
forma net income divided by 88,698,719, 88,698,719 and 89,805,163 units,
respectively. Historical and pro forma net income per diluted unit for the
three months ended March 31, 1998 equals the historical and pro forma net
income divided by 88,839,192 units and 89,933,343 units, 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) The ratio of earnings to fixed charges is computed as income from
operations before minority interests plus fixed charges (excluding
capitalized interest) divided by fixed charges. Fixed charges consist of
interest costs (including amortization of debt premiums and discounts and
financing costs), whether capitalized or expensed, and the interest
component of rental expense.
(8) The book debt service coverage ratio is calculated as EBITDA divided by
book interest expense (including amortization of debt premiums and
discounts and financing costs).
(9) The cash debt service coverage ratio is calculated as EBITDA divided by
cash interest costs. Cash interest costs consist of book interest expense
(excluding amortization of debt premiums and discounts and financing costs)
plus capitalized interest.
(10) Secured debt as of December 31, 1997 and March 31, 1998 includes
unamortized debt premiums of approximately $18,286 and $17,542,
respectively. See Notes to Consolidated Financial Statements.
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RISK FACTORS
An investment in the Notes involves various material risks. Prospective
investors should carefully consider the following risk factors in connection
with an investment in the Notes 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 ability to make payments of principal of and
interest on the Notes 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, and the ability of the Company to provide adequate maintenance and
insurance and increased 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, 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 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 investment.
Concentration of Properties in California
As of March 31, 1998, the Properties located in California represented
approximately 24.0% of aggregate square footage and approximately 30.6% of
aggregate Annualized Base Rent. The Company's revenue from, and the value of its
Properties 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 Operating
Partnership's financial condition and results of operations and, as a result,
its ability to make payments of principal of and interest on the Notes. Such
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 March 31, 1998 represent 86.5% and 13.5%, respectively, of the Properties'
aggregate rentable square footage. Such concentration may expose the Company to
the risk of downturns in these sectors to a greater extent than if its portfolio
also included other property types.
Illiquidity of Real Estate Investments
Because real estate investments are relatively illiquid, the Operating
Partnership's ability to vary its portfolio promptly in response to economic or
other conditions will be limited. The limitations in the Code and related
regulations on a REIT holding property for sale may affect the Operating
Partnership's ability to sell properties without adversely affecting the
Operating Partnership's ability to make payments of principal of and interest on
the Notes. Any of the foregoing factors or events will impede the ability of the
Operating Partnership to respond to adverse changes in the performance of its
investments and could have an adverse effect on the Operating Partnership's
financial condition and results of operations and its ability to make payments
of principal of and interest on the Notes.
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Renewal of Leases and Reletting of Space
The Operating Partnership will be 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 42.5% of the leased square
footage as of March 31, 1998 in the Properties will expire on or prior to
December 31, 2000, with leases on 12.9% of the leased square footage in the
Properties expiring during the 12 months ending March 31, 1999. In addition,
numerous properties compete with the 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 Operating Partnership's ability to lease space in its Properties or
newly-acquired properties and on the rents charged. If the Operating Partnership
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 Operating Partnership's cash flow and ability to make payments
of principal of and interest on the Notes 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."
Uninsured Loss
The Operating Partnership carries comprehensive liability, fire, extended
coverage and rental loss insurance covering all of its properties, with policy
specifications and insured limits which the Operating Partnership 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 Operating Partnership 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 Operating Partnership, the
Operating Partnership would remain obligated for any mortgage debt or other
financial obligations related to such properties.
Uninsured Losses from Seismic Activity
A number of both the Industrial and Retail Properties are located in areas
that are known to be subject to earthquake activity, including in California
where, as of March 31, 1998, 27 Industrial Properties aggregating 10.4 million
rentable square feet representing 20.4% of the Properties based on aggregate
square footage, and 11 Retail Properties, aggregating 1.8 million rentable
square feet representing 3.6% of the Properties based on aggregate square
footage, are located. The Operating Partnership 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 Operating Partnership 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 Operating Partnership's properties. Through an annual
analysis prepared by outside consultants, the Operating Partnership 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.
Impact on Control Over and Liabilities With Respect to Properties Owned
Through Partnerships and Joint Ventures
The Operating Partnership has ownership interests in five industrial and
six retail joint ventures, limited liability companies or partnerships. The
Operating Partnership may make 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 may share certain approval
rights over major decisions. Under the
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agreements governing the joint ventures, the Operating Partnership and the joint
venture participant may be required to make additional capital contributions,
and subject to certain limitations, the joint ventures may incur additional
indebtedness. Such additional indebtedness would effectively be senior to the
Notes. Partnership or joint venture investments may, under certain
circumstances, involve risks such as the possibility that the Operating
Partnership's partners or co-venturers might become bankrupt (in which event the
Operating Partnership and any other remaining general partners or co-venturers
would generally remain liable for the liabilities of such partnership or joint
venture), that such partners 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 Operating Partnership, or that such partners or
co-venturers may be in a position to take action contrary to the instructions or
the requests of the Operating Partnership or contrary to the policies or
objectives of the Operating Partnership or the Company. In addition, agreements
governing joint ventures and partnerships often contain restrictions on the
transfer of a joint venturer'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 Operating Partnership
will, however, seek to maintain sufficient control of such partnerships or joint
ventures to permit the Operating Partnership's business objectives to be
achieved. There is no limitation under the organizational documents of either
the Operating Partnership or the Company as to the amount of available funds
that may be invested in partnerships or joint ventures. The occurrence of one or
more of the events described above could have an adverse effect on the Operating
Partnership's financial condition and results of operations, and its ability to
make payments of principal of and interest on the Notes.
Possible Inability to Consummate Acquisitions on Advantageous Terms
The Operating Partnership 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 Operating Partnership 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 Operating
Partnership anticipates that future acquisitions will be financed through a
combination of borrowings under the Credit Facility, other forms of secured or
unsecured financing and proceeds from equity or debt offerings by the Company or
the Operating Partnership. No assurance can be given that the Operating
Partnership 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 Operating Partnership, 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 and results of operations, and its ability to make payments of
principal of and interest on the Notes.
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, 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 Operating Partnership's renovation and development
activities could have an adverse effect on the Operating Partnership's financial
condition and results of operations, and its ability to make payments of
principal of and interest on the Notes. 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 take
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management's time away from the day-to-day operations of the Operating
Partnership. The Operating Partnership anticipates that future acquisitions will
be financed through a combination of borrowings under the Credit Facility, other
forms of secured or unsecured financing and proceeds from equity or debt
offerings by the Company or the Operating Partnership. 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 Operating
Partnership's financial condition and results of operations, and its ability to
make payments of principal of and interest on the Notes.
LIMITED RESTRICTIONS ON TOTAL INDEBTEDNESS AND CHANGES OF CONTROL
Other than the covenants restricting the ability of the Operating
Partnership and its Subsidiaries to incur additional indebtedness discussed
under "Description of Notes -- Certain Covenants," the Indenture does not
contain provisions which would limit the total indebtedness that the Operating
Partnership may incur, or protect the holders of Notes in the event of a change
of control, reorganization, restructuring, merger or similar transaction
involving the Operating Partnership. Such transactions could adversely affect
the financial condition or results of operations of the Operating Partnership
and result in a downgrade of the credit rating of the Notes, a loss in value of
the Notes or an increase in the risk of default on payments of principal of or
interest on the Notes.
The Operating Partnership operates with a policy of incurring debt, either
directly or through its Subsidiaries, only if upon such incurrence the Company's
consolidated Debt-to-Total Market Capitalization Ratio would be approximately
45% or less. In addition, the aggregate amount of indebtedness that the
Operating Partnership and 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 Operating Partnership and
the Company would be able to incur additional indebtedness as a result of
increases in the market price per share of the Company's 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 and the Operating Partnership 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 Operating Partnership could become more highly leveraged, resulting
in an increase in debt service that could adversely affect the Operating
Partnership's financial condition and results of operations and, consequently,
the amount of cash available to the Operating Partnership for payments of
principal of and interest on the Notes and could increase the risk of default on
the Operating Partnership's indebtedness.
DEBT FINANCING
Debt Financing and Existing Debt Maturities
The Operating Partnership will be subject to risks normally associated with
debt financing, including the risk that its cash flow will be insufficient to
make required payments of principal of and interest on the Notes, 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 such refinancing will not be as favorable as the terms of existing
indebtedness. See "Business and Properties -- Debt Financing." As of March 31,
1998, the Operating Partnership had an aggregate of $610.1 million of secured
indebtedness with an average maturity of 7 years and a weighted average interest
rate of 8.0%, and $312.0 million of borrowing outstanding under its Credit
Facility with a maturity date of November 2000 and a weighted average interest
rate of 6.9%. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources" and "Business and
Properties -- Debt Financing." If principal payments due at maturity cannot be
refinanced, extended or paid with proceeds of other capital transactions, such
as new equity capital, the Operating Partnership expects that its cash flow will
not be sufficient in all years to make payments of principal of and interest on
the Notes 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
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indebtedness would increase, which would adversely affect the Operating
Partnership's cash flow and its ability to make payments of principal of and
interest on the Notes. If a Property or Properties are mortgaged to secure
payment of indebtedness and the Operating Partnership 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 Operating Partnership's financial condition
and liquidity and its ability to make payments of principal of and interest on
the Notes.
Impact of Rising Interest Rates and Variable Rate Debt
As of March 31, 1998, the Operating Partnership had $312.0 million
outstanding under its $500.0 million variable-rate Credit Facility which bears
interest at variable rates. In addition, the Operating Partnership may incur
other variable rate indebtedness in the future. Increases in interest rates on
such indebtedness could increase the Operating Partnership's interest expense,
which would adversely affect the Operating Partnership's financial condition and
results of operations and, as a result, its ability to make payments of
principal of and interest on the Notes. Accordingly, the Operating Partnership
may in the future engage in transactions to further 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."
Possible Impact of Defaults on Cross-Collateralized and Cross-Defaulted Debt
As of March 31, 1998, the Operating Partnership had 12 non-recourse secured
loans which are cross-collateralized by five pools consisting of 19 Properties.
As of March 31, 1998, there was $211.2 million outstanding on such loans. If an
event of default were to occur on any such loan, the Operating Partnership 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 Operating
Partnership's inability to refinance any such loan on terms as favorable as
existing terms, would adversely impact its financial condition and results of
operations and, as a result, its ability to make payments of principal of and
interest on the Notes. In addition, the Operating Partnership's Credit Facility
contains defaults in the event that other material indebtedness of the Operating
Partnership (including its non-recourse secured and joint venture debt) is in
default. Such cross-default provision may require the Operating Partnership to
repay or restructure the Credit Facility in addition to any mortgage or other
debt which is in default, which could have an adverse effect on the Operating
Partnership's financial condition, results of operations and liquidity and, as a
result, its ability to make payments of principal of and interest on the Notes.
RANKING OF THE NOTES
The Notes will be direct, senior unsecured obligations of the Operating
Partnership and will rank equally with all of the other unsecured and
unsubordinated indebtedness of the Operating Partnership from time to time
outstanding. However, the Notes are effectively subordinated to mortgages and
other secured indebtedness of the Operating Partnership, which encumber certain
assets of the Operating Partnership, and to all of the indebtedness of its
subsidiaries (approximately $610.1 million as of March 31, 1998 on a pro forma
basis). In addition, the Guarantee will be effectively subordinated to all of
the mortgages and other secured indebtedness of the Company and all of the
outstanding liabilities of the Company's subsidiaries. As of March 31, 1998, on
a pro forma basis giving effect to the Offering and the application of the
proceeds therefrom, the total outstanding indebtedness of the Operating
Partnership and its subsidiaries would have been approximately $980.0 million,
of which $610.1 million was secured. As of March 31, 1998, the Company had no
outstanding indebtedness (excluding the Company's guaranty of the Credit
Facility) other than that of the Operating Partnership and its subsidiaries.
Subject to certain limitations, each of the Operating Partnership and the
Company may incur additional indebtedness. Although the Board of Directors has
adopted a policy of limiting the Company's Debt-to-Total Market Capitalization
Ratio to approximately 45%, neither the Operating Partnership's nor the
Company's organizational documents limit the amount of indebtedness that each
may incur. In addition, the aggregate amount of indebtedness that the Operating
Partnership and the Company may incur under such policy varies directly with the
valuation of the Company's
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capital stock and the number of shares of capital stock outstanding.
Accordingly, the Operating Partnership and the Company would be able to incur
additional indebtedness as a result of increases in the market price per share
of the Company's common stock or other outstanding classes of capital stock, and
future issuance of shares of capital stock. See "-- No Limitations on
Indebtedness," "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources," "Description of
Notes -- Certain Covenants -- Aggregate Debt Test," "-- Debt Service Test" and
"-- Secured Debt Test."
The obligation of the Company under the Guarantee of the Notes may be
subject to review under state or federal transfer laws in the event of the
Company's bankruptcy or other financial difficulty. Under those laws, in a
lawsuit by an unpaid creditor or representative of creditors of the Company,
such as a trustee in bankruptcy, if a court were to find that when the Company
entered into the Guarantee, it (a) received less than fair consideration or
reasonably equivalent value therefor, and (b) either (i) was insolvent, (ii) was
rendered insolvent, (iii) was engaged in a business or transaction for which its
remaining unencumbered assets constituted unreasonably small capital, or (iv)
intended to incur or believed that it would incur debts beyond its ability to
pay as such debts matured, the court could void the Guarantee and the Company's
obligations thereunder, and direct the return of any amounts paid thereunder to
the Company or to a fund for the benefit of its creditors. Moreover, regardless
of the factors identified in the foregoing clauses (i) through (iv), a court
could void the Guarantee and direct such repayment if it found that such
Guarantee was entered into with actual intent to hinder, delay or defraud the
Company's creditors. To the extent that the Company's obligation under the
Guarantee of the Notes exceeds the actual benefit that it receives from the
issuance of the Notes, the Company may be deemed not to have received fair
consideration or reasonably equivalent value for the Guarantee. The measure of
insolvency for purposes of the foregoing will vary depending on the law of the
jurisdiction being applied. Generally, however, an entity would be considered
insolvent if the sum of its debts (including contingent or unliquidated debts)
is greater than all of its property at a fair valuation or if the present fair
salable value of its assets is less than the amount that will be required to pay
its probable liability on its existing debts as they become absolute and
matured.
OPTIONAL REDEMPTION OF THE 2008 NOTES OR THE 2018 NOTES
The 2008 Notes and the 2018 Notes may each be redeemed in whole, or from
time to time in part, at the option of the Operating Partnership on any date as
provided in "Description of Notes -- Redemption of the 2008 Notes and the 2018
Notes at the Option of the Operating Partnership." The price at which the 2008
Notes and the 2018 Notes may be redeemed includes a redemption premium designed
to compensate the holders for loss of interest rate yield caused by such early
redemption. However, no assurance can be given that the redemption premium will
fully compensate investors for all costs and expenses (including decreased
yields on reinvestments) incurred as a result of the Operating Partnership's
exercise of its optional redemption of either the 2008 Notes or the 2018 Notes.
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
certain entities previously managed by or affiliated with the AMB Predecessor
entities including CIF, VAF, AMB and WPF, and certain assets of the Individual
Account Investors, 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 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 or as general partner of the Operating Partnership. 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 entered into in connection with
the Formation Transactions. Unknown liabilities might include liabilities for
clean-up or remediation of undis-
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closed 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, 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 give rise to a right to purchase such 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 could have an adverse effect on the Company's
financial condition and results of operations, and its ability to make payments
of principal of and interest on the Notes.
CONFLICTS OF INTEREST
Continued Involvement of Executive Officers in Other Real Estate Activities
and Investments
Certain Executive Officers own interests in certain 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. Neither AMB Development, Inc. nor AMB
Development L.P. has initiated any new development projects since completion of
the IPO, nor will they initiate any new development projects following the
Offering, nor will they make any further investments in industrial or retail
properties following the Offering other than those currently under development.
Such persons are also owners of AMB Corporate Real Estate Advisors, Inc.
("AMBCREA"), which is principally a real estate services company for corporate
and professional tenants of real estate. AMBCREA is in the process of winding
down its business, and it is presently anticipated that AMBCREA will cease
operations by June 30, 1998. However, the continued involvement by the Executive
Officers and the Company's directors could divert management's attention from
the day-to-day operations of the Operating Partnership. Each person who was an
Executive Officer upon completion of the IPO entered into a non-competition
agreement with the Operating Partnership pursuant to which, among other things,
such individuals agreed not to engage in any activities, directly or indirectly,
in respect of commercial real estate, and agreed 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.
AMBCREA, 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. In addition, until cessation of its
operations, AMBCREA will continue to use office space leased by AMBI, an
affiliate of the Executive Officers, for a fee equal to such affiliate's
allocated cost thereof. The Operating Partnership may continue to provide
certain administrative services to AMBCREA at arm's-length charges. See "Certain
Relationships and Related Transactions." Such activities could also, in the
future, subject to the unanimous approval of the disinterested directors,
involve acquisitions of property from such Executive Officers, additional leases
between such Executive Officers and the Operating Partnership, and/or other
related activities in which the interests pursued by such Executive Officers may
not be in the best interests of the holders of the Notes.
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, Executive
Officer and director of the Company, own less than 1% interests in two
partnerships which own office buildings in various markets; these interests have
negligible 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
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Oakland, California. David S. Fries, an Executive Officer of the Company, 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, including
mortgage 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. Thomas W. Tusher, a
member of the Company's 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 March 31, 1998 at approximately $939,000.
Messrs. Abbey, Moghadam and Burke each have an approximately 26.7% interest in
the partnership, each valued as of March 31, 1998 at approximately $1,252,000.
The Operating Partnership 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 the
Company's director, or an affiliate of such person, has an interest may compete
with the Operating Partnership in the future if the Operating Partnership were
to invest in a property similar and in close proximity to such property.
However, the continued involvement by the Operating Partnership's Executive
Officers in such properties could divert management's attention from the
day-to-day operations of the Operating Partnership. The Operating Partnership is
prohibited from acquiring any properties from the Executive Officers or their
affiliates without the approval of the Company's disinterested directors. 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 (the "Partnership Agreement") 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 the Company, its stockholders and the holders of Notes. In
addition, under the terms of the Partnership Agreement, the holders of Units
(including Performance Units issuable to the Executive Officers) will have
certain approval rights with respect to certain transactions that affect all
holders of Notes but which may not be exercised in a manner which reflects the
interests of all holders of Notes. 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
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 own approximately 29.3% of the
outstanding Common Stock (assuming the exchange of all Units into shares of
Common Stock). In addition, the Executive Officers and directors own
approximately 5.0% of the Common Stock (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 Operating Partnership and the
Company and, as stockholders, 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 and the holders of Notes.
Although there is no understanding or arrangement for these directors, officers
and stockholders and their affiliates to act in concert, such parties would be
in a position to exercise significant influence over the Company's affairs and
those of the Operating Partnership should they choose to do so. See "Management"
and "Principal Stockholders."
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Failure to Enforce Terms of Certain Agreements
As holders of shares of outstanding Common Stock and, potentially,
Performance Units, certain of the Company's directors and certain of the
Executive Officers will have a conflict of interest with respect to their
obligations as directors and Executive Officers to vigorously enforce the terms
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 and the Operating Partnership, which loss could have a
material adverse effect on the Operating Partnership's and the Company's
financial condition or results of operations and the Operating Partnership's
ability to make payments of principal of and interest on the Notes.
Use of Net Offering Proceeds to Repay Indebtedness Owed to Affiliates of
Underwriters
The Operating Partnership intends to use the net proceeds from the sale of
the Notes offered hereby to repay indebtedness outstanding under the Credit
Facility and for general corporate purposes. Morgan Guaranty Trust Company of
New York, an affiliate of J.P. Morgan Securities Inc., one of the Underwriters,
is the agent and a lender under the Credit Facility. As a result of this
affiliation, J.P. Morgan Securities Inc. has an indirect interest in the
repayment of the amounts outstanding under the Credit Facility in addition to
its role as an Underwriter in the Offering. See "Use of Proceeds" and
"Underwriters."
AMB INVESTMENT MANAGEMENT
Adverse Consequences of Lack of Control Over the Business of AMB Investment
Management
The Operating Partnership owns 100% of the non-voting preferred stock of
AMB Investment Management (representing approximately 95% of its economic
interest) and certain Executive Officers and certain officers of AMB Investment
Management own all of the outstanding voting common stock of AMB Investment
Management (representing approximately 5% of its economic interest). Although
the Company receives substantially all of the economic benefit of the business
carried on by AMB Investment Management through the Company's right to receive
dividends through the Operating Partnership, the Company is not able to elect
directors or officers of AMB Investment Management and, therefore, the Company
does not have the ability to influence the operation of AMB Investment
Management or require that AMB Investment Management's board of directors
declare and pay a cash dividend on the non-voting stock of AMB Investment
Management held by the Operating Partnership. As a result, the board of
directors and management of AMB Investment Management might implement business
policies or decisions that would not have been implemented by persons controlled
by the Company and that are adverse to the interests of the Operating
Partnership or that lead to adverse financial results, which could adversely
impact the Operating Partnership's net operating income and cash flows and the
ability of the Operating Partnership to make payments of principal of and
interest on the Notes. In addition, AMB Investment Management will be subject to
tax on its income, reducing its 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 would reduce its ability to make
distributions on the non-voting preferred stock owned by the Operating
Partnership. Such failure would 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.
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.
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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 Operating Partnership
currently anticipates or if the changes must be made on a more accelerated
schedule than the Operating Partnership currently anticipates, its ability to
make payments of principal of and interest on the Notes 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 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. Some of the Operating Partnership's
environmental assessments of the Properties do not contain a comprehensive
review of the past uses of the Properties and/or the surrounding properties.
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None of the Operating Partnership's environmental assessments of the
Properties has revealed any environmental liability that the Operating
Partnership 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 Operating
Partnership's assessments do not reveal all environmental liabilities or that
there are material environmental liabilities of which the Operating Partnership
is unaware. In addition, only certain of such assessments were updated for
purposes of the IPO, and less than 50% of the Properties have environmental
assessments which are more than two years old. 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 Operating Partnership. If
the costs of compliance with the various environmental laws and regulations, now
existing or hereafter adopted, exceed the Operating Partnership's budgets for
such items, the Operating Partnership's ability to make payments of principal of
and interest on the Notes 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 Operating Partnership 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 Operating Partnership, which expenditures could have an
adverse effect on the Operating Partnership's financial condition and results of
operations and its ability to make payments of principal of and interest on the
Notes.
UNITED STATES FEDERAL INCOME TAX RISK
The Operating Partnership intends to treat the REPS in the manner described
under the caption "Certain Federal Income Tax Considerations Relating To The
REPS -- Treatment of REPS." It is possible, however, that the Internal Revenue
Service (the "Service") could successfully assert an alternate tax treatment for
the REPS, in which event holders of REPS may be required (i) to use an accrual
method of tax accounting with respect to the REPS (regardless of their usual
method of tax accounting), (ii) to include amounts in taxable income in excess
of actual cash payments received with respect to the REPS and (iii) to recognize
ordinary income or loss rather than capital gain or loss upon the sale or other
taxable disposition of the REPS. See "Material Federal Income Tax Considerations
Relating to the REPS -- Treatment of REPS."
ABSENCE OF MARKET FOR THE NOTES
The Notes will be new securities for which there is currently no market.
Although the Underwriters have informed the Operating Partnership that they
currently intend to make a market in the Notes, they are not obligated to do so
and any such market-making may be discontinued at any time without notice. If an
active market does not develop, the market price and liquidity of the Notes may
be materially and adversely affected. Neither the Company nor the Operating
Partnership intends to apply for listing of the Notes on any securities exchange
or to seek approval for quotation through any automated quotation system. There
can be no assurance that an active market for these securities will develop and
no assurance can be given as to the prices at which such securities might trade.
In particular, there can be no assurance that the market price for the Notes
will be at or above the purchase price of the Notes. The liquidity of, and
trading market for, the Notes may also be materially and adversely affected by
declines in the market for debt securities generally. Such a decline may
materially and adversely affect such liquidity and trading independent of the
financial performance of, and prospects for, the Operating Partnership.
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<PAGE> 29
THE COMPANY AND THE OPERATING PARTNERSHIP
GENERAL
AMB Property, L.P. was organized in November 1997 and commenced operations
in connection with the completion of the IPO and the consummation of the
Formation Transactions in November 1997. AMB Property Corporation is one of the
largest publicly-traded real estate companies in the United States. As of May
31, 1998, the Company owned 159 Properties, comprised of 122 Industrial
Properties and 37 Retail Properties located in 28 markets throughout the United
States. The Industrial Properties (comprising 427 buildings), principally
warehouse distribution properties, encompass approximately 45.3 million rentable
square feet and, as of March 31, 1998, were 94.6% leased to over 1,000 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 94.6% leased to over 900 tenants. See "Business and Properties."
The Operating Partnership conducts substantially all of the Company's
activities and owns substantially all of the economic interests in the
Properties. As of March 31, 1998, the Company owned an approximate 95.9% general
partner interest in the Operating Partnership, with the remaining 4.1% limited
partner interest owned by nonaffiliated investors. As the sole general partner
of the Operating Partnership, the Company has control over the management of the
Operating Partnership and over each of the 116 Properties (comprising
approximately 36.9 million rentable square feet) owned directly by the Operating
Partnership. The Operating Partnership owns 99% of the economic interests in the
remaining 43 Properties (comprising approximately 15.2 million rentable square
feet) through AMB Property II, L.P., a Delaware limited partnership, and Long
Gate LLC, a Delaware limited liability company, and the Company (through a
wholly owned subsidiary) owns a 1% interest.
The Operating Partnership is engaged in the business of acquiring and
operating industrial properties and community shopping centers in target markets
nationwide. The Operating Partnership and the Company are led by Mr. Moghadam,
its Chief Executive Officer and one of the three founders of the Company.
Messrs. Abbey and Burke, the other two founders, also play active roles in the
operations of the Operating Partnership and the Company as the Chairman of the
Operating Partnership's Investment Committee and the Chairman of the Company's
Board of Directors, respectively. The Operating Partnership's ten executive
officers have an average of 22 years of experience in the real estate industry
and have worked together for an average of eight years building the AMB real
estate business. The Operating Partnership and the Company employ 123
individuals, 99 of whom are located in the San Francisco headquarters and 24 in
the Boston office. The Company operates as a self-administered and self-managed
real estate company and expects that it has qualified and that it will continue
to qualify as a REIT for federal and state income tax purposes beginning with
the year ended December 31, 1997.
RECENT DEVELOPMENTS
Acquisitions. From April 1, 1998, to May 31, 1998, the Company acquired
four Industrial Properties comprising 12 buildings and 1.3 million rentable
square feet, for an aggregate purchase price of $56.7 million.
Quarterly Distributions. On March 6, 1998, the Board of Directors of the
Company, in its capacity as general partner of the Operating Partnership,
declared a distribution of $0.3425 per partnership unit, payable April 3, 1998
to partners of record on March 18, 1998. In addition, the Company's Board of
Directors declared a distribution of $0.3425 per share of the Common Stock,
payable April 3, 1998 to stockholders of record on March 18, 1998.
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Investment-Grade Credit Rating. The Company recently received credit
ratings on its senior unsecured debt of Baa1 from Moody's Investors Service, BBB
from Standard & Poors Corporation and BBB+ from Duff & Phelps Credit Rating Co.
As a result of receiving these investment-grade credit ratings, the interest
rate on the Operating Partnership's Credit Facility was reduced by 20 basis
points to LIBOR plus 90 basis points.
The Company and the Operating Partnership were formed in connection with
the Formation Transactions in November, 1997. The principal executive offices of
the Company and the Operating Partnership are located at 505 Montgomery Street,
San Francisco, California 94111, and their telephone number is (415) 394-9000.
The Operating Partnership and the Company also maintain a regional office in
Boston, Massachusetts.
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BUSINESS AND OPERATING STRATEGIES
The Operating Partnership 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 Operating Partnership's operations are
conducted through its 123 employees, 99 of whom are located in its San Francisco
headquarters and 24 of whom are located in its Boston office. The Operating
Partnership 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 Operating Partnership has
long-standing relationships with most of the real estate management firms across
the country which provide local property management and leasing services to the
Operating Partnership on a fee basis. See "-- Property Management."
NATIONAL PROPERTY COMPANY
As of May 31, 1998, the Operating Partnership owned 159 Properties located
in 28 markets throughout the U.S. The Operating Partnership 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 Operating
Partnership 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 Operating Partnership an
optimal combination of growth opportunities, strong current income and increased
stability through market cycles. The Operating Partnership 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 enables the Operating Partnership to allocate
capital and organizational resources between property types according to
changing market conditions and its investment strategy.
SELECT MARKET FOCUS
The Operating Partnership 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
Operating Partnership 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 Operating Partnership
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 Operating Partnership 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,
these six markets 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. In
addition, such hub markets contain approximately 56% of the Industrial
Properties based on aggregate square footage. The Operating Partnership also
invests in selected regional distribution markets including Boston, Houston,
Miami, Minneapolis, San Diego, Seattle and Baltimore/Washington, D.C. The
Operating Partnership 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
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geographic or regulatory supply constraints, and benefit from access to large
labor supplies and well-developed transportation networks. See "Business and
Properties -- Industrial Properties -- Overview of Major Target Markets."
PROPERTY MANAGEMENT
The Operating Partnership actively manages its properties through its
experienced staff of 16 regional managers, each of whom specializes in the
management of industrial properties or community shopping centers in designated
markets. Regional, market and property-type focus provides regional managers
with extensive knowledge of real estate trends and supply and demand activity in
their markets as well as an effective network of local contacts who provide
sources for market data, leads for new tenants and property acquisitions, and
opportunities to enhance the value of the Properties. The Operating Partnership
typically outsources property management to a select group of third-party local
managers with whom the Operating Partnership has developed strong relationships.
The Operating Partnership's regional managers have broad responsibilities
that include implementing an annual business plan for each property, formulating
leasing strategies, establishing leasing terms and conditions, negotiating
leases, approving and monitoring leases and capital expenditures, planning and
implementing renovation, expansion and development, establishing annual
operating and capital budgets and effecting dispositions. The Operating
Partnership's regional managers utilize local leasing agents to identify
prospective tenants and document lease transactions. Third-party local property
service providers are engaged to oversee custodial property matters such as rent
collection, tenant requests, maintenance and repair, and supervision of cleaning
and security services. The Operating Partnership monitors the performance of its
properties on a daily basis through the use of its proprietary asset information
system. This management tool enables the Operating Partnership not only to
monitor the operating performance of a property (and the local property
manager), but also to review and communicate strategic initiatives to the local
property manager on a real-time basis and to compare the property's performance
to on-line budgets and objectives. The Operating Partnership also monitors the
tenant service performance of its service providers in order to ensure high
quality and uniform service to its tenants.
Management believes that its approach to property management and its
relationships with third-party property management companies enable the
Operating Partnership to more effectively manage fixed operating costs
associated with a national portfolio. By employing third-party local property
managers which management believes to be among the best in their respective
market, the Operating Partnership can enter and exit markets efficiently without
the administrative burden of retaining a large staff. Since the Operating
Partnership is the customer, rather than the competitor, of third-party
management firms, these firms are also a source of new acquisition opportunities
in the respective markets, thus providing the Operating Partnership with greater
access to transaction flow. Management believes this approach also gives the
Operating Partnership a competitive advantage in capitalizing on the increasing
trend among corporations to outsource their real estate service requirements to
property management companies.
From January 1, 1995 through March 31, 1998, the weighted average tenant
retention rate of the Properties managed by AMB, the Company's Predecessor, and
owned by the Operating Partnership upon consummation of the Formation
Transactions was approximately 72.9% for the Industrial Properties and
approximately 83.5% for the Retail Properties, based on aggregate square
footage. See "Business and Properties -- Historical Lease Renewals and Retention
Rates." Management believes that these tenant retention rates reflect the
success of the Operating Partnership's and the Company's operating and tenant
service-driven property management strategy.
DISCIPLINED INVESTMENT PROCESS
During its 14-year history prior to the completion of the Formation
Transactions and 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
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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 the acquisitions officer and regional
manager who will be responsible for managing the property. The initial
investment recommendation is thoroughly discussed, and approval is required in
order to proceed to contract and full due diligence. The approach to offer terms
and transaction structure is determined as part of the initial approval and is
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 Operating
Partnership 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 Operating Partnership.
RENOVATION, EXPANSION AND DEVELOPMENT
The multidisciplinary background of the Operating Partnership's employees
provides it with the skills and experience to capitalize on strategic
renovation, expansion and development opportunities. Several of the Operating
Partnership's officers have extensive experience in real estate development,
both at AMB and with national development firms. The Operating Partnership
generally pursues development projects in joint ventures with local developers.
In this way, the Operating Partnership 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 Operating Partnership intends to
operate with a Debt-to-Total Market Capitalization Ratio of less than 45%.
Additionally, the Operating Partnership intends to continue to structure its
balance sheet in order to maintain an investment grade rating on its senior
unsecured debt. The Operating Partnership also intends to keep the majority of
its assets unencumbered to help facilitate such rating. Upon consummation of the
Offering, the Company's consolidated Debt-to-Total Market Capitalization Ratio
as of March 31, 1998 on a pro forma basis would have been approximately 31.2%
(approximately 29.9% on an historical basis). See "Policies with Respect to
Certain Activities -- Financing Policies."
The Operating Partnership anticipates that future acquisitions will be
financed through a combination of borrowings under the Credit Facility, other
forms of secured or unsecured financing and proceeds from equity or debt
offerings by the Company or the Operating Partnership. Additionally, the
Operating Partnership'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 "-- AMB Investment Management."
Borrowings under the Credit Facility bear interest at a rate equal to LIBOR
plus 90 to 120 basis points (currently LIBOR plus 90 basis points), depending
upon the Operating Partnership's debt rating at the time of such borrowings. The
Operating Partnership expects to continue to use the Credit Facility for
acquisitions and for general corporate purposes. As of March 31, 1998, $312.0
million was outstanding under the Credit Facility with $148.0 million of
availability. Of the $312.0 million outstanding at March 31, 1998, substantially
all of such borrowings were used to finance property acquisitions. See
"Management's Discussion of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and "Business and Properties --
Debt Financing."
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AMB INVESTMENT MANAGEMENT
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 Operating
Partnership 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 Operating
Partnership uses a co-investment formula with each client whereby the Operating
Partnership will own at least a 20% interest in all ventures. As of March 31,
1998, the Operating Partnership had consummated one co-investment transaction.
See "Business and Properties -- Properties Held Through Joint Ventures, Limited
Liability Companies and Partnerships." AMB Investment Management is owned by the
Operating Partnership, which owns 100% of the non-voting preferred stock
(representing a 95% economic interest therein), and certain officers of AMB
Investment Management and the certain Executive Officers, who collectively own
100% of the voting common stock (representing a 5% economic interest therein).
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STRATEGIES FOR GROWTH
The Operating Partnership intends to achieve its growth objectives of
long-term sustainable growth in rental revenues and maximization of long-term
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
co-investment program of AMB Investment Management and (iii) renovation,
expansion and development of selected properties.
GROWTH THROUGH OPERATIONS
As of March 31, 1998, the Industrial Properties owned as of such date were
94.6% leased and the Retail Properties owned as of such date were 94.6% leased.
The Operating Partnership will seek to improve operating margins by taking
advantage of the economies of owning, operating and growing a large-scale
national portfolio.
During the 12 months ended March 31, 1998, the Operating Partnership
increased average rental rates by 12.3% from the expiring rent for such space,
on 263 leases entered into or renewed during the 12 months ended March 31, 1998,
representing 5.5 million rentable square feet or 10.9% of the aggregate rentable
square footage of the Properties. During the 12 months ended March 31, 1999,
leases encompassing an aggregate of 10.3 million rentable square feet
(representing 20.3% of the Operating Partnership's aggregate rentable square
footage as of March 31, 1998) are subject to contractual rent increases
resulting in an average rent increase per rentable square foot of $1.28, or
5.9%. Based on recent experience and current market trends, management believes
it will have an opportunity to increase the average rental rate on Property
leases expiring during the nine months ended December 31, 1998 covering an
aggregate of 5.2 million rentable square feet. The Operating Partnership will
seek to reduce the potential volatility of its operating results 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
Between January 1, 1998 and May 31, 1998, the Company has acquired 27
properties comprising 8.6 million square feet. The Operating Partnership
believes its significant acquisition experience and its extensive network of
property acquisition sources will continue to provide opportunities for external
growth. Management believes that 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 Operating Partnership has relationships
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 Operating Partnership's
relationship with third-party local property managers also will create
acquisition opportunities as such managers market properties on behalf of
unaffiliated sellers. The Operating Partnership also will maintain relationships
with institutional owners of property portfolios managed by AMB Investment
Management. The Operating Partnership believes that through these relationships
it will have opportunities to acquire portfolios in exchange for equity
interests in the Operating Partnership, and will be well-positioned to
facilitate such investors' shift from private to public real estate ownership.
See "Business and Operating Strategies -- AMB Investment Management."
The structure of the Operating Partnership also provides sellers the
opportunity to contribute properties to the Operating Partnership on a
tax-deferred basis in exchange for Units. The Operating Partnership believes
that its ability to offer tax-deferred transactions to sellers will enhance its
attractiveness to owners and developers seeking to transfer properties on a
tax-deferred basis.
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. 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, issuances of debt or equity securities of the Operating
Partnership or the Company and assumption of debt related to the assets being
acquired.
29
<PAGE> 36
GROWTH THROUGH RENOVATION, EXPANSION AND DEVELOPMENT
Management believes that renovation and expansion of value-added properties
and development of well-located, high quality industrial properties and
community shopping centers will continue to provide the Operating Partnership
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.
USE OF PROCEEDS
The net proceeds from the Offering are expected to be approximately $348.8
million, after deducting net Underwriters' discounts and commissions and
estimated offering expenses of approximately $1.2 million. The Operating
Partnership intends to use the net proceeds to repay approximately $348.8
million of borrowings outstanding under the Credit Facility, which was incurred
to fund property acquisitions. Pending application of the net proceeds, the
Operating Partnership may invest such portion of the net proceeds in
interest-bearing accounts and short-term, interest-bearing securities. As of
March 31, 1998, the weighted average interest rate on such borrowings expected
to be repaid with the net proceeds of the Offering was approximately 6.9% and
the maturity was approximately 2.6 years. All of such indebtedness was incurred
within the 12-month period ended March 31, 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 June 5, 1998, the last reported
sales price per share of the Common Stock on the NYSE was $23 11/16. As of June
5, 1998, there were approximately 193 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 June 5, 1998 and the distributions paid by the Company with respect to such
period.
<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 (through June 5, 1998).............. $24 7/8 $22 11/16 --
</TABLE>
There is no market established for the trading of the Operating
Partnership's Units. As of May 14, 1998, there were 89,523,120 Units
outstanding, which were held by 23 holders of record. Subject to certain
conditions, holders of Units will have the right to require the Operating
Partnership to redeem part or all of their Units for cash, or the Company may
elect to exchange such Units for shares of Common Stock (on a one-for-one
basis). See "Description of Certain Provisions of the Partnership Agreement of
the Operating Partnerships -- Redemption/Exchange Rights."
On December 8, 1997, the Board of Directors of the Company, in its capacity
as sole general partner of the Operating Partnership, declared distributions of
$0.134 per Unit, payable December 29, 1997 to partners of record as of December
18, 1997. In addition, the Company's Board of Directors declared a pro rata
distribution of $0.134 per share of Common Stock, payable December 29, 1997 to
stockholders of record as of December 18, 1997. The distribution covered the
period from November 26, 1997 through December 31, 1997, and was based upon
$0.3425 per unit and per share of Common Stock, as applicable, for a full
quarter.
On March 6, 1998, the Board of Directors of the Company, in its capacity as
general partner of the Operating Partnership, declared a distribution of $0.3425
per Unit, payable April 3, 1998 to partners of record as of March 18, 1998. In
addition, the Company's Board of Directors declared a distribution of $0.3425
per share of the Common Stock, payable April 3, 1998 to stockholders of record
as of March 18, 1998.
30
<PAGE> 37
CAPITALIZATION
The following table sets forth the capitalization of the Operating
Partnership as of March 31, 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 March 31, 1998 and the pro forma
information gives effect to such acquisitions and the application of the net
proceeds from the Offering as described under the caption "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:
Credit facility...................................... $ 312,000 $ 368,730 $ 19,930
% Notes due 2008................................ -- -- 100,000
% Notes due 2018................................ -- -- 150,000
% REPS due 2015................................. -- -- 100,000
Secured debt(1)...................................... 610,111 610,111 610,111
---------- ---------- ----------
Total debt................................... 922,111 978,841 980,041
Minority interests..................................... 52,867 52,867 52,867
Partners' capital:
General partner(2)................................... 1,670,705 1,670,705 1,670,705
Limited partner(2)................................... 70,896 70,896 70,896
---------- ---------- ----------
Total partners' capital...................... 1,741,601 1,741,601 1,741,601
---------- ---------- ----------
Total capitalization......................... $2,716,579 $2,773,309 $2,774,509
========== ========== ==========
</TABLE>
- ---------------
(1) Includes unamortized debt premiums of $17,542.
(2) Does not give effect to 4,237,750 Performance Units which may be issued
subject to certain performance criteria. See "Description of Certain
Provisions of the Partnership Agreement of the Operating
Partnership -- Performance Units."
31
<PAGE> 38
SELECTED FINANCIAL AND OTHER DATA
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 three months ended March 31, 1998 and for
the AMB Contributed Properties for the years ended December 31, 1993, 1994, 1995
and 1996, the period from January 1, 1997 to November 25, 1997 and the three
months ended March 31, 1997, and on an as adjusted basis for the Operating
Partnership for the year ended December 31, 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 three months ended March 31, 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
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 and the financial schedules included elsewhere in this Prospectus.
COMPANY AND PREDECESSOR
The following table sets forth selected financial and other data on an
historical basis for the Company and its Predecessor, AMB Institutional Realty
Advisors, Inc., a California corporation, for the years ended December 31, 1993,
1994, 1995, 1996 and 1997, and for the three months ended March 31, 1997 and
1998 and on 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 three months ended March 31, 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 and the
Offering and the application of the net proceeds therefrom, as if such
transactions had occurred on January 1, 1997). 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 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 and the financial schedules included elsewhere in
this Prospectus.
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, an investment manager, for the period from January 1, 1997 to
November 25, 1997.
In the opinion of management, the as adjusted and pro forma condensed
financial information provides for all adjustments necessary to reflect the
adjustments and transactions described above. 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, 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.
32
<PAGE> 39
OPERATING PARTNERSHIP AND AMB CONTRIBUTED PROPERTIES
SELECTED FINANCIAL AND OTHER DATA
(IN THOUSANDS EXCEPT UNIT DATA, PERCENTAGES AND NUMBER OF PROPERTIES)
<TABLE>
<CAPTION>
AS OF AND FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------------------------------------
OPERATING PARTNERSHIP
------------------------------------
HISTORICAL AS ADJUSTED PRO FORMA
AMB CONTRIBUTED PROPERTIES(1) (2) (3) (4)
-------------------------------------------------------- ---------- ----------- ---------
1993 1994 1995 1996 1997 1997 1997 1997
-------- -------- ---------- ---------- -------- ---------- ----------- ---------
(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 $ 325,293
Income from operations
before minority
interests............. 6,871 13,753 32,519 54,865 58,068 9,291 103,903 107,467
Net income.............. 6,871 13,194 32,531 54,400 57,184 9,174 102,606 103,369
Net income per unit:(5)
Basic................. $ 0.10 $ 1.16 $ 1.15
Diluted............... 0.10 1.16 1.15
Distributions per
unit.................. 0.13 1.37 1.37
OTHER DATA:
EBITDA(6)............... $ 195,218 $ 225,556
Cash flows provided
by(used in):
Operating
activities.......... 131,621 138,112
Investing
activities.......... (607,768) (842,337)
Financing
activities.......... 553,199 571,614
Ratio of earnings to
fixed charges(7)...... 3.1x 2.5x
Book debt service
coverage ratio(8)..... 4.3x 3.4x
Cash debt service
coverage ratio(9)..... 3.8x 3.1x
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(10)........ 100,496 201,959 254,067 522,634 535,652
Unsecured notes......... -- -- -- -- --
Unsecured credit
facility.............. -- -- -- 25,500 150,000
Partner's capital....... 208,043 490,111 837,199 1,027,601 1,717,398
PROPERTY DATA:
INDUSTRIAL PROPERTIES
Total rentable square
footage of properties
at end of period...... 5,638 13,364 21,598 29,609 37,329
Number of properties at
end of period......... 12 28 44 60 95
Occupancy rate at end of
period................ 97.4% 96.9% 97.3% 97.2% 95.7%
RETAIL PROPERTIES
Total rentable square
footage of properties
at end of period...... 1,074 2,422 3,299 5,282 6,216
Number of properties 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
THREE MONTHS ENDED MARCH 31,
-------------------------------------
AMB OPERATING PARTNERSHIP
CONTRIBUTED -----------------------
PROPERTIES PRO FORMA
(1) HISTORICAL (4)
----------- ---------- ----------
1997 1998 1998
----------- ---------- ----------
<S> <C> <C> <C>
OPERATING DATA:
Total revenues.......... $ 54,749 $ 75,785 $ 85,099
Income from operations
before minority
interests............. 14,217 29,188 30,002
Net income.............. 13,997 28,726 28,927
Net income per unit:(5)
Basic................. $ 0.32 $ 0.32
Diluted............... 0.32 0.32
Distributions per
unit.................. 0.34 0.34
OTHER DATA:
EBITDA(6)............... $ 52,815 $ 60,028
Cash flows provided
by(used in):
Operating
activities.......... 34,820 36,906
Investing
activities.......... (199,520) (49,646)
Financing
activities.......... 153,316 (9,063)
Ratio of earnings to
fixed charges(7)...... 3.1x 2.6x
Book debt service
coverage ratio(8)..... 4.5x 3.7x
Cash debt service
coverage ratio(9)..... 3.8x 3.3x
BALANCE SHEET DATA:
Investments in real
estate at cost........ $2,755,882 $2,812,612
Total assets............ 2,798,190 2,856,120
Secured debt(10)........ 610,111 610,111
Unsecured notes......... -- 350,000
Unsecured credit
facility.............. 312,000 19,930
Partner's capital....... 1,741,601 1,741,601
PROPERTY DATA:
INDUSTRIAL PROPERTIES
Total rentable square
footage of properties
at end of period...... 43,964 45,269
Number of properties at
end of period......... 118 122
Occupancy rate at end of
period................ 94.6% 94.6%
RETAIL PROPERTIES
Total rentable square
footage of properties
at end of period...... 6,849 6,849
Number of properties at
end of period......... 37 37
Occupancy rate at end of
period................ 94.6% 94.6%
</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 three
months ended March 31, 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.
33
<PAGE> 40
(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 and the Offering had occurred on
January 1, 1997.
(5) Historical, as adjusted and pro forma net income per basic unit for the
year ended December 31, 1997 equals the historical, as adjusted and pro
forma net income divided by 88,416,676, 88,416,678 and 89,523,120 units,
respectively. Historical and pro forma net income per basic unit for the
three months ended March 31, 1998 equals the historical and pro forma net
income divided by 88,428,969 and 89,523,120 units respectively. Historical,
as adjusted and pro forma net income per diluted unit for the year ended
December 31, 1997 equal the historical, as adjusted and pro forma net
income divided by 88,698,719, 88,698,719 and 89,805,163 units,
respectively. Historical and pro forma net income per diluted unit for the
three months ended March 31, 1998 equals the historical and pro forma net
income divided by 88,839,192 units and 89,933,343 units, 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
the operating performance because, together with net income and cash flows,
EBITDA provides investors with an additional basis to evaluate the ability
of a REIT to incur and service debt and to fund acquisitions and other
capital expenditures.
(7) The ratio of earnings to fixed charges is computed as income from
operations before minority interests plus fixed charges (excluding
capitalized interest) divided by fixed charges. 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.
(8) The book debt service coverage ratio is calculated as EBITDA divided by
book interest expense (including amortization of debt premiums and
discounts and financing costs).
(9) The cash debt service coverage ratio is calculated as EBITDA divided by
cash interest costs. Cash interest costs consist of book interest expense
(excluding amortization of debt premiums and discounts and financing costs)
plus capitalized interest.
(10) Secured debt as of December 31, 1997 and March 31, 1998 includes
unamortized debt premiums and discounts of approximately $18,286 and
$17,452, respectively. See Notes to Consolidated Financial Statements.
34
<PAGE> 41
COMPANY AND PREDECESSOR SELECTED FINANCIAL AND OTHER DATA
(IN THOUSANDS EXCEPT SHARE DATA, PERCENTAGES AND NUMBER OF PROPERTIES)
<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
------ ------- ------- ------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Total revenues.............. $7,155 $12,865 $16,865 $23,991 $ 56,062 $ 284,674 $ 325,293
Income from operations
before minority
interests................. 798 2,925 3,296 7,140 18,885 103,903 107,467
Net income.................. 798 2,925 3,262 7,003 18,228 99,508 99,157
Net income per share(5):
Basic..................... $ 0.17 $ 0.59 $ 0.64 $ 1.38 $ 1.39 $ 1.15 $ 1.15
Diluted................... 0.17 0.59 0.64 1.38 1.38 1.15 1.15
Distributions per share..... 0.13 1.37 1.37
OTHER DATA:
EBITDA(6)................... $ 195,218 $ 225,556
Cash flows provided by(used
in):
Operating activities...... 131,621 138,112
Investing activities...... (607,768) (842,337)
Financing activities...... 553,199 571,614
Ratio of earnings to fixed
charges(7)................ 3.1x 2.5x
Book debt service coverage
ratio(8).................. 4.3x 3.4x
Cash debt service coverage
ratio(9).................. 3.8x 3.1x
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
Unsecured notes............. -- -- -- -- --
Unsecured credit facility... -- -- -- -- 150,000
Stockholders' equity........ 2,480 3,848 4,241 6,300 1,668,030
<CAPTION>
AS OF AND FOR THE
THREE MONTHS ENDED
MARCH 31,
----------------------------------------
COMPANY
-----------------------
PREDECESSOR PRO FORMA
(1) HISTORICAL (4)
-------------- ---------- ----------
1997 1998 1998
-------------- ---------- ----------
<S> <C> <C> <C>
OPERATING DATA:
Total revenues.............. $5,112 $ 75,785 $ 85,099
Income from operations
before minority
interests................. 1,239 29,188 30,002
Net income.................. 1,239 27,906 27,741
Net income per share(5):
Basic..................... $ 0.24 $ 0.32 $ 0.32
Diluted................... 0.24 0.32 0.32
Distributions per share..... 0.34 0.34
OTHER DATA:
EBITDA(6)................... $ 52,815 $ 60,028
Cash flows provided by(used
in):
Operating activities...... 34,820 36,906
Investing activities...... (199,520) (49,646)
Financing activities...... 153,316 (9,063)
Ratio of earnings to fixed
charges(7)................ 3.1x 2.6x
Book debt service coverage
ratio(8).................. 4.5x 3.7x
Cash debt service coverage
ratio(9).................. 3.8x 3.3x
BALANCE SHEET DATA:
Investments in real estate
at cost................... $2,755,882 $2,812,612
Total assets................ 2,798,190 2,856,120
Secured debt(10)............ 610,111 610,111
Unsecured notes............. -- 350,000
Unsecured credit facility... 312,000 19,930
Stockholders' equity........ 1,670,705 1,670,705
</TABLE>
- ---------------
(1) Represents the Predecessor's historical financial and other data for the
years ended December 31, 1993, 1994, 1995, 1996 and the three months ended
March 31, 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 and the Offering had occurred on
January 1, 1997.
(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
three months ended March 31, 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,
respectively. Historical and pro forma diluted net income per share for the
three months ended March 31, 1998 equals the historical and pro forma net
income divided by 88,284,736 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) The ratio of earnings to fixed charges is computed as income from
operations before minority interests plus fixed charges (excluding
capitalized interest) divided by fixed charges. 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.
(8) The book debt service coverage ratio is calculated as EBITDA divided by
book interest expense (including amortization of debt premiums and
discounts and financing costs).
(9) The cash debt service coverage ratio is calculated as EBITDA divided by
cash interest costs. Cash interest costs consist of book interest expense
(excluding amortization of debt premiums and discounts and financing costs)
plus capitalized interest.
(10) Secured debt as of December 31, 1997 and March 31, 1998 includes
unamortized debt premiums and discounts of approximately $18,286 and
$17,452, respectively. See Notes to Consolidated Financial Statements.
35
<PAGE> 42
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 Operating Partnership and 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
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 three months ended March 31, 1997 and 1998, and (ii) results of the
Operating Partnership and the AMB Contributed Properties for the years ended
December 31, 1995, 1996 and 1997 and for the three months ended March 31, 1997
and 1998. Because the Operating Partnership commenced its operations in
connection with the consummation of the IPO on November 26, 1997 and had no
predecessor, the discussion of the Operating Partnership provides a comparison
to the AMB Contributed Properties in lieu of a discussion of the historical
operations of the Operating Partnership.
The historical results of the Company 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 three months ended March 31, 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.
The historical results of the Operating Partnership for the year ended
December 31, 1997 include the results achieved by the Operating Partnership for
the period from November 26, 1997 (date of completion of Formation Transaction)
to December 31, 1997 and the results achieved by the AMB Contributed Properties
for the period from January 1, 1997 to November 25, 1997.
COMPANY AND PREDECESSOR RESULTS OF OPERATIONS
COMPANY AND PREDECESSOR -- THREE MONTHS ENDED MARCH 31, 1998 AND 1997
Rental revenues. Rental revenues, including straight-line rents, tenant
reimbursements and other property related income, totaled $74.6 million for the
three months ended March 31, 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 three months
ended March 31, 1997.
Property operating expenses and real estate taxes. Property operating
expenses, including asset management costs and real estate taxes, totaled $20.3
million for the three months ended March 31, 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 three months ended
March 31, 1997.
General and administrative expenses. The Company's general and
administrative expenses were $2.7 million for the three months ended March 31,
1998, as compared to the Predecessor's investment management expenses of $3.9
million for the three months ended March 31, 1997. Investment management
expenses of the Predecessor consisted primarily of salaries and other general
and administrative expenses. The $1.2 million, or 31%, 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
36
<PAGE> 43
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.
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 AND AMB CONTRIBUTED PROPERTIES RESULTS OF OPERATIONS
The historical results of operations of the Operating Partnership and AMB
Contributed Properties 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 Operating Partnership 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 substantial
portfolio growth. As a result, the Operating Partnership 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 "Core Portfolio") and (ii) changes
attributable to acquisition and development activity. For comparison between the
three months ended March 31, 1997 and 1998, the Core Portfolio consists of 77
properties acquired prior to January 1, 1997, and for the comparison between the
years ended December 31, 1997 and 1996, the Core Portfolio consists of the 59
Properties acquired prior to January 1, 1996, and for the comparison between the
years ended December 31, 1996 and 1995, the Core Portfolio consists of the 42
Properties acquired prior to January 1, 1995. The Operating Partnership'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 Operating
Partnership will continue in the future at their historical rates, and any
variation therefrom may be material.
OPERATING PARTNERSHIP AND AMB CONTRIBUTED PROPERTIES -- THREE MONTHS ENDED
MARCH 31, 1998 AND 1997
Rental revenues. Rental revenues, including straight-line rents, tenant
reimbursement and other property related income, increased by $19.7 million, or
36%, for the three months ended March 31, 1998, to
37
<PAGE> 44
$74.6 million as compared to $54.9 million for the three months ended March 31,
1997. Approximately $3.1 million, or 16% of this increase, was attributable to
the Core Portfolio, with the remaining $16.6 million attributable to Properties
acquired in 1997 and 1998. The 6% growth in rental revenues in the Core
Portfolio resulted primarily from the incremental effect of rental rate
increases, changes in occupancy and reimbursement of expenses. In 1998, the
Company increased average contractual or base rental rates on the Properties by
16.4% on 52 new and renewing leases totaling 1.3 million rentable square feet
(representing 2.6% of the Properties' aggregate rentable square footage).
Property operating expenses and real estate taxes. Property operating
expenses, including asset management costs and real estate taxes, increased by
$0.9 million, or 4%, for the three months ended March 31, 1998, to $20.3 million
as compared to $19.4 million for the three months ended March 31, 1997. Core
Portfolio operating expenses decreased by approximately $3.1 million, while
operating expenses attributable to Properties acquired in 1998 and 1997
increased by $4.0 million. The change in Core Portfolio operating expenses and
real estate taxes relates to: (i) Core Portfolio real estate taxes and insurance
expense increased by approximately $0.2 million from 1997 to 1998, while (ii)
Core Portfolio other property operating expenses (excluding real estate taxes
and insurance) decreased by approximately $3.3 million from 1997 to 1998. The
large decrease in other property operating expenses is attributable to lower
asset management costs in 1998 as compared to 1997 that resulted from the change
in ownership structure.
Interest expense. Interest expense for the three months ended March 31,
1997 and March 31, 1998 remained constant at $11.8 million. This was the result
of an increase in interest expense resulting from debt incurred to fund property
acquisitions being offset by a decrease in interest expense resulting from the
amortization of debt premiums of $0.7 million in the three months ended March
31, 1998 and an increase in capitalized interest related to developments
in-process.
Depreciation and amortization expense. Depreciation and amortization
expense increased by $2.9 million, or 33%, for the three months ended March 31,
1998, to $11.8 million as compared to $8.9 million for the three months ended
March 31, 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 $2.5 million for the three months ended March 31,
1998, to $2.7 million as compared to $0.2 million for the three months ended
March 31, 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 Core Portfolio, with the remaining $58.7
million attributable to Properties acquired in 1996 and 1997. The 6.3% growth in
rental revenues in the Core Portfolio resulted primarily from the incremental
effect of rental rate increases and reimbursement of expenses. In 1997, the
Operating Partnership 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 Core Portfolio, with the remaining $22.2 million
attributable to Properties acquired in 1997 and 1996. Core Portfolio real estate
taxes and insurance expense increased by approximately $1.4 million from 1996 to
1997. Core Portfolio 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.
38
<PAGE> 45
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 related to the
Core Portfolio 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 Operating Partnership. 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 Operating
Partnership's business.
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 1995. Approximately $7.5 million, or 12.5% of this increase, was
attributable to the Core Portfolio, with the remaining $52.7 million
attributable to Properties acquired in 1996 and 1995. The 8.6% growth in rental
income in the Core Portfolio 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 Core Portfolio, with the remaining $16.8 million
attributable to Properties acquired in 1996 and 1995. The Core Portfolio 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 Core Portfolio 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 Core
Portfolio 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.
39
<PAGE> 46
LIQUIDITY AND CAPITAL RESOURCES
The Company and the Operating Partnership expect that their principal
sources of working capital and funding for acquisitions, development, expansion
and renovation of the Properties will include their unsecured credit facility,
permanent secured debt financing, proceeds from public and private unsecured
debt offerings, proceeds from public and private equity offerings (including
issuances of Units) 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 Operating Partnership has a $500.0 million unsecured revolving credit
agreement 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
Operating Partnership's credit rating. The Operating Partnership 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, depending on the Company's debt rating at the time of
such borrowings. As of March 31, 1998, the outstanding balance on the Credit
Facility was $312.0 million and bore interest at LIBOR plus 110 basis points
(6.79% as of such date). Monthly debt service payments on the Credit Facility
are interest only. The Credit Facility matures in November 2000. See Notes to
Consolidated Financial Statements. The total amount available under the Credit
Facility fluctuates based upon the borrowing base, as defined in the agreement
governing the Credit Facility. Currently, the maximum amount available is
approximately $460 million.
The Company recently 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 Operating
Partnership's Credit Facility was reduced by 20 basis points to LIBOR plus 90
basis points.
In connection with the recent property acquisitions and the Formation
Transactions, the Operating Partnership has assumed various mortgages and other
secured debt. As of March 31, 1998, the aggregate principal amount of such
secured debt was $592.6 million, excluding unamortized debt premiums of $17.5
million. The secured debt bears interest at rates varying from 7.01% to 10.39%
per annum (with a weighted average of 8.01%) and final maturity dates ranging
from 1998 to 2014.
As of March 31, 1998, the Operating Partnership's total outstanding debt
was approximately $922.1 million, including unamortized debt premiums of
approximately $17.5 million. See Notes to Consolidated Financial Statements. The
total amount of debt to be repaid in 1998 is approximately $53.7 million,
including normal principal amortization of approximately $5.6 million and $35.0
million of assumed secured debt, which was repaid in full subsequent to March
31, 1998.
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 less than 45%.
Additionally, the Operating Partnership intends to structure its balance sheet
in order to maintain an investment grade rating on its senior unsecured debt.
The Operating Partnership intends to keep the majority of its assets
unencumbered to facilitate such rating. As of March 31, 1998, the Operating
Partnership's debt-to-total market capitalization ratio was approximately 29.9%.
Liquidity
As of March 31, 1998, the Operating Partnership had approximately $28.6
million in cash and cash equivalents and $148.0 million of additional available
borrowings under the Credit Facility. The Operating Partnership intends to use
cash from operations, available borrowings under its Credit Facility and net
proceeds from the anticipated issuance of the Notes to fund acquisitions and
capital expenditures and to provide for general working capital requirements.
40
<PAGE> 47
On March 9, 1998, the Company and the Operating Partnership declared a
quarterly cash distribution of $0.3425 per common share and unit, payable April
3, 1998 to stockholders and unitholders of record on March 18, 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 intends to also 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.
Capital Commitments
In addition to recurring capital expenditures and costs to renew or
re-tenant space, the Operating Partnership is currently in the process of
renovating, expanding or developing 10 projects at a total estimated cost of
$211.0 million. The Operating Partnership 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 March
31, 1998, the Operating Partnership acquired 56 industrial buildings and two
retail centers, aggregating 6.9 million rentable square feet for a total cost of
$272.1 million. The acquisitions were funded through borrowings under the Credit
Facility, cash, debt assumption of approximately $83.5 million, an investment
from a co-investment partner of approximately $37.0 million and the issuance of
Units with a value of approximately $25.8 million at the date of issuance. The
Operating Partnership 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. In addition, many of the industrial and
retail leases provide for fixed increases in base rent or indexed escalations
(based on the Consumer Price Index or other measures). Management believes that
inflationary increases in operating expenses will be offset, in part, by the
expense reimbursements and contractual rent increases described above.
Leases representing approximately 5.9% of the Operating Partnership's total
rentable square feet provide for rent increases based upon changes in the
Consumer Price Index. The remainder of the Operating Partnership's leases
provide for fixed rental payments, of which a majority include predetermined
rent increases at various points in time during the lease term.
YEAR 2000 COMPLIANCE
The Company's and the Operating Partnership's current financial systems
adequately provide for a four-digit year and management believes the year 2000
issue will not materially affect its business operations or financial condition.
Additionally, the Company and the Operating Partnership currently do not expect
that the year 2000 issue will materially affect their operations due to problems
encountered by their suppliers, customers and lenders.
FUNDS FROM OPERATIONS
Management believes that FFO, as defined by NAREIT, is an appropriate
measure of performance for an equity REIT. While FFO is a relevant and widely
used measure of operating performance of REITs, it does not represent cash flow
from operations or net income as defined by GAAP, and it should not be
considered as an alternative to those indicators in evaluating liquidity or
operating performance.
The following table reflects the calculation of the Operating Partnership's
FFO on an historical basis for the three months ended March 31, 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
41
<PAGE> 48
December 31, 1997 and on a pro forma basis (giving effect to Formation
Transactions, the IPO, certain 1997 property acquisitions and dispositions, the
property acquisitions in 1998 and the Offering and the application of the net
proceeds therefrom, as if such transactions had occurred on January 1, 1997) for
the year ended December 31, 1997 and the three months ended March 31, 1998. FFO
is not presented for the Operating Partnership and the AMB Contributed
Properties on an historical basis for the year ended December 31, 1997 because
it is not comparable or meaningful due to the significant differences in capital
structures between the Operating Partnership and the prior owners of the AMB
contributed Properties.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE THREE MONTHS ENDED
DECEMBER 31, 1997 MARCH 31, 1998
-------------------------- --------------------------
AS ADJUSTED PRO FORMA HISTORICAL PRO FORMA
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Income from operations before minority
interests........................... $ 103,903 $ 107,467 $ 29,188 $ 30,002
Real estate related depreciation and
amortization:
Depreciation and amortization.... 45,886 52,402 11,786 13,812
Furniture, fixtures and equipment
depreciation................... (173) (173) (104) (104)
FFO attributable to minority
interests(1)(2)..................... (2,207) (5,674) (575) (1,340)
----------- ----------- ----------- -----------
FFO(1)................................ $ 147,409 $ 154,022 $ 40,295 $ 42,370
=========== =========== =========== ===========
Weighted average units outstanding
(diluted)........................... 88,698,719 89,805,163 88,839,192 89,933,343
=========== =========== =========== ===========
Cash flows provided by (used in):
Operating activities............. 131,621 138,112 34,820 36,906
Investing activities............. (607,768) (842,337) (199,520) (49,646)
Financing activities............. 553,199 571,614 153,316 (9,063)
</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
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 Properties'
financial performance or to cash flow from operating activities (determined
in accordance with GAAP) as an indicator of the Properties' liquidity, nor
is it indicative of funds available to fund the Properties' cash needs,
including its 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.
42
<PAGE> 49
BUSINESS AND PROPERTIES
As of March 31, 1998, the Operating Partnership owned 155 properties
aggregating 50.8 million rentable square feet and located in 28 markets
nationwide. The following table summarizes the diversification by region of the
Industrial and Retail Properties owned as of March 31, 1998:
INDUSTRIAL AND RETAIL PROPERTIES BY REGION
<TABLE>
<CAPTION>
INDUSTRIAL PROPERTIES RETAIL PROPERTIES TOTAL
------------------------------------------- ------------------------------ ----------
NUMBER NUMBER RENTABLE NUMBER RENTABLE NUMBER
OF OF SQUARE % OF OF SQUARE % OF OF
REGION PROPERTIES BUILDINGS FEET TOTAL PROPERTIES FEET TOTAL PROPERTIES
------ ---------- --------- ---------- ----- ---------- --------- ----- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Eastern.............. 27 68 8,729,347 19.9% 4 1,272,968 18.6% 31
Midwestern........... 28 92 11,199,515 25.5 4 710,833 10.4 32
Southern............. 30 114 11,262,975 25.6 12 1,957,051 28.6 42
Western.............. 33 141 12,772,141 29.0 17 2,907,986 42.4 50
--- --- ---------- ----- --- --------- ----- ---
Total................ 118 415 43,963,978 100.0% 37 6,848,838 100.0% 155
=== === ========== ===== === ========= ===== ===
<CAPTION>
TOTAL
------------------
RENTABLE
SQUARE % OF
REGION FEET TOTAL
------ ---------- -----
<S> <C> <C>
Eastern.............. 10,002,315 19.7%
Midwestern........... 11,910,348 23.4
Southern............. 13,220,026 26.0
Western.............. 15,680,127 30.9
---------- -----
Total................ 50,812,816 100.0%
========== =====
</TABLE>
INDUSTRIAL PROPERTIES
At March 31, 1998, the Operating Partnership owned 118 Industrial
Properties (comprising 415 buildings) aggregating approximately 44.0 million
rentable square feet, located in 23 markets nationwide. The Industrial
Properties accounted for $178.4 million of Annualized Base Rent, or 70% of the
Company's Annualized Base Rent for the Properties as of March 31, 1998. The
Industrial Properties were 94.6% leased to over 1,000 tenants as of the same
date, the largest of which accounted for no more than 1.3% of Annualized Base
Rent from the Industrial Properties. The historical weighted average tenant
retention rate for the Industrial Properties for the period beginning January 1,
1995 through March 31, 1998 was approximately 72.9%.
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:
INDUSTRIAL BUILDING PROFILE
<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 six years, excluding renewal options. The majority of
the industrial leases do not include renewal options.
Overview of Major Target Markets. The 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
43
<PAGE> 50
large consumer and manufacturing base 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 table
below, these six markets contained five of the ten busiest cargo airports and
three of the ten busiest container ports.
10 LARGEST WAREHOUSE MARKETS
SQ. FT.
MARKET (000S)(1)
- ------------------------------------
*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
10 BUSIEST AIR CARGO MARKETS
IN THE CONTINENTAL U.S.
ANNUAL
MARKET TONNAGE(2)
- ------------------------------------
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
10 BUSIEST PORTS BY CONTAINERIZED CARGO
ANNUAL
MARKET TONNAGE(3)
- ------------------------------------
*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
Markets in which the Operating Partnership 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.
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 Operating Partnership believes will provide a
higher rate of occupancy and rent growth. 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 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
Operating Partnership generally avoids locations at the periphery of
metropolitan areas where there are fewer supply constraints. Similarly, small
metropolitan areas or cities without a heavy concentration of warehouse activity
typically have few, if any, supply-constrained locations.
44
<PAGE> 51
INDUSTRIAL PROPERTY SUMMARY
As of March 31, 1998, the 415 buildings comprising the Industrial
Properties were diversified across 23 markets nationwide. Only two of the
Industrial Properties represent individually more than 3.5% of the Annualized
Base Rent of the Industrial Properties as of such date. The average age of the
Industrial Properties is 12 years (since the time the property was built or
substantially renovated), which the Operating Partnership 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
OF TOTAL
NUMBER RENTABLE
OF YEAR BUILT/ RENTABLE SQUARE PERCENTAGE
REGION/MARKET/PROPERTY LOCATION BUILDINGS RENOVATED(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%
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 0.4 100.0
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 2.2 100.0
Bradlee Circle Office......... Braintree 1 1987 120,000 0.3 100.0
Brockton Industrial........... Brockton 1 1967 300,114 0.7 100.0
Cabot Business Park........... Mansfield 13 1970 1,102,429 2.5 83.7
Collins Street................ Attleboro 1 1979 152,730 0.3 100.0
Hampden Road.................. Mansfield 1 1977 204,117 0.5 100.0
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 1.4 100.0
United Drive.................. West Bridgewater 1 1986 315,000 0.7 100.0
Cincinnati (5)
Dixie Highway................. Florence 2 1990 209,680 0.5 100.0
Empire Drive.................. Florence 1 1989 199,440 0.5 100.0
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................. South Brunswick 1 1996 554,521 1.3 84.1
Dock's Corner II.............. South Brunswick 1 1981 212,335 0.5 100.0
Jamesburg..................... Dayton 3 1989 821,712 1.9 95.7
Two South Middlesex........... Monroe 1 1995 218,088 0.5 100.0
Philadelphia
Mid-Atlantic Business West Deptford 13 1979R 779,594 1.8 98.7
Center......................
Wilmington
Boulden....................... Wilmington 3 1986 266,141 0.6 100.0
--- ---------- -----
Eastern Region Total/Weighted 68 8,729,347 19.9% 92.7%
Average.......................
--- ---------- -----
<CAPTION>
ANNUALIZED
PERCENTAGE BASE RENT PER
ANNUALIZED OF NUMBER LEASED
BASE 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............... $ 581 0.3% 2 $4.77
Patuxent...................... 654 0.4 8 4.44
Pennsy Drive.................. 353 0.2 1 4.25
Preston Court................. 748 0.4 3 4.18
Santa Barbara Court........... 616 0.3 2 3.69
Boston
Arsenal Street................ 1,438 0.8 1 7.50
Bedford Street................ 593 0.3 1 14.82
Braintree Industrial.......... 2,031 1.1 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........... 4,863 2.7 18 5.27
Collins Street................ 468 0.3 1 3.06
Hampden Road.................. 816 0.5 1 4.00
Hartwell Avenue............... 204 0.1 1 5.00
Locke Building................ 333 0.2 1 3.40
Stoughton Industrial.......... 1,895 1.1 7 3.00
United Drive.................. 1,228 0.7 1 3.90
Cincinnati (5)
Dixie Highway................. 636 0.4 3 3.03
Empire Drive.................. 622 0.3 3 3.12
Holton Drive.................. 1,034 0.6 1 3.85
Production Drive.............. 0.0 0.0 0 0.0
Northern New Jersey
Dock's Corner................. 1,819 1.0 2 3.90
Dock's Corner II.............. 839 0.5 1 3.95
Jamesburg..................... 4,758 2.7 4 6.05
Two South Middlesex........... 856 0.5 2 3.93
Philadelphia
Mid-Atlantic Business 2,717 1.5 27 3.53
Center......................
Wilmington
Boulden....................... 1,062 0.6 5 3.99
-------- ----- -----
Eastern Region Total/Weighted $ 33,435 18.7% 109 $4.13
Average.......................
-------- ----- -----
</TABLE>
45
<PAGE> 52
<TABLE>
<CAPTION>
PERCENTAGE
OF TOTAL
NUMBER RENTABLE
OF YEAR BUILT/ RENTABLE SQUARE PERCENTAGE
REGION/MARKET/PROPERTY LOCATION BUILDINGS RENOVATED(1) SQUARE FEET FEET LEASED
---------------------- ----------------- --------- ------------ ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
MIDWESTERN
Chicago
Belden Avenue................. Addison 3 1991 346,233 0.8% 100.0%
Bensenville................... Bensenville 13 1994R 2,137,370 4.9 96.1
Chicago Industrial............ Bensenville 2 1974 184,360 0.4 59.3
Crossroads Industrial......... Bollingbrook 1 1990 260,890 0.6 100.0
Elk Grove Village Elk Grove Village 10 1980 693,459 1.6 81.5
Industrial..................
Executive Drive............... Addison 1 1987 75,020 0.2 89.0
Greenleaf..................... Elk Grove Village 1 1973 50,695 0.1 100.0
Itasca Industrial Portfolio... Itasca, Wood Dale 6 1996R 769,070 1.7 77.0
Lake Michigan Industrial Itasca, 2 1994 310,681 0.8 100.0
Portfolio(4)................ Bridgeview
Linder Skokie................. Skokie 1 1991R 484,370 1.1 60.3
Lisle Industrial.............. Lisle 1 1985R 360,000 0.8 100.0
Melrose Park.................. Melrose Park 1 1982 346,538 0.8 100.0
O'Hare Industrial Portfolio... Itasca, 15 1975 699,512 1.6 100.0
Naperville
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 0.2 100.0
Corporate Square.............. Eagan 6 1992R 526,490 1.3 92.6
Edenvale Business Center...... Eden Prairie 1 1982 85,818 0.2 98.1
Mendota Heights (6)........... Mendota Heights 1 1998D 150,394 0.3 72.8
Minneapolis Distribution Minneapolis, 5 1997R 1,032,994 2.3 99.5
Portfolio................... Edina
Minneapolis Industrial Plymouth 4 1985R 514,546 1.2 100.0
Portfolio IV................
Minneapolis Industrial Brooklyn Center 6 1997 499,673 1.1 100.0
Portfolio V.................
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 93.2
Shady Oak..................... Eden Prairie 1 1980R 104,243 0.2 100.0
Twin Cities................... New Hope, Mendota 2 1980 600,464 1.4 100.0
--- ---------- ----- ------
Midwestern Region Total/Weighted 92 11,199,515 25.5% 93.0%
Average.........................
--- ---------- ----- ------
SOUTHERN
Atlanta
Amwiler-Gwinnett Industrial Gwinnett County 9 1996 792,686 1.8% 100.0%
Portfolio...................
Atlanta South................. Clayton County 9 1994 624,135 1.4 96.2
Norcross/Brookhollow Gwinnett County 4 1996 322,399 0.7 96.7
Portfolio...................
Southfield.................... Gwinnett County 8 1990 780,623 1.8 85.1
Suwanee Creek Distribution Atlanta n/a 1998D n/a n/a n/a
Center(7)...................
Austin
Metric Center(4).............. Austin 6 1996 735,240 1.7 100.0
<CAPTION>
ANNUALIZED
PERCENTAGE BASE RENT PER
ANNUALIZED OF NUMBER LEASED
BASE RENT(2) ANNUALIZED OF SQUARE
REGION/MARKET/PROPERTY (000S) BASE RENT LEASES FOOT(3)
---------------------- ------------ ---------- ------ -------------
<S> <C> <C> <C> <C>
MIDWESTERN
Chicago
Belden Avenue................. $ 1,904 1.1% 7 $5.50
Bensenville................... 7,821 4.3 31 3.81
Chicago Industrial............ 475 0.3 3 4.35
Crossroads Industrial......... 1,043 0.5 4 4.00
Elk Grove Village 2,422 1.4 13 4.29
Industrial..................
Executive Drive............... 490 0.3 5 7.34
Greenleaf..................... 266 0.1 1 5.25
Itasca Industrial Portfolio... 1,941 1.1 10 3.28
Lake Michigan Industrial 1,090 0.6 3 3.51
Portfolio(4)................
Linder Skokie................. 807 0.5 6 2.76
Lisle Industrial.............. 756 0.4 1 2.10
Melrose Park.................. 1,057 0.6 1 3.05
O'Hare Industrial Portfolio... 3,154 1.7 16 4.51
Windsor Court................. 276 0.2 1 4.87
Columbus
Industrial Drive.............. 678 0.4 1 2.97
Janitrol...................... 684 0.4 1 3.29
Minneapolis
Braemar Business Center....... 623 0.3 18 5.76
Corporate Square.............. 1,765 1.0 21 3.62
Edenvale Business Center...... 340 0.2 11 4.04
Mendota Heights (6)........... 455 0.3 7 4.16
Minneapolis Distribution 3,798 2.1 25 3.70
Portfolio...................
Minneapolis Industrial 1,876 1.1 16 3.65
Portfolio IV................
Minneapolis Industrial 1,594 0.9 16 3.19
Portfolio V.................
Parkway Business Center....... 245 0.1 7 5.61
Penn James Office/Warehouse... 815 0.5 23 3.78
Round Lake Business Center.... 379 0.2 10 5.48
Shady Oak..................... 377 0.2 3 3.62
Twin Cities................... 1,944 1.1 8 3.24
----- ----- -----
Midwestern Region Total/Weighted $ 39,075 21.9% 269 $3.75
Average.........................
----- ----- -----
SOUTHERN
Atlanta
Amwiler-Gwinnett Industrial $ 2,974 1.7% 26 $3.75
Portfolio...................
Atlanta South................. 3,037 1.7 26 5.06
Norcross/Brookhollow 1,663 0.9 20 5.34
Portfolio...................
Southfield.................... 2,762 1.5 32 4.16
Suwanee Creek Distribution n/a n/a n/a n/a
Center(7)...................
Austin
Metric Center(4).............. 4,809 2.7 22 6.54
</TABLE>
46
<PAGE> 53
<TABLE>
<CAPTION>
PERCENTAGE
OF TOTAL
NUMBER RENTABLE
OF YEAR BUILT/ RENTABLE SQUARE PERCENTAGE
REGION/MARKET/PROPERTY LOCATION BUILDINGS RENOVATED(1) SQUARE FEET FEET LEASED
---------------------- ----------------- --------- ------------ ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
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 2.4 95.1
Lincoln Industrial Center..... Carrollton 1 1980 93,718 0.2 100.0
Lonestar...................... Dallas, Irving, 7 1993 911,375 2.1 96.7
Grand Prairie
McDaniel Drive................ Carrollton 1 1981 157,500 0.4 100.0
N. Glenville Avenue........... Richardson 1 1981 109,000 0.2 100.0
Pagemill & Dillworth.......... Dallas 2 1981 217,782 0.5 100.0
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 0.6 100.0
West Kiest.................... Dallas 1 1981 248,698 0.6 100.0
West North Carrier............ Grand Prairie 1 1993R 248,736 0.6 100.0
Houston
Houston Industrial Houston 5 1986 464,696 1.1 95.1
Portfolio...................
Memphis
Corporate Park................ Memphis 6 1987 658,322 1.4 100.0
Hickory Hill.................. Memphis 1 1979 200,000 0.5 100.0
Miami
Beacon Industrial Park........ Miami 8 1995 785,251 1.8 98.1
Blue Lagoon................... Miami 2 1994 325,611 0.6 100.0
Brittania Business Park....... Riviera Beach 2 1988 258,578 0.6 97.1
Orlando
Chancellor(4)................. Orlando 1 1996R 201,600 0.5 100.0
Chancellor Square............. Orlando 3 1982 141,778 0.3 67.3
Presidents Drive.............. Orlando 3 1979 378,379 0.9 62.9
Presidents Drive II........... Orlando 3 1984 302,400 0.7 100.0
Sand Lake Service Center...... Orlando 6 1972 400,591 0.9 82.2
Viscount...................... Orlando 1 1972 114,846 0.3 100.0
--- ---------- -----
Southern Region Total/Weighted 114 11,262,975 25.6% 95.2%
Average.........................
--- ---------- ----- ------
WESTERN
Los Angeles
Anaheim Industrial............ Anaheim 1 1980 161,500 0.4% 100.0%
Artesia Industrial Compton 27 1984 2,496,465 5.7 100.0
Portfolio...................
Commerce...................... Fontana 1 1990 254,414 0.6 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 Carson, Norwalk 6 1980 818,191 1.9 100.0
Portfolio...................
Systematics................... Walnut 1 1981 66,387 0.2 100.0
Orange County
Northpointe Commerce.......... Fullerton 2 1992 119,445 0.3 100.0
Stadium Business Park......... Anaheim 9 1995R 282,492 0.6 97.3
<CAPTION>
ANNUALIZED
PERCENTAGE BASE RENT PER
ANNUALIZED OF NUMBER LEASED
BASE RENT(2) ANNUALIZED OF SQUARE
REGION/MARKET/PROPERTY (000S) BASE RENT LEASES FOOT(3)
---------------------- ------------ ---------- ------ -------------
<S> <C> <C> <C> <C>
Dallas/Fort Worth
DFW Air Cargo Facility(7)..... n/a n/a n/a n/a
Dallas Industrial Portfolio... 3,149 1.8 67 3.11
Lincoln Industrial Center..... 340 0.2 3 3.63
Lonestar...................... 3,049 1.7 11 3.46
McDaniel Drive................ 601 0.3 1 3.82
N. Glenville Avenue........... 414 0.2 1 3.80
Pagemill & Dillworth.......... 817 0.6 3 3.75
Shiloh Road................... 530 0.3 1 2.75
Valwood....................... 862 0.5 7 3.12
Valwood Parkway II............ 888 0.5 5 3.49
West Kiest.................... 601 0.3 1 2.42
West North Carrier............ 567 0.3 2 2.28
Houston
Houston Industrial 1,408 0.8 17 3.18
Portfolio...................
Memphis
Corporate Park................ 2,348 1.3 10 3.57
Hickory Hill.................. 561 0.3 1 2.81
Miami
Beacon Industrial Park........ 5,145 2.9 21 6.68
Blue Lagoon................... 2,311 1.4 14 7.10
Brittania Business Park....... 1,302 0.7 8 5.19
Orlando
Chancellor(4)................. 579 0.3 1 2.87
Chancellor Square............. 559 0.3 7 5.86
Presidents Drive.............. 921 0.5 9 3.87
Presidents Drive II........... 958 0.5 7 3.17
Sand Lake Service Center...... 1,576 0.9 36 4.78
Viscount...................... 365 0.2 8 3.17
-------- ----- -----
Southern Region Total/Weighted $ 45,096 25.3% 367 $4.20
Average.........................
-------- ----- ----- -----
WESTERN
Los Angeles
Anaheim Industrial............ $ 588 0.3% 2 $3.64
Artesia Industrial 9,694 5.4 30 3.88
Portfolio...................
Commerce...................... 0 0.0 0 0.00
East Walnut Drive............. 343 0.2 1 3.99
International Multifoods...... 810 0.5 1 5.63
Jasmine Avenue................ 1,231 0.7 1 3.00
L.A. County Industrial 3,797 2.1 11 4.64
Portfolio...................
Systematics................... 489 0.3 1 7.37
Orange County
Northpointe Commerce.......... 801 0.4 2 6.71
Stadium Business Park......... 1,546 0.9 30 5.62
</TABLE>
47
<PAGE> 54
<TABLE>
<CAPTION>
PERCENTAGE
OF TOTAL
NUMBER RENTABLE
OF YEAR BUILT/ RENTABLE SQUARE PERCENTAGE
REGION/MARKET/PROPERTY LOCATION BUILDINGS RENOVATED(1) SQUARE FEET FEET LEASED
---------------------- ----------------- --------- ------------ ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Portland
Cascade Business Park......... Tigard 4 1995 159,411 0.4 89.4
Wilsonville................... Portland 1 1979 516,693 1.2 100.0
Sacramento
Hewlett Packard Roseville 1 1994 182,437 0.4 100.0
Distribution................
San Diego
Activity Distribution San Diego 4 1991 252,318 0.6 100.0
Center......................
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 0.7 100.0
Dowe Industrial............... Union City 2 1985R 326,080 0.7 100.0
Fairway Drive San Leandro 2 1997D 175,324 0.4 100.0
Industrial(4)(6)............
Laurelwood.................... Santa Clara 2 1981 155,500 0.4 66.6
Milmont Page.................. Fremont 3 1982 199,862 0.5 100.0
Moffett Business Center....... Sunnyvale 4 1994R 285,480 0.6 100.0
Moffett Park R&D Portfolio.... Sunnyvale 14 1994R 462,245 1.0 99.1
Pacific Business Center....... Fremont 2 1991 375,912 0.9 95.4
Silicon Valley R&D San Jose, 5 1978 287,228 0.7 100.0
Portfolio...................
Sunnyvale,
Milpitas
South Bay Industrial.......... Fremont 8 1990 1,011,781 2.3 100.0
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 0.7 97.2
Seattle
Harvest Business Park......... Kent 3 1986 191,841 0.4 100.0
Kent Centre................... Kent 4 1993 267,967 0.6 100.0
Kingsport Industrial Park..... Kent 7 1994R 951,056 2.2 99.9
Northwest Distribution Kent 3 1980 325,625 0.6 88.5
Center......................
--- ---------- -----
Western Region Total/Weighted 141 12,772,141 29.0 96.8
Average.........................
--- ---------- -----
TOTAL/WEIGHTED AVERAGE............ 415 43,963,978 100.0% 94.6%
=== ========== =====
<CAPTION>
ANNUALIZED
PERCENTAGE BASE RENT PER
ANNUALIZED OF NUMBER LEASED
BASE RENT(2) ANNUALIZED OF SQUARE
REGION/MARKET/PROPERTY (000S) BASE RENT LEASES FOOT(3)
---------------------- ------------ ---------- ------ -------------
<S> <C> <C> <C> <C>
Portland
Cascade Business Park......... 1,065 0.6 8 7.47
Wilsonville................... 1,550 0.9 1 3.00
Sacramento
Hewlett Packard 630 0.4 1 3.45
Distribution................
San Diego
Activity Distribution 1,366 0.8 15 5.41
Center......................
San Francisco Bay Area
Acer Distribution Center...... 1,038 0.6 2 5.28
Alvarado Business Center...... 3,673 2.1 33 5.38
Ardenwood Corporate Park...... 2,300 1.3 9 7.78
Dowe Industrial............... 1,132 0.6 4 3.47
Fairway Drive 797 0.4 2 4.55
Industrial(4)(6)............
Laurelwood.................... 487 0.3 1 4.71
Milmont Page.................. 1,157 0.6 10 5.79
Moffett Business Center....... 2,187 1.2 5 7.66
Moffett Park R&D Portfolio.... 4,990 2.8 33 10.89
Pacific Business Center....... 1,989 1.1 10 5.55
Silicon Valley R&D 2,376 1.3 9 8.27
Portfolio...................
South Bay Industrial.......... 5,376 3.0 30 5.31
Weigman Road.................. 581 0.3 2 3.91
Yosemite Drive................ 748 0.4 1 4.42
Zanker/Charcot Industrial..... 1,905 1.1 17 6.51
Seattle
Harvest Business Park......... 857 0.5 11 4.47
Kent Centre................... 1,179 0.7 16 4.40
Kingsport Industrial Park..... 3,042 1.7 18 3.20
Northwest Distribution 1,085 0.6 3 3.77
Center......................
-------- ----- -----
Western Region Total/Weighted 60,809 34.1 320 4.92
Average.........................
-------- ----- -----
TOTAL/WEIGHTED AVERAGE............ $178,415 100.0% 1,065 $4.29
======== ===== =====
</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 March 31, 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 March 31, 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 March 31, 1998.
(7) This Property consists of land held for future development.
48
<PAGE> 55
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 March 31, 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 OF
PERCENTAGE 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 1.0% $ 2,314 1.3%
Bradlees Stores, Inc.................. 2 716,239 1.7 1,998 1.1
United States Postal Service.......... 2 433,359 1.0 1,969 1.1
Air Express International, Inc........ 2 272,235 0.7 1,896 1.1
Dell USA.............................. 1 290,400 0.7 1,724 1.0
Rite Aid.............................. 1 516,693 1.2 1,550 0.9
Sage Enterprises Inc.................. 2 199,877 0.5 1,459 0.8
Boston Edison Company................. 1 191,850 0.5 1,439 0.8
Home Depot USA Inc.................... 2 374,813 0.9 1,367 0.8
Acer America.......................... 2 241,643 0.6 1,318 0.7
General Electric Company.............. 4 318,055 0.8 1,311 0.7
Cosmair Inc........................... 1 303,843 0.7 1,291 0.7
Schmelbach-Lubeca AG.................. 2 339,104 0.8 1,265 0.7
Avery Dennison Corporation............ 1 410,428 1.0 1,231 0.7
United Liquors Ltd.................... 1 315,000 0.8 1,229 0.7
Unisource Worldwide, Inc.............. 4 279,167 0.7 1,178 0.7
Mylex Corporation..................... 1 133,182 0.3 1,173 0.7
Rolf C. Hagen (USA) Corp.............. 1 204,151 0.5 1,133 0.6
Harmonic Lightwaves................... 1 110,160 0.3 1,124 0.6
C & S Wholesale Grocers, Inc.......... 1 113,680 0.3 1,108 0.6
Ciba Vision Corporation............... 1 245,616 0.6 1,067 0.6
Dry Storage Corporation............... 1 346,538 0.8 1,057 0.6
Hexcel Corporation.................... 1 285,634 0.7 1,051 0.6
The Discovery Channel Store/Nature
Company............................. 1 268,525 0.6 1,034 0.6
Holman Distribution................... 1 371,440 0.9 1,011 0.6
Mitsubishi Warehouse Corporation...... 1 253,584 0.6 1,004 0.6
Hit or Miss........................... 1 328,540 0.8 946 0.5
ADAP, Inc............................. 1 249,851 0.6 927 0.5
Superior Coffee & Foods............... 1 201,011 0.5 926 0.5
Advo Systems, Inc..................... 1 173,660 0.4 905 0.5
Emery Air Freight Corporation......... 2 143,726 0.3 905 0.5
Pragmatech Inc........................ 1 102,157 0.2 873 0.5
Rollerblade, Inc...................... 1 278,840 0.7 872 0.5
Boise Cascade Corporation............. 1 260,143 0.6 864 0.5
Arrow Electronics..................... 1 227,500 0.5 860 0.5
Best Buy Company...................... 1 244,733 0.6 842 0.5
Logitech, Inc......................... 1 95,632 0.2 827 0.5
Sears, Roebuck and Co................. 2 169,653 0.4 821 0.5
Bridgestone/Firestone, Inc............ 1 296,800 0.7 819 0.5
Vidco International................... 1 146,460 0.4 817 0.5
HomeGoods Inc......................... 1 204,117 0.5 816 0.5
Belkin Components..................... 1 219,028 0.5 815 0.5
International Multifoods.............. 1 144,000 0.3 810 0.5
---------- ---- ------- ----
Total/Weighted Average (Industrial
Properties)......................... 11,440,967 27.4% $49,946 28.4%
========== ==== ======= ====
</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.
(4) Computed as Aggregate Rentable Square Feet of such tenants divided by
Aggregate Leased Square Feet of the Properties or Annualized Base Rent of
such tenants divided by Aggregate Annualized Base Rent of the Properties, as
applicable.
49
<PAGE> 56
The 43 largest industrial tenants represent 27.4% of the Industrial
Properties' Annualized Base Rent as of March 31, 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 57% of the
Industrial Properties' total number of leases and 18.8% 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, Type A Snowboard, Inc. W.R. Grace & Co.
Inc. Buckeye International, Inc. Creative Solutions
Argosy Industries, Inc. Creative Education Supplies Genuine Parts Company
City of San Leandro Farmer's Insurance Litho Technical Services
Custom Walls & Windows Inc. Le Gourmet Kitchens Plastek USA Inc.
Golden West Games New Golf Holding Co. Santa Cruz Motors
National Tree Corporation Quality Video Tokyo World Transport (USA) Inc.
Plummer's, Inc. The Sportsman's Guide Zebra Express Inc.
Supergraphics Inc.
</TABLE>
INDUSTRIAL PROPERTY LEASE EXPIRATIONS
The following table summarizes the lease expirations for the Industrial
Properties for leases in place as of March 31, 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 ANNUALIZED BASE RENT OF
OF TOTAL BASE RENT OF OF EXPIRING ANNUALIZED
NUMBER RENTABLE SQUARE RENTABLE EXPIRING LEASES PER BASE RENT
OF LEASES FOOTAGE OF SQUARE LEASES SQUARE OF EXPIRING
YEAR OF LEASE EXPIRATION EXPIRING(1) EXPIRING LEASES(1) FOOTAGE (000S)(1)(2) FOOT(3) LEASES
------------------------ ----------- ------------------ ---------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
1998(4)................. 190 4,771,454 11.5% $ 21,239 $4.45 11.5%
1999.................... 205 7,043,996 16.9 27,486 3.90 14.9
2000.................... 228 7,320,405 17.6 32,604 4.45 17.7
2001.................... 156 5,096,560 12.3 24,399 4.79 13.2
2002.................... 150 6,715,250 16.1 29,596 4.41 16.1
2003.................... 54 3,576,187 8.6 15,347 4.29 8.3
2004.................... 23 1,880,574 4.5 8,473 4.51 4.6
2005.................... 20 2,122,015 5.1 8,078 3.81 4.4
2006.................... 14 1,042,523 2.5 6,466 6.20 3.5
2007.................... 5 503,868 1.2 2,418 4.80 1.3
2008 and beyond......... 16 1,538,479 3.7 8,266 5.37 4.5
----- ---------- ----- -------- ------
Total/Weighted Average.... 1,061 41,611,311 100.0% $184,372 $4.43 100.0%
===== ========== ===== ======== ======
</TABLE>
- ---------------
(1) Includes executed leases that commence after March 31, 1998 and excludes
leases expiring prior to April 1, 1998.
(2) Based on rent at expiration.
(3) Calculated as Annualized Base Rent divided by the square footage of expiring
leases.
(4) Includes leases encompassing 318,985 square feet which are on a
month-to-month basis.
50
<PAGE> 57
RETAIL PROPERTIES
At March 31, 1998, the Operating Partnership owned 37 Retail Properties
aggregating approximately 6.8 million rentable square feet, 33 of which are
grocer-anchored. As of March 31, 1998, the Retail Properties were 94.6% leased
to over 900 tenants, the largest of which accounted for approximately 3.0% of
Annualized Base Rent from the Retail Properties as of such date. The Retail
Properties have an average age of five years since built, expanded or renovated.
The historical weighted average tenant retention rate for the Retail Properties
for the period beginning January 1, 1995 through March 31, 1998 was
approximately 83.5%, based on 0.8 million rentable square feet of expiring
leases.
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 Operating Partnership's national
operating strategy for the community shopping center business is based on
detailed research regarding these 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 Operating
Partnership's retail centers to the national averages.
1997 MEDIAN HOUSEHOLD INCOME
AMB CENTERS VS. U.S.(1)
<TABLE>
<S> <C>
Within 3 miles of|AMB Retail
Center 50000
All MSAs 42000
Total U.S. 37000
</TABLE>
(1) Weighted by number of households.
(2) Derived from information compiled by Claritas Inc. The Operating Partnership
has been advised that the information comes from various government and
industry sources, but the Operating Partnership has not independently
verified the information.
(3) Derived from forecasted data obtained from Regional Financial Associates.
1997 AVERAGE POPULATION WITHIN
THREE-MILE RADIUS OF SHOPPING CENTER(1)
<TABLE>
<CAPTION>
Measurement Period
(Fiscal Year Covered) Population
<S> <C>
AMB Retail|Centers 108000
U.S. Shopping|Centers 71000
</TABLE>
(1) Derived from information compiled by Claritas Inc. The Operating Partnership
has been advised that the information comes from various government and
industry sources, but the Operating Partnership 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.
51
<PAGE> 58
Management believes that the characteristics of its trade areas tend to
result in centers 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
AVERAGE 1996 RETAIL SALES CHART
(1) Includes sales per square foot for grocer anchors reporting a full year
of sales. Thirty-one of 37 centers are represented above. Of the six
centers not represented, (i) four do not have grocer anchors, (ii) one
center is currently under construction and (iii) the grocer-anchor
store at one center is not owned by the Operating Partnership and does
not report sales.
(2) All but nine of the 31 centers included report sales on a calendar year
basis.
(3) Derived from data published in the Progressive Grocer Annual Report,
April 1998.
52
<PAGE> 59
Property Characteristics. The Retail Properties generally contain between
80,000 and 350,000 rentable square feet. On average, 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.
RETAIL PROPERTY PROFILE
<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.
53
<PAGE> 60
RETAIL PROPERTY SUMMARY
Anchor Tenants accounted for 67.4% of the aggregate square footage of the
Retail Properties as of March 31, 1998. Annualized Base Rent as of such date for
the Company's largest tenants was approximately $29.9 million, representing
approximately 39.3% of Annualized Base Rent for all Retail Properties.
Annualized Base Rent for the remaining retail tenants was approximately $46.3
million as of the same date, representing approximately 60.7% 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 March 31, 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
REGION/MARKET/PROPERTY LOCATION RENOVATED(1) FEET FEET SQUARE FEET SQUARE FEET
---------------------- ---------------- ------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
EASTERN
Albany
Latham Farms.................... Albany 1993 502,444 77,733 22,300 602,477
Baltimore
Long Gate Shopping Center....... Ellicott City 1996 390,288 14,467 0 404,755
Boston
Mazzeo Drive.................... Randolph 1993 88,420 0 0 88,420
Hartford
Corbins Corner Shopping
Center........................ Hartford 1988R 116,960 58,067 2,289 177,316
--------- --------- --------- ---------
Eastern Total/Weighted Average...................................... 1,098,112 150,267 24,589 1,272,968
MIDWESTERN
Chicago
Brentwood Commons............... Bensenville 1990R 61,621 40,508 0 102,129
Civic Center Plaza.............. Niles 1989 238,655 17,554 7,306 263,515
Riverview Plaza Shopping
Center........................ Chicago 1981 113,607 25,665 0 139,272
Minneapolis
Rockford Road Plaza............. Plymouth 1991 151,757 54,160 0 205,917
--------- --------- --------- ---------
Midwestern Total/Weighted Average................................... 565,640 137,887 7,306 710,833
SOUTHERN
Atlanta
Woodlawn Point Shopping
Center........................ Cobb County 1993 68,499 29,400 0 97,899
<CAPTION>
AVERAGE
ANNUALIZED NUMBER BASE RENT
PERCENTAGE BASE RENT OF PER SQUARE
REGION/MARKET/PROPERTY LEASED (000S)(2) LEASES FOOT(3) PRIMARY TENANTS(4)
---------------------- ---------- ---------- ------ ---------- ------------------
<S> <C> <C> <C> <C> <C>
EASTERN
Albany
Latham Farms.................... 96.3% $ 5,941 27 $10.24 Sam's Club
Wal-Mart Stores
Baltimore
Long Gate Shopping Center....... 100.0 4,639 12 11.46 Kohl's
Target
Boston
Mazzeo Drive.................... 100.0 690 1 7.80 Bob's Inc.
Hartford
Corbins Corner Shopping
Center........................ 98.7 3,111 23 17.77 Filene's Basement
Toys 'R Us
------- -----
Eastern Total/Weighted Average...... 98.1 14,381 63 11.52
MIDWESTERN
Chicago
Brentwood Commons............... 100.0 1,047 21 10.25 Dominick's
Super Trak
Civic Center Plaza.............. 97.2 2,471 13 9.64 Dominick's
Home Depot
Riverview Plaza Shopping
Center........................ 100.0 1,379 14 9.90 Dominick's
Toys 'R Us
Minneapolis
Rockford Road Plaza............. 100.0 2,202 30 10.69 PetsMart
Rainbow Foods
------- -----
Midwestern Total/Weighted Average... 99.0 7,099 78 10.09
SOUTHERN
Atlanta
Woodlawn Point Shopping
Center........................ 100.0 1,194 18 12.20 Publix
Zany Brainy
</TABLE>
54
<PAGE> 61
<TABLE>
<CAPTION>
LEASED
LEASED NON-
ANCHOR ANCHOR
RENTABLE RENTABLE AVAILABLE TOTAL
YEAR BUILT/ SQUARE SQUARE RENTABLE RENTABLE
REGION/MARKET/PROPERTY LOCATION RENOVATED(1) FEET FEET SQUARE FEET SQUARE FEET
---------------------- ---------------- ------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Houston
Randall's Austin Parkway........ Sugarland 1993 90,650 21,025 0 111,675
Randall's Commons Memorial...... Houston 1993 75,689 31,002 3,504 110,195
Randall's Dairy Ashford......... Houston 1993 115,360 20,575 0 135,935
Randall's Woodway Collection.... Houston 1993 65,108 27,507 18,074 110,689
Wesleyan Plaza.................. Houston 1986R 216,870 116,521 22,859 356,250
Miami
Kendall Mall(6)................. Miami 1995R 194,550 89,505 15,527 299,582
Northridge Plaza(6)(7).......... Ft. Lauderdale 1998R 124,650 51,064 15,493 191,207
Palm Aire(6)(7)................. Pompano Beach 1997R 33,100 25,748 101,054 159,902
Shoppes at Lago Mar............. Miami 1995 42,323 31,693 9,092 83,108
Springs Gate(8)................. Coral Springs n/a n/a n/a n/a n/a
The Plaza at Delray(6).......... Delray Beach 1996R 216,883 50,438 33,288 300,609
--------- --------- --------- ---------
Southern Total/Weighted Average..................................... 1,243,682 494,478 218,891 1,957,051
WESTERN
Denver
Applewood Village Shopping
Center........................ Wheat Ridge 1994R 265,663 85,013 2,547 353,223
Arapahoe Village Shopping
Center........................ Boulder 1989R 85,530 73,707 0 159,237
Los Angeles
Granada Village................. Granada Hills 1996R 124,638 88,328 11,817 224,783
Manhattan Village Shopping
Center........................ Manhattan Beach 1992R 225,791 188,467 9,692 423,950
Twin Oaks Shopping Center....... Agoura Hills 1996R 58,475 43,924 0 102,399
<CAPTION>
AVERAGE
ANNUALIZED NUMBER BASE RENT
PERCENTAGE BASE RENT OF PER SQUARE
REGION/MARKET/PROPERTY LEASED (000S)(2) LEASES FOOT(3) PRIMARY TENANTS(4)
---------------------- ---------- ---------- ------ ---------- ------------------
<S> <C> <C> <C> <C> <C>
Houston
Randall's Austin Parkway........ 100.0% $ 1,093 12 $ 9.79 Randall's
Sears Hardware
Randall's Commons Memorial...... 96.8 947 15 8.88 Randall's
Walgreen's
Randall's Dairy Ashford......... 100.0 1,283 12 9.44 Randall's
PetSmart
Randall's Woodway Collection.... 83.7 1,206 12 13.02 Randall's
Eckerd
Wesleyan Plaza.................. 93.6 3,760 46 11.28 Randall's
Bering's Home Center
Miami
Kendall Mall(6)................. 94.8 3,734 46 13.15 J.C. Penney Home
Store
Upton's
Northridge Plaza(6)(7).......... 91.9 1,362 21 7.75 Target
Publix
Palm Aire(6)(7)................. 36.8 436 15 7.41 Eckerd
Winn-Dixie
Shoppes at Lago Mar............. 89.1 879 17 11.88 Publix
Springs Gate(8)................. n/a n/a n/a n/a n/a
The Plaza at Delray(6).......... 88.9 3,249 35 12.15 Home Place
------- -----
Regal Cinema
Southern Total/Weighted Average..... 88.8 19,143 249 11.01
WESTERN
Denver
Applewood Village Shopping
Center........................ 99.3 2,865 41 8.17 Wal-Mart Stores
King Soopers
Arapahoe Village Shopping
Center........................ 100.0 1,840 25 11.56 Safeway
So-Fro Fabrics
Los Angeles
Granada Village................. 94.7 2,820 38 13.24 Hughes Market
TJ Maxx
Manhattan Village Shopping
Center........................ 97.7 6,492 88 15.67 Macy's
Fry's Electronics
Twin Oaks Shopping Center....... 100.0 1,100 24 10.74 Ralph's
Rite Aid
</TABLE>
55
<PAGE> 62
<TABLE>
<CAPTION>
LEASED
LEASED NON-
ANCHOR ANCHOR
RENTABLE RENTABLE AVAILABLE TOTAL
YEAR BUILT/ SQUARE SQUARE RENTABLE RENTABLE
REGION/MARKET/PROPERTY LOCATION RENOVATED(1) FEET FEET SQUARE FEET SQUARE FEET
---------------------- ---------------- ------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Reno
Southwest Pavilion(7)........... Reno 1997E 47,140 25,206 4,411 76,757
San Diego
La Jolla Village S.C............ La Jolla 1989R 67,238 95,142 2,572 164,952
Rancho San Diego Village S.C.... La Mesa 1994R 39,777 58,282 13,393 111,452
Santa Barbara
Five Points Shopping Center..... Santa Barbara 1996 97,189 47,295 0 144,484
San Francisco Bay Area
Bayhill Shopping Center......... San Bruno 1997R 59,221 57,775 5,045 122,041
Lakeshore Plaza Shopping
Center........................ San Francisco 1993 38,836 81,975 2,050 122,861
Pleasant Hill Shopping Center... Pleasant Hill 1990R 210,614 23,063 0 233,677
Silverado Plaza Shopping
Center........................ Napa 1994R 58,238 25,843 942 85,023
Ygnacio Plaza................... Walnut Creek 1990R 52,118 50,118 7,193 109,429
Seattle
Aurora Marketplace.............. Edmonds 1991 74,113 32,837 0 106,950
Eastgate Plaza.................. Bellevue 1995R 49,575 26,989 0 76,564
Totem Lake Malls................ Kirkland 1989R 154,223 75,629 60,352 290,204
--------- --------- --------- ---------
Western Region Total/Weighted Average............................... 1,708,379 1,079,593 120,014 2,907,986
--------- --------- --------- ---------
Total/Weighted Average.............................................. 4,615,813 1,862,225 370,800 6,848,838
========= ========= ========= =========
<CAPTION>
AVERAGE
ANNUALIZED NUMBER BASE RENT
PERCENTAGE BASE RENT OF PER SQUARE
REGION/MARKET/PROPERTY LEASED (000S)(2) LEASES FOOT(3) PRIMARY TENANTS(4)
---------------------- ---------- ---------- ------ ---------- ------------------
<S> <C> <C> <C> <C> <C>
Reno
Southwest Pavilion(7)........... 94.3% $ 731 14 $10.10 Scolari's Market
San Diego
La Jolla Village S.C............ 98.4 3,016 37 18.57 Whole Foods Market
Sav-on Drugs
Rancho San Diego Village S.C.... 88.0 1,247 41 12.72 Safeway
Santa Barbara
Five Points Shopping Center..... 100.0% 2,241 25 15.51 Lucky
Ross Stores
San Francisco Bay Area
Bayhill Shopping Center......... 95.9 1,282 27 10.96 Longs Drugs
Mollie Stone's Markets
Lakeshore Plaza Shopping
Center........................ 98.3 3,281 33 27.16 Ross Stores
UCSF
Pleasant Hill Shopping Center... 100.0 2,374 12 10.16 Toys 'R Us
Target
Silverado Plaza Shopping
Center........................ 98.9 823 17 9.79 Nob Hill Foods
Rite Aid
Ygnacio Plaza................... 93.4 1,352 24 13.22 Lucky
Rite Aid
Seattle
Aurora Marketplace.............. 100.0 1,495 18 13.98 Drug Emporium
Safeway
Eastgate Plaza.................. 100.0 944 15 12.33 Rite Aid
Albertson's
Totem Lake Malls................ 79.2% 1,763 36 7.67 Lamonts Apparel
Computer City
------- -----
Western Region Total/Weighted Averag 95.9 35,666 515 12.79
------- -----
Total/Weighted Average.............. 94.6% $76,289 905 $11.78
======= =====
</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 March 31, 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 March 31, 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 Operating Partnership 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 March 31, 1998.
(8) This Property consists of land held for future development.
56
<PAGE> 63
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. These tenants
have an average of approximately 15 years remaining on their lease terms, which
the Company believes should provide a balance to the typically shorter remaining
lease terms of the Industrial Property tenants.
<TABLE>
<CAPTION>
PERCENTAGE OF PERCENTAGE OF
AGGREGATE AGGREGATE
NUMBER AGGREGATE LEASED ANNUALIZED ANNUALIZED
OF RENTABLE SQUARE BASE RENT BASE
TENANT NAME(1)(2) CENTERS SQUARE 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%
Randall's Food & Drugs, Inc............... 5 298,549 4.6 2,369 3.1
Safeway Stores, Inc....................... 4 187,334 2.9 1,860 2.5
Target Stores Corporation................. 3 320,670 4.9 1,784 2.4
Home Place................................ 2 109,323 1.7 1,450 1.9
Omni ..................................... 3 175,229 2.7 1,430 1.9
Blockbuster Video, Inc.................... 10 58,785 0.9 1,247 1.7
Toys 'R Us, Inc........................... 3 135,332 2.1 1,247 1.7
Publix.................................... 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 1,113 1.5
Tandy Corporation......................... 15 81,910 1.3 1,044 1.4
Dart...................................... 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
Hallmark.................................. 13 49,693 0.8 852 1.1
Hannaford Bros. Co........................ 1 63,664 1.0 828 1.1
TJX, Inc.................................. 4 117,200 1.8 769 1.0
Ross Stores, Inc.......................... 2 61,120 0.9 769 1.0
Randolph Bob's, Inc....................... 1 88,420 1.4 690 0.9
American Stores........................... 4 116,873 1.8 689 0.9
Fry's Electronics......................... 1 46,200 0.7 677 0.9
--------- ---- ------- ----
Total/Weighted Average............... 3,152,992 48.7% $29,945 39.3%
========= ==== ======= ====
</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, 33 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.
(5) Computed as Aggregate Rentable Square Feet of such tenants divided by
Aggregate Leased Square Feet of the Properties or Annualized Base Rent of
such tenants divided by Aggregate Annualized Base Rent of the Properties, as
applicable.
57
<PAGE> 64
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 58% of the Retail
Property leases and 20.5% 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:
Agoura Beauty Supply
Flower Basket
Islands Restaurants
King Dragon
Star of India
TCBY
Baskin Robbins, Inc.
Great Escapes Travel
Let Us Mail
Pavilion Cleaners
Santa Barbara Travel
State Farm Insurance
The Bowling Store
Domino's Pizza
Imagination Toys
Nail Xpress
Prestige Jewelers
Sears Driving School
Subway
Yum-Yum Donuts
RETAIL PROPERTY LEASE EXPIRATIONS
The following table sets forth a summary schedule of the Retail Property
lease expirations for leases in place as of March 31, 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 OF ANNUALIZED
RENTABLE BASE RENT OF ANNUALIZED RENT OF
NUMBER OF SQUARE FOOTAGE PERCENTAGE OF EXPIRING BASE RENT OF EXPIRING
YEAR OF LEASE LEASES OF LEASES TOTAL RENTABLE LEASES(1)(2) EXPIRING LEASES PER
EXPIRATIONS EXPIRING(1) EXPIRING(1) Square Footage (000S) LEASES SQUARE FOOT(3)
- ---------------------- ----------- -------------- -------------- ------------ ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
1998(4)............... 121 438,950 6.7% $ 4,759 5.7% $10.84
1999.................. 123 392,463 6.0 5,536 6.6 14.11
2000.................. 123 467,638 7.2 5,961 7.2 12.75
2001.................. 113 511,783 7.9 6,670 8.0 13.03
2002.................. 132 426,945 6.6 7,740 9.3 18.13
2003.................. 59 321,251 4.9 4,559 5.5 14.19
2004.................. 30 179,045 2.8 2,702 3.2 15.09
2005.................. 36 134,228 2.1 3,103 3.7 23.12
2006.................. 46 303,150 4.7 5,712 6.9 18.84
2007.................. 34 406,543 6.3 4,291 5.2 10.55
2008 and beyond....... 102 2,921,111 44.8 32,248 38.7 11.04
--- --------- ----- ------- ----- ------
Total/Weighted
Average............. 919 6,503,107 100.0% $83,281 100% $12.81
=== ========= ===== ======= ===== ======
</TABLE>
- ---------------
(1) Schedule includes executed leases that commence after March 31, 1998.
Schedule ignores leases expiring March 31, 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 43,699 square feet of month-to-month leases.
58
<PAGE> 65
HISTORICAL TENANT RETENTION RATES AND RENT INCREASES
The following table sets forth information relating to retention rates and
rent increases on renewal and re-tenanted space for the Properties for the
periods presented.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------- THREE MONTHS ENDED TOTAL/WEIGHTED
1995 1996 1997 MARCH 31, 1998 AVERAGE
------ ------ ------ ------------------ --------------
<S> <C> <C> <C> <C> <C>
INDUSTRIAL PROPERTIES:
Retention rate................. 67.9% 79.2% 69.5% 77.3% 72.9%
Rental rate increases.......... 4.8% 4.7% 13.0% 14.8%
RETAIL PROPERTIES:
Retention rate................. 63.5% 88.4% 87.8% 87.2% 83.5%
Rental rate increases.......... 3.2% 5.4% 10.1% 22.0%
TOTAL PROPERTIES:
Retention rate................. 67.7% 79.8% 70.3% 78.1% 73.5%
Rental rate increases.......... 4.3% 5.0% 12.0% 16.4%
</TABLE>
RECURRING TENANT IMPROVEMENTS AND LEASING COMMISSIONS
The tables below summarize for Industrial Properties and Retail Properties,
separately, the recurring tenant improvements and leasing commissions 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 -- Possibility
Inability to Complete Renovation and Development on Advantageous Terms."
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
--------------------- THREE MONTHS ENDED WEIGHTED
1995 1996 1997 MARCH 31, 1998 AVERAGE
----- ----- ----- ------------------ --------
<S> <C> <C> <C> <C> <C>
INDUSTRIAL PROPERTIES:
Expenditures per renewed square foot
leased.................................... $0.91 $0.93 $1.05 $ 0.76 $0.93
Expenditures per re-tenanted square foot
leased.................................... 1.75 1.97 1.62 1.98 1.77
Aggregate weighted average per square foot
leased.................................... 1.32 1.29 1.30 0.98 1.26
RETAIL PROPERTIES:
Expenditures per renewed square foot
leased.................................... 5.53 4.72 4.25 1.82 3.96
Expenditures per re-tenanted square foot
leased.................................... 5.37 6.53 7.92 13.85 7.47
Aggregate weighted average per square foot
leased.................................... 5.46 5.61 6.41 3.25 5.59
</TABLE>
OCCUPANCY AND BASE RENT
The table below sets forth weighted average occupancy rates and base rent
based on square feet leased of the Industrial Properties and the Retail
Properties as of and for the periods presented.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------- THREE MONTHS ENDED
1995 1996 1997 MARCH 31, 1998
------ ------ ------ ------------------
<S> <C> <C> <C> <C>
INDUSTRIAL PROPERTIES:
Occupancy rate at period end................ 97.3% 97.2% 95.7% 94.6%
Average base rent per square foot(1)........ $ 3.43 $ 3.81 $ 4.26 $ 4.29
RETAIL PROPERTIES:
Occupancy rate at period end................ 92.4% 92.4% 96.1% 94.6%
Average base rent per square foot(1)........ $10.46 $11.32 $11.98 $11.78
</TABLE>
- ---------------
(1) Average base rent per square foot represents the total contractual base
rental revenue for the period divided by the average square feet leased for
the period.
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<PAGE> 66
RENOVATION, EXPANSION AND DEVELOPMENT PROJECTS IN PROGRESS
The following table sets forth the Properties owned by the Operating
Partnership which are currently 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 FEET
STABILIZATION INVESTMENT AT
PROPERTY NAME TYPE(1) DATE(2) (000S)(3) COMPLETION
------------- ----------- ------------- ---------- -----------
<S> <C> <C> <C> <C>
Industrial Properties:
Dock's Corner............................... Expansion Jul-98 $ 46,900 1,200,000
Fairway Drive Phase II...................... Development May-98 10,600 255,300
Fairway Drive Phase III..................... Development Sept-99 4,800 115,000
Mendota Heights............................. Development Dec-98 6,900 150,400
Pennsy Drive................................ Renovation Jan-99 10,000 359,500
DFW Air Cargo Facility...................... Development Dec-99 18,300 205,000
Suwanee Creek Distribution Center........... Development Feb-01 32,000 1,086,000
OCPTC Portfolio............................. Development Nov-00 16,200 443,200
-------- ---------
Subtotal............................ 145,700 3,814,400
Retail Properties:
Palm Aire................................... Renovation Feb-99 11,500 144,300
Springs Gate................................ Development May-98 34,600 248,900
Northridge Plaza............................ Renovation Sept-00 35,400 259,400
-------- ---------
Subtotal............................ 81,500 652,600
-------- ---------
Total............................... $227,200 4,467,000
======== =========
</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 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
Operating Partnership's current planning estimates and forecasts and
therefore subject to change.
PROPERTIES HELD THROUGH JOINT VENTURES, LIMITED LIABILITY COMPANIES AND
PARTNERSHIPS
As of March 31, 1998, the Operating Partnership held interests in 12 joint
ventures, limited liability companies and partnerships (collectively, the "Joint
Ventures") with certain unaffiliated third parties (the "Joint Venture
Participants"). Pursuant to the existing agreements with respect to each Joint
Venture, the Operating Partnership holds a greater than 50% interest in 11 of
the Joint Ventures and a 50% interest in the twelfth Joint Venture, but in
certain cases such agreements provide that the Operating Partnership 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
Operating Partnership has approval rights with respect to significant decisions
involving the underlying properties). Under the agreements governing the Joint
Ventures, the Operating Partnership 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 additional
indebtedness would effectively be senior to the Notes. See "Risk
Factors -- Ranking of the Notes." Such agreements also impose certain
restrictions on the transfer of the interest in the Joint Venture by the
Operating Partnership or the Joint Venture Participant, and provide certain
rights to the Operating Partnership and/or the Joint Venture Participant to sell
its interest to the Joint Venture or to the other
60
<PAGE> 67
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.
The following table sets forth certain information regarding the Joint
Ventures as of March 31, 1998:
<TABLE>
<CAPTION>
PERCENTAGE AND
FORM OF
BOOK VALUE OF COMPANY'S
GROSS BOOK CO-VENTURER'S COMPANY'S OWNERSHIP
PROPERTY VALUE(1) MORTGAGE DEBT INVESTMENT(2) INVESTMENT(3) INTEREST
-------- ---------- ------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
INDUSTRIAL PROPERTIES:
Chancellor........... $ 6,390 $ (2,972) $ (613) $ 2,805 90% general partnership
interest
Fairway Drive........ 12,119 -- (313) 11,806 70% LLC interest
Nippon Express(4).... 6,257 -- (412) 5,845 50% limited partnership
interest
Metric Center(5)..... 43,965 -- (5,421) 38,544 87.15% limited
partnership interest
Jamesburg/Corporate
Park/Hickory
Hill.............. 74,465 -- (37,119) 37,346 50.0005% general
partnership interest
-------- -------- -------- --------
Subtotal.......... 143,196 (2,972) (43,878) 96,346
RETAIL PROPERTIES:
Kendall Mall......... 35,794 (25,063) 358 11,089 50.0001% limited
partnership interest
Manhattan Village.... 83,307 -- (7,884) 75,423 90% LLC interest
Palm Aire............ 14,035 (5,623) (1,108) 7,304 50.0001% general
partnership interest
The Plaza at
Delray............ 35,127 (23,378) (355) 11,394 50.0001% limited
partnership interest
Springs Gate......... 11,693 -- -- 11,693 50.0001% limited
partnership interest
Northridge Plaza..... 11,011 -- -- 11,011 50.0001% limited
partnership interest
-------- -------- -------- --------
Subtotal.......... 190,967 (54,064) (8,989) 127,914
-------- -------- -------- --------
Total........ $334,163 $(57,036) $(52,867) $224,260
======== ======== ======== ========
</TABLE>
- ---------------
(1) Represents the book value of the Property owned by the respective joint
venture entity before accumulated depreciation.
(2) Represents the co-venturer's aggregate investment on a book value basis in
the respective joint venture property.
(3) Represents the Company's aggregate investment on a book value basis in the
respective joint venture property.
(4) Represents a building which is part of the Lake Michigan Industrial
Portfolio.
(5) Represents two properties owned by separate limited partnership [joint
ventures] owned by the same partners 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.
DEBT FINANCING
The Operating Partnership's financing policies and objectives are
determined by the Company's Board of Directors and may be altered without the
consent of the Company's stockholders. The organizational documents of the
Operating Partnership and the Company do not limit the amount of indebtedness
that either
61
<PAGE> 68
may incur. The Company presently intends to limit the Debt-to-Total Market
Capitalization Ratio to approximately 45%. As of March 31, 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 March 31, 1998 on a pro forma
basis would have been approximately 31.2% (29.9% on an historical basis). The
Operating Partnership 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
Operating Partnership intends to utilize one or more sources of capital for
future acquisitions, including 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 Operating Partnership
will be able to obtain capital for any such acquisitions, developments or
improvements on terms favorable to the Operating Partnership. See "Strategies
for Growth -- Growth Through Acquisition."
Unsecured Debt. The Operating Partnership is party to the Credit Facility
with aggregate availability of $500 million (subject to borrowing base
limitations). The Operating Partnership 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
Operating Partnership's debt rating at the time of such borrowings. As of March
31, 1998, $312.0 million was outstanding under the Credit Facility, with $148.0
million of availability. Of the $312.0 million outstanding as of March 31, 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 the
Operating Partnership's ongoing compliance with a number of financial and other
covenants. The Credit Facility requires that: (i) the Operating Partnership
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
Operating Partnership 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 Operating
Partnership's ability to make distributions to no more than 95% of its annual
FFO.
Secured Debt. As of March 31, 1998, $73 million was outstanding under 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, which is secured by six of the Properties, became an obligation of the
Company upon consummation of the Formation Transactions. Under the Secured
Facility, the Operating Partnership may substitute collateral, subject to
certain requirements with respect to the property offered as replacement
collateral. In addition to the Secured Facility, 53 of the Properties secure
mortgage indebtedness. The aggregate principal amount of such mortgage
indebtedness was $514 million, $444 million, $403 million and $254 million at
March 31, 1998 and December 31, 1997, 1996 and 1995, respectively. All secured
indebtedness bears interest at rates varying from 7.01% to 10.39% per annum
(with a weighted average of 8.01%) with final maturity dates ranging from 1998
to 2014.
62
<PAGE> 69
The following table sets forth scheduled principal payments of the
Operating Partnership's secured debt (excluding construction debt of $5.6
million as of March 31, 1998) for the Properties on an historical basis as of
March 31, 1998 for each of the years beginning with the year ending December 31,
1998. All of the Operating Partnership's mortgage debt is fixed-rate and has
generally been arranged by the Operating Partnership or its predecessors
directly with lenders such as Principal Financial Group, Northwestern Mutual
Life, Prudential Insurance and Nationwide Insurance.
<TABLE>
<CAPTION>
WEIGHTED
SCHEDULED PRINCIPAL TOTAL AVERAGE
PRINCIPAL DUE AT PRINCIPAL YEAR-END
AMORTIZATION MATURITY PAYMENTS INTEREST RATE
------------ --------- --------- -------------
YEAR (IN THOUSANDS)
<S> <C> <C> <C> <C>
1998....................................... $ 5,648 48,055 53,703 7.96%
1999....................................... 7,398 3,567 10,965 7.94
2000....................................... 8,804 -- 8,804 7.93
2001....................................... 9,392 29,190 38,582 7.93
2002....................................... 9,260 54,415 63,675 7.88
2003....................................... 8,219 114,982 123,201 7.82
2004....................................... 6,435 36,085 42,520 7.71
2005....................................... 5,911 33,416 39,327 7.61
2006....................................... 4,441 103,922 108,363 7.70
2007....................................... 2,038 14,339 16,377 7.66
2008....................................... 1,603 77,783 79,386 8.25
2009....................................... 426 -- 426 8.25
2010....................................... 345 -- 345 8.25
2011....................................... 375 -- 375 8.25
2012....................................... 407 -- 407 8.25
2013....................................... 442 -- 442 8.25
2014....................................... 39 -- 39 0.00
------- -------- -------- ----
Total/Weighted Average.................. $71,183 $515,754 $586,937 6.71%
======= ======== ======== ====
</TABLE>
The following table sets forth scheduled maturities of the Operating
Partnership's secured debt (excluding construction debt of $5.6 million as of
March 31, 1998) on a property-by-property basis.
<TABLE>
<CAPTION>
NOTE BALANCE AT ANNUAL DEBT
INTEREST RATE AT MARCH 31, 1998 SERVICE
PROPERTY MARCH 31, 1998 (000S) (000S) MATURITY DATE
-------- ---------------- ---------------- ----------- -------------
<S> <C> <C> <C> <C>
INDUSTRIAL PROPERTIES:
Arsenal Street.......................... 10.20% $ 10,598 $ 1,438 04/01/98
Bedford Street.......................... 8.50 1,841 219 04/01/98
Braintree Industrial.................... 7.75 5,234 542 04/01/98
Braintree Office........................ 8.34 6,157 659 04/01/98
Collins Street.......................... 9.50 2,141 57 04/01/98
Collins Street.......................... 10.25 431 315 04/01/98
Hartwell Avenue/Braintree Industrial/
Stoughton Industrial(1).............. 7.87 6,305 849 04/01/98
Stoughton Industrial.................... 10.39 708 122 04/01/98
Stoughton Industrial.................... 8.25 610 81 04/01/98
United Drive............................ 9.50 953 113 04/01/98
Harvest Business Park................... 10.38 3,631 438 04/01/99
Edenvale Business Center................ 9.38 1,540 183 11/01/01
United Drive............................ 8.50 7,911 844 06/30/02
</TABLE>
63
<PAGE> 70
<TABLE>
<CAPTION>
NOTE BALANCE AT ANNUAL DEBT
INTEREST RATE AT MARCH 31, 1998 SERVICE
PROPERTY MARCH 31, 1998 (000S) (000S) MATURITY DATE
-------- ---------------- ---------------- ----------- -------------
<S> <C> <C> <C> <C>
OCP Portfolio(2)........................ 9.13 12,532 1,373 11/15/02
Chancellor.............................. 7.45 2,940 273 01/15/03
Blue Lagoon............................. 7.15 11,805 1,032 02/01/03
Kingsport Industrial Park............... 7.81 17,477 1,582 08/01/03
Moffett Business Center................. 7.20 12,757 1,123 12/15/03
Bensenville............................. 8.53 19,986 2,034 08/01/04
Bensenville............................. 8.53 6,680 678 08/01/04
Bensenville............................. 8.35 2,701 267 08/01/04
Bensenville............................. 8.35 7,061 691 08/01/04
Bensenville............................. 8.35 5,107 499 08/01/04
South Bay Industrial(3)................. 8.31 19,404 1,843 04/05/05
Lonestar................................ 8.23 17,000 1,399 08/01/05
Activity Distribution Center............ 7.27 5,317 478 01/01/06
Stadium Business Park................... 7.27 4,834 434 01/01/06
Hewlett Packard Distribution............ 7.27 3,384 304 01/01/06
Minneapolis Industrial Portfolio IV..... 7.27 8,218 739 01/01/06
Amwiler-Gwinnett Industrial Portfolio... 7.01 8,577 838 04/01/06
Pacific Business Center................. 8.59 9,820 1,003 08/01/06
Chicago Industrial...................... 8.59 3,242 331 08/01/06
Valwood................................. 8.59 4,004 409 08/01/06
West North Carrier...................... 8.59 3,242 331 08/01/06
Artesia Industrial Portfolio............ 7.29 54,100 3,944 11/15/06
Stoughton Industrial.................... 10.38 4,305 746 12/31/06
Amwiler-Gwinnett Industrial Portfolio... 7.68 5,608 514 01/01/07
Mendota Heights......................... 8.50 668 57 06/18/07
Ardenwood Corporate Park................ 7.84 9,950 883 09/01/07
Stoughton Industrial.................... 8.13 1,207 142 09/30/07
Brockton Industrial..................... 9.00 6,680 723 12/31/07
Minneapolis Industrial Portfolio V...... 8.88 7,279 1,053 12/01/08
Secured Facility-Industrial(4).......... 7.53 47,450 3,573 12/01/08
Stoughton Industrial.................... 8.25 2,384 329 03/31/09
Mazzeo.................................. 8.25 4,105 465 01/01/14
-------- -------
Subtotal/Weighted Average
(rate/number of years)............. 8.04 377,884 35,950 7.08
RETAIL PROPERTIES:
Lakeshore Plaza Shopping Center......... 7.68 13,567 1,867 11/10/98
Woodlawn Shopping Center................ 8.50 4,620 474 01/01/01
Kendall Mall............................ 7.65 24,641 2,169 11/15/01
Silverado Plaza Shopping Center......... 9.02 4,860 534 04/10/02
Arapahoe Village Shopping Center........ 7.81 10,760 1,002 08/01/02
The Plaza at Delray..................... 7.78 22,902 1,983 09/01/02
Brentwood Commons....................... 8.74 5,081 502 06/01/03
Granada Village......................... 8.74 14,588 1,441 06/01/03
Ygnacio Plaza........................... 8.74 7,783 769 06/01/03
La Jolla Village........................ 8.74 17,907 1,768 06/01/03
Latham Farms............................ 7.88 37,409 3,665 12/01/03
</TABLE>
64
<PAGE> 71
<TABLE>
<CAPTION>
NOTE BALANCE AT ANNUAL DEBT
INTEREST RATE AT MARCH 31, 1998 SERVICE
PROPERTY MARCH 31, 1998 (000S) (000S) MATURITY DATE
-------- ---------------- ---------------- ----------- -------------
<S> <C> <C> <C> <C>
Civic Center Plaza...................... 7.27 13,555 1,216 02/01/06
Shoppes at Lago Mar..................... 7.50 5,831 532 04/01/06
Secured Facility-Retail(4).............. 7.53 25,550 1,924 12/12/08
Subtotal/Weighted Average
(rate/number of years)............. 7.96 209,054 19,846 5.5
-------- -------
Total/Weighted Average (rate/number
of years)....................... 8.01% $586,938 $55,796 6.5
======== =======
</TABLE>
- ---------------
(1) One loan is secured by three properties. These properties are Hartwell
Avenue, Braintree Industrial and Stoughton Industrial.
(2) OCP Portfolio has one loan secured by three properties. These properties are
Chancellor Square, Presidents Drive and Sand Lake Service Center.
(3) Comprised of three loans with identical terms that are not
cross-collateralized.
(4) The Secured Facility is cross-collateralized with the following Industrial
and Retail Properties: L.A. County Industrial Portfolio, Southfield, Corbins
Corner Shopping Center, Elk Grove Village Industrial, Pleasant Hill Shopping
Center and Milmont Page.
Construction Debt. The Operating Partnership also has a construction loan
agreement in the amount of $8 million to fund building improvements. The loan
matures three years from the date of the first loan draw, which occurred in July
1997. Borrowings under the construction loan bear interest at LIBOR plus 275
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 March 31, 1998 was $5.6 million.
INSURANCE
The Company and AMB Investment Management carry joint blanket coverage for
Properties owned by the Company (including the Operating Partnership) 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 March 31, 1998, there are 27 Industrial Properties aggregating 10.4
million rentable square feet and 11 Retail Properties aggregating 1.8 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
65
<PAGE> 72
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.
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. 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 Operating Partnership believes would have a
material adverse effect on the Operating Partnership's or the
66
<PAGE> 73
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 or that there are material environmental liabilities of which the
Company is unaware. In addition, less than 50% of the Properties have
environmental assessments which are more than two years old. 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 make payments of principal of and interest on the Notes 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.
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.
Except as described in this Prospectus, there are no other laws or
regulations which have a material effect on the Company's operations, other than
typical state and local laws affecting the development and operation of real
property, such as zoning laws. See "Description of Certain Provisions of the
Partnership Agreement of the Operating Partnership."
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. The Company
generally has full, exclusive and complete responsibility and discretion in the
management and control of the Operating Partnership.
The Company (primarily through the Operating Partnership and AMB Investment
Management) employs 123 persons, 99 of whom are located at the Company's
headquarters in San Francisco and 24 of whom are 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.
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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 Operating Partnership and 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 the value of the Properties, and to acquire
established income-producing industrial properties and community shopping
centers with 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.
The Company expects to pursue its investment objectives through the direct
and indirect ownership of properties and ownership interests in other entities.
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.
The Company also may participate with other entities in property ownership
through joint ventures or other types of co-ownership. 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,
neither the Operating Partnership nor the Company has invested in any such
securities. In selecting such investments in the future, if any, the Operating
Partnership and the Company expect 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 Operating Partnership
and the Company may consider to be relevant, including, among others, historical
performance,
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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 or the Operating Partnership 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 Articles of Incorporation or Bylaws or the Partnership
Agreement. To the extent the Board of Directors of the Company 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 that the Board of Directors determines to obtain debt
financing in addition to the existing mortgage indebtedness and the Notes, 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, including debt
which is pari passu with the Notes. 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 and conditions as are
incurred by the Company. The Operating Partnership and Company do not have
policies 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. The Operating Partnership is currently
negotiating for an increase in the aggregate amount available under the Credit
Facility, and may in the future 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 Operating
Partnership also may make loans to joint ventures in which it may participate in
the future. The Company may also make loans to the Operating Partnership, AMB
Investment Management, 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
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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 actively engaged in industrial and retail real estate which generally
limit directly competitive activities by such directors. In addition, under
Maryland law, 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.
POLICIES WITH RESPECT TO INVESTMENT ADVISORY SERVICES
Uninvested commitments of clients of AMB Investment Management existing
upon consummation of the IPO and any additional amounts committed by these
clients and any amounts committed by investors which become clients of AMB
Investment Management will 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
take over 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 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, and any such action would be taken only in
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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 and AMB
Investment Management for the purposes of exercising control, and does not
intend to do so.
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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MANAGEMENT
The Company's Board of Directors is comprised currently of the nine
directors named below. Directors of the Company 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. Therefore, six of nine of the Company's
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 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:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
T. Robert Burke 55 Chairman of the Board of Directors
Hamid R. Moghadam 41 President, Chief Executive Officer and Director
Douglas D. Abbey 48 Chairman of the Investment Committee and Director
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
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
</TABLE>
Set forth below are the biographies of such persons in the table above.
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
a member 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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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 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.
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. 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
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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, Dash America and
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.
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.
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 the Vice Chairman 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.
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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 joined AMB in 1998. Prior to joining AMB, 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
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
serves on the Editorial Board of the Pension Real Estate Association Quarterly,
and 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.
COMMITTEES OF THE BOARD OF DIRECTORS
Audit Committee. The Audit Committee consists of two Independent Directors,
Ms. Welborn, the Chairman, and Mr. Edelstein. 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 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.
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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 will vest
immediately upon grant. The initial grant of such options upon initial election
will cover 20,000 shares of Common Stock, and each subsequent grant will cover
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 (expected to occur in 1998) 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 $100,000 (collectively, the "Named Executive Officers"). The Company
has entered into employment agreements with certain of its Executive Officers as
described below. See "Employment Agreements."
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------------------
ANNUAL COMPENSATION SECURITIES
------------------------------------------- UNDERLYING
OTHER ANNUAL RESTRICTED OPTIONS
1997 SALARY 1997 COMPENSATION STOCK GRANTED IN STOCK BONUS
NAME AND PRINCIPAL POSITION ($)(1) BONUS($)(2) ($) AWARD(S)(2) 1997(#)(4) (#)(2)
--------------------------- -------------- ----------- ------------ ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
T. Robert Burke
Chairman of the Board.............. 16,645 0 2,800 0 225,000 0
Hamid R. Moghadam
President and Chief Executive
Officer............................ 40,362 0 (3) 0 500,000 0
Douglas D. Abbey
Chairman of Investment Committee... 21,389 0 2,800 0 250,000 0
S. Davis Carniglia
Chief Financial Officer............ 21,389 0 2,800 0 130,000 0
Craig A. Severance
Managing Director, Acquisitions.... 21,389 0 2,800 0 130,000 0
John H. Diserens
Managing Director, Retail
Division........................... 21,389 0 2,800 0 130,000 0
</TABLE>
- ---------------
(1) Represents the actual amount of compensation paid from November 26, 1997
through December 31, 1997.
(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 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.
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<PAGE> 83
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>
INDIVIDUAL GRANTS(1) POTENTIAL REALIZABLE VALUE
---------------------------------------------- AT ASSUMED ANNUAL RATES
PERCENT OF OF COMMON SHARE
NUMBER OF SHARES OF TOTAL OPTIONS PRICE APPRECIATION FOR
COMMON STOCK GRANTED TO OPTION 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 not more than 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.
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.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS AT OPTIONS AT
DECEMBER 31, 1997 DECEMBER 31, 1997
SHARES ACQUIRED ON VALUE --------------------------- ------------------------------
NAME EXERCISE (#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE(1)
---- ------------------ ----------- ----------- ------------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C>
T. Robert Burke....... N/A N/A 0 225,000 0 $ 928,125
Hamid R. Moghadam..... N/A N/A 0 500,000 0 2,062,500
Douglas D. Abbey...... N/A N/A 0 250,000 0 1,031,250
S. Davis Carniglia.... N/A N/A 0 130,000 0 536,250
Craig A. Severance.... N/A N/A 0 130,000 0 536,250
John H. Diserens...... N/A N/A 0 130,000 0 536,250
</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.
EMPLOYMENT AGREEMENTS
Each of the persons who served as an Executive Officer at the time of the
IPO has entered into an employment agreement with the Company pursuant to which
each has agreed to devote their entire business time to 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. The employment agreements provide for annual
base compensation (in the amounts set forth in the Executive Compensation table
with respect to the Named Executive Officers identified therein) 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
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<PAGE> 84
expected to include operating results and acquisition activity. The employ
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 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.
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 Articles of Incorporation 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 April 30, 1998, had granted to certain
directors, officers and employees options to purchase 3,071,250 of such shares
of Common Stock (net of forfeitures). Such options will 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
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<PAGE> 85
(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 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 will
be 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 Articles of Incorporation
of the Company 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 Price of the shares of
Common Stock subject to each option shall be set by the Compensation Committee;
provided, however, that the 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 price pre
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.
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<PAGE> 86
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.
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 an 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.
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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 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 directors are
indemnified under Maryland law, the Company's Articles of Incorporation and the
Partnership Agreement against certain liabilities. The Articles of Incorporation
and Bylaws require the Company to indemnify its directors and officers to the
fullest extent permitted from time to time by the MGCL.
INDEMNIFICATION AGREEMENTS
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. 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.
The Company's officers and directors are indemnified under the Maryland
General Corporation Law (the "MGCL"), the Articles of Incorporation and the
Partnership Agreement against certain liabilities. The Articles of Incorporation
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
of 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
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<PAGE> 88
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.
The MGCL permits the articles of incorporation 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 Articles of Incorporation of the Company contain 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 recission.
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
Articles of Incorporation, 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 Articles of
Incorporation. 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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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company and the Operating Partnership have 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 March 31, 1998, no payments
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, City and County of
San Francisco Employees' Retirement System and Southern Company System Master
Retirement Trust, contributed certain real property interests to the Company. In
exchange for such contribution of properties, Ameritech Pension Trust, City and
County of San Francisco Employees' Retirement System and Southern Company System
Master Retirement Trust received 12,441,580 shares of Common Stock, 6,772,640
shares of Common Stock 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 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 Investment, 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
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<PAGE> 90
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 $18,159,000,
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. AMBCREA, 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. In addition, it is presently anticipated that
AMBCREA, which is in the process of winding down operations, will cease
operations by June 30, 1998. 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. Such potential conflicts, and the Company's
proposed methods of dealing with them, are described below. See also "Policies
with Respect to Certain Activities -- Conflict of Interest Policies."
Stockholders of AMB who became Executive Officers of the Company upon
consummation of the IPO own interests in certain 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. Neither AMB Development, Inc. nor AMB
Development L.P. will initiate any new development projects, nor will they make
any further investments in industrial or retail properties other than those
under development at November 26, 1997. Such persons are also owners of AMBCREA
which is principally a real estate services company for corporate and
professional tenants of real estate. AMBCREA is in the process of winding down
its business, and it is presently anticipated that AMBCREA will cease operations
by June 30, 1998. However, the continued involvement by the Company's Executive
Officers could divert management's attention from the day-to-day operations of
the Company. Each of the persons serving as an Executive Officer at the time of
the IPO has entered into a non-competition agreement with the Company pursuant
to which, among other things, they agreed not to engage in any activities,
directly or indirectly, in respect of commercial real estate, and agreed 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.
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, Executive
Officer and director of the Company, own less than 1% interests in two
partnerships which own office buildings in various markets; these interests have
negligible value. Luis A. Belmonte, an Executive Officer of the Company, 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 of the Company, owns an
approximate 1% interest in a limited partnership that owns an apartment complex
in Orange County, California.
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In addition, several of the executive officers individually own: (i) less
than 1% interests in the stocks of certain publicly-traded REITs, including
mortgage 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. Thomas W. Tusher, a
member of the Company's 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 March 31, 1998 at approximately $939,000.
Messrs. Abbey, Moghadam and Burke each have an approximately 26.7% interest in
the partnership, each valued as of March 31, 1998 at approximately $1,252,000.
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<PAGE> 92
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of shares of Common Stock as of April 30, 1998 by (i) each director,
(ii) each Named Executive Officer, (iii) all directors and Named 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 April
30, 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
OUTSTANDING SHARES
NUMBER OF SHARES OF OF COMMON
NAME AND ADDRESS OF BENEFICIAL OWNER(1) BENEFICIALLY OWNED(2) STOCK(2)
--------------------------------------- --------------------- ------------------
<S> <C> <C>
T. Robert Burke.................................. 877,289 1.0%
Hamid R. Moghadam................................ 1,396,477 1.6%
Douglas D. Abbey................................. 1,125,245 1.3%
S. Davis Carniglia............................... 224,377 *
Craig A. Severance............................... 327,964 *
John H. Diserens................................. 284,182 *
Daniel H. Case, III.............................. 0 0
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(3)....................... 12,441,580 14.5%
City and County of San Francisco Employees'
Retirement System(4)........................... 6,722,640 7.8%
Southern Company System Master Retirement
Trust(5)....................................... 6,032,415 7.0%
All directors and Named Executive Officers as a
group (12 persons)............................. 4,274,494 5.0%
</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) Excludes (i) options to purchase 1,522,500 shares of Common Stock granted to
Named Executive Officers and directors on November 26, 1997 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."
(3) 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.
(4) The address of the City and County of San Francisco Employees' Retirement
System is 1155 Market Street, San Francisco, California 94103.
(5) 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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DESCRIPTION OF NOTES
The Notes will be direct senior unsecured obligations of the Operating
Partnership unconditionally guaranteed on an unsecured basis by the Company. The
% Notes due 2008 (the "2008 Notes"), the % Notes due 2018 (the "2018 Notes")
and the % Reset Put Securities (REPS(SM)) due 2015 -- Putable/Callable
2005 (the "REPS") each constitute a separate series of securities and will be
issued under an indenture (the "Indenture") among the Operating Partnership, AMB
Property Corporation and State Street Bank and Trust Company of California,
N.A., as Trustee (the "Trustee"). The Indenture, as amended or supplemented from
time to time, will be subject to and governed by the Trust Indenture Act of
1939, as amended (the "TIA"). The statements made under this heading relating to
the Notes and the Indenture are summaries of certain provisions thereof, do not
purport to be complete and are qualified in their entirety by reference to the
forms of Indenture and the Notes, which have been included or incorporated by
reference as exhibits to the Registration Statement of which this Prospectus is
a part and are or will be available as described above under "Available
Information."
Capitalized terms used herein and not defined shall have the meanings
assigned to them in the Indenture. As used in this "Description of Notes," all
references to the "Operating Partnership" shall mean AMB Property, L.P.,
excluding, unless otherwise expressly stated or the context shall otherwise
require, its subsidiaries.
GENERAL
The 2008 Notes will be limited in aggregate principal amount to
$ , the 2018 Notes will be limited in aggregate principal amount to
$ and the REPS will be limited in aggregate principal amount to
$ . The Notes will be unsecured and unsubordinated obligations of the
Operating Partnership and will rank on a parity in right of payment with all
other unsecured and unsubordinated indebtedness of the Operating Partnership
outstanding from time to time.
The Indenture does not contain any provision that limits the ability of the
Operating Partnership to incur indebtedness or that affords Holders of Notes
protection in a highly leveraged or similar action involving the Operating
Partnership or in the event of a change of control of the Operating Partnership,
including a change in control of the Company, except as hereinafter set forth
under the captions "Certain Covenants -- Aggregate Debt Test," "-- Maintenance
of Total Unencumbered Assets," "-- Debt Service Test" and "-- Secured Debt
Test." See "Risk Factors -- Incurrence of Indebtedness." However, certain
restrictions on ownership and transfers of the Company's Common Stock and the
Company's other equity securities designed to preserve its status as a REIT may
act to prevent or hinder a change of control.
Although the Operating Partnership owns a majority of its consolidated
assets itself, rather than through subsidiaries, a substantial portion of its
consolidated assets (amounting to approximately 27.1% of its total consolidated
assets at March 31, 1998) are held by AMB Property II, L.P., Long Gate LLC and
other subsidiaries. Accordingly, the cash flow of the Operating Partnership and
the consequent ability to service its debt, including the Notes, are partially
dependent on the earnings of such subsidiaries and the Notes will be effectively
subordinated to all existing and future indebtedness, guarantees and other
liabilities of such subsidiaries. On a pro forma basis as of March 31, 1998,
after giving effect to the offering of the Notes made hereby and the application
of the estimated net proceeds therefrom as if such transactions had occurred on
that date, the Operating Partnership's subsidiaries would have had total
long-term liabilities (excluding intercompany liabilities) of approximately
$92.5 million (consisting entirely of mortgage and secured indebtedness). See
"Business and Properties -- Debt Financing -- Secured and Mortgage Debt."
The Notes will be effectively subordinated to any secured indebtedness of
the Operating Partnership and its subsidiaries to the extent of any collateral
pledged as security therefor. As of March 31, 1998, after giving effect to the
offering of the Notes made hereby and the application of the estimated net
proceeds therefrom as if such transaction had occurred on that date, the
Operating Partnership (excluding its subsidiaries) would have had unsecured
senior indebtedness (including the Notes) aggregating approximately $369.9
million and mortgage and other secured indebtedness aggregating approximately
$517.7 million. See "Use of Proceeds," "Risk Factors -- Ranking of the Notes"
and "-- Debt Financing" and "Capitalization." Although the
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covenants described herein under the caption "-- Certain Covenants" will impose
certain limitations on the incurrence of additional indebtedness, the Operating
Partnership and its Subsidiaries will retain the ability to incur substantial
additional secured and unsecured indebtedness in the future.
DENOMINATIONS, MATURITY, INTEREST, REGISTRATION AND TRANSFER
2008 Notes and 2018 Notes
The 2008 Notes and the 2018 Notes will be issued only in fully registered
book-entry form without coupons, in denominations of $1,000 and integral
multiples thereof. The 2008 Notes will mature on June , 2008 (the "2008
Maturity Date") and the 2018 Notes will mature on June , 2018 (the "2018
Maturity Date").
The 2008 Notes and the 2018 Notes may be redeemed, in whole or in part, at
the option of the Operating Partnership at any time. See "-- Redemption of the
2008 Notes and the 2018 Notes at the Option of the Operating Partnership." The
2008 Notes and the 2018 Notes are not subject to any sinking fund provisions.
Interest on the 2008 Notes will accrue at a rate of % per annum and
interest on the 2018 Notes will accrue at a rate of % per annum and, in
each case, will be payable semi-annually on and
commencing , 1998. Interest will accrue from the most recent date
to which interest has been paid or, if no interest has been paid, from the date
of original issuance. Interest will be computed on the basis of a 360-day year
of twelve 30-day months. Principal of (and premium, if any) and interest on the
2008 Notes and the 2018 Notes will be payable at the office or agency maintained
by the Operating Partnership for such purpose within the City and State of New
York; or at the option of the Operating Partnership, payment of interest may be
made by check mailed to the address of the Person entitled thereto as it appears
in the Note Register or by transfer of funds to such Person at an account
maintained within the United States. (See Sections 301, 302, 305, 306, 307 and
1002 of the form of Indenture.)
The REPS
The REPS will be issued only in fully registered book-entry form without
coupons, in denominations of $1,000 and integral multiples thereof. While the
REPS will mature on June , 2015 (the "Final REPS Maturity Date" and together
with the 2008 Maturity Date and the 2018 Maturity Date, the "Maturity Dates"),
holders of the REPS will be entitled to receive, and will be required to accept,
100% of the principal amount thereof on June , 2005 (the "2005 Coupon Reset
Date") from either (i) the Callholder, if the Callholder purchases the REPS
pursuant to the Call Option, or (ii) the Operating Partnership, by exercise of
the Mandatory Put (as defined below) by the Trustee for and on behalf of the
holders of the REPS, if the Callholder does not purchase the REPS pursuant to
the Call Option. The Call Option and the related marketing process are designed
to enable the Operating Partnership to potentially keep its securities
outstanding for 17 years. The Mandatory Put is designed to ensure the holders of
the REPS that their principal will be returned to them in all cases on the
seventh anniversary of the initial issuance. See "-- Call Option and Mandatory
Put with Respect to the REPS" below.
FOR PERSONS HOLDING THE REPS (OR AN INTEREST THEREIN) ON THE 2005 COUPON
RESET DATE, THE EFFECT OF THE OPERATION OF THE CALL OPTION OR THE MANDATORY PUT
WILL BE THAT SUCH HOLDERS WILL BE ENTITLED TO RECEIVE, AND WILL BE REQUIRED TO
ACCEPT, 100% OF THE PRINCIPAL AMOUNT OF SUCH REPS (PLUS ACCRUED INTEREST) ON THE
2005 COUPON RESET DATE IN SATISFACTION OF THE OPERATING PARTNERSHIP'S
OBLIGATIONS TO THE HOLDERS OF THE REPS. INTEREST ACCRUED TO BUT EXCLUDING THE
2005 COUPON RESET DATE WILL BE PAID BY THE OPERATING PARTNERSHIP ON SUCH DATE TO
THE HOLDERS OF THE REPS ON THE MOST RECENT RECORD DATE. THE REPS MAY BE REDEEMED
ONLY IN CONNECTION WITH A CALL OPTION OR A MANDATORY PUT. SEE "-- CALL OPTION
AND MANDATORY PUT WITH RESPECT TO THE REPS". THE REPS ARE NOT SUBJECT TO ANY
SINKING FUND PROVISIONS.
Interest on the REPS will accrue at the rate of % from and including
to but excluding June , 2005, the 2005 Coupon Reset Date and
will be payable semi-annually on June and December , commencing December ,
1998. Interest will accrue from the most recent date to which interest has been
paid or, if no interest has been paid, from the date of original issuance.
Interest will be computed on the basis
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<PAGE> 95
of a 360-day year of twelve 30-day months. Principal of (and premium, if any)
and interest on the REPS will be payable at the office or agency maintained by
the Operating Partnership for such purpose within the City and State of New
York; or at the option of the Operating Partnership, payment of interest may be
made by check mailed to the address of the Person entitled thereto as it appears
in the Note Register or by transfer of funds to such Person at an account
maintained within the United States. (See Sections 301, 302, 305, 306, 307 and
1002 of the form of Indenture.)
If the Callholder (as defined below) elects to purchase the REPS pursuant
to the Call Option (as defined below), the Calculation Agent (as defined below)
will reset the interest rate for the REPS effective on the 2005 Coupon Reset
Date, pursuant to the Coupon Reset Process described below. In such
circumstance, (i) the REPS will be purchased by the Callholder at 100% of the
principal amount thereof on the 2005 Coupon Reset Date, on the terms and subject
to the conditions described herein (interest accrued to but excluding the 2005
Coupon Reset Date will be paid by the Operating Partnership on such date to the
holders of the REPS on the most recent Record Date), and (ii) from and including
the 2005 Coupon Reset Date, the REPS will bear interest at the rate determined
by the Calculation Agent in accordance with the procedure set forth under
"-- Coupon Reset Process if REPS are Called" below. The Trustee will exercise
the Mandatory Put without the consent of, or notice to, the holders of the REPS.
Neither the Operating Partnership nor the Trustee will be required (i) to
issue, register the transfer of or exchange Notes if such Notes may be among
those selected for redemption during a period beginning at the opening of
business 15 days before selection of Notes to be redeemed and ending at the
close of business on the day of the mailing of the relevant notice of
redemption; or (ii) to register the transfer of or exchange any Note, or portion
thereof, called for redemption, except the unredeemed portion of any Note being
redeemed in part. (See Section 305 of the form of Indenture.)
GUARANTEE
The Operating Partnership's obligations under the Notes will be guaranteed
(the "Guarantee") by the Company. The obligations of the Company under its
Guarantee will be limited to the maximum amount permitted under applicable
federal or state law.
The Indenture provides that the Company may not consolidate with or merge
with or into (whether or not the Company is the surviving person) another
corporation, person or entity whether or not affiliated with the Company unless
(i) the person formed by or surviving any such consolidation or merger (if other
than the Company) shall be a corporation, partnership, limited liability company
or other legal entity organized and existing under the laws of the United States
of America, any state thereof or the District of Columbia and shall expressly
assume all the obligations of such Guarantor pursuant to a supplemental
indenture in form and substance reasonably satisfactory to the Trustee under the
Notes and the Indenture, (ii) immediately after giving effect to such
transaction, no Default or Event of Default would exist and (iii) an officers'
certificate and legal opinion concerning such conditions shall be delivered to
the Trustee.
REDEMPTION OF THE 2008 NOTES AND THE 2018 NOTES AT THE OPTION OF THE OPERATING
PARTNERSHIP
The 2008 Notes and the 2018 Notes will be redeemable, in whole or from time
to time in part, at the option of the Operating Partnership on any date (a
"Redemption Date"), at a redemption price equal to the greater of (i) 100% of
the principal amount of the 2008 Notes and the 2018 Notes to be redeemed and
(ii) 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
basis points, plus, in either case, accrued and unpaid interest
on the principal amount being redeemed to such Redemption Date; provided that
installments of interest on 2008 Notes and the 2018 Notes which are due and
payable on an Interest Payment Date falling on or prior to the relevant
Redemption Date shall be payable to
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the holders of such of the 2008 Notes and the 2018 Notes registered as such at
the close of business on the relevant record date according to their terms and
the provisions of the Indenture.
"Treasury Rate" means, with respect to any Redemption Date, (i) the yield,
under the heading which represents the average for the immediately preceding
week, appearing in the most recently published statistical release designated
"H.15(519)" or any successor publication which is published weekly by the Board
of Governors of the Federal Reserve System and which establishes yields on
actively traded United States Treasury securities adjusted to constant maturity
under the caption "Treasury Constant Maturities," for the maturity corresponding
to the Comparable Treasury Issue (if no maturity is within three months before
or after the applicable Maturity Date, yields for the two published maturities
most closely corresponding to the Comparable Treasury Issue shall be determined
and the Treasury Rate shall be interpolated or extrapolated from such yields on
a straight line basis, rounding to the nearest month) or (ii) if such release
(or any successor release) is not published during the week preceding the
calculation date or does not contain such yields, the rate per annum equal to
the semi-annual equivalent yield to maturity of the Comparable Treasury Issue,
calculated using a price for the Comparable Treasury Issue (expressed as a
percentage of its principal amount) equal to the Comparable Treasury Price for
such Redemption Date. The Treasury Rate shall be calculated on the third
business day preceding the Redemption Date.
"Comparable Treasury Issue" means the United States Treasury security
selected by the Independent Investment Banker as having a maturity comparable to
the remaining term of the 2008 Notes and the 2018 Notes to be redeemed that
would be utilized, at the time of selection and in accordance with customary
financial practice, in pricing new issues of corporate debt securities of
comparable maturity to the remaining term of the 2008 Notes and the 2018 Notes.
"Independent Investment Banker" means Morgan Stanley & Co. Incorporated or,
if such firm is unwilling or unable to select the Comparable Treasury Issue, an
independent investment banking institution of national standing appointed by the
Trustee after consultation with the Operating Partnership.
"Comparable Treasury Price" means with respect to any Redemption Date (i)
the average of the two remaining Reference Treasury Dealer Quotations for such
Redemption Date, after excluding the highest and lowest such Reference Treasury
Dealer Quotations from the four selected, or (ii) if the Trustee obtains fewer
than four such Reference Treasury Dealer Quotations, the average of all such
quotations.
"Reference Treasury Dealer" means Morgan Stanley & Co. Incorporated,
Goldman, Sachs & Co., J.P. Morgan Securities Inc. and an additional Reference
Treasury Dealer appointed by the Trustee after consultation with the Operating
Partnership and their successors; provided, however, that if Morgan Stanley &
Co. Incorporated, Goldman, Sachs & Co., J.P. Morgan Securities Inc. or such
additional Reference Treasury Dealer and their successors shall cease to be a
primary U.S. Government securities dealer in New York City (a "Primary Treasury
Dealer"), the Operating Partnership will substitute therefor another Primary
Treasury Dealer.
"Reference Treasury Dealer Quotations" means, with respect to each
Reference Treasury Dealer and any Redemption Date, the average, as determined by
the Trustee, of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) quoted in
writing to the Trustee by such Reference Treasury Dealer at 5:00 p.m., New York
time, on the third business day preceding such Redemption Date.
Notice of any redemption by the Operating Partnership will be mailed at
least 30 days but not more than 60 days before any Redemption Date to each
holder of 2008 Notes and the 2018 Notes to be redeemed. If less than all the
2008 Notes and the 2018 Notes are to be redeemed at the option of the Operating
Partnership, the Trustee shall select, in such manner as it shall deem fair and
appropriate, the 2008 Notes and the 2018 Notes to be redeemed in whole or in
part.
Unless the Operating Partnership defaults in payment of the redemption
price, on and after any Redemption Date interest will cease to accrue on the
Notes or portions thereof called for redemption.
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CALL OPTION AND MANDATORY PUT WITH RESPECT TO THE REPS
Call Option. Pursuant to the terms of the REPS, the Callholder, by giving
notice to the Trustee (the "Call Notice"), has the right to purchase the
aggregate principal amount of REPS, in whole but not in part (the "Call
Option"), on the 2005 Coupon Reset Date, at a price equal to 100% of the
principal amount thereof (the "Call Price") (interest accrued to but excluding
the 2005 Coupon Reset Date will be paid by the Operating Partnership on such
date to the holders of the REPS on the most recent Record Date). In order for
the Callholder to exercise the Call Option, the Call Notice is required to be
given to the Trustee, in writing, prior to 4:00 p.m., New York time, no later
than 15 calendar days prior to the 2005 Coupon Reset Date for the REPS. The Call
Notice may be revoked by the Callholder at any time prior to 2:00 p.m., New York
time, on the Business Day prior to the 2005 Coupon Reset Date.
If the Callholder exercises its rights under the Call Option, unless
terminated in accordance with its terms, (i) not later than 2:00 p.m., New York
time, on the Business Day prior to the 2005 Coupon Reset Date, the Callholder
will deliver the Call Price in immediately available funds to the Trustee for
payment of the Call Price on the 2005 Coupon Reset Date, and (ii) the holders of
REPS will be required to deliver and will be deemed to have delivered the REPS
to the Callholder against payment therefor on the 2005 Coupon Reset Date through
the facilities of The Depository Trust Company, New York, New York ("DTC"). No
holder of any REPS or any interest therein will have any right or claim against
the Callholder as a result of the Callholder's decision whether or not to
exercise the Call Option or performance or nonperformance of its obligations
with respect thereto.
The Call Option provides for certain circumstances under which such Call
Option may be terminated. See "-- Coupon Reset Process if REPS are Called." If
the Call Option terminates or if the Callholder fails to pay the Call Price to
the Trustee at or prior to the required time, the Trustee shall exercise the
Mandatory Put described below. The Trustee shall notify the holders that it is
exercising the Put Option as required by the terms of the Indenture, as
supplemented.
Immediately following the original issuance of the REPS, the Callholder
will be Morgan Stanley & Co. International Limited. Thereafter, the Callholder
may, from time to time, assign all of (but not less than all) its rights under
the Call Option to a substitute Callholder, in each case without notice to or
consent of the holders of the REPS.
Mandatory Put. If the Call Option is not exercised or if the Call Option
otherwise terminates, the Trustee will be obligated to exercise the right of the
holders of the REPS to require the Operating Partnership to purchase the
aggregate principal amount of REPS in whole but not in part (the "Mandatory
Put"), on the 2005 Coupon Reset Date at a price equal to 100% of the principal
amount thereof (the "Put Price"), plus accrued but unpaid interest to but
excluding such 2005 Coupon Reset Date, in each case, to be paid by the Operating
Partnership to the holders on the 2005 Coupon Reset Date. If the Trustee
exercises the Mandatory Put, then the Operating Partnership shall deliver the
Put Price in immediately available funds to the Trustee by no later than 10:00
a.m., New York time, on the 2005 Coupon Reset Date, and the holders of the REPS
will be required to deliver and will be deemed to have delivered the REPS to the
Operating Partnership against payment therefor on the 2005 Coupon Reset Date
through the facilities of DTC. By its purchase of REPS, each holder irrevocably
agrees that the Trustee shall exercise the Mandatory Put relating to such REPS
for or on behalf of such REPS as provided herein. No holder of any REPS or any
interest therein has the right to consent or object to the exercise of the
Trustee's duties under the Mandatory Put.
The transactions described above will be executed on the 2005 Coupon Reset
Date through DTC in accordance with the procedures of DTC, and the accounts of
participants will be debited and credited and the REPS delivered by book-entry
as necessary to effect the purchases and sales thereof. For further information
with respect to transfers and settlement through DTC, see "Global Notes."
Notice to Holders by Trustee. In anticipation of the exercise of the Call
Option or the Mandatory Put on the 2005 Coupon Reset Date, the Trustee will
notify the Holders of the REPS, not less than 30 days nor more than 60 days
prior to the 2005 Coupon Reset Date, that all REPS shall be delivered on the
2005 Coupon Reset Date through the facilities of DTC against payment of the Call
Price by the Callholder under the Call
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Option or payment of the Put Price by the Operating Partnership under the
Mandatory Put. The Trustee will notify the holders of the REPS once it is
determined whether the Call Price or the Put Price shall be delivered.
COUPON RESET PROCESS IF REPS ARE CALLED
The following discussion describes the steps to be taken in order to
determine the interest rate to be paid on the REPS on and after the 2005 Coupon
Reset Date in the event the Call Option has been exercised with respect to the
REPS.
Under the REPS and pursuant to a Calculation Agency Agreement, Morgan
Stanley & Co. Incorporated has been appointed the calculation agent for the REPS
(in such capacity as calculation agent, the "Calculation Agent"). If the
Callholder exercises the Call Option, then the following steps (the "Coupon
Reset Process") will be taken in order to determine the interest rate to be paid
on the REPS from and including such 2005 Coupon Reset Date to but excluding the
Final REPS Maturity Date. The Operating Partnership and the Calculation Agent
will use reasonable efforts to cause the actions contemplated below to be
completed in as timely a manner as possible.
(a) No later than five Business Days prior to the 2005 Coupon Reset
Date, the Operating Partnership will provide the Calculation Agent with (i)
a list (the "Dealer List"), containing the names and addresses of three
dealers, one of whom shall be Morgan Stanley & Co. Incorporated, from whom
the Operating Partnership desires the Calculation Agent to obtain Bids (as
defined below) for the purchase of the REPS and (ii) such other material as
may reasonably be requested by the Calculation Agent to facilitate a
successful Coupon Reset Process.
(b) Within one Business Day following receipt by the Calculation Agent
of the Dealer List, the Calculation Agent will provide to each dealer
("Dealer") on the Dealer List (i) a copy of this Prospectus, (ii) a copy of
the form of REPS and (iii) a written request that each Dealer submit a Bid
to the Calculation Agent by 12:00 noon, New York time, on the third
Business Day prior to the 2005 Coupon Reset Date (the "Bid Date"). The time
on the Bid Date upon which Bids will be requested may be changed by the
Calculation Agent to as late as 3:00 p.m., New York time. "Bid" means an
irrevocable written offer given by a Dealer for the purchase of all of the
REPS, settling on the 2005 Coupon Reset Date, and shall be quoted by such
Dealer as a stated yield to maturity on the REPS ("Yield to Maturity").
Each Dealer shall also be provided with (i) the name of the Operating
Partnership, (ii) an estimate of the Purchase Price (which shall be stated
as a U.S. dollar amount and be calculated by the Calculation Agent in
accordance with paragraph (c) below), (iii) the principal amount and
maturity of the REPS and (iv) the method by which interest will be
calculated on the REPS.
(c) The purchase price to be paid by any Dealer for the REPS in
connection with the Coupon Reset Process after the exercise of the Call
Option (the "Purchase Price") shall be equal to (i) the principal amount of
the REPS, plus (ii) a premium (the "Notes Premium") which shall be equal to
the excess, if any, on the 2005 Coupon Reset Date of (A) the discounted
present value to the 2005 Coupon Reset Date of a bond with a maturity of
June 2015 which has an interest rate of %, semi-annual interest
payments on each June and December , commencing December 2005, and a
principal amount equal to the principal amount of the REPS, and assuming a
discount rate equal to the Call Option Treasury Rate over (B) such
principal amount of REPS. The "Call Option Treasury Rate" means the per
annum rate equal to the offer side yield to maturity of the current
on-the-run 10-year United States Treasury Security per Telerate page 500,
or any successor page, at 11:00 a.m., New York time, on the Bid Date (or
such other time or date that may be agreed upon by the Operating
Partnership and the Calculation Agent) or, if such rate does not appear on
Telerate page 500, or any successor page, at such time, the rates on GovPX
End-of-Day Pricing at 3:00 p.m., New York time, on the Bid Date (or such
other date that may be agreed upon by the Operating Partnership and the
Calculation Agent).
(d) The Calculation Agent will provide written notice to the Operating
Partnership by 12:30 p.m., New York time (or within 30 minutes of such
later time at which the last Bid is received by the Calculation Agent, but
in no event later than 3:30 p.m.), on the Bid Date, setting forth (i) the
names of
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each of the Dealers from whom the Calculation Agent received Bids on the
Bid Date, (ii) the Bid submitted by each such Dealer and (iii) the Purchase
Price as determined pursuant to paragraph (c) above. Except as provided
below, the Calculation Agent will thereafter select from the Bids received
the Bid with the lowest Yield to Maturity (the "Selected Bid"); provided,
however, that (i) if the Calculation Agent has not received a timely Bid
from a Dealer on or before the Bid Date, the Selected Bid shall be the
lowest of all Bids received by such time, (ii) if any two or more of the
lowest Bids submitted are equivalent, the Operating Partnership shall in
its sole discretion select any of such equivalent Bids (and such selected
Bid shall be the Selected Bid) and (iii) Morgan Stanley & Co. Incorporated
will have the right to match the Bid with the lowest Yield to Maturity, in
which case Morgan Stanley & Co. Incorporated's Bid shall be the Selected
Bid. The Calculation Agent will set the Coupon Reset Rate equal to the
interest rate that will amortize the Notes Premium fully over the term of
the REPS at the Yield to Maturity indicated by the Selected Bid. The
Calculation Agent will notify the Dealer that submitted the Selected Bid by
4:00 p.m., New York time, on the Bid Date.
(e) Immediately after calculating the 2005 Coupon Reset Rate for the
REPS, the Calculation Agent will provide written notice to the Operating
Partnership and the Trustee, setting forth the 2005 Coupon Reset Rate. At
the request of the holders of the REPS, the Calculation Agent will provide
such holders the 2005 Coupon Reset Rate. The Operating Partnership shall
thereafter establish the 2005 Coupon Reset Rate as the new interest rate on
the REPS, effective from and including the 2005 Coupon Reset Date by
delivery to the Trustee on or before the Coupon Reset Date of an officers'
certificate.
(f) The Callholder will sell the REPS to the Dealer that made the
Selected Bid at the Purchase Price, such sale to be settled on the Coupon
Reset Date in immediately available funds.
If the Calculation Agent determines that (i) at any time prior to the sale
of the REPS on the Bid Date, an Event of Default has occurred and is continuing
under Sections 501 (1),(2),(3),(4) or (5) of the Indenture (in such event
termination is at the Callholder's option) or under Sections 501 (6) or (7) of
the Indenture (in such event, termination is automatic), (ii) a Market
Disruption Event (as defined below) has occurred and is continuing following the
exercise of the Call Option, (iii) the Callholder fails to deliver the Call
Notice to the Trustee prior to 4:00 p.m., New York time, on the fifteenth
calendar day prior to the Coupon Reset Date or revokes the Call Notice, (iv) the
Callholder fails to pay the Call Price by 2:00 p.m., New York time, on the
Business Day prior to the Coupon Reset Date, (v) a defeasance (as defined below)
or a covenant defeasance (as defined below) has occurred and (vi) two or more of
the Dealers have failed to provide Bids in a timely manner substantially as
provided above, such Call Option will be automatically revoked, and the Trustee
will exercise the Put Option on behalf of the holders. "Market Disruption Event"
shall mean any of the following if such events occur and are continuing on any
day from and including the date of the Call Notice to and including the Bid Date
in the judgment of the Calculation Agent: (i) a suspension or material
limitation in trading in securities generally on the NYSE or the establishment
of minimum prices on such exchange; (ii) a general moratorium on commercial
banking activities declared by either federal or New York State authorities;
(iii) any material adverse change in the existing financial, political or
economic conditions in the United States of America; (iv) an outbreak or
escalation of major hostilities involving the United States of America or the
declaration of a national emergency or war by the United States; or (v) any
material disruption of the U.S. government securities market, U.S. corporate
bond market or U.S. federal wire system; provided, in each case that in the
judgment of the Calculation Agent the effect of the foregoing makes it
impractical to conduct the Coupon Reset Process. If the Call Option is revoked,
the Operating Partnership will reacquire the Call Option from the Callholder.
The reacquisition of the Call Option by the Operating Partnership will not
affect the rights of the Trustee or the holders of REPS pursuant to the
Mandatory Put.
The Calculation Agency Agreement provides that the Calculation Agent may
resign at any time, such resignation to be effective ten Business Days after the
delivery to the Operating Partnership and the Trustee of notice of such
resignation. In such case, the Operating Partnership may appoint a successor
Calculation Agent for the REPS.
The Calculation Agent, in its individual capacity, may buy, sell, hold and
deal in the REPS and may exercise any vote or join in any action which any
holder of the REPS may be entitled to exercise or take as if it
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were not the Calculation Agent. The Calculation Agent, in its individual
capacity, may also engage in any transaction with the Operating Partnership as
if it were not the Calculation Agent.
MERGER, CONSOLIDATION OR SALE
The Indenture provides that the Operating Partnership will not, in any
transaction or series of related transactions, consolidate with, or sell, lease,
assign, transfer or otherwise convey all or substantially all of its assets to,
or merge with or into, any other Person unless (i) either the Operating
Partnership shall be the continuing person, or the successor (if other than the
Operating Partnership) formed by or resulting from any such consolidation or
merger or which shall have received the transfer of such assets shall be a
corporation, partnership, limited liability company or other legal entity
organized and existing under the laws of the United States of America, any state
thereof or the District of Columbia and shall expressly assume, by supplemental
indenture delivered to the Trustee, the due and punctual payment of the
principal of (and premium, if any) and interest on all of the outstanding Notes
issued under the Indenture and the due and punctual performance and observance
of all of the other covenants and conditions contained in the Notes and the
Indenture; (ii) immediately after giving effect to such transaction and treating
any Debt (including Acquired Debt) which becomes an obligation of the Operating
Partnership or any of its Affiliates as a result thereof as having been incurred
by the Operating Partnership or such Affiliate at the time of such transaction,
no Event of Default under the Indenture, and no event which, after notice or the
lapse of time or both, would become such an Event of Default, shall have
occurred and be continuing; and (iii) an officers' certificate and legal opinion
concerning such conditions shall be delivered to the Trustee. If the Operating
Partnership is not the surviving legal entity, then, for purposes of clause (ii)
of the preceding sentence, the successor shall be deemed to be the "Operating
Partnership" referred to in such clause (ii). (See Sections 801 and 803 of the
form of Indenture).
Upon any such merger, consolidation, sale, assignment, transfer, lease or
conveyance in which the Operating Partnership is not the continuing legal
entity, the successor entity formed by such consolidation or into which the
Operating Partnership is merged or to which such sale, assignment, transfer,
lease or other conveyance is made shall succeed to, and be substituted for, and
may exercise every right and power of, the Operating Partnership under the
Indenture with the same effect as if such successor entity had been named as the
Operating Partnership therein and thereafter the Operating Partnership shall be
released (except in the case of a lease) from its obligations under the
Indenture and the Notes.
CERTAIN COVENANTS
The Indenture contains the following covenants:
Aggregate Debt Test. The Operating Partnership will not, and will not
permit any of its Subsidiaries to, incur any Debt (including, without
limitation, Acquired Debt) if, immediately after giving effect to the incurrence
of such Debt and the application of the proceeds therefrom on a pro forma basis,
the aggregate principal amount of all outstanding Debt of the Operating
Partnership and its Subsidiaries (determined on a consolidated basis in
accordance with generally accepted accounting principles) is greater than 60% of
the sum of (without duplication) (i) the Total Assets of the Operating
Partnership and its Subsidiaries as of the last day of the then most recently
ended fiscal quarter and (ii) the aggregate purchase price of any real estate
assets or mortgages receivable acquired, and the aggregate amount of any
securities offering proceeds received (to the extent such proceeds were not used
to acquire real estate assets or mortgages receivable or used to reduce Debt),
by the Operating Partnership or any of its Subsidiaries since the end of such
fiscal quarter, including the proceeds obtained from the incurrence of such
additional Debt, determined on a consolidated basis in accordance with generally
accepted accounting principles.
Debt Service Test. The Operating Partnership will not, and will not permit
any of its Subsidiaries to, incur any Debt (including, without limitation,
Acquired Debt) if the ratio of Consolidated Income Available for Debt Service to
the Annual Debt Service Charge for the period consisting of the four consecutive
fiscal quarters most recently ended prior to the date on which such additional
Debt is to be incurred shall have been less than 1.5:1 on a pro forma basis
after giving effect to the incurrence of such Debt and the application of the
proceeds therefrom, and calculated on the assumption that (i) such Debt and any
other Debt (including,
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without limitation, Acquired Debt) incurred by the Operating Partnership or any
of its Subsidiaries since the first day of such four-quarter period had been
incurred, and the application of the proceeds therefrom (including to repay or
retire other Debt) had occurred, on the first day of such period, (ii) the
repayment or retirement of any other Debt of the Operating Partnership or any of
its Subsidiaries since the first day of such four-quarter period had occurred on
the first day of such period (except that, in making such computation, the
amount of Debt under any revolving credit facility, line of credit or similar
facility shall be computed based upon the average daily balance of such Debt
during such period) and (iii) in the case of any acquisition or disposition by
the Operating Partnership or any of its Subsidiaries of any asset or group of
assets, in any such case with a fair market value (determined in good faith by
the Operating Partnership's General Partner's Board of Directors) in excess of
$1 million, since the first day of such four-quarter period, whether by merger,
stock purchase or sale or asset purchase or sale or otherwise, such acquisition
or disposition had occurred as of the first day of such period with the
appropriate adjustments with respect to such acquisition or disposition being
included in such pro forma calculation. If the Debt giving rise to the need to
make the foregoing calculation or any other Debt incurred after the first day of
the relevant four-quarter period bears interest at a floating rate then, for
purposes of calculating the Annual Debt Service Charge, the interest rate on
such Debt shall be computed on a pro forma basis by applying the average daily
rate which would have been in effect during the entire such four-quarter period
to the greater of the amount of such Debt outstanding at the end of such period
or the average amount of such Debt outstanding during such period.
Secured Debt Test. The Operating Partnership will not, and will not permit
any of its Subsidiaries to, incur any Debt (including, without limitation,
Acquired Debt) secured by any Lien on any property or assets of the Operating
Partnership or any of its Subsidiaries, whether owned on the date of the
Indenture or thereafter acquired, if, immediately after giving effect to the
incurrence of such Debt and the application of the proceeds therefrom on a pro
forma basis, the aggregate principal amount (determined on a consolidated basis
in accordance with generally accepted accounting principles) of all outstanding
Debt of the Operating Partnership and its Subsidiaries which is secured by any
Lien on any property or assets of the Operating Partnership or any of its
Subsidiaries is greater than 40% of the sum of (without duplication) (i) the
Total Assets of the Operating Partnership and its Subsidiaries as of the last
day of the then most recently ended fiscal quarter and (ii) the aggregate
purchase price of any real estate assets or mortgages receivable acquired, and
the aggregate amount of any securities offering proceeds received (to the extent
such proceeds were not used to acquire real estate assets or mortgages
receivable or used to reduce Debt), by the Operating Partnership or any of its
Subsidiaries since the end of such fiscal quarter, including the proceeds
obtained from the incurrence of such additional Debt, determined on a
consolidated basis in accordance with generally accepted accounting principles.
For purposes of the foregoing provisions regarding the limitation on the
incurrence of Debt, Debt shall be deemed to be "incurred" by the Operating
Partnership or a Subsidiary whenever the Operating Partnership or a Subsidiary
shall create, assume, guarantee or otherwise become liable in respect thereof.
Maintenance of Total Unencumbered Assets. The Operating Partnership will
not have at any time Total Unencumbered Assets of less than 150% of the
aggregate principal amount of all outstanding Unsecured Debt of the Operating
Partnership and its Subsidiaries, determined on a consolidated basis in
accordance with generally accepted accounting principles.
Existence. Except as permitted under the provisions of the Indenture
described under the caption in "-- Merger, Consolidation or Sale" the Operating
Partnership will do or cause to be done all things necessary to preserve and
keep in full force and effect its existence as a Delaware limited partnership,
rights (charter and statutory) and franchises; provided, however, that the
Operating Partnership will not be required to preserve any right or franchise if
its General Partner's Board of Directors determines that the preservation
thereof is no longer desirable in the conduct of its business and that the loss
thereof is not disadvantageous in any material respect to the Holders of the
Notes outstanding under the Indenture.
Maintenance of Properties. The Operating Partnership will cause all of its
properties used or useful in the conduct of its business or the business of any
Subsidiaries to be maintained and kept in good condition, repair and working
order and supplied with all necessary equipment and will cause to be made all
necessary
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repairs, renewals, replacements, betterments and improvements thereof, all as in
the judgment of the Operating Partnership may be necessary so that the business
carried on in connection therewith may be properly and advantageously conducted
at all times.
Insurance. The Indenture requires the Operating Partnership to, and to
cause each of its Subsidiaries to, keep in force upon all of its properties and
operations policies of insurance carried with responsible companies in such
amounts and covering all such risks as shall be customary in the industry in
accordance with prevailing market conditions and availability.
Payment of Taxes and Other Claims. The Operating Partnership will pay or
discharge or cause to be paid or discharged, before the same shall become
delinquent, (i) all taxes, assessments and governmental charges levied or
imposed upon it or any Subsidiary or upon the income, profits or property of the
Operating Partnership or any Subsidiary, and (ii) all lawful claims for labor,
materials and supplies which, if unpaid, might by law become a lien upon the
property of the Operating Partnership or any Subsidiary, provided, however, that
the Operating Partnership will not be required to pay or discharge or cause to
be paid or discharged any such tax, assessment, charge or claim whose amount,
applicability or validity is being contested in good faith by appropriate
proceedings.
Guarantees. The Indenture provides that (i) the Operating Partnership will
not permit any of its Subsidiaries to guarantee or secure through the granting
of Liens, the payment of any Debt of the Operating Partnership, the Company or
any such Subsidiary which has provided such a guarantee and (ii) the Operating
Partnership will not and will not permit any of its Subsidiaries to pledge any
intercompany notes representing obligations of any of its Subsidiaries, to
secure the payment of any debt of the Operating Partnership, the Company or any
such Subsidiary which has provided such a guarantee, in each case unless such
Subsidiary, the Operating Partnership and the Trustee execute and deliver a
supplemental indenture evidencing such Subsidiary's guarantee (providing for the
unconditional guarantee by such Subsidiary, on a senior basis, of the Notes).
Provision of Financial Information. The Operating Partnership will file
with the Trustee copies of annual reports, quarterly reports and other documents
(the "Financial Reports") which the Operating Partnership files with the
Commission or would be required to file with the Commission pursuant to Section
13 or 15(d) of the Exchange Act if the Operating Partnership were subject to
such Sections; provided, however, that if the Operating Partnership is not
subject to such Sections, it may in lieu of filing Financial Reports of the
Operating Partnership with the Trustee, file Financial Reports of the Company if
they would be materially the same as those that would have been filed by the
Operating Partnership with the Commission pursuant to Sections 13 or 15(d) of
the Exchange Act.
DEFINITIONS
As used herein,
"Acquired Debt" means Debt of a Person (i) existing at the time such Person
is merged or consolidated with or into, or becomes a Subsidiary of, the
Operating Partnership or (ii) assumed by the Operating Partnership or any of its
Subsidiaries in connection with the acquisition of assets from such Person.
Acquired Debt shall be deemed to be incurred on the date the acquired Person is
merged or consolidated with or into, or becomes a Subsidiary of, the Operating
Partnership or the date of the related acquisition, as the case may be.
"Annual Debt Service Charge" means, for any period, the interest expense of
the Operating Partnership and its Subsidiaries for such period (including,
without duplication, (i) all amortization of debt discount and premiums, (ii)
all accrued interest, (iii) all capitalized interest, and (iv) the interest
component of capitalized lease obligations), determined on a consolidated basis
in accordance with generally accepted accounting principles.
"Consolidated Income Available for Debt Service" for any period means
Consolidated Net Income of the Operating Partnership and its Subsidiaries for
such period, plus amounts which have been deducted and minus amounts which have
been added for (without duplication) (i) interest expense on Debt, (ii)
provision for taxes based on income, (iii) amortization of debt discount,
premium and deferred financing costs,
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(iv) provisions for gains and losses on sales or other dispositions of
properties and other investments, (v) property depreciation and amortization,
(vi) the effect of any non-cash items, and (vii) amortization of deferred
charges, all determined on a consolidated basis in accordance with generally
accepted accounting principles.
"Consolidated Net Income" for any period means the amount of net income (or
loss) of the Operating Partnership and its Subsidiaries for such period,
excluding (without duplication) (i) extraordinary items and (ii) the portion of
net income (but not losses) of the Operating Partnership and its Subsidiaries
allocable to minority interests in unconsolidated Persons to the extent that
cash dividends or distributions have not actually been received by the Operating
Partnership or one of Subsidiaries, all determined on a consolidated basis in
accordance with generally accepted accounting principles.
"Debt" means, with respect to any Person, any indebtedness of such Person,
whether or not contingent, in respect of (i) borrowed money or evidenced by
bonds, notes, debentures or similar instruments, (ii) indebtedness secured by
any Lien on any property or asset owned by such Person, but only to the extent
of the lesser of (x) the amount of indebtedness so secured and (y) the fair
market value (determined in good faith by the board of directors of such Person
or, in the case of the Operating Partnership or a Subsidiary, by the Operating
Partnership's General Partner's Board of Directors) of the property subject to
such Lien, (iii) reimbursement obligations, contingent or otherwise, in
connection with any letters of credit actually issued or amounts representing
the balance deferred and unpaid of the purchase price of any property except any
such balance that constitutes an accrued expense or trade payable, or (iv) any
lease of property by such Person as lessee which is required to be reflected on
such Person's balance sheet as a capitalized lease in accordance with generally
accepted accounting principles, and also includes, to the extent not otherwise
included, any obligation of such Person to be liable for, or to pay, as obligor,
guarantor or otherwise (other than for purposes of collection in the ordinary
course of business), Debt of the types referred to above of another Person (it
being understood that Debt shall be deemed to be incurred by such Person
whenever such person shall create, assume, guarantee or otherwise become liable
in respect thereof).
"Lien" means any mortgage, deed of trust, lien, charge, pledge, security
interest, security agreement, or other encumbrance of any kind.
"Subsidiary" means (i) a corporation, partnership, joint venture, limited
liability company or other Person the majority of the shares, if any, of the
non-voting capital stock or other equivalent ownership interests of which
(except directors' qualifying shares) are at the time directly or indirectly
owned by the Operating Partnership and/or any other Subsidiary or Subsidiaries,
and the majority of the shares of the voting capital stock or other equivalent
ownership interests of which (except directors' qualifying shares) are at the
time directly or indirectly owned by the Operating Partnership, any other
Subsidiary or Subsidiaries, and (ii) any other Person the accounts of which are
consolidated with the accounts of the Operating Partnership.
"Total Assets" means the sum of (without duplication) (i) Undepreciated
Real Estate Assets and (ii) all other assets (excluding accounts receivable and
intangibles) of the Operating Partnership and its Subsidiaries, all determined
on a consolidated basis in accordance with generally accepted accounting
principles.
"Total Unencumbered Assets" means the sum of (without duplication) (i)
those Undepreciated Real Estate Assets which are not subject to a Lien securing
Debt and (ii) all other assets (excluding accounts receivable and intangibles)
of the Operating Partnership and its Subsidiaries not subject to a Lien securing
Debt, all determined on a consolidated basis in accordance with generally
accepted accounting principles.
"Undepreciated Real Estate Assets" means, as of any date, the cost
(original cost plus capital improvements) of real estate assets of the Operating
Partnership and its Subsidiaries on such date, before depreciation and
amortization, all determined on a consolidated basis in accordance with
generally accepted accounting principles.
"Unsecured Debt" means Debt of the Operating Partnership or any of its
Subsidiaries which is not secured by a Lien on any property or assets of the
Operating Partnership or any of its Subsidiaries.
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EVENTS OF DEFAULT, NOTICE AND WAIVER
The Indenture provides that the following events are "Events of Default"
with respect to any series of the Notes issued thereunder: (i) default for 30
days in the payment of any interest on any Note of such series; (ii) default in
the payment of any principal of (or premium, if any, on) any Note of such series
at its Maturity Date; (iii) default in the performance or breach of any other
covenant or warranty of the Operating Partnership contained in the Indenture,
continued for 60 days after written notice as provided in the Indenture; (iv)
(a) default by the Operating Partnership or any Subsidiary of the Operating
Partnership in the payment (whether at stated maturity, upon acceleration, upon
required prepayment or otherwise), beyond any period of grace provided therefor,
of any principal of or interest on any bond, note, debenture or other evidence
of indebtedness, or (b) any other breach or default (or other event or
condition) shall occur under any agreement, indenture or instrument relating to
any such bond, note, debenture or other evidence of indebtedness beyond any cure
period provided therefor, if as a result thereof the holder or holders of any
such bond, note, debenture or other evidence of indebtedness (or a person on
behalf of such holder or holders) has the immediate right to cause (upon the
giving of notice if required) any such bond, note, debenture or other evidence
of indebtedness to become or be declared due and payable, or required to be
prepaid, redeemed, purchased or defeased (or an offer of prepayment, redemption,
purchase or defeasance be made), prior to its stated maturity (other than by a
scheduled mandatory prepayment), which in the aggregate under (a) and (b) have a
principal amount equal or greater than $20,000,000; (v) the entry by a court of
competent jurisdiction of one or more judgments, orders or decrees against the
Operating Partnership or any Significant Subsidiary (as defined below) in an
aggregate amount (excluding amounts fully covered by insurance) in excess of
$20,000,000 and such judgments, orders or decrees remain undischarged, unstayed
or unsatisfied in an aggregate amount (excluding amounts fully covered by
insurance) in excess of $20,000,000 for a period of 60 consecutive days; and
(vi) certain events of bankruptcy, insolvency or reorganization with respect to
the Operating Partnership or of any General Partner or any Significant
Subsidiary. (See Section 501 of the form of Indenture.) The term "Significant
Subsidiary" means any Subsidiary which is a significant subsidiary (as defined
in Regulation S-X promulgated under the Securities Act as in effect on January
1, 1998) of the Operating Partnership.
If an Event of Default under the Indenture with respect to a series of
Notes occurs and is continuing, then in every such case the Trustee or the
Holders of not less than 25% in principal amount of the outstanding Notes of
such series may declare the principal amount of all of the Notes of such series
to be due and payable immediately by written notice thereof to the Operating
Partnership (and to the Trustee if given by the Holders). However, at any time
after such a declaration of acceleration with respect to the Notes of such
series has been made, the Holders of not less than a majority in principal
amount of outstanding Notes of such series may rescind and annul such
declaration and its consequences if (i) the Operating Partnership shall have
deposited with the Trustee all required payments of the principal of (and
premium, if any) and interest, if any, on the Notes of such series (other than
amounts which have become due and payable as a result of such acceleration),
plus certain fees, expenses, disbursements and advances of the Trustee and (ii)
all Events of Default (other than the nonpayment of accelerated principal (or
specified portion thereof), premium, if any, and interest) with respect to the
Notes of such series have been cured or waived as provided in the Indenture.
(See Section 502 of the form of Indenture.) The Indenture will also provide that
the Holders of not less than a majority in principal amount of the outstanding
Notes of a series may waive any past default with respect to such Notes and its
consequences, except a default (x) in the payment of the principal of (or
premium, if any) or interest, if any, on any Note of such series or (y) in
respect of a covenant or provision contained in the Indenture that cannot be
modified or amended without the consent of the Holder of each Outstanding Note
of such series affected thereby. (See Section 513 of the form of Indenture.)
The Indenture requires the Trustee to give notice to the Holders of Notes
of a series issued thereunder within 90 days of a default with respect to such
Notes under the Indenture known to the Trustee, unless such default shall have
been cured or waived; provided, however, that the Trustee may withhold notice to
the Holders of any Notes of such series of any default (except a default in the
payment of the principal of (or premium, if any) or interest, if any, on any
Note of such series) if a Responsible Officer of such Trustee determines such
withholding to be in the interest of such Holders. (See Section 601 of the form
of Indenture.)
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The Indenture provides that no Holder of Notes of any series may institute
any proceeding, judicial or otherwise, with respect to the Indenture or for any
remedy thereunder, except in the case of the failure of the Trustee, for 60
days, to act after it has received a written request to institute proceedings in
respect of an Event of Default from the Holders of not less than 25% in
principal amount of the Outstanding Notes of such series, as well as an offer of
reasonable indemnity. (See Section 507 of the form of Indenture.) This provision
will not prevent, however, any Holder of Notes from instituting suit for the
enforcement of payment of the principal of (and premium, if any) and interest,
if any, on such Notes held by that Holder at the respective due dates thereof.
(See Section 508 of the form of Indenture.) The Indenture provides that, subject
to provisions of the Indenture relating to its duties in case of default, the
Trustee is under no obligation to exercise any of its rights or powers under the
Indenture at the request or direction of any Holders of any Notes of any series
then Outstanding under the Indenture, unless the Holders of Notes of any such
series shall have offered to the Trustee thereunder reasonable security or
indemnity. (See Section 602 of the form of Indenture.) The Holders of not less
than a majority in principal amount of the Outstanding Notes of any series shall
have the right to direct the time, method and place of conducting any proceeding
for any remedy available to the Trustee, or of exercising any trust or power
conferred upon the Trustee with respect to such series. However, the Trustee may
refuse to follow any direction which is in conflict with any law or the
Indenture, which may involve the Trustee in personal liability or which may be
unduly prejudicial to the Holders of Notes of such series not joining therein.
(See Section 512 of the form of Indenture.)
Within 120 days after the close of each fiscal year, the Operating
Partnership must deliver to the Trustee a certificate, signed by one of several
specified officers of the General Partner of the Operating Partnership, stating
whether or not such officer has knowledge of any noncompliance under the
Indenture and, if so, specifying such noncompliance and the nature and status
thereof. (See Section 1014 of the form of Indenture.) Further, upon any request
by the Operating Partnership to take any action under the Indenture, the
Operating Partnership will furnish to the Trustee (a) an Officers' Certificate
stating that all conditions precedent, if any, provided for in the Indenture
relating to the proposed action have been complied with, and (b) an opinion of
counsel stating that in the opinion of such counsel all such conditions
precedent, if any, have been complied with.
MODIFICATION OF THE INDENTURE
Modifications and amendments of the Indenture may be made only with the
consent of the Holders of not less than a majority in principal amount of all
Outstanding Notes which are affected by such modification or amendment;
provided, however, that no such modification or amendment may, without the
consent of the Holder of each such Note affected thereby, (i) change the
Maturity Date of the principal (or premium, if any) of, or any installment of
interest, if any, any such Note, (ii) reduce the principal amount of, or the
rate or amount of interest on, or any amount of premium payable on any such Note
that would be due and payable upon declaration of acceleration of the maturity
thereof or would be provable in bankruptcy, or adversely affect any right of the
Holder of any such Note to repayment of such Note at such Holder's option, (iii)
change the Place of Payment, or the coin or currency, for payment of principal
of (or premium, if any) or interest, if any, on any such Note, (iv) impair the
right to institute suit for the enforcement of any payment on or with respect to
any such Note, (v) reduce the percentage in principal amount of Outstanding
Notes necessary to modify or amend the Indenture, to waive compliance with
certain provisions thereof or certain defaults and consequences thereunder or to
reduce the quorum or voting requirements set forth in the Indenture, or (vi)
modify any of the foregoing provisions or any of the provisions relating to the
waiver of certain past defaults or certain covenants, except to increase the
required percentage to effect such action or to provide that certain other
provisions may not be modified or waived without the consent of the Holder of
such Note. (See Section 902 of the form of Indenture.)
The Indenture provides that the Holders of not less than a majority in
principal amount of Outstanding Notes have the right to waive compliance by the
Operating Partnership with certain covenants in the Indenture, including those
described in the section of this Prospectus captioned "Description of Notes --
Certain Covenants." (See Section 1013 of the form of Indenture.)
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Modifications and amendments of the Indenture may be made by the Operating
Partnership and the Trustee without the consent of any Holder of Notes issued
thereunder for any of the following purposes: (i) to evidence the succession of
another Person to the Operating Partnership as obligor under the Indenture; (ii)
to add to the covenants of the Operating Partnership for the benefit of the
Holders of the Notes or to surrender any right or power conferred upon the
Operating Partnership in the Indenture; (iii) to add Events of Default for the
benefit of the Holders of the Notes; (iv) to add or change any provisions of the
Indenture to facilitate the issuance of the Notes in uncertificated form,
provided that such action shall not adversely affect the interests of the
Holders of Notes in any material respect; (v) to secure the Notes; (vi) to
provide for the acceptance of appointment by a successor Trustee or to
facilitate the administration of the trusts under the Indenture by more than one
Trustee; (vii) to cure any ambiguity, defect or inconsistency in the Indenture
or to add or change any other provisions with respect to matters or questions
arising thereunder, provided that such action shall not adversely affect the
interests of Holders of Outstanding Notes in any material respect; or (viii) to
supplement any of the provisions of the Indenture to the extent necessary to
permit or facilitate defeasance, covenant defeasance and discharge of any Notes,
provided that such action shall not adversely affect the interests of the
Holders of the Notes in any material respect. (See Section 901 of the form of
Indenture.)
The Indenture provides that in determining whether the Holders of the
requisite principal amount of Outstanding Notes of a series have given any
request, demand, authorization, direction, notice, consent or waiver thereunder
or whether a quorum is present at a meeting of Holders of the Notes of a series,
Notes of each series owned by the Operating Partnership or any other obligor
upon such Notes or any Affiliate of the Operating Partnership or of such other
obligor shall be disregarded. (See Section 101 of the form of Indenture.)
The Indenture contains provisions for convening meetings of the Holders of
Notes of a series. (See Section 1301 of the form of Indenture.) A meeting may be
called at any time by the Trustee and also, upon request, by the Operating
Partnership or the Holders of at least 25% in principal amount of the
Outstanding Notes of such series, in any such case upon notice given as provided
in the Indenture. (See Section 1302 of the form of Indenture.) Except for any
consent that must be given by the Holder of each Note affected by certain
modifications and amendments of the Indenture, any resolution presented at a
meeting or adjourned meeting duly reconvened at which a quorum is present may be
adopted by the affirmative vote of the Holders of a majority in principal amount
of the Outstanding Notes of such series; provided, however, that, except as
referred to above, any resolution with respect to any request, demand,
authorization, direction, notice, consent, waiver or other action that may be
made, given or taken by the Holders of a specified percentage, which is less or
more than a majority, in principal amount of the Outstanding Notes of such
series may be adopted at a meeting or adjourned meeting duly reconvened at which
a quorum is present by the affirmative vote of the Holders of such specified
percentage in principal amount of the Outstanding Notes of such series. Any
resolution passed or decision taken at any meeting of Holders of Notes of any
series duly held in accordance with the Indenture will be binding on all Holders
of Notes of such series. The quorum at any meeting called to adopt a resolution,
and at any reconvened meeting, will be Persons holding or representing a
majority in principal amount of the Outstanding Notes of any series; provided,
however, that if any action is to be taken at such meeting with respect to a
consent or waiver which may be given by the Holders of not less than a specified
percentage, which is less or more than a majority, in principal amount of the
Outstanding Notes of such series, the Persons holding or representing such
specified percentage in principal amount of the Outstanding Notes of such series
will constitute a quorum. (See Section 1304 of the form of Indenture.)
Notwithstanding the provisions described above, the Indenture provides that
if any action is to be taken at a meeting of Holders of Notes of any series with
respect to any request, demand, authorization, direction, notice, consent,
waiver or other action that the Indenture expressly provides may be made, given
or taken by the Holders of a specified percentage in principal amount of all
Outstanding Notes of such series affected thereby: (i) there shall be no minimum
quorum requirement for such meeting and (ii) the principal amount of the
Outstanding Notes of such series that are entitled to vote in favor of such
request, demand, authorization, direction, notice, consent, waiver or other
action shall be taken into account in determining whether such request, demand,
authorization, direction, notice, consent, waiver or other action has been made,
given or taken under the Indenture. (See Section 1304 of the form of Indenture.)
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DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
Upon request of the Operating Partnership the Indenture shall cease to be
of further effect with respect to the Notes of a series (except as to certain
limited provisions of the Indenture which shall survive) when either (i) all
Notes of such series have been delivered to the Trustee for cancellation
(subject to certain exceptions) or (ii) all Notes of such series have become due
and payable or will become due and payable within one year (or, if redeemable,
are scheduled for redemption within one year) and the Operating Partnership has
irrevocably deposited with the Trustee, in trust, funds in an amount sufficient
to pay the entire indebtedness on the Notes of such series in respect of
principal (and premium, if any) and interest to the date of such deposit (if
such Notes have become due and payable) or to the stated maturity or redemption
date, as the case may be.
The Indenture provides that the Operating Partnership may elect either (i)
to defease and be discharged from any and all obligations with respect to a
series of Notes (except, among other things, for the obligations to register the
transfer or exchange of such Notes, to replace temporary or mutilated,
destroyed, lost or stolen Notes of such series, to maintain an office or agency
in respect of the Notes of such series and to hold moneys for payment in trust)
("defeasance") (see Section 1202 of the form of Indenture) or (ii) to be
released from its obligations with respect to the Notes of such series under the
applicable covenants described above under the caption "Certain Covenants"
(except that the Operating Partnership shall remain subject to the covenant to
preserve and keep in full force and effect its existence, except as permitted
under the provisions described under "Merger, Consolidation or Sale") and its
obligations with respect to any other covenants applicable to the Notes of such
series, and any omission to comply with such obligations shall not constitute a
default or an Event of Default with respect to the Notes ("covenant defeasance")
(see Section 1203 of the form of Indenture), in either case upon the irrevocable
deposit by the Operating Partnership with the Trustee, in trust, of the amount
payable at the applicable Maturity Date or, if applicable, upon redemption, or
Government Obligations (as defined below), or both, applicable to the Notes of
such series which through the scheduled payment of principal and interest in
accordance with their terms will provide money in an amount sufficient to pay
the principal of (and premium, if any) and interest on such Notes, on the
scheduled due dates therefor or the applicable redemption date, as the case may
be.
Such a trust may only be established if, among other things, (i) the
Operating Partnership has delivered to the Trustee a legal opinion to the effect
that the Holders of the Notes will not recognize income, gain or loss for U.S.
federal income tax purposes as a result of such defeasance or covenant
defeasance and will be subject to U.S. federal income tax on the same amounts,
in the same manner and at the same times as would have been the case if such
defeasance or covenant defeasance had not occurred, and such legal opinion, in
the case of defeasance, must refer to and be based upon a ruling of the Internal
Revenue Service or a change in applicable United States federal income tax law
occurring after the date of the Indenture; (ii) if the cash and Government
Obligations deposited are sufficient to pay the outstanding Notes of such
series, provided such Notes are redeemed on a particular redemption date, the
Operating Partnership shall have given the Trustee irrevocable instructions to
redeem the Notes of such series on such date; and (iii) no Event of Default or
event which with notice or lapse of time or both would become an Event of
Default with respect to the Notes shall have occurred and shall be continuing on
the date of, or, solely in the case of Events of Default described in clause
(vi) of the first paragraph under the caption "-- Events of Default, Notice and
Waiver" above, during the period ending on the 91st day after the date of, such
deposit into trust. (See Section 1204 of the form of Indenture.)
"Government Obligations" means securities which are (i) direct obligations
of the United States of America, for the payment of which its full faith and
credit is pledged, or (ii) obligations of a Person controlled or supervised by
and acting as an agency or instrumentality of the United States of America, the
payment of which is unconditionally guaranteed as a full faith and credit
obligation by the United States of America, which, in either case, are not
callable or redeemable at the option of the issuer thereof, and shall also
include a depository receipt issued by a bank or trust company as custodian with
respect to any such Government Obligation or a specific payment of interest on
or principal of any such Government Obligation held by such custodian for the
account of the holder of a depository receipt, provided that (except as required
by law) such custodian is not authorized to make any deduction from the amount
payable to the holder of such depository
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receipt from any amount received by the custodian in respect of the Government
Obligation or the specific payment of interest on or principal of the Government
Obligation evidenced by such depository receipt. (See Section 101 of the form of
Indenture.)
In the event the Operating Partnership effects covenant defeasance with
respect to the Notes of any series and such Notes are declared due and payable
because of the occurrence of any Event of Default (other than an Event of
Default with respect to any covenant as to which there has been covenant
defeasance), the amount of monies and Government Obligations deposited with the
Trustee to effect such covenant defeasance may not be sufficient to pay amounts
due on such Notes at the time of their Maturity Date or at the time of the
acceleration resulting from such Event of Default. In any such event, the
Operating Partnership would remain liable to make payment of such amounts due at
the time of acceleration.
GLOBAL NOTES
The Notes of each series will be issued in the form of one or more fully
registered book-entry Notes of such series (each, a "Global Note") that will be
deposited with, or on behalf of DTC. Global Notes will be issued in fully
registered form.
The Operating Partnership anticipates that the Global Notes will be
deposited with, or on behalf of DTC, and that such Global Note will be
registered in the name of Cede & Co., DTC's nominee. The Operating Partnership
further anticipates that the following provisions will apply to the depository
arrangements with respect to the Global Notes.
So long as DTC or its nominee is the registered owner of the Global Notes,
DTC or its nominee, as the case may be, will be considered the sole Holder of
the Notes represented by such Global Note for all purposes under the Indenture.
Except as described below, owners of beneficial interests in the Global Notes
will not be entitled to have Notes represented by such Global Note registered in
their names, will not receive or be entitled to receive physical delivery of
Notes in certificated form and will not be considered the owners or Holders
thereof under the Indenture. The laws of some states require that certain
purchasers of securities take physical delivery of such securities in
certificated form; accordingly, such laws may limit the transferability of
beneficial interests in the Global Notes.
The Global Notes will be exchangeable for certificated Notes only if (i)
DTC notifies the Operating Partnership that it is unwilling or unable to
continue as depository or DTC ceases to be a clearing agency registered under
the Exchange Act (if so required by applicable law or regulation) and, in either
case, a successor depository is not appointed by the Operating Partnership
within 90 days after the Operating Partnership receives such notice or becomes
aware of such ineligibility, (ii) the Operating Partnership in its sole
discretion determines that the Global Notes shall be exchangeable for
certificated Notes or (iii) there shall have occurred and be continuing an Event
of Default with respect to Notes of any series under the Indenture and
beneficial owners representing a majority in aggregate principal amount of the
Notes of such series represented by a Global Note advise DTC to cease acting as
depository. Upon any such exchange, owners of a beneficial interest in such
Global Note will be entitled to physical delivery of individual Notes of such
series in certificated form of like tenor, terms and rank, equal in principal
amount to such beneficial interest, and to have such Notes in certificated form
registered in the names of the beneficial owners, which names are expected to be
provided by DTC's relevant Participants (as identified by DTC) to the Trustee.
Notes so issued in certificated form will be issued in denominations of $1,000
or any integral multiple thereof, and will be issued in registered form only,
without coupons.
The following is based on information furnished to the Operating
Partnership by DTC:
DTC will act as securities depository for the Notes. The Notes will be
issued as fully registered securities registered in the name of Cede & Co.
(DTC's partnership nominee). One fully registered Note certificate will be
issued with respect to each $200 million (or such other amount as shall be
permitted by DTC from time to time) of principal amount of the Notes, and an
additional certificate will be issued with respect to any remaining principal
amount.
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DTC is a limited purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
holds securities that its participants ("Participants") deposit with DTC. DTC
also facilitates the settlement among Participants of securities transactions,
such as transfers and pledges, in deposited securities through electronic
computerized book-entry changes in Participants' accounts, thereby eliminating
the need for physical movement of securities certificates. Direct Participants
include securities brokers and dealers, banks, trust companies, clearing
corporations and certain other organizations ("Direct Participants"). DTC is
owned by a number of its Direct Participants and by the New York Stock Exchange,
Inc., the American Stock Exchange, Inc. and the National Association of
Securities Dealers, Inc. Access to the DTC system is also available to others,
such as securities brokers and dealers, and banks and trust companies that clear
through or maintain a custodial relationship with a Direct Participant, either
directly or indirectly ("Indirect Participants"). The rules applicable to DTC
and its Participants are on file with the Commission.
Purchases of Notes under the DTC system must be made by or through Direct
Participants, which will receive a credit for the Notes on DTC's records. The
ownership interest of each actual purchaser of each Note ("Beneficial Owner") is
in turn recorded on the Direct and Indirect Participants' records. A Beneficial
Owner does not receive written confirmation from DTC of its purchase, but is
expected to receive a written confirmation providing details of the transaction,
as well as periodic statements of its holdings, from the Direct or Indirect
Participant through which such Beneficial Owner entered into the transaction.
Transfers of ownership interests in Notes are accomplished by entries made on
the books of Direct and Indirect Participants acting on behalf of Beneficial
Owners. Beneficial Owners do not receive certificates representing their
ownership interests in Notes, except under the circumstances described above.
To facilitate subsequent transfers, the Notes are registered in the name of
DTC's nominee, Cede & Co. The deposit of the Notes with DTC and their
registration in the name of Cede & Co. will effect no change in beneficial
ownership. DTC has no knowledge of the actual Beneficial Owners of the Notes;
DTC records reflect only the identity of the Direct Participants to whose
accounts Notes are credited, which may or may not be the Beneficial Owners. The
Participants remain responsible for keeping account of their holdings on behalf
of their customers.
Delivery of notices and other communications by DTC to Direct Participants,
by Direct Participants to Indirect Participants, and by Direct Participants and
Indirect Participants to Beneficial Owners are governed by arrangements among
them, subject to any statutory or regulatory requirements as may be in effect
from time to time.
Neither DTC nor Cede & Co. consents or votes with respect to the Notes.
Under its usual procedures, DTC mails a proxy (an "Omnibus Proxy") to the issuer
as soon as possible after the record date. The Omnibus Proxy assigns Cede &
Co.'s consenting or voting rights to those Direct Participants to whose accounts
the Notes are credited on the record date (identified on a list attached to the
Omnibus Proxy).
Principal payments, premium payments, if any, and interest payments, if
any, on the Notes will be made to DTC. DTC's practice is to credit Direct
Participants' accounts on the payment date in accordance with their respective
holdings as shown on DTC's records unless DTC has reason to believe that it will
not receive payment on the payment date. Payments by Direct and Indirect
Participants to Beneficial Owners are governed by standing instructions and
customary practices, as is the case with securities held for the accounts of
customers in bearer form or registered in "street name" and are the
responsibility of such Direct and Indirect Participants and not of DTC, the
Trustee or the Operating Partnership, subject to any statutory or regulatory
requirements as may be in effect from time to time. Payment of principal (and
premium, if any) and interest, if any, to DTC is the responsibility of the
Operating Partnership or the Trustee, disbursement of such payments to Direct
Participants is the responsibility of DTC, and disbursement of such payments to
the Beneficial Owners is the responsibility of Direct and Indirect Participants.
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If applicable, redemption notices shall be sent to Cede & Co. If less than
all of the Notes of any series represented by the Global Notes are being
redeemed, DTC's practice is to determine by lot the amount of the interest of
each Direct Participant in such issue to be redeemed.
DTC may discontinue providing its services as securities depository with
respect to the Notes of any series at any time by giving reasonable notice to
the Operating Partnership or the Trustee. Under such circumstances, in the event
that a successor securities depository is not appointed, Note certificates are
required to be printed and delivered as described above.
The Operating Partnership may decide to discontinue use of the system of
book-entry transfers through DTC (or a successor securities depository). In that
event, Note certificates will be printed and delivered as described above.
None of the Operating Partnership, the Underwriters, the Trustee or any
applicable paying agent will have any responsibility or liability for any aspect
of the records relating to or payments made on account of beneficial interests
in the Global Notes, or for maintaining, supervising or reviewing any records
relating to such beneficial interest.
Notices or demands to or upon the Operating Partnership in respect of the
Notes and the Indenture may be served and, in the event that Notes are issued in
definitive certificated form, Notes may be surrendered for payment, registration
of transfer or exchange, at the office or agency of the Operating Partnership
maintained for such purpose in the Borough of Manhattan, The City of New York,
which shall initially be the office of State Street Bank and Trust Company, an
affiliate of the Trustee, which on the date of this Prospectus is located at 61
Broadway, 15th Floor, New York, New York.
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MATERIAL FEDERAL INCOME TAX CONSIDERATIONS RELATING TO THE REPS
The following is a summary of the material United States Federal income tax
considerations relating to the purchase, ownership and disposition of the REPS
by an initial holder of the REPS who purchases the REPS on the date of original
issuance. 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 Operating Partnership, as to the
material United States Federal income tax considerations relevant to holders of
the REPS. This summary is based upon current provisions of the Internal Revenue
Code of 1986, as amended (the "Code"), existing and proposed Treasury
regulations promulgated thereunder and current administrative rulings and court
decisions currently in effect, all of which are subject to change, possibly with
retroactive effect. The discussion does not deal with all Federal tax
considerations applicable to all categories of investors (including insurance
companies, tax-exempt organizations, financial institutions or broker-dealers,
foreign corporations, foreign partnerships and persons who are not citizens or
residents of the United States), some of which may be subject to special rules.
In addition, this summary is limited to holders who will hold the REPS as
"capital assets" (generally, property held for investment) within the meaning of
Section 1221 of the Code. This summary only addresses the United States Federal
income tax considerations of the REPS until the 2005 Coupon Reset Date.
Investors are urged to consult their own tax advisors to determine the
Federal, state, local, foreign, and other tax consequences relating to the
purchase, ownership and disposition of the REPS.
Prospective investors should note that no rulings have been or are expected
to be sought from the IRS with respect to any of the Federal income tax
considerations discussed below, and no assurance can be given that the IRS will
not take contrary positions.
TREATMENT OF REPS
The United States Federal income tax treatment of debt obligations such as
the REPS is not entirely certain. Because the REPS are subject to a mandatory
put or call on the 2005 Coupon Reset Date, the Operating Partnership intends to
treat the REPS as maturing on the 2005 Coupon Reset Date for United States
Federal income tax purposes and as being reissued on the 2005 Coupon Reset Date
should the Callholder sell the REPS pursuant to the Coupon Reset Process. Based
on such treatment, stated interest on the REPS generally will be taxable to a
holder as ordinary income at the time it is paid or accrued in accordance with
the holder's regular method of tax accounting.
Under the foregoing treatment, upon the sale, exchange, redemption, or
other disposition of the REPS, a holder will generally recognize taxable gain or
loss equal to the difference between the amount realized by such holder on such
sale, exchange, redemption, or other disposition (except to the extent that such
amount realized represents accrued and unpaid interest that such holder has not
included in gross income previously) and such holder's adjusted tax basis in the
REPS. Pursuant to the Taxpayer Relief Act of 1997, in the case of an individual
holder, any capital gain recognized on the sale, exchange, redemption, or other
disposition of the REPS will generally be subject to United States Federal
income tax at a stated maximum rate of (i) 20%, if the holder's holding period
in the REPS was more than 18 months at the time of such sale, exchange,
redemption, or other disposition; (ii) 28%, if the holder's holding period in
the REPS was more than one year, but not more than 18 months, at the time of
such sale, exchange, redemption, or other disposition; and (iii) 39.6%, if the
holder's holding period in the REPS was not more than one year at the time of
such sale, exchange, redemption, or other disposition. Any capital loss
recognized by a holder on the sale, exchange, redemption, or other disposition
of the REPS will generally be long-term capital loss or short-term capital loss
depending on whether the holder held the REPS for more than one year. The
deductibility of capital losses is subject to limitations.
There can be no assurance, however, that the IRS will agree with the
Operating Partnership's treatment of the REPS, and it is possible that the
Service could assert another treatment. For instance, it is possible that the
IRS could seek to treat the REPS as maturing on the Final REPS Maturity Date and
to treat the issue price of the REPS as including the value of the Call Option.
Because of the Coupon Reset Process, if the REPS were treated as maturing on the
Final REPS Maturity Date, Treasury regulations relating to contingent
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payment debt obligations would appear to be applicable. The effect of such
Treasury regulations would be to (i) require holders, regardless of their usual
method of accounting, to use an accrual method with respect to the REPS; (ii)
result in the possibility that holders would be required to accrue income in
excess of actual cash payments received; and (iii) generally result in ordinary
rather than capital treatment of any gain or loss on the sale, exchange,
redemption, or other disposition of the REPS.
BACKUP WITHHOLDING
The Operating Partnership will report to holders of REPS and the IRS the
amount of interest paid during each calendar year and the amount of tax
withheld, if any. Under the backup withholding rules, a holder of REPS may be
subject to backup withholding at the rate of 31% with respect to payments made
on the REPS as well as proceeds from the disposition of REPS 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 holder that does not provide the Operating Partnership with his correct
taxpayer identification number may also be subject to penalties imposed by the
IRS. Any amount paid as backup withholding will be creditable against the
holder's income tax liability.
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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 owns a 95.9%
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 applicable also to Performance
Units, and holders of Performance Units are treated as limited partners. The
following summary of the 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
GP Units held by the Company is equal to the total number of shares of Common
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). The Operating
Partnership owns 100% of the non-voting preferred stock of AMB Investment
Management (representing 95% of its economic interest) and certain of the
Company's Executive Officers own all of the outstanding voting common stock of
AMB Investment Management (representing 5% of its economic interest).
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.
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.
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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.
Investors who received Units in connection with the Formation Transactions,
as 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 Investment
Management or a title holding, management or finance subsidiary organized as a
partnership, limited liability company or corporation) title holding, 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) 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
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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 (with an
estimated aggregate value of approximately $54.2 million), not to dispose of
such assets in a taxable sale or exchange prior to November 26, 2001 (the fourth
anniversary of the consummation of the Formation Transactions) and, thereafter,
to use commercially reasonable 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."
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 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
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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
Company's 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 will have the right, commencing on the first anniversary
of becoming a limited partner of the Operating Partnership, 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 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 Executive Officers, in their capacity as limited partners of the
Operating Partnership, may receive Performance Units on 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 Executive 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 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
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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 the executive officers.
REGISTRATION RIGHTS
The Company granted to investors receiving Units in connection with the
Formation Transactions 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 one year
after the completion of the IPO a registration statement covering the issuance
of shares of Common Stock upon exchange of Units and the resale thereof.
Pursuant to the terms and conditions of such Registration Rights, prior to the
date upon which shares of Common Stock issued as of the date of the consummation
of the IPO 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 Investor will be 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 as of the date of the consummation
of the IPO. 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 of Registrable Shares.
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.
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
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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 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 AMBIRA 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.
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CERTAIN PROVISIONS OF MARYLAND LAW AND OF
THE COMPANY'S ARTICLES OF INCORPORATION AND BYLAWS
The following paragraphs summarize certain provisions of the MGCL and the
Company's Articles of Incorporation 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 Articles of Incorporation and Bylaws.
BOARD OF DIRECTORS
The Articles of Incorporation provide 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 Articles of Incorporation and the MGCL empower the stockholders
to fill vacancies in the Board of Directors that are caused by the removal of a
director, the Articles of Incorporation preclude stockholders from removing
incumbent directors except upon a substantial affirmative vote. Specifically,
the Articles of Incorporation provide 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. 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 ARTICLES OF INCORPORATION AND BYLAWS
The Articles of Incorporation 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 Articles of Incorporation on amendments to the
Articles of Incorporation 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
Articles of Incorporation and the Partnership Agreement against certain
liabilities. The Articles of Incorporation 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
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<PAGE> 122
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.
The MGCL permits the articles of incorporation 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 Articles of Incorporation of the Company contain 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
Articles of Incorporation, 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 Articles of
Incorporation. 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 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 Articles of Incorporation and Bylaws, copies of which are filed
as exhibits to the Registration Statement of which this Prospectus is a part.
See "Additional Information."
GENERAL
Under the Articles of Incorporation, as amended (the "Articles of
Incorporation"), the authorized capital stock of the Company consists of
500,000,000 shares of common stock, par value $.01 per share ("Common Stock"),
and 100,000,000 shares of preferred stock, par value $.01 per share ("Preferred
Stock"). As of December 31, 1997, no shares of Preferred Stock and 85,874,513
shares of Common Stock were issued and outstanding.
COMMON STOCK
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 Company's Articles of Incorporation regarding the
ownership of shares of Common Stock in excess of the Ownership Limit or such
other limit as provided in the Company's Articles of Incorporation 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
of stock and to the provisions of the Articles of Incorporation regarding
ownership of shares of Common Stock in excess of the Ownership Limit, or such
other limit as provided in the Company's Articles of Incorporation 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.
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 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 Articles of Incorporation regarding the
ownership of shares of Common Stock in excess of the Ownership Limit, or such
other limit as provided in the Company's Articles of Incorporation 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 Articles of Incorporation do not provide for a lesser
percentage in any such situation.
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The Articles of Incorporation authorize 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. No Preferred Stock is currently
issued or outstanding. Prior to the issuance of shares of each class or series,
the Board of Directors is required by the MGCL and the Company's Articles of
Incorporation 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 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.
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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 have severally agreed to purchase, and the Operating Partnership has
agreed to sell to them, severally, the respective principal amount of Notes set
forth opposite their respective names below:
<TABLE>
<CAPTION>
PRINCIPAL PRINCIPAL PRINCIPAL
AMOUNT AMOUNT AMOUNT
OF 2008 NOTES OF 2018 NOTES OF 2015 REPS
NAME ------------- ------------- -------------
<S> <C> <C> <C>
Morgan Stanley & Co. Incorporated....
Goldman, Sachs & Co..................
J.P. Morgan Securities Inc...........
------------ ------------ ------------
Total...................... $ $ $
============ ============ ============
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the Notes 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 Notes
offered hereby if any are taken.
The Underwriters propose to offer part of the Notes 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
% of the principal amount in the case of the 2008 Notes, % of the
principal amount in the case of the 2018 Notes and % of the principal
amount in the case of the REPS. Any Underwriter may allow, and any such dealer
may reallow, a concession to certain other dealers not in excess of % of
the principal amount in the case of the 2008 Notes, % of the principal
amount in the case of the 2018 Notes and % of the principal amount in the
case of the REPS. After the initial offering of the Notes, the offering price
and other selling terms may from time to time be varied by the Underwriters.
The Operating Partnership and the Company have 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.
Neither the Operating Partnership nor the Company intends to apply for
listing of the Notes on a national securities exchange, but have been advised by
the Underwriters that they presently intend to make a market in the Notes as
permitted by applicable laws and regulations. The Underwriters are not
obligated, however, to make a market in the Notes and any such market making may
be discontinued at any time at the sole discretion of the any Underwriter.
Accordingly, no assurance can be given as the liquidity of, or trading market
for, the Notes.
In order to facilitate the Offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Notes. Specifically, the Underwriters may stabilize the price of the Notes and
the Underwriters may bid for, and purchase, the Notes in the open market.
Finally, the underwriting syndicate may reclaim selling concessions allowed to
an Underwriter or a dealer for distributing the Notes in the Offering, if the
syndicate repurchases previously distributed Notes 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 Notes above
independent market levels. The Underwriters are not required to engage in these
activities, and may end any of these activities at any time.
The Operating Partnership intends to use the net proceeds from the sale of
the Notes offered hereby to repay indebtedness outstanding under the Credit
Facility and for general purposes. Morgan Guaranty Trust Company of New York, an
affiliate of J.P. Morgan Securities Inc., one of the Underwriters, is the agent
and a lender under the Credit Facility. As the Company expects that in excess of
10% of the net proceeds will be used to repay indebtedness under the Credit
Facility, the Offering is being made in compliance with the requirements of Rule
2710(c)(8) of the Conduct Rules of the National Association of Securities
Dealers, Inc. See "Use of Proceeds."
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LEGAL MATTERS
Certain legal matters in connection with the Offering will be passed upon
for the Operating Partnership by Latham & Watkins, Los Angeles, 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 Notes offered
hereby, will be passed upon for the Company, as general partner of the Operating
Partnership, 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 Considerations
Relating To The REPS" 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 Operating Partnership.
EXPERTS
The audited financial statements and schedules 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, and upon consummation of the Offering the Operating
Partnership will be, 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, 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, as identified in Note 1, Organization and Basis of
Presentation to the historical financial statements of the AMB Contributed
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 the executive officers owns
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 March 31, 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.
"Articles of Incorporation" means the Articles of Incorporation of the
Company.
"Bylaws" means the bylaws of the Company.
"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 of the Company.
"Company" means AMB Property Corporation and its subsidiaries, including
AMB Property, L.P., and with respect to the period prior to the IPO, the AMB
Predecessors.
"Credit Agreement" means the Credit Facility, any successor agreement
thereto, and any other credit agreement under which the Operating Partnership is
an obligor.
"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 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,
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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.
"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,
to facilitate the IPO, to enable the Company to qualify as a REIT for Federal
income tax purposes commencing with its taxable year ended December 31, 1997 and
to preserve certain tax advantages for the existing owners of the Properties.
"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 "may,"
"will," "should," "expect," "anticipate," "estimate" or "continue" or the
negative thereof or other variations thereon or comparable terminology.
"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.
"Holders" means holders of the Notes.
"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 properties 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
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the entire capital interests, and through which the operations of AMB Investment
Management are conducted.
"IPO" means the initial public offering of the Company's common stock.
"IRS" means the United States Internal Revenue Service.
"Joint Ventures" means the joint ventures, limited liability companies and
partnerships with certain third parties.
"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.
"Noteholder" means the Person in whose name a Note is registered.
"NYSE" means the New York Stock Exchange.
"Offering" means the offering of the Notes made hereby.
"Operating Partnership" means AMB Property, L.P., a Delaware limited
partnership of which the Company is the general partner.
"Ownership Limit" means the Company generally will prohibit ownership,
directly or by virtue of the constructive ownership provisions of the Code, by
any single stockholder of more than 9.8% of the issued and outstanding shares of
Common Stock (subject to certain exceptions) and generally will prohibit
ownership, directly or by virtue of the constructive ownership provisions of the
Code, by any single stockholder of more than 9.8% of the issued and outstanding
shares of any class or series of the Company's Preferred Stock.
"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.
"Preferred Stock" means preferred shares of beneficial interest, $0.01 par
value per share, which the Articles of Incorporation 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.
"Properties" means the Industrial Properties and the Retail Properties.
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"Prospectus" means the prospectus to be used in connection with the
Offering of the Notes.
"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.
"REIT" means a real estate investment trust under the Code.
"REPS" means the % Reset Put Securities (REPS(SM)) due
2015 -- Putable/Callable 2005.
"restricted securities" has the meaning given to it in Rule 144 under the
Securities Act.
"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.
"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.
"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.
"Underwriters" means those underwriters named herein for whom Morgan
Stanley & Co. Incorporated, Goldman, Sachs & Co. and J.P. Morgan Securities Inc.
are acting as representatives.
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"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 aggregate principal amount of the Notes
as set forth on the table under the caption "Underwriters" herein.
"Units" means units of the Operating Partnership.
"VAF" means AMB Value Added Fund, Inc., a Maryland corporation.
"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.
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INDEX TO FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
AMB PROPERTY, L.P.
-- Pro forma condensed consolidated balance sheet as of
March 31, 1998......................................... F-5
-- Notes to pro forma condensed consolidated balance
sheet.................................................. F-6
-- Pro forma condensed consolidated statement of
operations for the three months ended March 31, 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-10
-- Notes to pro forma condensed consolidated statement of
operations............................................. F-11
HISTORICAL FINANCIAL INFORMATION
AMB PROPERTY, L.P. -- March 31, 1998
-- Consolidated balance sheets as of December 31, 1997 and
March 31, 1998 (unaudited)............................. F-16
-- Consolidated statements of operations for the three
months ended March 31, 1998 (unaudited)................ F-17
-- Consolidated statements of cash flows for the three
months ended March 31, 1998 (unaudited)................ F-18
-- Consolidated statements of partners' capital for the
three months ended March 31, 1998 (unaudited).......... F-19
-- Notes to consolidated financial statements
(unaudited)............................................ F-20
AMB PROPERTY, L.P. -- December 31, 1997
-- Report of independent public accountants............... F-23
-- Consolidated balance sheet as of December 31, 1997..... F-24
-- Consolidated statement of operations for the period
from inception (November 26, 1997) to December 31,
1997................................................... F-25
-- Consolidated statement of cash flows for the period
from inception (November 26, 1997) to December 31,
1997................................................... F-26
-- Consolidated statement of partners' capital for the
period from inception (November 26, 1997) to December
31, 1997............................................... F-27
-- Notes to consolidated financial statements............. F-28
-- Schedule III -- Consolidated Real Estate and
Accumulated Depreciation as of December 31, 1997....... F-37
</TABLE>
F-1
<PAGE> 133
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AMB PROPERTY CORPORATION -- March 31, 1998
-- Consolidated balance sheets as of December 31, 1997 and
March 31, 1998 (unaudited)............................. F-42
-- Consolidated statements of operations for the three
months ended March 31, 1997 and 1998 (unaudited)....... F-43
-- Consolidated statements of cash flows for the three
months ended March 31, 1997 and 1998 (unaudited)....... F-44
-- Consolidated statements of stockholders' equity for the
three months ended March 31, 1998 (unaudited).......... F-45
-- Notes to consolidated financial statements
(unaudited)............................................ F-46
AMB PROPERTY CORPORATION -- December 31, 1996 and 1997
-- Report of independent public accountants............... F-51
-- Consolidated balance sheets as of December 31, 1996 and
1997................................................... F-52
-- Consolidated statements of operations for the years
ended December 31, 1995, 1996 and 1997................. F-53
-- Consolidated statements of cash flows for the years
ended December 31, 1995, 1996 and 1997................. F-54
-- Consolidated statements of stockholders' equity for the
years ended December 31, 1995, 1996 and 1997........... F-55
-- Notes to consolidated financial statements............. F-56
-- Schedule III -- Consolidated Real Estate and
Accumulated Depreciation as of December 31, 1997....... F-66
AMB CONTRIBUTED PROPERTIES -- December 31, 1995, 1996 and
1997
-- Report of independent public accountants............... F-71
-- Combined balance sheets as of December 31, 1995 and
1996 and September 30, 1997 (unaudited)................ F-72
-- 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-73
-- 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-74
-- 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-75
-- Notes to combined financial statements................. F-76
Boston Industrial Portfolio
-- Report of independent public accountants............... F-82
-- 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-83
-- Notes to combined statements of revenues and certain
expenses............................................... F-84
</TABLE>
F-2
<PAGE> 134
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
The Jamesburg Property
-- Report of independent public accountants............... F-86
-- 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-87
-- Notes to statements of revenues and certain expenses... F-88
Orlando Central Park
-- Report of independent public accountants............... F-89
-- 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-90
-- Notes to statements of revenues and certain expenses... F-91
Totem Lake Malls
-- Report of independent public accountants............... F-92
-- 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-93
-- Notes to statements of revenues and certain expenses... F-94
Cabot Industrial Portfolio
-- Report of independent public accountants............... F-95
-- 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-96
-- Notes to combined statements of revenue and certain
expenses............................................... F-97
Cabot Business Park
-- Report of independent public accountants............... F-99
-- 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-100
-- Notes to statements of revenues and certain expenses... F-101
Manhattan Village Shopping Center
-- 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 August 19, 1997 (unaudited)......... F-103
-- Notes to statements of revenues and certain expenses... F-104
Weslayan Plaza
-- 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
Silicon Valley R&D Portfolio
-- Report of independent public accountants............... F-108
-- 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-109
-- Notes to statements of revenues and certain expenses... F-110
</TABLE>
F-3
<PAGE> 135
AMB PROPERTY, L.P.
PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
BACKGROUND
The accompanying unaudited pro forma condensed consolidated balance sheet
as of March 31, 1998 has been prepared to reflect: (i) the acquisition of
properties subsequent to March 31, 1998, (ii) the Offering and (iii) certain
other adjustments as if such transactions and adjustments had occurred on March
31, 1998. The accompanying unaudited pro forma condensed consolidated statements
of operations for the year ended December 31, 1997 and the three months ended
March 31, 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 adjustments resulting from the
Offering 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, L.P. 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 Offering, 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> 136
AMB PROPERTY, L.P.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1998
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
OPERATING PROPERTY PRE-OFFERING
PARTNERSHIP(1) ACQUISITIONS(2) PRO FORMA OFFERING(3) PRO FORMA
-------------- ---------------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
ASSETS
Investments in real estate,
net............................ $2,740,048 $ 56,730 $2,796,778 $ -- $2,796,778
Cash and cash equivalents........ 28,584 -- 28,584 -- 28,584
Other assets..................... 29,558 -- 29,558 1,200 30,758
---------- -------- ---------- --------- ----------
Total assets........... $2,798,190 $ 56,730 $2,854,920 $ 1,200 $2,856,120
========== ======== ========== ========= ==========
LIABILITIES AND PARTNERS' CAPITAL
Secured debt..................... $ 610,111 $ -- $ 610,111 $ -- $ 610,111
Credit facility.................. 312,000 56,730 368,730 (348,800) 19,930
Unsecured notes.................. -- -- -- 350,000 350,000
Other liabilities................ 81,611 -- 81,611 -- 81,611
---------- -------- ---------- --------- ----------
Total liabilities...... 1,003,722 56,730 1,060,452 1,200 1,061,652
---------- -------- ---------- --------- ----------
Minority interests............... 52,867 -- 52,867 -- 52,867
---------- -------- ---------- --------- ----------
Partners' capital
Limited partners............... 70,896 -- 70,896 -- 70,896
General partner................ 1,670,705 -- 1,670,705 -- 1,670,705
---------- -------- ---------- --------- ----------
Total capital.......... 1,741,601 -- 1,741,601 -- 1,741,601
---------- -------- ---------- --------- ----------
Total liabilities and
partners' capital.... $2,798,190 $ 56,730 $2,854,920 $ 1,200 $2,856,120
========== ======== ========== ========= ==========
</TABLE>
F-5
<PAGE> 137
AMB PROPERTY, L.P.
NOTES TO PRO FORMA
CONDENSED CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1998
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT UNIT DATA)
1. Reflects the historical consolidated balance sheet of AMB Property, L.P.
as of March 31, 1998. See the historical consolidated financial statements and
notes thereto of AMB Property, L.P. included elsewhere in this Prospectus.
2. Reflects property acquisitions subsequent to March 31, 1998 for an
estimated total purchase price of approximately $56,730, including estimated
acquisition costs. The Operating Partnership has funded these acquisitions
through borrowings under its Credit Facility. The 1998 property acquisitions
include the following properties:
<TABLE>
<CAPTION>
PROPERTY NAME ACQUISITION PRICE
------------- -----------------
<S> <C>
Houston Service Center........................ $ 15,620
Meadowridge/Greenwood......................... 33,050
Northwest Business Center..................... 8,060
-----------
$ 56,730
===========
</TABLE>
For purposes of property disclosures included elsewhere in this Prospectus,
Meadowridge/Greenwood is comprised of Meadowridge Business Park and Greenwood
Place.
3. Reflects the effect of the Offering, including (i) the issuance of
Unsecured Notes in the amount of $350,000, resulting in net proceeds of
approximately $348,800 after payment of approximately $3,650 of financing costs
and receipt of $2,450 of call option premium and (ii) the repayment of
borrowings under the Credit Facility of approximately $348,800 using the net
proceeds of the Offering.
F-6
<PAGE> 138
AMB PROPERTY, L.P.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT UNIT DATA)
<TABLE>
<CAPTION>
OPERATING 1998 PROPERTY
PARTNERSHIP(1) ACQUISITIONS(2) OFFERING(3) PRO FORMA
-------------- --------------- -------------- -----------
<S> <C> <C> <C> <C>
REVENUES
Rental revenue........................... $ 74,602 $ 9,314 $ -- $ 83,916
Interest and other income................ 1,183 -- -- 1,183
----------- ------- ------- -----------
Total revenues................. 75,785 9,314 -- 85,099
----------- ------- ------- -----------
OPERATING EXPENSES
Real estate taxes and property operating
expenses............................... 20,252 2,101 -- 22,353
Interest expense......................... 11,841 -- 4,373 16,214
Depreciation and amortization............ 11,786 2,026 -- 13,812
General, administrative and other........ 2,718 -- -- 2,718
----------- ------- ------- -----------
Total operating expenses....... 46,597 4,127 4,373 55,097
----------- ------- ------- -----------
Income from operations before minority
interests.............................. 29,188 5,187 (4,373) 29,973
Minority interests' share of net
income................................. (462) (613) -- (1,075)
----------- ------- ------- -----------
Net income..................... $ 28,726 $ 4,574 $(4,373) $ 28,927(4)
=========== ======= ======= ===========
Net income per unit
Basic.................................. $ 0.32 $ 0.32
=========== ===========
Diluted................................ $ 0.32 $ 0.32
=========== ===========
Weighted average units outstanding
Basic.................................. 88,428,969 89,523,120
=========== ===========
Diluted................................ 88,839,192 89,933,343
=========== ===========
</TABLE>
F-7
<PAGE> 139
AMB PROPERTY, L.P.
NOTES TO PRO FORMA
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT UNIT DATA)
1. Reflects the historical consolidated operations of AMB Property, L.P.
for the three months ended March 31, 1998. See the historical consolidated
financial statements and notes thereto of AMB Property, L.P. 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 Operating Partnership. Below is a summary of the
incremental effect of such properties:
<TABLE>
<CAPTION>
BOSTON ORLANDO TOTEM
INDUSTRIAL JAMESBURG CENTRAL LAKE OTHER
PORTFOLIO PROPERTY PARK MALLS PROPERTIES TOTAL
---------- --------- ------- ----- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
Rental and other revenues............. $2,853 $1,466 $ 804 $ 758 $3,433 $ 9,314
Real estate taxes and property
operating expenses.................. (108) (543) (260) (277) (913) (2,101)
------ ------ ----- ----- ------ -------
Pro forma effect...................... $2,745 $ 923 $ 544 $ 481 $2,520 $ 7,213
====== ====== ===== ===== ====== =======
</TABLE>
Two of the acquisitions included in Other Properties above, Jamesburg
Property and Corporate Park Industrial, represent a joint venture with a client
of AMB Investment Management in which the Operating Partnership owns a
controlling 50.0005% interest. The joint venture acquisitions are accounted for
on a consolidated basis and, accordingly, a minority interest of $612 has been
reflected relative to these acquisitions.
See the statements of revenues and certain expenses of Boston Industrial
Portfolio, Jamesburg Property, Orlando Central Park and Totem Lake Malls
included elsewhere in this Prospectus.
The following table sets forth the incremental revenues and certain
expenses for periods prior to acquisition for the "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 and Totem
Lake Malls 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............ 534 (188) 346
Meadowridge Business Park......... 800 (180) 620
Northwest Business Center......... 244 (58) 186
------- ------- ------
$ 3,433 $ (913) $2,520
======= ======= ======
</TABLE>
Also reflects estimated depreciation and amortization of the 1998 property
acquisitions based on estimated useful lives of 40 years.
F-8
<PAGE> 140
AMB PROPERTY, L.P.
NOTES TO PRO FORMA
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (CONTINUED)
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT UNIT DATA)
3. Reflects an adjustment to derive pro forma interest expense, which has
been based upon the pro forma debt balances as of March 31, 1998. The
calculation of pro forma interest expense is as follows:
<TABLE>
<S> <C>
Secured debt, pro forma balance of $592,569 (before premium
of $17,542), assumed interest rate of 7.8%................ $11,485
Credit Facility, pro forma balance of $19,930, assumed
interest rate of 6.55%.................................... 326
Unsecured Notes, pro forma balance of $350,000, assumed
weighted average interest rate of 6.98%................... 6,108
Amortization of debt premium, actual amounts amortized
during the period......................................... (744)
Amortization of deferred financing costs, $4,175 balance, 3
to 17 year terms.......................................... 148
Amortization of call option premium, pro forma balance of
$2,450, 17 year term...................................... (36)
Unused Credit Facility fees, unused pro forma balance of
$480,070, fee of 0.15%.................................... 180
Capitalized interest, actual amounts capitalized during the
period.................................................... (1,253)
-------
Pro forma interest expense.................................. $16,214
=======
</TABLE>
The net change in interest expense is the result of the repayment of
borrowings on the Credit Facility of approximately $348,800 with the net
proceeds from the Offering and the assumption of approximately $48,600 in
secured debt in connection with the 1998 property acquisitions.
4. The pro forma taxable income of the Operating Partnership for the twelve
months ended March 31, 1998 is approximately $106,975, which is based upon pro
forma income from operations before minority interest of approximately $109,011,
plus book depreciation and amortization of approximately $52,408 less other
book/tax differences of approximately $6,935 and less tax depreciation and
amortization of approximately $47,509.
The pro forma net income of AMB Property Corporation for the three months
ended March 31, 1998 is $27,741, which is equal to the pro forma net income of
the Operating Partnership of $28,927 less income allocable to the limited
partners in the Operating Partnership of $1,186.
F-9
<PAGE> 141
AMB PROPERTY, L.P.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT UNIT DATA)
<TABLE>
<CAPTION>
AMB IPO AND
OPERATING CONTRIBUTED 1997 PROPERTY 1997 PROPERTY FORMATION 1997 AS
PARTNERSHIP(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.................. 645 1,217 176 -- (29) 2,009
----------- -------- ------- ------- -------- -----------
Total revenues.... 27,110 208,608 47,730 (1,200) 2,426 284,674
----------- -------- ------- ------- -------- -----------
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............... 1,197 823 -- -- 5,958 7,978
----------- -------- ------- ------- -------- -----------
Total operating
expenses........ 17,819 150,900 10,815 (595) 1,832 180,771
----------- -------- ------- ------- -------- -----------
Income from operations
before disposal of real
estate and minority
interests............... 9,291 57,708 36,915 (605) 594 103,903
Gain on disposal of real
estate.................. -- 360 -- (360) -- --
----------- -------- ------- ------- -------- -----------
Income from operations
before minority
interests............... 9,291 58,068 36,915 (965) 594 103,903
Minority interests' share
of net income........... (117) (884) (296) -- -- (1,297)
----------- -------- ------- ------- -------- -----------
Net income................ $ 9,174 $ 57,184 $36,619 ($ 965) $ 594 $ 102,606
=========== ======== ======= ======= ======== ===========
Net income per unit
Basic................... $ 0.10 $ 1.16
=========== ===========
Diluted................. $ 0.10 $ 1.16
=========== ===========
Weighted average units
outstanding
Basic................... 88,416,676 88,416,676
=========== ===========
Diluted................. 88,698,719 88,698,719
=========== ===========
<CAPTION>
1998 PROPERTY OFFERING
ACQUISITIONS(6) (7) PRO FORMA
--------------- ----------- -----------
<S> <C> <C> <C>
REVENUES
Rental revenue............ $40,619 $ -- $ 323,284
Interest and other
income.................. -- -- 2,009
------- -------- -----------
Total revenues.... 40,619 -- 325,293
------- -------- -----------
OPERATING EXPENSES
Real estate taxes and
property operating
expenses................ 10,281 -- 91,759
Interest expense.......... -- 20,258 65,687
Depreciation and
amortization............ 6,516 -- 52,402
General, administrative
and other............... -- -- 7,978
------- -------- -----------
Total operating
expenses........ 16,797 20,258 217,826
------- -------- -----------
Income from operations
before disposal of real
estate and minority
interests............... 23,822 (20,258) 107,467
Gain on disposal of real
estate.................. -- -- --
------- -------- -----------
Income from operations
before minority
interests............... 23,822 (20,258) 107,467
Minority interests' share
of net income........... (2,774) -- (4,071)
------- -------- -----------
Net income................ $21,048 ($20,258) $ 103,396(8)
======= ======== ===========
Net income per unit
Basic................... $ 1.15
===========
Diluted................. $ 1.15
===========
Weighted average units
outstanding
Basic................... 89,523,120
===========
Diluted................. 89,805,163
===========
</TABLE>
F-10
<PAGE> 142
AMB PROPERTY, L.P.
NOTES TO PRO FORMA
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT UNIT DATA)
1. Reflects the historical consolidated operations of AMB Property, L.P.
for the period from November 26, 1997 to December 31, 1997. See the historical
consolidated financial statements and notes thereto of AMB Property, L.P.
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 Operating Partnership 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 $ 8,317 $ 47,730
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 $ 6,401 $ 36,915
======= ====== ======= ====== ====== ======= ========
</TABLE>
One of the acquisitions included in Other Properties above, Manhattan
Village, represents the acquisition of a property and the formation of several
joint ventures that own the property, in which the Operating Partnership 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-11
<PAGE> 143
AMB PROPERTY, L.P.
NOTES TO PRO FORMA
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT UNIT DATA)
The following table sets forth the incremental revenues and certain
expenses for periods prior to acquisition for the "Other Properties" acquired in
1997. 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........... 1,713 (414) 1,299
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
------- ------- -------
$ 8,317 $ 1,916 $ 6,401
======= ======= =======
</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 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).
F-12
<PAGE> 144
AMB PROPERTY, L.P.
NOTES TO PRO FORMA
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT UNIT DATA)
Also reflects an adjustment to historical interest expense to derive 1997
as adjusted interest expense, which has been based upon the Operating
Partnership'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 Operating Partnership. 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 (i) eliminate excess interest income of the
properties of $1,304 and (ii) reflect the incremental effect of establishing the
Operating Partnership'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 Operating Partnership'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
-------
Operating Partnership'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 Operating Partnership. Such
indirect costs have been allocated based upon the percentage of total assets
managed by AMB Investment Management.
In addition to its share of AMB Investment Management's net income, the
Operating Partnership received an acquisition fee for acquisition services
provided to AMB Investment Management in 1997. The pro forma fee for 1997
amounts to $750.
F-13
<PAGE> 145
AMB PROPERTY, L.P.
NOTES TO PRO FORMA
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT UNIT DATA)
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 Operating Partnership. Below is a summary of the
incremental effect of such properties:
<TABLE>
<CAPTION>
BOSTON ORLANDO
INDUSTRIAL JAMESBURG CENTRAL TOTEM LAKE OTHER
PORTFOLIO PROPERTY PARK MALLS PROPERTIES TOTAL
---------- --------- ------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
Rental and other revenues............ $10,403 $ 6,774 $ 3,249 $ 2,822 $17,371 $40,619
Real estate taxes and property
operating expenses................. (802) (2,510) (1,069) (1,293) (4,607) (10,281)
------- ------- ------- ------- ------- -------
Pro forma effect..................... $ 9,601 $ 4,264 $ 2,180 $ 1,529 $12,764 $30,338
======= ======= ======= ======= ======= =======
</TABLE>
Two of the acquisitions included in Other Properties above, Jamesburg
Property and Corporate Park Industrial, represent joint ventures with a client
of AMB Investment Management in which the Operating Partnership owns a
controlling 50.0005% interest. The joint venture acquisitions are accounted for
on a consolidated basis and, accordingly, a minority interest of $2,747 has been
reflected relative to these acquisitions.
See the statements of revenues and certain expenses of Boston Industrial
Portfolio, Jamesburg Property, Orlando Central Park and Totem Lake Malls
included elsewhere in this Prospectus.
The following table sets forth the incremental revenues and certain
expenses for periods prior to acquisition for the "Other Properties" acquired in
1998.
<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............ 2,072 (729) 1,343
Meadowridge Business Park......... 3,104 (699) 2,405
Northwest Business Center......... 947 (221) 726
------- ------- -------
$17,371 $(4,607) $12,764
======= ======= =======
</TABLE>
Also reflects estimated depreciation and amortization of the 1998 property
acquisitions based on estimated useful lives of 40 years.
F-14
<PAGE> 146
AMB PROPERTY, L.P.
NOTES TO PRO FORMA
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT UNIT DATA)
7. Reflects an adjustment to derive pro forma interest expense, which has
been based upon the pro forma debt balances as of March 31, 1998. The
calculation of pro forma interest expense is as follows:
<TABLE>
<S> <C>
Secured debt, pro forma balance of $592,569 (before premium
of $17,542), assumed interest rate of 7.8%................ $45,940
Credit Facility, pro forma balance of $19,930, assumed
interest rate of 6.55%.................................... 1,305
Unsecured Notes, pro forma balance of $350,000, assumed
weighted average interest rate of 6.98%................... 24,430
Amortization of deferred financing costs, $4,175 balance, 3
to 17 year terms.......................................... 548
Amortization of debt premium, $17,542 balance, 8 year
term...................................................... (2,924)
Amortization of call option premium, pro forma balance of
$2,450, 17 year term...................................... (144)
Unused Credit Facility fees, unused pro forma balance of
$480,070, fee of 0.15%.................................... 720
Capitalized interest, average historical construction in
process of $54,803, overall weighted average assumed
interest rate of 7.5%..................................... (4,188)
-------
Pro forma interest expense.................................. $65,687
=======
</TABLE>
The net change in interest expense is the result of the repayment of
borrowings on the Credit Facility of approximately $348,800 with the net
proceeds from the Offering and the assumption of approximately $48,600 in
secured debt in connection with the property acquisitions in 1998.
8. The pro forma taxable income of the Operating Partnership for the year
ended December 31, 1997 is approximately $103,160 which is based upon pro forma
income from operations before minority interest of approximately $105,918 plus
book depreciation and amortization of approximately $51,705 less other book/tax
differences of approximately $6,954 and less tax depreciation and amortization
of approximately $47,509.
The pro forma net income of AMB Property Corporation for the year ended
December 31, 1997 is $99,157, which is equal to the Operating Partnership's pro
forma net income of $103,396 less income allocable to the limited partners in
the Operating Partnership of $4,239.
F-15
<PAGE> 147
AMB PROPERTY, L.P.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1997 AND MARCH 31, 1998
(UNAUDITED, IN THOUSANDS, EXCEPT UNIT AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ ----------
<S> <C> <C>
Investments in real estate:
Land and improvements..................................... $ 550,635 $ 618,956
Buildings and improvements................................ 1,822,516 2,045,834
Construction in progress.................................. 69,848 91,092
---------- ----------
Total investments in real estate.................. 2,442,999 2,755,882
Accumulated depreciation and amortization................. (4,153) (15,834)
---------- ----------
Net investments in real estate.................... 2,438,846 2,740,048
Cash and cash equivalents................................... 39,968 28,584
Other assets................................................ 27,441 29,558
---------- ----------
Total assets...................................... $2,506,255 $2,798,190
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Debt:
Secured debt.............................................. $ 535,652 $ 610,111
Unsecured credit facility................................. 150,000 312,000
---------- ----------
Total debt........................................ 685,652 922,111
Other liabilities........................................... 49,350 81,611
Payable to affiliates....................................... 38,071 --
---------- ----------
Total liabilities................................. 773,073 1,003,722
Commitments and contingencies............................... -- --
Minority interests.......................................... 15,784 52,867
Partners' capital:
General Partner, 85,874,513 units outstanding............. 1,668,030 1,670,705
Limited Partners, 2,542,163 and 3,648,607 units
outstanding, respectively.............................. 49,368 70,896
---------- ----------
Total partners' capital........................... 1,717,398 1,741,601
---------- ----------
Total liabilities and partners' capital........... $2,506,255 $2,798,190
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-16
<PAGE> 148
AMB PROPERTY, L.P.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(UNAUDITED, IN THOUSANDS, EXCEPT UNIT AMOUNTS)
<TABLE>
<S> <C>
REVENUES
Rental revenues........................................... $ 74,602
Other income.............................................. 1,183
-----------
Total revenues.................................... 75,785
-----------
OPERATING EXPENSES
Property operating expenses............................... 10,004
Real estate taxes......................................... 10,248
Interest.................................................. 11,841
Depreciation and amortization............................. 11,786
General and administrative................................ 2,718
-----------
Total operating expenses.......................... 46,597
-----------
Income from operations before minority
interests......................................... 29,188
-----------
Minority interests' share of net income................... (462)
-----------
Net income........................................ $ 28,726
===========
Income Available to Unitholders Attributable to:
General Partner........................................... $ 27,906
Limited Partners.......................................... 820
-----------
$ 28,726
===========
INCOME PER UNIT
Basic..................................................... $ 0.32
===========
Diluted................................................... $ 0.32
===========
WEIGHTED AVERAGE UNITS OUTSTANDING
Basic..................................................... 88,428,969
===========
Diluted................................................... 88,839,192
===========
DISTRIBUTIONS DECLARED PER UNIT............................. $ 0.34
===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-17
<PAGE> 149
AMB PROPERTY, L.P.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(UNAUDITED, IN THOUSANDS)
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.................................................. $ 28,726
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................. 11,786
Straight-line rents....................................... (2,825)
Amortization of debt premiums and financing costs......... (669)
Minority interests' share of net income................... 462
Equity in income of AMB Investment Management............. (126)
Changes in assets and liabilities:
Other assets.............................................. (4,512)
Other liabilities......................................... 1,978
---------
Net cash provided by operating activities......... 34,820
CASH FLOWS FROM INVESTING ACTIVITIES
Cash paid for property acquisitions......................... (149,874)
Additions to land and building improvements................. (3,648)
Additions to tenant improvements and leasing costs.......... (2,862)
Additions to construction in progress....................... (5,065)
Reduction of payable to affiliates in connection with
Formation Transactions.................................... (38,071)
---------
Net cash used in investing activities............. (199,520)
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings on unsecured credit facility..................... 162,000
Borrowings on secured debt.................................. 1,118
Payments on secured debt.................................... (9,429)
Distributions to minority interests......................... (373)
---------
Net cash provided by (used in) financing
activities........................................ 153,316
Net decrease in cash and cash equivalents................... (11,384)
Cash and cash equivalents at beginning of period............ 39,968
---------
Cash and cash equivalents at end of period.................. $ 28,584
=========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest.................................................. $ 13,457
Property acquisitions:
Acquisitions of properties................................ $ 296,143
Assumption of secured debt................................ (83,515)
Minority interests contribution........................... (36,993)
Limited partner units issued.............................. (25,761)
---------
Cash paid for property acquisitions....................... $ 149,874
=========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-18
<PAGE> 150
AMB PROPERTY, L.P.
CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(UNAUDITED, IN THOUSANDS, EXCEPT UNIT AMOUNTS)
<TABLE>
<CAPTION>
GENERAL PARTNER LIMITED PARTNERS
------------------------ --------------------
UNITS AMOUNT UNITS AMOUNT TOTAL
---------- ---------- --------- ------- ----------
<S> <C> <C> <C> <C> <C>
DECEMBER 31, 1997............... 85,874,513 $1,668,030 2,542,163 $49,368 $1,717,398
Contributions................. -- -- 1,106,444 25,760 25,760
Net income.................... -- 27,906 -- 820 28,726
Reallocation.................. -- 4,181 -- (4,181) --
Distributions................. -- (29,412) -- (871) (30,283)
---------- ---------- --------- ------- ----------
MARCH 31, 1998.................. 85,874,513 $1,670,705 3,648,607 $70,896 $1,741,601
========== ========== ========= ======= ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-19
<PAGE> 151
AMB PROPERTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, IN THOUSANDS, EXCEPT SHARE, UNIT, SQUARE FEET AND PERCENTAGE DATA)
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 will elect 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 ownership, operation, management, acquisition, renovation,
expansion and development of industrial properties and community shopping
centers in target markets nationwide.
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
partnership 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 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 contributed to the Operating Partnership for 16,100,000 units and
were used by the Operating Partnership 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 March 31, 1998, the Company owned an approximate 95.9% general
partner interest in the Operating Partnership. The remaining 4.1% 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 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 therein). Certain Executive Officers collectively purchased 100% of the
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-20
<PAGE> 152
AMB PROPERTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED, IN THOUSANDS, EXCEPT SHARE, UNIT, SQUARE FEET AND PERCENTAGE DATA)
As of March 31, 1998, the Operating Partnership owned 155 Properties,
consisting of 118 industrial properties (the "Industrial Properties") and 37
retail properties (the "Retail Properties") located in 28 markets throughout the
United States. The Industrial Properties (comprising 415 buildings), principally
warehouse distribution properties, encompass approximately 44.0 million rentable
square feet and, as of March 31, 1998, were 94.6% leased to over 1,000 tenants.
The Retail Properties (comprising 37 centers), principally grocer-anchored
community shopping centers, encompass approximately 6.8 million rentable square
feet and, as of the same date, were 94.6% 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 results for the three months ended March 31, 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 of AMB Property, L.P. included elsewhere in this
Prospectus.
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.
3. DEBT
In connection with the Formation Transactions, the Operating Partnership
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 March 31, 1998, the unamortized debt premium
was $17,542. As of March 31, 1998, debt, excluding unamortized debt premiums,
consists of the following:
<TABLE>
<S> <C>
Secured debt, varying interest rates from 7.01% to 10.39%,
due November 1998 to January 2014......................... $592,569
Unsecured credit facility, variable interest at LIBOR plus
110 basis points, (6.79% at March 31, 1998) due November
2000...................................................... 312,000
--------
Total Debt........................................ $904,569
========
</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 one loan of $5,623 which
bears a variable interest rate at LIBOR plus 275 basis points, or 8.44% at March
31, 1998, 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 weighted-average fixed interest
rate on secured debt at March 31, 1998, was 8.01%.
F-21
<PAGE> 153
AMB PROPERTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED, IN THOUSANDS, EXCEPT SHARE, UNIT, SQUARE FEET AND PERCENTAGE DATA)
The Operating Partnership 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.
Interest capitalized related to construction projects for the three months
ended March 31, 1998, was $1,253.
The scheduled maturities of the secured debt as of March 31, 1998 are as
follows:
<TABLE>
<S> <C>
1998...................................................... $ 53,712
1999...................................................... 10,965
2000...................................................... 14,427
2001...................................................... 38,582
2002...................................................... 63,675
Thereafter................................................ 411,208
--------
$592,569
========
</TABLE>
The 1998 maturities included $35,000 of secured debt that was assumed in
connection with certain property acquisitions, and which was repaid in full
subsequent to March 31, 1998.
4. MINORITY INTERESTS
Minority interests represent interests held by certain third parties in 11
real estate joint ventures that are consolidated for financial reporting
purposes. Such investments are consolidated because (i) the Operating
Partnership owns a majority interest, or (ii) the Operating Partnership holds
significant control over the entity through a 50% or greater ownership interest
combined with the ability to control all major operating decisions such as
approval of budgets, selection of property managers and changes in financing.
5. PARTNERS' CAPITAL
On March 9, 1998, the Operating Partnership declared a quarterly cash
distribution of $0.3425 per unit, payable on April 3, 1998, to unitholders of
record as of March 18, 1998.
6. INCOME PER UNIT
For purposes of calculating diluted income per unit for the three months
ended March 31, 1998, no adjustment to net income was necessary, as the
Operating Partnership'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 units outstanding by 410,223
units for the three months ended March 31, 1998. Such dilution was computed
using the treasury stock method.
7. SUBSEQUENT EVENTS
In April 1998, the Operating Partnership repaid approximately $35,000 in
assumed debt related to properties acquired during the quarter ended March 31,
1998.
F-22
<PAGE> 154
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
AMB Property Corporation:
We have audited the accompanying consolidated balance sheet of AMB
Property, L.P. and its subsidiaries as of December 31, 1997, and the related
consolidated statements of income, partners' capital, and cash flows for period
from inception (November 26, 1997) to 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 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 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 audit provides 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, L.P. and its
subsidiaries as of December 31, 1997, and the results of its operations and cash
flows for the period from inception (November 26, 1997) to December 31, 1997, in
conformity with generally accepted accounting principles.
Our audit was 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 audit 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.
/s/ ARTHUR ANDERSEN LLP
San Francisco, California
January 27, 1998
F-23
<PAGE> 155
AMB PROPERTY, L.P.
CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT UNIT AMOUNTS)
<TABLE>
<CAPTION>
1997
----------
<S> <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................................... 39,968
Other assets................................................ 27,441
----------
Total assets...................................... $2,506,255
==========
LIABILITIES AND PARTNERS' CAPITAL
Debt:
Secured debt.............................................. $ 535,652
Unsecured credit facility................................. 150,000
----------
Total debt........................................ 685,652
Other liabilities........................................... 49,350
Payable to affiliates....................................... 38,071
----------
Total liabilities................................. 773,073
----------
Commitments and contingencies............................... --
Minority interests.......................................... 15,784
Partners' Capital:
General Partner, 85,874,513 units outstanding............. 1,668,030
Limited Partners, 2,542,163 units outstanding............. 49,368
----------
Total partners' capital........................... 1,717,398
----------
Total liabilities and partners' capital........... $2,506,255
==========
</TABLE>
The accompanying notes are an integral part of this consolidated financial
statement.
F-24
<PAGE> 156
AMB PROPERTY, L.P.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE PERIOD FROM INCEPTION (NOVEMBER 26, 1997) TO DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT UNIT AMOUNTS)
<TABLE>
<S> <C>
REVENUES
Rental revenues........................................... $ 26,465
Other income.............................................. 645
-----------
Total revenues.................................... 27,110
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
-----------
Total operating expenses.......................... 17,819
-----------
Income from operations before minority
interests........................................ 9,291
Minority interests' share of net income..................... (117)
-----------
Net income available to common stockholders....... $ 9,174
===========
Income Available to Unitholders Attributable to:
General Partner........................................ $ 8,634
Limited Partners....................................... 540
-----------
$ 9,174
===========
INCOME PER UNIT
Basic.................................................. $ 0.10
===========
Diluted................................................ $ 0.10
===========
WEIGHTED AVERAGE UNITS OUTSTANDING
Basic.................................................. 88,416,676
===========
Diluted................................................ 88,698,719
===========
</TABLE>
The accompanying notes are an integral part of this consolidated financial
statement.
F-25
<PAGE> 157
AMB PROPERTY, L.P.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION (NOVEMBER 26, 1997) TO DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.................................................. $ 9,291
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................... 117
Equity in income of AMB Investment Management............. (61)
Changes in assets and liabilities:
Other assets.............................................. (10,089)
Other liabilities......................................... (2,106)
--------
Net cash provided by operating activities................... 180
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
Partnership Contributions................................. 317,009
Borrowings on Credit Facility............................. 150,000
Borrowings on secured debt................................ 850
Repayment of Credit Facility.............................. (182,000)
Payments on secured debt.................................. (516)
Payment of financing fees................................. (900)
Partnership Distributions................................. (11,848)
--------
Net cash provided by (used in) financing activities......... 272,595
--------
Net increase (decrease) in cash and cash equivalents........ 39,968
Cash and cash equivalents at beginning of period............ --
--------
Cash and cash equivalents at end of period.................. $ 39,968
========
</TABLE>
The accompanying notes are an integral part of this consolidated financial
statement.
F-26
<PAGE> 158
AMB PROPERTY, L.P.
CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
FOR THE PERIOD FROM INCEPTION (NOVEMBER 26, 1997) TO DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARES)
<TABLE>
<CAPTION>
GENERAL PARTNER LIMITED PARTNERS
------------------------ --------------------
UNITS AMOUNT UNITS AMOUNT TOTAL
---------- ---------- --------- ------- ----------
<S> <C> <C> <C> <C> <C>
INCEPTION (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>
The accompanying notes are an integral part of this consolidated financial
statement.
F-27
<PAGE> 159
AMB PROPERTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT UNIT AND SQUARE FEET DATA)
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 "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.
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. 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 contributed to the Operating
Partnership for 16,100,000 units and were used by the Operating Partnership 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 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 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 certain officers 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-28
<PAGE> 160
AMB PROPERTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT UNIT AND SQUARE FEET DATA)
As of December 31, 1997, the Operating Partnership 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 Operating Partnership and
subsidiaries, and eight joint ventures (the "Joint Ventures") in which the
Operating Partnership has a controlling interest. Third-party equity interests
in 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 Operating Partnership include
the results of operations for the period from November 26, 1997 (the
commencement of operations) to December 31, 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.
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.
F-29
<PAGE> 161
AMB PROPERTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT UNIT AND SQUARE FEET DATA)
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 Operating Partnership'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 Operating Partnership
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 represent the 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 Operating
Partnership owns a majority interest, or (ii) the Operating Partnership 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.
REVENUES
The Operating Partnership, 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.
F-30
<PAGE> 162
AMB PROPERTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT UNIT AND SQUARE FEET DATA)
OTHER INCOME
Other income consists of the Operating Partnership's equity in the earnings
of AMB Investment Management and of interest income on cash and cash
equivalents.
INCOME PER UNIT
For purposes of calculating diluted income per unit for the year ended
December 31, 1997, no adjustment to net income available to unitholders was
necessary. While the Operating Partnership had no dilutive securities
outstanding as of such date, the Operating Partnership is obligated to issue
units to the Company in respect of the contribution of proceeds by the Company
from the exercise of options to purchase common stock under the Company's Stock
Incentive Plan. The effect of the units issuable upon exercise of stock options
outstanding as of December 31, 1997 was to increase weighted average units
outstanding by 282,043 units for the year ended December 31, 1997. Such dilution
was computed using the treasury stock method.
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 Operating
Partnership expects to adopt SFAS No. 131 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 Operating Partnership and the Investment
Management Partnership have an agreement that allows for the sharing of certain
costs and employees. Additionally, the Operating Partnership provides the
Investment Management Partnership with certain acquisition-related services.
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 Operating Partnership 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 Operating Partnership 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 Operating Partnership and the
Investment Management Partnership at cost. For the period ended December 31,
1997, the Operating Partnership paid approximately $70 for occupancy costs
related to the lease obligations of the affiliate.
F-31
<PAGE> 163
AMB PROPERTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT UNIT AND SQUARE FEET DATA)
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 or mortgages on 48 Properties. The
carrying value of real estate investments pledged as collateral under deeds of
trust or 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 Operating Partnership 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 Operating Partnership'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.
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-32
<PAGE> 164
AMB PROPERTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT UNIT 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
As a partnership, the allocated share of income of the Operating
Partnership is included in the income tax returns of the partners. Accordingly,
no accounting for income taxes is required in the accompanying consolidated
financial statements. State and local taxes are not material.
Taxable income of the Operating Partnership for the period from inception
(November 26, 1997) to December 31, 1997 is estimated to be $12,007. Reconciling
differences between book income and tax income primarily result from timing
differences consisting of (i) depreciation expense, (ii) prepaid rental income
and (iii) straight-line rent. Furthermore, the Operating Partnership's share of
income or loss from AMB Investment Management is excluded from the tax return of
the Operating Partnership.
The Operating Partnership declared distributions per Unit of $0.13 for the
period from inception (November 26, 1997) to December 31, 1997. The following is
a summary of distributions per Unit which represent a return of capital measured
using generally accepted accounting principles:
<TABLE>
<CAPTION>
DISTRIBUTION PER UNIT
<S> <C>
From book net income........................................ $0.10
Representing return of capital.............................. 0.03
-----
Total Distributions......................................... $0.13
=====
</TABLE>
On a federal income tax basis, none of the distributions represented return
of capital.
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 is exchangeable for one share of
the Company's Common Stock and has an exercise price equal to $21.00, the
F-33
<PAGE> 165
AMB PROPERTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT UNIT AND SQUARE FEET DATA)
Company's 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. Upon the exercise of stock options, the Company will contribute the
proceeds to the Operating Partnership in exchange for an equal number of general
partnership units.
The Operating Partnership 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 at the date of grant.
However, if the Operating Partnership had measured compensation cost using the
fair value base 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. The Company
contributed the proceeds from the issuance of restricted shares to the Operating
Partnership in exchange for an equal number of GP units.
401(k) PLAN
In November 1997, the Operating Partnership 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
Operating Partnership and any designated affiliate. The Section 401(k) Plan
permits eligible employees of the Operating Partnership 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 Operating Partnership 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,
F-34
<PAGE> 166
AMB PROPERTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT UNIT AND SQUARE FEET DATA)
1997, the Operating Partnership'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 Operating Partnership offers no
other post-retirement or post-employment benefits to its employees.
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)
Units issued........................................... -- -- (1,434,749)
--- --- ----------
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, 1997. 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, 1997, nor does it purport to present the
consolidated results of operations for future periods.
<TABLE>
<S> <C> <C>
Total revenues............................................ $ 284,674
Income from operations before minority interests.......... 103,903
Net income................................................ 102,606
INCOME PER UNIT
Basic................................................... $ 1.16
===========
Diluted................................................. $ 1.16
===========
WEIGHTED AVERAGE UNITS OUTSTANDING
Basic................................................... 88,416,676
===========
Diluted................................................. 88,698,719
===========
</TABLE>
10. COMMITMENTS AND CONTINGENCIES
LITIGATION
In the normal course of business, from time to time, the Operating
Partnership 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 Operating Partnership.
F-35
<PAGE> 167
AMB PROPERTY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT UNIT AND SQUARE FEET DATA)
ENVIRONMENTAL MATTERS
The Operating Partnership follows the policy of monitoring its Properties
for the presence of hazardous or toxic substances. The Operating Partnership is
not aware of any environmental liability with respect to the Properties that
would have a material adverse effect on the Operating Partnership'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 Operating
Partnership's results of operations and cash flow.
GENERAL UNINSURED LOSSES
The Operating Partnership 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 Operating Partnership 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 Operating Partnership has therefore obtained limited
earthquake insurance.
F-36
<PAGE> 168
AMB PROPERTY, L.P.
SCHEDULE III
CONSOLIDATED REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
COSTS
CAPITALIZED
INITIAL COST TO SUBSEQUENT TO
OPERATING PARTNERSHIP 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-37
<PAGE> 169
<TABLE>
<CAPTION>
COSTS
CAPITALIZED
INITIAL COST TO SUBSEQUENT TO
OPERATING PARTNERSHIP 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-38
<PAGE> 170
<TABLE>
<CAPTION>
COSTS
CAPITALIZED
INITIAL COST TO SUBSEQUENT TO
OPERATING PARTNERSHIP 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-39
<PAGE> 171
<TABLE>
<CAPTION>
COSTS
CAPITALIZED
INITIAL COST TO SUBSEQUENT TO
OPERATING PARTNERSHIP 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-40
<PAGE> 172
AMB PROPERTY, L.P.
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
----------
<S> <C>
INVESTMENTS IN REAL ESTATE:
Balance at beginning of year.............................. $ --
Acquisition of Properties(5)........................... 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 $73,000 secured debt
facility.
(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) 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-41
<PAGE> 173
AMB PROPERTY CORPORATION
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1997 AND MARCH 31, 1998
(UNAUDITED, IN THOUSANDS, EXCEPT SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ ----------
<S> <C> <C>
Investments in real estate:
Land and improvements..................................... $ 550,635 $ 618,956
Buildings and improvements................................ 1,822,516 2,045,834
Construction in progress.................................. 69,848 91,092
---------- ----------
Total investments in real estate.................. 2,442,999 2,755,882
Accumulated depreciation and amortization................. (4,153) (15,834)
---------- ----------
Net investments in real estate.................... 2,438,846 2,740,048
Cash and cash equivalents................................... 39,968 28,584
Other assets................................................ 27,441 29,558
---------- ----------
Total assets...................................... $2,506,255 $2,798,190
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Debt:
Secured debt.............................................. $ 535,652 $ 610,111
Unsecured credit facility................................. 150,000 312,000
---------- ----------
Total debt........................................ 685,652 922,111
Other liabilities........................................... 49,350 81,611
Payable to affiliates....................................... 38,071 --
---------- ----------
Total liabilities................................. 773,073 1,003,722
Commitments and contingencies............................... -- --
Minority interests.......................................... 65,152 123,763
Stockholders' equity:
Preferred stock, $.01 par value, 100,000,000 shares
authorized, none issued or outstanding................. -- --
Common stock, $.01 par value, 500,000,000 shares
authorized, 85,874,513 issued and outstanding.......... 859 859
Additional paid-in capital................................ 1,667,171 1,669,846
Retained earnings......................................... -- --
---------- ----------
Total stockholders' equity........................ 1,668,030 1,670,705
---------- ----------
Total liabilities and stockholders' equity........ $2,506,255 $2,798,190
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-42
<PAGE> 174
AMB PROPERTY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998
(UNAUDITED, IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31,
---------------------------
1997 1998
----------- ------------
<S> <C> <C>
REVENUES
Rental revenues........................................... $ -- $ 74,602
Investment management and other income.................... 5,112 1,183
---------- -----------
Total revenues.................................... 5,112 75,785
---------- -----------
OPERATING EXPENSES
Property operating expenses............................... -- 10,004
Real estate taxes......................................... -- 10,248
Interest.................................................. -- 11,841
Depreciation and amortization............................. -- 11,786
General and administrative................................ -- 2,718
Investment management expenses............................ 3,873 --
---------- -----------
Total operating expenses.......................... 3,873 46,597
---------- -----------
Income from operations before minority
interests....................................... 1,239 29,188
---------- -----------
Minority interests' share of net income................... -- (1,282)
---------- -----------
Net income available to common stockholders....... $ 1,239 $ 27,906
========== ===========
INCOME PER SHARE OF COMMON STOCK
Basic..................................................... $ 0.24 $ 0.32
========== ===========
Diluted................................................... $ 0.24 $ 0.32
========== ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic..................................................... 5,079,855 85,874,513
========== ===========
Diluted................................................... 5,079,855 86,284,736
========== ===========
DISTRIBUTIONS DECLARED PER SHARE OF COMMON STOCK............ $ 0.17 $ 0.34
========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-43
<PAGE> 175
AMB PROPERTY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
---------------------
1997 1998
------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.................................................. $1,239 $ 27,906
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................. -- 11,786
Straight-line rents....................................... -- (2,825)
Amortization of debt premiums and financing costs......... -- (669)
Minority interests' share of net income................... -- 1,282
Equity in income of AMB Investment Management............. -- (126)
Changes in assets and liabilities:
Other assets.............................................. 101 (4,512)
Other liabilities......................................... 219 1,978
------ ---------
Net cash provided by operating activities......... 1,559 34,820
CASH FLOWS FROM INVESTING ACTIVITIES
Cash paid for property acquisitions......................... -- (149,874)
Additions to land and building improvements................. -- (3,648)
Additions to tenant improvements and leasing costs.......... -- (2,862)
Additions to construction in progress....................... -- (5,065)
Reduction of payable to affiliates in connection with
Formation Transactions.................................... -- (38,071)
------ ---------
Net cash used in investing activities............. -- (199,520)
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings on unsecured credit facility..................... -- 162,000
Borrowings on secured debt.................................. -- 1,118
Payments on secured debt.................................... -- (9,429)
Distributions to minority interests......................... -- (373)
Distributions to minority interests of Predecessor.......... (137) --
Distributions to stockholders of Predecessor................ (4,003) --
Principal payment of notes receivable from stockholders of
Predecessor............................................... 328 --
------ ---------
Net cash provided by (used in) financing
activities....................................... (3,812) 153,316
Net decrease in cash and cash equivalents................... (2,253) (11,384)
Cash and cash equivalents at beginning of period............ 3,093 39,968
------ ---------
Cash and cash equivalents at end of period.................. $ 840 $ 28,584
====== =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest.................................................. $ -- $ 13,457
Property acquisitions:
Acquisitions of properties................................ $ -- $ 296,143
Assumption of secured debt................................ -- (83,515)
Minority interests contribution........................... -- (62,754)
------ ---------
Cash paid for property acquisitions....................... $ -- $ 149,874
====== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-44
<PAGE> 176
AMB PROPERTY CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(UNAUDITED, IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<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...................... -- -- -- 27,906 27,906
Reallocation of Limited
Partners' interests in
Operating Partnership........ -- -- 4,181 -- 4,181
Distributions declared to AMB
Property Corporation
stockholders................. -- -- (1,506) (27,906) (29,412)
---------- ---- ---------- -------- ----------
BALANCE AT MARCH 31, 1998......... 85,874,513 $859 $1,669,846 $ -- $1,670,705
========== ==== ========== ======== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-45
<PAGE> 177
AMB PROPERTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED, IN THOUSANDS, EXCEPT SHARE, UNIT, SQUARE FEET AND PERCENTAGE DATA)
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, 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" 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 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 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
purposes, including working capital.
As of March 31, 1998, the Company owned an approximate 95.9% general
partner interest in the Operating Partnership. The remaining 4.1% limited
partner interest was 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 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 therein). Certain Executive Officers and certain officers 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-46
<PAGE> 178
AMB PROPERTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED, IN THOUSANDS, EXCEPT SHARE, UNIT, SQUARE FEET AND PERCENTAGE DATA)
As of March 31, 1998, the Company owned 155 Properties, consisting of 118
industrial properties (the "Industrial Properties") and 37 retail properties
(the "Retail Properties") located in 28 markets throughout the United States.
The Industrial Properties (comprising 415 buildings), principally warehouse
distribution properties, encompass approximately 44.0 million rentable square
feet and, as of March 31, 1998, were 94.6% leased to over 1,000 tenants. The
Retail Properties (comprising 37 centers), principally grocer-anchored community
shopping centers, encompass approximately 6.8 million rentable square feet and,
as of the same date, were 94.6% 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 three months ended March 31,
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 three months ended March 31, 1997 and 1998 is not comparable given the
differences in lines of business between the Company and the Predecessor.
The interim results of the three months ended March 31, 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.
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 March 31, 1998, the unamortized debt premium was $17,542.
As of March 31, 1998, debt, excluding unamortized debt premiums, consists of the
following:
<TABLE>
<S> <C>
Secured debt, varying interest rates from 7.01% to 10.39%,
due November 1998 to January 2014......................... $592,569
Unsecured credit facility, variable interest at LIBOR plus
110 basis points, (6.79% at March 31, 1998) due November
2000...................................................... 312,000
--------
Total Debt........................................ $904,569
========
</TABLE>
F-47
<PAGE> 179
AMB PROPERTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED, IN THOUSANDS, EXCEPT SHARE, UNIT, SQUARE FEET AND PERCENTAGE DATA)
Secured debt generally requires monthly principal and interest payments.
The secured debt is secured by deeds of trust or mortgages on certain
Properties. All of the secured debt bears interest at fixed rates, except for
one loan of $5,623 which bears interest at either LIBOR plus 275 basis points
(8.44% at March 31, 1998) 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
weighted-average fixed interest rate on secured debt at March 31, 1998, was
8.01%.
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.
Interest capitalized related to construction projects for the three months
ended March 31, 1998, was $1,253. There was no capitalized interest for periods
prior to the Formation Transactions.
The scheduled maturities of the secured debt as of March 31, 1998 are as
follows:
<TABLE>
<S> <C>
1998...................................................... $ 53,712
1999...................................................... 10,965
2000...................................................... 14,427
2001...................................................... 38,582
2002...................................................... 63,675
Thereafter................................................ 411,208
--------
$592,569
========
</TABLE>
The 1998 maturities included $35,000 of secured debt that was assumed in
connection with certain property acquisitions, and which was repaid in full
subsequent to March 31, 1998.
4. MINORITY INTERESTS
Minority interests in the Company represent the limited partnership
interests in the Operating Partnership and interests held by certain third
parties in 11 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 all 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 ("Minority Interest -- Joint Ventures") and the limited
partnership interests' in the Operating Partnership ("Minority
Interest -- Limited Partners") as of March 31, 1998.
<TABLE>
<S> <C>
Minority Interest -- Joint Ventures....................... $ 52,867
Minority Interest -- Limited Partners..................... 70,896
--------
$123,763
========
</TABLE>
5. STOCKHOLDERS' EQUITY
On March 9, 1998, the Company and the Operating Partnership declared a
quarterly cash distribution of $0.3425 per share of common stock, payable on
April 3, 1998, to stockholders and unitholders of record as of March 18, 1998.
F-48
<PAGE> 180
AMB PROPERTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED, IN THOUSANDS, EXCEPT SHARE, UNIT, SQUARE FEET AND PERCENTAGE DATA)
6. EARNINGS PER SHARE
For purposes of calculating diluted earnings per share for the three months
ended March 31, 1998, 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 410,223 for the three months ended March 31, 1998. Such dilution
was computed using the treasury stock method. The Predecessor had no dilutive
securities outstanding during the three months ended March 31, 1997.
7. PRO FORMA INFORMATION
The following summary unaudited pro forma financial information for the
three months ended March 31, 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. In the opinion of management, 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 present the consolidated results of operations for future periods.
<TABLE>
<CAPTION>
FOR THE THREE
MONTHS ENDED
MARCH 31, 1997
--------------
<S> <C>
Total revenues......................................... $ 68,622
Income from operations before minority interests....... 24,327
Net income available to common stockholders............ 23,342
Income Per Share of Common Stock
Basic................................................ $ 0.27
-----------
Diluted.............................................. $ 0.27
-----------
Weighted Average Common Shares Outstanding
Basic................................................ 85,874,513
===========
Diluted.............................................. 86,284,736
===========
</TABLE>
F-49
<PAGE> 181
AMB PROPERTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED, IN THOUSANDS, EXCEPT SHARE, UNIT, SQUARE FEET AND PERCENTAGE DATA)
8. OPERATING PARTNERSHIP
As of March 31, 1998, the Company owned a 95.9% general partner interest in
the Operating Partnership. Therefore, the Company consolidates the Operating
Partnership and records the remaining 4.1% limited partner interests as minority
interests in the consolidated financial statements. The Operating Partnership
commenced operations as a fully integrated real estate company in connection
with the Formation Transactions. The following table sets forth summary
financial information of the Operating Partnership as of and for the period from
December 31, 1997 to March 31, 1998:
<TABLE>
<S> <C>
Investments in real estate, net......................... $ 2,740,048
Total assets............................................ 2,798,190
Debt.................................................... 922,111
Partners' capital....................................... 1,741,601
Revenues................................................ 75,785
Income from operations before minority interest......... 29,188
Net income.............................................. 28,726
Net income per unit:
Basic................................................. $ 0.32
Diluted............................................... $ 0.32
Weighted average units outstanding:
Basic................................................. 88,428,969
Diluted............................................... 88,839,192
</TABLE>
Following is a statement of partners' capital of the Operating Partnership
for the three months ended March 31, 1998:
<TABLE>
<CAPTION>
GENERAL PARTNER LIMITED PARTNERS
------------------------ --------------------
UNITS AMOUNT UNITS AMOUNT TOTAL
---------- ---------- --------- ------- ----------
<S> <C> <C> <C> <C> <C>
December 31, 1997............... 85,874,513 $1,668,030 2,542,163 $49,368 $1,717,398
Contributions................... -- -- 1,106,444 25,760 25,760
Net income...................... -- 27,906 -- 820 28,726
Reallocation.................... -- 4,181 -- (4,181) --
Distributions................... -- (29,412) -- (871) (30,283)
---------- ---------- --------- ------- ----------
March 31, 1998.................. 85,874,513 $1,670,705 3,648,607 $70,896 $1,741,601
========== ========== ========= ======= ==========
</TABLE>
9. SUBSEQUENT EVENTS
On April 2, 1998, the Operating Partnership filed a registration statement
with the Securities and Exchange Commission for the issuance of senior unsecured
notes with an aggregate principal amount of $350,000. If such transaction is
consummated, the Company anticipates that it will use the net proceeds from the
issuance to repay borrowings on the Credit Facility and for general working
capital requirements.
In April 1998, the Company repaid approximately $35,000 in assumed debt
related to properties acquired during the quarter ended March 31, 1998.
F-50
<PAGE> 182
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-51
<PAGE> 183
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-52
<PAGE> 184
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-53
<PAGE> 185
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-54
<PAGE> 186
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-55
<PAGE> 187
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 its 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. 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 certain officers 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-56
<PAGE> 188
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-57
<PAGE> 189
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.
F-58
<PAGE> 190
AMB PROPERTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND SQUARE FEET DATA)
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>
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.
F-59
<PAGE> 191
AMB PROPERTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND SQUARE FEET DATA)
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.
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.
F-60
<PAGE> 192
AMB PROPERTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND SQUARE FEET DATA)
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>
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.
F-61
<PAGE> 193
AMB PROPERTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND SQUARE FEET DATA)
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 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
F-62
<PAGE> 194
AMB PROPERTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND SQUARE FEET DATA)
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.
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>
F-63
<PAGE> 195
AMB PROPERTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND SQUARE FEET DATA)
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 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 intergrated 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>
F-64
<PAGE> 196
AMB PROPERTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND SQUARE FEET DATA)
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-65
<PAGE> 197
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-66
<PAGE> 198
<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-67
<PAGE> 199
<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-68
<PAGE> 200
<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-69
<PAGE> 201
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-70
<PAGE> 202
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-71
<PAGE> 203
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-72
<PAGE> 204
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-73
<PAGE> 205
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-74
<PAGE> 206
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-75
<PAGE> 207
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"). The 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, 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 Transaction"). 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 AMB Property Corporation.
F-76
<PAGE> 208
AMB CONTRIBUTED PROPERTIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
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.
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
F-77
<PAGE> 209
AMB CONTRIBUTED PROPERTIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
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.
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 1) the Company owns a controlling general
partner's interest or holds a majority member interest, or 2) 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
F-78
<PAGE> 210
AMB CONTRIBUTED PROPERTIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
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.
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 AMB Property
Corporation free of debt, the debt is not reflected in the accompanying combined
financial statements.
F-79
<PAGE> 211
AMB CONTRIBUTED PROPERTIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
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 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-80
<PAGE> 212
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 AMB
Property Corporation 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-81
<PAGE> 213
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To AMB Property L.P.:
We have audited the accompanying combined statement of revenues and certain
expenses of the Boston Industrial Portfolio for the year ended December 31,
1997. This combined financial statement is the responsibility of the management
of the Company. 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 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 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 the rules and regulations of the
Securities and Exchange Commission, 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 financial statement 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-82
<PAGE> 214
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-83
<PAGE> 215
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.
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 reporting period. Actual results could differ from those
estimates.
F-84
<PAGE> 216
BOSTON INDUSTRIAL PORTFOLIO
NOTES TO COMBINED STATEMENTS OF REVENUES AND CERTAIN EXPENSES (CONTINUED)
(UNAUDITED, DOLLARS IN THOUSANDS)
2. LEASING ACTIVITY
The following is a schedule of future minimum rental revenues for 1998 and
annually thereafter on non-cancelable operating leases in effect as of December
31, 1997.
<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-85
<PAGE> 217
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To AMB Property, L.P.:
We have audited the accompanying statement of revenues and certain expenses
of the Jamesburg Property, for the year ended December 31, 1997. This financial
statement is the responsibility of the management of the Company. 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 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 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 the rules and regulations of the
Securities and Exchange Commission, 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 financial statement 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-86
<PAGE> 218
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-87
<PAGE> 219
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,
L.P. (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.
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 reporting period. Actual results could differ from those
estimates.
2. LEASING ACTIVITY
The following is a schedule of future minimum rental revenues for 1998 and
annually thereafter on non-cancelable operating leases in effect as of December
31, 1997.
<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-88
<PAGE> 220
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To AMB Property, L.P.:
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 Company. 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 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 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 the rules and regulations of the
Securities and Exchange Commission, 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 financial statement 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-89
<PAGE> 221
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-90
<PAGE> 222
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,
L.P. (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 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.
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 reporting period. Actual results could differ from those
estimates.
2. LEASING ACTIVITY
The following is a schedule of future minimum rental revenues for 1998 and
annually thereafter on non-cancelable operating leases in effect as of December
31, 1997.
<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-91
<PAGE> 223
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To AMB Property, L.P.:
We have audited the accompanying statement of revenues and certain expenses
of Totem Lake Malls, for the year ended December 31, 1997. This financial
statement is the responsibility of the management of the Company. 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 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 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 the rules and regulations of the
Securities and Exchange Commission, 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 financial statement 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-92
<PAGE> 224
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-93
<PAGE> 225
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, L.P.
(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.
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 reporting period. Actual results could differ from those
estimates.
2. LEASING ACTIVITY
The following is a schedule of future minimum rental revenues for 1998 and
annually thereafter on non-cancelable operating leases in effect as of December
31, 1997.
<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-94
<PAGE> 226
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Owners of the
AMB Contributed Properties:
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 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 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 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 the rules and regulations of the
Securities and Exchange Commission for inclusion in the Registration Statement
on Form S-11 of AMB Property Corporation 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 financial statement 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-95
<PAGE> 227
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-96
<PAGE> 228
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, L.P. (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-97
<PAGE> 229
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.
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
reporting period. Actual results could differ from those estimates.
2. LEASING ACTIVITY
The following is a schedule of future minimum rental revenues for 1997 and
annually thereafter on non-cancelable operating leases in effect as of December
31, 1997.
<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-98
<PAGE> 230
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 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 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 audit provides a reasonable basis for our opinion.
The accompanying statement of revenues and certain expenses was prepared
for the purpose of complying with the rules and regulations of the Securities
and Exchange Commission for inclusion in the Registration Statement on Form S-11
of AMB Property Corporation 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 financial statement 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-99
<PAGE> 231
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-100
<PAGE> 232
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.
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
The following is a schedule of future minimum rental revenues for 1997 and
annually thereafter on non-cancelable operating leases in effect as of December
31, 1996.
<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-101
<PAGE> 233
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 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 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 audit provides a reasonable basis for our opinion.
The accompanying statement of revenues and certain expenses was prepared
for the purpose of complying with the rules and regulations of the Securities
and Exchange Commission for inclusion in the Registration Statement on Form S-11
of AMB Property Corporation 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 financial statement 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-102
<PAGE> 234
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-103
<PAGE> 235
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, 1998 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.
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
reporting period. Actual results could differ from those estimates.
2. LEASING ACTIVITY
The following is a schedule of future minimum rental revenues for 1997 and
annually thereafter on non-cancelable operating leases in effect as of December
31, 1996.
<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-104
<PAGE> 236
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 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 audit provides a reasonable basis for our opinion.
The accompanying statement of revenues and certain expenses was prepared
for the purpose of complying with the rules and regulations of the Securities
and Exchange Commission for inclusion in the Registration Statement on Form S-11
of AMB Property Corporation 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 financial statement 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-105
<PAGE> 237
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-106
<PAGE> 238
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"). AMB Property Corporation (the
"Company") acquired the Property 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.
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
reporting period. Actual results could differ from those estimates.
2. LEASING ACTIVITY
The following is a schedule of future minimum rental revenues for 1997 and
annually thereafter on non-cancelable operating leases in effect as of December
31, 1996.
<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-107
<PAGE> 239
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 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 audit provides a reasonable basis for our opinion.
The accompanying statement of revenues and certain expenses was prepared
for the purpose of complying with the rules and regulations of the Securities
and Exchange Commission for inclusion in the Registration Statement on Form S-11
of AMB Property Corporation 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 financial statement 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-108
<PAGE> 240
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-109
<PAGE> 241
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.
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
reporting period. Actual results could differ from those estimates.
2. LEASING ACTIVITY
The following is a schedule of future minimum rental revenues for 1997 and
annually thereafter on non-cancelable operating leases in effect as of November
25, 1997.
<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-110
<PAGE> 242
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........................................ $ 121,725
Rating Agencies Fees........................................ 450,000
Printing and Engraving Expenses............................. 95,000
Legal Fees and Expenses..................................... 250,000
Accounting Fees and Expenses................................ 75,000
Trustee Fees and Expenses................................... 100,000
Blue Sky Fees and Expenses.................................. 15,000
Miscellaneous Expenses...................................... 18,275
----------
Total............................................. $1,125,000
==========
</TABLE>
All of the costs identified above will be paid by the Operating Partnership.
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> 243
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.
The Partnership Agreement of the Operating Partnership 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.
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
Pro Forma Financial Information (Unaudited)
AMB Property, L.P.
Pro forma condensed consolidated balance sheet as of March 31, 1998
Notes to pro forma condensed consolidated balance sheet
Pro forma condensed consolidated statement of operations for the three
months ended March 31, 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, L.P. -- March 31, 1998
Consolidated balance sheets as of December 31, 1997 and March 31, 1998
(unaudited)
Consolidated statements of operations for the three months ended March 31,
1998 (unaudited)
II-2
<PAGE> 244
Consolidated statements of cash flows for the three months ended March 31,
1998 (unaudited)
Consolidated statements of partners' capital for the three months ended
March 31, 1998 (unaudited)
Notes to consolidated financial statements (unaudited)
AMB Property, L.P. -- December 31, 1997
Report of independent public accountants
Consolidated balance sheets as of December 31, 1997
Consolidated statement of operations for the period from inception
(November 26, 1997) to December 31, 1997
Consolidated statement of cash flows for the period from inception
(November 26, 1997) to December 31, 1997
Consolidated statement of partners' capital for the period from inception
(November 26, 1997) to December 31, 1997
Notes to consolidated financial statements
AMB Property Corporation -- March 31, 1998
Consolidated balance sheets as of December 31, 1997 and March 31, 1998
Consolidated statements of operations for the three months ended March 31,
1997 and 1998 (unaudited)
Consolidated statements of cash flows for the three months ended March 31,
1997 and 1998 (unaudited)
Consolidated statement of stockholders' equity for the three months ended
March 31, 1998 (unaudited)
Notes to consolidated financial statements (unaudited)
AMB Property Corporation -- 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
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)
II-3
<PAGE> 245
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
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
Jamesburg
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
Cabot Industrial Portfolio
Report of independent public accountants
Statements of revenues and certain expenses for the year ended December 31,
1996 and the for period from January 1, 1997 to December 30, 1997
(unaudited)
Notes to 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
II-4
<PAGE> 246
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 the period from January 1, 1997 to November 25, 1997 (unaudited)
Notes to statements of revenue and certain expenses
(a)(2) FINANCIAL STATEMENT SCHEDULE
Historical Financial Information -- AMB Property Corporation
Schedule III -- Historical Consolidated Real Estate and Accumulated
Depreciation.
(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 Bylaws of the Registrant (incorporated by reference to
Exhibit 3.2 of the Company's Registration Statement on Form
S-11 (No. 333-35915)).
**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.
**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.
**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.
**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.
**4.5 Specimen of % Notes due 2008 (included in the First
Supplemental Indenture incorporated by reference as Exhibit
4.2).
**4.6 Specimen of % Notes due 2018 (included in the Second
Supplemental Indenture incorporated by reference as Exhibit
4.3).
**4.7 Specimen of % Reset Put Securities due 2015 (included
in the Third Supplemental Indenture incorporated by
reference as Exhibit 4.4).
8.1 Opinion of Latham & Watkins.
</TABLE>
II-5
<PAGE> 247
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.1 Amended and Restated Agreement of Limited Partnership of AMB
Property, L.P. (incorporated by reference to Exhibit 10.1 to
the Company's Registration Statement on Form S-11 (No.
333-35915)).
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 Amended and Restated Credit Agreement, dated August 8, 1997
(incorporated by reference to Exhibit 10.3 to the Company's
Registration Statement on Form S-11 (No. 333 -35915)).
10.4 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)).
10.5 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)).
**10.6 Calculation Agency Agreement between the Operating
Partnership and Morgan Stanley & Co. Incorporated.
**12.1 Statement regarding computation of ratios.
**21.1 Subsidiaries of the Registrant.
23.1 Consent of Latham & Watkins (included in Exhibit 8.1 above).
23.2 Consent of Arthur Andersen LLP.
**24.1 Power of Attorney.
25.1 Form T-1 Statement of Eligibility and Qualification under
the Trust Indenture Act of 1939 of State Street Bank and
Trust Company of California, N.A., as Trustee.
**27.1 Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
** Previously filed.
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.
II-6
<PAGE> 248
(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-7
<PAGE> 249
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, each of the
Registrants 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
Amendment No. 2 to 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 4th day of June, 1998.
AMB PROPERTY CORPORATION
By: *
---------------------------------------
Hamid R. Moghadam
President and Chief Executive Officer
AMB PROPERTY, L.P.
By AMB PROPERTY CORPORATION,
its general partner
By: *
---------------------------------------
Hamid R. Moghadam
President and Chief Executive Officer
II-8
<PAGE> 250
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 each of the Registrants and in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Chairman of the Board and June 8, 1998
- ----------------------------------------------------- Director
T. Robert Burke
* President, Chief Executive June 8, 1998
- ----------------------------------------------------- Officer and Director
Hamid R. Moghadam (Principal Executive
Officer)
* Chairman of Investment June 8, 1998
- ----------------------------------------------------- Committee and Director
Douglas D. Abbey
* Chief Financial Officer June 8, 1998
- ----------------------------------------------------- (Principal Financial
S. Davis Carniglia Officer)
/s/ MICHAEL A. COKE Vice President and Director June 8, 1998
- ----------------------------------------------------- of Financial Management
Michael A. Coke Reporting (Principal
Accounting Officer)
* Director June 8, 1998
- -----------------------------------------------------
Daniel H. Case, III
Director June , 1998
- -----------------------------------------------------
Robert H. Edelstein, Ph.D.
* Director June 8, 1998
- -----------------------------------------------------
Lynn M. Sedway
Director June , 1998
- -----------------------------------------------------
Jeffrey L. Skelton, Ph.D.
Director June , 1998
- -----------------------------------------------------
Thomas W. Tusher
* Director June 8, 1998
- -----------------------------------------------------
Caryl B. Welborn
*By: /s/ MICHAEL A. COKE
-------------------------------------------------
Michael A. Coke
Attorney-in-Fact
</TABLE>
II-9
<PAGE> 251
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 Bylaws of the Registrant (incorporated by reference to
Exhibit 3.2 of the Company's Registration Statement on Form
S-11 (No. 333-35915)).
**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.
**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.
**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.
**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.
**4.5 Specimen of % Notes due 2008 (included in the First
Supplemental Indenture incorporated by reference as Exhibit
4.2).
**4.6 Specimen of % Notes due 2018 (included in the Second
Supplemental Indenture incorporated by reference as Exhibit
4.3).
**4.7 Specimen of % Reset Put Securities due 2015 (included
in the Third Supplemental Indenture incorporated by
reference as Exhibit 4.4).
8.1 Opinion of Latham & Watkins.
10.1 Amended and Restated Agreement of Limited Partnership of AMB
Property, L.P. (incorporated by reference to Exhibit 10.1 to
the Company's Registration Statement on Form S-11 (No.
333-35915)).
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 Amended and Restated Credit Agreement, dated August 8, 1997
(incorporated by reference to Exhibit 10.3 to the Company's
Registration Statement on Form S-11 (No. 333 -35915)).
10.4 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)).
10.5 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)).
**10.6 Calculation Agency Agreement between the Operating
Partnership and Morgan Stanley & Co. Incorporated.
**12.1 Statement regarding computation of ratios.
**21.1 Subsidiaries of the Registrant.
23.1 Consent of Latham & Watkins (included in Exhibit 8.1 above).
23.2 Consent of Arthur Andersen LLP.
**24.1 Power of Attorney.
</TABLE>
<PAGE> 252
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
25.1 Form T-1 Statement of Eligibility and Qualification under
the Trust Indenture Act of 1939 of State Street Bank and
Trust Company of California, N.A., as Trustee.
**27.1 Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
** Previously filed.
<PAGE> 1
EXHIBIT 8.1
[LETTERHEAD OF LATHAM & WATKINS]
June __, 1998
AMB Property Corporation
505 Montgomery Street
San Francisco, California 94111
AMB Property, L.P.
505 Montgomery Street
San Francisco, California 94111
Re: Registration Statement on Form S-11 of AMB Property Corporation, AMB
Property, L.P., AMB Property II, L.P., and Long Gate LLC; Federal
Income Tax Considerations
Ladies and Gentlemen:
We have acted as tax counsel to AMB Property, L.P., a Delaware limited
partnership (the "Operating Partnership") of which AMB Property Corporation, a
Maryland corporation (the "Company") is the sole general partner, and the
Company in connection with the sale by the Operating Partnership of up to
350,000,000 aggregate principal amount of __% Notes due 2008, __% Notes due
2018, and __ Reset Put Securities due 2015 (the "REPS"), pursuant to a
registration statement on Form S-11, filed with the Securities and Exchange
Commission on April 2, 1998 (file number 333-49163) by the Company, the
Operating Partnership, AMB Property II, L.P., a Delaware limited partnership in
which AMB Property Holding Corporation, a Delaware corporation and wholly-owned
subsidiary of the Company, is the sole general partner and in which the
Operating Partnership is the sole limited partner, and Long Gate LLC, a Delaware
limited liability company in which AMB Property
<PAGE> 2
[LATHAM & WATKINS LETTERHEAD]
AMB Property Corporation
AMB Property, L.P.
June __, 1998
Page 2
Holding Corporation is the sole managing member and in which the Operating
Partnership is the sole non-managing member (as amended as of the date hereof
and including each document incorporated by reference therein, the
"Registration Statement").
You have requested our opinion concerning certain of the Federal income
tax consequences to the purchasers of the securities described above in
connection with the sale described above. This opinion is based on various
facts and assumptions, including the facts set forth in the Registration
Statement concerning the business, properties and governing documents of the
Company, the Operating Partnership, and their subsidiaries.
In our capacity as tax counsel to the Operating Partnership, we have made
such legal and factual examinations and inquiries, including an examination of
originals or copies certified or otherwise identified to our satisfaction of
such documents, corporate records and other instruments as we have deemed
necessary or appropriate for purposes of this opinion. In our examination, we
have assumed the authenticity of all documents submitted to us as originals,
the genuineness of all signatures thereon, the legal capacity of natural
persons executing such documents and the conformity to authentic original
documents of all documents submitted to us as copies.
We are opining herein as to the effect on the subject transaction only of
the Federal income tax laws of the United States and we express no opinion with
respect to the applicability thereto, or the effect thereon, of other Federal
laws, the laws of any state or other jurisdiction or as to any matters of
municipal law or the laws of any other local agencies within any state.
Based on such facts, assumptions and representations, it is our opinion
that the information in the Registration Statement set forth under the caption
"Material Federal Income Tax Considerations Relating To The REPS," to the
extent that such information constitutes matters of law, summaries of legal
matters or legal conclusions, is an accurate summary of the material federal
income tax consequences of the Offering to the Beneficial Owners of the REPS
(as such terms are defined in the Registration Statement).
No opinion is expressed as to any matter not discussed herein.
This opinion is rendered to you as of the date of this letter, and we
undertake no obligation to update this opinion if there are changes in the law
subsequent to the date hereof. This opinion is based on various statutory
provisions, regulations promulgated thereunder and interpretations thereof by
the Internal Revenue Service and the courts having jurisdiction over such
matters, all of which are subject to change either prospectively or
retroactively. Also, any variation or difference in the facts from those set
forth in the Registration Statement may affect the conclusions stated herein.
<PAGE> 3
LATHAM & WATKINS
AMB Property Corporation
AMB Property, L.P.
June __, 1998
Page 3
This opinion is rendered only to you, and is solely for your use
in connection with the transactions set forth in the Registration Statement.
This opinion may not be relied upon by you for any other purpose, or furnished
to, quoted to, or relied upon by any other person, firm or corporation, for any
purpose, without our prior consent. We hereby consent to the filing of this
opinion as an exhibit to the Registration Statement and to the use of our name
under the caption "Legal Matters" in the Registration Statement.
Very truly yours,
/s/ LATHAM & WATKINS
<PAGE> 1
EXHIBIT 23.1
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 File no. 333-49163.
/s/ ARTHUR ANDERSEN LLP
-----------------------
ARTHUR ANDERSEN LLP
San Francisco, California
June 5, 1998
<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM T-1
-------------
STATEMENT OF ELIGIBILITY UNDER THE
TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
Check if an Application to Determine Eligibility
of a Trustee Pursuant to Section 305(b)(2) [X]
STATE STREET BANK AND TRUST COMPANY OF CALIFORNIA, NATIONAL ASSOCIATION
(Exact name of trustee as specified in its charter)
<TABLE>
<S> <C>
United States 06-1143380
(Jurisdiction of incorporation or (I.R.S. Employer
organization if not a U.S. national bank) Identification No.)
</TABLE>
633 West 5th Street, 12th Floor, Los Angeles, California 90071
(Address of principal executive offices) (Zip Code)
Lynda A. Vogel, Senior Vice President and Managing Director
633 West 5th Street, 12th Floor, Los Angeles, California 90071
(213) 362-7399
(Name, address and telephone number of agent for service)
AMB Property, L.P.
(Exact name of obligor as specified in its charter)
<TABLE>
<S> <C>
Delaware 95-264-7125
(State or other jurisdiction of (I.R.S Employer
incorporation or organization) Identification No.)
</TABLE>
AMB Property, L.P.
505 Montgomery Street, San Francisco, California 94111
(Address of principal executive offices) (Zip Code)
Unsecured Senior Notes
(TYPE OF SECURITIES)
Unsecured Senior Notes
(Title of indenture securities)
<PAGE> 2
GENERAL
ITEM 1. GENERAL INFORMATION.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervisory authority to
which it is subject.
Comptroller of the Currency, Western District Office, 50 Fremont
Street, Suite 3900, San Francisco, California 94105-2292
(b) Whether it is authorized to exercise corporate trust powers.
Trustee is authorized to exercise corporate trust powers.
ITEM 2. AFFILIATIONS WITH OBLIGOR.
If the Obligor is an affiliate of the trustee, describe each such
affiliation.
The obligor is not an affiliate of the trustee or of its parent,
State Street Bank and Trust Company.
(See note on page 2.)
ITEM 3. THROUGH ITEM 15. NOT APPLICABLE.
ITEM 16. LIST OF EXHIBITS.
List below all exhibits filed as part of this statement of
eligibility.
1. A copy of the articles of association of the trustee as now in
effect.
2. A copy of the certificate of authority of the trustee to commence
business, if not contained in the articles of association.
3. A copy of the authorization of the trustee to exercise corporate
trust powers, if such authorization is not contained in the documents
specified in paragraph (1) or (2), above.
Authorization of the Trustee to exercise fiduciary powers
(included in Exhibits 1 and 2; no separate instrument).
4. A copy of the existing by-laws of the trustee, or instruments
corresponding thereto.
<PAGE> 3
5. A copy of each Indenture referred to in Item 4, if the obligor is
in default.
Not applicable.
6. The consents of United States institutional trustees required by
Section 321(b) of the Act.
The consent of the trustee required by Section 321(b) of the Act
is annexed hereto as Exhibit 6 and made a part hereof.
7. A copy of the latest report of condition of the trustee published
pursuant to law or the requirements of its supervising or examining
authority.
A copy of the latest report of condition of the trustee published
pursuant to law or the requirements of its supervising or examining
authority is annexed hereto as Exhibit 7 and made a part hereof.
NOTES
In answering any item of this Statement of Eligibility which relates
to matters peculiarly within the knowledge of the obligor or any underwriter
for the obligor, the trustee has relied upon information furnished to it by the
obligor and the underwriters, and the trustee declaims responsibility for the
accuracy or completeness of such information.
The answer furnished to Item 2. of this statement will be amended, if
necessary, to reflect any facts which differ from those stated and which would
have been required to be stated if known at the date hereof.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, State Street Bank and Trust Company of California, N.A.,
organized and existing under the laws of the United States of America, has duly
caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in the City of Los Angeles, and
State of California, on the 21st day of May 1996.
STATE STREET BANK AND TRUST COMPANY
OF CALIFORNIA, NATIONAL ASSOCIATION
By: /s/ STEPHEN RIVERO
-------------------------------
Stephen Rivero
Vice President
2
<PAGE> 4
Filed
Comptroller of The Currency
Northeastern District
Date 7-31-95
-----------
EXHIBIT 1
ARTICLES OF ASSOCIATION
OF
STATE STREET BANK AND TRUST COMPANY OF CALIFORNIA,
NATIONAL ASSOCIATION
For the purpose of organizing an Association to carry on the business of a
limited purpose trust company under the laws of the United States, the
undersigned do enter into the following Articles of Association:
FIRST. The title of this Association shall be State Street Bank and Trust
Company of California, National Association.
SECOND. The Main Office of the Association shall be in the City of Culver
City, County of Los Angeles, State of California. The general business of the
Association shall be conducted at its main office and its branches.
THIRD. The Board of Directors of this Association shall consist of not less
than five nor more than twenty-five shareholders, the exact number to be fixed
and determined from time to time by resolution of a majority of the full Board
of Directors or by resolution of the shareholders at any annual or special
meeting thereof. Each Director, during the full term of his directorship, shall
own a minimum of $1,000 aggregate par value of stock of this Association or a
minimum par, market value or equity interest of $1,000 of stock in the bank
holding company controlling this Association. Any vacancy in the Board of
Directors may be filled by action of the Board of Directors.
FOURTH. There shall be an annual meeting of the shareholders to elect
Directors and transact whatever other business may be brought before the
meeting. It shall be held at the main office or any other convenient place as
the Board of Directors may designate, on the day of each year specified
therefore in the By-laws, but if no election is held on that day, it may be
held on any subsequent day according to such lawful rules as may be prescribed
by the Board of Directors.
FIFTH. The authorized amount of capital stock of this Association shall be
1,000,000 shares of common stock of the par value of one dollar ($1) each; but
said capital stock may be increased or decreased from time to time, in
accordance with the provisions of the laws of the United States.
No holder of shares of the capital stock of any class of this Association shall
have any pre-emptive or preferential right of subscription to any shares of any
class of stock of this Association, whether now or hereafter authorized, or to
any obligations convertible into stock of this Association, issued, or sold,
nor any right of subscription to any thereof other than
<PAGE> 5
such, if any, as the Board of Directors, in its discretion may from time to
time determine and at such price as the Board of Directors may from time to
time fix.
This Association, at any time and from time to time, may authorize and issue
debt obligations, whether or not subordinated, without the approval of the
shareholders.
SIXTH. The Board of Directors shall appoint one of its members President of
this Association, who shall be Chairperson of the Board, unless the Board
appoints another director to be the Chairperson. The Board of Directors shall
have the power to appoint one or more Vice Presidents; and to appoint a Cashier
and such other officers and employees as may be required to transact the
business of this Association.
The Board of Directors shall have the power to define the duties of the
officers and employees of this Association; to fix the salaries to be paid to
the officers and employees; to dismiss officers and employees; to require bonds
from officers and employees and to fix the penalty thereof; to regulate the
manner in which any increase of the capital of this Association shall be made;
to manage and administer the business and affairs of this Association; to make
all By-laws that it may be lawful for the Board of Directors to make; and
generally to do and perform all acts that it may be legal for a Board of
Directors to do and perform.
SEVENTH. The Board of Directors shall have the power to change the location of
the main office to any other place within the limits of the City of Culver
City, without the approval of the shareholders, and shall have the power to
establish or change the location of any branch or branches of this Association
to any other location, without the approval of the shareholders.
EIGHTH. The corporate existence of this Association shall continue until
terminated in accordance with the laws of the United States.
NINTH. The Board of Directors of this Association, or any shareholder
owning, in the aggregate, not less than ten percent of the stock of this
Association, may call a special meeting of shareholders at any time. Unless
otherwise provided by the laws of the United States, a notice of the time,
place, and purpose of every annual and special meeting of the shareholders
shall be given by first-class mail, postage prepaid, mailed at least ten days
prior to the date of such meeting to each shareholder of record at his address
as shown upon the books of this Association.
TENTH. This Association shall indemnify each person who is or was a
director, officer, employee or other agent of this Association, and each person
who is or was serving at the request of this Association as a director,
trustee, officer, employee or other agent of another organization in which it
directly or indirectly owns shares or of which it is directly or indirectly a
-2-
<PAGE> 6
creditor, against all liabilities, costs and expenses, including but not
limited to amount paid in satisfaction of judgments, in settlements or as fines
and penalties, and counsel fees and disbursements, reasonably incurred by such
person in connection with the defense or disposition of or otherwise in
connection with or resulting from any action, suit or other proceeding, whether
civil, criminal, administrative or investigative, before any court or
administrative or legislative or investigative body, in which such person may
be or may have been involved as a party or otherwise or with which he may be or
may have been threatened, while in office or thereafter, by reason of his being
or having been such a director, officer, employee, agent or trustee, or by
reason of any action taken or not taken in any such capacity, except with
respect to any matter as to which he shall have been finally adjudicated by a
court of competent jurisdiction not to have acted in good faith in the
reasonable belief that his action was in the best interests of this
Association. Expenses, including but not limited to counsel fees and
disbursements, so incurred by any such person in defending any such action,
suit or proceeding, may be paid from time to time by this Association in
advance of the final disposition of such action, suit or proceeding upon
receipt of an undertaking by or on behalf of the person indemnified to repay
the amount so paid if it shall ultimately be determined that indemnification of
such expenses is not authorized hereunder.
As to any matter disposed of by settlement by any such person, pursuant to a
consent decree or otherwise, no such indemnification either for the amount of
such settlement or for any other expenses shall be provided unless such
settlement shall be approved as in the best interests of this Association, after
notice that it involves such indemnification, (a) by vote of a majority of the
disinterested directors then in office (even though the disinterested directors
be less then a quorum), or (b) by any disinterested person or persons to whom
the question may be referred by vote of a majority of such disinterested
directors, or (c) by vote of the holders of a majority of the outstanding stock
at the time entitled to vote for directors, voting as a single class, exclusive
of any stock owned by any interested person, or (d) by any disinterested person
or persons to whom the question may be referred by vote of the holders of a
majority of such stock. No such approval shall prevent the recovery from any
such officer, director, employee, agent or trustee of any amounts paid to such
person or on his or her behalf as indemnification in accordance with the
preceding sentence if such person is subsequently adjudicated by a court of
competent jurisdiction not to have acted in good faith in the reasonable belief
that his action was in the best interests of this Association.
The right of indemnification hereby provided shall not be exclusive of or
affect any other rights to which any director, officer, employee, agent or
trustee may be entitled or which may lawfully be granted to such person. As
used herein, the terms "director," "officer," "employee," "agent" and "trustee"
include their respective executors, administrators and other legal
-3-
<PAGE> 7
representatives, an "interested" person is one against whom the action, suit or
other proceeding in question or another action, suit or other proceeding on the
same or similar grounds is then or had been pending or threatened, and a
"disinterested" person is a person against whom no such action, suit or other
proceeding is then or had been pending or threatened.
By action of the Board of Directors, notwithstanding any interest of the
directors in such action, this Association may purchase and maintain insurance,
in such amounts as the Board of Directors may from time to time deem
appropriate, on behalf of any person who is or was a director, officer,
employee or other agent of this Association, or is or was serving at the
request of this Association as a director, trustee, officer, employee or other
agent of another organization in which it directly or indirectly owns shares or
of which it is directly or indirectly a creditor, against any liability
incurred by such person in any such capacity, or arising out of his or her
status as such, whether or not this Association would have the power to
indemnify such person against such liability.
ELEVENTH. These Articles of Association may be amended at any regular or
special meeting of the shareholders by the affirmative vote of the holders of a
majority of the stock of this Association, unless the vote of the holders of a
greater amount of stock is required by law, and in that case by the vote of the
holders of such greater amount.
TWELFTH. This Association may be a partner in any business or enterprise which
this Association would have power to conduct by itself.
IN WITNESS WHEREOF, we have hereunto set our hands this 25th day of July, 1985.
/s/ PETER E. MADDEN
----------------------------------
Peter E. Madden
/s/ DAVID A. SPINA
----------------------------------
David A. Spina
/s/ CHARLES J. KELLY
----------------------------------
Charles J. Kelly
/s/ RICHARD J. POZNYSZ
----------------------------------
Richard J. Poznysz
/s/ VINCENT V. GRIPPA
----------------------------------
Vincent V. Grippa
-4-
<PAGE> 8
ARTICLES OF AMENDMENT
OF
ARTICLES OF ASSOCIATION
OF
STATE STREET BANK AND TRUST COMPANY OF CALIFORNIA, NATIONAL ASSOCIATION
I, Evalyn Lipton Fishbein, Secretary of State Street Bank and Trust Company
of California, National Association, a limited purpose trust company organized
under the laws of the United States of America, do hereby certify that the
following amendment of the Articles of Association of the Association was duly
adopted on March 18, 1986 by the unanimous written consent of the shareholders:
RESOLVED: That Article Second of the Articles of Association of State Street
Bank and Trust Company of California, National Association, be amended
to change the location of the Main Office from the City of Culver City
to the City of Los Angeles, County of Los Angeles, State of
California.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of said
Association this 18th day of April, 1986.
/s/ EVALYN LIPTON FISHBEIN
--------------------------
(SEAL) Secretary
Commonwealth of Massachusetts)
County of Suffolk )
Before the undersigned, a Notary Public of Suffolk County, personally
appeared Evalyn Lipton Fishbein, to me well known, who acknowledged that she
executed the foregoing certificate for the purposes therein mentioned.
Witness my hand and seal of
office this 18th day of
April, 1986.
/s/ JUNE F. PHILLIPS
-------------------------------
JUNE F. PHILLIPS, Notary Public
My Commission Expires July 23, 1987.
(Official Seal of Officer)
<PAGE> 9
ARTICLES OF AMENDMENT
OF
ARTICLES OF ASSOCIATION
OF
STATE STREET BANK AND TRUST COMPANY OF CALIFORNIA, NATIONAL ASSOCIATION
I, Evalyn Lipton Fishbein, Secretary of State Street Bank and Trust
Company of California, National Association, a limited purpose trust company
organized under the laws of the United States of America, do hereby certify
that a meeting of the shareholders of the Association was duly called and held
on the 8th day of May, 1987, and that at said meeting, at which a quorum was
present and voting throughout, the following resolution upon motion duly made
and seconded, was duly adopted:
RESOLVED: That Article Tenth of the Articles of Association with respect to
indemnification of directors, officers and others be amended and
restated as follows:
TENTH. This Association shall to the fullest extent legally permissible
indemnify each person who is or was a director, officer, employee or other
agent of this Association and each person who is or was serving at the request
of this Association as a director, trustee, officer, employee or other agent of
another organization or of any partnership, joint venture, trust, employee
benefit plan or other enterprise or organization against all liabilities, costs
and expenses, including but not limited to amounts paid in satisfaction of
judgments, in settlement or as fines and penalties, and counsel fees and
disbursements, reasonably incurred by him in connection with the defense or
disposition of or otherwise in connection with or resulting from any action,
suit or other proceeding, whether civil, criminal, administrative or
investigative, before any court or administrative or legislative or
investigative body, in which he may be or may have been involved as a party or
otherwise or with which he may be or may have been threatened, while in office
or thereafter, by reason of his being or having been such director, officer,
employee, agent or trustee, or by reason of any action taken or not taken in any
such capacity, except with
<PAGE> 10
respect to any matter as to which he shall have been finally adjudicated by a
court of competent jurisdiction not to have acted in good faith in the
reasonable belief that his action was in the best interests of the corporation
(any person serving another organization in one or more of the indicated
capacities at the request of this Association who shall not have been
adjudicated in any proceeding not to have acted in good faith in the reasonable
belief that his action was in the best interest of such other organization
shall be deemed so to have acted in good faith with respect to the National
Trust Company) or to the extent that such matter relates to service with
respect to an employee benefit plan, in the best interest of the participants or
beneficiaries of such employee benefit plan. Expenses, including but not
limited to counsel fees and disbursements, so incurred by any such person in
defending any such action, suit or proceeding, shall be paid from time to time
by this Association in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of the person
indemnified to repay the amounts so paid if it shall ultimately be determined
that indemnification of such expenses its not authorized hereunder.
As to any matter disposed of by settlement by any such person, pursuant to
a consent decree or otherwise, no such indemnification either for the amount of
such settlement or for any other expenses shall be provided unless such
settlement shall be approved as in the best interests of the National Trust
Company, after notice that it involves such indemnification, (a) by vote of a
majority of the disinterested directors then in office (even though the
disinterested directors be less than a quorum), or (b) by any disinterested
person or persons to whom the question may be referred by vote of a majority of
such disinterested directors, or (c) by vote of the holders of a majority of the
outstanding stock at the time entitled to vote for directors, voting as a single
class, exclusive of any stock owned by any interested person, or (d) by any
disinterested person or persons to whom the question may be referred by vote of
the holders of a majority of such stock. No such approval shall prevent the
recovery from any such director, officer, employee, agent or trustee of any
amounts paid to him or on his behalf as indemnification in accordance with the
preceding sentence if such person is subsequently adjudicated by a court of
competent jurisdiction not to have acted in good faith in the reasonable belief
that his action was in the best interests of this Association.
The right of indemnification hereby provided shall not be exclusive of or
affect any other rights to which any director, officer, employee, agent or
trustee may be entitled or which may lawfully be granted to him. As used herein,
the terms "director", "officer", "employee", "agent" and "trustee" include
their respective executors, administrators and other legal representatives, an
"interested" person is one against whom the action, suit or other proceeding in
question or another action,
<PAGE> 11
suit or other proceedings on the same or similar grounds is then or had been
pending or threatened, and a "disinterested" person is a person against whom no
such action, suit or other proceeding is then or had been pending or threatened.
By action of the board of directors, notwithstanding any interest of
the directors in such action, this Association may purchase and maintain
insurance, in such amounts as the board of directors may from time to time deem
appropriate, on behalf of any person who is or was a director, officer,
employee or other agent of this Association, or is or was serving at the
request of this Association as a director, trustee, officer, employee or other
agent of another organization or of any partnership, joint venture, trust,
employee benefit plan or other enterprise or organization against any liability
incurred by him in any such capacity, or arising out of his status as such,
whether or not this Association would have the power to indemnify him against
such liability.
IN WITNESS WHEREOF, I have hereunto set my hand and the seal of said
Association this 15th day of May, 1987.
/s/ EVALYN LIPTON FISHBEIN
-----------------------------
Secretary
(SEAL)
Commonwealth of Massachusetts)
County of Suffolk )
Before the undersigned, a Notary Public of Suffolk County, personally
appeared Evalyn Lipton Fishbein, to me well known, who acknowledged that she
executed the foregoing certificate for the purposes therein mentioned.
Witness my hand and seal of office
this 15th day of May, 1987.
/s/ JUNE F. PHILLIPS
-----------------------------------
JUNE F. PHILLIPS, Notary Public
My Commission Expires July 23, 1987
(Official Seal of Officer)
<PAGE> 12
EXHIBIT 2
- --------------------------------------------------------------------------------
Comptroller of the Currency
Administrator of National Banks
- --------------------------------------------------------------------------------
Washington, D.C. 20219
CERTIFICATE
I, Julie L. Williams, Acting Comptroller of the Currency, do hereby certify
that:
1. The Comptroller of the Currency, pursuant to Revised Statutes 324, et
seq., as amended, 12 U.S.C. 1, et seq., as amended, has possession, custody and
control of all records pertaining to the chartering of all National Banking
Associations.
2. "State Street Bank and Trust Company of California, National
Association," (Charter No. 18607) is a National Banking Association formed
under the laws of the United States and is authorized thereunder to transact
the business of banking on the date of this Certificate.
IN TESTIMONY WHEREOF, I have hereunto
subscribed my name and caused my seal of
office to be affixed to these presents
at the Treasury Department in the City
of Washington and District of Columbia,
this 6th day of April, 1998.
[SEAL]
/s/ JULIE L. WILLIAMS
---------------------------------------
Acting Comptroller of the Currency
<PAGE> 13
EXHIBIT 2
[LOGO]
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COMPTROLLER OF THE CURRENCY
ADMINISTRATOR OF NATIONAL BANKS
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Western District Office
50 Fremont Street, Suite 3900
San Francisco, CA. 94105-2292
CERTIFICATE OF CORPORATE EXISTENCE
(WITH FIDUCIARY POWERS)
I, NANETTE G. GOULET, on behalf of the office of the Comptroller of the
Currency, hereby certify that:
1. THE OFFICE OF THE COMPTROLLER OF THE CURRENCY, pursuant to Revised Statutes
324, et seq., as amended, 12 U.S.C. 1, et seq., as amended, has possession,
custody and control of all records pertaining to the chartering, regulation
and supervision of all NATIONAL BANKING ASSOCIATIONS;
2. STATE STREET BANK AND TRUST COMPANY OF CALIFORNIA, NATIONAL ASSOCIATION,
LOS ANGELES, CALIFORNIA, CHARTER NO. 18607, is a National Banking
Association formed under the laws of the United States and authorized
hereunder and continues to hold authority to transact the business of
banking (and to act in all fiduciary capacities) permitted thereby on the
date of this certificate.
IN TESTIMONY WHEREOF, I have hereunto
subscribed my name and caused
the seal of office of the Office of the
Comptroller of the Currency
to be affixed, in the City of San Francisco,
California this 3RD DAY OF FEBRUARY,
1995.
Nanette G. Goulet
--------------------------------------------
Nanette G. Goulet
Director for Bank Analysis
<PAGE> 14
EXHIBIT 4
Restated as of March 17, 1998
STATE STREET BANK AND TRUST COMPANY
OF CALIFORNIA, NATIONAL ASSOCIATION
RESTATED BY-LAWS
ARTICLE I
Meetings of Shareholders
Section 1.1. Annual Meeting. The regular annual meeting of the
shareholders to elect directors and transact whatever other business may
properly come before the meeting, shall be held at the Main Office of the
National Trust Company, 633 West 5th Street, in the City of Los Angeles, State
of California or such other places as the Board of Directors may designate, at
10 o'clock, on the first Wednesday of April of each year. Notice of such
meeting shall be mailed, postage prepaid, at least ten days prior to the date
thereof, addressed to each shareholder at his address appearing on the books of
the National Trust Company. If, from any cause, an election of directors is not
made on the said day, the Board of Directors shall order the election to be
held on some subsequent day, as soon thereafter as practicable, according to
the provisions of law; and notice thereof shall be given in the manner herein
provided for the annual meeting.
Section 1.2. Special Meeting. Except as otherwise specifically provided by
statute, special meetings of the shareholders may be called for any purpose at
any time by the Board of Directors or by any shareholder owning, in the
aggregate, not less than 10 percent of the stock of the National Trust Company.
Every such special meeting, unless otherwise provided by law, shall be called
by mailing, postage prepaid, not less than ten days prior to the date fixed for
such meeting, to each shareholder at his address appearing on the books of the
National Trust Company a notice stating the purpose of the meeting.
Section 1.3. Nominations for Director. Nominations for election to the
Board of Directors may be made by the Board of Directors or by any shareholder
of any outstanding class of capital stock of the National Trust Company
entitled to vote for the election of directors. Nominations, other than those
made by or on behalf of the existing management of the National Trust Company,
shall be made in writing and shall be delivered or mailed to the President of
the National Trust Company and to the Comptroller of the Currency, Washington,
D.C., not less than 14 days nor more than 50 days prior to any meeting of
shareholders called for the election of directors, provided however, that if
less than 21 days notice of the meeting is given to shareholders, such
nomination shall be mailed or delivered to the President of the National Trust
Company and to the Comptroller of the Currency not later than the close of
business on the seventh day following the day on which the notice of meeting
was mailed. Such notification shall contain the following information to the
extent known to the notifying shareholder:
(a) the name and address of each proposed nominee; (b) the principal
occupation of each proposed nominee; (c) the total number of shares of capital
stock of the National Trust Company
<PAGE> 15
that will be voted for each proposed nominee; (d) the name and residence
address of the notifying shareholder; and (e) the number of shares of capital
stock of the National Trust Company owned by the notifying shareholder.
Nominations not made in accordance herewith may, in his/her discretion, be
disregarded by the Chairperson of the meeting, and upon his/her instructions,
the vote tellers may disregard all votes cast for each such nominee.
Section 1.4. Proxies. Shareholders may vote at any meeting of the
shareholders by proxies duly authorized in writing, but no officer or employee
of this National Trust Company shall act as proxy. Proxies shall be valid only
for one meeting, to be specified therein, and any adjournments of such meeting.
Proxies shall be dated and shall be filed with the records of the meeting.
Section 1.5. Quorum. A majority of the outstanding capital stock,
represented in person or by proxy, shall constitute a quorum at any meeting of
shareholders, unless otherwise provided by law; but less than a quorum may
adjourn any meeting, from time to time, and the meeting may be held, as
adjourned, without further notice. A majority of the votes cast shall decide
every question or matter submitted to the shareholders at any meeting, unless
otherwise provided by law or by the Articles of Association.
ARTICLE II
Directors
Section 2.1 Board of Directors. The Board of Directors shall have power to
manage and administer the business and affairs of the National Trust Company.
Except as expressly limited by law, all corporate powers of the National Trust
Company shall be vested in and may be exercised by the Board of Directors.
Section 2.2 Number. The Board of Directors shall consist of not less than
five nor more than twenty-five shareholders, the exact number within such
minimum and maximum limits to be fixed and determined from time to time by
resolution of a majority of the full Board or by resolution of the shareholders
at any meeting thereof; provided, however, that a majority of the full Board of
Directors may not increase the number of directors to a number which (i)
exceeds by more than two the number of directors last elected by shareholders
where such number was fifteen or less; and (ii) to a number which exceeds by
more than four the number of directors last elected by shareholders where such
number was sixteen or more, but in no event shall the number of directors
exceed twenty-five.
Section 2.3. Organization Meeting. The Cashier, upon receiving the results
of any election, shall notify the directors-elect of their election and of the
time at which they are required to meet at the Main Office of the National
Trust Company for the purpose of organizing the new Board and electing and
appointing officers of the National Trust Company for the succeeding year. Such
meeting shall be held on the day of the election or as soon thereafter as
practicable, and, in any event, within thirty days thereof. If, at the time
fixed for such meeting, there shall not
2
<PAGE> 16
be a quorum present, the Directors present may adjourn the meeting, from time to
time, until a quorum is obtained.
Section 2.4. Regular Meetings. Regular Meetings of the Board of Directors
shall be held, without notice, at least once in each calendar quarter on such
days and at such hours as the Directors may from time to time determine. When
any regular meeting of the Board falls upon a holiday, the meeting shall be held
on the next banking business day unless the Board shall designate some other
day.
Section 2.5. Special Meetings. Special Meetings of the Board of Directors
may be called by the Chairman of the Board of the National Trust Company, or at
the request of three or more directors. Each member of the Board of Directors
shall be given notice stating the time and place, by telegram, letter, or in
person, of each such special meeting.
Section 2.6. Quorum. A majority of the directors shall constitute a quorum
at any meeting, except when otherwise provided by law; but a less number may
adjourn any meeting, from time to time, and the meeting may be held, as
adjourned, without further notice.
Section 2.7. Vacancies. When any vacancy occurs among the directors, the
remaining members of the Board, in accordance with the laws of the United
States, may appoint a director to fill such vacancy at any regular meeting of
the Board, or at a special meeting called for that purpose.
Section 2.8. Action without a Meeting. Any action required or permitted to
be taken at any meeting of the Directors may be taken without a meeting if all
the Directors consent to the action in writing and the written consents are
filed with the records of the meetings of the Directors. Such consents shall be
treated for all purposes as a vote at a meeting.
Section 2.9. Meeting by Telecommunications. Members of the Board of
Directors or any committee elected thereby may participate in a meeting of such
Board or committee by means of a conference telephone or similar communications
equipment by means of which all persons participating in a meeting can hear each
other at the time and participation by such means shall constitute presence in
person at the meeting.
ARTICLE III
Committees of the Board
Section 3.1. Investment Committee. There shall be an Investment Committee
composed of not less than two Directors, appointed by the Board annually or more
often. The Investment Committee shall have the power to insure adherence to
Investment Policy, to recommend amendments thereto, to purchase and sell
securities, to exercise authority regarding investments and to exercise, when
the Board is not in session, all other powers of the Board regarding investment
securities that may be lawfully delegated. The Investment Committee shall keep
minutes of its meetings, and such minutes shall be submitted at the next regular
meeting of
3
<PAGE> 17
the Board of Directors at which a quorum is present, and any action taken by
the Board with respect thereto shall be entered in the minutes of the Board.
Section 3.2. Examining Committee. There shall be an Examining Committee
composed of not less than two directors, exclusive of any active officers,
appointed by the Board annually or more often, whose duty it shall be to make
an examination at least once during each calendar year into the affairs of the
National Trust Company or cause suitable examinations to be made by auditors
responsible only to the Board of Directors and to report the result of such
examination in writing to the Board at the next regular meeting thereafter.
Section 3.3. Other Committees. The Board of Directors may appoint, from
time to time, from its own members, other committees of one or more persons,
for such purposes and with such powers as the Board may determine.
ARTICLE IV
Officers and Employees
Section 4.1. Chairperson of the Board. The Board of Directors shall
appoint one of its members to be Chairperson of the Board to serve at the
pleasure of the Board. Such person shall preside at all meetings of the Board
of Directors. The Chairperson of the Board shall supervise the carrying out of
the policies adopted or approved by the Board; shall have general executive
powers, as well as the specific powers conferred by these Bylaws; and shall
also have and may exercise such further powers and duties as from time to time
may be conferred upon, or assigned by the Board of Directors.
Section 4.2. President. The Board of Directors shall appoint one of its
members to be President of the National Trust Company. In the absence of the
Chairperson, the President shall preside at any meeting of the Board. The
President shall have general executive powers, and shall have and may exercise
any and all other powers and duties pertaining by law, regulations, or
practice, to the Office of President, or imposed by these Bylaws. The President
shall also have and may exercise such further powers and duties as from time to
time may be conferred, or assigned by the Board of Directors.
Section 4.3. Vice President. The Board of Directors may appoint one or
more Vice Presidents. Each Vice President shall have such powers and duties as
may be assigned by the Board of Directors. One Vice President shall be
designated by the Board of Directors, in the absence of the President, to
perform all the duties of the President.
Section 4.4. Secretary. The Board of Directors shall appoint a Secretary,
Cashier, or other designated officer who shall be Secretary of the Board and of
the National Trust Company, and shall keep accurate minutes of all meetings.
The Secretary shall attend to the giving of all notices required by these
Bylaws to be given; shall be custodian of the corporate seal, records,
documents and papers of the National Trust Company; shall provide for the
keeping of proper records of all transactions of the National Trust Company;
shall have and may exercise any and all
4
<PAGE> 18
other powers and duties pertaining by law, regulation or practice, to the
Office of Cashier, or imposed by these Bylaws; and shall also perform such
other duties as may be assigned from time to time, by the Board of Directors.
Section 4.5 Other Officers. The Board of Directors may appoint one or more
Assistant Vice Presidents, one or more Assistant Secretaries, one or more
Assistant Cashiers, one or more Managers and Assistant Managers of Branches and
such other officers and Attorneys-in-fact as from time to time may appear to
the Board of Directors to be required or desirable to transact the business of
the National Trust Company. Such officers shall respectively exercise such
powers and perform such duties as pertain to the several offices, or as may be
conferred upon, or assigned to, them by the Board of Directors, the Chairperson
of the Board, or the President.
Section 4.6. Tenure of Office. The President and all other officers shall
hold office for the current year for which the Board was elected, unless they
shall resign, become disqualified, or be removed; and any vacancy occurring in
the Office of President shall be filled promptly by the Board of Directors.
ARTICLE V
Stock and Stock Certificates
Section 5.1. Transfers. Shares of stock shall be transferable on the books
of the National Trust Company, and a transfer book shall be kept in which all
transfers of stock shall be recorded. Every person becoming a shareholder by
such transfer shall, in proportion to his shares, succeed to all rights of the
prior holder of such shares.
Section 5.2. Stock Certificates. Certificates of stock shall bear the
signature of the President (which may be engraved, printed or impressed), and
shall be signed manually or by facsimile process by the Secretary, Assistant
Secretary, Cashier, Assistant Cashier, or any other officer appointed by the
Board of Directors for that purpose, to be known as an Authorized Officer, and
the seal of the National Trust Company shall be engraven thereon. Each
certificate shall recite on its face that the stock represented thereby is
transferable only upon the books of the National Trust Company properly
endorsed.
ARTICLE VI
Corporate Seal
The President, the Cashier, the Secretary or any Assistant Cashier or
Assistant Secretary, or other officer thereunto designated by the Board of
Directors, shall have authority to affix the corporate seal to any document
requiring such seal, and to attest the same. Such seal shall be substantially
in the following form:
5
<PAGE> 19
EXHIBIT 6
CONSENT OF THE TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust Indenture Act
of 1939, as amended, in connection with the proposed issuance by AMB Property,
L.P. of its Unsecured Senior Notes, we hereby consent that reports of
examination by Federal, State, Territorial or District authorities may be
furnished by such authorities to the Securities and Exchange Commission upon
request therefor.
STATE STREET BANK AND TRUST COMPANY
OF CALIFORNIA, NATIONAL ASSOCIATION
By: /s/ STEPHEN RIVERO
---------------------------
Stephen Rivero
Vice President
Dated: May 21, 1998
<PAGE> 20
EXHIBIT 7
Consolidated Report of Condition and Income for A Bank With Domestic Offices
Only and Total Assets of Less Than $100 Million of State Street Bank and Trust
Company of California, a national banking association duly organized and
existing under and by virtue of the laws of the United States of America, at
the close of business March 31, 1998, published in accordance with a call made
by the Federal Deposit Insurance Corporation pursuant to the required law: 12
U.S.C. Section 324 (State member banks); 12 U.S.C. Section 1817 (State
nonmember banks); and 12 U.S.C. Section 161 (National banks).
<TABLE>
<CAPTION>
THOUSANDS
OF DOLLARS
<S> <C>
ASSETS
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coin ...................... 6,852
Interest-bearing balances ............................................... 0
Securities ................................................................... 38
Federal funds sold and securities purchased
under agreements to resell in domestic offices
of the bank and its Edge subsidiary ..................................... 0
Loans and lease financing receivables:
Loans and leases, net of unearned income .......................... 0
Allowances for loan and lease losses .............................. 0
Allocated transfer risk reserve ................................... 0
Loans and leases, net of unearned income and allowances ................. 0
Assets held in trading accounts .............................................. 0
Premises and fixed assets .................................................... 253
Other real estate owned ...................................................... 0
Investments in unconsolidated subsidiaries ................................... 0
Customers' liability to this bank on acceptances outstanding ................. 0
Intangible assets ............................................................ 0
Other assets ................................................................. 814
-------
Total assets ................................................................. 7,957
-------
LIABILITIES
Deposits:
In domestic offices ..................................................... 0
Noninterest-bearing ..................................... 0
Interest-bearing ........................................ 0
In foreign offices and Edge subsidiary .................................. 0
Noninterest-bearing ..................................... 0
Interest-bearing ........................................ 0
Federal funds purchased and securities sold under
agreements to repurchase in domestic offices of
the bank and of its Edge subsidiary ..................................... 0
Demand notes issued to the U.S. Treasury and Trading Liabilities ............. 0
Other borrowed money ......................................................... 0
Subordinated notes and debentures ............................................ 0
Bank's liability on acceptances executed and outstanding ..................... 0
Other liabilities ............................................................ 4,356
Total liabilities ............................................................ 4,356
-------
EQUITY CAPITAL
Perpetual preferred stock and related surplus ................................ 0
Common stock ................................................................. 500
Surplus ...................................................................... 750
Undivided profit and capital reserves/Net unrealized gains (losses) .......... 2,352
Cumulative foreign currency transaction adjustments .......................... 0
Total equity capital ......................................................... 3,602
-------
Total liabilities and equity capital ......................................... 7,958
=======
</TABLE>
<PAGE> 21
I Kevin R. Wallace, Vice President and Comptroller of the above named bank do
hereby declare that this Report of Condition and Income for this report date
have been prepared in conformance with the instructions issued by the
appropriate Federal regulatory authority and is true to the best of my
knowledge and belief.
Kevin R. Wallace
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the appropriate Federal regulatory authority and is true and correct.
Lynda A. Vogel
Donald W. Beatty
Stephen Rivero
