<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 17, 1998
REGISTRATION NO. 333-58107
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 CORPORATION
(EXACT NAME OF ISSUER OF THE SERIES A PREFERRED STOCK AS SPECIFIED IN ITS CHARTER)
MARYLAND 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>
JEFFREY T. PERO, ESQ. KENNETH M. DORAN, ESQ.
J. SCOTT HODGKINS, ESQ. GIBSON, DUNN & CRUTCHER LLP
LAURA L. GABRIEL, ESQ. 333 SOUTH GRAND AVENUE
LATHAM & WATKINS LOS ANGELES, CALIFORNIA 90071
505 MONTGOMERY STREET (213) 229-7000
SAN FRANCISCO, CALIFORNIA 94111
(415) 391-0600
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement 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 REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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- --------------------------------------------------------------------------------
<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.......................................... Material Federal Income Tax Consequences
17. Market Price of and Dividends on the Registrant's
Common Equity and Related Stockholder Matters.... Risk Factors; Price Range of Common Stock and
Distribution History; Principal Stockholders
18. Description of Registrant's Securities........... Description of Capital Stock; Series A
Preferred Stock
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
22. Executive Compensation........................... Management
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
FORM S-11 ITEM NO. AND HEADING LOCATION OR HEADING IN PROSPECTUS
------------------------------ ---------------------------------
<C> <S> <C>
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 July 13, 1998
4,000,000 Shares
AMB Property Corporation LOGO
% SERIES A CUMULATIVE REDEEMABLE PREFERRED STOCK
($.01 par value per share)
(Liquidation Preference $25.00 Per Share)
------------------------
DIVIDENDS ON THE % SERIES A CUMULATIVE REDEEMABLE PREFERRED STOCK, $.01 PAR
VALUE PER SHARE (THE "SERIES A PREFERRED STOCK"), OFFERED HEREBY (THE
"OFFERING") OF AMB PROPERTY CORPORATION (THE "COMPANY"), A MARYLAND CORPORATION,
ARE CUMULATIVE FROM THE DATE OF ORIGINAL ISSUE AND ARE PAYABLE QUARTERLY IN
ARREARS ON THE 15TH DAY OF JANUARY, APRIL, JULY AND OCTOBER OF EACH YEAR,
COMMENCING ON OCTOBER 15, 1998, AT THE RATE OF % OF THE LIQUIDATION
PREFERENCE PER ANNUM (EQUIVALENT TO $ PER ANNUM PER SHARE OF SERIES A
PREFERRED STOCK). SEE "SERIES A PREFERRED STOCK -- DIVIDENDS."
THE SERIES A PREFERRED STOCK WILL NOT BE REDEEMABLE PRIOR TO SEPTEMBER , 2003.
ON AND AFTER SEPTEMBER , 2003, THE SERIES A PREFERRED STOCK WILL BE REDEEMABLE
BY THE COMPANY, IN WHOLE OR FROM TIME TO TIME IN PART, AT THE OPTION OF THE
COMPANY, FOR CASH, AT A REDEMPTION PRICE OF $25.00 PER SHARE, PLUS ACCUMULATED
AND UNPAID DIVIDENDS THEREON, IF ANY, TO THE REDEMPTION DATE. THE REDEMPTION
PRICE OF THE SERIES A PREFERRED STOCK (OTHER THAN THE PORTION THEREOF CONSISTING
OF ACCUMULATED AND UNPAID DIVIDENDS) WILL BE PAYABLE SOLELY OUT OF THE SALE
PROCEEDS OF OTHER EQUITY SECURITIES OF THE COMPANY, WHICH MAY INCLUDE OTHER
CLASSES AND SERIES OF PREFERRED SHARES, AND FROM NO OTHER SOURCE. THE SERIES A
PREFERRED STOCK HAS NO STATED MATURITY, WILL NOT BE SUBJECT TO MANDATORY
REDEMPTION OR ANY SINKING FUND AND WILL NOT BE CONVERTIBLE INTO ANY OTHER
SECURITIES OF THE COMPANY. HOWEVER, THE COMPANY MAY PURCHASE SERIES A PREFERRED
STOCK AT ANY TIME IN CERTAIN CIRCUMSTANCES RELATING TO THE MAINTENANCE OF ITS
ABILITY TO QUALIFY AS A REIT FOR FEDERAL INCOME TAX PURPOSES. SEE "SERIES A
PREFERRED STOCK -- REDEMPTION."
IN ORDER TO ASSIST THE COMPANY IN MAINTAINING ITS QUALIFICATION AS A REIT FOR
FEDERAL INCOME TAX PURPOSES, OWNERSHIP, ACTUALLY OR CONSTRUCTIVELY, BY ANY
PERSON OF MORE THAN 9.8% IN VALUE OR NUMBER (WHICHEVER IS MORE RESTRICTIVE) OF
THE SERIES A PREFERRED STOCK IS RESTRICTED BY THE COMPANY'S ARTICLES OF
INCORPORATION. SEE "SERIES A PREFERRED STOCK -- RESTRICTIONS ON OWNERSHIP AND
TRANSFER."
------------------------
APPLICATION HAS BEEN MADE TO LIST THE SERIES A PREFERRED STOCK ON THE NEW YORK
STOCK EXCHANGE (THE "NYSE"), SUBJECT TO OFFICIAL NOTICE OF ISSUANCE, UNDER THE
SYMBOL "AMB PF A." IF SO APPROVED, TRADING ON THE NYSE IS EXPECTED TO COMMENCE
WITHIN A 30-DAY PERIOD AFTER THE DATE OF INITIAL DELIVERY OF THE SERIES A
PREFERRED STOCK.
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 14 HEREIN FOR CERTAIN FACTORS RELEVANT TO
AN INVESTMENT IN THE SHARES OF SERIES A PREFERRED STOCK, INCLUDING:
- - The Company may be unable to pay dividends on the Series A Preferred Stock if
the Company is unable to renew leases at favorable rental rates upon
expiration or pay tenant improvement costs in connection therewith, if the
Properties do not generate revenue sufficient to meet operating expenses and
fixed charges (including debt service and Series A Preferred Stock dividends),
or if the Company is unable to sell Properties when necessary.
- - The Company may not have sufficient cash flow to pay dividends on the Series A
Preferred Stock if the Company incurs additional indebtedness, or is unable to
repay, extend or refinance existing indebtedness.
- - The Company's cash flow and ability to pay dividends on the Series A Preferred
Stock would be adversely affected if principal payments on the Company's debt
due at maturity cannot be refinanced, extended or paid with proceeds of other
capital transactions.
- - Increased interest expense on the Company's variable-rate indebtedness would
adversely affect cash flow and the Company's ability to pay dividends on the
Series A Preferred Stock if prevailing interest rates increase or other
factors result in higher interest rates.
- - REIT distribution requirements may limit the Company's ability to finance
future acquisitions, expansions and developments without additional debt or
equity financing necessary to achieve the Company's business plan, which in
turn may adversely affect the price of the Series A Preferred Stock.
- - The involvement of certain officers and directors in other real estate
activities could divert management's attention from the day-to-day operations
of the Company.
- - Contingent or undisclosed liabilities acquired in mergers, property
acquisitions or other similar transactions could adversely affect the
Company's results of operations, financial condition, cash flow and ability to
pay dividends on the Series A Preferred Stock.
- - The influence of Executive Officers, directors and significant stockholders on
the Company's operations could result in management taking action which is not
in the best interests of all of the Company's stockholders.
- - Taxation of the Company as a corporation if it fails to qualify as a REIT for
Federal income tax purposes could result in a decrease in cash available to
pay dividends on the Series A Preferred Stock.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
PRICE $25 A SHARE
------------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC(1) COMMISSIONS(2) COMPANY(1)(3)
------------------- ------------------- -------------------
<S> <C> <C> <C>
Per Share......................................... $ $ $
Total(4).......................................... $ $ $
</TABLE>
- ---------------
(1) Plus accumulated dividends, if any, from the date of original issuance.
(2) The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriters."
(3) Before deducting expenses payable by the Company estimated at $1,000,000.
(4) The Company has granted to the Underwriters an option, exercisable within 30
days of the date hereof, to purchase up to an additional 600,000 shares of
Series A Preferred Stock solely to cover over-allotments, if any. If this
option is exercised in full, the total Price to Public, Underwriting
Discounts and Commissions and Proceeds to Company will be $ ,
$ and $ , respectively. See "Underwriters."
------------------------
The shares of Series A Preferred Stock are offered, subject to prior sale,
when, as, and if accepted by the Underwriters, and subject to approval of
certain legal matters by Gibson, Dunn & Crutcher LLP, counsel for the
Underwriters. It is expected that delivery of the Series A Preferred Stock will
be made on or about , 1998, at the offices of Morgan Stanley & Co.
Incorporated, New York, New York, against payment therefor in immediately
available funds.
------------------------
MORGAN STANLEY DEAN WITTER
A.G. EDWARDS & SONS, INC.
MERRILL LYNCH & CO.
PAINEWEBBER INCORPORATED
SALOMON SMITH BARNEY
, 1998
<PAGE> 5
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE SERIES A PREFERRED
STOCK. SUCH TRANSACTIONS MAY INCLUDE STABILIZING AND THE PURCHASE OF SERIES A
PREFERRED STOCK TO COVER SYNDICATE SHORT POSITIONS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITERS."
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY
OTHER THAN THE SERIES A PREFERRED STOCK OFFERED HEREBY, NOR DOES IT CONSTITUTE
AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY THE SERIES A PREFERRED
STOCK BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUMMARY................................. 1
The Company..................................... 1
Recent Developments............................. 3
Risk Factors.................................... 3
Business and Operating Strategies............... 5
Strategies For Growth........................... 6
The Offering.................................... 7
Organization.................................... 9
Tax Status of the Company....................... 10
Summary Financial and Other Data................ 11
RISK FACTORS....................................... 14
General Real Estate Risks....................... 14
Uncontrollable Factors Affecting Performance
and Value................................... 14
Renewal of Leases and Reletting of Space...... 14
Illiquidity of Real Estate Investments........ 14
Concentration of Properties in California..... 15
Concentration of Properties in Industrial and
Retail Sectors.............................. 15
Uninsured Loss................................ 15
Uninsured Losses from Seismic Activity........ 15
Impact on Control Over and Liabilities With
Respect to Properties Owned Through
Partnerships and Joint Ventures............. 16
Possible Inability to Consummate Acquisitions
on Advantageous Terms....................... 16
Possible Inability to Complete Renovation and
Development on Advantageous Terms........... 16
Limited Restrictions on Total Indebtedness...... 17
Debt Financing.................................. 17
Debt Financing and Existing Debt Maturities... 17
Impact of Rising Interest Rates and Variable
Rate Debt................................... 18
Dependence on External Sources of Capital..... 18
Possible Impact of Defaults on
Cross-Collateralized and Cross-Defaulted
Debt........................................ 18
Continent or Unknown Liabilities................ 18
Conflicts of Interest........................... 19
Continued Involvement of Executive Officers in
Other Real Estate Activities and
Investments................................. 19
Conflicts of Interest in Connection with
Properties Owned or Controlled by Executive
Officers and Directors...................... 19
Conflicts Relating to the Operating
Partnership................................. 20
Influence of Directors, Executive Officers and
Significant Stockholders.................... 20
Failure to Enforce Terms of Certain
Agreements.................................. 21
Government Regulations.......................... 21
Costs of Compliance with Americans with
Disabilities Act............................ 21
Environmental Matters......................... 21
Other Regulations............................. 22
Federal Income Tax Risks........................ 22
Adverse Consequences of the Company's Failure
to Qualify as a REIT........................ 22
Other Tax Liabilities......................... 23
Dependence on Key Personnel..................... 23
Need to Manage Rapid Growth..................... 23
AMB Investment Management....................... 24
Adverse Consequences of Lack of Control Over
the Business of AMB Investment Management... 24
Uncertainty of AMB Investment Management
Operations.................................. 24
THE COMPANY........................................ 25
</TABLE>
<TABLE>
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PAGE
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<S> <C>
General......................................... 25
Recent Developments............................. 25
BUSINESS AND OPERATING STRATEGIES.................. 26
National Property Company....................... 26
Two Complementary Property Types................ 26
Select Market Focus............................. 26
Property Management............................. 27
Disciplined Investment Process.................. 27
Renovation, Expansion and Development........... 28
Financing Strategy.............................. 28
AMB Investment Management....................... 28
STRATEGIES FOR GROWTH.............................. 29
Growth Through Operations....................... 29
Growth Through Acquisitions..................... 29
Growth Through Renovation, Expansion and
Development................................... 30
USE OF PROCEEDS.................................... 31
PRICE RANGE OF COMMON STOCK AND DISTRIBUTION
HISTORY........................................... 31
CAPITALIZATION..................................... 32
SELECTED FINANCIAL AND OTHER DATA.................. 33
Company and Predecessor............................ 33
Operating Partnership and AMB Contributed
Properties........................................ 36
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS............... 37
General......................................... 37
Company and Predecessor Results of Operations... 37
Operating Partnership Results of Operations..... 38
Liquidity and Capital Resources................. 40
Inflation....................................... 42
Year 2000 Compliance............................ 42
Funds From Operations........................... 43
BUSINESS AND PROPERTIES............................ 44
Industrial Properties........................... 44
Industrial Property Summary..................... 46
Industrial Property Tenant Information.......... 50
Industrial Property Lease Expirations........... 51
Retail Properties............................... 52
Retail Property Summary......................... 55
Retail Property Tenant Information.............. 58
Retail Property Lease Expirations............... 59
Historical Tenant Retention Rates and Rent
Increases..................................... 60
Recurring Tenant Improvements and Leasing
Commissions................................... 60
Occupancy and Base Rent......................... 60
Renovation, Expansion and Development Projects
in Progress................................... 61
Properties Held Through Joint Ventures, Limited
Liability Companies and Partnerships.......... 61
Debt Financing.................................. 63
Insurance....................................... 66
Government Regulations.......................... 67
Management and Employees........................ 68
Legal Proceedings............................... 68
POLICIES WITH RESPECT TO CERTAIN ACTIVITIES........ 69
Investment Policies............................. 69
Financing Policies.............................. 70
Lending Policies................................ 70
Conflict of Interest Policies................... 70
Policies with Respect to Other Activities....... 71
Policies with Respect to Investment Advisory
Services...................................... 71
</TABLE>
i
<PAGE> 6
<TABLE>
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PAGE
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<S> <C>
Other Policies.................................. 71
MANAGEMENT......................................... 73
Committees of the Board of Directors............ 76
Compensation of the Board of Directors.......... 77
Executive Compensation.......................... 77
Option Grants in Last Fiscal Year............... 78
Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year-End Option Values............. 78
Employment Agreements........................... 78
Stock Incentive Plan............................ 79
401(k) Plan..................................... 82
Limitation of Directors' and Officers'
Liability..................................... 82
Indemnification Agreements...................... 82
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..... 83
Formation Transactions.......................... 83
Other Related Transactions...................... 83
Conflicts of Interest........................... 84
PRINCIPAL STOCKHOLDERS............................. 85
SERIES A PREFERRED STOCK........................... 86
Preferred Stock Generally....................... 86
Series A Preferred Stock Generally.............. 86
Ranking......................................... 86
Dividends....................................... 87
Liquidation Preference.......................... 88
Optional Redemption............................. 88
Voting Rights................................... 90
Conversion Rights............................... 91
Power to Issue Additional Common Shares and
Preferred Shares.............................. 91
Restrictions on Ownership and Transfer.......... 91
Transfer Agent, Registrar, Conversion Agent and
Dividend Disbursing Agent..................... 91
DESCRIPTION OF CAPITAL STOCK....................... 92
Common Stock.................................... 92
Preferred Stock................................. 92
Restrictions on Ownership and Transfer.......... 93
CERTAIN PROVISIONS OF MARYLAND LAW AND OF THE
COMPANY'S CHARTER AND BYLAWS...................... 95
Board of Directors.............................. 95
Removal of Directors............................ 95
Opt Out of Business Combinations and Control
Share Acquisition Statutes.................... 96
Amendment to the Charter and Bylaws............. 96
Meetings of Stockholders........................ 96
Advance Notice of Director Nominations and New
Business...................................... 96
</TABLE>
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Dissolution of the Company...................... 97
Limitation of Directors' and Officers'
Liability..................................... 97
DESCRIPTION OF CERTAIN PROVISIONS OF THE
PARTNERSHIP AGREEMENT OF THE OPERATING
PARTNERSHIP....................................... 98
General......................................... 98
Purpose, Business and Management................ 98
Engaging in Other Businesses; Conflicts of
Interest...................................... 99
Reimbursement of the Company; Transactions with
the Company and its Affiliates................ 99
Exculpation and Indemnification of the
Company....................................... 100
Sales of Assets; Liquidation.................... 100
Capital Contribution............................ 101
Distribution; Allocations of Income and Loss.... 101
Removal of the General Partner; Transferability
of the Company's Interests; Treatment of Units
in Significant Transactions................... 101
Redemption/Exchange Rights...................... 102
Performance Units............................... 103
Registration Rights............................. 103
Duties and Conflicts............................ 103
Meetings; Voting................................ 104
Amendment of the Partnership Agreement.......... 104
Books and Reports............................... 105
Term............................................ 105
MATERIAL FEDERAL INCOME TAX CONSEQUENCES........... 106
Taxation of the Company......................... 106
Failure of the Company to Qualify as a REIT..... 113
Tax Aspects of the Operating Partnership and the
Joint Ventures................................ 113
Taxation of Taxable U.S. Stockholders
Generally..................................... 115
Taxation of Non-U.S. Stockholders............... 118
Tax Liabilities and Attributes Inherited From
Predecessors.................................. 121
Other Tax Consequences.......................... 122
Pending Legislation............................. 122
ERISA CONSIDERATIONS............................... 123
Employee Benefit Plans, Tax-Qualified Retirement
Plans and IRAs................................ 123
Status of the Company Under ERISA............... 123
UNDERWRITERS....................................... 125
LEGAL MATTERS...................................... 126
EXPERTS............................................ 126
AVAILABLE INFORMATION.............................. 126
GLOSSARY........................................... 128
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
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), the Company's failure to qualify and maintain
its status as a real estate investment trust (a "REIT") under the Internal
Revenue Code of 1986, as amended (the "Code"), environmental uncertainties,
risks related to natural disasters, financial market fluctuations, changes in
real estate and zoning laws and increases in real property tax rates. The
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 otherwise indicated or
required by the context, (i) all calculations and information contained in this
Prospectus assume the Underwriters' over-allotment option will not be exercised,
(ii) all rental and square footage data are approximate and/or on a weighted
average basis, (iii) unless otherwise indicated, all Property information is
presented as of March 31, 1998 and (iv) the "Company" shall include AMB Property
Corporation and its subsidiaries, including AMB Property, L.P. (the "Operating
Partnership") and its subsidiaries and, with respect to the period prior to the
Company's initial public offering, the AMB Predecessors (as defined).
Capitalized terms shall have the meanings set forth herein and in the Glossary
beginning on page 128.
THE COMPANY
The Company is one of the largest publicly-traded real estate companies in
the United States. As of June 30, 1998, the Company owned 163 properties (the
"Properties"), comprised of 126 industrial properties (the "Industrial
Properties") and 37 retail properties (the "Retail Properties") located in 28
markets throughout the United States (including eight Industrial Properties
acquired since March 31, 1998). The Industrial Properties, principally warehouse
distribution properties, encompass approximately 47.7 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. The Company owns substantially all
of its assets, and conducts substantially all of its business, through the
Operating Partnership and its subsidiaries.
The Company is engaged in the business of acquiring and operating
industrial properties and community shopping centers in target markets
nationwide. The Company is led by 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.
AMB Property Corporation was organized in November 1997 and commenced
operations upon the completion of its initial public offering on November 26,
1997 (the "IPO"). The Company operates as a self-administered and self-managed
real estate company and expects that it has qualified and that it will continue
to qualify as a REIT for Federal income tax purposes beginning with the year
ended December 31, 1997.
1
<PAGE> 8
The following tables set forth certain summary information with respect to
the Properties owned as of March 31, 1998 and excludes (i) eight Industrial
Properties, comprising 44 buildings and 3.3 million rentable square feet, (ii)
four buildings aggregating 0.4 million square feet which are adjacent to
existing Properties and (iii) a limited partnership interest in an existing
unconsolidated real estate joint venture that owns 36 industrial buildings
aggregating 4.0 million square feet, all of which were acquired subsequent to
March 31, 1998.
INDUSTRIAL PROPERTIES
<TABLE>
<CAPTION>
PERCENTAGE
OF TOTAL PERCENTAGE
NUMBER NUMBER RENTABLE INDUSTRIAL ANNUALIZED OF
OF OF SQUARE SQUARE PERCENTAGE BASE RENT ANNUALIZED
REGION PROPERTIES BUILDINGS FEET FEET LEASED (000S)(1) BASE RENT
------ ---------- --------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Eastern.................. 27 68 8,729,347 19.9% 92.7% $ 33,435 18.7%
Midwestern............... 28 92 11,199,515 25.5 93.0 39,075 21.9
Southern................. 30 114 11,262,975 25.6 95.2 45,096 25.3
Western.................. 33 141 12,772,141 29.0 96.8 60,809 34.1
--- --- ---------- ----- -------- -----
Total/Weighted Average... 118 415 43,963,978 100.0% 94.6% $178,415 100.0%
=== === ========== ===== ======== =====
</TABLE>
RETAIL PROPERTIES
<TABLE>
<CAPTION>
PERCENTAGE
OF TOTAL PERCENTAGE
NUMBER NUMBER RENTABLE RETAIL ANNUALIZED OF
OF OF SQUARE SQUARE PERCENTAGE BASE RENT ANNUALIZED
REGION PROPERTIES CENTERS FEET FEET LEASED (000S)(1) BASE RENT
------ ---------- ---------- --------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Eastern................... 4 4 1,272,968 18.6% 98.1% $14,381 18.8%
Midwestern................ 4 4 710,833 10.4 99.0 7,099 9.3
Southern.................. 12 12 1,957,051 28.6 88.8 19,143 25.1
Western................... 17 17 2,907,986 42.4 95.9 35,666 46.8
--- -- --------- ----- ------- -----
Total/Weighted Average.... 37 37 6,848,838 100.0% 94.6% $76,289 100.0%
=== == ========= ===== ======= =====
</TABLE>
TOTAL PROPERTIES
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE
NUMBER NUMBER RENTABLE OF TOTAL ANNUALIZED OF
OF OF SQUARE SQUARE PERCENTAGE BASE RENT ANNUALIZED
REGION PROPERTIES BUILDINGS FEET FEET LEASED (000S)(1) BASE RENT
------ ---------- --------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Eastern.................. 31 72 10,002,315 19.7% 93.3% $ 47,816 18.8%
Midwestern............... 32 96 11,910,348 23.4 93.4 46,174 18.1
Southern................. 42 126 13,220,026 26.0 94.3 64,239 25.2
Western.................. 50 158 15,680,127 30.9 96.7 96,475 37.9
--- --- ---------- ----- -------- -----
Total/Weighted Average... 155 452 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
Sale of Senior Debt Securities. On June 30, 1998, the Operating Partnership
sold $400 million aggregate principal amount of senior debt securities (the
"Senior Debt Securities") in an underwritten public offering. The net proceeds
from the offering of the Senior Debt Securities were used to repay borrowings
under the Credit Facility (as defined below).
Acquisitions. From April 1, 1998 to June 30, 1998, the Company acquired for
an aggregate purchase price of approximately $210.4 million (i) eight Industrial
Properties, comprising 44 buildings and 3.3 million rentable square feet, (ii)
four buildings aggregating 0.4 million square feet which are adjacent to
existing Properties and (iii) a limited partnership interest in an existing
unconsolidated real estate joint venture that owns 36 industrial buildings
aggregating 4.0 million square feet.
Quarterly Distributions. On June 19, 1998, the Board of Directors declared
a distribution on the Common Stock of $0.3425 per share, paid on July 9, 1998 to
stockholders of record as of June 30, 1998, and, in its capacity as general
partner of the Operating Partnership, declared a distribution on the Operating
Partnership's common partnership units of $0.3425 per common partnership unit,
paid on July 9, 1998 to partners of record as of June 30, 1998.
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 Company's $500 million unsecured revolving credit facility (the
"Credit Facility") was reduced by 20 basis points to LIBOR plus 90 basis points.
In addition, the Company has received prospective ratings on the Series A
Preferred Stock of Baa2 from Moody's Investors Service, BBB- from Standard &
Poor's Corporation and BBB from Duff & Phelps Credit Rating Co.
RISK FACTORS
An investment in shares of Series A Preferred Stock involves various
material risks. Prospective investors should carefully consider the following
risk factors, in addition to the other information set forth in this Prospectus,
before making an investment decision regarding the shares of Series A Preferred
Stock offered hereby. Each of these matters could have adverse consequences to
the Company. Such risks include, among others:
- the possible failure of investments to perform in accordance with the
Company's expectations, inaccuracy of estimates of costs of improvements
to bring an acquired property up to standards, competition for attractive
investment opportunities and other general risks associated with any real
estate investment which could have an adverse effect on the Company's
financial condition, results of operations, cash flow and ability to pay
dividends on the Series A Preferred Stock;
- the need to renew leases or re-lease space upon lease expirations and to
pay renovation and re-leasing costs in connection therewith, the effect
of economic and other conditions on property cash flows and values, the
ability of tenants to make lease payments, the ability of a property to
generate revenue sufficient to meet operating expenses (including future
debt service), and the illiquidity of real estate investments which could
have an adverse effect on the Company's financial condition, results of
operations, cash flow and ability to pay dividends on the Series A
Preferred Stock;
- the inability to refinance outstanding indebtedness upon maturity or
refinance such indebtedness on favorable terms, the risks of rising
interest rates in connection with the Credit Facility and other
variable-rate borrowings and the ability of the Company to incur more
debt without stockholder approval, thereby increasing its debt service
obligations, which could adversely affect the Company's financial
condition, results of operations, cash flow and ability to pay dividends
on the Series A Preferred Stock;
- the distribution requirements of REITs which may limit the Company's
ability to finance future acquisitions, expansions and development
without additional debt or equity financing necessary to
3
<PAGE> 10
achieve the Company's business plan, and risks associated with the
Company's reliance on external sources of capital which, in turn, may
adversely affect its ability to pay dividends on, and the trading price
and market value of, the Series A Preferred Stock;
- conflicts of interest in connection with the operations of the Company,
including (i) the continued involvement of certain of the Executive
Officers and directors in other real estate activities and investments
which could divert management's attention from the day-to-day operations
of the Company; (ii) the influence of certain directors, officers and
significant stockholders on the management and operation of the Company,
and as stockholders, on the outcome of matters submitted to a vote of the
stockholders and (iii) the potential failure to enforce the terms of
agreements, including the indemnification by certain of the Executive
Officers and other participants in the Formation Transactions (as
defined) for breaches of representations and warranties relating to the
Formation Transactions, each of which could result in the Company taking
action which is not in the interest of all stockholders;
- taxation of the Company as a corporation if it fails to qualify as a REIT
for Federal income tax purposes, the Company's liability for certain
Federal, state and local income taxes in such event, and the resulting
decrease in cash available for the payment of dividends to holders of the
Series A Preferred Stock;
- if the Company does not effectively manage its rapid growth, it may be
unable to pay dividends to holders of the Series A Preferred Stock;
- the possible unavailability of acquisition and development financing on
favorable terms and delays due to the inability to obtain necessary
permits or authorizations which could have an adverse effect on the
Company's financial condition, results of operations, cash flow and
ability to pay dividends on the Series A Preferred Stock;
- possible uninsured losses or losses in excess of insured limits relating
to certain activities, including fire, rental loss and seismic activity,
which could have an adverse effect on the Company's financial condition,
results of operations, cash flow and ability to pay dividends on the
Series A Preferred Stock;
- potential liability of the Company for contingent or unknown liabilities
assumed by the Company as the surviving entity in the Formation
Transactions and as an acquiror of properties which could have an adverse
effect on the Company's financial condition, results of operations, cash
flow and ability to pay dividends on the Series A Preferred Stock;
- potential liability of the Company for environmental matters and the
costs of compliance with certain government regulations which could have
an adverse effect on the Company's financial condition, results of
operations, cash flow and ability to pay dividends on the Series A
Preferred Stock;
- in connection with the Company's property ownership through partnerships
and joint ventures, the possibility that (i) a joint venturer or another
partner in a partnership may (a) become bankrupt while the Company and
any other remaining partners or joint venturers remain liable for the
liabilities of such partnerships or joint ventures or (b) have economic
interests inconsistent with those of the Company, or (ii) the Company
could be required to sell its interest or acquire its joint venturers'
interest or another partner's interest at a disadvantageous time or on
disadvantageous terms, which could adversely affect the return realized
by the Company on such investments and therefore could have an adverse
effect on the Company's financial condition, results of operations, cash
flow and ability to pay dividends on the Series A Preferred Stock;
- possible conflicts of interest imposed by the fiduciary obligations of
the Company to the limited partners of the Operating Partnership, in its
capacity as the general partner of the Operating Partnership, the
requirement for the limited partners to approve certain amendments
affecting their rights and the ability of the limited partners to approve
certain transactions that affect all stockholders of the Company, which
could result in the Company taking action which is not in the interest of
all stockholders, including holders of the Series A Preferred Stock;
- the dependence on the efforts of the Executive Officers, particularly
Messrs. Abbey, Moghadam and Burke, the Chairman of the Company's
Investment Committee, its Chief Executive Officer and the
4
<PAGE> 11
Chairman of the Board of Directors, respectively. The inability to find
suitable replacements for these key personnel, the loss of their services
or the limitation of their availability could have an adverse effect on
the Company's financial condition, results of operations, cash flow and
ability to pay dividends to holders of the Series A Preferred Stock.
- absence of a prior public market for the shares of Series A Preferred
Stock and no assurance that a public market will develop or be sustained,
and potential adverse effects on the value of the shares of Series A
Preferred Stock from fluctuations in equity markets or rising market
interest rates, which may negatively impact the price at which shares of
Series A Preferred Stock may be resold.
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:
- 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.
5
<PAGE> 12
- Financing Strategy. The Company intends to operate with a conservative
Debt-to-Total Market Capitalization Ratio and plans to continue to
structure its balance sheet in order to maintain investment-grade
ratings. Upon consummation of the Offering, the Company's Debt-to-Total
Market Capitalization Ratio as of March 31, 1998 on a pro forma basis
(giving effect to the acquisition-related debt incurred subsequent to
March 31, 1998, the sale of the Senior Debt Securities and the Offering
and the application of the proceeds therefrom as if the debt had been
incurred and those transactions had occurred as of that date) would have
been approximately 31.4% (approximately 29.9% on an historical basis).
STRATEGIES FOR GROWTH
The Company intends to achieve its growth objectives of long-term
sustainable growth in funds from operations ("FFO") and maximization of
long-term stockholder value principally through the following:
Growth Through Operations. The Company intends to improve operating margins
by increasing the occupancy rate of its Properties and by capitalizing on the
economies of owning, operating and growing a large national portfolio. During
the 12 months ended March 31, 1998, the Company 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 ending March 31, 1999, leases encompassing an
aggregate of 10.3 million rentable square feet (representing 20.3% of the
Company'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 market trends,
management believes it will have an opportunity to increase the average rental
rate on Property leases expiring during the nine months ending December 31, 1998
covering an aggregate of 5.2 million rentable square feet.
Growth Through Acquisitions. Between January 1, 1998 and June 30, 1998, the
Company acquired (i) 31 Properties comprising 88 buildings and 10.0 million
square feet, (ii) 10 buildings aggregating 0.8 million square feet which are
adjacent to existing Properties and (iii) a limited partnership interest in an
existing unconsolidated real estate joint venture which owns 36 industrial
buildings aggregating 4.0 million square feet. The Company 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
in publicly-traded REITs. The Company believes that its relationships with
leading pension funds and other institutional investors will continue to provide
an important source of acquisition opportunities. The Company's operating
structure enables it to acquire properties through the Operating Partnership in
exchange for units, thereby enhancing the Company's 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. There can be no
assurance that any of such acquisitions will be consummated. Such acquisitions,
if consummated, may be material individually or in the aggregate. Sources of
capital for acquisitions may include undistributed cash flow, borrowings under
the Credit Facility, other forms of secured or unsecured financing, issuances of
debt or equity securities by the Operating Partnership or the Company and
assumption of debt related to the assets being acquired.
Growth Through Renovation, Expansion and Development. Management believes
that it has the market expertise and access to identify and acquire value-added
properties and develop new properties. The Company has developed the in-house
expertise to create value through acquiring and managing value-added properties
and believes its national market presence and expertise will enable it to
continue to generate and capitalize on such opportunities. The Company has also
established certain strategic alliances with national and regional developers to
enhance the Company's development capabilities.
6
<PAGE> 13
THE OFFERING
Securities Offered............ 4,000,000 shares of % Series A Cumulative
Redeemable Preferred Stock (or 4,600,000 shares
of % Series A Cumulative Redeemable Preferred
Stock if the Underwriters' over-allotment
option is exercised in full) (the "Series A
Preferred Stock").
Dividends..................... Dividends on the Series A Preferred Stock are
cumulative from the date of original issue and
are payable quarterly in arrears on the 15th
day of January, April, July and October of each
year, commencing on October 15, 1998 (or, if
any such date is not a Business Day, on the
next succeeding Business Day), at the rate of
% of the liquidation preference per annum
(equivalent to $ per annum per share of
Series A Preferred Stock). Dividends on the
Series A Preferred Stock will accumulate
whether or not there are funds legally
available for the payment of such dividends and
whether or not such dividends are declared. If
the Company designates any portion of a
dividend as "capital gain dividend," a holder's
share of such capital gain dividend will be an
amount that bears the same ratio to the total
amount of dividends (as determined for Federal
income tax purposes) paid to such holder for
the year as the aggregate amount designated as
a capital gain dividend bears to the aggregate
amount of all dividends (as determined for
Federal income tax purposes) paid on all
classes of shares for the year. See "Series A
Preferred Stock -- Dividends."
Ranking....................... The Series A Preferred Stock will rank, with
respect to the payment of dividends and the
distribution of assets upon liquidation,
dissolution or winding up of the Company,
senior to the Common Stock. See "Series A
Preferred Stock -- Ranking."
Liquidation Preference........ The Series A Preferred Stock will have a
liquidation preference of $25.00 per share,
plus an amount equal to accumulated and unpaid
dividends. See "Series A Preferred Stock --
Liquidation Rights."
Maturity...................... The Series A Preferred Stock has no stated
maturity and will not be subject to mandatory
redemption or any sinking fund.
Optional Redemption........... The Series A Preferred Stock will not be
redeemable prior to , 2003. On and
after , 2003, the Series A Preferred
Stock will be redeemable for cash at the option
of the Company, in whole or from time to time
in part, at a redemption price of $25.00 per
share, plus accumulated and unpaid dividends
thereon, if any, to the redemption date. The
redemption price (other than the portion
thereof consisting of accumulated and unpaid
dividends) will be payable solely out of the
sale proceeds of other equity securities of the
Company, which may include other classes or
series of Preferred Stock, and from no other
source. In certain circumstances related to the
Company's maintenance of its ability to qualify
as a REIT for Federal income tax purposes, the
Company may redeem shares of Series A Preferred
Stock. See "Series A Preferred Stock --
Redemption."
Voting Rights................. If dividends on the Series A Preferred Stock
remain unpaid for six or more quarterly periods
(whether or not consecutive), holders of the
Series A Preferred Stock (voting separately as
a class with all
7
<PAGE> 14
other classes or series of equity securities of
the Company upon which like voting rights have
been conferred and are exercisable) will be
entitled to vote for the election of two
additional directors to serve on the Board of
Directors until all dividend arrearages with
respect to the Series A Preferred Stock are
eliminated. The Series A Preferred Stock will
also be entitled to certain additional voting
rights described herein. See "Series A
Preferred Stock -- Voting Rights."
Conversion.................... The Series A Preferred Stock will not be
convertible into or exchangeable for any other
property or securities of the Company.
NYSE Listing.................. Application has been made to list the Series A
Preferred Stock on the NYSE, subject to
official notice of issuance, under the symbol
"AMB Pf A." Trading on the NYSE is expected to
commence within a 30-day period after the date
of initial delivery of the Series A Preferred
Stock. While the Underwriters have advised the
Company that they intend to make a market in
the Series A Preferred Stock prior to
commencement of trading on the NYSE, they are
under no obligation to do so and no assurance
can be given that a market for the Series A
Preferred Stock will exist prior to or upon
commencement of trading. See "Underwriters."
Use of Proceeds............... The net proceeds from the Offering will be used
for the repayment of indebtedness, property
acquisitions and other general corporate
purposes. See "Use of Proceeds."
Ownership Limit............... In order to assist the Company in maintaining
its qualification as a REIT for Federal income
tax purposes, ownership, actually or
constructively, by any person of more than 9.8%
in value or number (whichever is more
restrictive) of shares of Series A Preferred
Stock is restricted by the Company's Articles
Supplementary. See "Series A Preferred Stock."
8
<PAGE> 15
ORGANIZATION
The Company conducts substantially all of its operations through the
Operating Partnership. The following diagram illustrates the structure of the
Company, the Operating Partnership and their subsidiaries:
[CHART]
- ---------------
(1) AMB Investment Management Corporation ("AMB Investment Management") conducts
its business through AMB Investment Management Limited Partnership (the
"Investment Management Partnership"), of which it is the sole general
partner and owns the entire capital interest. Certain Executive Officers own
a profits interest in the Investment Management Partnership relating to the
allocation of a portion of the incentive fees with respect to assets managed
by the Company's predecessor prior to the IPO.
(2) Includes properties owned on a joint venture basis through certain limited
partnerships and limited liability companies in which the Operating
Partnership owns at least a 50% interest. See "Business and
Properties -- Properties Held Through Joint Ventures, Limited Liability
Companies and Partnerships" for a list of such entities.
(3) AMB Property II, L.P. and Long Gate LLC hold title to Properties in certain
states for local law purposes. The ownership of such Properties through such
entities does not materially affect the Operating Partnership's and the
Company's overall ownership of the interests in the Properties.
The principal executive offices of the Company are located at 505
Montgomery Street, San Francisco, California 94111, and its telephone number is
(415) 394-9000. The Company also maintains a regional office in Boston,
Massachusetts.
9
<PAGE> 16
TAX STATUS OF THE COMPANY
The Company will elect to be taxed as a REIT under Sections 856 through 860
of the Code, commencing with its taxable year ended December 31, 1997, and
believes its current organization and method of operation will enable it to
maintain status as a REIT. To maintain REIT status, an entity must meet a number
of organizational and operational requirements, including a requirement that it
distribute at least 95% of its REIT taxable income (determined without regard to
the dividends-paid deduction and by excluding net capital gains) to its
stockholders. As a REIT, the Company generally is not subject to Federal income
tax on net income it distributes to its stockholders. If the Company fails to
qualify as a REIT in any taxable year, it will be subject to Federal income tax
at regular corporate rates and may not be able to qualify as a REIT for the four
subsequent taxable years. See "Risk Factors -- Federal Income Tax
Risks -- Adverse Consequences of Failure to Qualify as a REIT" and "Material
Federal Income Tax Consequences -- Failure of the Company to Qualify as a REIT."
In the opinion of Latham & Watkins, tax counsel to the Company, commencing with
the Company's taxable year ended December 31, 1997, the Company has been
organized and has operated in conformity with the requirements for qualification
and taxation as a REIT, and its method of operation will enable it to continue
to meet the requirements for qualification and taxation as a REIT under the
Code. See "Material Federal Income Tax Consequences -- Taxation of the Company."
Such legal opinion, however, is based on various assumptions and factual
representations by the Company regarding the Company's ability to maintain the
various requirements for qualification as a REIT, and no assurance can be given
that actual operating results have met or will continue to meet these
requirements. Such legal opinion is not binding on the Internal Revenue Service
("IRS") or any court. Moreover, the Company's continued qualification and
taxation as a REIT depends upon its ability to meet (through actual annual
operating results, distribution levels and diversity of stock ownership) the
various qualification tests imposed under the Code, the results of which have
not been and will not be reviewed by Latham & Watkins. Even if the Company
qualifies for taxation and maintains its status as a REIT, the Company may be
subject to certain Federal, state and local taxes on its income and property.
10
<PAGE> 17
SUMMARY FINANCIAL AND OTHER DATA
The following table sets forth summary financial and other data on an
historical basis for the Company and its predecessor, AMB Institutional Realty
Advisors, Inc. ("AMB" or the "Predecessor"), for the five years ended December
31, 1997 and the 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 summary 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, the sale of the Senior Debt
Securities and the application of the net proceeds therefrom and the Offering
and the application of the net proceeds therefrom, as if all such transactions
had occurred on January 1, 1997). For the 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" and the Consolidated Financial Statements and
accompanying Notes thereto 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 Predecessor, an
investment manager, for the period from January 1, 1997 to November 25, 1997.
In the opinion of management, the historical financial information as of
and for the three months ended March 31, 1998 reflects all adjustments, which
are of a normal recurring nature, necessary for a fair presentation of the
financial information, and the as adjusted and pro forma condensed financial
information provides for all adjustments necessary to reflect the adjustments
and transactions described above. The information for the three months ended
March 31, 1998 is unaudited and the operating data for that period are not
necessarily indicative of the results for the entire year. The as adjusted and
pro forma information is unaudited and is not necessarily indicative of the
results that would have occurred if the transactions and adjustments reflected
therein had been consummated in the period or on the date presented, nor does it
purport to represent the financial position, results of operations or changes in
cash flows for future periods.
11
<PAGE> 18
COMPANY AND PREDECESSOR SUMMARY FINANCIAL AND OTHER DATA
(IN THOUSANDS, EXCEPT SHARE AND UNIT 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
------ ------- ------- ------- ---------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Total revenues.............. $7,155 $12,865 $16,865 $23,991 $ 56,062 $ 284,674 $341,132
Income from operations
before minority
interests................. 798 2,925 3,296 7,140 18,885 103,903 113,833
Net income available to
common stockholders....... 798 2,925 3,262 7,003 18,228 99,508 95,229
Net income per common
share(5):
Basic..................... $ 0.17 $ 0.59 $ 0.64 $ 1.38 $ 1.39 $ 1.16 $ 1.11
Diluted................... 0.17 0.59 0.64 1.38 1.38 1.16 1.11
Distributions per common
share..................... 0.13 1.37 1.37
OTHER DATA:
EBITDA(6)................... $ 195,218 $238,274
Funds from Operations(7).... 147,409 151,850
Cash flows provided by (used
in):
Operating activities...... 131,621 144,562
Investing activities...... (607,768) (941,937)
Financing activities...... 553,199 721,486
Ratio of earnings to fixed
charges and preferred
stock dividends(8)........ 3.1x 2.2x
Ratio of EBITDA to interest
expense and preferred
stock dividends(9)........ 4.3x 3.0x
BALANCE SHEET DATA:
Investments in real estate
at cost................... $ -- $ -- $ -- $ -- $2,442,999
Total assets................ 2,739 4,092 4,948 7,085 2,506,255
Secured debt(10)............ -- -- -- -- 535,652
Senior Debt Securities...... -- -- -- -- --
Unsecured credit facility... -- -- -- -- 150,000
Stockholders' equity........ 2,480 3,848 4,241 6,300 1,668,030
PROPERTY DATA:
INDUSTRIAL PROPERTIES
Total rentable square
footage of 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,
------------------------------------------
COMPANY
-------------------------
PREDECESSOR PRO FORMA
(1) HISTORICAL (4)
-------------- ----------- -----------
1997 1998 1998
-------------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
OPERATING DATA:
Total revenues.............. $5,112 $ 75,785 $ 88,839
Income from operations
before minority
interests................. 1,239 29,188 32,421
Net income available to
common stockholders....... 1,239 27,906 27,812
Net income per common
share(5):
Basic..................... $ 0.24 $ 0.32 $ 0.32
Diluted................... 0.24 0.32 0.32
Distributions per common
share..................... 0.34 0.34
OTHER DATA:
EBITDA(6)................... $ 52,815 $ 63,056
Funds from Operations(7).... 40,295 41,697
Cash flows provided by (used
in):
Operating activities...... 34,820 38,347
Investing activities...... (199,520) (49,646)
Financing activities...... 153,316 (11,205)
Ratio of earnings to fixed
charges and preferred
stock dividends(8)........ 3.1x 2.4x
Ratio of EBITDA to interest
expense and preferred
stock dividends(9)........ 4.5x 3.2x
BALANCE SHEET DATA:
Investments in real estate
at cost................... $2,755,882 $2,966,330
Total assets................ 2,798,190 3,023,947
Secured debt(10)............ 610,111 626,220
Senior Debt Securities...... -- 400,000
Unsecured credit facility... 312,000 --
Stockholders' equity........ 1,670,705 1,766,605
PROPERTY DATA:
INDUSTRIAL PROPERTIES
Total rentable square
footage of properties at
end of period............. 43,964 47,676
Number of properties at end
of period................. 118 126
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 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, the sale of the Senior Debt
Securities and the Offering had occurred on January 1, 1997. See "Pro Forma
Financial Information."
(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 shares,
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 86,284,736 and 86,284,736 shares, respectively.
12
<PAGE> 19
(6) EBITDA is computed as income from operations before disposal of properties
and minority interests plus interest expense, income taxes, depreciation
and amortization. Management believes that in addition to cash flows and
net income, EBITDA is a useful financial performance measure for assessing
operating performance because, together with net income and cash flows,
EBITDA provides investors with an additional basis to evaluate the ability
to incur and service debt and to fund acquisitions and other capital
expenditures.
(7) FFO represents net income (loss) before minority interests and
extraordinary items, adjusted for depreciation on real property and
amortization of tenant improvement costs and lease commissions, gains
(losses) from the disposal of properties and FFO attributable to minority
interests in consolidated joint ventures whose interests are not
convertible into shares of Common Stock. Management considers FFO an
appropriate measure of performance of an equity REIT because it is
predicated on cash flow analyses. The Company computes FFO in accordance
with standards established by the White Paper on Funds from Operations
approved by the Board of Governors of NAREIT in March 1995 (the "White
Paper"), which may differ from the methodology for calculating FFO utilized
by other REITs and, accordingly, may not be comparable to such other REITs.
FFO should not be considered as an alternative to net income (determined in
accordance with GAAP) as an indicator of the Company's financial
performance or to cash flow from operating activities (determined in
accordance with GAAP) as a measure of the Company's liquidity, nor is it
indicative of funds available to fund the Company's cash needs, including
its ability to make distributions. The following table sets forth the
Company's calculation of FFO for the periods presented.
<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 $ 113,833 $ 29,188 $ 32,421
Real estate related depreciation and amortization:
Depreciation and amortization..................... 45,886 54,027 11,786 13,256
Furniture, fixtures and equipment depreciation.... (173) (173) (104) (104)
FFO attributable to minority interests................ (2,207) (8,609) (575) (2,069)
Adjustment to derive FFO of unconsolidated joint
venture:
Company's share of net income..................... -- (5,470) -- (1,273)
Company's share of FFO............................ -- 6,742 -- 1,591
Series A Preferred Stock dividends.................... -- (8,500) -- (2,125)
----------- ----------- ----------- -----------
FFO................................................... $ 147,409 $ 151,850 $ 40,295 $ 41,697
=========== =========== =========== ===========
Weighted average shares and units outstanding
(diluted)........................................... 88,698,719 89,904,556 88,839,192 90,032,738
=========== =========== =========== ===========
</TABLE>
(8) The ratio of earnings to fixed charges and preferred stock dividends is
computed as income from operations before minority interests plus fixed
charges (excluding capitalized interest) divided by fixed charges and
preferred stock dividends. Fixed charges consist of interest costs
(including amortization of debt premiums and financing costs), whether
capitalized or expensed, and the interest component of rental expense.
(9) The ratio of EBITDA to interest expense and preferred stock dividends is
calculated as EBITDA divided by the sum of book interest expense (including
amortization of debt premiums and discounts and financing costs) and
preferred stock dividends.
(10) Secured debt as of December 31, 1997 and March 31, 1998 is comprised of
mortgage loans and other secured debt and includes unamortized debt
premiums and discounts of approximately $18,286 and $17,542, respectively.
13
<PAGE> 20
RISK FACTORS
An investment in the shares of Series A Preferred Stock involves various
material risks. Prospective investors should carefully consider the following
risk factors in connection with an investment in the shares of Series A
Preferred Stock offered hereby.
GENERAL REAL ESTATE RISKS
Uncontrollable Factors Affecting Performance and Value
Real property investments are subject to varying degrees of risk. The
yields available from equity investments in real estate depend on the amount of
income earned and capital appreciation generated by the related properties as
well as the expenses incurred in connection therewith. If the Properties do not
generate income sufficient to meet operating expenses, including debt service
and capital expenditures, the ability to pay dividends to holders of the Series
A Preferred Stock could be adversely affected. Income from, and the value of,
the Properties may be adversely affected by the general economic climate, local
conditions such as oversupply of industrial or retail space or a reduction in
demand for industrial or retail space in the area, the attractiveness of the
Properties to potential tenants, competition from other industrial and retail
properties, 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.
Renewal of Leases and Reletting of Space
The Company is subject to the risks that leases may not be renewed, space
may not be relet or the terms of renewal or reletting (including the cost of
required renovations) may be less favorable than current lease terms. Leases on
a total of approximately 42.5% of the Properties' leased square footage as of
March 31, 1998 will expire on or prior to December 31, 2000, with leases on
12.9% of such leased square footage expiring during the 12 months ending March
31, 1999. In addition, numerous properties compete with the Company's Properties
in attracting tenants to lease space, particularly with respect to retail
properties. The number of competitive commercial properties in a particular area
could have a material adverse effect on the Company's ability to lease space in
its Properties or newly acquired properties and on the rents charged. If the
Company were unable to promptly relet or renew the leases for all or a
substantial portion of this space, if the rental rates upon such renewal or
reletting were significantly lower than expected or if its reserves for these
purposes proved inadequate, the Company's financial condition, results of
operations, cash flow and ability to pay dividends to holders of the Series A
Preferred Stock could be adversely affected. See "Business and
Properties -- Industrial Properties -- Industrial Property Lease
Expirations -- Portfolio Total" and "-- Retail Properties -- Retail Property
Lease Expirations -- Portfolio Total."
Illiquidity of Real Estate Investments
Because real estate investments are relatively illiquid, the Company's
ability to vary its portfolio promptly in response to economic or other
conditions is limited. The limitations in the Code and related regulations on a
REIT holding property for sale may affect the Company's ability to sell
properties without adversely affecting distributions to the Company's
stockholders, including holders of the Series A Preferred Stock. The relative
illiquidity of its holdings, Code prohibitions and related regulations could
impede the ability of the Company to respond to adverse changes in the
performance of its investments and could have an adverse effect on the Company's
financial condition, results of operations, cash flow and ability to pay
dividends to holders of the Series A Preferred Stock.
14
<PAGE> 21
Concentration of Properties in California
As of March 31, 1998, the Properties in California represented
approximately 24.0% of aggregate square footage and approximately 30.6% of
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 Company's financial
condition, results of operations, cash flow and ability to pay dividends to
holders of the Series A Preferred Stock. 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, represented 86.5% and 13.5%, respectively, of the
Properties' aggregate rentable square footage. Such concentration may expose the
Company to the risk of economic downturns in these sectors to a greater extent
than if its portfolio also included other property types. As a result, economic
downturns in these sectors could have an adverse effect on the Company's
financial condition, results of operations, cash flow and ability to pay
dividends to holders of the Series A Preferred Stock.
Uninsured Loss
The Company carries comprehensive liability, fire, extended coverage and
rental loss insurance covering all of its Properties, with policy specifications
and insured limits which the Company believes are adequate and appropriate under
the circumstances given relative risk of loss, the cost of such coverage and
industry practice. There are, however, certain types and magnitudes of losses
that are not generally insured because it is not economically feasible to insure
against such losses, such as losses due to riots or acts of war, or may be
insured subject to certain limitations including large deductibles or
co-payments, such as losses due to floods or seismic activity. See "-- Uninsured
Losses From Seismic Activity." Should an uninsured loss or a loss in excess of
insured limits occur with respect to one or more of its properties, the Company
could lose its capital invested in such properties, as well as the anticipated
future revenue from such properties and, in the case of debt which is with
recourse to the Company, the Company would remain obligated for any mortgage
debt or other financial obligations related to such properties. Moreover, as the
general partner of the Operating Partnership, the Company will generally be
liable for all of the Operating Partnership's unsatisfied obligations other than
non-recourse obligations. Any such liability could adversely affect the
Company's financial condition, results of operations, cash flow and ability to
pay dividends to holders of the Series A Preferred Stock.
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 Company carries replacement cost earthquake insurance
on all of its Properties located in areas historically subject to seismic
activity, subject to coverage limitations and deductibles which the Company
believes are commercially reasonable. Such insurance coverage also applies to
the properties managed by AMB Investment Management, with a single aggregate
policy limit and deductible applicable to such properties and the Company's
properties. Through an annual analysis prepared by outside consultants, the
Company evaluates its earthquake insurance coverage in light of current industry
practice and determines the appropriate amount of earthquake insurance to carry.
No assurance can be given, however, that material losses in excess of insurance
proceeds will not occur or that such insurance will continue to be available at
commercially reasonable rates.
15
<PAGE> 22
Impact on Control Over and Liabilities With Respect to Properties Owned
Through Partnerships
and Joint Ventures
The Company has ownership interests in six industrial and six retail joint
ventures, limited liability companies or partnerships. The Company 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 share certain approval rights over major decisions.
Partnership, limited liability company or joint venture investments may, under
certain circumstances, involve risks such as the possibility that the Company's
partners, members or joint venturers might become bankrupt (in which event the
Company and any other remaining general partners, members or joint venturers
would generally remain liable for the liabilities of such partnership, limited
liability company or joint venture), that such partners, members or co-
venturers might at any time have economic or other business interests or goals
which are inconsistent with the business interests or goals of the Company, or
that such partners, members or co-venturers may be in a position to take action
contrary to the instructions or the requests of the Company or contrary to the
Company's policies or objectives, including the Company's policy with respect to
maintaining its qualification as a REIT. In addition, agreements governing joint
ventures, limited liability companies and partnerships often contain
restrictions on the transfer of a joint venturer's, member's or partner's
interest or "buy-sell" or similar provisions which may result in a purchase or
sale of such an interest at a disadvantageous time or on disadvantageous terms.
The Company will, however, seek to maintain sufficient control of such
partnerships, limited liability companies or joint ventures to permit the
Company's business objectives to be achieved. There is no limitation under the
Company's organizational documents as to the amount of available funds that may
be invested in partnerships, limited liability companies or joint ventures. The
occurrence of one or more of the events described above could have an adverse
effect on the Company's financial condition, results of operations, cash flow
and ability to pay dividends to holders of the Series A Preferred Stock.
Possible Inability to Consummate Acquisitions on Advantageous Terms
The Company intends to continue to acquire industrial and retail
properties. Acquisitions of industrial and retail properties entail risks that
investments will fail to perform in accordance with expectations. Estimates of
the costs of improvements to bring an acquired property up to standards
established for the market position intended for that property may prove
inaccurate. In addition, there are general investment risks associated with any
new real estate investment. Further, the Company expects that there will be
significant competition for attractive investment opportunities from other major
real estate investors with significant capital including both publicly traded
REITs and private institutional investment funds. The Company anticipates that
future acquisitions will be financed through a combination of borrowings under
the Credit Facility, proceeds from equity or debt offerings by the Company or
the Operating Partnership (including issuances of Units in the Operating
Partnership), which could have an adverse effect on the Company's cash flow. No
assurance can be given that the Company will be able to acquire additional
properties. In addition, no assurance can be given that any such acquisitions
will be financed on terms favorable to the Company, or that such additional
properties, if any, will conform with management's expectations or investment
criteria. Any one of the foregoing events could have an adverse effect on the
Company's financial condition, results of operations, cash flow and ability to
pay dividends to holders of the Series A Preferred Stock.
Possible Inability to Complete Renovation and Development on Advantageous
Terms
The real estate development business, including the renovation and
rehabilitation of existing properties, involves significant risks in addition to
those involved in the ownership and operation of established industrial
buildings and community shopping centers, including the risks that financing may
not be available on favorable terms for development projects and construction
may not be completed on schedule or within budget, resulting in increased debt
service expense and construction costs and delays in leasing such properties and
generating cash flow. Substantial renovation and new development activities are
also subject to risks relating to the inability to obtain, or delays in
obtaining, all necessary zoning, land-use, building, occupancy, 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
16
<PAGE> 23
occurrence of one or more of the foregoing in connection with the Company's
renovation and development activities could have an adverse effect on the
Company's financial condition, results of operations, cash flow and ability to
pay dividends to holders of the Series A Preferred Stock. In addition,
substantial renovation as well as new development activities, regardless of
whether or not they are ultimately successful, typically require a substantial
portion of management's time and attention which could take management's time
away from the day-to-day operations of the Company. The Company anticipates that
future activities will be financed through a combination of additional equity
offerings, and public or private debt financing, including commercial lines of
credit, and other forms of secured or unsecured financing. If such activities
are financed through construction loans, there is a risk that, upon completion
of construction, permanent financing may not be available or may be available
only on disadvantageous terms which could have an adverse effect on the
Company's financial condition, results of operations, cash flow and ability to
pay dividends to holders of the Series A Preferred Stock.
LIMITED RESTRICTIONS ON TOTAL INDEBTEDNESS
The Company operates with a policy of incurring debt, either directly or
through its subsidiaries, only if upon such incurrence the Company's
Debt-to-Total Market Capitalization Ratio would be approximately 45% or less. In
addition, the aggregate amount of indebtedness that the Company may incur under
such policy varies directly with the valuation of the Company's capital stock
and the number of shares of capital stock outstanding. Accordingly, the Company
would be able to incur additional indebtedness as a result of increases in the
market price per share of its common stock or other outstanding classes of
capital stock, and future issuance of shares of capital stock. Notwithstanding
the foregoing policy, the organizational documents of the Company do not contain
any limitation on the amount of indebtedness that may be incurred. Accordingly,
the Board of Directors could alter or eliminate this policy and would do so, for
example, if it were necessary for the Company to continue to qualify as a REIT.
If this policy were changed, the Company could become more highly leveraged,
resulting in an increase in debt service that could adversely affect the
Company's financial condition, results of operations, cash flow and ability to
pay dividends to holders of the Series A Preferred Stock.
DEBT FINANCING
Debt Financing and Existing Debt Maturities
The Company is subject to risks normally associated with debt financing,
including the risk that its cash flow will be insufficient to make required
distributions to holders of Series A Preferred Stock, 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
Company had an aggregate of $610.1 million of secured indebtedness with an
average maturity of seven years and a weighted average interest rate of 8.0%,
and $312.0 million outstanding under its Credit Facility with a maturity date of
November 2000 and a weighted average interest rate of 6.8%. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and "Business and
Properties -- Debt Financing." In addition, in June 1998, the Operating
Partnership issued $400 million aggregate principal amount of Senior Debt
Securities, the proceeds of which were used for the repayment of borrowings
under the Credit Facility. The Company is a guarantor of the Operating
Partnership's obligations with respect to the Senior Debt Securities. See
"Capitalization." If principal payments due at maturity cannot be refinanced,
extended or paid with proceeds of other capital transactions, such as new equity
capital, the Company expects that its cash flow will not be sufficient in all
years to pay dividends to holders of the Series A Preferred Stock and to repay
all such maturing debt. Furthermore, if prevailing interest rates or other
factors at the time of refinancing (such as the reluctance of lenders to make
commercial real estate loans) resulted in higher interest rates upon
refinancing, the interest expense relating to such refinanced indebtedness would
increase, which would adversely affect the Company's financial condition,
results of operations, cash flow and ability to pay dividends to holders of the
Series A Preferred Stock. If a Property or Properties are mortgaged to secure
payment of indebtedness and the Company is unable to meet mortgage payments, the
Property could
17
<PAGE> 24
be foreclosed upon or otherwise transferred to the mortgagee with a consequent
loss of income and asset value to the Company which could have an adverse affect
on the its financial condition, results of operations, cash flow and ability to
pay dividends to holders of the Series A Preferred Stock.
Impact of Rising Interest Rates and Variable Rate Debt
As of March 31, 1998, the Company had $312.0 million outstanding under its
$500.0 million variable-rate Credit Facility. Following the application of the
proceeds from the sale of the Senior Debt Securities, the Company had $83.2
million outstanding under the Credit Facility. In addition, the Company may
incur other variable rate indebtedness in the future. Increases in interest
rates on such indebtedness could increase the Company's interest expense, which
would adversely affect the Company's financial condition, results of operations,
cash flow and ability to pay dividends to holders of the Series A Preferred
Stock. Accordingly, the Company 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."
Dependence on External Sources of Capital
In order to qualify as a REIT under the Code, the Company generally is
required each year to distribute to its stockholders at least 95% of its REIT
taxable income (determined without regard to the dividends-paid deduction and by
excluding any net capital gain). See "Material Federal Income Tax
Consequences -- Taxation of the Company -- Annual Distribution Requirements."
Because of this distribution requirement, the Company may not be able to fund
all future capital needs, including capital needs in connection with
acquisitions, from cash retained from operations. As a result, to fund future
capital needs, the Company relies on third-party sources of capital, which may
or may not be available on favorable terms or at all. The Company's access to
third-party sources of capital depends upon a number of factors, including the
market's perception of the Company's growth potential and its current and
potential future earnings and cash distributions and the market price of the
shares of its Common Stock and, upon consummation of the Offering, the Series A
Preferred Stock. Moreover, additional equity offerings of Common Stock or
Preferred Stock may result in substantial dilution of stockholders' interests in
the Company, and additional debt financing may substantially increase the
Company's leverage. See "Policies with Respect to Certain
Activities -- Financing Policies."
Possible Impact of Defaults on Cross-Collateralized and Cross-Defaulted Debt
As of March 31, 1998, the Company 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 Company would be required to repay
the aggregate of all indebtedness, together with applicable prepayment charges,
in order to avoid foreclosure on all such Properties within the applicable pool.
Foreclosure on such Properties, or the Company's inability to refinance any such
loan on terms as favorable as existing terms, would adversely impact its
financial condition, results of operations, cash flow and ability to pay
dividends to holders of the Series A Preferred Stock. In addition, the Company's
Credit Facility and its Senior Debt Securities contain defaults in the event
that other material indebtedness of the Company (including its non-recourse
secured and joint venture debt) is in default. Such cross-default provision may
require the Company to repay or restructure the Credit Facility and the Senior
Debt Securities in addition to any mortgage or other debt which is in default,
which could have an adverse effect on the Company's financial condition, results
of operations, cash flow and ability to pay dividends to holders of the Series A
Preferred Stock.
CONTINGENT OR UNKNOWN LIABILITIES
The AMB Predecessors have been in existence for varying lengths of time up
to 15 years. In the Formation Transactions, the Company acquired the assets of
CIF, VAF, AMB and WPF, and certain assets of the Individual Account Investors
(each as defined in the Glossary), subject to all of the potential existing
liabilities of such predecessor entities. There can be no assurances that there
are no current liabilities and will
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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. Existing liabilities for
indebtedness generally were taken into account (directly or indirectly) in
connection with the allocation of the shares of Common Stock and/or Units in the
Formation Transactions, but no other liabilities were taken into account for
such purposes. The Company does not have recourse against CIF, VAF, AMB or WPF
or any of their respective stockholders or partners or against the Individual
Account Investors, with respect to any unknown liabilities except to the extent
provided by the indemnity escrow agreement entered into in connection with the
Formation Transactions (the "Indemnity Escrow"). Unknown liabilities might
include liabilities for clean-up or remediation of undisclosed environmental
conditions, claims of tenants, vendors or other persons dealing with the
entities prior to the Formation Transactions (that had not been asserted prior
to the Formation Transactions), accrued but unpaid liabilities incurred in the
ordinary course of business, tax liabilities and claims for indemnification by
the officers and directors of CIF, VAF and AMB and others indemnified by such
entities, including clients of AMB. Certain tenants may claim that the Formation
Transactions gave rise to a right to purchase the premises occupied by such
tenants. The Company does not believe any such claims would be material. See
"-- Government Regulations -- Environmental Matters" below as to the possibility
of undisclosed environmental conditions potentially affecting the value of the
Properties. The existence of undisclosed material liabilities which are not
covered by the Indemnity Escrow could have an adverse effect on the Company's
financial condition, results of operations, cash flow and ability to pay
dividends to holders of the Series A Preferred Stock.
CONFLICTS OF INTEREST
Continued Involvement of Executive Officers in Other Real Estate Activities
and Investments
Certain Executive Officers own interests in real estate-related businesses
and investments. Such interests include minority ownership of Institutional
Housing Partners, a residential housing finance company (through AMB
Institutional Housing Partners); and ownership of AMB Development, Inc. and AMB
Development L.P., developers which own property that management believes is not
suitable for ownership by the Company. AMB Development, Inc. and AMB Development
L.P. have agreed not to initiate any new development projects following the IPO,
nor will they make any further investments in industrial or retail properties
other than those currently under development at the time of the IPO. The
continued involvement in other real estate-related activities by certain of the
Executive Officers and directors could divert management's attention from the
day-to-day operations of the Company. Most of the Executive Officers have
entered into a non-competition agreement with the Company pursuant to which,
among other things, they have agreed not to engage in any activities, directly
or indirectly, in respect of commercial real estate, and not make any investment
in respect of industrial or retail real estate, other than through ownership of
not more than 5% of the outstanding shares of a public company engaged in such
activities or through the existing investments referred to herein.
AMB Institutional Housing Partners, AMB Development, Inc. and AMB
Development, L.P. continue to use the name "AMB" pursuant to royalty-free
license arrangements with the Company. The Company could also, in the future,
subject to the unanimous approval of the disinterested directors, acquire
property from such Executive Officers, enter into leases between such Executive
Officers and the Company, and/or engage in other related activities in which the
interests pursued by such Executive Officers may not be in the best interests of
the holders of the Series A Preferred Stock.
Conflicts of Interest in Connection with Properties Owned or Controlled by
Executive Officers and Directors
AMB Development L.P. owns interests in 11 retail development projects in
the U.S., each of which consists of a single free-standing Walgreens drugstore,
and, together with other entities controlled by nine of the Executive Officers,
a low income housing apartment building located in the San Francisco Bay Area.
In addition, Messrs. Abbey, Moghadam and Burke, each a founder and director of
the Company, own less than 1% interests in two partnerships which own office
buildings in various markets; these interests have negligible value. Luis A.
Belmonte, an Executive Officer, owns less than a 10% interest, representing an
estimated value
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of $75,000, in a limited partnership which owns an office building located in
Oakland, California. David S. Fries, an Executive Officer, owns an approximate
1% interest in a limited partnership that owns an apartment complex in Orange
County, California.
In addition, several of the Executive Officers individually own: (i) less
than 1% interests in the stocks of certain publicly-traded REITs, 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 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 Company believes that the properties and activities set forth above
generally do not directly compete with any of the Properties; however, it is
possible that a property in which an Executive Officer or director of the
Company, or an affiliate of such person, has an interest may compete with the
Company in the future if the Company were to invest in a property similar in
type and in close proximity to such property. However, the continued involvement
by the Executive Officers and directors in such properties could divert
management's attention from the day-to-day operations of the Company. The
Company is prohibited from acquiring any properties from the Executive Officers
or their affiliates without the approval of its 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 ("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 those investors who acquire shares of Series A Preferred Stock in
the Offering. In addition, under the terms of the Partnership Agreement, the
holders of Units will have certain approval rights with respect to certain
transactions that affect all stockholders but which may not be exercised in a
manner which reflects the interests of all stockholders, including holders of
the Series A Preferred Stock. See "Description of Certain Provisions of the
Partnership Agreement of the Operating Partnership -- Removal of General
Partner; Transferability of the Company's Interests; Treatment of Units in
Significant Transactions."
Influence of Directors, Executive Officers and Significant Stockholders
As of May 31, 1998, the Company's three largest stockholders, Ameritech
Pension Trust, the City and County of San Francisco Employees' Retirement System
and Southern Company System Master Retirement Trust, beneficially owned
approximately 28.1% of the outstanding Common Stock (assuming the exchange of
all Units into shares of Common Stock). In addition, the Executive Officers and
directors beneficially owned 5.4% of the Common Stock as of such date (assuming
the exchange of all Units into shares of Common Stock, before issuance of any
Performance Units), and will have influence on the management and operation of
the Company and, as stockholders, will have influence on the outcome of any
matters submitted to a vote of the stockholders. Such influence might be
exercised in a manner that is inconsistent with the interests of other
stockholders, including the holders of the Series A Preferred Stock. 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 should
they choose to do so. See "Principal Stockholders."
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<PAGE> 27
Failure to Enforce Terms of Certain Agreements
As holders of shares of Common Stock and, potentially, Performance Units,
certain of the Company's directors and Executive Officers could have a conflict
of interest with respect to their obligations as directors and Executive
Officers to vigorously enforce the terms of certain of the agreements relating
to the Formation Transactions. The potential failure to enforce the material
terms of those agreements could result in a monetary loss to the Company, which
loss could have a material adverse effect on the Company's financial condition,
results of operations, cash flow and ability to pay dividends to holders of the
Series A Preferred Stock.
GOVERNMENT REGULATIONS
Many laws and governmental regulations are applicable to the Properties and
changes in these laws and regulations, or their interpretation by agencies and
the courts, occur frequently.
Costs of Compliance with Americans with Disabilities Act
Under the Americans with Disabilities Act of 1990 (the "ADA"), all places
of public accommodation are required to meet certain Federal requirements
related to access and use by disabled persons. Compliance with the ADA might
require removal of structural barriers to handicapped access in certain public
areas where such removal is "readily achievable." Noncompliance with the ADA
could result in the imposition of fines or an award of damages to private
litigants. The impact of application of the ADA to the Properties, including the
extent and timing of required renovations, is uncertain. If required changes
involve a greater amount of expenditures than the Company currently anticipates
or if the changes must be made on a more accelerated schedule than the Company
currently anticipates, its ability to pay dividends to holders of the Series A
Preferred Stock could be adversely affected.
Environmental Matters
Under Federal, state and local laws and regulations relating to the
protection of the environment ("Environmental Laws"), a current or previous
owner or operator of real estate may be liable for contamination resulting from
the presence or discharge of hazardous or toxic substances or petroleum products
at such property, and may be required to investigate and clean up such
contamination at such property or such contamination which has migrated from
such property. Such laws typically impose liability and clean-up responsibility
without regard to whether the owner or operator knew of or caused the presence
of the contaminants, and the liability under such laws has been interpreted to
be joint and several unless the harm is divisible and there is a reasonable
basis for allocation of responsibility. In addition, the owner or operator of a
site may be subject to claims by third parties based on personal injury,
property damage and/or other costs, including investigation and clean-up costs,
resulting from environmental contamination present at or emanating from a site.
Environmental Laws also govern the presence, maintenance and removal of
asbestos-containing building materials ("ACBM"). Such laws require that ACBM be
properly managed and maintained, that those who may come into contact with ACBM
be adequately apprised or trained and that special precautions, including
removal or other abatement, be undertaken in the event ACBM is disturbed during
renovation or demolition of a building. Such laws may impose fines and penalties
on building owners or operators for failure to comply with these requirements
and may allow third parties to seek recovery from owners or operators for
personal injury associated with exposure to asbestos fibers. Some of the
Properties may contain ACBM.
Some of the Properties are leased or have been leased, in part, to owners
and operators of dry cleaners that operate on-site dry cleaning plants, to
owners and operators of gas stations or to owners or operators of other
businesses that use, store or otherwise handle petroleum products or other
hazardous or toxic substances. Some of these Properties contain, or may have
contained, underground storage tanks for the storage of 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
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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.
None of the environmental assessments of the Properties has revealed any
environmental liability that the Company believes would have a material adverse
effect on its financial condition or results of operations taken as a whole, nor
is it aware of any such material environmental liability. Nonetheless, it is
possible that the assessments do not reveal all environmental liabilities and
that there are material environmental liabilities of which the Company is
unaware. Moreover, there can be no assurance that (i) future laws, ordinances or
regulations will not impose any material environmental liability or (ii) the
current environmental condition of the Properties will not be affected by
tenants, by the condition of land or operations in the vicinity of the
Properties (such as releases from underground storage tanks), or by third
parties unrelated to the Company. If the costs of compliance with the various
environmental laws and regulations, now existing or hereafter adopted, exceed
the Company's budgets for such items, the Company's financial condition, results
of operations, cash flow and ability to pay dividends to holders of the Series A
Preferred Stock could be adversely affected.
Other Regulations
The Properties are also subject to various Federal, state and local
regulatory requirements such as state and local fire and life safety
requirements. Failure to comply with these requirements could result in the
imposition of fines by governmental authorities or awards of damages to private
litigants. The Company believes that the Properties are currently in substantial
compliance with all such regulatory requirements. However, there can be no
assurance that these requirements will not be changed or that new requirements
will not be imposed which would require significant unanticipated expenditures
by the Company, which expenditures could have an adverse effect on the Company's
financial condition, results of operations, cash flow and ability to pay
dividends to holders of the Series A Preferred Stock.
FEDERAL INCOME TAX RISKS
Adverse Consequences of the Company's Failure to Qualify as a REIT
The Company intends to operate so as to qualify as a REIT under the Code.
Although management believes that the Company has been organized and has
operated in a manner which would allow it to qualify as a REIT under the Code,
no assurance can be given that the Company has been so organized and operated,
or that the Company will continue to be so organized and operated in the future.
Qualification as a REIT involves the satisfaction of numerous requirements (some
on an annual and quarterly basis) established under highly technical and complex
Code provisions for which there are only limited judicial and administrative
interpretations, and involves the determination of various factual matters and
circumstances not entirely within the Company's control. For example, in order
to qualify as a REIT, at least 95% of the Company's gross income in any year
must be derived from qualifying sources, and the Company must pay dividends to
stockholders aggregating annually at least 95% of its REIT taxable income
(determined without regard to the dividends-paid deduction and by excluding
capital gains). The complexity of these provisions and of the applicable
Treasury Regulations that have been promulgated under the Code is greater in the
case of a REIT, such as the Company, that holds its assets in partnership form.
No assurance can be given that legislation, new regulations, administrative
interpretations or court decisions will not significantly change the tax laws
with
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<PAGE> 29
respect to qualification as a REIT or the Federal income tax consequences of
such qualification. The Company, however, is not aware of any pending tax
legislation that would adversely affect its ability to operate as a REIT.
In the opinion of Latham & Watkins, tax counsel to the Company, commencing
with the Company's taxable year ended December 31, 1997, the Company has been
organized and has operated in conformity with the requirements for qualification
as a REIT and its method of operation will enable it to continue to meet the
requirements for qualification and taxation as a REIT under the Code. See
"Material Federal Income Tax Consequences -- Taxation of the Company." Such
legal opinion, however, is based on various assumptions and factual
representations by the Company regarding its ability to satisfy the various
requirements for qualification as a REIT, and no assurance can be given that
actual operating results have met or will continue to meet these requirements.
Such legal opinion is not binding on the IRS or any court. Moreover, the
Company's qualification and taxation as a REIT depends upon its ability to meet
(through actual annual operating results, distribution levels and diversity of
stock ownership) the various qualification tests imposed under the Code, the
results of which have not been and will not be reviewed by Latham & Watkins.
If the Company were to fail to qualify as a REIT in any taxable year, it
would be subject to Federal income tax (including any applicable alternative
minimum tax) on its taxable income at regular corporate rates. Moreover, unless
entitled to relief under certain statutory provisions, the Company also would be
disqualified from treatment as a REIT for the four taxable years following the
year during which qualification was lost. In addition, a recent Federal budget
proposal contains a provision which, if enacted in its present form, would
result in the immediate taxation of all gain inherent in a C corporation's
(i.e., a corporation which is neither an S Corporation nor a REIT) assets upon
an election by the corporation to become a REIT in taxable years beginning after
January 1, 1999, and thus could effectively preclude the Company from re-
electing to be taxed as a REIT following a loss of its REIT status. This
treatment would significantly reduce the net earnings of the Company available
for investment or distribution to stockholders because of the additional tax
liability to the Company for the year or years involved. In addition,
distributions to stockholders would no longer be required to be made. See
"Material Federal Income Tax Consequences -- Taxation of the Company -- Failure
of the Company to Qualify as a REIT."
Other Tax Liabilities
Even if the Company qualifies as a REIT, it will be subject to certain
Federal, state and local taxes on its income and property. In addition, the net
taxable income, if any, from the activities conducted through AMB Investment
Management will be subject to Federal and state income tax. See "Federal Income
Tax Consequences -- Other Tax Consequences."
DEPENDENCE ON KEY PERSONNEL
The Company is dependent on the efforts of its Executive Officers,
particularly Messrs. Abbey, Moghadam and Burke, the Chairman of the Company's
Investment Committee, its Chief Executive Officer and the Chairman of its Board
of Directors, respectively. While the Company believes that it could find
suitable replacements for these key personnel, the loss of their services or the
limitation of their availability could have an adverse effect on the Company's
financial condition, results of operations, cash flow and ability to pay
dividends to holders of the Series A Preferred Stock. While certain Executive
Officers have entered into employment agreements with the Company, there may be
limitations under applicable state law in the enforceability of such agreements,
particularly as respects the non-competition agreements contained therein. See
"Management -- Employment Agreements."
NEED TO MANAGE RAPID GROWTH
The Company's business has grown rapidly and continues to grow rapidly
through property acquisitions. There can be no assurance that the Company will
be able to manage effectively rapid growth in the future, and any failure to do
so could adversely affect the Company's financial condition, results of
operations, cash flow and ability to pay dividends to holders of the Series A
Preferred Stock.
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<PAGE> 30
AMB INVESTMENT MANAGEMENT
Adverse Consequences of Lack of Control Over the Business of AMB Investment
Management
To comply with the REIT asset tests that restrict ownership of shares of
other corporations, the Operating Partnership owns 100% of the non-voting
preferred stock of AMB Investment Management (representing approximately 95% of
its economic interest) and certain Executive Officers and an officer of AMB
Investment Management own all of the outstanding voting common stock of AMB
Investment Management (representing approximately 5% of its economic interest).
This ownership structure is necessary to permit the Company to share in the
income of AMB Investment Management while maintaining its status as a REIT.
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 may be adverse to the interests of the Company's
stockholders, including holders of the Series A Preferred Stock, or that lead to
adverse financial results, which could adversely impact the Company's financial
condition, results of operations, cash flow and ability to pay dividends to
holders of the Series A Preferred Stock. In addition, AMB Investment Management
is 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 could 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.
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<PAGE> 31
THE COMPANY
GENERAL
The Company is one of the largest publicly-traded real estate companies in
the United States. As of June 30, 1998, the Company owned 163 Properties,
comprised of 126 Industrial Properties and 37 Retail Properties located in 28
markets throughout the United States. The Industrial Properties, principally
warehouse distribution properties, encompass approximately 47.7 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
Company owns substantially all of its assets, and conducts substantially all of
its business, through the Operating Partnership and its subsidiaries.
The Company is engaged in the business of acquiring and operating
industrial properties and community shopping centers in target markets
nationwide. The Company is led by 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.
AMB Property Corporation was organized in November 1997 and commenced
operations upon the completion of the IPO. The Company operates as a
self-administered and self-managed real estate company and expects that it has
qualified and that it will continue to qualify as a REIT for Federal income tax
purposes beginning with the year ended December 31, 1997.
RECENT DEVELOPMENTS
Sale of Senior Debt Securities. On June 30, 1998, the Operating Partnership
sold $400 million aggregate principal amount of Senior Debt Securities in an
underwritten public offering. The net proceeds from the offering of Senior Debt
Securities were used to repay borrowings under the Credit Facility.
Acquisitions. From April 1, 1998 to June 30, 1998, the Company acquired for
an aggregate purchase price of approximately $210.4 million (i) eight Industrial
Properties, comprising 44 buildings and 3.3 million rentable square feet, (ii)
four buildings aggregating 0.4 million square feet which are adjacent to
existing Properties and (iii) a limited partnership interest in an existing
unconsolidated real estate joint venture that owns 36 industrial buildings
aggregating 4.0 million square feet.
Quarterly Distributions. On June 19, 1998, the Board of Directors declared
a distribution on the Common Stock of $0.3425 per share, paid on July 9, 1998 to
stockholders of record as of June 30, 1998, and in its capacity as general
partner of the Operating Partnership, declared a distribution on the Operating
Partnership's common partnership units of $0.3425 per common partnership unit,
paid on July 9, 1998 to partners of record as of June 30, 1998.
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 & Poor's Corporation and BBB+ from Duff & Phelps Credit Rating Co.
As a result of receiving these investment-grade credit ratings, the interest
rate on the Credit Facility was reduced by 20 basis points to LIBOR plus 90
basis points. In addition, the Company has received prospective ratings on the
Series A Preferred Stock of Baa2 from Moody's Investors Service, BBB- from
Standard & Poor's Corporation and BBB from Duff & Phelps Credit Rating Co.
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BUSINESS AND OPERATING STRATEGIES
The Company focuses its investment activities in industrial hub
distribution markets and retail trade areas throughout the U.S. where management
believes opportunities exist to acquire and develop additional properties on an
advantageous basis. The Company is a full-service real estate company with
in-house expertise in acquisitions, development and redevelopment, asset
management and leasing, finance and accounting and market research. The Company
has long-standing relationships with most of the real estate management firms
across the country which provide local property management and leasing services
to the Company on a fee basis. See "-- Property Management."
NATIONAL PROPERTY COMPANY
As of June 30, 1998, the Company owned 163 Properties located in 28 markets
throughout the U.S. The Company believes that its national strategy enables it
to (i) increase or decrease investments in certain regions to take advantage of
the relative strengths in different real estate markets; (ii) retain and
accommodate tenants as they consolidate or expand, particularly in its
Industrial Properties; and (iii) build brand awareness as well as customer
loyalty through the delivery of consistent service and quality product. Through
its presence in markets throughout the U.S., the Company has also developed
operating expertise in leasing, expense management, tenant retention strategies
and property design and configuration.
TWO COMPLEMENTARY PROPERTY TYPES
Management believes its strategy of owning and operating both industrial
properties and community shopping centers offers the Company an optimal
combination of growth opportunities, strong current income and increased
stability through market cycles. The Company has developed the expertise,
infrastructure and management information systems to acquire, reposition,
develop and operate these two property types. Management believes that its dual
property strategy provides significant opportunities to allocate capital and
organizational resources between property types according to changing market
conditions and its investment strategy.
SELECT MARKET FOCUS
The Company intends to continue its strategy of investing in industrial hub
distribution markets and retail trade areas across the country to capitalize on
changes in the relative economic strength of these regions. The Company focuses
on acquiring, redeveloping and operating properties in in-fill locations which
are characterized by limited new construction opportunities. As the strength of
these markets continues to grow and the demand for well-located properties
increases, the Company believes that it will benefit from an upward pressure on
rents resulting from the increased demand combined with the relative lack of new
available space.
The Company intends to continue to focus its industrial property investment
activities in six hub markets which dominate national warehouse distribution
activities: Atlanta, Chicago, Dallas/Fort Worth, Los Angeles, Northern New
Jersey and the San Francisco Bay Area. Among the nation's 53 major industrial
markets tracked by CB Commercial/Torto Wheaton Research, the six markets listed
above accounted for approximately (i) 36% of the warehouse property inventory as
of December 31, 1997 and (ii) for the three-year period ended December 31, 1997,
an average of 36% of industrial property net absorption. In addition, such hub
markets contain approximately 56% of the Industrial Properties based on
aggregate square footage. The Company also invests in selected regional
distribution markets including Boston, Houston, Miami, Minneapolis, San Diego,
Seattle and Baltimore/Washington, D.C. The Company focuses on these established
industrial markets because management believes they offer large and broadly
diversified tenant bases which provide greater demand for properties over market
cycles than secondary markets. In-fill locations within these markets also
typically have significant barriers to new construction, including geographic or
regulatory supply constraints, and benefit from access to large labor supplies
and well-developed transportation networks. See "Business and
Properties -- Industrial Properties -- Overview of Major Target Markets."
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PROPERTY MANAGEMENT
The Company actively manages its properties through its experienced staff
of 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 Company typically outsources property management to
a select group of third-party local managers with whom the Company has developed
strong relationships.
The Company'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 Company'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 Company monitors the performance of its properties on a daily
basis through the use of its proprietary asset information system. This
management tool enables the Company 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 Company 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 Company
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 Company can enter
and exit markets efficiently without the administrative burden of retaining a
large staff. Since the Company 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 Company with greater
access to transaction flow. Management believes this approach also gives the
Company 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 Company 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 Company's
operating and tenant service-driven property management strategy.
DISCIPLINED INVESTMENT PROCESS
During its 14-year history prior to the consummation of the IPO, AMB
established a disciplined approach to the investment process through operating
divisions that are subject to the overall policy direction of management's
investment committee (the "Investment Committee"). The stages in the investment
process are highly integrated, with Investment Committee review at critical
points in the process.
Approval of each investment is the responsibility of the Investment
Committee with sponsorship from both an acquisitions officer and the regional
manager who will be responsible for managing the property. The initial
investment recommendation is thoroughly 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
27
<PAGE> 34
complete review of the information developed during the due diligence process
and either rejects or gives final approval.
AMB also established proprietary systems and procedures to manage and track
a high volume of acquisition proposals, transactions and important market data.
This includes an on-line open issues database that provides the Company with
current information on the status of each transaction, highlighting the issues
that must be addressed prior to closing, and a database that includes and
compiles data on all transaction proposals and markets reviewed by the Company.
RENOVATION, EXPANSION AND DEVELOPMENT
The multidisciplinary background of the Company's employees provides it
with the skills and experience to capitalize on strategic renovation, expansion
and development opportunities. Several of the Company's officers have extensive
experience in real estate development, both at AMB and with national development
firms. The Company generally pursues development projects in joint ventures with
local developers. In this way, the Company leverages the development skill,
access to opportunities and capital of such developers, transferring a
significant amount of the development risk to them and eliminating the need and
expense of an in-house development staff. See "Strategies for Growth -- Growth
Through Renovation, Expansion and Development."
FINANCING STRATEGY
In order to maintain financial flexibility and facilitate the rapid
deployment of capital over market cycles, the Company intends to operate with a
Debt-to-Total Market Capitalization Ratio of less than 45%, though the Company's
organizational documents do not limit the amount of indebtedness the Company may
incur. Additionally, the Company intends to continue to structure its balance
sheet in order to maintain investment-grade ratings. The Company also intends to
keep the majority of its assets unencumbered to help facilitate such ratings.
Upon consummation of the Offering, the Company's Debt-to-Total Market
Capitalization Ratio as of March 31, 1998 on a pro forma basis (giving effect to
the acquisition-related debt incurred subsequent to March 31, 1998, the sale of
the Senior Debt Securities and the Offering and the application of the proceeds
therefrom as if the debt had been incurred and those transactions had occurred
as of that date) would have been approximately 31.4% (approximately 29.9% on an
historical basis). See "Policies with Respect to Certain Activities -- Financing
Policies."
The Company anticipates that future acquisitions will be financed through a
combination of borrowings under the Credit Facility, other forms of secured or
unsecured financing, proceeds from equity or debt offerings by the Company or
the Operating Partnership and with shares of Preferred Stock or Units in the
Operating Partnership. Additionally, the Company's co-investment program will
also serve as a source of capital, particularly when more traditional sources of
capital may not be available on attractive terms. See "-- 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 Company's debt rating at the time of such borrowings. The Company
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. Of the $312.0 million outstanding at March 31, 1998,
substantially all of such borrowings were used to finance property acquisitions.
Following the application of the proceeds from the sale of the Senior Debt
Securities, the Company had $83.2 million outstanding under the Credit Facility.
See "Management's Discussion of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and "Business and
Properties -- Debt Financing."
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 Company presently
intends to co-invest with clients of AMB Investment Management, to the extent
such
28
<PAGE> 35
clients newly commit investment capital, through partnerships, limited liability
companies and joint ventures. The Company uses a co-investment formula with each
client whereby the Company will own at least a 20% interest in all ventures. As
of March 31, 1998, the Company had consummated two co-investments through one
partnership. See "Business and Properties -- Properties Held Through Joint
Ventures, Limited Liability Companies and Partnerships." AMB Investment
Management is owned by the Company, which owns 100% of the non-voting preferred
stock (representing a 95% economic interest therein), and an officer of AMB
Investment Management and certain Executive Officers, who collectively own 100%
of the voting common stock (representing a 5% economic interest therein).
STRATEGIES FOR GROWTH
The Company intends to achieve its objectives of long-term sustainable
growth in FFO and maximization of long-term stockholder value, principally by
growth through (i) operations, resulting from improved operating margins within
the portfolio while maintaining above-average occupancy, (ii) continued property
acquisitions, including through the co-investment program of AMB Investment
Management and (iii) renovation, expansion and development of selected
properties.
GROWTH THROUGH OPERATIONS
The Company seeks to improve operating margins by increasing the occupancy
rate of its Properties and by taking advantage of the economies of owning,
operating and growing a large national portfolio. As of March 31, 1998, the
Industrial Properties and Retail Properties owned as of such date were each
94.6% leased. During the 12 months ended March 31, 1998, the Company 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 ending March 31, 1999,
leases encompassing an aggregate of 10.3 million rentable square feet
(representing 20.3% of the Company'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 ending December 31, 1998 covering an aggregate of 5.2
million rentable square feet. The Company seeks to reduce the potential
volatility of the portfolio's FFO by managing lease expirations so that they
occur within individual properties and across the entire portfolio in a
staggered fashion, and by monitoring the credit and mix of tenants, particularly
those in the Retail Properties.
GROWTH THROUGH ACQUISITIONS
Between January 1, 1998 and June 30, 1998, the Company acquired (i) 31
Properties comprising 88 buildings and 10.0 million square feet, (ii) 10
buildings aggregating 0.8 million square feet which are adjacent to existing
Properties and (iii) a limited partnership interest in an existing
unconsolidated real estate joint venture which owns 36 industrial buildings
aggregating 4.0 million square feet. The Company 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 Company 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 Company's relationship with third-party local
property managers also will create acquisition opportunities as such managers
market properties on behalf of unaffiliated sellers. The Company also will
maintain relationships with institutional owners of property portfolios managed
by AMB Investment Management. The Company believes that through these
relationships it will have opportunities to acquire portfolios in exchange for
equity interests in the Company, 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 Company's operating
structure enables it to acquire properties through the
29
<PAGE> 36
Operating Partnership in exchange for Units, thereby enhancing the Company's
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. There can be no
assurance that any of such acquisitions will be consummated. Such acquisitions,
if consummated, may be material individually or in the aggregate. Sources of
capital for acquisitions may include undistributed cash flow, borrowings under
the Credit Facility, other forms of secured or unsecured financing, issuances of
debt or equity securities of the Operating Partnership or the Company and
assumption of debt related to the assets being acquired.
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 should continue to provide the Company with
attractive opportunities for increased cash flow and a higher rate of return
than may be obtained from the purchase of fully leased, renovated properties.
Value-added properties are typically characterized as properties with available
space or near-term leasing exposure, properties which are well-located but
require redevelopment or renovation, and occasionally undeveloped land acquired
in connection with another property that provides an opportunity for
development. Such properties require significant management attention and/or
capital investment to maximize their return. The Company has also established
certain strategic alliances with national and regional developers to enhance the
Company's development capabilities.
30
<PAGE> 37
USE OF PROCEEDS
The net proceeds from the Offering are expected to be approximately $95.9
million, after deducting Underwriters' discounts and commissions and estimated
offering expenses aggregating approximately $4.1 million. The Company intends to
use the net proceeds to repay approximately $83.2 million of borrowings
outstanding under the Credit Facility, for property acquisitions and for other
general corporate purposes. Pending application of the net proceeds, the Company
may invest such portion of the net proceeds in interest-bearing accounts and
short-term, interest-bearing securities which are consistent with the Company's
qualification for taxation as a REIT. As of March 31, 1998, the weighted average
interest rate on such borrowings expected to be repaid with the net proceeds of
the Offering was approximately 6.8% and the maturity was approximately 2.6
years. All of such indebtedness was incurred within the 12-month period ended
May 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 July 10, 1998, the last reported
sales price per share of the Common Stock on the NYSE was $24. As of July 10,
1998, there were approximately 163 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 July 10, 1998 and the distributions paid by the Company with respect to such
periods.
<TABLE>
<CAPTION>
YEAR HIGH LOW DISTRIBUTION
---- ---- --- ------------
<S> <C> <C> <C>
1997
Fourth Quarter (from November 21, 1997)............ $25 1/8 $22 1/4 $0.1340
1998
First Quarter...................................... $24 15/16 $23 3/8 $0.3425
Second Quarter..................................... $25 $22 3/8 $0.3425
Third Quarter (through July 10, 1998).............. $24 7/16 $23 15/16 --
</TABLE>
On June 19, 1998, the Board of Directors declared a distribution on the
Common Stock of $0.3425 per share, paid on July 9, 1998 to stockholders of
record as of June 30, 1998 and in its capacity as general partner of the
Operating Partnership, declared a distribution on the Operating Partnership's
common partnership units of $0.3425 per common partnership unit, paid on July 9,
1998 to partners of record as of June 30, 1998.
31
<PAGE> 38
CAPITALIZATION
The following table sets forth the capitalization of the Company 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, the sale of the Senior Debt Securities, and the
application of the net offering proceeds therefrom. The pro forma information
gives effect to such acquisitions, the sale of the Senior Debt Securities and
the application of the net offering proceeds therefrom and the Offering and the
application of the net proceeds therefrom. See "Use of Proceeds." The
information set forth in the following table should be read in conjunction with
the historical Consolidated Financial Statements and Notes thereto, the
condensed consolidated pro forma financial information and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
PRE-OFFERING
HISTORICAL PRO FORMA PRO FORMA
---------- ------------ -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Debt:
Unsecured credit facility............................ $ 312,000 $ 83,176 $ --
Senior Debt Securities............................... -- 400,000 400,000
Secured debt(1)...................................... 610,111 626,220 626,220
---------- ---------- ----------
Total debt........................................ 922,111 1,109,396 1,026,220
Minority interests..................................... 123,763 149,511 149,511
Stockholders' equity:
Preferred Stock, $.01 par value, 100,000,000 shares
authorized, none issued or outstanding (4,000,000
shares of Series A Preferred Stock issued and
outstanding, pro forma)........................... -- -- 95,900
Common Stock, $.01 par value, 500,000,000 shares
authorized, 85,874,513 shares issued and
outstanding(2).................................... 859 859 859
Additional paid-in capital, Common Stock............. 1,669,846 1,669,846 1,669,846
Retained earnings.................................... -- -- --
---------- ---------- ----------
Total stockholders' equity........................ 1,670,705 1,670,705 1,766,605
---------- ---------- ----------
Total capitalization.............................. $2,716,579 $2,929,612 $2,942,336
========== ========== ==========
</TABLE>
- ---------------
(1) Secured debt is comprised of mortgage loans and other secured debt and
includes unamortized debt premiums and discounts of $17,542.
(2) Does not include (i) 3,748,002 shares of Common Stock that may be issued
upon the exchange of Units and (ii) approximately 3,071,250 shares of Common
Stock issuable upon the exercise of outstanding options granted under the
Company's Stock Option and Incentive Plan.
32
<PAGE> 39
SELECTED FINANCIAL AND OTHER DATA
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., for the five years ended December 31, 1997, and 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, the sale of the Senior Debt Securities and
the application of the net offering proceeds therefrom 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 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 historical financial information as of
and for the three months ended March 31, 1998 reflects all adjustments, which
are of a normal recurring nature, necessary for a fair presentation of the
financial information, and the as adjusted and pro forma condensed financial
information provides for all adjustments necessary to reflect the adjustments
and transactions described above. The information for the three months ended
March 31, 1998 is unaudited and the operating data for that period are not
necessarily indicative of the results for the entire year. The as adjusted and
pro forma information is unaudited and is not necessarily indicative of the
results that would have occurred if the transactions and adjustments reflected
therein had been consummated in the period or on the date presented, nor does it
purport to represent the financial position, results of operations or changes in
cash flows for future periods.
33
<PAGE> 40
COMPANY AND PREDECESSOR SELECTED FINANCIAL AND OTHER DATA
(IN THOUSANDS EXCEPT SHARE AND UNIT 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
------ ------- ------- ------- ---------- ------------ -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Total revenues.................. $7,155 $12,865 $16,865 $23,991 $ 56,062 $ 284,674 $341,132
Income from operations before
minority interests............ 798 2,925 3,296 7,140 18,885 103,903 113,833
Net income available to common
stockholders.................. 798 2,925 3,262 7,003 18,228 99,508 95,229
Net income per common share(5):
Basic......................... $ 0.17 $ 0.59 $ 0.64 $ 1.38 $ 1.39 $ 1.16 $ 1.11
Diluted....................... 0.17 0.59 0.64 1.38 1.38 1.16 1.11
Distributions per common
share......................... 0.13 1.37 1.37
OTHER DATA:
EBITDA(6)....................... $ 195,218 $238,274
Funds from Operations(7)........ 147,409 151,850
Cash flows provided by (used
in):
Operating activities.......... 131,621 144,562
Investing activities.......... (607,768) (941,937)
Financing activities.......... 553,199 721,486
Ratio of earnings to fixed
charges and preferred stock
dividends(8).................. 3.1x 2.2x
Ratio of EBITDA to interest
expense and preferred stock
dividends(9).................. 4.3x 3.0x
BALANCE SHEET DATA:
Investments in real estate at
cost.......................... $ -- $ -- $ -- $ -- $2,442,999
Total assets.................... 2,739 4,092 4,948 7,085 2,506,255
Secured debt(10)................ -- -- -- -- 535,652
Senior Debt Securities.......... -- -- -- -- --
Unsecured credit facility....... -- -- -- -- 150,000
Stockholders' equity............ 2,480 3,848 4,241 6,300 1,668,030
PROPERTY DATA:
INDUSTRIAL PROPERTIES
Total rentable square footage of
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,
---------------------------------------
COMPANY
-------------------------
PREDECESSOR PRO FORMA
(1) HISTORICAL (4)
----------- ----------- -----------
1997 1998 1998
----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
OPERATING DATA:
Total revenues.................. $5,112 $ 75,785 $ 88,839
Income from operations before
minority interests............ 1,239 29,188 32,421
Net income available to common
stockholders.................. 1,239 27,906 27,812
Net income per common share(5):
Basic......................... $ 0.24 $ 0.32 $ 0.32
Diluted....................... 0.24 0.32 0.32
Distributions per common
share......................... 0.34 0.34
OTHER DATA:
EBITDA(6)....................... $ 52,815 $ 63,056
Funds from Operations(7)........ 40,295 41,697
Cash flows provided by (used
in):
Operating activities.......... 34,820 38,347
Investing activities.......... (199,520) (49,646)
Financing activities.......... 153,316 (11,205)
Ratio of earnings to fixed
charges and preferred stock
dividends(8).................. 3.1x 2.4x
Ratio of EBITDA to interest
expense and preferred stock
dividends(9).................. 4.5x 3.2x
BALANCE SHEET DATA:
Investments in real estate at
cost.......................... $2,755,882 $2,966,330
Total assets.................... 2,798,190 3,023,947
Secured debt(10)................ 610,111 626,220
Senior Debt Securities.......... -- 400,000
Unsecured credit facility....... 312,000 --
Stockholders' equity............ 1,670,705 1,766,605
PROPERTY DATA:
INDUSTRIAL PROPERTIES
Total rentable square footage of
properties at end of period... 43,964 47,676
Number of properties at end of
period........................ 118 126
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 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, the sale of the Senior Debt
Securities and the Offering had occurred on January 1, 1997. See "Pro Forma
Financial Information."
(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 shares,
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 86,284,736 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.
34
<PAGE> 41
(7) FFO represents net income (loss) before minority interests and
extraordinary items, adjusted for depreciation on real property and
amortization of tenant improvement costs and lease commissions, gains
(losses) from the disposal of properties and FFO attributable to minority
interests in consolidated joint ventures whose interests are not
convertible into shares of Common Stock. Management considers FFO an
appropriate measure of performance of an equity REIT because it is
predicated on cash flow analyses. The Company computes FFO in accordance
with standards established by the White Paper, which may differ from the
methodology for calculating FFO utilized by other REITs and, accordingly,
may not be comparable to such other REITs. FFO should not be considered as
an alternative to net income (determined in accordance with GAAP) as an
indicator of the Company's financial performance or to cash flow from
operating activities (determined in accordance with GAAP) as a measure of
the Company's liquidity, nor is it indicative of funds available to fund
the Company's cash needs, including its ability to make distributions. The
following table sets forth the Company's calculation of FFO for the periods
presented.
<TABLE>
<CAPTION>
FOR THE 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 $ 113,833 $ 29,188 $ 32,421
Real estate related depreciation and
amortization:
Depreciation and amortization............... 45,886 54,027 11,786 13,256
Furniture, fixtures and equipment
depreciation.............................. (173) (173) (104) (104)
FFO attributable to minority interests.......... (2,207) (8,609) (575) (2,069)
Adjustment to derive FFO of unconsolidated joint
venture:
Company's share of net income............... -- (5,470) -- (1,273)
Company's share of FFO...................... -- 6,742 -- 1,591
Series A Preferred Stock Dividends.............. -- (8,500) -- (2,125)
----------- ----------- ----------- -----------
FFO............................................. $ 147,409 $ 151,850 $ 40,295 $ 41,697
=========== =========== =========== ===========
Weighted average shares and units outstanding
(diluted)..................................... 88,698,719 89,904,556 88,839,192 90,032,738
=========== =========== =========== ===========
</TABLE>
(8) The ratio of earnings to fixed charges and preferred stock dividends is
computed as income from operations before minority interests plus fixed
charges (excluding capitalized interest) divided by fixed charges and
preferred stock dividends. Fixed charges consist of interest costs
(including amortization of debt premiums and financing costs), whether
capitalized or expensed, and the interest component of rental expense.
(9) The ratio of EBITDA to interest expense and preferred stock dividends is
calculated as EBITDA divided by the sum of book interest expense (including
amortization of debt premiums and discounts and financing costs) and
preferred stock dividends.
(10) Secured debt as of December 31, 1997 and March 31, 1998 is comprised of
mortgage loans and other secured debt and includes unamortized debt
premiums and discounts of approximately $18,286 and $17,542, respectively.
35
<PAGE> 42
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 properties contributed to the Company in the Formation Transactions ("the
AMB Contributed Properties"), for the four years ended December 31, 1996, the
period from January 1, 1997 to November 25, 1997 and the 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 sale of the Senior Debt Securities, the IPO and certain property
acquisitions and dispositions in 1997). Additionally, the table sets forth
selected financial and other data for the Operating Partnership for the year
ended December 31, 1997 and for the 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,
the sale of the Senior Debt Securities and the Offering and the application of
the net proceeds therefrom, as if such transactions had occurred on January 1,
1997). The historical financial information contained in the tables should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations," the Consolidated Financial Statements and
accompanying Notes thereto included elsewhere in this Prospectus.
In the opinion of management, the historical financial information as of
and for the three months ended March 31, 1998 reflects all adjustments, which
are of a normal recurring nature, necessary for a fair presentation of the
financial information, and the as adjusted and pro forma condensed financial
information provides for all adjustments necessary to reflect the adjustments
and transactions described above. The information for the three months ended
March 31, 1998 is unaudited and the operating data for that period are not
necessarily indicative of the results for the entire year. The as adjusted and
pro forma information is unaudited and is not necessarily indicative of the
results that would have occurred if the transactions and adjustments reflected
therein had been consummated in the period or on the date presented, nor does it
purport to represent the financial position, results of operations or changes in
cash flows for future periods.
OPERATING PARTNERSHIP AND AMB CONTRIBUTED PROPERTIES
SELECTED FINANCIAL AND OTHER DATA
(IN THOUSANDS EXCEPT 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) (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 $ 341,132
Income from operations
before minority
interests............. 6,871 13,753 32,519 54,865 58,068 9,291 103,903 113,833
BALANCE SHEET DATA:
Investments in real
estate at cost........ $323,230 $666,672 $1,018,681 $1,616,091 $2,442,999
Total assets............ 326,586 721,131 1,117,181 1,622,559 2,506,255
Secured debt(5)......... 100,496 201,959 254,067 522,634 535,652
PROPERTY DATA:
INDUSTRIAL PROPERTIES
Total rentable square
footage of 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
----------- ---------- ----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
OPERATING DATA:
Total revenues.......... $ 54,749 $ 75,785 $ 88,839
Income from operations
before minority
interests............. 14,217 29,188 32,421
BALANCE SHEET DATA:
Investments in real
estate at cost........ $2,755,882 $2,966,330
Total assets............ 2,798,190 3,023,947
Secured debt(5)......... 610,111 626,220
PROPERTY DATA:
INDUSTRIAL PROPERTIES
Total rentable square
footage of properties
at end of period...... 43,964 47,676
Number of properties at
end of period......... 118 126
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.
(4) Pro forma financial and other data have been prepared as if the Formation
Transactions, the IPO, certain property acquisitions and dispositions in
1997, the property acquisitions in 1998, the sale of the Senior Debt
Securities and the Offering had occurred on January 1, 1997. See "Pro Forma
Financial Information."
(5) Secured debt as of December 31, 1997 and March 31, 1998 includes unamortized
debt premiums and discounts of approximately $18,286 and $17,542,
respectively.
36
<PAGE> 43
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the consolidated financial
condition and results of operations should be read in conjunction with the
"Notes to Consolidated Financial Statements" and "Selected Financial and Other
Data" of the Company. Statements contained herein which are not historical facts
may be forward-looking statements. Such statements are subject to certain risks
and uncertainties which could cause actual results to differ materially from
those projected. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof.
GENERAL
Because of the significant impact of the Formation Transactions and the IPO
on the Company's results of operations, the discussion below is presented as
follows: (i) results of the Company and its Predecessor for the years ended
December 31, 1995, 1996 and 1997 and for the three months ended March 31, 1997
and 1998, and (ii) results of 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 Company commenced its operations as a REIT in connection
with the consummation of the IPO on November 26, 1997, a separate discussion of
the historical operations of the Properties for the comparative periods prior to
the IPO is presented below.
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.
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.
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 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
37
<PAGE> 44
management. Investment management and other income for the period from November
26, 1997 to December 31, 1997 was $0.6 million.
General and administrative expenses. General and administrative expenses
for the period from January 1, 1997 to November 25, 1997 were $19.4 million,
which represents a 27.7% increase on an annualized basis over the year ended
December 31, 1996. The increase was attributable to an increase in staffing that
resulted from the growth in the portfolio under management.
PREDECESSOR -- YEARS ENDED DECEMBER 31, 1996 AND 1995
Investment management and other income. Investment management and other
income for the years ended December 31, 1996 and 1995 was $24.0 million and
$16.9 million, respectively, an increase of 42.0%. The increase from 1995 to
1996 was primarily due to management fees associated with a growing portfolio
and increased economies of scale from managing this larger portfolio.
General and administrative expenses. General and administrative expenses
for the years ended December 31, 1996 and 1995 were $16.9 million and $13.6
million, respectively, reflecting the increase in size of the portfolio under
management.
OPERATING PARTNERSHIP RESULTS OF OPERATIONS
The historical results of operations of the Operating Partnership for
periods prior to November 26, 1997 include Properties that were managed by the
Predecessor and exclude the results of four properties that were contributed to
the Company in the Formation Transactions that were not previously managed by
the Predecessor. In addition, the historical results of operations include the
results of Properties acquired after November 26, 1997, from the date of
acquisition of such Properties to December 31, 1997.
The historical property financial data presented herein show significant
increases in revenues and expenses principally attributable to the substantial
portfolio growth. As a result, the Company does not believe the year-to-year
financial data are comparable. Therefore, the analysis below shows (i) changes
resulting from Properties that were held during the entire period for both years
being compared (the "Core Portfolio") and (ii) changes attributable to
acquisition and development activity. For the comparison between the three
months ended March 31, 1997 and 1998, the Core Portfolio consists of 77
Properties acquired prior to January 1, 1997, 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 Company's future financial
condition and results of operations, including rental revenues, may be impacted
by the acquisition of additional properties. No assurance can be given that the
past trends of revenues, expenses or income of the Company will continue in the
future at their historical rates, and any variation therefrom may be material.
The historical results of the Operating Partnership for 1997 include the
results achieved by the Operating Partnership for the period from November 26,
1997 (acquisition date) to December 31, 1997 and the results achieved by the
prior owners of the Properties for the period from January 1, 1997 to November
25, 1997.
OPERATING PARTNERSHIP AND AMB CONTRIBUTED PROPERTIES -- THREE MONTHS ENDED
MARCH 31, 1998 AND 1997
Rental revenues. Rental revenues, including straight-line rents, tenant
reimbursements and other property related income, increased by $19.7 million, or
36%, for the three months ended March 31, 1998, to $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).
38
<PAGE> 45
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
Company increased average contractual or base rental rates on the Properties by
12% on 393 new and renewing leases totaling 7.5 million rentable square feet
(representing 17.2% of the Properties' aggregate rentable square footage).
Property operating expenses and real estate taxes. Property operating
expenses and real estate taxes increased by $25.6 million, or 46.3%, for the
year ended December 31, 1997, to $80.9 million as compared to $55.3 million for
the year ended December 31, 1996. Approximately $3.4 million of this increase
was attributable to the 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.
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
39
<PAGE> 46
properties owned by the Company. Depreciation and amortization includes
depreciation of capital and tenant improvements and amortization of leasing
commissions.
General, administrative and other expenses. General, administrative and
other expenses increased by $1.2 million or 150%, for the year ended December
31, 1997, to $2.0 million as compared to $0.8 million for the year ended
December 31, 1996. The increase was attributable to the changes in operations
resulting primarily from the change in the character of the Company's business
from that of an investment manager prior to the IPO to a self-administered and
self-managed REIT thereafter.
Interest and other income. Interest and other income decreased by $0.1
million, or 7%, for the year ended December 31, 1997, to $1.4 million as
compared to $1.5 million for the year ended December 31, 1996. This decrease was
primarily due to lower average cash balances.
AMB CONTRIBUTED PROPERTIES -- YEARS ENDED DECEMBER 31, 1996 AND 1995
Rental revenues. Rental revenues, including tenant reimbursements and other
property related income, increased by $60.2 million, or 56.7%, for the year
ended December 31, 1996, to $166.4 million as compared to $106.2 million for the
year ended 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 year 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.
LIQUIDITY AND CAPITAL RESOURCES
The Company expects that its principal sources of working capital and
funding for acquisitions, development, expansion and renovation of the
Properties will include borrowings under the Credit Facility, other forms of
secured or unsecured financing, proceeds from equity or debt offerings by the
Company or the Operating Partnership (including issuances of Units in the
Operating Partnership) and cash flows provided by
40
<PAGE> 47
operations. Management believes that its sources of working capital and its
ability to access private and public debt and equity capital are adequate to
continue to meet liquidity requirements for the foreseeable future.
Capital Resources
The Company, through the Operating Partnership, has a $500.0 million
unsecured revolving credit agreement with Morgan Guaranty Trust Company of New
York as agent, and a syndicate of 12 other banks. The Credit Facility, which
matures in November 2000, 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
Company uses the Credit Facility principally for acquisitions and for general
working capital requirements. Borrowings under the Credit Facility bear interest
at LIBOR plus 90 to 120 basis points, depending on the Company's debt rating at
the time of such borrowings. Monthly debt service payments on the Credit
Facility are interest only. The total amount available under the Credit Facility
fluctuates based upon the borrowing base, as defined in the agreement governing
the Credit Facility.
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 Company's Credit
Facility was reduced by 20 basis points to LIBOR plus 90 basis points.
On June 30, 1998 the Operating Partnership sold the Senior Debt Securities
in an aggregate principal amount of $400 million in an underwritten public
offering. The Senior Debt Securities are comprised of $175 million aggregate
principal amount of 7.10% notes due June 30, 2008, $125 million aggregate
principal amount of 7.50% notes due June 30, 2018 and $100 million aggregate
principal amount of 6.90% Reset Put Securities due June 30,
2015 -- Putable/Callable June 30, 2005. Interest on the Senior Debt Securities
is payable semi-annually on June 30 and December 30, commencing December 30,
1998, and no repayments of principal are due prior to maturity. Each tranche of
the Senior Debt Securities may be redeemed at the option of the Operating
Partnership at any time, in whole or in part, at 100% of the outstanding
principal amount of such securities being redeemed, plus accrued and unpaid
interest to the date of redemption, plus the sum of the present values of the
remaining scheduled payments of principal and interest thereon (exclusive of
interest accrued to such redemption date) discounted to such redemption date on
a semiannual basis (assuming a 360-day year consisting of twelve 30-day months)
at the Treasury Rate plus 25 basis points. The Senior Debt Securities are
guaranteed on an unsecured basis by the Company.
In connection with the recent property acquisitions and the Formation
Transactions, the Company has assumed various mortgages and other secured debt.
As of March 31, 1998, the aggregate principal amount of such secured debt was
$610.1 million, including 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%) with final maturity dates ranging from 1998
to 2014.
As of March 31, 1998, the Company's total outstanding debt was
approximately $922.1 million, including $312.0 million under the Credit Facility
and unamortized debt premiums of approximately $17.5 million. Following the
application of the proceeds from the offering of the Senior Debt Securities, the
Company had $73.9 million outstanding under the Credit Facility. The total
amount of secured 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 intends to operate with
a Debt-to-Total Market Capitalization Ratio of less than 45%. Additionally, the
Company intends to structure its balance sheet to enable it to maintain
investment-grade ratings. The Company intends to keep the majority of its assets
unencumbered to facilitate such ratings. Upon consummation of the Offering, the
Company's Debt-to-Total Market Capitalization Ratio as of March 31, 1998 on a
pro forma basis (giving effect to the acquisition-related debt incurred
subsequent to March 31, 1998, the sale of the Senior Debt Securities and the
Offering and the application of the proceeds therefrom as if the debt had been
incurred and those transactions had occurred as of that date) would have been
approximately 31.4% (approximately 29.9% on an historical basis).
41
<PAGE> 48
Liquidity
As of March 31, 1998, the Company had approximately $28.6 million in cash
and cash equivalents and $148.0 million of additional available borrowings under
the Credit Facility. The Company 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.
On June 19, 1998, the Board of Directors declared a distribution on the
Common Stock of $0.3425 per share, paid on July 9, 1998 to stockholders of
record as of June 30, 1998 and in its capacity as general partner of the
Operating Partnership, declared a distribution on the Operating Partnership's
common partnership units of $0.3425 per common partnership unit, paid on July 9,
1998 to partners of record as of June 30, 1998.
The anticipated size of the Company and the Operating Partnership's
distributions, using only cash from operations, will not allow them to retire
all of their debt as it comes due. Therefore, the Company and the Operating
Partnership intend to repay maturing debt with net proceeds from future debt
and/or equity financings. No assurance can be given, however, that future
financings will be available to the Company and the Operating Partnership or
that the terms of any such financings will be favorable from the Company's
perspective.
Capital Commitments
In addition to recurring capital expenditures and costs to renew or
re-tenant space, as of March 31, 1998, the Company was in the process of
renovating, expanding or developing 10 projects at a total estimated cost of
$211.0 million. The Company presently expects to fund these expenditures with
cash from operations, borrowings under the Credit Facility or debt or equity
issuances. Other than these capital items, the Company has no material capital
commitments. From April 1, 1998 to June 30, 1998, the Company acquired for an
aggregate purchase price of $210.4 million (i) eight Industrial Properties
comprising 44 buildings and 3.3 million rentable square feet, (ii) four
buildings aggregating 0.4 million square feet which are adjacent to existing
Properties and (iii) a limited partnership interest in an existing
unconsolidated real estate joint venture that owns 36 industrial buildings
aggregating 4.0 million square feet. The acquisitions were funded through
borrowings under the Credit Facility, cash, debt assumption of approximately
$184.7 million, an investment from a co-investment partner of approximately
$23.3 million and the issuance of Units with a value of approximately $2.4
million at the date of issuance. The Company expects that its funds from
operations and availability under its Credit Facility will be sufficient to meet
expected capital commitments for the next 12 months.
INFLATION
Substantially all of the industrial and retail leases require the tenant to
pay, as additional rent, a portion of any increases in real estate taxes and
operating expenses over a base amount. 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 Company's total rentable
square feet provide for rent increases based upon changes in the Consumer Price
Index. The remainder of the Company's leases provide for fixed rental payments,
of which a majority include predetermined rent increases at various points in
time during the lease term.
YEAR 2000 COMPLIANCE
Many computer programs have been written using two digits rather than four
to define the applicable year. Computer programs that have time-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000. This "year 2000 issue" could result in a system failure or miscalculations
causing disruptions of operations, including, among other things, a temporary
inability to process transactions, send invoices or engage in similar normal
business activities.
42
<PAGE> 49
The Company'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 currently
does not expect that the year 2000 issue will materially affect its operations
due to problems encountered by its 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 the 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 Company'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
December 31, 1997 and on a pro forma basis (giving effect to the Formation
Transactions, the IPO, certain 1997 property acquisitions and dispositions, the
property acquisitions in 1998, the sale of the Senior Debt Securities and the
application of the net offering proceeds therefrom and the Offering and the
application of the net proceeds therefrom, as if all such transactions had
occurred on January 1, 1997) for the year ended December 31, 1997 and the three
months ended March 31, 1998. See "Pro Forma Financial Information."
<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 $ 113,833 $ 29,188 $ 32,421
Real estate related depreciation and
amortization:
Depreciation and amortization.... 45,886 54,027 11,786 13,256
Furniture, fixtures and equipment
depreciation................... (173) (173) (104) (104)
FFO attributable to minority
interests(1)(2)..................... (2,207) (8,609) (575) (2,069)
Adjustment to derive FFO of
unconsolidated joint venture:
Company's share of net income.... -- (5,470) -- (1,273)
Company's share of FFO........... -- 6,742 -- 1,591
Series A Preferred Stock dividends.... -- (8,500) -- (2,125)
----------- ----------- ----------- -----------
FFO(1)................................ $ 147,409 $ 151,850 $ 40,295 $ 41,697
=========== =========== =========== ===========
Weighted average shares and units
outstanding (diluted)............... 88,698,719 89,904,556 88,839,192 90,032,738
=========== =========== =========== ===========
Cash flows provided by (used in):
Operating activities............. $ 131,621 $ 144,562 $ 34,820 $ 38,347
Investing activities............. (607,768) (941,937) (199,520) (49,646)
Financing activities............. 553,199 721,486 153,316 (11,205)
</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 Company's
financial performance or to cash flow from operating activities (determined
in accordance with GAAP) as an indicator of the Company's liquidity, nor is
it indicative of funds available to fund the Company's cash needs, including
the Company's ability to make distributions.
(2) Represents FFO attributable to minority interests in consolidated joint
ventures for the period presented, which has been computed as minority
interests' share of net income before disposal of properties plus minority
interests' share of real estate-related depreciation and amortization of the
consolidated joint ventures for such period. Such minority interests are not
convertible into shares of Common Stock.
43
<PAGE> 50
BUSINESS AND PROPERTIES
As of March 31, 1998, the Company 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
------------------------------------------- ---------------------------
NUMBER NUMBER RENTABLE NUMBER RENTABLE
OF OF SQUARE % OF OF SQUARE % OF
REGION PROPERTIES BUILDINGS FEET TOTAL CENTERS FEET TOTAL
------ ---------- --------- ---------- ----- ------- --------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Eastern................ 27 68 8,729,347 19.9% 4 1,272,968 18.6%
Midwestern............. 28 92 11,199,515 25.5 4 710,833 10.4
Southern............... 30 114 11,262,975 25.6 12 1,957,051 28.6
Western................ 33 141 12,772,141 29.0 17 2,907,986 42.4
--- --- ---------- ----- --- --------- -----
Total.................. 118 415 43,963,978 100.0% 37 6,848,838 100.0%
=== === ========== ===== === ========= =====
<CAPTION>
TOTAL PROPERTIES
-------------------------------
NUMBER RENTABLE
OF SQUARE % OF
REGION PROPERTIES FEET TOTAL
------ ---------- ---------- -----
<S> <C> <C> <C>
Eastern................ 31 10,002,315 19.7%
Midwestern............. 32 11,910,348 23.4
Southern............... 42 13,220,026 26.0
Western................ 50 15,680,127 30.9
--- ---------- -----
Total.................. 155 50,812,816 100.0%
=== ========== =====
</TABLE>
INDUSTRIAL PROPERTIES
At March 31, 1998, the Company owned 118 Industrial Properties
(encompassing 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:
<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 Industrial Properties are
concentrated in national hub distribution markets such as Atlanta, Chicago,
Dallas/Fort Worth, Los Angeles, Northern New Jersey and the San Francisco Bay
Area because management believes their strategic location, transportation
network and infrastructure, and large consumer and manufacturing 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/
44
<PAGE> 51
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 Company owns Industrial Properties are in bold. "*" denotes
each of the six national hub markets as characterized by the Company.
- ---------------
(1) Table derived from data, as of December 31, 1997, obtained from CB
Commercial/Torto Wheaton Research.
(2) Table derived from preliminary data, as of December 1997, published by the
Airports Council International.
(3) Table derived from data, as of December 31, 1996, obtained from the U.S.
Bureau of the Census -- United States Foreign Trade.
Within these metropolitan areas, the Industrial Properties are concentrated
in in-fill locations (areas which are typified by high population densities and
low levels of available land that could be developed into competitive industrial
or retail properties) within established, relatively large submarkets (markets
within a metropolitan area in which the competitive environment for one or more
property types is largely dependent upon the supply of such property type in
such market rather than the supply of such property type in other portions of
such metropolitan area) which the Company believes should provide a higher rate
of occupancy and rent growth than properties located elsewhere. These in-fill
locations are typically near major ports or airports, have good access to
freeways and rail lines, are proximate to a diverse labor pool, and have limited
land available for new construction. There is typically broad demand for
industrial space in these centrally located submarkets due to a diverse mix of
industries and types of industrial uses, including warehouse distribution, light
assembly and manufacturing. The Company generally avoids locations at the
periphery of metropolitan areas where there are fewer supply constraints. Small
metropolitan areas or cities without a heavy concentration of warehouse activity
typically have few, if any, supply-constrained locations.
45
<PAGE> 52
INDUSTRIAL PROPERTY SUMMARY
As of March 31, 1998, the 118 Industrial Properties were diversified across
23 markets nationwide. The average age of the Industrial Properties is 12 years
(since the time the property was built or substantially renovated), which the
Company believes should result in lower operating costs over the long term.
Ownership of each Property is in fee simple unless otherwise noted.
<TABLE>
<CAPTION>
PERCENTAGE
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>
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>
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>
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>
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>
48
<PAGE> 55
<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.
49
<PAGE> 56
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............................... 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.
The 43 largest industrial tenants represent 28.4% of the Industrial
Properties' Annualized Base Rent as of March 31, 1998. Other companies that are
tenants in the Industrial Properties include International Business
50
<PAGE> 57
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>
PERCENTAGE ANNUALIZED
PERCENTAGE ANNUALIZED OF BASE RENT
OF TOTAL BASE RENT OF ANNUALIZED OF EXPIRING
NUMBER RENTABLE SQUARE RENTABLE EXPIRING BASE RENT LEASES PER
OF LEASES FOOTAGE OF SQUARE LEASES OF EXPIRING SQUARE
YEAR OF LEASE EXPIRATION EXPIRING(1) EXPIRING LEASES(1) FOOTAGE (000S)(1)(2) LEASES FOOT(3)
------------------------ ----------- ------------------ ---------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
1998(4)................. 190 4,771,454 11.5% $ 21,239 11.5% $4.45
1999.................... 205 7,043,996 16.9 27,486 14.9 3.90
2000.................... 228 7,320,405 17.6 32,604 17.7 4.45
2001.................... 156 5,096,560 12.3 24,399 13.2 4.79
2002.................... 150 6,715,250 16.1 29,596 16.1 4.41
2003.................... 54 3,576,187 8.6 15,347 8.3 4.29
2004.................... 23 1,880,574 4.5 8,473 4.6 4.51
2005.................... 20 2,122,015 5.1 8,078 4.4 3.81
2006.................... 14 1,042,523 2.5 6,466 3.5 6.20
2007.................... 5 503,868 1.2 2,418 1.3 4.80
2008 and beyond......... 16 1,538,479 3.7 8,266 4.5 5.37
----- ---------- ----- -------- ------
Total/Weighted Average.... 1,061 41,611,311 100.0% $184,372 100.0% $4.43
===== ========== ===== ======== ======
</TABLE>
- ---------------
(1) Schedule includes executed leases that commence after March 31, 1998.
Schedule excludes leases expiring prior to April 1, 1998.
(2) Calculated as monthly rent at expiration multiplied by 12.
(3) Rent per square foot is calculated by dividing the Annualized Base Rent of
expiring leases by the square footage expiring in any given year.
(4) Includes leases encompassing 318,985 square feet which are on a
month-to-month basis.
51
<PAGE> 58
RETAIL PROPERTIES
At March 31, 1998, the Company 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 Company's national operating
strategy for the community shopping center business is based on detailed
research regarding target trade areas which typically have high population
densities and above-average income levels. The two graphs below compare the
population density and income levels surrounding the Company's Retail Properties
to the national averages.
1997 MEDIAN HOUSEHOLD INCOME
AMB RETAIL PROPERTIES VS. U.S.(1)
<TABLE>
<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 Company has been
advised that the information comes from various government and industry
sources, but the Company has not independently verified the information.
(3) Derived from forecasted data obtained from Regional Financial Associates.
1997 AVERAGE POPULATION WITHIN
THREE-MILE RADIUS OF RETAIL PROPERTIES(1)
(1) Derived from information compiled by Claritas Inc. The Company has been
advised that the information comes from various government and industry
sources, but the Company has not independently verified the information.
(2) For all shopping centers greater than or equal to 50,000 square feet and
less than or equal to 400,000 square feet.
52
<PAGE> 59
Management believes that the characteristics of its trade areas tend to
result in Retail Properties with above-average retail sales. The graph below
compares the average sales of the Retail Properties' grocer anchors to the
national average for grocers.
AVERAGE 1997 GROCER ANCHOR SALES FOR
RETAIL PROPERTIES
AVERAGE 1996 RETAIL SALES CHART
(1) Includes sales per square foot for grocer anchors reporting a full year
of sales. Thirty-one of 37 Retail Properties are represented above. Of
the six Retail Properties not represented, (i) four do not have grocer
anchors, (ii) one Property is currently under construction and (iii)
the grocer-anchor store at one Property is not owned by the Company and
does not report sales.
(2) All but nine of the 31 Retail Properties included report sales on a
calendar year basis.
(3) Derived from data published in the Progressive Grocer Annual Report,
April 1998.
53
<PAGE> 60
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.
<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.
54
<PAGE> 61
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>
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>
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>
56
<PAGE> 63
<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.(5)........ 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.(5)........ 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 Company holds interests in these Properties through a joint venture
interest in a limited partnership. See "-- Properties Held Though Joint
Ventures, Limited Liability Companies and Partnerships."
(7) This Property is being redeveloped. All calculations are based on rentable
square feet existing as of March 31, 1998.
(8) This Property consists of land held for future development.
57
<PAGE> 64
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) PROPERTIES 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.............................. 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.
58
<PAGE> 65
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% $83,281 100.0% $12.81
=== ========= ===== ======= =====
</TABLE>
- ---------------
(1) Schedule includes executed leases that commence after March 31, 1998.
Schedule excludes leases expiring prior to April 1, 1998.
(2) Calculated as monthly rent at expiration multiplied by 12.
(3) Rent per square foot is calculated by dividing the Annualized Base Rent of
expiring leases by the square footage expiring in any given year.
(4) Includes leases encompassing 43,699 square feet which are on a
month-to-month basis.
59
<PAGE> 66
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 -- Possible
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.
60
<PAGE> 67
RENOVATION, EXPANSION AND DEVELOPMENT PROJECTS IN PROGRESS
The following table sets forth the Properties owned by the Company as of
March 31, 1998 which were undergoing renovation, expansion or new development.
No assurance can be given that any of such Properties will be completed on
schedule or within budgeted amounts. See "Risk Factors -- General Real Estate
Risks -- Possible Inability to Complete Renovation and Development on
Advantageous Terms."
<TABLE>
<CAPTION>
ESTIMATED ESTIMATED
ESTIMATED TOTAL SQUARE FEET
STABILIZATION INVESTMENT AT
PROPERTY NAME TYPE(1) DATE(2) (000S)(3) COMPLETION
------------- ----------- ------------- ---------- -----------
<S> <C> <C> <C> <C>
Industrial Properties:
Dock's Corner............................... Expansion Mar-99 $ 46,900 1,200,000
Fairway Drive Phase II...................... Development June-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
-------- ---------
Subtotal............................ 129,500 3,371,200
Retail Properties:
Palm Aire................................... Renovation Feb-99 11,500 144,300
Springs Gate................................ Development May-99 34,600 248,900
Northridge Plaza............................ Renovation Sept-00 35,400 259,400
-------- ---------
Subtotal............................ 81,500 652,600
-------- ---------
Total............................... $211,000 4,023,800
======== =========
</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
Company'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 Company 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 Company 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 Company is a limited partner or that the Joint
Venture Participant is principally responsible for day-to-day management control
of the Property (though in all such cases, the Company has approval rights with
respect to significant decisions involving the underlying properties). Under the
agreements governing the Joint Ventures, the Company and the Joint Venture
Participant may be required to make additional capital contributions, and
subject to certain limitations, the Joint Ventures may incur additional debt.
Such agreements also impose certain restrictions on the transfer of the interest
in the Joint Venture by the Company or the Joint Venture Participant, and
provide certain rights to the Company and/or the Joint Venture Participant to
sell its interest to the Joint Venture or to the other venturer on terms
specified in the agreement. All of the Joint Ventures terminate in the year 2024
or later, but may end earlier if a Joint Venture ceases to hold any interest in
or have any obligations relating to the property
61
<PAGE> 68
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>
BOOK VALUE OF PERCENTAGE AND FORM OF
GROSS BOOK CO-VENTURER'S COMPANY'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 one property with multiple buildings owned by two joint venture
entities 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.
62
<PAGE> 69
DEBT FINANCING
The Company's financing policies and objectives are determined by the Board
of Directors and may be altered without the consent of the Company's
stockholders. The Company's organizational documents do not limit the amount of
indebtedness that it may incur. The Company presently intends to limit its
Debt-to-Total Market Capitalization Ratio to approximately 45%. 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 (giving effect to the acquisition-related debt
incurred subsequent to March 31, 1998, the sale of the Senior Debt Securities
and the Offering and the application of the proceeds therefrom as if the debt
had been incurred and those transactions had occurred as of that date) would
have been approximately 31.4% (approximately 29.9% on an historical basis). The
Company believes that the Debt-to-Total Market Capitalization Ratio is a useful
indicator of a company's ability to incur indebtedness and has gained acceptance
as an indicator of leverage for real estate companies. The Company intends to
utilize one or more sources of capital for future acquisitions, 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 Company will be able to obtain capital for any such
acquisitions, developments or improvements on terms favorable to the Company.
See "Strategies for Growth -- Growth Through Acquisition."
Credit Facility. The Company, through the Operating Partnership, is party
to the Credit Facility with aggregate availability of $500 million (subject to
borrowing base limitations). The Company intends to use the Credit Facility
principally for acquisitions and for working capital purposes. Borrowings under
the Credit Facility bear interest at a floating rate equal to LIBOR plus 90 to
120 basis points (currently LIBOR plus 90 basis points), depending upon the
Company's debt rating at the time of such borrowings. As of March 31, 1998,
$312.0 million was outstanding under the Credit Facility. Following the
application of the proceeds from the sale of the Senior Debt Securities, the
Company had $83.2 million outstanding under the Credit Facility. 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 its ongoing compliance with a number of
financial and other covenants. The Credit Facility requires that: (i) the
Company maintain a ratio of unencumbered property value to unsecured
indebtedness of at least 2 to 1; (ii) the unencumbered properties generate
sufficient net operating income to maintain a debt service coverage ratio of at
least 2 to 1; (iii) the Company maintain a total indebtedness to total asset
value ratio of not more than 0.5 to 1; (iv) the ratio of net operating cash flow
to debt service plus estimated capital expenditures and preferred dividends be
at least 2 to 1; and (v) certain other customary covenants and performance
requirements. The Credit Facility, except under certain circumstances, limits
the Company's ability to make distributions to no more than 95% of its annual
FFO.
Senior Debt Securities. On June 30, 1998 the Operating Partnership sold the
Senior Debt Securities in an aggregate principal amount of $400 million in an
underwritten public offering. The Senior Debt Securities are comprised of $175
million aggregate principal amount of 7.10% notes due June 30, 2008, $125
million aggregate principal amount of 7.50% notes due June 30, 2018 and $100
million aggregate principal amount of 6.90% Reset Put Securities due June 30,
2015 -- Putable/Callable June 30, 2005. Interest on the Senior Debt Securities
is payable semi-annually on June 30 and December 30, commencing December 30,
1998, and no repayments of principal are due prior to maturity. Each tranche of
the Senior Debt Securities may be redeemed at the option of the Operating
Partnership at any time, in whole or in part, at 100% of the outstanding
principal amount of such securities being redeemed, plus accrued and unpaid
interest to the date of redemption, plus the sum of the present values of the
remaining scheduled payments of principal and interest thereon (exclusive of
interest accrued to such redemption date) discounted to such redemption date on
a semiannual basis (assuming a 360-day year consisting of twelve 30-day months)
at the Treasury Rate plus 25 basis points. The Senior Debt Securities are
guaranteed on an unsecured basis by the Company.
Secured Debt. As of March 31, 1998, $73 million was outstanding under a
credit facility which is secured by six properties (the "Secured Facility").
Payments of interest only are due monthly at a fixed annual
63
<PAGE> 70
interest rate of 7.53% with the principal due on December 12, 2008. The Secured
Facility became an obligation of the Company upon consummation of the Formation
Transactions. Under the Secured Facility, the Company may substitute collateral,
subject to certain requirements with respect to the property offered as
replacement collateral. In addition to the Secured Facility, 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.
The following table sets forth scheduled principal payments of the
Company'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
Company's mortgage debt is fixed-rate and has generally been arranged by the
Company 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....................................... 48 -- 48 0.00
------- -------- --------
Total/Weighted Average.................. $71,192 $515,754 $586,946 6.71%
======= ======== ========
</TABLE>
The following table sets forth scheduled maturities of the Company'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
</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>
Hartwell Avenue/Braintree Industrial/
Stoughton Industrial(2).............. 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
OCP Portfolio(3)........................ 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(4)................. 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(5).......... 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
</TABLE>
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<PAGE> 72
<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>
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
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(5).............. 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) These loans were repaid on the scheduled maturity date.
(2) One loan is secured by three properties. These properties are Hartwell
Avenue, Braintree Industrial and Stoughton Industrial.
(3) OCP Portfolio has one loan secured by three properties. These properties are
Chancellor Square, Presidents Drive and Sand Lake Service Center.
(4) Comprised of three loans with identical terms that are not
cross-collateralized.
(5) 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 Company also has a construction loan agreement in
the amount of $8 million to fund building improvements. The loan matures in July
2000. 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 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
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<PAGE> 73
be given that material losses in excess of insurance proceeds will not occur in
the future. See "Risk Factors -- General Real Estate Risks -- Uninsured Losses
from Seismic Activity."
The Company has insurance for loss in the event of damage to its properties
for earthquake activity, which consists of a sublimit of $10,000,000 per
occurrence for earthquake coverage provided as part of the "All Risk Property
Policy" with a primary insurer, with $90,000,000 per occurrence for losses in
excess of the $10,000,000 sublimit. The per occurrence deductible for this
coverage in California is 5% of the values applied separately to each building
subject to a minimum deductible of $100,000 (to the extent that such amount is
greater than 5% of the values at each location), and the deductible for
Properties outside of California is $25,000.
GOVERNMENT REGULATIONS
Many laws and governmental regulations are applicable to the Properties and
changes in these laws and regulations, or their interpretation by agencies and
the courts, occur frequently.
Costs of Compliance with Americans with Disabilities Act. Under the ADA,
all places of public accommodation are required to meet certain federal
requirements related to access and use by disabled persons. Compliance with the
ADA might require removal of structural barriers to handicapped access in
certain public areas where such removal is "readily achievable." Noncompliance
with the ADA could result in the imposition of fines or an award of damages to
private litigants.
Environmental Matters. Under Environmental Laws, a current or previous
owner or operator of real estate may be liable for contamination resulting from
the presence or discharge of hazardous or toxic substances or petroleum products
at such property, and may be required to investigate and clean-up such
contamination at such property or such contamination which has migrated from
such property. Such laws typically impose liability and clean-up responsibility
without regard to whether the owner or operator knew of or caused the presence
of the contaminants, and the liability under such laws has been interpreted to
be joint and several unless the harm is divisible and there is a reasonable
basis for allocation of responsibility. In addition, the owner or operator of a
site may be subject to claims by third parties based on personal injury,
property damage and/or other costs, including investigation and clean-up costs,
resulting from environmental contamination present at or emanating from a site.
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
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<PAGE> 74
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 Company believes would have a material adverse
effect on the Company's financial condition or results of operations taken as a
whole, nor is the Company aware of any such material environmental liability.
Nonetheless, it is possible that the Company's assessments do not reveal all
environmental liabilities and that there are material environmental liabilities
of which the Company is unaware. Moreover, there can be no assurance that (i)
future laws, ordinances or regulations will not impose any material
environmental liability or (ii) the current environmental condition of the
Properties will not be affected by tenants, by the condition of land or
operations in the vicinity of the Properties (such as releases from underground
storage tanks), or by third parties unrelated to the Company. If the costs of
compliance with the various environmental laws and regulations, now existing or
hereafter adopted, exceed the Company's budgets for such items, the Company's
ability to pay dividends to holders of the Series A Preferred Stock could be
adversely affected.
Other Regulations. The Properties are also subject to various Federal,
state and local regulatory requirements such as state and local fire and life
safety requirements. Failure to comply with these requirements could result in
the imposition of fines by governmental authorities or awards of damages to
private litigants. The Company believes that the Properties are currently in
substantial compliance with all such regulatory requirements. However, there can
be no assurance that these requirements will not be changed or that new
requirements will not be imposed which would require significant unanticipated
expenditures by the Company, which expenditure could have an adverse effect on
the Company's results of operations and financial condition.
Risk of Property Tax Reassessment. Certain local real property tax
assessors may seek to reassess certain of the Properties as a result of the
Formation Transactions and the transfer of interests that occurred in connection
therewith. In jurisdictions such as California, where Proposition 13 limits the
assessor's ability to reassess real property so long as there is no change in
ownership, the assessed value could increase by as much as the full value of any
appreciation that has occurred during the AMB Predecessors' period of ownership.
Where appropriate, the Company would contest vigorously any such reassessment.
Subject to market conditions, current leases may permit the Company to pass
through to tenants a portion of the effect of any increases in real estate taxes
resulting from any such reassessment.
MANAGEMENT AND EMPLOYEES
The Company conducts substantially all of its operations through the
Operating Partnership. AMB Investment Management independently conducts third
party portfolio management activities and related operations. The Company
generally has full, exclusive and complete responsibility and discretion in the
management and control of the Operating Partnership.
As of May 31, 1998, the Company employed 123 persons, 99 of whom were
located at the Company's headquarters in San Francisco and 24 of whom were
located in the Company's Boston office.
LEGAL PROCEEDINGS
Neither the Company nor any of the Properties is subject to any material
litigation nor, to the Company's knowledge, is any material litigation
threatened against any of them, other than routine litigation arising in the
ordinary course of business, which is generally expected to be covered by
liability insurance, or to have an immaterial effect on financial results.
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<PAGE> 75
POLICIES WITH RESPECT TO CERTAIN ACTIVITIES
The following is a discussion of the policies with respect to investments,
financing and certain other activities of the Company. These policies and those
set forth under "Certain Relationships and Related Transactions -- Conflicts of
Interest" have been determined by the Board of Directors of the Company and may
be amended or revised from time to time at the discretion of the Board of
Directors without notice to or a vote of the stockholders of the Company or the
limited partners of the Operating Partnership, except that changes in certain
policies with respect to conflicts of interest must be consistent with legal
requirements. Such legal requirements include those arising from fiduciary
principles under the Maryland General Corporation Law ("MGCL"), including
Section 2-419 thereof (which provides procedures for approval of interested
director transactions), and the Delaware Revised Uniform Limited Partnership
Act, and the judicial decisions under each of such statutes. All references in
the following discussion to the "Company" include the Operating Partnership
unless otherwise indicated.
INVESTMENT POLICIES
Investments in Real Estate or Interests in Real Estate. The Company
currently plans to continue to conduct substantially all of its investment
activities through the Operating Partnership. The Company's investment
objectives are to increase FFO and the value of the Properties, and to acquire
established income-producing industrial properties and community shopping
centers with FFO growth potential. Additionally, where prudent and possible, the
Company may develop new properties and seek to renovate or reposition the
existing Properties and any newly-acquired properties. The Company's business is
focused on industrial properties and community shopping centers, but the Company
may invest in other types of properties which represent investment opportunities
at the discretion of management. In addition, the Company may invest in other
property types in connection with industrial and retail acquisition and
development opportunities. Where appropriate, and subject to REIT qualification
rules, the Operating Partnership may sell or otherwise dispose of certain of the
Properties.
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, the
Company has not invested in any such securities. In selecting such investments
in the future, if any, the Company expects to consider the same factors used to
identify individual properties for investment -- companies with properties
located in in-fill locations -- as well as other factors which the Company may
consider to be relevant, including, among others, historical performance,
financial condition and management. The Company may acquire all or substantially
all of the
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<PAGE> 76
securities or assets of other REITs or similar entities where such investments
would be consistent with the Company's investment policies. In any event, the
Company does not intend that its investments in securities will require it to
register as an "investment company" under the Investment Company Act of 1940, as
amended.
FINANCING POLICIES
In addition to the limitations on indebtedness under the Credit Facility,
since the IPO, the Company has maintained and presently intends to continue to
maintain a Debt-to-Total Market Capitalization Ratio of approximately 45% or
less. This policy differs from conventional mortgage debt-to-equity ratios which
are asset-based ratios. The Company, however, may from time to time re-evaluate
this policy and decrease or increase such ratio in light of then current
economic conditions, relative costs to the Company of debt and equity capital,
market values of its properties, growth and acquisition opportunities and other
factors. There is no limit on the Debt-to-Total Market Capitalization Ratio
imposed by either the 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 Senior Debt
Securities, the Company intends to do so generally through mortgages on its
properties and the Credit Facility; however, the Company may also issue or cause
the Operating Partnership to issue additional debt securities in the future.
Such indebtedness may be recourse, non-recourse or cross-collateralized and may
contain cross-default provisions. The net proceeds of any debt securities issued
by the Company will be lent to the Operating Partnership on substantially the
same terms and conditions as are incurred by the Company. The Company does not
have a policy limiting the number or amount of mortgages that may be placed on
any particular property, but mortgage financing instruments usually limit
additional indebtedness on such properties. In the future, the Company may seek
to extend, expand, reduce or renew the Credit Facility, or obtain new credit
facilities or lines of credit, subject to its general policy on debt
capitalization, for the purpose of making acquisitions or capital improvements
or providing working capital or meeting the taxable income distribution
requirements for REITs under the Code.
LENDING POLICIES
The Company may consider offering purchase money financing in connection
with the sale of Properties where the provision of such financing will increase
the value received by the Company for the property sold. The Company may also
make loans to the Operating Partnership, 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 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
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<PAGE> 77
Company could reasonably be expected to have an interest in developing or
acquiring. The Company has adopted certain policies relating to such matters
applicable to Independent Directors (as defined) actively engaged in industrial
and retail real estate which generally limit directly competitive activities by
such directors. In addition, under the MGCL, any contract or other transaction
between a corporation and any director or any other corporation, firm or other
entity in which the director is a director or has a material financial interest
may be void or voidable. However, the MGCL provides that any such contract or
transaction will not be void or voidable if (i) it is authorized, approved or
ratified, after disclosure of, or with knowledge of, the common directorship or
interest, by the affirmative vote of a majority of disinterested directors (even
if the disinterested directors constitute less than a quorum) or by the
affirmative vote of a majority of the votes cast by disinterested stockholders
or (ii) it is fair and reasonable to the corporation.
POLICIES WITH RESPECT TO OTHER ACTIVITIES
The Company may, but does not presently intend to, make investments other
than as previously described. The Company makes real property investments only
through the Company and the Operating Partnership, except to the extent
necessary to establish financing partnerships or similar vehicles established
substantially for the benefit of the Company or the Operating Partnership. The
Company has authority to offer its shares of Common Stock or other equity or
debt securities of the Operating Partnership in exchange for property and to
repurchase or otherwise reacquire its shares of Common Stock or any other
securities and may engage in such activities in the future. Similarly, the
Operating Partnership may offer additional Units or other equity interests in
the Operating Partnership that are exchangeable for shares of Common Stock or
Preferred Stock in exchange for property. The Operating Partnership also may
make loans to joint ventures in which it may participate in the future. Neither
the Company nor the Operating Partnership will engage in trading, underwriting
or the agency distribution or sale of securities of other issuers.
POLICIES WITH RESPECT TO INVESTMENT ADVISORY SERVICES
Uninvested commitments of clients of AMB Investment Management which
existed upon consummation of the IPO, any additional amounts committed by these
clients and any amounts committed by investors which become clients of AMB
Investment Management will be invested only in properties in which the Company
also invests, on a co-investment basis. See "Business and Operating
Strategies -- AMB Investment Management." AMB Investment Management may also
assume management of assets already owned by existing or new clients and manage
such assets on a separate account basis. To the extent that transactions arise
between the Company and a client of AMB Investment Management, it is anticipated
that AMB Investment Management generally will not exercise decision-making
authority on behalf of the client, and the client will act through its own
representatives. Similarly, it is expected that the terms of co-investment
arrangements between the Company and clients of AMB Investment Management will
be negotiated on an arm's-length basis at the time the applicable investment
management agreement is entered into, with any subsequent modifications thereto
to be likewise entered into on the basis of arm's-length negotiations with the
client or another representative designated thereby at the time of such
negotiation.
OTHER POLICIES
The Company operates in a manner that does not subject it to regulation
under the Investment Company Act of 1940. The Board of Directors has the
authority, without stockholder approval, to issue additional shares of Common
Stock or other securities and to repurchase or otherwise reacquire shares of
Common Stock or any other securities in the open market or otherwise and may
engage in such activities in the future. The Company may, under certain
circumstances, purchase shares of Common Stock or Series A Preferred Stock in
the open market, if such purchases are approved by the Board of Directors. The
Board of Directors has no present intention of causing the Company to repurchase
any of the shares of Common Stock or Series A Preferred Stock, and any such
action would be taken only in conformity with applicable Federal and state laws
and the requirements for qualifying as a REIT under the Code and the Treasury
Regulations. The Company expects to issue shares of Common Stock to holders of
Units upon exercise of their exchange rights set forth in the Partnership
Agreement. The Company may in the future make loans to joint ventures in which
it
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<PAGE> 78
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 purpose 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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<PAGE> 79
MANAGEMENT
The Company's Board of Directors is comprised currently of the nine
directors included in the table below. Directors are elected on an annual basis.
The collective background and experience of the directors provide the Company
with advice and guidance in a number of areas, including corporate governance,
strategic planning, capital markets and property acquisition and management.
The Company believes that an independent Board of Directors, whose
interests are aligned with those of the stockholders, is essential to the
creation of long-term stockholder value. 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 who became directors upon
consummation of the IPO waived cash retainers and instead received options to
purchase shares of Common Stock at the initial public offering price.
The following table lists the Executive Officers and directors of the
Company:
<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
Luis A. Belmonte 57 Managing Director, Industrial Division
S. Davis Carniglia 47 Managing Director and Chief Financial Officer
John H. Diserens 44 Managing Director, Retail Division
Bruce H. Freedman 49 Managing Director, Industrial Division
David S. Fries 34 Managing Director and General Counsel
Jean Collier Hurley 58 Managing Director, Investor Relations and Corporate
Communications
Craig A. Severance 46 Managing Director, Acquisitions
Daniel H. Case, III 40 Director
Robert H. Edelstein, Ph.D. 54 Director
Lynn M. Sedway 56 Director
Jeffrey L. Skelton, Ph.D. 48 Director
Thomas W. Tusher 57 Director
Caryl B. Welborn 47 Director
</TABLE>
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.
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.
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
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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.
Daniel H. Case, III is a Director of the Company and is President and Chief
Executive Officer of the Hambrecht & Quist Group. After joining Hambrecht &
Quist in 1981, he co-founded the business which became Hambrecht & Quist
Guaranty Finance in 1983. Mr. Case was named co-director of mergers and
acquisitions of Corporate Finance in 1986, and became a managing director and
head of Investment Banking in December 1987. In October 1991, he was elected to
the board of directors of Hambrecht & Quist. In April 1992, he was elected
President and Co-Chief Executive Officer. He became Chief Executive Officer in
October 1994. Mr. Case also serves as a director of Rational Software
Corporation, Electronic Arts, the Securities Industry Association, and the Bay
Area Council. Mr. Case was named as one of the "100 Global Leaders for Tomorrow"
by the World Economics Forum and one of the "Top 50 Innovators in Technology" by
Time Magazine. He has a bachelor's degree in economics and public policy from
Princeton University and studied management at the University of Oxford as a
Rhodes Scholar.
Robert H. Edelstein, Ph.D. is a Director of the Company and was an
independent director of CIF. He has been a director of TIS Mortgage Investment
Company, a NYSE-listed mortgage REIT, since 1988, and has been the Chairholder
of Professorship of Real Estate Development and Co-Chairman of the Fisher Center
for Real Estate and Urban Economics at the Haas School of Business, University
of California at Berkeley since 1985. Prior to joining the faculty at Berkeley
in 1985, Dr. Edelstein was a Professor of Finance at The Wharton School and
Director of the Real Estate Center for 15 years. He is active in research and
consulting in urban real estate economics, real estate finance, real estate
property taxation, environmental economics, energy economics, public finance and
urban financial problems. Dr. Edelstein received his bachelor's, master's and
Ph.D. degrees in economics, with specialization fields in statistics and
econometrics, from Harvard University. He is President of The American Real
Estate and Urban Economics Association, an ex officio member of Lambda Alpha
(honorary real estate association), the Urban Land Institute and The Society for
Real Estate Finance.
Lynn M. Sedway is a Director of the Company and was an independent director
of CIF. She is principal and founder of the Sedway Group, a 20-year old real
estate economics firm headquartered in San Francisco. Ms. Sedway is recognized
throughout the real estate investment industry as an expert in urban and real
estate economics. She currently directs and has ultimate responsibility for the
activities of her firm, including market analysis, property valuation,
development and redevelopment analysis, acquisition and disposition strategies,
and public policy issues. Ms. Sedway received her bachelor's degree in economics
at the University of Michigan and an M.B.A. degree from the University of
California at Berkeley, Graduate School of Business, where she is also a guest
lecturer. She is a trustee of the Urban Land Institute, the Policy Advisory
Board of the Fisher Center for Real Estate and Urban Economics, and the San
Francisco Chamber of Commerce.
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Ms. Sedway is a member of The International Council of Shopping Centers and the
American Society of Real Estate Counselors.
Jeffrey L. Skelton, Ph.D. is a Director of the Company and was an
independent director of VAF. He is President and Chief Executive Officer of
Symphony Asset Management, the asset management subsidiary of BARRA, Inc., a
financial software company. Prior to joining BARRA, Inc. in 1994, he was with
Wells Fargo Nikko Investment Advisors from January 1991 to December 1993, where
he served in a variety of capacities, including Chief Research Officer, Vice
Chairman, Co-Chief Investment Officer and Chief Executive of Wells Fargo Nikko
Investment Advisors Limited in London. Dr. Skelton has a Ph.D. in Mathematical
Economics and Finance and an M.B.A. degree from the University of Chicago, and
was an Assistant Professor of Finance at the University of California at
Berkeley, Graduate School of Business. He is a frequent speaker in professional
forums and is the author of a number of works published in academic and
professional journals.
Thomas W. Tusher is a Director of the Company and was an independent
director of VAF. He was President and Chief Operating Officer of Levi Strauss &
Co. from 1984 through 1996. Previously, he was President of Levi Strauss
International from 1976 to 1984. Mr. Tusher began his career at Levi Strauss in
1969. He was a director of the publicly-held Levi Strauss & Co. from 1978 to
1985, and was named a director of the privately-controlled Levi Strauss & Co. in
1989. Prior to joining Levi Strauss & Co., Mr. Tusher was with Colgate Palmolive
from 1965 to 1969. Mr. Tusher has a bachelor's degree from the University of
California at Berkeley and an M.B.A. degree from the Graduate School of Business
at Stanford University. He is a director of Cakebread Cellars and Dash America
(Pearl Izumi). He is a former director of Great Western Financial Corporation
and the San Francisco Chamber of Commerce. He is also Chairman Emeritus and a
member of the advisory board of the Walter A. Haas School of Business at the
University of California at Berkeley. Mr. Tusher is also a director of the World
Wildlife Fund and a member of the Advisory Council of the Graduate School of
Business at Stanford University.
Caryl B. Welborn is a Director of the Company and was an independent
director of VAF. She is a commercial real estate attorney in San Francisco, and
prior to starting her own firm in 1995, she was a partner with Morrison &
Foerster LLP for 13 years. Ms. Welborn has a bachelor's degree from Stanford
University and a J.D. degree from the Law School at the University of California
at Los Angeles. She is a program chair and frequent lecturer on real estate
issues nationally, and has published numerous articles in professional
publications. Ms. Welborn is an officer and board member of the American College
of Real Estate Lawyers. She has held leadership positions in the American Bar
Association's Real Property, Probate and Trust Section. In addition, Ms. Welborn
has acted as an American Bar Association advisor regarding revision of the
Uniform Partnership Act.
COMMITTEES OF THE BOARD OF DIRECTORS
Audit Committee. The Audit Committee consists of three Independent
Directors, Ms. Welborn, the Chairman, and Messrs. Edelstein and Skelton. The
Audit Committee makes recommendations concerning the engagement of independent
public accountants, reviews with the independent public accountants the plans
and results of the audit engagement, approves professional services provided by
the independent public accountants, reviews the independence of the independent
public accountants, considers the range of audit and non-audit fees and reviews
the adequacy of the Company's internal accounting controls.
Executive Committee. The Executive Committee consists of Mr. Case, the
Chairman, Messrs. Skelton, Moghadam and Burke and Ms. Sedway. The Executive
Committee has the authority within certain parameters to acquire, dispose of and
finance investments for the Company (including the issuance by the Operating
Partnership of additional Units or other equity interests) and approve the
execution of contracts and agreements, including those related to the borrowing
of money by the Company, and generally exercises all other powers of the Board
of Directors except as prohibited by law.
Compensation Committee. The Compensation Committee consists of three
Independent Directors, Mr. Tusher, the Chairman, Mr. Skelton and Ms. Sedway. The
Compensation Committee determines compensation for the Company's executive
officers, and reviews and makes recommendations concerning
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proposals by management with respect to compensation, bonus, employment
agreements and other benefits and policies respecting such matters for the
executive officers of the Company.
The Board of Directors does not have a nominating committee; rather, the
entire Board of Directors performs the function of such a committee.
COMPENSATION OF THE BOARD OF DIRECTORS
In lieu of cash compensation, each Independent Director receives, upon
initial election to the Board of Directors and upon each election thereafter,
options to purchase Common Stock, at an exercise price equal to the fair market
value at the date of grant (in the case of options granted upon consummation of
the IPO, at the price to the public in the IPO). All of such options vest
immediately upon grant. The initial grant of such options upon initial election
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 -- 2,800 -- 225,000 --
Hamid R. Moghadam
President and Chief Executive
Officer............................ 40,362 -- (3) -- 500,000 --
Douglas D. Abbey
Chairman of Investment Committee... 21,389 -- 2,800 -- 250,000 --
S. Davis Carniglia
Chief Financial Officer............ 21,389 -- 2,800 -- 130,000 --
Craig A. Severance
Managing Director, Acquisitions.... 21,389 -- 2,800 -- 130,000 --
John H. Diserens
Managing Director, Retail
Division........................... 21,389 -- 2,800 -- 130,000 --
</TABLE>
- ---------------
(1) Represents the actual amount of compensation paid from November 26, 1997
through December 31, 1997. Annual base compensation paid in 1997 was
$150,000 for Mr. Burke, $400,000 for Mr. Moghadam and $200,000 for each of
Messrs. Abbey, Carniglia, Severance and Diserens.
(2) The amount of any such bonus has been determined by the Compensation
Committee of the Board of Directors. Pursuant to the executive's employment
agreement, at the executive's option such executive may receive restricted
shares of common stock, or options to purchase common stock, in lieu of any
cash bonus, the number of such shares or options to be determined as set
forth in such employee's employment agreement. See "-- Employment
Agreements."
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(3) The aggregate amount of the perquisites and other personal benefits,
securities or property for Mr. Moghadam is less than the lesser of either
$50,000 or 10% of his total salary and bonus paid in 1997.
(4) Options to purchase an aggregate of 3,111,250 shares of Common Stock (net of
forfeitures) have been granted to directors, executive officers and other
employees of the Company as of December 31, 1997. Such options vest pro rata
in annual installments over a four-year period. An additional 2,638,750
shares of Common Stock are reserved for issuance under the Stock Incentive
Plan.
OPTION GRANTS IN LAST FISCAL YEAR
The following table shows certain information relating to options to
purchase shares of Common Stock granted to the Named Executive Officers during
1997.
<TABLE>
<CAPTION>
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.
No options were exercised by the Named Executive Officers in 1997.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS AT OPTIONS AT
DECEMBER 31, 1997 DECEMBER 31, 1997
---------------------------- -------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE(1)
---- ----------- ------------- ----------- ----------------
<S> <C> <C> <C> <C>
T. Robert Burke......................... -- 225,000 -- $ 928,125
Hamid R. Moghadam....................... -- 500,000 -- 2,062,500
Douglas D. Abbey........................ -- 250,000 -- 1,031,250
S. Davis Carniglia...................... -- 130,000 -- 536,250
Craig A. Severance...................... -- 130,000 -- 536,250
John H. Diserens........................ -- 130,000 -- 536,250
</TABLE>
- ---------------
(1) Based on a price per share of Common Stock of $25.125, the last reported
sales price per share on the New York Stock Exchange on December 31, 1997,
less the exercise price of in-the-money options.
EMPLOYMENT AGREEMENTS
Each of the persons who served as an Executive Officer at the time of the
IPO entered into an employment agreement with the Company. The employment
agreements have an initial term of one year (three years in the case of Mr.
Moghadam) and are subject to automatic one-year extensions following the
expiration of the initial term. On July 14, 1998, the Compensation Committee
elected not to extend the employment agreement for each such Executive Officer
at the expiration of the initial term. Upon the
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termination of the employment agreements, all such Executive Officers will be
employed on an at-will basis on terms to be determined by the Compensation
Committee. The Company presently expects to adopt a policy or enter into
agreements which will provide such Executive Officers with certain benefits in
the event of a change of control of the Company. Prior to termination of the
employment agreements, such agreements will continue to provide for annual base
compensation with the amount of any bonus to be determined by the Compensation
Committee, based on certain performance targets, up to 150% of the applicable
annual base compensation in the case of Messrs. Burke, Abbey and Moghadam, and
100% of the applicable annual base compensation in the case of Messrs.
Carniglia, Diserens and Severance. The performance targets to be used to
determine executive bonuses for the calendar year ending December 31, 1998 have
not been finalized by the Compensation Committee. However, such performance
targets are expected to include operating results and acquisition activity. The
employment agreements provide that the executive has the right to elect to
receive restricted stock or stock options in lieu of such executive's bonus. The
number of shares of restricted stock to be so issued will equal 125% of the
amount of the bonus, divided by the then current market price of the stock. The
number of options to purchase shares of Common Stock so granted will be
determined based on 150% of the amount of the bonus and the current market price
of the Common Stock, using the "Black-Scholes" option-pricing methodology. Such
restricted stock and options to purchase Common Stock will vest ratably over a
three-year period. The employment agreements also provide that the executive
will receive certain insurance benefits and be able to participate in the
Company's employee benefit plans, including the Stock Incentive Plan (as defined
below), and that, in the event of the executive's death, the executive's estate
will receive certain compensation payments. The executive also is entitled to
receive severance during the term of the employment agreement and for one year
thereafter in the event of a termination of the executive's employment resulting
from a disability, by the Company without "cause" or by the executive for "good
reason." "Cause" means (i) gross negligence or willful misconduct, (ii) an
uncured breach of any of the employee's material duties under the employment
agreement, (iii) fraud or other conduct against the material best interests of
the Company or (iv) a conviction of a felony if such conviction has a material
adverse effect on the Company. "Good reason" means (a) a substantial adverse
change in the nature or scope of the employee's responsibilities and authority
under the employment agreement or (b) an uncured breach by the Company of any of
its material obligations under the employment agreement. Severance benefits
include base compensation at the amounts provided in the employment agreement
and bonus based on the most recent amount paid, as well as certain continuing
insurance and other benefits.
Such employment agreements also contain a non-competition agreement
pursuant to which each executive agrees that he or she will not engage in any
activities, directly or indirectly, in respect of commercial real estate, and
will not make any investment in respect of industrial or retail real estate,
other than through ownership of not more than 5% of the outstanding shares of a
public company engaged in such activities and through existing investments as
described under the caption "Certain Relationships and Related Transactions."
Such restrictions apply during the term of the employment agreements and for a
one-year period thereafter. Upon termination of the employment agreements, the
Executive Officers subject to such employment agreements will enter into
non-competition agreements on the same terms as the non-competition provisions
contained in the employment agreements.
STOCK INCENTIVE PLAN
The Company adopted the Stock Option and Incentive Plan (the "Stock
Incentive Plan") to (i) enable executive officers, employees and directors of
the Company, the Operating Partnership and AMB Investment Management to
participate in the ownership of the Company, (ii) attract and retain executive
officers, other key employees (those employees which from time-to-time are
recognized for exceptional contributions to the Company and its subsidiaries,
including the Operating Partnership) and directors of the Company, the Operating
Partnership and AMB Investment Management and (iii) provide incentives to such
persons to maximize the Company's performance and its cash flow available for
distribution. The Stock Incentive Plan provides for the award to such officers
and key employees (subject to the Ownership Limit, or such other limit as
provided in the Company's 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
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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 shares of Common
Stock (net of forfeitures). Such options have a ten-year term and vest pro rata
in annual installments over a four-year period with respect to initial grants.
There is no limit on the number of awards that may be granted to any one
individual so long as the (i) aggregate fair market value (determined at the
time of grant) of shares with respect to which an incentive stock option is
first exercisable by an optionee during any calendar year cannot exceed
$100,000, (ii) grant does not violate the Ownership Limit or cause the Company
to fail to qualify as a REIT for Federal income tax purposes and (iii) maximum
number of shares of Common Stock for which stock options and stock appreciation
rights may be issued during any fiscal year to any participant in the Stock
Incentive Plan shall not exceed 1,000,000. See "Description of Capital Stock --
Restrictions on Ownership and Transfer." The Company plans to limit future
grants under the Stock Incentive Plan to the Company's directors and officers
and a limited number of other employees.
Restricted Stock. Restricted stock may be sold to participants at various
prices (but not below par value) and is subject to such restrictions as may be
determined by the Compensation Committee. Restricted stock typically may be
repurchased by the Company at the original price if certain conditions or
restrictions are removed or expire. Purchasers of restricted stock will have
voting rights and receive distributions prior to the time when the restrictions
lapse. To date the Company has granted 5,712 restricted shares of Common Stock.
The Company has no present plans to grant restricted shares of Common Stock
other than with respect to additional shares which may be issued to, and at the
option of, certain employees in lieu of annual cash bonus compensation.
Administration of the Stock Incentive Plan. The Stock Incentive Plan is
administered by the Board of Directors and/or the Compensation Committee. No
person is eligible to serve on the Compensation Committee unless such person is
an Independent Director. The Committee has complete discretion to determine
(subject to (i) the Ownership Limit contained in the 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 exercise price of the
shares of Common Stock subject to each option shall be set by the Compensation
Committee; provided, however, that the exercise price per share of an option
shall be not less than 100% of the fair market value of such shares on the date
such option is granted; provided, further, that, in the case of an incentive
stock option, the exercise price per share shall not be less than 110% of the
fair market value of such shares on the date such option is granted to an
individual
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then owning (within the meaning of Section 424(d) of the Code) more than 10% of
the total combined voting power of all classes of stock of the Company, any
subsidiary or any parent corporation ("greater than 10% stockholders").
Non-Assignability. Options may be transferred only by will or by the laws
of descent and distribution. During a participant's lifetime, options are
exercisable only by the participant.
Terms and Exercisability of Options. Unless otherwise determined by the
Board of Directors or the Compensation Committee, all options granted under the
Stock Incentive Plan are subject to the following conditions: (i) options will
be exercisable in installments, on a cumulative basis, at the rate of
thirty-three and one-third percent (33 1/3%) each year beginning on the first
anniversary of the date of the grant of the option, until the options expire or
are terminated (other than options granted at the time of the IPO, which vest
ratably over four years) and (ii) following an optionee's termination of
employment, the optionee shall have the right to exercise any outstanding vested
options for a specified period.
To the extent the aggregate fair market value of stock with respect to
which "incentive stock options" (within the meaning of Section 422 of the Code,
but without regard to Section 422(d) of the Code) are exercisable for the first
time by an optionee during any calendar year exceeds $100,000, such options
shall be taxed as non-qualified stock options. The rule set forth in the
preceding sentence shall be applied by taking options into account in the order
in which they were granted. For this purpose, the fair market value of stock
shall be determined as of the time that the option with respect to such stock is
granted.
Options are exercisable in whole or in part by written notice to the
Company, specifying the number of shares being purchased and accompanied by
payment of the purchase price for such shares. The option price may be paid: (i)
in cash or by certified or cashier's check payable to the order of the Company,
(ii) by delivery of shares of Common Stock already owned by, and in the
possession of, the optionee or (iii) if authorized by the Board of Directors or
the Compensation Committee or if specified in the option agreement for the
option being exercised, by a recourse promissory note made by the optionee in
favor of the Company or through installment payments to the Company.
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.
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Amendments to the Stock Incentive Plan. The Board of Directors may at any
time suspend or terminate the Stock Incentive Plan. The Board of Directors or
Compensation Committee may also at any time amend or revise the terms of the
Stock Incentive Plan; provided that no such amendment or revision shall, unless
appropriate stockholder approval of such amendment or revision is obtained, (i)
increase the maximum number of shares which may be acquired pursuant to options
granted under the Stock Incentive Plan (except for adjustments as described in
the foregoing paragraph) or (ii) change the minimum purchase price required
under the Stock Incentive Plan.
Termination. The Stock Incentive Plan will terminate on December 31, 2007,
unless sooner terminated by the Board of Directors.
Registration Statement on Form S-8. The shares of Common Stock underlying
options granted under the Stock Incentive Plan and restricted shares of Common
Stock are subject to an effective Registration Statement on Form S-8.
401(k) PLAN
Effective November 26, 1997, the Company established its Section 401(k)
Savings/Retirement Plan (the "401(k) Plan") to cover eligible employees of the
Company, the Operating Partnership and any designated affiliate. The 401(k) Plan
permits eligible employees of the Company to defer up to 10% of their annual
compensation, subject to certain limitations imposed by the Code. The employees'
elective deferrals are immediately vested and non-forfeitable upon contributions
to the 401(k) Plan. The Company currently makes matching contributions to the
401(k) Plan in an amount equal to 50% of the first 3.5% of annual compensation
deferred by each employee; however, it has reserved the right to make greater
matching contributions or discretionary profit sharing contributions in the
future. Participants vest immediately in the matching contributions by the
Company. Discretionary contributions are subject to three-year vesting whereby
100% vests after the third year. Employees of the Company are eligible to
participate in the 401(k) Plan if they meet certain requirements concerning
minimum period of credited service. The Company's contribution to the 401(k)
Plan for the period ended December 31, 1997 was $144,971. The 401(k) Plan
qualifies under 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 enters into indemnification agreements with each of its
Executive Officers and directors. The indemnification agreements require, among
other matters, that the Company indemnify its Executive Officers and directors
to the fullest extent permitted by law and reimburse the Executive Officers and
directors for all related expenses as incurred, subject to return if it is
subsequently determined that indemnification is not permitted. Under the
agreements, the Company must also indemnify and reimburse all expenses as
incurred by Executive Officers and directors seeking to enforce their rights
under the indemnification agreements and may cover executive officers and
directors under the Company's directors' and officers' liability insurance.
Although the form of indemnification agreement offers substantially the same
scope of coverage afforded by law, it provides greater assurance to directors
and Executive Officers that indemnification will be available, because, as a
contract, it cannot be modified unilaterally in the future by the Board of
Directors or the stockholders to eliminate the rights it provides.
The Company's officers and directors are also indemnified under the MGCL,
the Articles of Incorporation and the Partnership Agreement against certain
liabilities. See "Certain Provisions of Maryland Law and of the Company's
Articles of Incorporation and Bylaws -- Limitation of Directors' and Officers'
Liability".
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has engaged in the following transactions and relationships
with certain of the Executive Officers, directors and persons who hold more than
5% of the outstanding shares of Common Stock.
FORMATION TRANSACTIONS
In connection with the Formation Transactions, CIF, VAF and the Company's
predecessor, AMB, effected a series of mergers pursuant to which such entities
merged into the Company with the institutional stockholders of CIF and VAF and
the Company's executive officers (the former stockholders of AMB), receiving an
aggregate of 4,746,624 shares of Common Stock, with a total value at the time of
the IPO of $99.7 million, and the right to receive in the Company's second year
of operation up to 4,241,803 limited partnership Units (the "Performance
Units"). The issuance of such Units is dependent upon the future trading price
of and dividends on the shares of Common Stock. See "Description of Certain
Provisions of the Partnership Agreement of the Operating
Partnership -- Performance Units." In addition, such executive officers received
the right to receive certain investment management fees earned by AMB Investment
Management, subject to certain limitations. Through May 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 ("Ameritech"), City
and County of San Francisco Employees' Retirement System ("CCSFERS") and
Southern Company System Master Retirement Trust ("Southern Company"),
contributed certain real property interests to the Company. In exchange for such
contribution of properties, Ameritech, CCSFERS and Southern Company received
12,441,580, 6,772,640 and 8,032,415 shares of Common Stock, respectively, with a
total value at the time of the IPO of $626.7 million. See "Principal
Stockholders."
In connection with consummation of the Formation Transactions, the Company
assumed the $4.0 million revolving credit facility of AMB, of which
approximately $1.1 million was outstanding upon completion of the Formation
Transactions, relieving three of the Company's Executive Officers, Messrs.
Abbey, Moghadam and Burke, of their respective obligations with respect to the
partial guaranty of such indebtedness. The proceeds of such indebtedness were
used by AMB to acquire certain assets historically used in AMB's operations from
AMB Investments, Inc. ("AMBI"), an entity owned equally by Messrs. Abbey,
Moghadam and Burke. The Company also assumed a $791,925 note payable of AMBI to
WPF as consideration for the transfer to the Company of AMBI's general partner
interest in WPF (which the Company believed had a value equal to or greater than
the face amount of such note at the time such note payable was assumed).
OTHER RELATED TRANSACTIONS
During 1990, 1991, 1994, 1995 and 1996, Craig A. Severance, John H.
Diserens, S. Davis Carniglia, Jean C. Hurley and Bruce H. Freedman issued notes
to AMB in consideration of the acquisition of shares of AMB common stock in the
principal amounts of $189,472, $243,866, $132,237, $342,806 and $307,071,
respectively. The notes bore interest at an annual rate of prime plus 1.0%. The
principal amount of the notes and accrued interest thereon were repaid in full
by all stockholders prior to the IPO.
In January 1993, AMBI, AMB, AMB Corporate Real Estate Advisors, Inc.
("AMBCREA"), AMB Development L.P., AMB Development, Inc. and AMB Institutional
Housing Partners entered into an agreement for the purpose of the parties
thereto to work together to accomplish separate business purposes while sharing
certain support and other resources. Under the Intercompany Agreement, each
party to the agreement (each, an "AMB Intercompany Party") is permitted to use
the term "AMB" as a part of its name. Each AMB Intercompany Party also agreed,
among other things, to do business in a specified aspect of real estate and
finance; to use its best efforts to refer business opportunities outside of its
own line of business to other AMB Intercompany Parties; to provide intercompany
loans; and to utilize personnel of another AMB Intercompany Party for a fee. In
addition, under the Intercompany Agreement, AMBI agreed to: (i) provide common
business services, resources and support, including employees, benefits,
services contracts and financial management and reporting to each AMB
Intercompany Party; (ii) purchase all fixed assets and rent
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<PAGE> 90
them to the AMB Intercompany Parties for a fee; (iii) act as lessee for office
space for each AMB Intercompany Party; (iv) employ all employees of each AMB
Intercompany Party, fix such employees' salaries, bonuses and benefits, and
charge such costs to the appropriate AMB Intercompany Party; and (v) pay for the
direct and indirect costs of operation of each AMB Intercompany Party and charge
each AMB Intercompany Party its allocated share. The total amount paid to AMBI
by AMB during the years ended December 31, 1994, 1995, 1996 and 1997 was
$9,940,762, $13,564,178, $16,842,615 and $19,358,000, respectively, which
equaled the expenses incurred by AMBI allocable to AMB for each such year.
As part of the Formation Transactions, the Company acquired AMBI's assets
(other than its leasehold interest for office space and certain office
equipment) and employed the employees utilized in its business, and all other
AMBI employees were transferred to AMBCREA. Accordingly, upon consummation of
the IPO, the Intercompany Agreement was modified so that it applies only to the
office space and certain office equipment leased by AMBI, which is used by the
Company, the Operating Partnership and AMB Investment Management, respectively,
for fees equal to an allocation of AMBI's cost thereof. AMB Institutional
Housing Partners, AMB Development, Inc. and AMB Development L.P. are continuing
to use the name "AMB" pursuant to royalty-free license arrangements with the
Company. See "-- Conflicts of Interest."
CONFLICTS OF INTEREST
The Executive Officers and directors of the Company may be subject to a
number of conflicts of interest. See "Risk Factors -- Conflicts of Interest" and
"Policies with Respect to Certain Activities -- Conflict of Interest Policies."
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of shares of Common Stock as of May 31, 1998 by (i) each director,
(ii) each Executive Officer, (iii) all directors and Executive Officers of the
Company as a group and (iv) each person or entity which is the beneficial owner
of 5% or more of the outstanding shares of Common Stock. Except as indicated
below, all of such shares of Common Stock are owned directly, and the indicated
person or entity has sole voting and investment power. As of May 31, 1998, none
of the Company's executive officers and directors or its 5% stockholders owned
any Units of the Operating Partnership.
<TABLE>
<CAPTION>
PERCENTAGE OF
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................................ 1,397,477 1.6%
Douglas D. Abbey................................. 1,125,245 1.3%
S. Davis Carniglia............................... 224,377 *
Craig A. Severance............................... 331,364 *
John H. Diserens................................. 284,182 *
Daniel H. Case, III.............................. 10,000 *
Robert H. Edelstein, Ph.D........................ 952 *
Lynn M. Sedway................................... 3,152 *
Jeffrey L. Skelton, Ph.D......................... 952 *
Thomas W. Tusher................................. 25,952 *
Caryl B. Welborn................................. 7,952 *
Ameritech Pension Trust(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 Executive Officers as a group
(16 persons)................................... 4,619,601 5.4%
</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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SERIES A PREFERRED STOCK
The summary of the terms of the Company's Preferred Stock and Series A
Preferred Stock set forth below does not purport to be complete and is subject
to and qualified in its entirety by reference to the Charter of the Company (the
"Charter"), including the Articles Supplementary establishing the terms of the
Series A Preferred Stock (the "Articles Supplementary"), the Bylaws of the
Company and the MGCL. Copies of the Charter, inclusive of the Articles
Supplementary, and the Bylaws have been included or incorporated by reference as
exhibits to the Registration Statement of which this Prospectus is a part and
may be obtained as described under "Available Information."
PREFERRED STOCK GENERALLY
The Charter provides that the Company is authorized to issue 500,000,000
shares of Common Stock and 100,000,000 shares of Preferred Stock of which
4,600,000 shares are designated as Series A Preferred Stock. As of June 30,
1998, 85,874,513 shares of Common Stock and no shares of Preferred Stock were
issued and outstanding.
The Charter authorizes the Board of Directors to issue 100 million shares
of Preferred Stock, to classify any unissued shares of Preferred Stock and to
reclassify any previously classified but unissued shares of Preferred Stock of
any class from time to time, in one or more classes, as authorized by the Board
of Directors. Prior to issuance of shares of Preferred Stock of each class the
Board of Directors is required by Maryland law and the Charter to set the terms,
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends or other distributions, qualifications and terms or
conditions of redemption for each such class. Thus, the Board, without
stockholder approval, could authorize the issuance of shares of Preferred Stock
with terms and conditions which could have the effect of delaying, deferring or
preventing a transaction or a change in control of the Company that might
involve a premium price for holders of shares of Preferred Stock or shares of
Common Stock or otherwise be in the stockholders' best interest, or that could
adversely affect the rights and powers of the Series A Preferred Stock. See
"-- Power to Issue Additional Common Stock and Preferred Stock" below.
SERIES A PREFERRED STOCK GENERALLY
The Board of Directors of the Company has adopted Articles Supplementary
establishing the terms of the Series A Preferred Stock as a class of Preferred
Stock, designated as the % Series A Cumulative Redeemable Preferred Stock.
When issued, the Series A Preferred Stock will be validly issued, fully paid and
nonassessable.
In connection with the Offering, the Company, in accordance with the terms
of the Partnership Agreement, will contribute or otherwise transfer the net
proceeds of the sale of the Series A Preferred Stock to the Operating
Partnership and the Operating Partnership will issue to the Company %
Series A Cumulative Redeemable Preferred Units (the "Series A Preferred Units")
that mirror the rights, preferences and other terms of the Series A Preferred
Stock. The Operating Partnership will be required to make all required
distributions on such Series A Preferred Units prior to any distribution of cash
or assets to the holders of any other Units or any other equity interests in the
Operating Partnership, except for any other series of Preference Units ranking
on a parity with such Series A Preferred Units as to dividends or voluntary or
involuntary liquidation, dissolution or winding up of the Operating Partnership.
Upon consummation of the Offering, the Operating Partnership will have no
Preference Units, other than the Series A Preferred Units, outstanding or any
other equity interests ranking prior to any other Units or any other equity
interests in the Operating Partnership.
Application has been made to list the Series A Preferred Stock on the NYSE,
subject to official notice of issuance. If so approved, trading of the Series A
Preferred Stock on the NYSE is expected to commence within a 30-day period after
the date of initial delivery of the Series A Preferred Stock. See
"Underwriters."
RANKING
The Series A Preferred Stock will rank, with respect to dividends and upon
voluntary or involuntary liquidation, dissolution or winding up of the Company,
(a) senior to all classes or series of Common Stock and to all equity securities
of the Company the terms of which provide that such equity securities shall rank
junior to such Series A Preferred Stock; (b) on a parity with all equity
securities issued by the Company other than those referred
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to in clauses (a) and (c); and (c) junior to all equity securities issued by the
Company which rank senior to the Series A Preferred Stock. The term "equity
securities" does not include convertible debt securities.
DIVIDENDS
Holders of the Series A Preferred Stock shall be entitled to receive, when
and as authorized by the Board of Directors out of funds legally available
therefor, cumulative preferential cash dividends at the rate of % of the
liquidation preference per annum (equivalent to $ per annum per share).
Dividends on the Series A Preferred Stock offered hereby shall accumulate on a
daily basis, computed on the basis of a 360-day year consisting of twelve 30-day
months, and be cumulative from the date of original issuance and shall be
payable quarterly in equal amounts in arrears on the 15th day of each January,
April, July and October, or, if not a Business Day, the next succeeding Business
Day (each, a "Dividend Payment Date"), commencing on October 15, 1998. Dividends
will be payable to holders of record as they appear in the share records of the
Company at the close of business on the applicable record date (each a "Dividend
Record Date"), which shall be a date designated by the Board of Directors of the
Company for the payment of dividends that is not more than 30 nor less than 10
days prior to the applicable payment date. Any dividend payable on the Series A
Preferred Stock for any portion of a dividend period shall be prorated and
computed on the basis of a 360-day year of twelve 30-day months.
No dividends on the Series A Preferred Stock shall be authorized by the
Board of Directors of the Company or be paid or set apart for payment by the
Company at such time as the terms and provisions of any agreement of the
Company, including any agreement relating to its indebtedness, prohibits such
authorization, payment or setting apart for payment or provides that such
authorization, payment or setting apart for payment would constitute a breach
thereof or a default thereunder, or if such authorization or payment shall be
restricted or prohibited by law. Covenants in the Company's Credit Facility
provide generally that it may not pay distributions in excess of 95% of FFO in
any year, but such covenants permit the Company, upon certain circumstances, to
pay distributions in an amount necessary to maintain its qualification as a
REIT. The Company does not believe that these covenants will have any adverse
impact on the Company's ability to pay dividends in respect of the Series A
Preferred Stock or in the normal course of business to its stockholders in
amounts necessary to maintain its qualification as a REIT. In addition, the
Charter contains provisions which would prohibit or limit dividends on the
Common Stock in the event that full cumulative dividends are not paid on the
Series A Preferred Stock.
Except as provided below, unless full cumulative dividends on the Series A
Preferred Stock have been or contemporaneously are declared and paid or declared
and a sum sufficient for the payment thereof set apart for payment for all past
dividend periods and the then current dividend period, no dividends (other than
in Common Stock or other equity securities of the Company ranking junior to the
Series A Preferred Stock as to dividends and upon voluntary or involuntary
liquidation, dissolution and winding up of the Company) shall be declared or
paid or set aside for payment or other dividend be declared or made upon the
Common Stock or any other equity securities of the Company ranking as to
distributions or upon voluntary or involuntary liquidation, dissolution or
winding up of the Company junior to or on a parity with the Series A Preferred
Stock, nor shall any Common Stock or any other equity securities of the Company
ranking junior to or on a parity with the Series A Preferred Stock as to
dividends or upon voluntary or involuntary liquidation, dissolution or winding
up of the Company be redeemed, purchased or otherwise acquired for any
consideration (or any monies be paid to or made available for a sinking fund for
the redemption of any such securities) by the Company (except by conversion into
or exchange for other equity securities of the Company ranking junior to the
Series A Preferred Stock as to dividends and upon voluntary or involuntary
liquidation, dissolution and winding up of the Company and pursuant to the
provisions of the Charter providing for limitations on ownership and transfer in
order to ensure that the Company remains qualified as a REIT). When dividends
are not paid in full (or a sum sufficient for such full payment is not so set
apart) upon Series A Preferred Stock and any other equity securities ranking as
to dividends on a parity with the Series A Preferred Stock, all dividends
declared upon Series A Preferred Stock and any other equity securities of the
Company ranking on a parity with the Series A Preferred Stock as to dividends
and upon voluntary or involuntary liquidation, dissolution or winding up of the
Company will be declared pro rata so that the amount of dividends declared per
share of Series A Preferred Stock and each such other equity securities shall in
all cases bear to each other the same ratio that accumulated dividends per share
of Series A Preferred Stock and such other equity securities (which shall not
include any accumulation in respect of unpaid dividends for prior
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dividend periods if such other equity securities do not have a cumulative
dividend) bear to each other. No interest, or sum of money in lieu of interest,
shall be payable in respect of any dividend payment or payments on Series A
Preferred Stock which may be in arrears.
Notwithstanding the foregoing, dividends on the Series A Preferred Stock
will accumulate whether or not restrictions exist in respect thereof, whether or
not there are funds legally available for the payment thereof and whether or not
such dividends are declared. Accumulated but unpaid dividends on the Series A
Preferred Stock will not bear interest and holders of the Series A Preferred
Stock will not be entitled to any dividends in excess of full cumulative
dividends as described above. Any dividend payment made on the Series A
Preferred Stock shall first be credited against the earliest accumulated but
unpaid dividend due with respect to such shares which remains payable.
If the Company properly designates any portion of a dividend as a "capital
gain dividend," a holder's share of such capital gain dividend would be an
amount which bears the same ratio to the total amount of dividends (as
determined for Federal income tax purposes) paid to such holder for the year as
the aggregate amount designated as a capital gain dividend bears to the
aggregate amount of all dividends (as determined for Federal income tax
purposes) paid on all classes of shares of the Company's capital stock for the
year.
LIQUIDATION PREFERENCE
In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Company, the holders of the Series A Preferred Stock will be
entitled to receive out of the assets of the Company legally available for
distribution to its stockholders remaining after payment or provision for
payment of all debts and liabilities of the Company, a liquidation preference,
in cash, of $25.00 per share, plus an amount equal to any accumulated and unpaid
dividends to the date of such payment, before any distribution of assets is made
to holders of Common Stock or any other equity securities that rank junior to
the Series A Preferred Stock as to voluntary or involuntary liquidation. After
payment of the full amount of the liquidating distributions to which they are
entitled, the holders of the Series A Preferred Stock will have no right or
claim to any of the remaining assets of the Company. The consolidation or merger
of the Company with or into any other entity, a merger of another entity with or
into the Company, a statutory share exchange by the Company or the sale, lease,
transfer or conveyance of all or substantially all of the property or business
of the Company shall not be deemed to constitute a liquidation, dissolution or
winding up of the Company.
If, upon any such voluntary or involuntary liquidation, dissolution or
winding up, the assets of the Company are insufficient to make full payment to
holders of the Series A Preferred Stock and the corresponding amounts payable on
all shares of other classes or series of equity securities of the Company
ranking on a parity with the Series A Preferred Stock as to liquidation rights,
then the holders of the Series A Preferred Stock and all other such classes or
series of equity securities will share ratably in any such distribution of
assets in proportion to the full liquidating distributions to which they would
otherwise be respectively entitled. In determining whether a distribution (other
than upon voluntary or involuntary liquidation, dissolution or winding up of the
Company) by dividend, redemption or other acquisition of shares of stock of the
Company or otherwise is permitted under the MGCL, no effect shall be given to
amounts that would be needed, if the Company were to be dissolved at the time of
the distribution, to satisfy the preferential rights upon dissolution of holders
of shares of the Series A Preferred Stock, whose preferential rights upon
dissolution are superior to those receiving the distribution.
OPTIONAL REDEMPTION
The Series A Preferred Stock will not be redeemable prior to , 2003.
On and after , 2003, the Company, at its option upon not less than 30 or
more than 60 days' written notice, may redeem the Series A Preferred Stock, in
whole or from time to time in part, for cash, at a redemption price of $25.00
per share, plus all accumulated and unpaid dividends thereon to the date fixed
for redemption. The redemption price of the Series A Preferred Stock (other than
any portion thereof consisting of accumulated and unpaid dividends) will be
payable solely from the sale proceeds of other equity securities of the Company
and not from any other source. For purposes of the preceding sentence, "equity
securities" means any equity securities (including Common Stock and Preferred
Stock), depositary shares in respect of any of the foregoing, interests,
participations, or other ownership interests (however designated) and any rights
(other than debt securities
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convertible into or exchangeable for equity securities) or options to purchase
any of the foregoing. Holders of shares of Series A Preferred Stock to be
redeemed shall surrender such shares of Series A Preferred Stock at the place
designated in the notice of redemption and shall be entitled to the redemption
price and any accumulated and unpaid dividends payable upon such redemption upon
such surrender. If notice of redemption of any shares of Series A Preferred
Stock has been given and if the funds necessary for such redemption have been
set aside by the Company in trust for the benefit of the holders thereof, then
from and after the redemption date dividends on such shares of Series A
Preferred Stock will cease to accumulate and any such shares of Series A
Preferred Stock will no longer be deemed outstanding and all rights of the
holders thereof will terminate, except the right to receive the redemption price
(including accumulated and unpaid dividends up to the redemption date). If fewer
than all of the outstanding shares of Series A Preferred Stock are to be
redeemed, the shares of Series A Preferred Stock to be redeemed shall be
selected pro rata (as nearly as may be practicable without creating fractional
shares), by lot or by any other equitable method determined by the Company. If
such redemption is to be by lot and, as a result of such redemption, any holder
of shares of Series A Preferred Stock would become a holder of a number of
shares of Series A Preferred Stock in excess of the Ownership Limit because such
holder's shares of Series A Preferred Stock were not redeemed, or were only
redeemed in part, then, except as otherwise provided in the Charter, the Company
will redeem the requisite number of shares of Series A Preferred Stock of such
holder such that no holder will hold in excess of the Ownership Limit subsequent
to such redemption. See "-- Restrictions on Ownership and Transfer."
Notwithstanding the foregoing, unless full cumulative dividends on all
outstanding shares of Series A Preferred Stock shall have been or
contemporaneously are declared and paid or declared and a sum sufficient for the
payment thereof set apart for payment for all past dividend periods and the then
current dividend period, no shares of Series A Preferred Stock shall be redeemed
unless all outstanding shares of Series A Preferred Stock are simultaneously
redeemed; provided, however, that the foregoing shall not prevent the purchase
or acquisition of shares of Series A Preferred Stock pursuant to a purchase or
exchange offer made on the same terms to holders of all outstanding shares of
Series A Preferred Stock. In addition, unless full cumulative dividends on all
outstanding shares of Series A Preferred Stock have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
set apart for payment for all past dividend periods and the then current
dividend period, the Company shall not purchase or otherwise acquire directly or
indirectly any shares of Series A Preferred Stock or any equity securities of
the Company ranking junior to or on a parity with the Series A Preferred Stock
as to dividends or upon voluntary or involuntary liquidation, dissolution or
winding up of the Company (except by conversion into or exchange for equity
securities of the Company ranking junior to the Series A Preferred Stock as to
dividends and upon voluntary or involuntary liquidation, dissolution or winding
up of the Company).
The foregoing provisions shall not prevent the acquisition by the Company
of shares of Series A Preferred Stock pursuant to the provisions of the Articles
Supplementary providing for limitations on ownership and transfer in order to
ensure that the Company remains qualified as a REIT for federal income tax
purposes. See "-- Restrictions on Ownership and Transfer."
Notice of redemption will be given by publication in a newspaper of general
circulation in The City of New York, such publication to be made once a week for
two successive weeks commencing not less than 30 nor more than 60 days' prior to
the redemption date. A similar notice will be mailed by the Company, postage
prepaid, not less than 30 nor more than 60 days' prior to the redemption date,
addressed to the respective holders of record of the Series A Preferred Stock to
be redeemed at their respective addresses as they appear on the share transfer
records of the Company. No failure to give such notice or any defect therein or
in the mailing thereof shall affect the validity of the proceedings for the
redemption of any shares of Series A Preferred Stock except as to the holder to
whom notice was defective or not given. Each notice shall state: (i) the
redemption date; (ii) the redemption price; (iii) the number of shares of Series
A Preferred Stock to be redeemed; (iv) the place or places where the
certificates evidencing shares of Series A Preferred Stock are to be surrendered
for payment of the redemption price; and (v) that dividends on the Series A
Preferred Stock to be redeemed will cease to accumulate on such redemption date.
If fewer than all the shares of Series A Preferred Stock held by any holder are
to be redeemed, the notice mailed to such holder shall also specify the number
of shares of Series A Preferred Stock to be redeemed from such holder.
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The holders of shares of Series A Preferred Stock at the close of business
on a Dividend Record Date will be entitled to receive the dividend payable with
respect to the shares of Series A Preferred Stock held on the corresponding
Dividend Payment Date notwithstanding the redemption thereof between such
Dividend Record Date and the corresponding Dividend Payment Date or the
Company's default in the payment of the dividend due. Except as provided above,
the Company will make no payment or allowance for unpaid dividends, whether or
not in arrears, on the shares of Series A Preferred Stock to be redeemed.
The Series A Preferred Stock will not have a stated maturity and will not
be subject to any sinking fund or mandatory redemption provisions.
VOTING RIGHTS
Holders of the Series A Preferred Stock will not have any voting rights,
except as described below.
In any matter in which the holders of Series A Preferred Stock are entitled
to vote (as expressly provided herein), including any action by written consent,
each share of Series A Preferred Stock shall be entitled to one vote, which may
be directed by the holder thereof (or by any proxy or proxies of such holder).
Whenever dividends on any shares of the Series A Preferred Stock remain
unpaid for six or more quarterly periods (whether or not consecutive) (a
"Preferred Dividend Default"), the holders of the Series A Preferred Stock
(voting as a single class with all other equity securities of the Company
ranking on a parity with the Series A Preferred Stock as to dividends and upon
voluntary or involuntary liquidation, dissolution or winding up of the Company
upon which like voting rights have been conferred and are exercisable ("Parity
Preferred Shares")) will be entitled to vote for the election of two additional
directors of the Company who will be elected to serve for a one-year term (or
until such director's term of office terminates as set forth below). Such
elections shall be held at a special meeting called by the holders of record of
at least 20% of the outstanding Series A Preferred Stock or the holders of
shares of any other series or class of Parity Preferred Shares with respect to
which dividends are so unpaid (unless such request is received less than 90 days
before the date fixed for the next annual or special meeting of stockholders)
or, if the request for a special meeting is received by the Company less than 90
days before the date fixed for the next annual or special meeting of
stockholders, at the next annual or special meeting of stockholders, and at each
subsequent annual meeting of stockholders until all dividends accumulated on the
Series A Preferred Stock for all past dividend periods and the dividend for the
then current dividend period shall have been fully paid or declared and a sum
sufficient for the payment thereof set aside for payment in full.
If and when all accumulated dividends and the dividend for the then current
dividend period on the Series A Preferred Stock shall have been paid in full or
declared by the Company and set aside for payment in full, the holders of Series
A Preferred Stock shall be divested of the voting rights set forth in the
immediately preceding paragraph (subject to revesting in the event of each and
every Preferred Dividend Default) and, if all accumulated dividends and the
dividend for the then current dividend period have been paid in full or declared
by the Company and set aside for payment in full on all other series or classes
of Parity Preferred Shares upon which like voting rights have been conferred and
are exercisable, the term of office of each director so elected shall terminate.
So long as a Preferred Dividend Default shall continue, any vacancy in the
office of a director so elected may be filled by written consent of the director
so elected remaining in office or, if there is no such remaining director, by
vote of holders of a majority of the outstanding Series A Preferred Stock and
any series of Parity Preferred Shares upon which like voting rights have been
conferred and are exercisable (voting as a single class). Any director elected
by the holders of Series A Preferred Stock and any other such Parity Preferred
Shares may be removed at any time with or without cause by the vote of, and
shall not be removed otherwise than by the vote of, the holders of a majority of
the outstanding Series A Preferred Stock when they only have the voting rights
set forth in the immediately preceding paragraph and, when Parity Preferred
Shares are issued and outstanding, by a majority vote of the Series A Preferred
Stock and all series and classes of Parity Preferred Shares upon which like
voting rights have been conferred and are exercisable (voting as a single
class).
So long as any Series A Preferred Stock remain outstanding, the Company
will not, without the affirmative vote or consent of the holders of at least
two-thirds of the Series A Preferred Stock outstanding at the time, given in
person or by proxy, either in writing or at a meeting (the Series A Preferred
Stock voting separately as a class), (i) authorize or create, or increase the
authorized or issued amount of, any class or
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series of stock ranking senior to the Series A Preferred Stock with respect to
payment of dividends or the distribution of assets upon voluntary or involuntary
liquidation, dissolution or winding up or reclassify any authorized stock of the
Company into such shares, or create, authorize or issue any obligation or
security convertible into, exchangeable or exercisable for, or evidencing the
right to purchase, any such stock; or (ii) amend, alter or repeal the provisions
of the Charter, whether by merger or consolidation (each, an "Event") or
otherwise, so as to materially and adversely affect any right, preference,
privilege or voting power of the Series A Preferred Stock or the holders
thereof; provided, however, with respect to the occurrence of any of the Events
set forth in (ii) above, so long as shares of Series A Preferred Stock remain
outstanding with the terms thereof materially unchanged, taking into account
that upon the occurrence of such an Event, the Company may not be the surviving
entity, the occurrence of any such Event shall not be deemed to materially and
adversely affect such rights, preferences, privileges or voting powers of
holders of Series A Preferred Stock; and, provided further, that (x) any
increase in the amount of the authorized Preferred Stock or the creation or
issuance of any other class or series of Preferred Stock, or (y) any increase in
the amount of authorized Series A Preferred Stock or any other class or series
of Preferred Stock, in each case ranking on a parity with or junior to the
Series A Preferred Stock with respect to payment of dividends and the
distribution of assets upon voluntary or involuntary liquidation, dissolution or
winding up, shall not be deemed to materially and adversely affect such rights,
preferences, privileges or voting powers.
The foregoing voting provisions will not apply if, at or prior to the time
when the act with respect to which such vote would otherwise be required shall
be effected, all outstanding shares of Series A Preferred Stock shall have been
redeemed or called for redemption upon proper notice and sufficient funds shall
have been deposited in trust to effect such redemption.
CONVERSION RIGHTS
The Series A Preferred Stock will not be convertible into or exchangeable
for any other property or securities of the Company.
POWER TO ISSUE ADDITIONAL COMMON SHARES AND PREFERRED SHARES
The Company believes that the power of the Board of Directors to issue
additional authorized but unissued Common Stock or Preferred Stock and to
classify or reclassify unissued Common Stock or Preferred Stock and thereafter
to cause the Company to issue such classified or reclassified Common Stock or
Preferred Stock provides the Company with increased flexibility in structuring
possible future financings and acquisitions and in meeting other needs which
might arise. The additional classes or series of Preferred Stock, as well as the
Common Stock, are available for issuance without further action by the Company's
stockholders, unless such action is required by applicable law or the rules of
any stock exchange or automated quotation system on which the Company's
securities may be listed or traded. Although the Board of Directors has no
intention at the present time of doing so, it could authorize the Company to
issue a class or series that could, depending upon the terms of such class or
series, delay, defer or prevent a transaction or a change in control of the
Company that might involve a premium price for holders of Common Stock or
otherwise be in their best interest, or that could adversely affect the rights
and voting power of the Series A Preferred Stock.
RESTRICTIONS ON OWNERSHIP AND TRANSFER
In order for the Company to qualify as a REIT under the Code, the Company's
capital stock is subject to certain restrictions on ownership and transfer. See
"Description of Capital Stock -- Restrictions on Ownership and Transfer."
TRANSFER AGENT, REGISTRAR, CONVERSION AGENT AND DIVIDEND DISBURSING AGENT
The transfer agent, registrar and dividend disbursing agent for the Series
A Preferred Stock is Boston EquiServe LLP, an affiliate of First National Bank
of Boston.
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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 MGCL, and the Charter and Bylaws, copies of which are filed as
exhibits to the Registration Statement of which this Prospectus is a part. See
"Additional Information."
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 Charter regarding the ownership of shares of Common
Stock in excess of the Ownership Limit or such other limit as provided therein
or as otherwise permitted by the Board of Directors. Holders of shares of Common
Stock do not have any conversion, exchange, sinking fund, redemption or
appraisal rights or any preemptive rights to subscribe for any securities of the
Company or cumulative voting rights in the election of directors. All shares of
Common Stock that are issued and outstanding are duly authorized, fully paid and
nonassessable. Subject to the preferential rights of any other shares or series
or classes of stock and to the provisions of the Charter regarding ownership of
shares of Common Stock in excess of the Ownership Limit, or such other limit as
provided therein or as otherwise permitted by the Board of Directors,
distributions may be paid to the holders of shares of Common Stock if and when
authorized and declared by the Board of Directors of the Company out of funds
legally available therefor. The Company intends to continue to make quarterly
distributions on outstanding shares of Common Stock.
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 Charter regarding the ownership of shares
of Common Stock in excess of the Ownership Limit, or such other limit as
provided therein or as otherwise permitted by the Board of Directors described
below, all shares of Common Stock have equal distribution, liquidation and
voting rights, and have no preference or exchange rights.
Under the MGCL, a Maryland corporation generally cannot dissolve, amend its
charter, merge, sell all or substantially all of its assets, engage in a share
exchange or engage in similar transactions outside the ordinary course of
business unless approved by the affirmative vote of stockholders holding at
least two-thirds of the shares entitled to vote on the matter unless a lesser
percentage (but not less than a majority of all of the votes entitled to be cast
on the matter) is set forth in the corporation's charter. Under the MGCL, the
term "substantially all of the Company's assets" is not defined and is,
therefore, subject to Maryland common law and to judicial interpretation and
review in the context of the unique facts and circumstances of any particular
transaction. The Articles of Incorporation do not provide for a lesser
percentage in any such situation.
The Charter authorizes the Board of Directors to reclassify any unissued
shares of Common Stock into other classes or series of classes of stock and to
establish the number of shares in each class or series and to set the
preferences, conversion and other rights, voting powers, restrictions,
limitations and restrictions on ownership, limitations as to dividends or other
distributions, qualifications and terms or conditions of redemption for each
such class or series.
PREFERRED STOCK
Preferred Stock may be issued from time to time, in one or more classes or
series, as authorized by the Board of Directors. Upon consummation of the
Offering, no Preferred Stock other than the Series A Preferred
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Stock will be issued or outstanding. Prior to the issuance of shares of each
class or series of Preferred Stock, the Board of Directors is required by the
MGCL and the Charter to fix for each class or series the terms, preferences,
conversion or other rights, voting powers, restrictions, limitations as to
distributions, qualifications and terms or conditions of redemption, as
permitted by Maryland law. Because the Board of Directors has the power to
establish the preferences, powers and rights of each class or series of
Preferred Stock, it may afford the holders of any class or series of Preferred
Stock preferences, powers and rights, voting or otherwise, senior to the rights
of holders of shares of Common Stock. The issuance of Preferred Stock, including
the Series A Preferred Stock offered hereby, could have the effect of delaying
or preventing a change of control of the Company that might involve a premium
price for holders of shares of Common Stock or otherwise be in their best
interest. See "Series A Preferred Stock."
RESTRICTIONS ON OWNERSHIP AND TRANSFER
For the Company to qualify as a REIT under the Code, no more than 50% in
value of all classes of its outstanding shares of capital stock, including
shares of Series A Preferred Stock, may be owned, actually or constructively, by
five or fewer individuals (as defined in the Code to include certain entities)
during the last half of a taxable year (other than the first year for which an
election to be treated as a REIT has been made) or during a proportionate part
of a shorter taxable year. In addition, if the Company, or an owner of 10% or
more of the Company, actually or constructively owns 10% or more of a tenant of
the Company (or a tenant of any partnership or limited liability company in
which the Company is a partner or member, respectively), the rent received by
the Company (either directly or through any such partnership or limited
liability company) from such tenant will not be qualifying income for purposes
of the gross income tests for REITs contained in the Code. A REIT's stock also
must be beneficially owned by 100 or more persons during at least 335 days of a
taxable year of 12 months or during a proportionate part of a shorter taxable
year (other than the first year for which an election to be treated as a REIT
has been made).
Because the Board of Directors believes it is desirable for the Company to
qualify as a REIT, the Charter, subject to certain exceptions as discussed
below, provides that no person may own, or be deemed to own by virtue of the
attribution provisions of the Code, more than 9.8% (by value or number of
shares, whichever is more restrictive) of each of the Common Stock and the
Series A Preferred Stock. The constructive ownership rules under the Code are
complex and may cause Common Stock or Series A Preferred Stock owned actually or
constructively by a group of related individuals and/or entities to be owned
constructively by one individual or entity. As a result, the acquisition of less
than 9.8% of the Common Stock or Series A Preferred Stock (or the acquisition of
an interest in an entity that owns, actually or constructively, Common Stock or
Series A Preferred Stock) by an individual or entity, could, nevertheless cause
that individual or entity, or another individual or entity, to own
constructively in excess of 9.8% of the outstanding Common Stock or the Series A
Preferred Stock, as the case may be, and thus subject such Common Stock or the
Series A Preferred Stock to the applicable Ownership Limit. The Board of
Directors may, but in no event will be required to, waive the applicable
Ownership Limit with respect to a particular stockholder if it determines that
such ownership will not jeopardize the Company's status as a REIT and the Board
of Directors otherwise decides such action would be in the best interest of the
Company. As a condition of such waiver, the Board of Directors may require an
opinion of counsel satisfactory to it and/or undertakings or representations
from the applicant with respect to preserving the REIT status of the Company.
The Board of Directors has waived the Ownership Limit applicable to the Common
Stock with respect to Ameritech Pension Trust, allowing it to own up to 14.9% of
the Common Stock. However, such waiver was conditioned upon the receipt of
undertakings and representations from Ameritech Pension Trust requested by the
Board of Directors which are reasonably necessary to conclude that such
ownership would not cause the Company to fail to qualify as a REIT.
The Charter further prohibits (a) any person from actually or
constructively owning Common Stock or Series A Preferred Stock that would result
in the Company being "closely held" under Section 856(h) of the Code or
otherwise cause the Company to fail to qualify as a REIT and (b) any person from
transferring Common Stock or Series A Preferred Stock if such transfer would
result in shares of Common Stock or Series A Preferred Stock being owned by
fewer than 100 persons. The Charter also provides that any person who acquires
or attempts or intends to acquire actual or constructive ownership of Common
Stock or Series A
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Preferred Stock that will or may violate any of the foregoing restrictions on
transferability and ownership is required to give notice immediately to the
Company and provide the Company with such other information as it may request in
order to determine the effect of such transfer on the Company's status as a
REIT. The foregoing restrictions on transferability and ownership will not apply
if the Board of Directors determines that it is no longer in the best interest
of the Company to attempt to qualify, or to continue to qualify, as a REIT.
Except as otherwise described above, any change in the applicable Ownership
Limit would require an amendment to the Charter, which requires the affirmative
vote of holders owning at least two-thirds of the shares of the Company's
capital stock outstanding and entitled to vote thereon.
Pursuant to the Charter, if any purported transfer of shares of stock of
the Company or any other event would otherwise result in any person violating an
Ownership Limit, such other limit as permitted by the Board of Directors or the
other restrictions in the Charter, then any such purported transfer will be void
and of no force or effect with respect to the purported transferee (the
"Prohibited Transferee") as to that number of shares that exceeds the applicable
Ownership Limit or such other limit (referred to as "excess shares") and the
Prohibited Transferee will acquire no right or interest (or, in the case of any
event other than a purported transfer, the person or entity holding record title
to any such shares in excess of the applicable Ownership Limit (the "Prohibited
Owner") will cease to own any right or interest) in such excess shares. Any such
excess shares described above will be transferred automatically, by operation of
law, to a trust, the beneficiary of which will be a qualified charitable
organization selected by the Company (the "Beneficiary"). Such automatic
transfer will be deemed to be effective as of the close of business on the
Business Day (as defined in the Articles of Incorporation) prior to the date of
such violating transfer or event. Within 20 days of receiving notice from the
Company of the transfer of shares to the trust, the trustee of the trust (who
will be designated by the Company and be unaffiliated with the Company and any
Prohibited Transferee or Prohibited Owner) will be required to sell such excess
shares to a person or entity who could own such shares without violating the
applicable Ownership Limit, or such other limit as permitted by the Board of
Directors, and distribute to the Prohibited Transferee an amount equal to the
lesser of the price paid by the Prohibited Transferee for such excess shares or
the sales proceeds received by the trust for such excess shares. In the case of
any excess shares resulting from any event other than a transfer, or from a
transfer for no consideration (such as a gift), the trustee will be required to
sell such excess shares to a qualified person or entity and distribute to the
Prohibited Owner an amount equal to the lesser of the applicable Market Price
(as defined in the Charter) of such excess shares as of the date of such event
or the sales proceeds received by the trust for such excess shares. In either
case, any proceeds in excess of the amount distributable to the Prohibited
Transferee or Prohibited Owner, as applicable, will be distributed to the
Beneficiary. Prior to a sale of any such excess shares by the trust, the trustee
will be entitled to receive, in trust for the Beneficiary, all dividends and
other distributions paid by the Company with respect to such excess shares, and
also will be entitled to exercise all voting rights with respect to such excess
shares. Subject to Maryland law, effective as of the date that such shares have
been transferred to the trust, the trustee will have the authority (at the
trustee's sole discretion) (i) to rescind as void any vote cast by a Prohibited
Transferee or Prohibited Owner, as applicable, prior to the discovery by the
Company that such shares have been automatically transferred to the trust and
(ii) to recast such vote in accordance with the desires of the trustee acting
for the benefit of the Beneficiary. However, if the Company has already taken
irreversible corporate action, then the trustee shall not have the authority to
rescind and recast such vote. Any dividend or other distribution paid to the
Prohibited Transferee or Prohibited Owner (prior to the discovery by the Company
that such shares had been automatically transferred to a trust as described
above) will be required to be repaid to the trustee upon demand for distribution
to the Beneficiary. If the transfer to the trust as described above is not
automatically effective (for any reason) to prevent violation of the applicable
Ownership Limit or such other limit as provided in the Charter or as otherwise
permitted by the Board of Directors, then the Charter provides that the transfer
of the excess shares will be void ab initio.
In addition, shares of stock held in the trust shall be deemed to have been
offered for sale to the Company, or its designee, at a price per share equal to
the lesser of (i) the price per share in the transaction that resulted in such
transfer to the trust (or, in the case of a devise or gift, the applicable
Market Price at the time of such devise or gift) and (ii) the applicable Market
Price on the date the Company, or its designee, accepts such offer. The Company
shall have the right to accept such offer until the trustee has sold the shares
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held in the trust. Upon such a sale to the Company, the interest of the
Beneficiary in the shares sold shall terminate and the trustee shall distribute
the net proceeds of the sale to the Prohibited Transferee or Prohibited Owner.
If any purported transfer of shares would cause the Company to be
beneficially owned by fewer than 100 persons, the Charter provides that such
transfer will be null and void in its entirety and the intended transferee will
acquire no rights to the stock.
All certificates representing shares will bear a legend referring to the
restrictions described above. The foregoing ownership limitations could delay,
defer or prevent a transaction or a change in control of the Company that might
involve a premium price for the shares or otherwise be in the best interest of
stockholders.
Under the Charter, owners of outstanding shares must, upon demand of the
Company, provide a completed questionnaire to the Company containing information
regarding ownership of such shares, as set forth in the Treasury Regulations. In
addition, each stockholder shall upon demand be required to disclose to the
Company in writing such information as the Company may request in order to
determine the effect, if any, of such stockholder's actual and constructive
ownership of shares of Common Stock and/or Series A Preferred Stock on the
Company's status as a REIT and to ensure compliance with each Ownership Limit,
or such other limit as provided in the Charter or as otherwise permitted by the
Board of Directors.
CERTAIN PROVISIONS OF MARYLAND LAW AND OF
THE COMPANY'S CHARTER AND BYLAWS
The following paragraphs summarize certain provisions of the MGCL and the
Company's Charter and Bylaws. Such paragraphs do not, however, purport to be
complete and are subject to and qualified in their entirety by reference to the
MGCL and the Charter and Bylaws.
BOARD OF DIRECTORS
The Charter provides that the number of directors of the Company shall be
established by the Bylaws but shall not be less than the minimum number required
by the MGCL, which in the case of the Company is three. The Bylaws currently
provide that the Board of Directors consist of not fewer than five nor more than
13 members which are elected to a one-year term at each annual meeting of the
Company's stockholders. Any vacancy (except for a vacancy caused by removal)
will be filled by a majority of the entire Board of Directors. The Bylaws
provide that a majority of the Board must be "Independent Directors." An
"Independent Director" is a director who is not an employee, officer or
affiliate of the Company or a subsidiary or division thereof, or a relative of a
principal executive officer, or who is not an individual member of an
organization acting as advisor, consultant or legal counsel, receiving
compensation on a continuing basis from the Company in addition to director's
fees.
REMOVAL OF DIRECTORS
While the Charter and the MGCL empower the stockholders to fill vacancies
in the Board of Directors that are caused by the removal of a director, the
Charter precludes stockholders from removing incumbent directors except upon a
substantial affirmative vote. Specifically, the Charter provides that a director
may be removed only for cause and only by the affirmative vote of at least
two-thirds of the votes entitled to be cast in the election of directors,
subject to the rights of the holders of shares of Series A Preferred Stock to
elect and remove directors elected by such holders under certain circumstances.
See "Series A Preferred Stock -- Voting Rights." Under the MGCL, the term
"cause" is not defined and is, therefore, subject to Maryland common law and to
judicial interpretation and review in the context of the unique facts and
circumstances of any particular situation. This provision, when coupled with the
provision in the Bylaws authorizing the Board of Directors to fill vacant
directorships, precludes stockholders from removing incumbent directors except
upon a substantial affirmative vote and filling the vacancies created by such
removal with their own nominees.
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OPT OUT OF BUSINESS COMBINATIONS AND CONTROL SHARE ACQUISITION STATUTES
The Company has elected in its Bylaws not to be governed by the "control
share acquisition" provisions of the MGCL (Sections 3-701 through 3-709), and
the Board of Directors has adopted, by irrevocable resolution of the Board of
Directors, not to be governed by the "business combination" provision of the
MGCL (Section 3-602), each of which could have the effect of delaying or
preventing a change of control of the Company. The Bylaws provide that the
Company cannot at a future date determine to be governed by either such
provision without the approval of a majority of the outstanding shares entitled
to vote. In addition, such irrevocable resolution adopted by the Board of
Directors may only be changed by the approval of a majority of the outstanding
shares entitled to vote.
AMENDMENT TO THE CHARTER AND BYLAWS
The Charter may not be amended without the affirmative vote of at least
two-thirds of the shares of capital stock outstanding and entitled to vote
thereon voting together as a single class. Other than provisions of the Bylaws
(i) opting out of the control share acquisition statute, (ii) requiring approval
by the Independent Directors of transactions involving executive officers,
directors or any limited partners of the Operating Partnership and their
affiliates and (iii) those governing amendment of the Bylaws, each of which may
be amended only with the approval of a majority of the shares of capital stock
entitled to vote, the Bylaws may be amended by the vote of a majority of the
Board of Directors or the shares of the Company's capital stock entitled to vote
thereon.
MEETINGS OF STOCKHOLDERS
The Bylaws provide for annual meetings of stockholders to elect the Board
of Directors and transact such other business as may properly be brought before
the meeting. Special meetings of stockholders may be called by the President,
the Board of Directors, the Chairman of the Board and/or at the request in
writing of the holders of 50% or more of the outstanding stock of the Company
entitled to vote.
The MGCL provides that any action required or permitted to be taken at a
meeting of stockholders may be taken without a meeting by unanimous written
consent, if such consent sets forth such action and is signed by each
stockholder entitled to vote on the matter and a written waiver of any right to
dissent is signed by each stockholder entitled to notice of the meeting but not
entitled to vote at it.
ADVANCE NOTICE OF DIRECTOR NOMINATIONS AND NEW BUSINESS
The Bylaws provide that (i) with respect to an annual meeting of
stockholders, nominations of persons for election to the Board of Directors and
the proposal of business to be considered by stockholders may be made only (a)
pursuant to the Company's notice of the meeting, (b) by or at the direction of
the Board of Directors or (c) by a stockholder who is entitled to vote at the
meeting and has complied with the advance notice procedures set forth in the
Bylaws, and (ii) with respect to special meetings of stockholders, only the
business specified in the Company's notice of meeting may be brought before the
meeting of stockholders.
The provisions in the Charter on amendments thereto and the advance notice
provisions of the Bylaws could have the effect of discouraging a takeover or
other transaction in which holders of some, or a majority, of the shares of
Common Stock might receive a premium for their shares of Common Stock over the
then prevailing market price or which such holders might believe to be otherwise
in their best interests.
DISSOLUTION OF THE COMPANY
Under the MGCL, the Company may be dissolved by (i) the affirmative vote of
a majority of the entire Board of Directors declaring such dissolution to be
advisable and directing that the proposed dissolution be submitted for
consideration at any annual or special meeting of stockholders and (ii) upon
proper notice, stockholder approval by the affirmative vote of the holders of
two-thirds of the total number of shares of capital stock outstanding and
entitled to vote thereon voting as a single class.
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LIMITATION OF DIRECTORS' AND OFFICERS' LIABILITY
The Company's officers and directors are indemnified under the MGCL, the
Charter and the Partnership Agreement against certain liabilities. The Charter
and Bylaws require the Company to indemnify its directors and officers to the
fullest extent permitted from time to time by the MGCL.
The MGCL permits a corporation to indemnify its directors and officers and
certain other parties against judgments, penalties, fines, settlements and
reasonable expenses actually incurred by them in connection with any proceeding
to which they may be made a party by reason of their service in those or other
capacities unless it is established that (i) the act or omission of the director
or officer was material to the matter giving rise to the proceeding and was
committed in bad faith or was the result of active and deliberate dishonesty,
(ii) the director or officer actually received an improper personal benefit in
money, property or services or (iii) in the case of any criminal proceeding, the
director or officer had reasonable cause to believe that the act or omission was
unlawful. Indemnification may be made against judgments, penalties, fines,
settlements and reasonable expenses actually incurred by the director or officer
in connection with the proceeding; provided, however, that if the proceeding is
one by or in the right of the corporation, indemnification may not be made with
respect to any proceeding in which the director or officer has been adjudged to
be liable to the corporation. In addition, a director or officer may not be
indemnified with respect to any proceeding charging improper personal benefit to
the director or officer in which the director or officer was adjudged to be
liable on the basis that personal benefit was received. The termination of any
proceeding by conviction, or upon a plea of nolo contendere or its equivalent,
or an entry of any order of probation prior to judgment, creates a rebuttable
presumption that the director or officer did not meet the requisite standard of
conduct required for indemnification to be permitted.
The MGCL permits the charter of a Maryland corporation to include a
provision limiting the liability of its directors and officers to the
corporation and its stockholders for money damages, subject to specified
restrictions, and the Company's Charter contains this provision. The MGCL does
not, however, permit the liability of directors and officers to the corporation
or its stockholders to be limited to the extent that (i) it is proved that the
person actually received an improper personal benefit in money, property or
services, (ii) a judgment or other final adjudication is entered in a proceeding
based on a finding that the person's action, or failure to act, was committed in
bad faith or was the result of active and deliberate dishonesty and was material
to the cause of action adjudicated in the proceeding or (iii) in the case of any
criminal proceeding, the director had reasonable cause to believe that the act
or failure to act was unlawful. This provision does not limit the ability of the
Company or its stockholders to obtain other relief, such as an injunction or
rescission.
The Partnership Agreement also provides for indemnification of the Company,
as general partner, and its officers and directors to the same extent
indemnification is provided to officers and directors of the Company in its
Charter, and limits the liability of the Company and its officers and directors
to the Operating Partnership and the partners of the Operating Partnership to
the same extent liability of officers and directors of the Company to the
Company and its stockholders is limited under the Charter. See "Description of
Certain Provisions of the Partnership Agreement of the Operating
Partnership -- Exculpation and Indemnification of the Company."
Insofar as indemnification for liability arising under the Securities Act
may be permitted to directors, officers or persons controlling the Company
pursuant to the foregoing provisions, the Company has been informed that in the
opinion of the SEC, such indemnification is against public policy as expressed
in the Securities Act and is therefore unenforceable.
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DESCRIPTION OF CERTAIN PROVISIONS OF THE
PARTNERSHIP AGREEMENT OF THE OPERATING PARTNERSHIP
Substantially all of the Company's assets are held, and all of its
operations are conducted, by or through the Operating Partnership. The Company
is the sole general partner of the Operating Partnership and owned, as of May
31, 1998, 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 also applicable
to Performance Units, and holders of Performance Units are treated as limited
partners. The following summary of the Second Amended and Restated Agreement of
Limited Partnership of the Operating Partnership (the "Partnership Agreement")
and the descriptions of certain provisions set forth elsewhere in this
Prospectus are qualified in their entirety by reference to the Partnership
Agreement, which is filed as an exhibit to the Registration Statement of which
this Prospectus is a part.
GENERAL
Holders of Units hold limited partnership interests in the Operating
Partnership, and all holders of partnership interests (including the Company in
its capacity as general partner) are entitled to share in cash distributions
from, and in the profits and losses of, the Operating Partnership. The number of
units of the general partnership (the "GP Units") held by the Company is
approximately equal to the total number of shares of Common Stock 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 an officer of AMB
Investment Management and certain 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.
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 Operating Partnership books and records,
management of the Operating Partnership property and assets, and
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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 has entered into and may enter into similar or
other agreements in connection with other acquisitions of properties for Units.
A merger of the Operating Partnership with another entity generally
requires an affirmative vote of the holders of a majority of the outstanding
percentage interest (including that held directly or indirectly by the Company),
subject to certain consent rights of holders of Units as described below under
"Amendment of the Partnership Agreement." A dissolution or liquidation of the
Operating Partnership, including a sale or disposition of all or substantially
all of the Operating Partnership's assets and properties, also requires the
consent of a majority of all Units held by limited partners, including
Performance Units.
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CAPITAL CONTRIBUTION
The Partnership Agreement provides that if the Operating Partnership
requires additional funds at any time or from time to time in excess of funds
available to the Operating Partnership from borrowings or capital contributions,
the Company may borrow such funds from a financial institution or other lender
or through public or private debt offerings and lend such funds to the Operating
Partnership on the same terms and conditions as are applicable to the Company's
borrowing of such funds. As an alternative to borrowing funds required by the
Operating Partnership, the Company may contribute the amount of such required
funds as an additional capital contribution to the Operating Partnership. If the
Company so contributes additional capital to the Operating Partnership, the
Company's partnership interest in the Operating Partnership will be increased on
a proportionate basis. Conversely, the partnership interests of the limited
partners will be decreased on a proportionate basis in the event of additional
capital contributions by the Company. See "Policies With Respect to Certain
Activities -- Financing Policies."
DISTRIBUTIONS; ALLOCATIONS OF INCOME AND LOSS
The Partnership Agreement generally provides for the quarterly distribution
of Available Cash (as defined below), as determined in the manner provided in
the Partnership Agreement, to the partners of the Operating Partnership in
proportion to their percentage interests in the Operating Partnership (which for
any partner is determined by the number of Units it owns relative to the total
number of Units outstanding). If any Preference Units are outstanding,
distributions shall be paid to holders of such Preference Units in accordance
with the rights of each class of Preference Units (and, within each such class,
pro rata in proportion to the respective percentage interest of each holder),
with any remaining Available Cash distributed in accordance with the previous
sentence. "Available Cash" is generally defined as net cash flow from
operations, plus any reduction in reserves, and minus interest and principal
payments on debt, capital expenditures, any additions to reserves and other
adjustments. Neither the Company nor the limited partners are currently entitled
to any preferential or disproportionate distributions of Available Cash with
respect to the Units.
However, in connection with the Offering, the Partnership Agreement will be
amended to provide for preferred distributions of cash and preferred allocations
of income to the Company in an amount equal to the dividends payable by the
Company on the Series A Preferred Stock. As a consequence, the Company will
receive distributions from the Operating Partnership sufficient to pay dividends
on the Series A Preferred Stock before any other partner in the Operating
Partnership receives a distribution. In addition, if necessary, income will be
specially allocated to the Company and losses will be allocated to the other
partners of the Operating Partnership in amounts necessary to ensure that, to
the extent possible, the balance in the Company's capital account will at all
times be equal to or in excess of the amount payable by the Company on the
Series A Preferred Stock upon liquidation or redemption.
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
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Transaction, a purchase, tender or exchange offer shall have been made to and
accepted by the holders of the outstanding shares of Common Stock, each holder
of Units will receive, or will have the right to elect to receive, the greatest
amount of cash, securities or other property which such holder would have
received had it exercised its right to redemption and received shares of Common
Stock in exchange for its Units immediately prior to the expiration of such
purchase, tender or exchange offer and had thereupon accepted such purchase,
tender or exchange offer. Performance Units issued or to be issued will also
have the benefit of such provisions, irrespective of the capital account then
applicable thereto.
A Termination Transaction may also occur if the following conditions are
met: (i) substantially all of the assets directly or indirectly owned by the
surviving entity are held directly or indirectly by the Operating Partnership or
another limited partnership or limited liability company which is the survivor
of a merger, consolidation or combination of assets with the Operating
Partnership (in each case, the "Surviving Partnership"); (ii) the holders of
Units, including the holders of Performance Units issued or to be issued, own a
percentage interest of the Surviving Partnership based on the relative fair
market value of the net assets of the Operating Partnership and the other net
assets of the Surviving Partnership immediately prior to the consummation of
such transaction; (iii) the rights, preferences and privileges of such holders
in the Surviving Partnership, including the holders of Performance Units issued
or to be issued, are at least as favorable as those in effect immediately prior
to the consummation of such transaction and as those applicable to any other
limited partners or non-managing members of the Surviving Partnership (except,
as to Performance Units, for such differences with Units regarding liquidation,
redemption or exchange as are described herein); and (iv) such rights of the
limited partners, including the holders of Performance Units issued or to be
issued, include at least one of the following: (a) the right to redeem their
interests in the Surviving Partnership for the consideration available to such
persons pursuant to the preceding paragraph; or (b) the right to redeem their
Units for cash on terms equivalent to those in effect immediately prior to the
consummation of such transaction, or, if the ultimate controlling person of the
Surviving Partnership has publicly traded common equity securities, such common
equity securities, with an exchange ratio based on the relative fair market
value of such securities and the Common Stock. For purposes of this paragraph,
the determination of relative fair market values and rights, preferences and
privileges of the limited partners shall be reasonably determined by the Board
of Directors as of the time of the Termination Transaction and, to the extent
applicable, the values shall be no less favorable to the holders of Units than
the relative values reflected in the terms of the Termination Transaction.
In addition, in the event of a Termination Transaction, the arrangements
with respect to Performance Units and Performance Shares will be equitably
adjusted to reflect the terms of the transaction, including, to the extent that
the shares are exchanged for consideration other than publicly traded common
equity, the transfer or release of remaining Performance Shares, and resulting
issuance of any Performance Units, as of the consummation of the Termination
Transaction or set forth in the applicable Supplement.
REDEMPTION/EXCHANGE RIGHTS
Holders of Units have the right, commencing generally on the first
anniversary of such holder 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
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such exchange. Holders of Performance Units also have limited
redemption/exchange rights, as discussed under the caption "-- Performance
Units" below.
PERFORMANCE UNITS
Notwithstanding the foregoing discussion of distributions and allocations
of income or loss of the Operating Partnership, depending on the trading price
of the Common Stock after November 26, 1998 (the first anniversary of the IPO),
certain of the officers, in their capacity as limited partners of the Operating
Partnership, may receive Performance Units 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 officers, in their capacity as
limited partners of the Operating Partnership, an equal number of GP Units
allocable to the Company and Units allocable to Performance Investors who are
limited partners in the Operating Partnership will be transferred to the
Operating Partnership. In addition, if any of the Company's GP Units are
transferred to the Operating Partnership as a result of the issuance of
Performance Units, an equal number of shares of Common Stock (the "Performance
Shares") will be transferred by Company stockholders to the Company from the
applicable Performance Investors. Accordingly, no Company stockholder or limited
partner in the Operating Partnership (other than Performance Investors, to the
extent of their obligations to transfer Performance Shares to the Company or the
Operating Partnership, as applicable) will be diluted as a result of the
issuance of Performance Units to such officers.
REGISTRATION RIGHTS
The Company granted to limited partners certain registration rights
(collectively, the "Registration Rights") with respect to the shares of Common
Stock issuable upon exchange of Units or otherwise (the "Registrable Shares").
The Company has agreed to file and generally keep continuously effective
beginning 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 such Units would be eligible for resale
under Rule 144(k) under the Securities Act, as such rule may be amended from
time to time (or any similar rule or regulation hereafter adopted by the SEC),
each limited partner generally is limited to resales of Registrable Shares to
the number of Registrable Shares which otherwise would be eligible for resale by
such Investor pursuant to Rule 144, assuming such Registrable Shares were issued
on the same date as the respective Units were issued. The shelf registration
statement will also cover Shares issuable upon exchange of Performance Units.
The Company may also agree to provide the Registration Rights or other
registration rights to any other person who may become an owner of Units,
provided such person provides the Company with satisfactory undertakings. The
Company will bear expenses incident to its registration obligations upon
exercise of the Registration Rights, including the payment of Federal securities
law and state Blue Sky registration fees, except that it will not bear any
underwriting discounts or commissions or transfer taxes relating to registration
of Registrable Shares. The Company may agree, from time to time, to grant
additional registration rights in connection with other transactions.
DUTIES AND CONFLICTS
Except as otherwise set forth in "Policies with Respect to Certain
Activities -- Conflicts of Interest Policies" and "Management -- Employment
Agreements," any limited partner of the Operating Partnership
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may engage in other business activities outside the Operating Partnership,
including business activities that directly compete with the Operating
Partnership.
MEETINGS; VOTING
Meetings of the limited partners may be called by the Company, on its own
motion, or upon written request of limited partners owning at least 25% of the
then outstanding Units. Limited partners may vote either in person or by proxy
at meetings. Any action that is required or permitted to be taken by the limited
partners may be taken either at a meeting of the limited partners or without a
meeting if consents in writing setting forth the action so taken are signed by
limited partners owning not less than the minimum number of Units that would be
necessary to authorize or take such action at a meeting of the limited partners
at which all limited partners entitled to vote on such action were present. On
matters for which limited partners are entitled to vote, each limited partner
has a vote equal to the number of Units the limited partner holds. A transferee
of Units who has not been admitted as a substituted limited partner with respect
to such Units will have no voting rights with respect to such Units, even if
such transferee holds other Units as to which it has been admitted as a limited
partner. The Partnership Agreement does not provide for annual meetings of the
limited partners, and the Company does not anticipate calling such meetings.
AMENDMENT OF THE PARTNERSHIP AGREEMENT
Amendments to the Partnership Agreement may be proposed by the Company or
by limited partners owning at least 25% of the then outstanding Units entitled
to vote. Generally, the Partnership Agreement may be amended with the approval
of the Company, as general partner, and partners (including the Company) holding
a majority of the percentage interest of the partnership. Certain provisions
regarding, among other things, the rights and duties of the Company as general
partner (e.g., restrictions on the Company's power to conduct businesses other
than as denoted herein) or the dissolution of the Operating Partnership, may not
be amended without the approval of a majority of the percentage interests of the
partnership. Notwithstanding the foregoing, the Company, as general partner, has
the power, without the consent of the limited partners, to amend the Partnership
Agreement as may be required to, among other things, (i) add to the obligations
of the Company as general partner or surrender any right or power granted to the
Company as general partner, (ii) reflect the admission, substitution,
termination or withdrawal of partners in accordance with the terms of the
Partnership Agreement, (iii) establish the rights, powers, duties and
preferences of any additional partnership interests issued in accordance with
the terms of the Partnership Agreement, (iv) reflect a change of an
inconsequential nature that does not materially adversely affect any limited
partner, or cure any ambiguity, correct or supplement any provisions of the
Partnership Agreement not inconsistent with law or with other provisions of the
Partnership Agreement, or make other changes concerning matters under the
Partnership Agreement that are not otherwise inconsistent with the Partnership
Agreement or applicable law or (v) satisfy any requirements of Federal, state or
local law.
Certain amendments, including amendments effected directly or indirectly
through a merger or sale of assets of the Operating Partnership or otherwise,
that would, among other things, (i) convert a limited partner's interest into a
general partner's interest, (ii) modify the limited liability of a limited
partner, (iii) alter the interest of a partner in profits or losses, or the
rights to receive any distributions (except as permitted under the Partnership
Agreement with respect to the admission of new partners or the issuance of
additional Units, either of which actions will have the effect of changing the
percentage interests of the partners and thus altering their interests in
profits, losses and distributions) or (iv) alter the limited partner's
redemption right, must be approved by the Company and each limited partner that
would be adversely affected by such amendment. Such protections apply to both
holders of Units and holders of Performance Units. In addition, no amendment may
be effected, directly or indirectly, through a merger or sale of assets of the
Operating Partnership or otherwise, which would adversely affect the rights of
former stockholders of the Predecessor to receive Performance Units as described
herein.
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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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MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following summary of material Federal income tax consequences regarding
the Company and the Offering is based on current law, is for general information
only and is not tax advice. The information set forth below, to the extent that
it constitutes matters of law, summaries of legal matters or legal conclusions,
is the opinion of Latham & Watkins, tax counsel to the Company. This discussion
does not purport to deal with all aspects of taxation that may be relevant to
particular stockholders in light of their personal investment or tax
circumstances, or to certain types of stockholders subject to special treatment
under the Federal income tax laws, including, without limitation, certain
financial institutions, life insurance companies, dealers in securities or
currencies, stockholders holding Series A Preferred Stock as part of a
conversion transaction, as part of a hedge or hedging transaction, or as a
position in a straddle for tax purposes, tax-exempt organizations (except to the
extent discussed under the heading "-- Taxation of Tax-Exempt Stockholders") or
foreign corporations, foreign partnerships and persons who are not citizens or
residents of the United States (except to the extent discussed under the heading
"-- Taxation of Non-U.S. Stockholders"). In addition, the summary below does not
consider the effect of any foreign, state, local or other tax laws that may be
applicable to prospective stockholders.
The information in this section is based on the Code, current, temporary
and proposed Treasury Regulations promulgated thereunder, the legislative
history of the Code, current administrative interpretations and practices of the
IRS (including its practices and policies as expressed in certain private letter
rulings which are not binding on the IRS except with respect to the particular
taxpayers who requested and received such rulings), and court decisions, all as
of the date hereof. No assurance can be given that future legislation, Treasury
Regulations, administrative interpretations and practices and/or court decisions
will not alter the Code or existing interpretations thereof, and any such change
could apply retroactively to transactions preceding the date of the change. The
Company has not requested, and does not plan to request, any ruling from the IRS
concerning the tax treatment of the Company or the Operating Partnership. Thus,
no assurance can be provided that the statements set forth herein (which are, in
any event, not binding on the IRS or courts) will not be challenged by the IRS
or will be sustained by a court if so challenged.
EACH PROSPECTIVE PURCHASER IS ADVISED TO CONSULT HIS OR HER TAX ADVISOR
REGARDING THE TAX CONSEQUENCES TO HIM OR HER OF THE ACQUISITION, OWNERSHIP AND
SALE OF THE SERIES A PREFERRED STOCK, INCLUDING THE FEDERAL, STATE, LOCAL,
FOREIGN AND OTHER TAX CONSEQUENCES OF SUCH ACQUISITION, OWNERSHIP AND SALE AND
OF POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
TAXATION OF THE COMPANY
General. The Company intends to make an election to be taxed as a REIT
under Sections 856 through 860 of the Code, commencing with its taxable year
ended December 31, 1997. The Company believes that, commencing with its taxable
year ended December 31, 1997, it has been organized and has operated in such a
manner as to qualify for taxation as a REIT under the Code commencing with such
taxable year, and the Company intends to continue to operate in such a manner,
but no assurance can be given that it has operated or will continue to operate
in such a manner so as to qualify or remain qualified.
These sections of the Code and the corresponding Treasury Regulations are
highly technical and complex. The following sets forth the material aspects of
the sections that govern the Federal income tax treatment of a REIT and its
stockholders. This summary is qualified in its entirety by the applicable Code
provisions, rules and regulations promulgated thereunder, and administrative and
judicial interpretations thereof.
Latham & Watkins has acted as tax counsel to the Company in connection with
the the Offering, and the Company's election to be taxed as a REIT. In the
opinion of Latham & Watkins, commencing with the Company's taxable year ended
December 31, 1997, the Company has been organized and has operated in conformity
with the requirements for qualification as a REIT, and its method of operation
will enable it to continue to meet the requirements for qualification and
taxation as a REIT under the Code. It must be emphasized that this opinion is
based on various factual assumptions relating to the organization and operation
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of the Company, the Operating Partnership, and their subsidiaries, and is
conditioned upon certain representations made by such parties and certain other
persons as to factual matters. In addition, this opinion is based upon the
factual representations of the Company concerning its business and properties as
set forth in this Prospectus. Moreover, such qualification and taxation as a
REIT depends upon the Company's ability to meet (through actual annual operating
results, distribution levels and diversity of stock ownership) the various
qualification tests imposed under the Code and discussed below, the results of
which have not been and will not be reviewed by Latham & Watkins. Accordingly,
no assurance can be given that the actual results of the Company's operations
for any particular taxable year will satisfy such requirements. Further, the
anticipated income tax treatment described in this Prospectus may be changed,
perhaps retroactively, by legislative, administrative or judicial action at any
time. See "-- Failure of the Company to Qualify as a REIT." With respect to
certain legal matters relating to Maryland law, Latham & Watkins has relied upon
the opinion of Ballard Spahr Andrews & Ingersoll, counsel for the Company.
If the Company qualifies for taxation as a REIT, it generally will not be
subject to Federal corporate income taxes on its net income that is currently
distributed to stockholders. This treatment substantially eliminates the "double
taxation" (at the corporate and stockholder levels) that generally results from
investment in a regular corporation. However, the Company will be subject to
Federal income tax as follows. First, the Company will be required to pay tax at
regular corporate rates on any undistributed "REIT taxable income," including
undistributed net capital gains. Second, under certain circumstances, the
Company may be subject to the "alternative minimum tax" on its items of tax
preference. Third, if the Company has (i) net income from the sale or other
disposition of "foreclosure property" (defined generally as property acquired by
the Company through foreclosure or otherwise after a default on a loan secured
by the property or a lease of the property) which is held primarily for sale to
customers in the ordinary course of business or (ii) other nonqualifying income
from foreclosure property, it will be subject to tax at the highest corporate
rate on such income. Fourth, if the Company has net income from prohibited
transactions (which are, in general, certain sales or other dispositions of
property held primarily for sale to customers in the ordinary course of business
other than foreclosure property), such income will be subject to a 100% tax.
Fifth, if the Company should fail to satisfy the 75% gross income test or the
95% gross income test (as discussed below), but has nonetheless maintained its
qualification as a REIT because certain other requirements have been met, it
will be subject to a 100% tax on an amount equal to (a) the gross income
attributable to the greater of the amount by which the Company fails the 75% or
95% test multiplied by (b) a fraction intended to reflect the Company's
profitability. Sixth, if the Company should fail to distribute during each
calendar year at least the sum of (i) 85% of its REIT ordinary income for such
year, (ii) 95% of its REIT capital gain net income for such year and (iii) any
undistributed taxable income from prior periods, the Company would be subject to
a 4% excise tax on the excess of such required distribution over the amounts
actually distributed. Seventh, with respect to any asset (a "Built-In Gain
Asset") acquired by the Company from a corporation which is or has been a C
corporation (i.e., generally a corporation subject to full corporate-level tax)
in a transaction in which the basis of the Built-In Gain Asset in the hands of
the Company is determined by reference to the basis of the asset in the hands of
the C corporation, if the Company recognizes gain on the disposition of such
asset during the ten-year period (the "Recognition Period") beginning on the
date on which such asset was acquired by the Company, then, to the extent of the
Built-In Gain (i.e., the excess of (a) the fair market value of such asset over
(b) the Company's adjusted basis in such asset, determined as of the beginning
of the Recognition Period), such gain will be subject to tax at the highest
regular corporate rate pursuant to Treasury Regulations that have not yet been
promulgated. The results described above with respect to the recognition of
Built-In Gain assume that the Company will make an election pursuant to IRS
Notice 88-19 and that the availability or nature of such election is not
modified as proposed in President Clinton's 1999 Federal Budget Proposal.
Requirements for Qualification. The Code defines a REIT as a corporation,
trust or association (i) which is managed by one or more trustees or directors;
(ii) the beneficial ownership of which is evidenced by transferable shares, or
by transferable certificates of beneficial interest; (iii) which would be
taxable as a domestic corporation but for Sections 856 through 859 of the Code;
(iv) which is neither a financial institution nor an insurance company subject
to certain provisions of the Code; (v) the beneficial ownership of which is held
by 100 or more persons; (vi) during the last half of each taxable year not more
than 50% in value of the outstanding stock of which is owned, actually or
constructively, by five or fewer individuals (as defined in the
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Code to include certain entities); and (vii) which meets certain other tests,
described below, regarding the nature of its income and assets and the amount of
its distributions. The Code provides that conditions (i) to (iv), inclusive,
must be met during the entire taxable year and that condition (v) must be met
during at least 335 days of a taxable year of twelve months, or during a
proportionate part of a taxable year of less than twelve months. Conditions (v)
and (vi) will not apply until after the first taxable year for which an election
is made to be taxed as a REIT. For purposes of conditions (v) and (vi), pension
funds and certain other tax-exempt entities are treated as individuals, subject
to a "look-through" exception in the case of condition (vi).
The Company believes that the conditions set forth above have been
satisfied. The Company believes that it has issued sufficient shares of Common
Stock with sufficient diversity of ownership pursuant to the Formation
Transactions and the IPO to allow it to satisfy conditions (v) and (vi). In
addition, the Articles of Incorporation provide for restrictions regarding the
transfer and ownership of shares, which restrictions are intended to assist the
Company in continuing to satisfy the share ownership requirements described in
(v) and (vi) above. Such ownership and transfer restrictions are described under
the caption "Description of Capital Stock -- Restrictions on Ownership and
Transfer." These restrictions, however, may not ensure that the Company will, in
all cases, be able to satisfy the share ownership requirements described above.
If the Company fails to satisfy such share ownership requirements, the Company's
status as a REIT will terminate; provided, however, if the Company complies with
the rules contained in the applicable Treasury Regulations requiring the Company
to attempt to ascertain the actual ownership of its shares, and the Company does
not know, and would not have known through the exercise of reasonable diligence,
whether it failed to meet the requirement set forth in condition (vi) above, the
Company will be treated as having met such requirement. See "-- Failure of the
Company to Qualify as a REIT." In addition, a corporation may not elect to
become a REIT unless its taxable year is the calendar year. The Company has a
calendar taxable year.
Termination of S Status. Prior to its merger into the Company, AMB believed
that it validly elected to be taxed as an S corporation and that such election
had not been revoked or otherwise terminated (except as provided below). In
order to allow the Company to become a REIT, AMB revoked its S election shortly
before its merger into the Company. If AMB was not an S corporation in 1997 (the
calendar year in which the Formation Transactions occurred), the Company likely
would not qualify as a REIT for its taxable year ended December 31, 1997 and
perhaps subsequent years. See "Failure of the Company to Qualify as a REIT." In
connection with the IPO, Latham & Watkins rendered an opinion regarding AMB's
Federal income tax status as an S corporation, which opinion was based upon
certain representations made by AMB as to factual matters and upon the opinion
of counsel for certain shareholders of AMB, with respect to matters relating to
the tax status of such shareholders.
Ownership of a Partnership Interest. In the case of a REIT which is a
partner in a partnership, Treasury Regulations provide that the REIT will be
deemed to own its proportionate share of the assets of the partnership and will
be deemed to be entitled to the income of the partnership attributable to such
share. In addition, the character of the assets and gross income of the
partnership shall retain the same character in the hands of the REIT for
purposes of Section 856 of the Code, including satisfying the gross income tests
and the asset tests. Thus, the Company's proportionate share of the assets and
items of income of the Operating Partnership (including the Operating
Partnership's share of such items of any subsidiary partnerships, including the
Joint Ventures) will be treated as assets and items of income of the Company for
purposes of applying the requirements described herein. The rules described
above will also apply to a REIT's membership interest in a limited liability
company which is taxable as a partnership for income tax purposes. Accordingly,
references to partnerships and their partners in this discussion of certain
Federal income tax consequences shall include limited liability companies and
their members, respectively. A summary of the rules governing the Federal income
taxation of partnerships and their partners is provided below in "-- Tax Aspects
of the Operating Partnership and the Joint Ventures." The Company has direct
control of the Operating Partnership and operates it consistently with the
requirements for qualification as a REIT. The Company, however, is a limited
partner or non-managing member in certain of the Joint Ventures. If a Joint
Venture takes or expects to take actions which could jeopardize the Company's
status as a REIT or subject the Company to tax, the Company may be forced to
dispose of its interest in such Joint Venture. In addition, it is possible that
a Joint Venture could take an action which could cause the Company to fail a
REIT income or
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asset test, and that the Company would not become aware of such action in a time
frame which would allow it to dispose of its interest in the Joint Venture or
take other corrective action on a timely basis. In such a case, the Company
could fail to qualify as a REIT.
The Company owns 100% of the stock of a subsidiary that is a qualified REIT
subsidiary (a "QRS") and may acquire stock of one or more new subsidiaries. A
corporation will qualify as a QRS if 100% of its stock is held by the Company. A
QRS will not be treated as a separate corporation, and all assets, liabilities
and items of income, deduction and credit of a QRS will be treated as assets,
liabilities and such items (as the case may be) of the Company for all purposes
of the Code, including the REIT qualification tests. For this reason, references
under "Material Federal Income Tax Consequences" to the income and assets of the
Company shall include the income and assets of any QRS. A QRS will not be
subject to Federal income tax and the Company's ownership of the voting stock of
a QRS will not violate the restrictions against ownership of securities of any
one issuer which constitute more than 10% of such issuer's voting securities or
more than 5% of the value of the Company's total assets, as described below
under "-- Asset Tests."
Income Tests. In order to maintain its qualification as a REIT, the Company
annually must satisfy two gross income requirements. First, at least 75% of the
Company's gross income (excluding gross income from prohibited transactions) for
each taxable year must be derived directly or indirectly from investments
relating to real property or mortgages on real property (including "rents from
real property" and, in certain circumstances, interest) or from certain types of
temporary investments. Second, at least 95% of the Company's gross income
(excluding gross income from prohibited transactions) for each taxable year must
be derived from such real property investments, dividends, interest and gain
from the sale or disposition of stock or securities (or from any combination of
the foregoing).
Rents received by the Company will qualify as "rents from real property" in
satisfying the gross income requirements for a REIT described above only if
several conditions are met. First, the amount of rent must not be based in whole
or in part on the income or profits of any person. However, an amount received
or accrued generally will not be excluded from the term "rents from real
property" solely by reason of it being based on a fixed percentage or
percentages of receipts or sales. Second, the Code provides that rents received
from a tenant will not qualify as "rents from real property" in satisfying the
gross income tests if the REIT, or an actual or constructive owner of 10% or
more of the REIT, actually or constructively owns 10% or more of such tenant (a
"Related Party Tenant"). Third, if rent attributable to personal property leased
in connection with a lease of real property is greater than 15% of the total
rent received under the lease, then the portion of rent attributable to such
personal property will not qualify as "rents from real property." Finally, for
rents received to qualify as "rents from real property," the REIT generally must
not operate or manage the property or furnish or render services to the tenants
of such property, other than through an independent contractor from whom the
REIT derives no revenue (subject to a 1% de minimis exception); provided,
however, the REIT may directly perform certain services that are "usually or
customarily rendered" in connection with the rental of space for occupancy only
and are not otherwise considered "rendered to the occupant" of the property. The
Company does not and will not, and as general partner of the Operating
Partnership, has not and will not permit the Operating Partnership to (i) charge
rent for any property that is based in whole or in part on the income or profits
of any person (except by reason of rent being based on a percentage of receipts
or sales, as described above), (ii) rent any property to a Related Party Tenant,
(iii) derive rental income attributable to personal property (other than
personal property leased in connection with the lease of real property, the
amount of which is less than 15% of the total rent received under the lease) or
(iv) perform services considered to be rendered to the occupant of the property,
other than through an independent contractor from whom the Company derives no
revenue. Notwithstanding the foregoing, the Company may have taken and may
continue to take certain of the actions set forth in (i) through (iv) above to
the extent such actions will not, based on the advice of tax counsel to the
Company, jeopardize the Company's status as a REIT.
The term "interest" generally does not include any amount received or
accrued (directly or indirectly) if the determination of such amount depends in
whole or in part on the income or profits of any person. However, an amount
received or accrued generally will not be excluded from the term "interest'
solely by reason of it being based on a fixed percentage or percentages of
receipts or sales. The Company has not derived
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and does not expect to derive significant amounts of interest that fail to
qualify under the 75% or 95% gross income tests.
The Investment Management Partnership conducts the asset management
business and receives fees (including incentive fees) in exchange for the
provision of certain services to asset management clients. Such fees do not
accrue to the Company, but the Company derives its allocable share of dividend
income from AMB Investment Management through its interest in the Operating
Partnership. Such dividend income qualifies under the 95%, but not the 75%, REIT
gross income test. The Operating Partnership may provide certain management or
administrative services to the Investment Management Partnership. The fees
derived by the Operating Partnership as a result of the provision of such
services will be nonqualifying income to the Company under both the 95% and 75%
REIT income tests. The amount of such dividend and fee income will depend on a
number of factors which cannot be determined with certainty, including the level
of services provided by the Investment Management Partnership and the Operating
Partnership. The Company will monitor the amount of the dividend income from the
Investment Management Subsidiary and the fee income described above, and will
take actions intended to keep this income (and any other nonqualifying income)
within the limitations of the REIT income tests. However, there can be no
assurance that such actions will in all cases prevent the Company from violating
a REIT income test.
If the Company fails to satisfy one or both of the 75% or 95% gross income
tests for any taxable year, it may nevertheless qualify as a REIT for such year
if it is entitled to relief under certain provisions of the Code. These relief
provisions will be generally available if the Company's failure to meet such
tests was due to reasonable cause and not due to willful neglect, the Company
attaches a schedule of the sources of its income to its Federal income tax
return, and any incorrect information on the schedule was not due to fraud with
intent to evade tax. It is not possible, however, to state whether in all
circumstances the Company would be entitled to the benefit of these relief
provisions. For example, if the Company fails to satisfy the gross income tests
because nonqualifying income that the Company intentionally incurs exceeds the
limits on such income, the IRS could conclude that the Company's failure to
satisfy the tests was not due to reasonable cause. If these relief provisions
are inapplicable to a particular set of circumstances involving the Company, the
Company would not qualify as a REIT. As discussed above in "Material Federal
Income Tax Consequences -- Taxation of the Company -- General," even if these
relief provisions apply, a 100% tax would be imposed on an amount equal to (a)
the gross income attributable to the greater of the amount by which the Company
failed the 75% or 95% test multiplied by (b) a fraction intended to reflect the
Company's profitability.
Any gain realized by the Company on the sale of any property held as
inventory or other property held primarily for sale to customers in the ordinary
course of business (including the Company's share of any such gain realized by
the Operating Partnership) will be treated as income from a prohibited
transaction that is subject to a 100% penalty tax. Such prohibited transaction
income may also have an adverse effect upon the Company's ability to satisfy the
income tests for qualification as a REIT. Under existing law, whether property
is held as inventory or primarily for sale to customers in the ordinary course
of a trade or business is a question of fact that depends on all the facts and
circumstances with respect to the particular transaction. The Company holds the
Properties for investment with a view to long-term appreciation, engages in the
business of acquiring, developing, owning and operating the Properties (and
other properties) and makes such occasional sales of the Properties as are
consistent with the Company's investment objectives. There can be no assurance,
however, that the IRS might not contend that one or more of such sales is
subject to the 100% penalty tax.
Asset Tests. The Company, at the close of each quarter of its taxable year,
must also satisfy three tests relating to the nature of its assets. First, at
least 75% of the value of the Company's total assets must be represented by real
estate assets (including (i) its allocable share of assets held by partnerships
in which the Company owns a direct or indirect interest, including the Operating
Partnership and the Joint Ventures and (ii) stock or debt instruments held for
not more than one year purchased with the proceeds of a stock offering or
long-term (at least five years) public debt offering of the Company), cash, cash
items and government securities. Second, not more than 25% of the Company's
total assets may be represented by securities other than those in the 75% asset
class. Third, of the investments included in the 25% asset class, the value of
any
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one issuer's securities owned by the Company may not exceed 5% of the value of
the Company's total assets and the Company may not own more than 10% of any one
issuer's outstanding voting securities.
As described above, the Operating Partnership owns 100% of the non-voting
preferred stock of AMB Investment Management, and by virtue of its ownership of
interests in the Operating Partnership, the Company is considered to own its pro
rata share of such stock. See "Structure of the Company." The stock of AMB
Investment Management held by the Company (through the Operating Partnership) is
not a qualifying real estate asset. The Operating Partnership does not and will
not own any of the voting securities of AMB Investment Management, and therefore
the Company (through the Operating Partnership) will not be considered to own
more than 10% of the voting securities of AMB Investment Management. In
addition, the Company believes (and has represented to tax counsel to the
Company for purposes of its opinion, as described above) that the value of its
pro rata share of the securities of AMB Investment Management held by the
Operating Partnership does not exceed 5% of the total value of the Company's
assets, and will not exceed such amount in the future. Tax counsel, in rendering
its opinion as to the qualification of the Company as a REIT, has relied on the
representation of the Company to such effect. No independent appraisals have
been obtained to support this conclusion. There can be no assurance that the IRS
will not contend that the value of the securities of AMB Investment Management
held by the Company (through the Operating Partnership) exceeds the 5% value
limitation. The 5% value test must be satisfied not only on the date that the
Company (directly or through the Operating Partnership) acquires securities in
AMB Investment Management, but also each time the Company increases its
ownership of securities of AMB Investment Management, including as a result of
increasing its interest in the Operating Partnership. For example, the Company's
indirect ownership of securities of AMB Investment Management will increase as a
result of the Company's capital contributions to the Operating Partnership (such
as the contribution of the net proceeds of the Offering) or as limited partners
exercise their redemption/exchange rights. Although the Company believes that it
presently satisfies the 5% value test and plans to take steps to ensure that it
satisfies such test for any quarter with respect to which retesting is to occur,
there can be no assurance that such steps will always be successful, or will not
require a reduction in the Operating Partnership's overall interest in AMB
Investment Management.
In addition, President Clinton's 1999 Federal budget proposal contains a
provision which would amend the REIT asset tests so as to prohibit REITs from
owning stock of a corporation possessing more than 10% of the vote or value of
all classes of stock of the corporation (other than a QRS or another REIT). This
proposal would be effective with respect to stock acquired on or after the date
of the first Congressional committee action with respect to the proposal (the
"Action Date"). In addition, to the extent that a REIT's stock ownership is
grandfathered by virtue of this effective date, such grandfathered status would
terminate if the subsidiary corporation engages in a trade or business that it
is not engaged in on the Action Date or acquires substantial new assets on or
after such date. Accordingly, if this provision of the budget proposal is
enacted in its present form, the Company's stock ownership in AMB Investment
Management would be grandfathered, but such grandfathered status would terminate
if AMB Investment Management engages in a trade or business that it is not
engaged in on the Action Date or acquires substantial new assets on or after
such date, even if such activities are undertaken prior to the adoption of the
proposal. It is presently uncertain whether any proposal regarding REIT
subsidiaries, such as AMB Investment Management, will be enacted, or if enacted,
what the terms of such proposal (including its effective date) will be.
After initially meeting the asset tests at the close of any quarter, the
Company will not lose its status as a REIT for failure to satisfy the asset
tests at the end of a later quarter solely by reason of changes in asset values.
If the failure to satisfy the asset tests results from an acquisition of
securities or other property during a quarter (including as a result of the
Company increasing its interest in the Operating Partnership), the failure can
be cured by the disposition of sufficient nonqualifying assets within 30 days
after the close of that quarter. The Company intends to maintain adequate
records of the value of its assets to ensure compliance with the asset tests and
to take such other actions within 30 days after the close of any quarter as may
be required to cure any noncompliance. If the Company fails to cure
noncompliance with the asset tests within such time period, the Company would
cease to qualify as a REIT.
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Annual Distribution Requirements. The Company, in order to qualify as a
REIT, is required to distribute dividends (other than capital gain dividends) to
its stockholders in an amount at least equal to (i) the sum of (a) 95% of the
Company's "REIT taxable income" (computed without regard to the dividends paid
deduction and by excluding the Company's net capital gain) and (b) 95% of the
excess of the net income, if any, from foreclosure property over the tax imposed
on such income, minus (ii) the excess of the sum of certain items of noncash
income (i.e., income attributable to leveled stepped rents, original issue
discount or purchase money debt, or a like-kind exchange that is later
determined to be taxable) over 5% of "REIT taxable income" as described in
clause (i)(a) above. In addition, if the Company disposes of any Built-In Gain
Asset during its Recognition Period, the Company will be required, pursuant to
Treasury Regulations which have not yet been promulgated, to distribute at least
95% of the Built-In Gain (after tax), if any, recognized on the disposition of
such asset. Such distributions must be paid in the taxable year to which they
relate, or in the following taxable year if declared before the Company timely
files its tax return for such year and if paid on or before the first regular
dividend payment after such declaration. Such distributions are taxable to
holders of the Company's capital stock (other than tax-exempt entities, as
discussed below) in the year in which paid, even though such distributions
relate to the prior year for purposes of the Company's 95% distribution
requirement. The amount distributed must not be preferential -- i.e., each
holder of shares of Common Stock must receive the same distribution per share,
and each holder of shares of Series A Preferred Stock must receive the same
distribution per share. To the extent that the Company does not distribute all
of its net capital gain or distributes at least 95%, but less than 100%, of its
"REIT taxable income," as adjusted, it will be subject to tax thereon at regular
ordinary and capital gain corporate tax rates. The Company currently makes
timely distributions sufficient to satisfy these annual distribution
requirements. In this regard, the Partnership Agreement authorizes the Company,
as general partner, to take such steps as may be necessary to cause the
Operating Partnership to distribute to its partners an amount sufficient to
permit the Company to meet these distribution requirements.
It is expected that the Company's REIT taxable income will be less than its
cash flow due to the allowance of depreciation and other non-cash charges in
computing REIT taxable income. Accordingly, the Company anticipates that it will
generally have sufficient cash or liquid assets to enable it to satisfy the
distribution requirements described above. It is possible, however, that the
Company, from time to time, may not have sufficient cash or other liquid assets
to meet these distribution requirements due to timing differences between (i)
the actual receipt of income and actual payment of deductible expenses and (ii)
the inclusion of such income and deduction of such expenses in arriving at
taxable income of the Company. In the event that such timing differences occur,
in order to meet the distribution requirements, the Company may find it
necessary to arrange for short-term, or possibly long-term, borrowings or to pay
dividends in the form of taxable stock dividends.
If the Company fails to meet the 95% distribution test due to certain
adjustments (e.g., an increase in the Company's income or a decrease in its
deduction for dividends paid) by reason of a judicial decision or by agreement
with the IRS, the Company may be able to pay a "deficiency dividend" to its
stockholders in the taxable year of the adjustment, which dividend would relate
back to the year being adjusted. In such case, the Company would also be
required to pay interest to the IRS and would be subject to any applicable
penalty provisions.
Furthermore, if the Company should fail to distribute during each calendar
year (or in the case of distributions with declaration and record dates falling
in the last three months of the calendar year, by the end of the following
January) at least the sum of (i) 85% of its REIT ordinary income for such year,
(ii) 95% of its REIT capital gain income for such year and (iii) any
undistributed taxable income from prior periods, the Company would be subject to
a 4% excise tax on the excess of such required distribution over the amounts
actually distributed. Any REIT taxable income and net capital gain on which this
excise tax is imposed for any year is treated as an amount distributed during
that year for purposes of calculating such tax.
Earnings and Profits Distribution Requirement. In order to qualify as a
REIT, the Company cannot have at the end of any taxable year any undistributed
"earnings and profits" that are attributable to a "C corporation" taxable year
(i.e., a year in which a corporation is neither a REIT nor an S corporation). In
connection with the Formation Transactions, the Company succeeded to various tax
attributes of AMB, CIF
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and VAF (if the mergers of CIF and VAF into AMB (the "Private REIT Mergers")
were treated as tax-free reorganizations under the Code), including any
undistributed C corporation earnings and profits of such corporations. If AMB
qualified as an S corporation for each year in which its activities would have
created earnings and profits, and each of CIF and VAF qualified as a REIT during
its existence and its Merger into the Company was treated as a tax-free
reorganization under the Code, then such corporations would not have any
undistributed C corporation earnings and profits. If, however, (i) either CIF or
VAF failed to qualify as a REIT throughout the duration of its existence, or
(ii) AMB failed to qualify as an S corporation for any year in which its
activities would have created earnings and profits, then the Company would have
acquired undistributed C corporation earnings and profits that, if not
distributed by the Company prior to the end of its first taxable year, would
prevent the Company from qualifying as a REIT.
The Company believes that each of CIF and VAF qualified as a REIT
throughout the duration of its existence and that, in any event, neither CIF nor
VAF had any undistributed C corporation earnings and profits at the time of the
applicable Private REIT Merger. The Company believes that AMB qualified as an S
corporation since its 1989 taxable year and that its activities prior to such
year did not create any earnings and profits. In addition, in connection with
the IPO, counsel to CIF and VAF rendered opinions with respect to each such
corporation's qualification as a REIT for Federal income tax purposes, and
Latham & Watkins rendered an opinion with respect to AMB's status as an S
corporation for Federal income tax purposes. Such opinions were based on certain
representations and assumptions. There can be no assurance, however, that the
IRS would not contend otherwise on a subsequent audit of one or more of AMB, CIF
or VAF.
FAILURE OF THE COMPANY TO QUALIFY AS A REIT
If the Company fails to qualify for taxation as a REIT in any taxable year,
and the relief provisions do not apply, the Company will be subject to tax
(including any applicable alternative minimum tax) on its taxable income at
regular corporate rates. Distributions to stockholders in any year in which the
Company fails to qualify will not be deductible by the Company nor will they be
required to be made. As a result, the Company's failure to qualify as a REIT
would substantially reduce the cash available for distribution by the Company to
its stockholders. In addition, if the Company fails to qualify as a REIT, all
distributions to stockholders will be taxable as ordinary income to the extent
of the Company's current and accumulated earnings and profits and, subject to
certain limitations of the Code, corporate distributees may be eligible for the
dividends-received deduction. Unless entitled to relief under specific statutory
provisions, the Company would also be disqualified from taxation as a REIT for
the four taxable years following the year during which qualification was lost.
It is not possible to state whether in all circumstances the Company would be
entitled to such statutory relief. In addition, a recent Federal budget proposal
contains a provision which, if enacted in its present form, would result in the
immediate taxation of all gain inherent in a C corporation's assets upon an
election by the corporation to become a REIT in taxable years beginning after
January 1, 1999, and thus could effectively preclude the Company from
re-electing to be taxed as a REIT following a loss of its REIT status.
TAX ASPECTS OF THE OPERATING PARTNERSHIP AND THE JOINT VENTURES
General. Substantially all of the Company's investments are held indirectly
through the Operating Partnership. In addition, the Operating Partnership holds
certain of its investments indirectly through the Joint Ventures. In general,
partnerships are "pass-through" entities which are not subject to Federal income
tax. Rather, partners are allocated their proportionate shares of the items of
income, gain, loss, deduction and credit of a partnership, and are potentially
subject to tax thereon, without regard to whether the partners receive a
distribution from the partnership. The Company includes in its income its
proportionate share of the foregoing partnership items for purposes of the
various REIT income tests and in the computation of its REIT taxable income.
Moreover, for purposes of the REIT asset tests, the Company includes its
proportionate share of assets held by the Operating Partnership and the Joint
Ventures. See "-- Taxation of the Company -- Ownership of Partnership Interests
by a REIT."
Entity Classification. The Company's interests in the Operating Partnership
and the Joint Ventures involve special tax considerations, including the
possibility of a challenge by the IRS of the status of any of such partnerships
as a partnership (as opposed to an association taxable as a corporation) for
Federal income
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tax purposes. If the Operating Partnership or any of the Joint Ventures were
treated as an association, it would be taxable as a corporation and therefore be
subject to an entity-level tax on its income. In such a situation, the character
of the Company's assets and items of gross income would change and preclude the
Company from satisfying the asset tests and possibly the income tests (see
"Taxation of the Company -- Requirements for Qualification" and "-- Asset Tests"
and "-- Income Tests"), and, in turn, would prevent the Company from qualifying
as a REIT. See "-- Taxation of the Company -- Failure of the Company to Qualify
as a REIT" above for a discussion of the effect of the Company's failure to meet
such tests for a taxable year. In addition, a change in the status of the
Operating Partnership or any of the Joint Ventures for tax purposes might be
treated as a taxable event, in which case the Company might incur a tax
liability without any related cash distributions.
The IRS has issued certain Treasury Regulations (the "Final Regulations")
which provide that a domestic business entity not otherwise classified as a
corporation and which has at least two members (an "Eligible Entity") may elect
to be taxed as a partnership for Federal income tax purposes. The Final
Regulations apply for tax periods beginning on or after January 1, 1997 (the
"Effective Date"). The Company has not requested, and does not intend to
request, a ruling from the IRS that the Operating Partnership or any of the
Joint Ventures will be treated as a partnership for Federal income tax purposes.
However, the Company believes that the Operating Partnership and each of the
Joint Ventures will be so treated.
Allocations of Operating Partnership Income, Gain, Loss and Deduction. The
Partnership Agreement generally provides that all items of operating income and
loss shall be allocated to its partners in proportion to the number of Units or
Performance Units held by each Unitholder. The allocation of gain or loss
relating to the disposition of the Operating Partnership's assets upon
liquidation is allocated first to the partners in the amounts necessary, in
general, to equalize the Company's and the limited partners' per unit capital
accounts, with any special allocation of gain to the holders of Performance
Units being offset by a reduction in the gain allocation to the Company and
Unitholders which were Performance Investors. However, the Partnership Agreement
will be amended to provide for preferred distributions of cash and preferred
allocations of income to the Company in an amount equal to the dividends payable
by the Company on the Series A Preferred Stock. As a consequence, the Company
will receive distributions from the Operating Partnership sufficient to pay
dividends on Series A Preferred Stock before any other partner in the Operating
Partnership receives a distribution. In addition, if necessary, income will be
specially allocated to the Company and losses will be allocated to the other
partners of the Operating Partnership in amounts necessary to ensure that the
balance in the Company's capital account will at all times be equal to or in
excess of the amount payable by the Company on the Series A Preferred Stock upon
liquidation or redemption.
Although a partnership agreement will generally determine the allocation of
income and loss among partners, such allocations will be disregarded for tax
purposes if they do not comply with the provisions of Section 704(b) of the Code
and the Treasury Regulations promulgated thereunder. Generally, Section 704(b)
and the Treasury Regulations promulgated thereunder require that partnership
allocations respect the economic arrangement of the partners. Accordingly, as
required by Section 704(b) of the Code, the Partnership Agreement provides for
certain "regulatory" allocations which, among other things, may defer the
allocation of losses to the limited partners of the Operating Partnership. If an
allocation is not respected under Section 704(b) of the Code for Federal income
tax purposes, the item subject to the allocation will be reallocated in
accordance with the partners' interests in the partnership, which will be
determined by taking into account all of the facts and circumstances relating to
the economic arrangement of the partners with respect to such item. The
allocations of taxable income and loss provided for in the Partnership Agreement
are intended to comply with the requirements of Section 704(b) of the Code and
the Treasury Regulations promulgated thereunder.
Pursuant to Section 704(c) of the Code, income, gain, loss and deduction
attributable to appreciated or depreciated property that is contributed to a
partnership in exchange for an interest in the partnership must be allocated in
a manner such that the contributing partner is charged with, or benefits from,
respectively, the unrealized gain or unrealized loss associated with the
property at the time of the contribution. The amount of such unrealized gain or
unrealized loss is generally equal to the difference between the fair market
value of contributed property at the time of contribution and the adjusted tax
basis of such property at such time (a
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"Book-Tax Difference"). Such allocations are solely for Federal income tax
purposes and do not affect the book capital accounts or other economic or legal
arrangements among the partners. The Operating Partnership was formed by way of
contributions of property (such as the property contributed by certain
Individual Account Investors, property contributed by the Company, which the
Company acquired as successor to CIF and VAF, if the Private REIT Mergers
qualified as tax-free reorganizations, and property contributed by certain other
parties subsequent to the Formation Transactions) which had a fair market value
which differed from its adjusted tax basis at the time of contribution.
Consequently, the Partnership Agreement requires that such allocations be made
in a manner consistent with Section 704(c) of the Code.
In general, the partners of the Operating Partnership who contributed
assets having an adjusted tax basis less than their fair market value at the
time of contribution will be allocated depreciation deductions for tax purposes
which are lower than such deductions would have been if determined on a pro rata
basis. In addition, in the event of the disposition of any of the contributed
assets which have such a Book-Tax Difference, all income attributable to such
Book-Tax Difference generally will be allocated to such contributing partners.
These allocations will tend to eliminate the Book-Tax Difference over the life
of the Operating Partnership. However, the special allocation rules of Section
704(c) do not always entirely eliminate the Book-Tax Difference on an annual
basis or with respect to a specific taxable transaction such as a sale. Thus,
the carryover basis of the contributed assets in the hands of the Operating
Partnership may cause the Company or other partners to be allocated lower
depreciation and other deductions, and possibly an amount of taxable income in
the event of a sale of such contributed assets in excess of the economic or book
income allocated to it as a result of such sale. Such an allocation might cause
the Company or other partners to recognize taxable income in excess of cash
proceeds, which might adversely affect the Company's ability to comply with the
REIT distribution requirements. See "-- Taxation of the Company -- Requirements
for Qualification" and "-- Annual Distribution Requirements."
Treasury Regulations under Section 704(c) of the Code provide a partnership
with a choice of several methods of accounting for Book-Tax Differences,
including retention of the "traditional method" or the election of certain
methods which would permit any distortions caused by a Book-Tax Difference to be
entirely rectified on an annual basis or on a specific taxable transaction such
as a sale. The Operating Partnership and the Company intend to use the
"traditional method" to account for Book-Tax Differences with respect to the
Properties which have previously been contributed to the Operating Partnership,
but they have not yet determined which method they will use to account for
Book-Tax Differences with respect to properties to be contributed to the
Operating Partnership in the future.
With respect to any property purchased for cash by the Operating
Partnership, such property will initially have a tax basis equal to its fair
market value, and Section 704(c) of the Code will not apply.
TAXATION OF TAXABLE U.S. STOCKHOLDERS GENERALLY
As used herein, the term "U.S. Stockholder" means a holder of shares of
Series A Preferred Stock who (for United States Federal income tax purposes) (i)
is a citizen or resident of the United States, (ii) is a corporation,
partnership or other entity created or organized in or under the laws of the
United States or of any state thereof or the District of Columbia (unless, in
the case of a partnership, Treasury Regulations provide otherwise), (iii) is an
estate the income of which is subject to United States Federal income taxation
regardless of its source or (iv) is a trust the administration of which is
subject to the primary supervision of a United States court and which has one or
more United States persons who have the authority to control all substantial
decisions of the trust. Notwithstanding the preceding sentence, to the extent
provided in regulations, certain trusts in existence on August 20, 1996, and
treated as United States persons prior to such date that elect to continue to be
treated as United States persons, shall also be considered U.S. Stockholders.
Dividends and Other Distributions. As long as the Company qualifies as a
REIT, distributions made by the Company out of its current or accumulated
earnings and profits (and not designated as capital gain dividends) will
constitute dividends taxable to taxable U.S. Stockholders as ordinary income.
Such distributions will not be eligible for the dividends-received deduction
otherwise available with respect to dividends received by U.S. Stockholders that
are corporations. For purposes of determining whether distributions are out
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of current or accumulated earnings and profits, the earnings and profits of the
Company will be allocated first to the Series A Preferred Stock and then to the
Company's Common Stock.
If the Company properly designates any portion of a dividend as a "capital
gain dividend," a holder's share of such capital gain dividend would be an
amount which bears the same ratio to the total amount of dividends paid to such
holder for the year as the aggregate amount designated as a capital gain
dividend bears to the aggregate amount of all dividends paid on all classes of
shares of the Company's capital stock for the year. Distributions made by the
Company that are treated as capital gain dividends will be taxable to taxable
U.S. Stockholders as gains (to the extent that they do not exceed the Company's
actual net capital gain for the taxable year) from the sale or disposition of a
capital asset. Depending upon the period of time that the Company held the
assets to which such gains were attributable, and upon certain designations, if
any, which may be made by the Company, such gains may be taxable to
non-corporate U.S. Stockholders at a rate of either 20%, 25% or 28%. U.S.
Stockholders that are corporations may, however, be required to treat up to 20%
of certain capital gain dividends as ordinary income. To the extent that the
Company makes distributions (not designated as capital gain dividends) in excess
of its current and accumulated earnings and profits, such distributions will be
treated first as a tax-free return of capital to each U.S. Stockholder, reducing
the adjusted basis which such U.S. Stockholder has in his or her shares of
Series A Preferred Stock for tax purposes by the amount of such distribution
(but not below zero), with distributions in excess of a U.S. Stockholder's
adjusted basis in his shares taxable as capital gains (provided that the shares
have been held as a capital asset). With respect to non-corporate U.S.
Stockholders, amounts described as being treated as capital gains in the
preceding sentence will be taxable as long-term capital gains if the shares to
which such gains are attributable have been held for more than eighteen months,
mid-term capital gains if such shares have been held for more than one year but
not more than eighteen months, or short-term capital gains if such shares have
been held for one year or less). Dividends declared by the Company in October,
November or December of any year and payable to a stockholder of record on a
specified date in any such month shall be treated as both paid by the Company
and received by the stockholder on December 31 of such year; provided that the
dividend is actually paid by the Company on or before January 31 of the
following calendar year. Stockholders may not include in their own income tax
returns any net operating losses or capital losses of the Company.
Distributions made by the Company and gain arising from the sale or
exchange by a U.S. Stockholder of shares of Series A Preferred Stock will not be
treated as passive activity income, and, as a result, U.S. Stockholders
generally will not be able to apply any "passive losses" against such income or
gain. Distributions made by the Company (to the extent they do not constitute a
return of capital) generally will be treated as investment income for purposes
of computing the investment interest limitation. Gain arising from the sale or
other disposition of Series A Preferred Stock (or distributions treated as
such), however, will not be treated as investment income under certain
circumstances.
The Company may elect to retain, rather than distribute as a capital gain
dividend, its net long-term capital gains. In such event, the Company would pay
tax on such retained net long-term capital gains. In addition, to the extent
designated by the Company, a U.S. Stockholder generally would (i) include its
proportionate share of such undistributed long-term capital gains in computing
its long-term capital gains in its return for its taxable year in which the last
day of the Company's taxable year falls (subject to certain limitations as to
the amount so includable), (ii) be deemed to have paid the capital gains tax
imposed on the Company on the designated amounts included in such U.S.
Stockholder's long-term capital gains, (iii) receive a credit or refund for such
amount of tax deemed paid by it, (iv) increase the adjusted basis of its shares
of Series A Preferred Stock by the difference between the amount of such
includable gains and the tax deemed to have been paid by it and (v) in the case
of a U.S. Stockholder that is a corporation, appropriately adjust its earnings
and profits for the retained capital gains in accordance with Treasury
Regulations to be prescribed by the IRS.
Upon any sale, exchange or other disposition of Series A Preferred Stock to
or with a person other than the Company, a U.S. Stockholder will generally
recognize gain or loss for federal income tax purposes in an amount equal to the
difference between (i) the amount of cash and the fair market value of any other
property received on such sale or other disposition (less any portion thereof
attributable to accumulated and declared but unpaid distributions that the
selling stockholder is entitled to receive, which would have been character-
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ized as a dividend to the extent of the Company's current and accumulated
earnings and profits) and (ii) the holder's adjusted tax basis in such shares of
Series A Preferred Stock for tax purposes. Such gain or loss will be capital
gain or loss if the shares have been held by the U.S. Stockholder as a capital
asset, and, in the case of a non-corporate U.S. Stockholder, will be mid-term or
long-term gain or loss if such shares have been held for more than one year or
more than eighteen months, respectively. In general, any loss recognized by a
U.S. Stockholder upon the sale or other disposition of shares of Series A
Preferred Stock that have been held for six months or less (after applying
certain holding period rules) will be treated as a long-term capital loss, to
the extent of distributions received by such U.S. Stockholder from the Company
which were required to be treated as long-term capital gains.
Redemption of Series A Preferred Stock. A redemption of shares of the
Series A Preferred Stock will be treated under Section 302 of the Code as a
distribution taxable as a dividend (to the extent of the Company's current and
accumulated earnings and profits) at ordinary income rates unless the redemption
satisfies one of the tests set forth in Section 302(b) of the Code and is
therefore treated as a sale or exchange of the redeemed shares. The redemption
will be treated as a sale or exchange if it (i) is "substantially
disproportionate" with respect to the holder, (ii) results in a "complete
termination" of the holder's stock interest in the Company or (iii) is "not
essentially equivalent to a dividend" with respect to the holder, all within the
meaning of Section 302(b) of the Code. In determining whether any of these tests
have been met, shares of capital stock (including Common Stock and other equity
interests in the Company) considered to be owned by the holder by reason of
certain constructive ownership rules set forth in the Code, as well as shares of
capital stock actually owned by the holder, must generally be taken into
account. Because the determination as to whether any of the alternative tests of
Section 302(b) of the Code will be satisfied with respect to any particular
holder of the Series A Preferred Stock depends upon the facts and circumstances
at the time that the determination must be made, prospective holders of the
Series A Preferred Stock are advised to consult their own tax advisors to
determine such tax treatment.
If a redemption of shares of the Series A Preferred Stock is not treated as
a distribution taxable as a dividend to a particular holder, it will be treated,
as to that holder, as a taxable sale or exchange. As a result, such holder will
recognize gain or loss for federal income tax purposes in an amount equal to the
difference between (i) the amount of cash and the fair market value of any
property received (less any portion thereof attributable to accumulated and
declared but unpaid dividends, which will be taxable as a dividend to the extent
of the Company's current and accumulated earnings and profits) and (ii) the
holder's adjusted basis in the shares of the Series A Preferred Stock for tax
purposes. Such gain or loss will be capital gain or loss if the shares have been
held as a capital asset, and, in the case of a non-corporate U.S. Stockholder,
will be mid-term or long-term capital gain or loss if such shares have been held
for more than one year or more than eighteen months, respectively. In general,
any loss recognized by a U.S. Stockholder upon a redemption treated as a sale or
exchange of shares of Series A Preferred Stock that have been held for six
months or less (after applying certain holding period rules) will be treated as
long-term capital loss, to the extent of distributions received by such U.S.
Stockholder from the Company which were required to be treated as long-term
capital gains.
If a redemption of shares of the Series A Preferred Stock is treated as a
distribution taxable as a dividend, the amount of the distribution will be
measured by the amount of cash and the fair market value of any property
received by the holder. The holder's adjusted basis in the redeemed shares of
the Series A Preferred Stock for tax purposes will be transferred to the
holder's remaining shares of capital stock in the Company, if any. If the holder
owns no other shares of capital stock in the Company, such basis may, under
certain circumstances, be transferred to a related person or it may be lost
entirely.
Backup Withholding. The Company reports to its U.S. Stockholders and the
IRS the amount of dividends paid during each calendar year, and the amount of
tax withheld, if any. Under the backup withholding rules, a stockholder may be
subject to backup withholding at the rate of 31% with respect to dividends paid
unless such holder (i) is a corporation or comes within certain other exempt
categories and, when required, demonstrates this fact, or (ii) provides a
taxpayer identification number, certifies as to no loss of exemption from backup
withholding, and otherwise complies with applicable requirements of the backup
withholding rules. A U.S. Stockholder that does not provide the Company with his
correct taxpayer
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identification number may also be subject to penalties imposed by the IRS.
Backup withholding is not an additional tax. Any amount paid as backup
withholding will be creditable against the stockholder's income tax liability.
In addition, the Company may be required to withhold a portion of capital gain
distributions to any stockholders who fail to certify their non-foreign status
to the Company. See "-- Taxation of Non-U.S. Stockholders."
Taxation of Tax-Exempt Stockholders. The IRS has ruled that amounts
distributed as dividends by a qualified REIT do not constitute unrelated
business taxable income ("UBTI") when received by a tax-exempt entity. Based on
that ruling, provided that a tax-exempt stockholder (except certain tax-exempt
stockholders described below) has not held its shares of Series A Preferred
Stock as "debt financed property" within the meaning of the Code and such shares
are not otherwise used in a trade or business, the dividend income from the
Company will not be UBTI to a tax-exempt stockholder. Similarly, income from the
sale of Series A Preferred Stock will not constitute UBTI unless such tax-exempt
stockholder has held such shares as "debt financed property" within the meaning
of the Code or has used the shares in a trade or business.
For tax-exempt stockholders which are social clubs, voluntary employee
benefit associations, supplemental unemployment benefit trusts or qualified
group legal services plans exempt from Federal income taxation under Code
Sections 501(c)(7), (c)(9), (c)(17) or (c)(20), respectively, income from an
investment in the Company will constitute UBTI unless the organization is able
to properly deduct amounts set aside or placed in reserve for certain purposes
so as to offset the income generated by its investment in the Company. Such
prospective investors should consult their own tax advisors concerning these
"set aside" and reserve requirements.
Notwithstanding the above, however, a portion of the dividends paid by a
"pension held REIT" shall be treated as UBTI as to any trust which (i) is
described in Section 401(a) of the Code, (ii) is tax-exempt under Section 501(a)
of the Code and (iii) holds more than 10% (by value) of the interests in the
REIT. Tax-exempt pension funds that are described in Section 401(a) of the Code
are referred to below as "qualified trusts."
A REIT is a "pension held REIT" if (i) it would not have qualified as a
REIT but for the fact that Section 856(h)(3) of the Code provides that stock
owned by qualified trusts shall be treated, for purposes of the "not closely
held" requirement, as owned by the beneficiaries of the trust (rather than by
the trust itself), and (ii) either (a) at least one such qualified trust holds
more than 25% (by value) of the interests in the REIT, or (b) one or more such
qualified trusts, each of which owns more than 10% (by value) of the interests
in the REIT, hold in the aggregate more than 50% (by value) of the interests in
the REIT. The percentage of any REIT dividend treated as UBTI is equal to the
ratio of (i) the UBTI earned by the REIT (treating the REIT as if it were a
qualified trust and therefore subject to tax on UBTI) to (ii) the total gross
income of the REIT. A de minimis exception applies where the percentage is less
than 5% for any year. The provisions requiring qualified trusts to treat a
portion of REIT distributions as UBTI will not apply if the REIT is able to
satisfy the "not closely held" requirement without relying upon the
"look-through" exception with respect to qualified trusts. As a result of
certain limitations on transfer and ownership of Common Stock and Series A
Preferred Stock contained in the Articles of Incorporation and the Articles
Supplementary, the Company does not expect to be classified as a "pension held
REIT."
TAXATION OF NON-U.S. STOCKHOLDERS
The rules governing United States Federal income taxation of the ownership
and disposition of stock by persons that are, for purposes of such taxation,
nonresident alien individuals, foreign corporations, foreign partnerships or
foreign estates or trusts (collectively, "Non-U.S. Stockholders") are complex,
and no attempt is made herein to provide more than a brief summary of such
rules. Accordingly, the discussion does not address all aspects of United States
Federal income tax and does not address state, local or foreign tax consequences
that may be relevant to a Non-U.S. Stockholder in light of its particular
circumstances, including, for example, if the investment in the Company is
connected to the conduct by a Non-U.S. Stockholder of a U.S. trade or business.
In addition, this discussion is based on current law, which is subject to
change, and assumes that the Company qualifies for taxation as a REIT.
Prospective Non-U.S. Stockholders
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should consult with their own tax advisors to determine the impact of Federal,
state, local and foreign income tax laws with regard to an investment in the
Series A Preferred Stock, including any reporting requirements.
Distributions. Distributions by the Company to a Non-U.S. Stockholder that
are neither attributable to gain from sales or exchanges by the Company of
United States real property interests nor designated by the Company as capital
gains dividends will be treated as dividends of ordinary income to the extent
that they are made out of current or accumulated earnings and profits of the
Company. Such distributions ordinarily will be subject to withholding of United
States Federal income tax on a gross basis (that is, without allowance of
deductions) at a 30% rate or such lower rate as may be specified by an
applicable income tax treaty, unless the dividends are treated as effectively
connected with the conduct by the Non-U.S. Stockholder of a United States trade
or business or, if an income tax treaty applies, as attributable to a United
States permanent establishment of the Non-U.S. Stockholder. Dividends that are
effectively connected with such a United States trade or business (or, if an
income tax treaty applies, that are attributable to a United States permanent
establishment of the Non-U.S. Stockholder) will be subject to tax on a net basis
(that is, after allowance of deductions) at graduated rates, in the same manner
as U.S. Stockholders are taxed with respect to such dividends and are generally
not subject to withholding. Any such dividends received by a Non-U.S.
Stockholder that is a corporation may also be subject to an additional branch
profits tax at a 30% rate or such lower rate as may be specified by an
applicable income tax treaty.
Pursuant to current Treasury Regulations, dividends paid to an address in a
country outside the United States are generally presumed to be paid to a
resident of such country for purposes of determining the applicability of
withholding discussed above and the applicability of a tax treaty rate. Under
certain treaties, lower withholding rates generally applicable to dividends do
not apply to dividends from a REIT, such as the Company. Certain certification
and disclosure requirements must be satisfied to be exempt from withholding
under the effectively connected income and permanent establishment exemptions
discussed above.
Distributions in excess of current and accumulated earnings and profits of
the Company will not be taxable to a Non-U.S. Stockholder to the extent that
such excess distributions do not exceed the adjusted basis of the stockholder's
Series A Preferred Stock, but rather will reduce the adjusted basis of such
stock. If, at the time of the distribution, the Company is not a
"domestically-controlled REIT," then the Series A Preferred Stock will
constitute a "United States real property interest" and the distribution will
therefore be subject to the Foreign Investment in Real Property Tax Act of 1980
("FIRPTA"). See "-- Sale of Series A Preferred Stock" below. For FIRPTA
withholding purposes (discussed below), such distributions (i.e., distributions
that are not made out of earnings and profits) will be treated as consideration
for the sale or exchange of shares of Series A Preferred Stock. To the extent
that such distributions exceed the adjusted basis of a Non-U.S. Stockholder's
Series A Preferred Stock, they will give rise to gain from the sale or exchange
of his or her stock, the tax treatment of which is described below. If it cannot
be determined at the time a distribution is made whether or not such
distribution will be in excess of current and accumulated earnings and profits,
the distribution will generally be treated as a dividend for withholding
purposes. However, amounts thus withheld are generally refundable if it is
subsequently determined that such distribution was, in fact, in excess of
current and accumulated earnings and profits of the Company. A Non-U.S.
Stockholder may obtain such a refund by filing the appropriate claim for refund
with the IRS.
Distributions to a Non-U.S. Stockholder that are designated by the Company
at the time of distribution as capital gains dividends (other than those arising
from the disposition of a United States real property interest) generally will
not be subject to United States Federal income taxation, unless (i) investment
in the Series A Preferred Stock is effectively connected with the Non-U.S.
Stockholder's United States trade or business (or, if an income tax treaty
applies, is attributable to a United States permanent establishment of the
Non-U.S. Stockholder), in which case the Non-U.S. Stockholder will be subject to
the same treatment as domestic stockholders with respect to such gain (except
that a stockholder that is a foreign corporation may also be subject to the 30%
branch profits tax, as discussed above) or (ii) the Non-U.S. Stockholder is a
nonresident alien individual who is present in the United States for 183 days or
more during the taxable year and has a "tax home" in the United States, in which
case the nonresident alien individual will be subject to a 30% tax on the
individual's capital gains.
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Distributions to a Non-U.S. Stockholder that are attributable to gain from
sales or exchanges by the Company of United States real property interests will
cause the Non-U.S. Stockholder to be treated as recognizing such gain as income
effectively connected with a United States trade or business. A Non-U.S.
Stockholder would thus generally be entitled to offset its gross income by
allowable deductions and would pay tax on the resulting taxable income at the
same rates applicable to domestic stockholders (subject to a special alternative
minimum tax in the case of nonresident alien individuals). Also, such gain may
be subject to a 30% branch profits tax in the hands of a Non-U.S. Stockholder
that is a corporation and is not entitled to treaty relief or exemption, as
discussed above. The Company is required to withhold tax equal to 35% of the
amount of any such distribution. That amount is creditable against the Non-U.S.
Stockholder's United States Federal income tax liability. To the extent that
such withholding exceeds the actual tax owed by the Non-U.S. Stockholder, the
Non-U.S. Stockholder may claim a refund from the IRS.
The Company or any nominee (e.g., a broker holding shares in street name)
may rely on a certificate of non-foreign status on Form W-8 or Form W-9 to
determine whether withholding is required on gains realized from the disposition
of United States real property interests. A domestic person who holds shares of
Series A Preferred Stock on behalf of a Non-U.S. Stockholder will generally bear
the burden of withholding, provided that the Company has properly provided a
required notice and certain other requirements are met.
Sale of Series A Preferred Stock. Gain recognized by a Non-U.S. Stockholder
upon the sale or exchange of shares of Series A Preferred Stock generally will
not be subject to United States taxation unless such shares constitute a "United
States real property interest" within the meaning of FIRPTA. The Series A
Preferred Stock will not constitute a "United States real property interest" so
long as the Company is a "domestically-controlled REIT." A
"domestically-controlled REIT" is a REIT in which at all times during a
specified testing period less than 50% in value of its stock is held directly or
indirectly by Non-U.S. Stockholders. The Company believes that it will be a
"domestically-controlled REIT," and therefore that the sale of shares of Series
A Preferred Stock will not be subject to taxation under FIRPTA. However, because
the shares of Common Stock and Series A Preferred Stock will be publicly traded,
no assurance can be given that the Company will continue to be a
"domestically-controlled REIT." Notwithstanding the foregoing, gain from the
sale or exchange of shares of Series A Preferred Stock not otherwise subject to
FIRPTA will be taxable to a Non-U.S. Stockholder if (i) the Non-U.S. Stockholder
is a nonresident alien individual who is present in the United States for 183
days or more during the taxable year and has a "tax home" in the United States,
in which case the nonresident alien individual will be subject to a 30% United
States withholding tax on the amount of such individual's gain, or (ii) the
investment in Series A Preferred Stock is effectively connected with the
non-U.S. Stockholder's United States trade or business, in which case the
Non-U.S. Stockholder will be subject to tax in the same manner as U.S.
Stockholders with respect to such gain (except that a 30% branch profits tax may
also apply as discussed above).
If the Company does not qualify as, or ceases to be, a
"domestically-controlled REIT," gain arising from the sale or exchange by a
Non-U.S. Stockholder of shares of Series A Preferred Stock would be subject to
United States taxation under FIRPTA as a sale of a "United States real property
interest" unless the shares are "regularly traded" (as defined by applicable
Treasury Regulations) on an established securities market (e.g., the New York
Stock Exchange) and the selling Non-U.S. Stockholder held no more than 5% (after
applying certain constructive ownership rules) of the shares of Series A
Preferred Stock during the shorter of (i) the period during which the taxpayer
held such shares or (ii) the five-year period ending on the date of the
disposition of such shares. If gain on the sale or exchange of shares of Series
A Preferred Stock were subject to taxation under FIRPTA, the Non-U.S.
Stockholder may be subject to regular United States income tax with respect to
such gain in the same manner as a U.S. Stockholder (subject to any applicable
alternative minimum tax, a special alternative minimum tax in the case of
nonresident alien individuals and the possible application of the 30% branch
profits tax in the case of foreign corporations), and the purchaser of the stock
would be required to withhold and remit to the IRS 10% of the purchase price.
The 10% withholding tax will not apply if the shares are "regularly traded" on
an established securities market.
Backup Withholding Tax and Information Reporting. Backup withholding tax
(which generally is a withholding tax imposed at the rate of 31% on certain
payments to persons that fail to furnish certain information under the United
States information reporting requirements) and information reporting will
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generally not apply to distributions paid to Non-U.S. Stockholders outside the
United States that are treated as (i) dividends subject to the 30% (or lower
treaty rate) withholding tax discussed above, (ii) capital gains dividends or
(iii) distributions attributable to gain from the sale or exchange by the
Company of United States real property interests. As a general matter, backup
withholding and information reporting will not apply to a payment of the
proceeds of a sale of Series A Preferred Stock by or through a foreign office of
a foreign broker. Information reporting (but not backup withholding) will apply,
however, to a payment of the proceeds of a sale of Series A Preferred Stock by a
foreign office of a broker that (a) is a United States person, (b) derives 50%
or more of its gross income for certain periods from the conduct of a trade or
business in the United States or (c) is a "controlled foreign corporation"
(generally, a foreign corporation controlled by United States stockholders) for
United States tax purposes, unless the broker has documentary evidence in its
records that the holder is a Non-U.S. Stockholder and certain other conditions
are met, or the stockholder otherwise establishes an exemption. Payment to or
through a United States office of a broker of the proceeds of a sale of Series A
Preferred Stock is subject to both backup withholding and information reporting
unless the stockholder certifies under penalty of perjury that the stockholder
is a Non-U.S. Stockholder, or otherwise establishes an exemption. Backup
withholding is not an additional tax. A Non-U.S. Stockholder may obtain a refund
of any amounts withheld under the backup withholding rules by filing the
appropriate claim for refund with the IRS.
New Withholding Regulations. Final regulations dealing with withholding tax
on income paid to foreign persons and related matters (the "New Withholding
Regulations") were recently promulgated. In general, the New Withholding
Regulations do not significantly alter the substantive withholding and
information reporting requirements, but unify current certification procedures
and forms and clarify reliance standards. For example, the New Withholding
Regulations provide a certification rule under which a foreign stockholder who
wishes to claim the benefit of an applicable treaty rate with respect to
dividends received from a United States corporation will be required to satisfy
certain certification and other requirements. In addition, the New Withholding
Regulations require a corporation that is a REIT to treat as a dividend the
portion of a distribution that is not designated as a capital gain dividend or
return of basis and apply the 30% withholding tax (subject to any applicable
deduction or exemption) to such portion, and to apply the FIRPTA withholding
rules (discussed above) with respect to the portion of the distribution
designated by the REIT as capital gain dividend. The New Withholding Regulations
will generally be effective for payments made after December 31, 1999, subject
to certain transition rules. THE DISCUSSION SET FORTH ABOVE IN "TAXATION OF
NON-U.S. STOCKHOLDERS" DOES NOT TAKE THE NEW WITHHOLDING REGULATIONS INTO
ACCOUNT. PROSPECTIVE NON-U.S. STOCKHOLDERS ARE STRONGLY URGED TO CONSULT THEIR
OWN TAX ADVISORS WITH RESPECT TO THE NEW WITHHOLDING REGULATIONS.
TAX LIABILITIES AND ATTRIBUTES INHERITED FROM PREDECESSORS
Pursuant to the Formation Transactions, the Company succeeded to certain of
the assets and liabilities of the entities which participated in the Formation
Transactions, including potential tax liabilities of such entities. For
instance, as a result of the Private REIT Mergers and the merger of AMB into the
Company, the Company acquired all of the assets and liabilities of CIF, VAF and
AMB, including any tax liabilities of such corporations. The tax treatment of
the Private REIT Mergers is not certain. However, the Company intends to take
the position that such mergers qualified as tax-free reorganizations under the
Code. If either of the Private REIT Mergers did not qualify as a tax-free
reorganization under the Code, such Private REIT Merger would be treated as a
taxable sale by CIF or VAF (each a "Private REIT") of its assets to the Company
in exchange for shares of Common Stock of the Company, followed by the Private
REIT's distribution to its stockholders of such shares in a taxable liquidation.
In this case, such Private REIT would recognize gain on this deemed taxable
sale. However, assuming each Private REIT at all times qualified for taxation as
a REIT, in calculating its taxable income, it should be entitled to a deduction
in an amount equal to the lesser of (i) its earnings and profits for its taxable
year ending with the Private REIT Merger (including the earnings and profits
arising from the deemed sale of the assets to the Company) or (ii) the fair
market value of the Private REIT Merger consideration it was deemed to
distribute to its stockholders as a result of the Private REIT Merger. As a
result of such deduction, it is expected that neither CIF nor VAF would be
taxable on a material
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amount of gain for Federal income tax purposes as a result of such transactions.
If either or both of CIF and VAF recognized any such gain or failed to qualify
as a REIT, or if AMB failed to qualify as an S corporation, for any year prior
to the Formation Transactions, the Company could have assumed a material Federal
income tax liability. In addition, because many of the properties owned by CIF
and VAF had fair market values in excess of their bases, if the Private REIT
Mergers were treated as tax-free reorganizations under Section 368(a) of the
Code, the Company's basis in the assets received pursuant to the applicable
Private REIT Merger was lower than it would have been had such Private REIT
Merger not been so treated. This lower basis would cause the Company to have
lower depreciation deductions and higher gain on sale with respect to such
properties than would be the case if such properties had been acquired in a
taxable transaction.
The Built-in Gain rules described under the caption "-- Taxation of the
Company -- General" above would apply (i) with respect to any assets acquired by
the Company from a Private REIT in connection with the Private REIT Mergers if
such Private REIT Mergers qualified as tax-free reorganizations under the Code
and if a Private REIT failed to qualify, for any reason, as a REIT at any time
during its existence, and/or (ii) with respect to AMB's assets on the Company's
election to be taxed as a REIT, if AMB failed to qualify, for any reason, as an
S corporation at any time after AMB's acquisition of any of its assets and prior
to its revocation of such election in connection with the Formation
Transactions. In such case, if the Company were not to make an election pursuant
to Notice 88-19, a Private REIT would recognize taxable gain on the Private REIT
Merger under the Built-in Gain rules, notwithstanding that the Private REIT
Merger otherwise qualified as a tax-free reorganization under the Code, and the
Company would be required to recognize taxable gain with respect to AMB's assets
on its election to be taxed as a REIT under the Built-in Gain rules,
notwithstanding that the Company otherwise qualified as a REIT. The liability
for any tax due with respect to the gain described above would be assumed by the
Company as a result of the Mergers. The Company believes that (i) each of the
Private REITs qualified as a REIT throughout its existence and (ii) AMB
qualified as an S corporation since its 1989 taxable year and that it did not
own any assets prior to such date. However, the Company intends to make a
protective election under Notice 88-19 with respect to each of the Private REIT
Mergers, and its election to be taxed as a REIT, in order to avoid the adverse
consequences that otherwise could result from such events.
OTHER TAX CONSEQUENCES
The Company and its stockholders may be subject to state or local taxation
in various state or local jurisdictions, including those in which it or they
transact business or reside. The state and local tax treatment of the Company
and its stockholders may not conform to the Federal income tax consequences
discussed above. Consequently, prospective stockholders should consult their own
tax advisors regarding the effect of state and local tax laws on an investment
in the Company. In addition, AMB Investment Management will not qualify as a
REIT or as a partnership and, accordingly, will be subject to Federal, state and
local income taxes on its taxable income at regular corporate rates. As a
result, AMB Investment Management will only be able to distribute out its net
after-tax earnings to its stockholders, including the Operating Partnership,
thereby reducing the cash available for distribution by the Company to its
stockholders.
PENDING LEGISLATION
Legislation has been proposed and passed by both the United States House of
Representatives and United States Senate which, if signed by President Clinton,
would shorten the holding period for long-term capital gains rates applicable to
non-corporate shareholders to twelve months. This would effectively eliminate
the 28% mid-term capital gains rate, causing gains from the sale or exchange of
a capital asset held by such shareholders for more than twelve months to be
taxed at a 20% rate.
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ERISA CONSIDERATIONS
The following is a summary of material considerations arising under ERISA
and the prohibited transaction provisions of Section 4975 of the Code that may
be relevant to a prospective purchaser (including, with respect to the
discussion contained in "-- Status of the Company under ERISA," a prospective
purchaser that is not an employee benefit plan, another tax-qualified retirement
plan or an individual retirement account, individual retirement annuity, medical
savings account or education individual retirement account (collectively, an
"IRA")). This discussion does not purport to deal with all aspects of ERISA or
Section 4975 of the Code or, to the extent not preempted, state law that may be
relevant to particular employee benefit plan stockholders (including plans
subject to Title I of ERISA, other employee benefit plans and IRAs subject to
the prohibited transaction provisions of Section 4975 of the Code, and
governmental plans and church plans that are exempt from ERISA and Section 4975
of the Code but that may be subject to state law requirements) in light of their
particular circumstances.
A FIDUCIARY MAKING THE DECISION TO INVEST IN SHARES OF SERIES A PREFERRED
STOCK ON BEHALF OF A PROSPECTIVE PURCHASER WHICH IS AN ERISA PLAN, A TAX
QUALIFIED RETIREMENT PLAN, AN IRA OR OTHER EMPLOYEE BENEFIT PLAN IS ADVISED TO
CONSULT ITS OWN LEGAL ADVISOR REGARDING THE SPECIFIC CONSIDERATIONS ARISING
UNDER ERISA, SECTION 4975 OF THE CODE, AND (TO THE EXTENT NOT PRE-EMPTED) STATE
LAW WITH RESPECT TO THE PURCHASE, OWNERSHIP OR SALE OF SHARES OF COMMON STOCK BY
SUCH PLAN OR IRA. Plans should also consider the entire discussion under the
heading "Material Federal Income Tax Consequences," as material contained
therein is relevant to any decision by an employee benefit plan, tax-qualified
retirement plan or IRA to purchase the Series A Preferred Stock.
EMPLOYEE BENEFIT PLANS, TAX-QUALIFIED RETIREMENT PLANS AND IRAS
Each fiduciary of an employee benefit plan subject to Title I of ERISA (an
"ERISA Plan") should carefully consider whether an investment in shares of
Series A Preferred Stock is consistent with its fiduciary responsibilities under
ERISA. In particular, the fiduciary requirements of Part 4 of Title I of ERISA
require (i) an ERISA Plan's investments to be prudent and in the best interests
of the ERISA Plan, its participants and beneficiaries, (ii) an ERISA Plan's
investments to be diversified in order to reduce the risk of large losses,
unless it is clearly prudent not to do so, (iii) an ERISA Plan's investments to
be authorized under ERISA and the terms of the governing documents of the ERISA
Plan and (iv) that the fiduciary not cause the ERISA Plan to enter into
transactions prohibited under Section 406 of ERISA. In determining whether an
investment in shares of Series A Preferred Stock is prudent for purposes of
ERISA, the appropriate fiduciary of an ERISA Plan should consider all of the
facts and circumstances, including whether the investment is reasonably
designed, as a part of the ERISA Plan's portfolio for which the fiduciary has
investment responsibility, to meet the objectives of the ERISA Plan, taking into
consideration the risk of loss and opportunity for gain (or other return) from
the investment, the diversification, cash flow and funding requirements of the
ERISA Plan, and the liquidity and current return of the ERISA Plan's portfolio.
A fiduciary should also take into account the nature of the Company's business,
the length of the Company's operating history and other matters described under
"Risk Factors."
The fiduciary of an IRA or of an employee benefit plan not subject to Title
I of ERISA because it is a governmental or church plan (if no election has been
made under Section 410(d) of the Code) or because it does not cover common law
employees (a "Non-ERISA Plan") should consider that such an IRA or Non-ERISA
Plan may only make investments that are either authorized or not prohibited by
the appropriate governing documents, not prohibited under Section 4975 of the
Code and permitted under applicable state law.
STATUS OF THE COMPANY UNDER ERISA
A prohibited transaction may occur if the assets of the Company are deemed
to be assets of the investing ERISA Plans and disqualified persons deal with
such assets. In certain circumstances where an ERISA Plan holds an interest in
an entity, the assets of the entity are deemed to be ERISA Plan assets (the
"look-through rule"). Under such circumstances, any person that exercises
authority or control with respect to the management or disposition of such
assets is an ERISA Plan fiduciary. ERISA Plan assets are not defined in
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ERISA or the Code, but the United States Department of Labor has issued
regulations, effective March 13, 1987 (the "Regulations"), that outline the
circumstances under which an ERISA Plan's interest in an entity will be subject
to the look-through rule.
The Regulations apply only to the purchase by an ERISA Plan of an "equity
interest" in an entity, such as stock of a REIT. However, the Regulations
provide an exception to the look-through rule for equity interests that are
"publicly-offered securities." The Regulations also provide exceptions to the
look-through rule for equity interests in certain types of entities, including
any entity which qualifies as either a "real estate operating company" (a
"REOC") or a "venture capital operating company" (a "VCOC").
Under the Regulations, a "publicly-offered security" is a security that is
(i) freely transferable, (ii) part of a class of securities that is widely-held
and (iii) either (a) part of a class of securities that is registered under
section 12(b) or 12(g) of the Exchange Act or (b) sold to an ERISA Plan as part
of an offering of securities to the public pursuant to an effective registration
statement under the Securities Act and the class of securities of which such
security is a part is registered under the Exchange Act within 120 days (or such
longer period allowed by the SEC) after the end of the fiscal year of the issuer
during which the offering of such securities to the public occurred. Whether a
security is considered "freely transferable" depends on the facts and
circumstances of each case. Under the Regulations, if the security is part of an
offering in which the minimum investment is $10,000 or less, then, (i) any
restriction on or prohibition against any transfer or assignment of such
security for the purposes of preventing a termination or reclassification of the
entity for Federal or state tax purposes will not ordinarily prevent the
security from being considered freely transferable and (ii) limitations or
restrictions on the transfer or assignment of a security which are created or
imposed by persons other than the issuer of the security or persons acting for
or on behalf of the issuer will ordinarily not prevent the security from being
considered freely transferable. A class of securities is considered
"widely-held" if it is a class of securities that is owned by 100 or more
investors independent of the issuer and of one another.
Under the Regulations, a REOC is defined as an entity (i) which on certain
testing dates has at least 50% of its assets (other than short-term investments
pending long-term commitment or distribution to investors), valued at cost,
invested in real estate which is managed or developed and with respect to which
the entity has the right to substantially participate directly in the management
or development activities and (ii) which, in the ordinary course of its
business, is engaged directly in real estate management or development
activities. A VCOC is defined as an entity (i) which on certain testing dates
has at least 50% of its assets (other than short-term investments pending
long-term commitment or distribution to investors), valued at cost, invested in
one or more operating companies with respect to which the entity has management
rights and (ii) which, in the ordinary course of its business, actually
exercises its management rights with respect to one or more of the operating
companies in which it invests.
The Series A Preferred Stock of the Company is expected to meet the
criteria of the publicly-offered securities exception to the look-through rule.
First, the Series A Preferred Stock should be considered to be freely
transferable, as the minimum investment will be less than $10,000 and the only
restrictions upon its transfer are those required under Federal tax laws to
maintain the Company's status as a REIT, resale restrictions under applicable
Federal securities laws with respect to securities not purchased in the Offering
and those owned by the Company's officers, directors and other affiliates, and
voluntary restrictions agreed to by the Company and Morgan Stanley & Co.
Incorporated, on behalf of the Underwriters, in connection with the Offering.
Second, the Series A Preferred Stock is expected to be held by 100 or more
investors and it is expected that at least 100 or more of these investors will
be independent of the Company and of one another. Third, the Series A Preferred
Stock will be part of an offering of securities to the public pursuant to an
effective registration statement under the Securities Act and will be registered
under the Exchange Act within 120 days after the end of the fiscal year of the
Company during which the offering of such securities to the public occurs. In
addition, the Company has obtained management rights with respect to the
Operating Partnership and conducts its affairs in such a manner that it will
qualify as either a REOC or VCOC under the Regulations. Accordingly, the Company
believes that if an ERISA Plan purchases the Series A Preferred Stock, the
Company's assets should not be deemed to be ERISA Plan assets and, therefore,
that any person who exercises authority or control with respect to the Company's
assets should not be an ERISA Plan fiduciary.
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UNDERWRITERS
Under the terms and subject to the conditions in the Underwriting Agreement
dated the date hereof (the "Underwriting Agreement"), the Underwriters named
below, for whom Morgan Stanley & Co. Incorporated, A.G. Edwards & Sons, Inc.,
Merrill Lynch, Pierce, Fenner & Smith Incorporated, PaineWebber Incorporated and
Smith Barney Inc. are acting as representatives (the "Representatives"), have
severally agreed to purchase, and the Company has agreed to sell to them,
severally, the respective number of shares of Series A Preferred Stock set forth
opposite the names of such Underwriters below:
<TABLE>
<CAPTION>
NUMBER
OF
SHARES
NAME ---------
<S> <C>
Morgan Stanley & Co. Incorporated...........................
A.G. Edwards & Sons, Inc....................................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated....................................
PaineWebber Incorporated....................................
Smith Barney Inc............................................
---------
Total............................................. 4,000,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the Series A Preferred Stock
offered hereby are subject to the approval of certain legal matters by their
counsel and to certain other conditions. The Underwriters are obligated to take
and pay for all of the shares of Series A Preferred Stock offered hereby if any
such shares are taken.
The Underwriters propose to offer part of the Series A Preferred Stock
directly to the public at the public offering price set forth on the cover page
of this Prospectus and part to certain dealers at a price that represents a
concession not in excess of $ a share. Any Underwriter may allow, and any
such dealer may reallow, a concession to certain other dealers not in excess of
$ a share. After the initial offering of the Series A Preferred Stock, the
offering price and other selling terms may from time to time be varied by the
Underwriters.
The Company has granted to the Underwriters an option, exercisable for 30
days after the date hereof, to purchase up to 600,000 additional shares of
Series A Preferred Stock to cover over-allotments, if any, at the public
offering price less the underwriting discount set forth on the cover page of
this Prospectus. If the Underwriters exercise this option, each Underwriter will
have a firm commitment, subject to certain conditions, to purchase approximately
the same percentage thereof which the number of shares of Series A Preferred
Stock to be purchased by such Underwriter bears to the total number of shares of
Series A Preferred Stock, as shown in the foregoing table.
The Company has agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act, or to
contribute to payments the Underwriters may be required to make in respect of
such liabilities.
Application has been made to list the Series A Preferred Stock on the NYSE.
If so approved, trading of the Series A Preferred Stock on the NYSE is expected
to commence within the 30-day period after initial delivery thereof. The
Underwriters have advised the Company that they intend to make a market in the
Series A Preferred Stock prior to the commencement of trading on the NYSE. The
Underwriters will have no obligation to make a market in the Series A Preferred
Stock, however, and may cease market-making activities, if commenced, at any
time.
The Company has agreed that, without the prior written consent of Morgan
Stanley & Co. Incorporated on behalf of the Underwriters, it will not, during
the period ending 30 days after the date of this Prospectus, (i) offer, pledge,
sell, contract to sell, sell any option or contract to purchase, purchase any
option or contract to sell, grant any option, right or warrant to purchase, lend
or otherwise transfer or dispose of, directly or indirectly, any shares of
Series A Preferred Stock, any other equity securities of the Company which are
substantially similar to the Series A Preferred Stock (other than any securities
of the Company which are
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convertible into Common Stock) or any securities convertible into or exercisable
or exchangeable for shares of Series A Preferred Stock or any other equity
securities of the Company which are substantially similar to the Series A
Preferred Stock (other than any securities of the Company which are convertible
into Common Stock) or (ii) enter into any swap or other arrangement that
transfers to another, in whole or in part, any of the economic consequences of
ownership of any shares of Series A Preferred Stock, any other equity securities
of the Company which are substantially similar to the Series A Preferred Stock
(other than any securities of the Company which are convertible into Common
Stock) or any securities convertible into or exercisable or exchangeable for
shares of Series A Preferred Stock or any other equity securities of the Company
which are substantially similar to the Series A Preferred Stock (other than any
securities of the Company which are convertible into Common Stock), whether any
such transaction described in clause (i) or (ii) above is to be settled by
delivery of Series A Preferred Stock, other securities, in cash or otherwise.
The restrictions described in this paragraph do not apply to the sale of Series
A Preferred Stock to the Underwriters.
In order to facilitate the Offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Series A Preferred Stock. Specifically, the Underwriters may stabilize the price
of the Series A Preferred Stock and the Underwriters may bid for, and purchase,
the Series A Preferred Stock in the open market. Finally, the underwriting
syndicate may reclaim selling concessions allowed to an Underwriter or a dealer
for distributing the Series A Preferred Stock in the Offering, if the syndicate
repurchases previously distributed Series A Preferred Stock in transactions to
cover syndicate short positions, in stabilization transactions or otherwise. Any
of these activities may stabilize or maintain the market price of the Series A
Preferred Stock above independent market levels. The Underwriters are not
required to engage in these activities, and may end any of these activities at
any time.
LEGAL MATTERS
Certain legal matters in connection with the Offering will be passed upon
for the Company by Latham & Watkins, San Francisco, California. Certain legal
matters will be passed upon for the Underwriters by Gibson, Dunn & Crutcher LLP,
Los Angeles, California. Certain legal matters relating to Maryland law,
including the validity of the issuance of the shares of Series A Preferred Stock
offered hereby, will be passed upon for the Company by Ballard Spahr Andrews &
Ingersoll, Baltimore, Maryland. In addition, the description of Federal income
tax consequences contained in this Prospectus under the caption "Material
Federal Income Tax Consequences" is, to the extent that it constitutes matters
of law, summaries of legal matters or legal conclusions, the opinion of Latham &
Watkins, tax counsel to the Company.
EXPERTS
The audited financial statements and 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 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
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addition, reports, proxy statements and other information concerning the Company
can be inspected at the New York Stock Exchange, Inc., 20 Broad Street, New
York, New York 10005.
This Prospectus constitutes a part of a Registration Statement on Form S-11
(together with amendments and exhibits thereto, the "Registration Statement")
filed by the Registrants with the Commission under the Securities Act. The
Prospectus omits certain of the information contained in the Registration
Statement, and reference is hereby made to the Registration Statement for
further information with respect to the Registrants and the securities offered
hereby. Any statements contained herein concerning the provisions of any
document filed as an exhibit to the Registration Statement or otherwise filed
with the Commission are not necessarily complete, and in each instance reference
is made to the copy of such document so filed. Each such statement is qualified
in its entirety by such reference.
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GLOSSARY
"ACBM" means asbestos-containing building materials.
"ADA" means the Americans with Disabilities Act of 1990.
"affiliate" has the meaning given to it in the Securities Act.
"AMB" means AMB Institutional Realty Advisors, Inc., a California
corporation.
"AMB Intercompany Party" means a party to the Intercompany Agreement.
"AMB Predecessors" means collectively, AMB and certain real estate
investment funds, trusts, corporations and partnerships that prior to the IPO
owned the Properties, including CIF, VAF, WPF and the Individual Account
Investors.
"AMB Property Corporation" means AMB Property Corporation, a Maryland
corporation with its principal office at 505 Montgomery Street, San Francisco,
California 94111.
"AMBCREA" means AMB Corporate Real Estate Advisors, Inc., a California
corporation.
"AMBI" means AMB Investments, Inc., a California corporation.
"AMB Investment Management" means AMB Investment Management Corporation, a
Maryland corporation, of which the Company owns 100% of the non-voting preferred
stock (representing 95% of its economic value) and certain of the Executive
Officers own 100% of the outstanding voting common stock (representing 5% of its
economic value) with its operations conducted through the Investment Management
Partnership and which, through the Investment Management Partnership, provides
the real estate advisory services to the Company and to certain of AMB's clients
which did not participate in the Formation Transactions.
"Anchor Tenants" means retail tenants occupying more than 10,000 rentable
square feet and all grocery stores and drugstores.
"Annualized Base Rent" means the monthly contractual rent under existing
leases at 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.
"Built-in Gain Asset" means an asset acquired by the Company from a
corporation which is or has been a C Corporation.
"Bylaws" means the bylaws of the Company.
"Charter" means the Articles of Incorporation of the Company, as
supplemented by the Articles Supplementary filed with the State Department of
Assessments and Taxation of Maryland establishing the terms of the Series A
Preferred Stock, and as further supplemented, and as amended or restated, from
time to time.
"CIF" means AMB Current Income Fund, Inc., a Maryland corporation.
"Code" means the Internal Revenue Code of 1986.
"Common Stock" means shares of common stock, par value $.01 per share, of
the Company.
"Common Units" means units of the Operating Partnership designated as
common units pursuant to the Partnership Agreement.
"Company" means AMB Property Corporation and its subsidiaries, including
AMB Property, L.P. and its subsidiaries and, with respect to the period prior to
the IPO, unless the context requires otherwise, the AMB Predecessors.
"Credit Facility" means the Operating Partnership's unsecured $500 million
credit facility among the Operating Partnership, MGT and a syndicate of 12 other
banks.
"Debt-to-Total Market Capitalization Ratio" means the ratio calculated
based on the Company's total consolidated debt and its pro rata share of
unconsolidated debt as a percentage of the market value of outstanding shares of
Common Stock plus the value of the liquidation preference of outstanding shares
of
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Preferred Stock and Units (not owned by the Company) plus the Company's total
consolidated debt and its pro rata share of unconsolidated debt.
"Eastern region" means the Eastern region of the United States as defined
by the National Council of Real Estate Investment Fiduciaries which includes the
states of Connecticut, Delaware, Kentucky, Maine, Maryland, Massachusetts, New
Hampshire, New Jersey, New York, North Carolina, Pennsylvania, Rhode Island,
South Carolina, Vermont, West Virginia and the District of Columbia.
"Environmental Laws" means the Federal, state and local laws and
regulations relating to the protection of the environment.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Executive Officer" means an officer of the Operating Partnership and the
Company named in the table under the caption "Management."
"expense reimbursements" means each tenant's share of taxes, insurance and
operating expenses to be reimbursed to the Company.
"FASB" means the Financial Accounting Standards Board.
"Final Regulations" means certain finalized and published Treasury
Regulations which provide that an Eligible Entity may elect to be taxed as a
partnership for Federal income tax purposes.
"FIRPTA" means the Foreign Investment in Real Property Tax Act of 1980.
"Formation Transactions" means certain transactions in which the Company,
the Operating Partnership and AMB Investment Management engaged in to enable the
Company to continue and grow the real estate operations of the AMB Predecessors
and to enable the Company to qualify as a REIT for Federal income tax purposes
commencing with its taxable year ended December 31, 1997.
"forward-looking statements" means statements relating to, without
limitation, future economic performance, plans and objectives of management for
future operations and projections of revenue and other financial items, which
can be identified by the use of forward-looking terminology such as "believes,"
"expects," "may," "will," "should," "seeks," "approximately," "intends,"
"plans," "pro forma," "estimates," or "anticipates" or the negative thereof or
other variations thereon or comparable terminology.
"Funds from Operations" or "FFO" means income (loss) from operations before
disposal of real estate properties, minority interests and extraordinary items
plus depreciation and amortization, excluding depreciation of furniture,
fixtures and equipment and the Company's share of the FFO of unconsolidated
joint ventures less FFO attributable to minority interests in consolidated joint
ventures which are not convertible into shares of Common Stock and Series A
Preferred Stock dividends.
"GAAP" means generally accepted accounting principles.
"GP Units" means units of the Operating Partnership representing the
general partnership interest therein, with generally identical rights to
distributions as the Units.
"greater than 10% stockholder" means an individual owning (within the
meaning of Section 424(d) of the Code) more than ten percent of the total
combined voting power of all classes of stock of the Company, any subsidiary or
any parent corporation.
"Holders" means holders of the Notes.
"Indemnity Consideration" means the shares of Common Stock or Units issued
or cash paid pursuant to any indemnification obligation.
"Indemnity Escrow" means an escrow available to provide for an
indemnification commitment into which the Indemnity Consideration was deposited.
"Independent Director" means a director who is not an employee, officer or
affiliate of the Company or a subsidiary or division thereof, or a relative of
an Executive Officer, or who is not an individual member of an organization
acting as advisor, consultant or legal counsel, receiving compensation on a
continuing basis from the Company in addition to director's fees.
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"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 the entire capital interests, and through
which the operations of AMB Investment Management are conducted.
"Investors" means the CIF Stockholders, VAF Stockholders, WPF Investors and
the Individual Account Investors.
"IPO" means the initial public offering of the Company's common stock.
"IRA" means an individual retirement account.
"IRS" means the United States Internal Revenue Service.
"Joint Ventures" means the joint ventures, limited liability companies and
partnerships with certain third parties.
"look-through rule" means under certain circumstances, where an investing
plan holds an interest in an entity and the assets of the entity are deemed to
be Plan assets.
"MGCL" means Maryland General Corporation Law.
"MGT" means Morgan Guaranty Trust Company of New York.
"Midwestern region," means the Midwestern region of the United States as
defined by the National Council of Real Estate Investment Fiduciaries which
includes the states of Illinois, Iowa, Indiana, Kansas, Michigan, Minnesota,
Missouri, Nebraska, North Dakota, Ohio, South Dakota and Wisconsin.
"Named Executive Officers" means the Company's Chief Executive Officer and
the four other most highly compensated executive officers.
"NAIOP" means the National Association of Industrial and Office Parks.
"NAREIM" means the National Association of Real Estate Investment Managers.
"NAREIT" means the National Association of Real Estate Investment Trusts.
"New Withholding Regulations" means final regulations which were recently
promulgated which deal with withholding tax on income paid to foreign persons
and related matters.
"Non-Anchor Tenant" refers to all tenants which are not Anchor Tenants.
"Non-ERISA Plan" means the fiduciary of an IRA or of an employee benefit
plan not subject to Title I of ERISA because it is a governmental or church plan
or because it does not cover common law employees.
"NYSE" means the New York Stock Exchange.
"Offering" means the offering of the Series A Preferred Stock made hereby.
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"Operating Partnership" means AMB Property, L.P., a Delaware limited
partnership of which the Company is the general partner.
"Ownership Limit" means, with respect to the Common Stock, actual or
constructive ownership by any person of more than 9.8% of the issued and
outstanding shares of Common Stock (subject to certain exceptions) and, with
respect to the Series A Preferred Stock, actual or constructive ownership by any
person of more than 9.8% of the issued and outstanding shares of the Series A
Preferred Stock, in each case, by value or number of shares, whichever is more
restrictive.
"Partnership Act" means the Delaware Uniform Limited Partnership Act.
"Partnership Agreement" means the partnership agreement of the Operating
Partnership.
"percentage rents" means the rents calculated as a percentage of a tenant's
gross sales above predetermined thresholds.
Performance Investors" means those investors which, immediately prior to
the IPO, owned assets (either directly or through CIF, VAF or WPF) which were
subject to advisory agreements with AMB and included an incentive fee provision
or, in the case of WPF, a "catch up adjustment."
"Performance Shares" means the specified portion of the Shares issuable in
the Formation Transactions to Performance Investors.
"Performance Units" means units of the Operating Partnership issued to
certain officers and employees of the Operating Partnership.
"Plan" means an ERISA Plan, a tax-qualified retirement plan or other
employee benefit plan.
"Preference Units" means the preferred units and other partnership
interests of different classes and series of the Operating Partnership having
such rights, preferences and other privileges, variations and designations as
may be determined by the Company in its capacity as general partner of the
Operating Partnership.
"Preferred Stock" means preferred stock, $0.01 par value per share, which
the Charter of the Company authorize the Board of Directors to cause the Company
to issue, in series, and to establish the preferences, rights and other terms of
any series so issued.
"Prohibited Owner" means the person or entity holding shares in excess of
the Ownership Limit or such other limit.
"Prohibited Transferee" means, with respect to any purported sale,
transfer, gift, assignment, devise or other disposition of shares of capital
stock of the Company (or other event) which results in a transfer to a trust, as
provided in the Charter, the record holder of such shares if such sale,
transfer, gift, assignment, devise or other disposition had been valid under the
Charter, unless such record holder would have acquired or owned shares of
capital stock of the Company for another person who is the beneficial transferee
or owner of such shares, in which case the Prohibited Transferee shall be such
person.
"Properties" means the Industrial Properties and the Retail Properties.
"property operating expenses" means real estate taxes and insurance,
repairs and maintenance and property operating expenses.
"Prospectus" means the prospectus to be used in connection with the
Offering of the Series A Preferred Stock.
"QRS" means a qualified REIT subsidiary.
"Recognition Period" means, with respect to a Built-in Gain Asset, a
10-year period beginning on the date on which the Company acquired such asset.
"Registrable Shares" means the Shares issuable upon exchange of Units or
otherwise, the holder of which has certain registration rights with respect to
those Shares.
"Registration Rights" means certain registration rights with respect to the
Shares issuable upon exchange of Units or otherwise granted to investors who
received Units in connection with the Formation Transactions.
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"Regulations" means regulations issued by the United States Department of
Labor, effective as of March 13, 1987.
"REIT" means a real estate investment trust under the Code.
"Related Party Tenant" means a tenant in which a REIT, or an actual or
constructive owner of 10% or more of the REIT actually or constructively owns
10% or more of such tenant.
"REOC" means an entity (i) which on certain testing dates has at least 50%
of its assets (other than short-term investments pending long-term commitment or
distribution to investors), valued at cost, invested in real estate which is
managed or developed and with respect to which the entity has the right to
substantially participate directly in the management or development activities
and (ii) which, in the ordinary course of its business, is engaged directly in
real estate management or development activities.
"restricted securities" has the meaning given to it in Rule 144 under the
Securities Act.
"Restricted Shares" means the "restricted securities" under the meaning of
Rule 144 of the Securities Act consisting of the Shares held or to be held by
Investors and the Shares reserved for issuance upon redemption of Units by
Investors who elect to receive Units in exchange for their respective real
property interests.
"Retail Properties" means the retail properties comprised principally of
community shopping centers which are owned by the Company.
"Rule 144" means the rule adopted by the SEC that permits holders of
restricted securities as well as affiliates of an issuer of the securities,
pursuant to certain conditions and subject to certain restrictions, to sell
their securities publicly without registration under the Securities Act.
"San Francisco Bay Area" means the area comprised of the nine counties in
immediate proximity to the San Francisco Bay.
"SEC" or "Commission" means the Securities and Exchange Commission.
"Section 401(k) Plan" means the Company's Section 401(k) savings/retirement
plan.
"Secured Facility" means a 12-year non-recourse secured financing facility
due December 12, 2008 which is secured by six Properties.
"Securities Act" means the Securities Act of 1933, as amended.
"Series A Preferred Stock" means the Company's % Series A Cumulative
Redeemable Preferred Stock, par value $.01 per share.
"Senior Debt Securities" means $400 million aggregate principal amount of
senior debt securities sold by the Operating Partnership in an underwritten
offering on June 30, 1998.
"Series A Preferred Unit" means the % Series A Cumulative Redeemable
Preferred Units issued by the Operating Partnership to the Company in exchange
for the net proceeds of the sale of the Series A Preferred Stock.
"Southern region" means the Southern region of the United States as defined
by the National Council of Real Estate Investment Fiduciaries which includes the
states of Alabama, Arkansas, Florida, Georgia, Louisiana, Mississippi, Oklahoma,
Tennessee and Texas.
"stabilization" means when capital improvements for repositioning,
development and redevelopment programs have been completed and in effect for a
sufficient period of time (but in no case more than 12 months after shell
completion) to achieve market occupancy of at least 95%.
"Stock Incentive Plan" means the Stock Option and Incentive Plan
established by the Company.
"Subsidiaries" means the subsidiaries of AMB Property Corporation and AMB
Property, L.P.
"Surviving Partnership" means a limited partnership or limited liability
company which is the surviving entity of a merger, consolidation or combination
of assets with the Operating Partnership.
"Tax-Exempt Stockholder" means a stockholder exempt from taxation under the
Code.
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"Termination Transaction" means, with respect to the Company, any merger,
consolidation or other combination with or into another person, a sale of all or
substantially all of its assets or any reclassification, recapitalization or
change of its outstanding equity interests, unless in connection with such
transaction, all holders of Units either will receive, or will have the right to
elect to receive, for each Unit an amount of cash, securities or other property
equal to the product of the number of Shares into which each Unit is then
exchangeable and the greatest amount of cash, securities or other property paid
to the holder of one Share in consideration of one Share pursuant to such
transaction.
"Transferee" means an assignee, legatee, distributee or other transferee of
all or any portion of a partner's interest in the Operating Partnership.
"Treasury Regulations" means the IRS regulations.
"UBTI" or "unrelated business taxable income" means unrelated business
taxable income as defined in Section 512 of the Code.
"Underwriters" means those underwriters named herein for whom Morgan
Stanley & Co. Incorporated, A.G. Edwards & Sons, Inc., Merrill Lynch, Pierce,
Fenner & Smith Incorporated, PaineWebber Incorporated and Smith Barney Inc. are
acting as representatives.
"Underwriting Agreement" means that certain underwriting agreement pursuant
to which the Underwriters have severally agreed to purchase, and the Company has
agreed to sell to them, severally, the aggregate principal amount of the Series
A Preferred Stock as set forth on the table under the caption "Underwriters"
herein.
"Unitholder" means a holder of Units or Performance Units.
"Units" means Common Units and Preferred Units of the Operating
Partnership.
"U.S. Stockholder" means a holder of shares of Series A Preferred Stock who
(for United States Federal income tax purposes) (i) is a citizen or resident of
the United States, (ii) is a corporation, partnership, or other entity created
or organized in or under the laws of the United States or of any state thereof,
(iii) is an estate, the income of which is subject to United States Federal
income taxation regardless of its source or (iv) is a trust the administration
of which is subject to the primary supervision of a United States court and
which has one or more United States persons who have the authority to control
all substantial decisions of the trust. Notwithstanding the preceding sentence,
to the extent provided in regulations, certain trusts in existence on August 20,
1996, and treated as United States persons prior to such date that elect to
continue to be treated as United States persons, shall also be considered U.S.
Stockholders.
"VAF" means AMB Value Added Fund, Inc., a Maryland corporation.
"VCOC" means an entity (i) which on certain testing dates has at least 50%
of its assets (other than short-term investments pending long-term commitment or
distribution to investors), valued at cost invested in one or more operating
companies with respect to which the entity has management rights and (ii) which,
in the ordinary course of its business, actually exercises its management rights
with respect to one or more of the operating companies in which it invests.
"Western region" means the Western region of the United States as defined
by the National Council of Real Estate Investment Fiduciaries which includes the
states of Alaska, Arizona, California, Colorado, Hawaii, Montana, Nevada, New
Mexico, Oregon, Utah, Washington and Wyoming.
"White Paper" means the White Paper on Funds from Operations approved by
the Board of Governors of the NAREIT in March 1995.
"WPF" means AMB Western Properties Fund-I, a California limited
partnership.
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<PAGE> 141
INDEX TO FINANCIAL INFORMATION
<TABLE>
<CAPTION>
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<S> <C>
PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
AMB PROPERTY CORPORATION
-- Background............................................. F-4
-- 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-11
-- Notes to pro forma condensed consolidated statement of
operations............................................. F-12
HISTORICAL FINANCIAL INFORMATION
AMB PROPERTY CORPORATION -- March 31, 1998
-- Consolidated balance sheets as of December 31, 1997 and
March 31, 1998 (unaudited)............................. F-17
-- Consolidated statements of operations for the three
months ended March 31, 1997 and 1998 (unaudited)....... F-18
-- Consolidated statements of cash flows for the three
months ended March 31, 1997 and 1998 (unaudited)....... F-19
-- Consolidated statements of stockholders' equity for the
three months ended March 31, 1998 (unaudited).......... F-20
-- Notes to consolidated financial statements
(unaudited)............................................ F-21
AMB PROPERTY CORPORATION -- December 31, 1996 and 1997
-- Report of independent public accountants............... F-26
-- Consolidated balance sheets as of December 31, 1996 and
1997................................................... F-27
-- Consolidated statements of operations for the years
ended December 31, 1995, 1996 and 1997................. F-28
-- Consolidated statements of cash flows for the years
ended December 31, 1995, 1996 and 1997................. F-29
-- Consolidated statements of stockholders' equity for the
years ended December 31, 1995, 1996 and 1997........... F-30
-- Notes to consolidated financial statements............. F-31
-- Schedule III -- Consolidated Real Estate and
Accumulated Depreciation as of December 31, 1997....... F-40
AMB CONTRIBUTED PROPERTIES -- December 31, 1995, 1996 and
1997
-- Report of independent public accountants............... F-45
-- Combined balance sheets as of December 31, 1995 and
1996 and September 30, 1997 (unaudited)................ F-46
-- 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-47
</TABLE>
F-1
<PAGE> 142
<TABLE>
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<S> <C>
-- 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-48
-- 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-49
-- Notes to combined financial statements................. F-50
Boston Industrial Portfolio
-- Report of independent public accountants............... F-56
-- 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-57
-- Notes to combined statements of revenues and certain
expenses............................................... F-58
The Jamesburg Property
-- Report of independent public accountants............... F-60
-- 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-61
-- Notes to statements of revenues and certain expenses... F-62
Orlando Central Park
-- Report of independent public accountants............... F-63
-- 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-64
-- Notes to statements of revenues and certain expenses... F-65
Totem Lake Malls
-- Report of independent public accountants............... F-66
-- 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-67
-- Notes to statements of revenues and certain expenses... F-68
Dallas Warehouse Portfolio
-- Report of independent public accountants............... F-69
-- Statements of revenues and certain expenses for the
year ended December 31, 1997 and for the period from
January 1, 1998 to March 31, 1998...................... F-70
-- Notes to statements of revenues and certain expenses... F-71
Twin Cities Office/Showroom Portfolio
-- Report of independent public accountants............... F-72
-- Combined statements of revenues and certain expenses
for the year ended December 31, 1997 and for the period
from January 1, 1998 to March 31, 1998 (unaudited)..... F-73
-- Notes to combined statements of revenues and certain
expenses............................................... F-74
</TABLE>
F-2
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<TABLE>
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Crysen Corridor Warehouse
-- Report of independent public accountants............... F-75
-- Statements of revenues and certain expenses for the
year ended December 31, 1997 and for the period from
January 1, 1998 to March 31, 1998 (unaudited).......... F-76
-- Notes to statements of revenues and certain expenses... F-77
Cabot Industrial Portfolio
-- Report of independent public accountants............... F-78
-- 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-79
-- Notes to combined statements of revenue and certain
expenses............................................... F-80
Cabot Business Park
-- Report of independent public accountants............... F-82
-- 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-83
-- Notes to statements of revenues and certain expenses... F-84
Manhattan Village Shopping Center
-- Report of independent public accountants............... F-85
-- 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-86
-- Notes to statements of revenues and certain expenses... F-87
Weslayan Plaza
-- Report of independent public accountants............... F-88
-- 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-89
-- Notes to statements of revenues and certain expenses... F-90
Silicon Valley R&D Portfolio
-- Report of independent public accountants............... F-91
-- 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-92
-- Notes to statements of revenues and certain expenses... F-93
</TABLE>
F-3
<PAGE> 144
AMB PROPERTY CORPORATION
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 sale of Senior Debt Securities
and the application of the net proceeds from the sale, (iii) the Offering and
the application of the net proceeds from the Offering and (iv) 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 and other adjustments resulting
from the sale of Senior Debt Securities and the Offering and the application of
the resulting net proceeds and (v) certain other adjustments as if such
transactions and adjustments had occurred on January 1, 1997.
These unaudited pro forma condensed consolidated statements should be read
in connection with the historical combined financial statements and notes
thereto of the AMB Contributed Properties and the consolidated financial
statements and notes thereto of AMB Property Corporation included elsewhere in
this Prospectus. In the opinion of management, the pro forma condensed
consolidated financial information provides for all adjustments necessary to
reflect the effects of the IPO and Formation Transactions, the sale of Senior
Debt Securities and the Offering and the application of the resulting net
proceeds, property acquisitions and dispositions and certain other transactions.
The pro forma information is unaudited and is not necessarily indicative of
the consolidated results that would have occurred if the transactions and
adjustments reflected therein had been consummated in the period or on the date
presented, or on any particular date in the future, nor does it purport to
represent the financial position, results of operations or changes in cash flows
for future periods.
F-4
<PAGE> 145
AMB PROPERTY CORPORATION
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1998
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
SENIOR
PROPERTY DEBT PRE-OFFERING
COMPANY(1) ACQUISITIONS(2) SECURITIES(3) PRO FORMA OFFERING(4) PRO FORMA
-------------- --------------- ------------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investments in real estate,
net............................ $2,740,048 $210,448 $ -- $2,950,496 $ -- $2,950,496
Cash and cash equivalents........ 28,584 (2,949) -- 25,635 12,724 38,359
Other assets..................... 29,558 -- 5,534 35,092 -- 35,092
---------- -------- --------- ---------- ----------- ----------
Total assets............ $2,798,190 $207,499 $ 5,534 $3,011,223 $ 12,724 $3,023,947
========== ======== ========= ========== =========== ==========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Secured debt..................... $ 610,111 $ 16,109 $ -- $ 626,220 $ -- $ 626,220
Credit facility.................. 312,000 165,642 (394,466) 83,176 (83,176) --
Senior debt securities........... -- -- 400,000 400,000 -- 400,000
Other liabilities................ 81,611 -- -- 81,611 -- 81,611
---------- -------- --------- ---------- ----------- ----------
Total liabilities....... 1,003,722 181,751 5,534 1,191,007 (83,176) 1,107,831
---------- -------- --------- ---------- ----------- ----------
Minority interests............... 123,763 25,748 -- 149,511 -- 149,511
---------- -------- --------- ---------- ----------- ----------
Stockholders' Equity
Series A Preferred Stock....... -- -- -- -- 95,900 95,900
Common Shares.................. 859 -- -- 859 -- 859
Additional paid-in capital..... 1,669,846 -- -- 1,669,846 -- 1,669,846
Retained earnings.............. -- -- -- -- -- --
---------- -------- --------- ---------- ----------- ----------
Total equity............ 1,670,705 -- -- 1,670,705 95,900 1,766,605
---------- -------- --------- ---------- ----------- ----------
Total liabilities and
stockholder's
equity................ $2,798,190 $207,499 $ 5,534 $3,011,223 $ 12,724 $3,023,947
========== ======== ========= ========== =========== ==========
</TABLE>
F-5
<PAGE> 146
AMB PROPERTY CORPORATION
NOTES TO PRO FORMA
CONDENSED CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1998
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
1. Reflects the historical consolidated balance sheet of AMB Property
Corporation as of March 31, 1998. See the historical consolidated financial
statements and notes thereto of AMB Property Corporation included elsewhere in
this Prospectus.
2. Reflects property acquisitions and the acquisition of a non-controlling
limited partnership interest subsequent to March 31, 1998 for an estimated total
purchase price of approximately $210,448, including estimated acquisition costs.
The Company has funded these acquisitions through (i) borrowings under its
Credit Facility of approximately $165,642, (ii) cash on hand of approximately
$2,949 (iii) the issuance of Operating Partnership Units in the amount of
approximately $2,425, (iv) the assumption of approximately $16,109 in secured
debt and (v) minority interest joint venture contributions of approximately
$23,323. 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
Forbes........................................ 2,980
Southfield.................................... 10,225
Dallas Warehouse Portfolio.................... 32,645
Suffolk....................................... 3,535
Twin Cities Office Showroom Portfolio......... 26,759
Crysen Corridor Warehouse..................... 5,700
Chicago Packaging Building.................... 4,800
-----------
$ 143,374
===========
</TABLE>
For purposes of property disclosures included elsewhere in this Prospectus,
Meadowridge/Greenwood is comprised of Meadowridge Business Park and Greenwood
Place. The Dallas Warehouse Portfolio and the Twin Cities Office Showroom
Portfolio represent investments through an existing joint venture with a client
of AMB Investment Management in which the Operating Partnership owns a 50.0005%
interest. Such joint venture is accounted for on a consolidated basis and,
accordingly, a minority interest of $23,323 has been reflected relative to this
acquisition.
Also reflects the acquisition of a non-controlling limited partnership
interest in an existing unconsolidated real estate joint venture which owns the
Elk Grove Industrial Park for a total purchase price of approximately $67,074
which was funded with borrowings under the Credit Facility. The Company's
investment in this joint venture is reflected in investments in real estate in
the accompanying pro forma balance sheet.
3. Reflects the effect of (i) the sale of Senior Debt Securities in the
amount of $400,000, resulting in net proceeds of approximately $394,466 after
payment of approximately $5,534 of financing costs, net underwriting discounts
and premiums and (ii) the repayment of borrowings under the Credit Facility of
approximately $394,466 using the net proceeds of the sale of Senior Debt
Securities.
4. Reflects the effect of the Offering, including (i) the issuance of
Series A Preferred Stock in the amount of $100,000, resulting in assumed net
proceeds of approximately $95,900 after payment of approximately $4,100 of
offering costs and (ii) the repayment of borrowings under the Credit Facility of
approximately $83,176. The remaining proceeds will be used to fund future
property acquisitions and for general corporate purposes.
F-6
<PAGE> 147
AMB PROPERTY CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
1998 PROPERTY DEBT ADJUSTMENTS
COMPANY(1) ACQUISITIONS(2) AND OFFERING(3) PRO FORMA
-------------- --------------- ---------------- -----------
<S> <C> <C> <C> <C>
REVENUES
Rental revenue.......................... $ 74,602 $11,781 $ -- $ 86,383
Interest and other income............... 1,183 1,273 -- 2,456
----------- ------- ------- -----------
Total revenues................ 75,785 13,054 -- 88,839
----------- ------- ------- -----------
OPERATING EXPENSES
Real estate taxes and property operating
expenses.............................. 20,252 2,813 -- 23,065
Interest expense........................ 11,841 -- 5,538 17,379
Depreciation and amortization........... 11,786 1,470 -- 13,256
General, administrative and other....... 2,718 -- -- 2,718
----------- ------- ------- -----------
Total operating expenses...... 46,597 4,283 5,538 56,418
----------- ------- ------- -----------
Income from operations before minority
interests............................. 29,188 8,771 (5,538) 32,421
Minority interests' share of net
income................................ (1,282) (1,202) -- (2,484)
----------- ------- ------- -----------
Net income.................... 27,906 7,569 (5,538) 29,937(4)
Preferred stock dividends............... -- -- (2,125) (2,125)
----------- ------- ------- -----------
Net income available to common
stockholders.......................... $ 27,906 $ 7,569 $(7,663) $ 27,812
=========== ======= ======= ===========
Net income per share
Basic................................. $ 0.32 $ 0.32
=========== ===========
Diluted............................... $ 0.32 $ 0.32
=========== ===========
Weighted average shares outstanding
Basic................................. 85,874,513 85,874,513
=========== ===========
Diluted............................... 86,284,736 86,284,736
=========== ===========
</TABLE>
F-7
<PAGE> 148
AMB PROPERTY CORPORATION
NOTES TO PRO FORMA
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
1. Reflects the historical consolidated operations of AMB Property
Corporation for the three months ended March 31, 1998. See the historical
consolidated financial statements and notes thereto of AMB Property Corporation
included elsewhere in this Prospectus.
2. Reflects the incremental effects of properties acquired subsequent to
December 31, 1997 based on the operations of such properties for periods prior
to acquisition by the Company. Below is a summary of the incremental effect of
such properties:
<TABLE>
<CAPTION>
TWIN
BOSTON ORLANDO DALLAS CITIES CRYSEN
INDUSTRIAL JAMESBURG CENTRAL TOTEM LAKE WAREHOUSE OFFICE CORRIDOR OTHER
PORTFOLIO PROPERTY PARK MALLS PORTFOLIO SHOWROOM WAREHOUSE PROPERTIES
---------- --------- ------- ---------- --------- -------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Rental and other
revenues................. $2,853 $1,466 $ 804 $ 758 $1,053 $1,011 $124 $3,712
Real estate taxes and
property operating
expenses................. (108) (543) (260) (277) (221) (384) (31) (989)
------ ------ ----- ----- ------ ------ ---- ------
Pro forma effect........... $2,745 $ 923 $ 544 $ 481 $ 832 $ 627 $ 93 $2,723
====== ====== ===== ===== ====== ====== ==== ======
<CAPTION>
TOTAL
-------
<S> <C>
Rental and other
revenues................. $11,781
Real estate taxes and
property operating
expenses................. (2,813)
-------
Pro forma effect........... $ 8,968
=======
</TABLE>
Four of the property acquisitions, Jamesburg Property, Corporate Park
Industrial, Dallas Warehouse Portfolio and Twin Cities Office Showroom
Portfolio, represent a joint venture with a client of AMB Investment Management
in which the Company owns a controlling 50.0005% interest. The joint venture
acquisitions are accounted for on a consolidated basis and, accordingly, a
minority interest of $1,202 has been reflected relative to these acquisitions.
See the statements of revenues and certain expenses of Boston Industrial
Portfolio, Jamesburg Property, Orlando Central Park, Totem Lake Malls, Dallas
Warehouse Portfolio, Twin Cities Office Showroom Portfolio and Crysen Corridor
Warehouse included elsewhere in this Prospectus.
F-8
<PAGE> 149
AMB PROPERTY CORPORATION
NOTES TO PRO FORMA
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (CONTINUED)
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
The following table sets forth the incremental revenues and certain
expenses for periods prior to acquisition for 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, Totem
Lake Malls, Dallas Warehouse Portfolio, Twin Cities Office Showroom Portfolio
and Crysen Corridor Warehouse 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
Forbes............................ -- -- --
Southfield........................ -- -- --
Suffolk........................... 92 (23) 69
Chicago Packaging Building........ 187 (53) 134
------- ------- ------
$ 3,712 $ (989) $2,723
======= ======= ======
</TABLE>
Two of the acquisitions above, Forbes and Southfield, represent the
purchase of vacant buildings which are in the process of being leased up. As
such, no property operations have been reflected in the accompanying pro forma
statement of operations relative to these acquisitions.
Also reflects the acquisition of a non-controlling limited partnership
interest in an existing unconsolidated real estate joint venture which owns the
Elk Grove Industrial Park. As such, the Company's share of equity in earnings of
this joint venture of $1,273 is included in interest and other income in the
accompanying pro forma statement of operations.
Also reflects estimated depreciation and amortization of the 1998 property
acquisitions based on estimated useful lives of 40 years.
F-9
<PAGE> 150
AMB PROPERTY CORPORATION
NOTES TO PRO FORMA
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (CONTINUED)
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
3. Reflects an adjustment to derive pro forma interest expense, which is
based upon the pro forma debt balances as of March 31, 1998. The calculation of
pro forma interest expense is as follows:
<TABLE>
<S> <C>
Secured debt, pro forma balance of $608,678 (before premium
of $17,542), assumed interest rate of 7.7%................ $11,767
Credit Facility, pro forma balance of zero, assumed interest
rate of 6.55%............................................. --
Senior Debt Securities, pro forma balance of $400,000,
weighted average interest rate of 7.175%.................. 7,175
Amortization of debt premium, actual amounts amortized
during the period......................................... (744)
Amortization of deferred financing costs, $6,434 balance, 3
to 17 year terms.......................................... 247
Unused Credit Facility fees, unused pro forma balance of
$500,000, fee of 0.15%.................................... 187
Capitalized interest, actual amounts capitalized during the
period.................................................... (1,253)
-------
Pro forma interest expense.................................. $17,379
=======
</TABLE>
The net change in interest expense is the result of the repayment of
borrowings on the Credit Facility of approximately $477,642 with the net
proceeds from the sale of Senior Debt Securities and the Offering.
Also reflects the sale of the Senior Debt Securities and the Offering and
the application of the resulting net proceeds and the payment of pro forma
Series A Preferred Stock dividends at an assumed dividend rate.
4. The pro forma taxable income of the Company for the twelve months ended
March 31, 1998 is approximately $108,498, which is based upon pro forma income
from operations before minority interest of approximately $111,715, plus book
depreciation and amortization of approximately $50,838 less other book/tax
differences of approximately $6,645 and less tax depreciation and amortization
of approximately $47,410.
F-10
<PAGE> 151
AMB PROPERTY CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
AMB IPO AND
CONTRIBUTED 1997 PROPERTY 1997 PROPERTY FORMATION 1997 AS
COMPANY(1) PROPERTIES(2) ACQUISITIONS(3) DISPOSITIONS(4) TRANSACTIONS(5) ADJUSTED
---------- ------------- --------------- --------------- --------------- ----------
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Rental revenue............... $ 26,465 $207,391 $47,554 ($1,200) $ 2,455 $ 282,665
Interest and other income.... 29,597 1,217 176 -- (28,981) 2,009
---------- -------- ------- ------- -------- ----------
Total revenues....... 56,062 208,608 47,730 (1,200) (26,526) 284,674
---------- -------- ------- ------- -------- ----------
OPERATING EXPENSES
Real estate taxes and
property operating
expenses................... 8,899 72,452 10,815 (363) (10,325) 81,478
Interest expense............. 3,528 45,009 -- (75) (3,033) 45,429
Depreciation and
amortization............... 4,195 32,616 -- (157) 9,232 45,886
General, administrative and
other...................... 20,555 823 -- -- (13,400) 7,978
---------- -------- ------- ------- -------- ----------
Total operating
expenses........... 37,177 150,900 10,815 (595) (17,526) 180,771
---------- -------- ------- ------- -------- ----------
Income from operations before
disposal of real estate and
minority interests......... 18,885 57,708 36,915 (605) (9,000) 103,903
Gain on disposal of real
estate..................... -- 360 -- (360) -- --
---------- -------- ------- ------- -------- ----------
Income from operations before
minority interests......... 18,885 58,068 36,915 (965) (9,000) 103,903
Minority interests' share of
net income................. (657) (884) (296) -- (2,558) (4,395)
---------- -------- ------- ------- -------- ----------
Net income................... 18,228 57,184 36,619 (965) (11,558) 99,508
Preferred Stock Dividends.... -- -- -- -- --
---------- -------- ------- ------- -------- ----------
Net income available to
common stockholders........ $ 18,228 $ 57,184 $36,619 $ (965) $(11,558) $ 99,508
========== ======== ======= ======= ======== ==========
Net income per share
Basic...................... $ 1.39 $ 1.16
========== ==========
Diluted.................... $ 1.38 $ 1.16
========== ==========
Weighted average shares
outstanding
Basic...................... 13,140,218 85,874,513
========== ==========
Diluted.................... 13,168,036 86,156,556
========== ==========
<CAPTION>
PRO FORMA
DEBT
ADJUSTMENTS
1998 PROPERTY AND
ACQUISITIONS(6) OFFERING (7) PRO FORMA
--------------- ------------ ----------
<S> <C> <C> <C>
REVENUES
Rental revenue............... $50,988 $ -- $ 333,653
Interest and other income.... 5,470 -- 7,479
------- -------- ----------
Total revenues....... 56,458 -- 341,132
------- -------- ----------
OPERATING EXPENSES
Real estate taxes and
property operating
expenses................... 13,402 -- 94,880
Interest expense............. -- 24,985 70,414
Depreciation and
amortization............... 8,141 -- 54,027
General, administrative and
other...................... -- -- 7,978
------- -------- ----------
Total operating
expenses........... 21,543 24,985 227,299
------- -------- ----------
Income from operations before
disposal of real estate and
minority interests......... 34,915 (24,985) 113,833
Gain on disposal of real
estate..................... -- -- --
------- -------- ----------
Income from operations before
minority interests......... 34,915 (24,985) 113,833
Minority interests' share of
net income................. (5,709) -- (10,104)
------- -------- ----------
Net income................... 29,206 (24,985) 103,729(8)
Preferred Stock Dividends.... -- (8,500) (8,500)
------- -------- ----------
Net income available to
common stockholders........ $29,206 $(33,485) 95,229
======= ======== ==========
Net income per share
Basic...................... $ 1.11
==========
Diluted.................... $ 1.11
==========
Weighted average shares
outstanding
Basic...................... 85,874,513
==========
Diluted.................... 86,156,556
==========
</TABLE>
F-11
<PAGE> 152
AMB PROPERTY CORPORATION
NOTES TO PRO FORMA
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
1. Reflects the historical consolidated operations of AMB Property
Corporation for the period from November 26, 1997 to December 31, 1997. See the
historical consolidated financial statements and notes thereto of AMB Property
Corporation included elsewhere in this Prospectus.
2. Reflects the historical combined operations of the AMB Contributed
Properties for the period from January 1, 1997 to November 25, 1997. See the
historical combined financial statements and notes thereto of the AMB
Contributed Properties included elsewhere in this Prospectus.
3. Reflects the incremental effects of properties acquired during the year
ended December 31, 1997 based on the historical operations of such properties
for periods prior to acquisition by the Company or the owners of the AMB
Contributed Properties. Below is a summary of the incremental effect of such
properties:
<TABLE>
<CAPTION>
SILICON VALLEY
CABOT INDUSTRIAL CABOT MANHATTAN WESLAYAN R&D OTHER
PORTFOLIO BUSINESS PARK VILLAGE PLAZA PORTFOLIO PROPERTIES TOTAL
---------------- ------------- --------- -------- -------------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Rental revenues.......... $22,995 $4,734 $ 5,467 $3,259 $2,958 $ 8,141 $ 47,554
Real estate taxes and
property operating
expenses............... (4,775) (895) (1,928) (990) (311) (1,916) (10,815)
------- ------ ------- ------ ------ ------- --------
Pro forma effect......... $18,220 $3,839 $ 3,539 $2,269 $2,647 $ 6,225 $ 36,739
======= ====== ======= ====== ====== ======= ========
</TABLE>
One of the acquisitions above, Manhattan Village, represents the
acquisition of a property and the formation of several joint ventures that own
the property, in which the Company owns a 90% interest. The joint venture is
accounted for on a consolidated basis, and accordingly, a 10% minority interest
has been reflected relative to this acquisition.
See the statements of revenues and certain expenses of Cabot Industrial
Portfolio, Cabot Business Park, Manhattan Village, Weslayan Plaza and Silicon
Valley R&D Portfolio included elsewhere in this Prospectus.
F-12
<PAGE> 153
AMB PROPERTY CORPORATION
NOTES TO PRO FORMA
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
The following table sets forth the incremental revenues and certain
expenses for periods prior to acquisition for 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........... 1,537 (414) 1,123
Brittania Business Park................ 1,058 (212) 846
Rockford Road.......................... 64 (6) 58
Patuxent............................... 509 (113) 396
Executive.............................. 588 (175) 413
Acer Distribution...................... 716 (129) 587
------- ------- -------
$ 8,141 $(1,916) $ 6,225
======= ======= =======
</TABLE>
4. Reflects the incremental effects of the disposition or partial
disposition of properties during 1997, based upon the historical operations of
such properties. See Note 7 to the historical combined financial statements of
the AMB Contributed Properties included elsewhere in this Prospectus.
5. Reflects the effects of the application of purchase accounting as a
result of the IPO and Formation Transactions, resulting in pro forma expense
adjustments as follows: (i) an increase in depreciation expense of $9,232, (ii)
the reclassification of certain property-related expenses from general and
administrative expense to property operating expense (due to the internalization
of management) of approximately $5,196 and (iii) a net increase in general,
administrative and other expenses of $5,958, after reclassification of
property-related expenses. Such changes are based upon actual expenses incurred
during 1997 adjusted for (a) the estimated changes in costs due to operating as
a public entity including investor relations, accounting and legal fees and
other costs related to the internalization of management and (b) certain
reclassifications to reflect the Company's new organizational structure as a
result of the IPO. Estimated depreciation and amortization has been based upon
asset lives of 5 to 40 years.
Also reflects the elimination of advisory fees charged by the Company's
predecessor, AMB, to the owners of the AMB Contributed Properties of $15,521
(excluding approximately $2,027 in real estate acquisition fees paid to AMB
which have been accounted for as acquisition costs by the owners of the AMB
Contributed Properties and accordingly capitalized as investments in real
estate). Also reflects the elimination of investment management and advisory
fees earned by AMB of $28,756 and related expenses of $19,358 resulting from the
change in the Company's operations from an investment manager to a real estate
operating company.
F-13
<PAGE> 154
AMB PROPERTY CORPORATION
NOTES TO PRO FORMA
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
Also reflects an adjustment to historical interest expense to derive 1997
as adjusted interest expense, which is based upon the Company's debt balances as
of December 31, 1997. The calculation of 1997 as adjusted interest expense is as
follows:
<TABLE>
<S> <C>
Secured debt, balance of $517,366 (before premium of
$18,286),
assumed interest rate of 7.82%............................ $40,458
Credit Facility, balance of $150,000, assumed interest rate
of 6.90%.................................................. 10,350
Amortization of debt premium, $18,286 balance, 8 year
term...................................................... (2,924)
Amortization of financing costs, $900 balance, 3 year
term...................................................... 300
Unused Credit Facility fees, unused balance of $350,000, fee
of 0.20%.................................................. 700
Capitalized interest, average historical construction in
process of $48,303, overall weighted average interest rate
of 7.5%................................................... (3,455)
-------
1997 as adjusted interest expense........................... $45,429
=======
</TABLE>
Also reflects an adjustment to record rental revenues on a straight-line
basis for the Properties from January 1, 1997, the assumed date of acquisition
by the Company. Rental income has not been included for any properties for
periods prior to completion of their construction and availability for
occupancy. The pro forma straight-line rent adjustment for the year ended
December 31, 1997 is calculated as the difference between (i) pro forma
straight-line rental revenues of $5,447 and (ii) historical straight-line rental
revenues of $2,992.
Also reflects an adjustment to reflect the incremental effect of
establishing the Company's investment in AMB Investment Management, the income
from which is included in interest and other income. The pro forma operations of
AMB Investment Management and the Company's share of AMB Investment Management's
net income based upon its 95% economic interest are as follows:
<TABLE>
<S> <C>
Advisory revenues........................................... $ 5,487
General and administrative expenses......................... (4,465)
Depreciation and amortization............................... (72)
-------
Income before income taxes.................................. 950
Income taxes (at assumed effective tax rate of 40%)......... (380)
-------
Income before minority interest............................. 570
Minority interest........................................... (17)
-------
Net income.................................................. $ 553
-------
Company's share of net income............................... $ 525
=======
</TABLE>
Advisory revenues consist of actual fees earned by AMB for the period from
January 1, 1997 to November 25, 1997 from the assets that are managed by AMB
Investment Management and the actual results of AMB Investment Management for
the period from November 26, 1997 to December 31, 1997.
General and administrative expenses consist of direct costs and indirect
costs allocated to AMB Investment Management by the Company. Such indirect costs
have been allocated based upon the percentage of total assets managed by AMB
Investment Management.
In addition to its share of AMB Investment Management's net income, the
Company received an acquisition fee for acquisition services provided to AMB
Investment Management in 1997. The pro forma fee for 1997 amounts to $750.
F-14
<PAGE> 155
AMB PROPERTY CORPORATION
NOTES TO PRO FORMA
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
6. Reflects the incremental effects of properties acquired subsequent to
December 31, 1997 based on the operations of such properties for periods prior
to acquisition by the Company. Below is a summary of the incremental effect of
such properties:
<TABLE>
<CAPTION>
TWIN
BOSTON ORLANDO DALLAS CITIES CRYSEN
INDUSTRIAL JAMESBURG CENTRAL TOTEM LAKE WAREHOUSE OFFICE CORRIDOR OTHER
PORTFOLIO PROPERTY PARK MALLS PORTFOLIO SHOWROOM WAREHOUSE PROPERTIES
---------- --------- ------- ---------- --------- -------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Rental and other
revenues................. $10,403 $ 6,774 $3,249 $ 2,822 $4,159 $ 4,294 $ 536 $18,751
Real estate taxes and
property operating
expenses................. (802) (2,510) (1,069) (1,293) (961) (1,622) (113) (5,032)
------- ------- ------- ------- ------ ------- ----- -------
Pro forma effect........... $ 9,601 $ 4,264 $2,180 $ 1,529 $3,198 $ 2,672 $ 423 $13,719
======= ======= ======= ======= ====== ======= ===== =======
<CAPTION>
TOTAL
-------
<S> <C>
Rental and other
revenues................. $50,988
Real estate taxes and
property operating
expenses................. (13,402)
-------
Pro forma effect........... $37,586
=======
</TABLE>
Four of the property acquisitions, Jamesburg Property, Corporate Park
Industrial, Dallas Warehouse Portfolio and Twin Cities Office Showroom
Portfolio, represent joint ventures with a client of AMB Investment Management
in which the Company owns a controlling 50.0005% interest. The joint venture
acquisitions are accounted for on a consolidated basis and, accordingly, a
minority interest of $5,709 has been reflected relative to these acquisitions.
See the statements of revenues and certain expenses of Boston Industrial
Portfolio, Jamesburg Property, Orlando Central Park, Totem Lake Malls, Dallas
Warehouse Portfolio, Twin Cities Office Showroom Portfolio and Crysen Corridor
Warehouse 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
Forbes...................................... -- -- --
Southfield.................................. -- -- --
Suffolk..................................... 655 (221) 434
Chicago Packaging Building.................. 725 (204) 521
------- ------- -------
$18,751 $(5,032) $13,719
======= ======= =======
</TABLE>
Also reflects the acquisition of a non-controlling limited partnership
interest in an existing unconsolidated real estate joint venture which owns the
Elk Grove Industrial Park. As such, the Company's share of equity in
F-15
<PAGE> 156
AMB PROPERTY CORPORATION
NOTES TO PRO FORMA
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
earnings of this joint venture of $5,470 is included in interest and other
income in the accompanying pro forma statement of operations.
Also reflects estimated depreciation and amortization of the 1998 property
acquisitions based on estimated useful lives of 40 years.
7. Reflects an adjustment to derive pro forma interest expense, which is
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 $608,678 (before premium
of $17,542), assumed interest rate of 7.7%................ $47,068
Credit Facility, pro forma balance of zero, assumed interest
rate of 6.55%............................................. --
Senior Debt Securities, pro forma balance of $400,000,
weighted average interest rate of 7.175%.................. 28,700
Amortization of deferred financing costs, $6,434 balance, 3
to 17 year terms.......................................... 990
Amortization of debt premium, $17,542 balance, 8 year
term...................................................... (2,976)
Unused Credit Facility fees, unused pro forma balance of
$500,000, fee of 0.15%.................................... 750
Capitalized interest, average construction in process of
$67,500, overall weighted average assumed interest rate of
7.5%...................................................... (4,118)
-------
Pro forma interest expense.................................. $70,414
=======
</TABLE>
The net change in interest expense is the result of the repayment of
borrowings on the Credit Facility of approximately $477,642 with the net
proceeds from the sale of Senior Debt Securities and the Offering.
Also reflects the sale of the Senior Debt Securities and the Offering and
the application of the resulting net proceeds and the payment of pro forma
Series A Preferred Stock dividends at an assumed dividend rate.
F-16
<PAGE> 157
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-17
<PAGE> 158
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-18
<PAGE> 159
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-19
<PAGE> 160
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-20
<PAGE> 161
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 their
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 being issued to the former stockholders of the Predecessor. In addition,
the Company and the Operating Partnership acquired, through a series of mergers
and other transactions, 31.8 million rentable square feet of industrial property
and 6.3 million rentable square feet of retail property in exchange for
65,022,185 shares of the Company's Common Stock, 2,542,163 units representing
limited partnership interests in the Operating Partnership, the assumption of
debt and, to a limited extent, cash. The net assets of the Predecessor and the
properties acquired with Common Stock were contributed to the Operating
Partnership for 69,768,801 units. The purchase method of accounting was applied
to the acquisition of the properties. Collectively, the Merger and the other
formation transactions described above are referred to as the "Formation
Transactions."
On November 26, 1997, the Company completed its 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 an officer of AMB Investment
Management collectively purchased 100% of AMB Investment Management's voting
common stock (representing a 5% economic interest therein). The Operating
Partnership accounts for its investment in AMB Investment Management using the
equity method of accounting. AMB Investment Management was formed to succeed to
the Predecessor's investment management business of providing real estate
investment management services on a fee basis to clients.
F-21
<PAGE> 162
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 for the three months ended March 31, 1997 and 1998 are
not necessarily indicative of the results expected for the entire year.
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-22
<PAGE> 163
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-23
<PAGE> 164
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-24
<PAGE> 165
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>
F-25
<PAGE> 166
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-26
<PAGE> 167
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-27
<PAGE> 168
\
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-28
<PAGE> 169
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-29
<PAGE> 170
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-30
<PAGE> 171
AMB PROPERTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND SQUARE FEET DATA)
1. ORGANIZATION AND FORMATION OF COMPANY
AMB Property Corporation, a Maryland corporation (the "Company"), commenced
operations as a fully integrated real estate company effective with the
completion of its initial public offering (the "Offering") on November 26, 1997.
The Company will elect to be taxed as a real estate investment trust ("REIT")
under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended
(the "Code"). The Company, through its controlling interest in its subsidiary
AMB Property, L.P., a Delaware limited partnership (the "Operating
Partnership"), is engaged in the ownership, operation, management, acquisition,
renovation, expansion, and development of industrial properties and community
shopping centers in target markets nationwide. Unless the context otherwise
requires, the "Company" shall include AMB Property Corporation, the Operating
Partnership and their controlled subsidiaries.
The Company and the Operating Partnership were formed shortly before
consummation of the Offering. AMB Institutional Realty Advisors, Inc., a
California corporation and registered investment advisor (the "Predecessor"),
formed AMB Property Corporation, a wholly owned subsidiary, and merged with and
into the Company (the "Merger") in exchange for 4,746,616 shares of the
Company's Common Stock being issued to the former stockholders of the
Predecessor. In addition, the Company and the Operating Partnership acquired,
through a series of mergers and other transactions, 31.8 million rentable square
feet of industrial property and 6.3 million rentable square feet of retail
property in exchange for 65,022,185 shares of the Company's Common Stock,
2,542,163 units representing limited partnership interests in the Operating
Partnership, the assumption of debt, and to a limited extent, cash. The net
assets of the Predecessor and the properties acquired with Common Stock were
contributed to the Operating Partnership for 69,768,801 units. The purchase
method of accounting was applied to the acquisition of the properties.
Collectively, the Merger and the other formation transactions described above
are referred to as the "Formation Transactions."
On November 26, 1997, the Company completed its Offering of 16,100,000
shares of Common Stock, $0.01 par value per share (the "Common Stock") for
$21.00 per share, resulting in gross offering proceeds of approximately
$338,100. Net of underwriters' commission and offering costs aggregating
$38,068, the Company received approximately $300,032 in proceeds from the
Offering. The net proceeds of the Offering were used to repay indebtedness, to
purchase interests from certain investors who elected not to receive shares or
units in connection with the Formation Transactions, to fund property
acquisitions, and for general corporate purposes, including working capital.
As of December 31, 1997, the Company owned an approximate 97.1% general
partner interest in the Operating Partnership. The remaining 2.9% limited
partner interest was owned by unaffiliated investors. For local law purposes,
properties in certain states are owned through limited partnerships and limited
liability companies owned 99% by the Operating Partnership and 1% by a wholly
owned subsidiary of the Company. The ownership of such Properties through such
entities does not materially affect the Company's overall ownership of the
interests in the Properties. As the sole general partner of the Operating
Partnership, the Company has the full, exclusive and complete responsibility and
discretion in the management and control of the Operating Partnership.
In connection with the Formation Transactions, the Operating Partnership
formed AMB Investment Management Corporation, a Maryland corporation ("AMB
Investment Management"). The Operating Partnership purchased 100% of AMB
Investment Management's non-voting preferred stock (representing a 95% economic
interest). Certain Executive Officers and an officer of AMB Investment
Management collectively purchased 100% of AMB Investment Management's voting
common stock (representing a 5% economic interest therein). The Operating
Partnership accounts for its investment in AMB Investment Management using the
equity method of accounting. AMB Investment Management was formed to succeed to
the Predecessor's investment management business of providing real estate
investment management services on a fee basis to clients.
F-31
<PAGE> 172
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-32
<PAGE> 173
AMB PROPERTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND SQUARE FEET DATA)
Expenditures for maintenance and repairs are charged to operations as
incurred. Significant renovations or betterments that extend the economic useful
life of assets are capitalized.
Project costs directly associated with the development and construction of
a real estate project are capitalized as construction in progress. In addition,
interest, real estate taxes and other costs are capitalized during the
construction period.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash held in financial institutions and
other highly liquid short-term investments with original maturities of three
months or less. Cash and cash equivalents as of December 31, 1997 include
restricted cash of $8,074, which represents amounts held in escrow in connection
with property purchases and capital improvements.
DEFERRED FINANCING
Costs incurred in connection with financing are capitalized and amortized
to interest expense on a straight-line basis (which approximates the effective
interest method) over the term of the related loan. As of December 31, 1997,
deferred financing fees were $871, net of accumulated amortization of $29. Such
amounts are included in Other Assets on the consolidated balance sheet.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments include short-term investments,
accounts receivable, accounts payable, accrued expenses, construction loans
payable, mortgage debt, secured debt, unsecured notes payable and an unsecured
credit facility. The fair value of these instruments approximates its carrying
or contract values.
DEBT PREMIUMS
In connection with the Formation Transactions, the Company assumed certain
secured debt with an aggregate principal value of $517,031 and a fair value of
$535,613. The difference between the principal value and the fair value was
recorded as a debt premium. The debt premium is being amortized into interest
expense over the term of the related debt instrument using the effective
interest method. As of December 31, 1997, the unamortized debt premium was
$18,286.
MINORITY INTERESTS
Minority interests in the Company represent the limited partnership
interests in the Operating Partnership and interests held by certain third
parties in eight real estate joint ventures that are consolidated for financial
reporting purposes. Such investments are consolidated because (i) the Company
owns a majority owner interest, or (ii) the Company has significant control over
the entity through a 50% or greater ownership interest combined with the ability
to control major operating decisions such as approval of budgets, selection of
property managers and change in financing.
The following table sets forth the minority interest ownership held by
certain joint ventures ("Minority Interest -- Joint Ventures") and the limited
partnership interests in the Operating Partnership ("Minority
Interest -- Limited Partners") as of December 31, 1997.
<TABLE>
<S> <C>
Minority Interest -- Joint Ventures................ $15,784
Minority Interest -- Limited Partners.............. 49,368
-------
$65,152
=======
</TABLE>
F-33
<PAGE> 174
AMB PROPERTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND SQUARE FEET DATA)
REVENUES
The Company, as a lessor, retains substantially all of the benefits and
risks of ownership of the Properties and accounts for its leases as operating
leases. Rental revenues are recognized on a straight-line basis over the term of
the leases.
Reimbursements from tenants for real estate taxes and other recoverable
operating expenses are recognized as revenue in the period the applicable
expenses are incurred.
INVESTMENT MANAGEMENT AND OTHER INCOME
Investment management income consists primarily of professional fees
generated from the Predecessors' real estate investment management services for
periods prior to the Formation Transactions and the Company's equity in the
earnings of AMB Investment Management for periods subsequent to the Formation
Transactions. Other income consists primarily of interest income on cash and
cash equivalents.
INVESTMENT MANAGEMENT EXPENSE
Investment management expense represents the operating expenses of the
Predecessor for periods prior to November 26, 1997 and consists of salaries and
benefits and other management related expenses.
EARNINGS PER SHARE
For purposes of calculating diluted earnings per share for the year ended
December 31, 1997, no adjustment to net income available to common stockholders
was necessary, as the Company's only dilutive securities outstanding for such
period were stock options issued under its stock incentive plan. The effect of
the stock options was to increase weighted average shares outstanding by 27,818
shares for the year ended December 31, 1997. Such dilution was computed using
the treasury stock method. The Predecessor had no dilutive securities
outstanding during the years ended December 31, 1995 and 1996.
RECLASSIFICATIONS
The consolidated financial statements for prior periods have been
reclassified to conform with current classifications with no effect on results
of operations.
FUTURE ACCOUNTING PRONOUNCEMENTS
In June of 1997, the FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information." This statement, effective for
financial statements for periods beginning after December 15, 1997, requires
that a public business enterprise report financial and descriptive information
about its reportable operating segments. Generally, information is required to
be reported on the basis that it is used internally for evaluating segment
performance and deciding how to allocate resources to segments. The Company
expects to adopt this SFAS in 1998 to the extent applicable.
3. TRANSACTIONS WITH AFFILIATES
As discussed in "Organization and Formation of the Company," the Operating
Partnership formed AMB Investment Management (which conducts its operations
through the Investment Management Partnership) for the purpose of carrying on
the operations of the Predecessor. The Company and the Investment Management
Partnership have an agreement that allows for the sharing of certain costs and
employees. Additionally, the Company provides the Investment Management
Partnership with certain acquisition-related services.
F-34
<PAGE> 175
AMB PROPERTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND SQUARE FEET DATA)
As part of the Formation Transactions, the Operating Partnership was
required to pay an amount equal to the net working capital balances at November
25, 1997 of the Predecessor and the acquired properties to the owners of said
entities. As of December 31, 1997, the Company owed approximately $37,808 to
owners related to these working capital distributions. Such amount is included
in Payable to affiliates on the consolidated balance sheet and was paid
subsequent to year-end.
The Company and the Investment Management Partnership share common office
space under lease obligations of an affiliate of the Predecessor. Such lease
obligations are charged to the Company and the Investment Management Partnership
at cost. For the period ended December 31, 1995, 1996 and 1997, the Company paid
approximately $435, $510 and $700, respectively for occupancy costs related to
the lease obligations of the affiliate.
4. DEBT
As of December 31, 1997, debt, excluding unamortized debt premiums,
consists of the following:
<TABLE>
<S> <C>
Secured debt, varying coupon interest
rates from 7.01% to 10.38%, due
November 1998 to December 2008............................ $ 517,366
Unsecured credit facility, variable
interest at LIBOR plus 110 basis points (7.10% at
December 31, 1997) due November 2000...................... 150,000
----------
Total Debt........................................ $ 667,366
==========
</TABLE>
Secured debt generally requires monthly principal and interest payments.
The secured debt is secured by deeds of trust and mortgages on 48 Properties.
The carrying value of real estate investments pledged as collateral under deeds
of trust and mortgages for the secured debt is $1,049,003 as of December 31,
1997. All of the secured debt bears interest at fixed rates, except for one loan
which bears interest at either LIBOR plus 275 basis points (8.75% at December
31, 1997) or prime plus 50 basis points, at the borrower's option. The secured
debt has various financial and non-financial covenants. Additionally, certain of
the secured debt is cross-collateralized.
The Company has a $500,000 unsecured revolving credit agreement (the
"Credit Facility") with Morgan Guaranty Trust Company of New York as agent, and
a syndicate of 12 other banks. The Credit Facility has a term of three years,
and is subject to a fee that accrues on the daily average undrawn funds, which
varies between 15 and 25 basis points of the undrawn funds based on the
Company's credit rating. The Credit Facility has various financial and
non-financial covenants.
The weighted-average fixed interest rate on secured debt at December 31,
1997 was 7.82%. Interest capitalized related to construction projects for the
period from November 26, 1997 to December 31, 1997 was $448. There was no
capitalized interest for periods prior to the Formation Transactions.
The scheduled maturities of the secured debt as of December 31, 1997 are as
follows:
<TABLE>
<S> <C>
1998...................................................... $ 19,390
1999...................................................... 9,666
2000...................................................... 11,862
2001...................................................... 35,654
2002...................................................... 43,967
Thereafter................................................ 396,827
--------
$517,366
========
</TABLE>
F-35
<PAGE> 176
AMB PROPERTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND SQUARE FEET DATA)
5. LEASING ACTIVITY
Future minimum rental income due under noncancelable leases in effect at
December 31, 1997 with tenants is as follows:
<TABLE>
<S> <C>
1998..................................................... $ 214,400
1999..................................................... 188,926
2000..................................................... 160,592
2001..................................................... 128,241
2002..................................................... 101,733
Thereafter............................................... 459,070
----------
$1,252,962
==========
</TABLE>
In addition to minimum rental payments, certain tenants pay reimbursements
for their pro rata share of specified operating expenses, which amounted to
$5,267 for the period from November 26, 1997 to December 31, 1997. These amounts
are included as rental income and operating expenses in the accompanying
consolidated statements of operations. Certain of the leases also provide for
the payment of additional rent based on a percentage of the tenant's revenues.
Some leases contain options to renew. No individual tenant accounts for greater
than 2% of rental revenues.
6. INCOME TAXES
The Company intends to be taxed as a REIT under the Code for the fiscal
year ended December 31, 1997. To qualify as a REIT, the Company must meet a
number of organizational and operational requirements, including a requirement
that it currently distribute at least 95% of its taxable income. It is
management's intention to adhere to these requirements and maintain the
Company's REIT status. As a REIT, the Company generally will not be subject to
corporate level federal income tax on net income it distributes currently to its
stockholders. As such, no provision for federal income taxes has been included
in the accompanying consolidated financial statements. If the Company fails to
qualify as a REIT in any taxable year, it will be subject to federal income
taxes at regular corporate rates (including any applicable alternative minimum
tax) and may not be able to qualify as a REIT for four subsequent taxable years.
Even if the Company qualifies for taxation as a REIT, the Company may be subject
to certain state and local taxes on its income and property and to federal
income and excise taxes on its undistributed taxable income.
For federal income tax purposes, cash distributions paid to stockholders
may be characterized as ordinary income, return of capital (generally
non-taxable) or capital gains. On December 8, 1997, the Company declared a
distribution of $0.134 per common share, payable on December 29, 1997 to
stockholders of record on December 18, 1997. The distribution covered the period
from November 26, 1997 through December 31, 1997. For Federal income tax
purposes, 100% of the distribution was ordinary income.
Prior to the Merger, the Predecessor conducted its business as an S
corporation, and therefore was exempt from federal income taxes under Subchapter
S of the Code. Under this election federal income taxes were paid by the
stockholders of the Predecessor.
7. STOCK INCENTIVE PLAN AND 401(K) PLAN
STOCK INCENTIVE PLAN
In November 1997, the Company established a Stock Option and Incentive Plan
(the "Stock Incentive Plan") for the purpose of attracting and retaining
eligible officers, directors and employees. The Company has reserved for
issuance 5,750,000 shares of Common Stock under the Stock Incentive Plan. In
November 1997, the Company granted 3,153,750 non-qualified options to certain
directors, officers and employees. Each option
F-36
<PAGE> 177
AMB PROPERTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND SQUARE FEET DATA)
is exchangeable for one share of the Common Stock and has an exercise price
equal to $21.00, the market price at the date of grant. The options have a
10-year term and vest pro rata in annual installments over a four-year period
from the date of grant.
The Company applies APB Opinion No. 25, "Accounting for Stock Issued to
Employees" and related interpretations in accounting for its Stock Incentive
Plan. Opinion 25 measures compensation cost using the intrinsic value based
method of accounting. Under this method, compensation cost is the excess, if
any, of the quoted market price of the stock at the date of grant over the
amount an employee must pay to acquire the stock. Accordingly, no compensation
cost has been recognized for the Stock Incentive Plan, as the option price for
all option grants in 1997 was equal to the market price as of the date of grant.
However, if the Company had measured compensation cost using the fair value
based method prescribed in SFAS 123, "Accounting for Stock-Based Compensation,"
the impact on pro forma net income and earnings per share would not have been
material.
The fair value of each option grant was estimated at the date of grant
using the Black-Scholes option-pricing model with the following assumptions used
for grants in 1997: dividend yield of 6.52%, expected volatility of 18.75%,
risk-free interest rate of 5.86%, and expected lives of 10 years.
Following is a summary of the option activity for the year ended December
31, 1997:
<TABLE>
<CAPTION>
SHARES
UNDER REMAINING
OPTION EXERCISE CONTRACTUAL
(000) PRICE LIFE
-------- -------- -----------
<S> <C> <C> <C>
Outstanding, 11/25/97................................. -- -- --
Granted............................................... 3,154 $21.0 10 years
Exercised............................................. -- -- --
Forfeited............................................. (10) -- --
------ ----- --------
Outstanding, 12/31/97................................. 3,144 $21.0 10 years
====== ===== ========
Options exercisable at year-end....................... 184 $21.0
====== =====
Fair value of options granted during the year......... $ 2.28
======
</TABLE>
RESTRICTED STOCK
In 1997, the Company sold 5,712 restricted shares of its Common Stock to
certain independent directors for $0.01 per share in cash.
401(K) PLAN
In November 1997, the Company established a Section 401(k)
Savings/Retirement Plan (the "Section 401(k) Plan"), which is a continuation of
the Section 401(k) plan of the Predecessor, to cover eligible employees of the
Company and any designated affiliate. The Section 401(k) Plan permits eligible
employees of the Company to defer up to 10% of their annual compensation,
subject to certain limitations imposed by the Code. The employees' elective
deferrals are immediately vested and non-forfeitable upon contribution to the
Section 401(k) Plan. The Company matches the employee contributions to the
Section 401(k)Plan in an amount equal to 50% of the first 3.5% of annual
compensation deferred by each employee and may also make discretionary
contributions to the plan. As of December 31, 1997, the Company's accrual for
401(k) match was $140. Such amount was included in Other liabilities on the
consolidated balance sheet.
Except for the Section 401(k) Plan, the Company offers no other
post-retirement or post-employment benefits to its employees.
F-37
<PAGE> 178
AMB PROPERTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND SQUARE FEET DATA)
8. SUPPLEMENTAL INFORMATION TO STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1995 1996 1997
---- ---- ----------
<S> <C> <C> <C>
Cash paid for interest................................... $-- $-- $ 2,509
=== === ==========
Non-cash transactions:
Acquisitions of properties in Formation Transactions... $-- $-- $2,216,137
Assumption of debt..................................... -- -- (717,613)
Cash acquired.......................................... -- -- (43,978)
Other assumed assets and liabilities................... -- -- (13,862)
Minority interest...................................... -- -- (64,358)
Shares issued.......................................... -- -- (1,370,391)
--- --- ----------
Net cash paid, net of cash acquired...................... $-- $-- $ 5,935
=== === ==========
</TABLE>
9. PRO FORMA INFORMATION (UNAUDITED)
The following unaudited pro forma condensed consolidated statement of
operations has been prepared as if the Formation Transactions, the Offering (as
described in Note 1) and certain property acquisitions and dispositions in 1997
had occurred on January 1, 1996. In the opinion of management, the pro forma
condensed consolidated statement of operations does not purport to present the
consolidated results that would have occurred if the aforementioned transactions
had been consummated on January 1, 1996, nor does it purport to present the
consolidated results of operations for future periods.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1996 1997
------------ ------------
<S> <C> <C>
Total revenues............................................ $ 265,550 $ 284,674
Income from operations before minority interests.......... 90,694 103,903
Net income available to common stockholders............... 87,313 99,508
INCOME PER SHARE OF COMMON STOCK
Basic................................................... $ 1.02 $ 1.16
=========== ===========
Diluted................................................. $ 1.01 $ 1.15
=========== ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic................................................... 85,874,513 85,874,513
=========== ===========
Diluted................................................. 86,156,556 86,156,556
=========== ===========
</TABLE>
10. COMMITMENTS AND CONTINGENCIES
LITIGATION
In the normal course of business, from time to time, the Company is
involved in legal actions relating to the ownership and operations of its
Properties. In management's opinion, the liabilities, if any, that may
ultimately result from such legal actions are not expected to have a materially
adverse effect on the consolidated financial position, results of operations, or
cash flows of the Company.
ENVIRONMENTAL MATTERS
The Company follows the policy of monitoring its Properties for the
presence of hazardous or toxic substances. The Company is not aware of any
environmental liability with respect to the Properties that would
F-38
<PAGE> 179
AMB PROPERTY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND SQUARE FEET DATA)
have a material adverse effect on the Company's business, assets or results of
operations. There can be no assurance that such a material environmental
liability does not exist. The existence of any such material environmental
liability could have a material adverse effect on the Company's results of
operations and cash flow.
GENERAL UNINSURED LOSSES
The Company carries comprehensive liability, fire, flood, environmental,
extended coverage and rental loss insurance with policy specifications, limits
and deductibles customarily carried for similar properties. There are, however,
certain types of extraordinary losses that may be either uninsurable or not
economically insurable. Should an uninsured loss occur, the Company could lose
its investment in, and anticipated profits and cash flows from, a property.
Certain of the Properties are located in areas that are subject to
earthquake activity; the Company has therefore obtained limited earthquake
insurance.
11. OPERATING PARTNERSHIP
As of December 31, 1997 the Company owned a 97.1% general partner interest
in the Operating Partnership. Therefore, the Company consolidates the Operating
Partnership and records the remaining 2.9% limited partner interests as minority
interest in the consolidated financial statements.
The Operating Partnership commenced operations as a fully integrated real
estate company on November 26, 1997 upon completion of the Formation
Transactions. For financial reporting purposes, AMB Institutional Realty
Advisors, Inc. is not considered to be the predecessor of the Operating
Partnership. The following table sets forth summary financial information of the
Operating Partnership as of and for the period from November 26, 1997 to
December 31, 1997 (in thousands, except unit data):
<TABLE>
<S> <C>
Investments in real estate, net............................. $2,438,846
Total assets................................................ 2,506,255
Debt........................................................ 685,652
Partners' capital........................................... 1,717,398
Revenues.................................................... 27,110
Income from operations before minority interest............. 9,291
Net income.................................................. 9,174
Total units................................................. 88,416,676
Net income per unit......................................... $0.10
</TABLE>
Following is a statement of partners' capital of the Operating Partnership
from November 26, 1997 (inception) to December 31, 1997 (in thousands, except
unit data):
<TABLE>
<CAPTION>
GENERAL PARTNER LIMITED PARTNERS
----------------------- -------------------
UNITS AMOUNT UNITS AMOUNT TOTAL
---------- ---------- --------- ------- ----------
<S> <C> <C> <C> <C> <C>
November 25, 1997.... -- $ -- -- $ -- $ --
Contributions...... 85,874,513 1,670,902 2,542,163 49,169 1,720,071
Net income......... -- 8,634 -- 540 9,174
Distributions...... -- (11,506) -- (341) (11,847)
---------- ---------- --------- ------- ----------
December 31, 1997.... 85,874,513 $1,668,030 2,542,163 $49,368 $1,717,398
========== ========== ========= ======= ==========
</TABLE>
F-39
<PAGE> 180
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-40
<PAGE> 181
<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-41
<PAGE> 182
<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-42
<PAGE> 183
<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-43
<PAGE> 184
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-44
<PAGE> 185
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-45
<PAGE> 186
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-46
<PAGE> 187
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-47
<PAGE> 188
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-48
<PAGE> 189
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-49
<PAGE> 190
AMB CONTRIBUTED PROPERTIES
NOTES TO COMBINED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. ORGANIZATION AND BASIS OF PRESENTATION
The accompanying combined financial statements represent a combination of
the assets, liabilities and operations of 96 properties (the "Properties")
located throughout the United States, which are owned by certain real estate
investment funds, trusts and partnerships. Collectively, the combination of the
operations of the investments in the Properties is referred to as the "AMB
Contributed Properties." During the periods presented, the AMB Contributed
Properties were all managed by AMB Institutional Realty Advisors, Inc. ("AMB"),
the investment manager, under separate investment management agreements (the
"Agreements"). AMB Contributed Properties is not a legal entity. A summary of
the various entities that own the Properties, the number of properties and
square footage as of November 25, 1997 is as follows:
<TABLE>
<CAPTION>
NUMBER
OF
PROPERTY OWNER PROPERTIES SQUARE FOOTAGE
-------------- ---------- --------------
<S> <C> <C>
AMB Current Income Fund, Inc.(1)............................ 34 14,866,408
AMB Value Added Fund, Inc................................... 5 1,740,103
AMB Western Properties Fund-I............................... 8 1,118,907
Ameritech Pension Trust..................................... 11 4,398,878
City and County of San Francisco Employees' Retirement
System.................................................... 12 3,933,608
First Allmerica Financial Life Insurance Company............ 1 484,370
Milwaukee Employe's Retirement System(1).................... 1 285,480
Southern Company System Master Retirement Trust............. 20 8,427,537
SPP Investment Management................................... 1 699,512
Various Family Trusts....................................... 3 510,298
-- ----------
Total............................................. 96 36,465,101
== ==========
</TABLE>
- ---------------
(1) AMB Current Income Fund, Inc. and Milwaukee Employe's Retirement System own
respective interests in a limited liability company of 66.7% and 33.3%. The
principal asset of the limited liability company is a 2,512,465 square foot
property. The property is included in AMB Current Income Fund, Inc.'s number
of properties and square footage above.
On November 25, 1997, the owners of the AMB Contributed Properties and AMB
completed a business combination plan whereby the owners of the Properties
contributed their property to AMB Property Corporation, a public real estate
company (the "Company"), in exchange for shares in AMB Property Corporation, or
units in a subsidiary partnership, AMB Property, L.P. (the "Operating
Partnership") or, in certain limited circumstances, cash (the "Formation
Transactions"). The allocation of ownership interests among the owners of the
AMB Contributed Properties and AMB was based on the agreed-upon relative values
of net assets contributed. The initial allocation among these entities may
change pending the resolution of certain future performance criteria of the
Company.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
These financial statements have been prepared in accordance with generally
accepted accounting principles using the accrual method of accounting. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
F-50
<PAGE> 191
AMB CONTRIBUTED PROPERTIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
INVESTMENTS IN REAL ESTATE
Investments in real estate are stated at depreciated cost and are reviewed
for impairment on a property-by-property basis whenever events or changes in
circumstances indicate that the carrying amount of a property may not be
recoverable. Impairment is recognized when estimated expected future cash flows
(undiscounted and without interest charges)are less than the carrying amount of
the property. To the extent an impairment has occurred, the excess of the
carrying amount of the property over its estimated fair value will be charged to
income. As of December 31, 1997, there were no impairments of the carrying
values of the Properties.
Depreciation and amortization are calculated using the straight-line method
over the estimated useful lives of the investments. The estimated lives are as
follows:
<TABLE>
<S> <C>
Land improvements................................... 5 to 40 years
Buildings and improvements.......................... 5 to 40 years
Tenant improvements and leasing costs............... Term of the related lease
</TABLE>
The cost of buildings and improvements includes the purchase price of the
property or interest in property, legal fees and acquisition costs and interest,
property taxes, and other costs incurred during the period of construction.
Expenditures for maintenance and repairs are charged to operations as
incurred. Significant renovations or betterments that extend the economic useful
life of assets are capitalized.
Project costs directly associated with the development and construction of
a real estate project are capitalized as construction in progress. In addition,
interest, real estate taxes and other costs are capitalized during the
construction period.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash held in financial institutions and
other highly liquid short-term investments with original maturities of three
months or less. Cash and cash equivalents as of December 31, 1995 and 1996 and
September 30, 1997 (unaudited) include restricted cash of $77,593, $11,042, and
$1,740, respectively, which represent amounts held in escrow in connection with
property purchases and capital improvements.
DEFERRED FINANCING AND LEASING COSTS
Costs incurred in connection with financing or leasing are capitalized and
amortized to interest expense and depreciation and amortization, respectively,
on a straight-line basis (which approximates the effective interest method in
the case of financing costs) over the term of the related loan or lease for
periods generally ranging from six months to 10 years. Unamortized costs are
charged to expense upon the early repayment of the related debt or upon the
early termination of the lease. Accumulated amortization as of December 31, 1995
and 1996 and September 30, 1997 (unaudited) was $1,239, $2,930 and $5,487,
respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Based on the borrowing rates currently available to the Properties, the
fair value of its debt at September 30, 1997 (unaudited) (with a carrying amount
of $741,237) was approximately $760,000. Such valuation is based on the current
rates offered to the AMB Contributed Properties for debt of the same remaining
maturities. The carrying amount of cash and cash equivalents approximates fair
value.
F-51
<PAGE> 192
AMB CONTRIBUTED PROPERTIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
MINORITY INTERESTS
Minority interests in the AMB Contributed Properties represent interests
held by certain entities in eight real estate limited partnerships and limited
liability companies that are consolidated for financial reporting purposes. Such
investments are consolidated because (i) the Company owns a controlling general
partner's interest or holds a majority member interest, or (ii) the Company as
limited partner holds significant control over the entity through a 50% or
greater ownership interest combined with the ability to control major operating
decisions such as approval of budgets, selection of property managers and change
in financing. Further, in all cases, the Company has the ability to preclude a
sale or refinancing proposed by any other partner.
REVENUES
All leases are classified as operating leases. Rental revenues are
recognized on a straight-line basis over the term of the leases. Deferred rent
receivable represents the excess of rental revenue recognized on a straight-line
basis over cash received under the applicable lease provisions.
INTEREST AND OTHER INCOME
Interest and other income primarily represents interest income on cash and
cash equivalents.
NEW ACCOUNTING PRONOUNCEMENTS
In June of 1997, the FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information." This statement, effective for
financial statements for periods beginning after December 15, 1997, requires
that a public business enterprise report financial and descriptive information
about its reportable operating segments. Generally, information is required to
be reported on the basis that it is used internally for evaluating segment
performance and deciding how to allocate resources to segments. This statement
is not applicable to the AMB Contributed Properties, as they are not public
business enterprises.
3. NOTE RECEIVABLE FROM OWNER
An affiliate of AMB held a 1% general partnership interest in AMB Western
Properties Fund-I. The general partner's capital contribution was made through a
note payable to AMB Western Properties Fund-I. The note accrues interest at
9.29%, payable from the general partner's quarterly cash distributions. At
December 31, 1995 and 1996 and September 30, 1997 (unaudited), outstanding
principal and interest on the note totaled $808, $776 and $725, respectively.
4. TRANSACTIONS WITH INVESTMENT MANAGER
The owners of the AMB Contributed Properties are obligated to pay AMB
acquisition fees and asset management fees, as defined in the Agreements. For
the years ended December 31, 1994, 1995 and 1996, the nine months ended
September 30, 1996 (unaudited) and the period from January 1, 1997 to November
25, 1997 (unaudited), the AMB Contributed Properties incurred expenses of
$3,167, $6,250, $9,508, $6,593 and $14,646, respectively, related to asset
management of the Properties. In addition, acquisition fees paid to AMB of
$3,521, $3,884, $4,849, $2,053 and $2,989 were capitalized to investments in
real estate in the accompanying combined balance sheets for the years ended
December 31, 1994, 1995 and 1996, for the nine months ended September 30, 1996
(unaudited) and the period from January 1, 1997 to November 25, 1997
(unaudited), respectively. At December 31, 1995 and 1996 and September 30, 1997
(unaudited), total acquisition and asset management fees payable to AMB were
$529, $2,713 and $3,024, respectively.
F-52
<PAGE> 193
AMB CONTRIBUTED PROPERTIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
Certain owners of the AMB Contributed Properties are also obligated to pay
incentive management fees to AMB during ownership and upon disposition of the
Properties to the extent that operations of the Properties and their fair values
meet certain criteria. In connection with the Formation Transaction the owners
of the AMB Contributed Properties agreed to terminate their respective existing
incentive management fee agreements with AMB. One of the owners of the AMB
Contributed Properties agreed to and paid a final incentive management fee of
$3,011.
5. DEBT
As of December 31, 1995 and 1996 and September 30, 1997 (unaudited), debt
consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- SEPTEMBER 30,
1995 1996 1997
-------- -------- -------------
(UNAUDITED)
-------------
<S> <C> <C> <C>
Mortgage loans, varying interest rates from 7.0%
to 10.4%, due November 1998 to December 2008... $254,067 $403,321 $443,324
Secured debt facility, fixed interest at 7.53%,
due December 2008.............................. -- 73,000 73,000
Secured line of credit, variable interest at
LIBOR plus 50 basis points (6.2% at September
30, 1997), due October 1998.................... -- 46,313 43,613
Unsecured line of credit, variable interest at
LIBOR plus 150 basis points (7.2% at September
30, 1997), due August 1999..................... -- 25,500 181,300
-------- -------- --------
Total debt............................. $254,067 $548,134 $741,237
======== ======== ========
</TABLE>
The unsecured line of credit had total availability of $200,000 as of
September 30, 1997 (unaudited). The unsecured line includes a one-year option to
extend and a fee on average unused funds of 25 basis points.
The secured debt facility and secured line of credit in aggregate had total
availability of $116,613 as of September 30, 1997.
Mortgage loans generally require monthly principal and interest payments.
The mortgage loans are secured by deeds of trust or mortgages on 42 Properties.
The net book value of real estate investments pledged as collateral under deeds
of trust or mortgages for mortgage loans and the secured debt facility at
December 31, 1995 and 1996 and September 30, 1997 (unaudited) is $475,783,
$934,233 and $935,074, respectively. In addition, Properties with a net book
value of $129,192, $147,452 and $146,853 as of December 31, 1995 and 1996 and
September 30, 1997 (unaudited), respectively, are part of a collateral pool for
cross-collateralized mortgage debt of one of the Property owners. As such
mortgage is deemed to be debt of the real estate investment fund rather than of
the Properties and as such Properties were contributed to the Company free of
debt, the debt is not reflected in the accompanying combined financial
statements.
Also included in mortgage loans is a construction loan with a balance of
$1,928 as of September 30, 1997 (unaudited). Such loan matures in 2000, has
total availability of $8,000 and bears interest at LIBOR plus 275 basis points
or prime plus 50 basis points at the borrower's option.
The secured line is collateralized by capital subscriptions receivable of
$149,436 at September 30, 1997 (unaudited) from the owners of AMB Value Added
Fund, Inc. which have been netted against owners' equity in the accompanying
combined financial statements.
The weighted-average fixed interest rate on debt at September 30, 1997
(unaudited) was 7.87%. Interest capitalized related to construction projects for
the years ended December 31, 1994, 1995 and 1996, for the
F-53
<PAGE> 194
AMB CONTRIBUTED PROPERTIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
nine months ended September 30, 1996 (unaudited) and for the period from January
1, 1997 to November 25, 1997 (unaudited) was $132, $105, $1,134, $537 and
$1,092, respectively.
The scheduled maturities of all debt outstanding as of September 30, 1997
are as follows:
<TABLE>
<S> <C>
1997 (three months)......................................... $ 1,536
1998........................................................ 63,002
1999........................................................ 190,966
2000........................................................ 9,285
2001........................................................ 35,654
Thereafter.................................................. 440,794
--------
$741,237
========
</TABLE>
6. LEASING ACTIVITY
Future minimum rentals due under noncancelable operating leases with
tenants in effect at September 30, 1997 (unaudited) are as follows:
<TABLE>
<S> <C>
1997 (three months)......................................... $ 43,059
1998........................................................ 178,488
1999........................................................ 158,878
2000........................................................ 138,977
2001........................................................ 117,644
Thereafter.................................................. 509,810
----------
$1,146,856
==========
</TABLE>
In addition to minimum rental payments, certain tenants pay reimbursements
for their pro rata share of specified operating expenses, which reimbursements
amounted to $9,077, $21,008, $33,805, $26,176 and $44,574 for the years ended
December 31, 1994, 1995 and 1996, for the nine months ended September 30, 1996
(unaudited) and for the period from January 1, 1997 to November 25, 1997
(unaudited), respectively. These amounts are included as rental income and
operating expenses in the accompanying combined statements of operations.
Certain of the leases also provide for the payment of additional rent based on a
percentage of the tenant's revenues. Some leases contain options to renew. No
individual tenant accounts for greater than 10% of rental revenues.
7. PROPERTY DISPOSITIONS
During the year ended December 31, 1996 and period from January 1, 1997 to
November 25, 1997 (unaudited), the AMB Contributed Properties disposed of
certain Properties. The accompanying combined financial statements include the
operations of such Properties for periods prior to their disposition. The
following table sets forth the revenues and expenses of the disposed Properties
included in the accompanying
F-54
<PAGE> 195
AMB CONTRIBUTED PROPERTIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
combined financial statements for the years ended December 31, 1994, 1995 and
1996, the nine months ended September 30, 1996 (unaudited) and the period from
January 1, 1997 to November 25, 1997 (unaudited).
<TABLE>
<CAPTION>
NINE MONTHS JANUARY 1,
YEARS ENDED DECEMBER 31, ENDED 1997 TO
---------------------------- SEPTEMBER 30, NOVEMBER 25,
1994 1995 1996 1996 1997
------ ------- ------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Revenues........................ $1,248 $ 2,170 $ 2,624 $ 1,909 $1,200
Expenses........................ (489) (1,005) (1,475) (1,075) (595)
------ ------- ------- ------- ------
Net Income.................... $ 759 $ 1,165 $ 1,149 $ 834 $ 605
====== ======= ======= ======= ======
</TABLE>
8. INCOME TAXES
The Properties are owned by entities that are generally not subject to
federal income taxes, including tax-exempt master trusts, real estate investment
trusts and partnerships. Accordingly, no provision for income taxes has been
made in the accompanying combined financial statements.
9. COMMITMENTS AND CONTINGENCIES
ENVIRONMENTAL MATTERS
The owners of the AMB Contributed Properties follow the policy of
monitoring its properties for the presence of hazardous or toxic substances. The
owners of the AMB Contributed Properties are not aware of any environmental
liability with respect to the Properties that would have a material adverse
effect on the AMB Contributed Properties' business, assets or results of
operations; however, there can be no assurance that a material environmental
liability does not exist. The existence of any such material environmental
liability could have a material adverse effect on the AMB Contributed
Properties' results of operations and cash flow.
GENERAL UNINSURED LOSSES
The AMB Contributed Properties generally carry comprehensive liability,
fire, flood, extended coverage and rental loss insurance with policy
specifications, limits and deductibles customarily carried for similar
properties. There are, however, certain types of extraordinary losses that may
be either uninsurable, or not economically insurable. Should an uninsured loss
occur, the AMB Contributed Properties could lose its investment in, and
anticipated profits and cash flows from, a property.
Certain of the AMB Contributed Properties are located in areas that are
subject to earthquake activity; the AMB Contributed Properties have therefore
obtained limited earthquake insurance.
10. AS ADJUSTED BALANCE SHEET (UNAUDITED)
The as adjusted balance sheet as of September 30, 1997 reflects a cash
distribution of approximately $32,887 to the owners of the AMB Contributed
Properties. Such distribution was made in connection with the formation of the
Company and was paid subsequent to December 31, 1997. The distribution was
determined based upon the net working capital position of the Properties as of
November 25, 1997.
F-55
<PAGE> 196
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To AMB Property Corporation:
We have audited the accompanying combined statement of revenues and certain
expenses of the Boston Industrial Portfolio 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 combined statement of revenues and
certain expenses is free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the combined
statement of revenues and certain expenses. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
The accompanying combined statement of revenues and certain expenses has
been prepared for the purpose of complying with 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 statement of revenues and certain expenses
referred to above presents fairly, in all material respects, the revenues and
certain expenses of the Boston Industrial Portfolio for the year ended December
31, 1997, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
San Francisco, California
March 27, 1998
F-56
<PAGE> 197
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-57
<PAGE> 198
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-58
<PAGE> 199
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-59
<PAGE> 200
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To AMB Property Corporation:
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 statement of revenues and certain
expenses is free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the statement of
revenues and certain expenses. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
The accompanying statement of revenues and certain expenses has been
prepared for the purpose of complying with 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 statement of revenues and certain expenses referred to
above presents fairly, in all material respects, the revenues and certain
expenses of the Jamesburg Property for the year ended December 31, 1997, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
San Francisco, California
March 27, 1998
F-60
<PAGE> 201
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-61
<PAGE> 202
THE JAMESBURG PROPERTY
NOTES TO STATEMENTS OF REVENUES AND CERTAIN EXPENSES
(UNAUDITED DOLLARS IN THOUSANDS)
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
PROPERTIES ACQUIRED
The accompanying statements of revenues and certain expenses include the
operations of the Jamesburg Property (the "Property") acquired by AMB Property
Corporation (the "Company") from an unrelated party on March 20, 1998 for an
initial purchase price of $46,802. The Property is located in Dayton, New Jersey
and includes 821,712 rentable square feet.
BASIS OF PRESENTATION
The accompanying statements of revenues and certain expenses are not
representative of the actual operations of the Property for the period
presented. Certain expenses may not be comparable to the expenses expected to be
incurred by the Company in the proposed future operations of the Property;
however, the Company is not aware of any material factors relating to the
Property that would cause the reported financial information not to be
indicative of future operating results. Excluded expenses consist of interest,
depreciation and amortization and other costs not directly related to the future
operations of the Property.
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-62
<PAGE> 203
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To AMB Property Corporation:
We have audited the accompanying statement of revenues and certain expenses
of Orlando Central Park, for the year ended December 31, 1997. This financial
statement is the responsibility of the management of the 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 statement of revenues and certain
expenses is free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the statement of
revenues and certain expenses. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
The accompanying statement of revenues and certain expenses has been
prepared for the purpose of complying with 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 statement of revenues and certain expenses referred to
above presents fairly, in all material respects, the revenues and certain
expenses of Orlando Central Park for the year ended December 31, 1997, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
San Francisco, California
March 27, 1998
F-63
<PAGE> 204
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-64
<PAGE> 205
ORLANDO CENTRAL PARK
NOTES TO STATEMENTS OF REVENUES AND CERTAIN EXPENSES
(UNAUDITED, DOLLARS IN THOUSANDS)
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
PROPERTIES ACQUIRED
The accompanying statements of revenues and certain expenses include the
operations of Orlando Central Park (the "Property") acquired by AMB Property
Corporation (the "Company") from an unrelated party on March 24, 1998 for an
initial purchase price of $30,300. The Property is located in Orlando, Florida
and includes 791,386 rentable square feet.
BASIS OF PRESENTATION
The accompanying statements of revenues and certain expenses are not
representative of the actual operations of the Property for the period
presented. Certain expenses may not be comparable to the expenses 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-65
<PAGE> 206
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To AMB Property Corporation:
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 statement of revenues and certain
expenses is free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the statement of
revenues and certain expenses. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
The accompanying statement of revenues and certain expenses has been
prepared for the purpose of complying with 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 statement of revenues and certain expenses referred to
above presents fairly, in all material respects, the revenues and certain
expenses of Totem Lake Malls for the year ended December 31, 1997, in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
San Francisco, California
March 27, 1998
F-66
<PAGE> 207
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-67
<PAGE> 208
TOTEM LAKE MALLS
NOTES TO STATEMENTS OF REVENUES AND CERTAIN EXPENSES
(DOLLARS IN THOUSANDS)
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
PROPERTIES ACQUIRED
The accompanying statements of revenues and certain expenses include the
operations of Totem Lake Malls (the "Property") acquired by AMB Property
Corporation (the "Company") from an unrelated party on March 6, 1998 for an
initial purchase price of $26,000. The Property is located in Seattle,
Washington and includes 290,204 rentable square feet.
BASIS OF PRESENTATION
The accompanying statements of revenues and certain expenses are not
representative of the actual operations of the Property for the period
presented. Certain expenses may not be comparable to the expenses expected to be
incurred by the Company in the proposed future operations of the Property;
however, the Company is not aware of any material factors relating to the
Property that would cause the reported financial information not to be
indicative of future operating results. Excluded expenses consist of interest,
depreciation and amortization and other costs not directly related to the future
operations of the Property.
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-68
<PAGE> 209
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To AMB Property Corporation:
We have audited the accompanying statement of revenues and certain expenses
of the Dallas Warehouse Portfolio (as defined in Note 1) for the year ended
December 31, 1997. This financial statement is the responsibility of the
management of the AMB Contributed Properties. Our responsibility is to express
an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statement of revenues and certain
expenses is free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the statement of
revenues and certain expenses. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
The accompanying statement of revenues and certain expenses was prepared
for the purpose of complying with 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 Dallas Warehouse
Portfolio.
In our opinion, the statement of revenues and certain expenses referred to
above presents fairly, in all material respects, the revenues and certain
expenses of the Dallas Warehouse Portfolio for the year ended December 31, 1997,
in conformity with generally accounting principles.
ARTHUR ANDERSEN LLP
San Francisco, California,
April 21, 1998
F-69
<PAGE> 210
DALLAS WAREHOUSE PORTFOLIO
STATEMENTS OF REVENUES AND CERTAIN EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1997 AND
FOR THE PERIOD FROM JANUARY 1, 1998 TO MARCH 31, 1998 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1998
------ -----------
(UNAUDITED)
<S> <C> <C>
REVENUES
Rental revenues........................................... $4,133 $1,048
Other income.............................................. 26 5
------ ------
4,159 1,053
CERTAIN EXPENSES
Property operating expenses............................... 280 43
Real estate taxes......................................... 681 178
------ ------
981 221
------ ------
REVENUES IN EXCESS OF CERTAIN EXPENSES...................... $3,198 $ 832
====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-70
<PAGE> 211
DALLAS WAREHOUSE 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 Dallas Warehouse Portfolio (the "Portfolio") acquired by AMB
Property Corporation (the "Company") from an unrelated party on June 18, 1998
for an initial purchase price of $32,650. The Portfolio is located in the
Dallas, Texas area and includes 11 buildings comprising 1,019,200 rentable
square feet.
Basis of Presentation
The accompanying statements of revenues and certain expenses are not
representative of the actual operations of the Portfolio for the periods
presented. Certain expenses may not be comparable to the expenses expected to be
incurred by the Company in the proposed future operations of the Portfolio;
however, the Company is not aware of any material factors relating to these
Portfolio that would cause the reported financial information not to be
indicative of future operating results. Excluded expenses consist of interest,
depreciation and amortization and other costs not directly related to the future
operations of the Portfolio.
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........................................................ $ 4,300
1999........................................................ 2,765
2000........................................................ 2,019
2001........................................................ 1,242
2002........................................................ 1,071
Thereafter.................................................. 2,099
-------
Total............................................. $13,496
=======
</TABLE>
In addition to minimum rental payments, tenants pay reimbursements for
their pro rata share of specified operating expenses, which amounted to $322 and
$76 for the year ended December 31, 1997 and for the three months ended March
31, 1998 (unaudited). Certain leases contain options to renew.
F-71
<PAGE> 212
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To AMB Property Corporation:
We have audited the accompanying combined statement of revenues and certain
expenses of the Twin Cities Office/ Showroom 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 combined statement of revenues and
certain expenses is free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the combined
statement of revenues and certain expenses. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
The accompanying combined statement of revenues and certain expenses has
been prepared for the purpose of complying with 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 Twin Cities
Office/ Showroom Portfolio.
In our opinion, the combined statement of revenues and certain expenses
referred to above presents fairly, in all material respects, the revenues and
certain expenses of the Twin Cities Office/ Showroom Portfolio for the year
ended December 31, 1997, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
San Francisco, California
May 1, 1998
F-72
<PAGE> 213
TWIN CITIES OFFICE/SHOWROOM 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 31, 1998 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1998
------ -----------
(UNAUDITED)
<S> <C> <C>
REVENUES:
Rental revenues........................................ $4,262 $1,007
Other income........................................... 32 4
------ ------
4,294 1,011
CERTAIN EXPENSES:
Property operating expenses............................... 626 141
Real estate taxes......................................... 996 243
------ ------
1,622 384
------ ------
REVENUES IN EXCESS OF CERTAIN EXPENSES...................... $2,672 $ 627
====== ======
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-73
<PAGE> 214
TWIN CITIES OFFICE/SHOWROOM 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 Twin Cities Office/Showroom Portfolio
(the "Portfolio") acquired by AMB Property Corporation (the "Company") from an
unrelated party on June 30, 1998 for an aggregate purchase price of $26,759. The
Portfolio is located in the Minnetonka, Minnesota area and includes 10 buildings
comprising 515,951 rentable square feet.
BASIS OF PRESENTATION
The accompanying combined statements of revenues and certain expenses are
not representative of the actual operations of the Portfolio for the period
presented. Certain expenses may not be comparable to the expenses expected to be
incurred by the Company in the proposed future operations of the Portfolio;
however, the Company is not aware of any material factors relating to the
Portfolio that would cause the reported financial information not to be
indicative of future operating results. Excluded expenses consist of interest,
depreciation and amortization and other costs not directly related to the future
operations of the Portfolio.
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.
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........................................................ $2,628
1999........................................................ 2,038
2000........................................................ 1,386
2001........................................................ 1,033
2002........................................................ 790
Thereafter.................................................. 696
------
Total............................................. $8,571
======
</TABLE>
In addition to minimum rental payments, tenants pay reimbursements for
their pro rata share of specified operating expenses, which amounted to $1,517
and $418 for the year ended December 31, 1997 and for the period from January 1,
1998 to March 31, 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-74
<PAGE> 215
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To AMB Property Corporation:
We have audited the accompanying statement of revenues and certain expenses
of Crysen Corridor Warehouse, 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 statement of revenues and certain
expenses is free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the statement of
revenues and certain expenses. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
The accompanying statement of revenues and certain expenses has been
prepared for the purpose of complying with 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 Crysen Corridor
Warehouse.
In our opinion, the statement of revenues and certain expenses referred to
above presents fairly, in all material respects, the revenues and certain
expenses of Crysen Corridor Warehouse for the year ended December 31, 1997, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
San Francisco, California
February 24, 1998
F-75
<PAGE> 216
CRYSEN CORRIDOR WAREHOUSE
STATEMENTS OF REVENUES AND CERTAIN EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1997 AND FOR THE PERIOD FROM JANUARY 1, 1998
TO MARCH 31, 1998 (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1998
---- -----------
(UNAUDITED)
<S> <C> <C>
REVENUES
Rental revenues........................................... $526 $118
Other income.............................................. 10 6
---- ----
536 124
CERTAIN EXPENSES
Property operating expenses............................... 46 14
Real estate taxes......................................... 67 17
---- ----
113 31
---- ----
REVENUES IN EXCESS OF CERTAIN EXPENSES...................... $423 $ 93
==== ====
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-76
<PAGE> 217
CRYSEN CORRIDOR WAREHOUSE
NOTES TO STATEMENTS OF REVENUES AND CERTAIN EXPENSES
(UNAUDITED DOLLARS IN THOUSANDS)
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
PROPERTIES ACQUIRED
The accompanying statements of revenues and certain expenses include the
operations of Crysen Corridor Warehouse (the "Property") acquired by AMB
Property Corporation (the "Company") from an unrelated party on June 30, 1998
for an initial purchase price of $5,700. The Property is located in Howard
County, Maryland and includes 150,000 rentable square feet.
BASIS OF PRESENTATION
The accompanying statements of revenues and certain expenses are not
representative of the actual operations of the Property for the period
presented. Certain expenses may not be comparable to the expenses expected to be
incurred by the Company in the proposed future operations of the Property;
however, the Company is not aware of any material factors relating to the
Property that would cause the reported financial information not to be
indicative of future operating results. Excluded expenses consist of interest,
depreciation and amortization and other costs not directly related to the future
operations of the Property.
REVENUE RECOGNITION
All leases are classified as operating leases. Rental revenues are
recognized on a straight-line basis over the terms of the leases. The property
is leased to two tenants, which together accounted for 100% of rental revenues.
USE OF ESTIMATES
The preparation of the statements of revenues and certain expenses in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of revenues and
expenses during the 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........................................................ $ 408
1999........................................................ 426
2000........................................................ 432
2001........................................................ 442
2002........................................................ 368
Thereafter.................................................. --
------
Total............................................. $2,076
======
</TABLE>
In addition to minimum rental payments, tenants pay reimbursements for
their pro rata share of specified operating expenses, which amounted to $36 and
$6 for the year ended December 31, 1997 and for the period from January 1, 1998
to March 31, 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-77
<PAGE> 218
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To AMB Property Corporation:
We have audited the accompanying combined statement of revenues and certain
expenses of the Cabot Industrial Portfolio (as defined in Note 1) for the year
ended December 31, 1996. This combined financial statement is the responsibility
of the management of the AMB Contributed Properties. Our responsibility is to
express an opinion on this combined financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the combined statement of revenues and
certain expenses is free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the combined
statement of revenues and certain expenses. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
The accompanying combined statement of revenues and certain expenses was
prepared for the purpose of complying with 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 statement of revenues and certain expenses
referred to above presents fairly, in all material respects, the revenues and
certain expenses of the Cabot Industrial Portfolio for the year ended December
31, 1996, in conformity with generally accounting principles.
ARTHUR ANDERSEN LLP
San Francisco, California,
October 29, 1997
F-78
<PAGE> 219
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-79
<PAGE> 220
CABOT INDUSTRIAL PORTFOLIO
NOTES TO COMBINED STATEMENTS OF REVENUES
AND CERTAIN EXPENSES
(DOLLARS IN THOUSANDS)
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Properties Acquired
The accompanying combined statements of revenues and certain expenses
include the combined operations (see "Basis of Presentation" below) of the Cabot
Industrial Portfolio (the "Portfolio"). AMB Property Corporation (the "Company")
acquired the following 28 properties from an unrelated party on December 30,
1997 for an aggregate purchase price of $216.7 million.
<TABLE>
<CAPTION>
PROPERTY NAME LOCATION RENTABLE SQUARE FEET
------------- -------- --------------------
<S> <C> <C>
Hampden Road Mansfield, MA 204,117
Dock's Corner II South Brunswick, NJ 212,335
Santa Barbara Court Elkridge, MD 166,820
Preston Court Jessup, MD 178,880
Brightseat Road Landover, MD 121,785
President's Drive Orlando, FL 129,372
President's Drive II Orlando, FL 302,400
Viscount Orlando, FL 114,846
Dixie Highway Florence, KY 209,680
Production Drive Florence, KY 50,729
Empire Drive Florence, KY 199,440
Industrial Drive Columbus, OH 225,433
Holton Drive Florence, KY 268,525
Janitrol Columbus, OH 240,000
Belden Avenue Addison, IL 346,233
Pagemill & Dillworth Dallas, TX 217,803
McDaniel Drive Carrollton, TX 157,500
Shiloh Road Garland, TX 192,720
N. Glenville Avenue Richardson, TX 109,000
West Kiest Dallas, TX 248,698
Valwood Parkway II Carrollton, TX 254,209
72nd Avenue Kent, WA 125,654
Wiegman Road Hayward, CA 148,559
Yosemite Drive Milpitas, CA 169,195
Laurelwood Santa Clara, CA 155,500
Commerce Fontana, CA 254,414
East Walnut Drive City of Industry, CA 85,871
Jasmine Avenue Fontana, CA 410,208
---------
5,499,926
=========
</TABLE>
Basis of Presentation
The accompanying combined statements of revenues and certain expenses are
not representative of the actual operations of the Portfolio for the periods
presented. Certain expenses may not be comparable to the expenses expected to be
incurred by the Company in the proposed future operations of the Portfolio;
however, the Company is not aware of any material factors relating to these
Portfolio that would cause the reported
F-80
<PAGE> 221
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-81
<PAGE> 222
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 statement of revenues and certain
expenses is free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the statement of
revenues and certain expenses. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
The accompanying statement of revenues and certain expenses was prepared
for the purpose of complying with 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 statement of revenues and certain expenses referred to
above presents fairly, in all material respects, the revenues and certain
expenses of Cabot Business Park for the year ended December 31, 1996, in
conformity with generally accounting principles.
ARTHUR ANDERSEN LLP
San Francisco, California,
October 29, 1997
F-82
<PAGE> 223
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-83
<PAGE> 224
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-84
<PAGE> 225
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 statement of revenues and certain
expenses is free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the statement of
revenues and certain expenses. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
The accompanying statement of revenues and certain expenses was prepared
for the purpose of complying with 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 statement of revenues and certain expenses referred to
above presents fairly, in all material respects, the revenues and certain
expenses of the Manhattan Village Shopping Center for the year ended December
31, 1996, in conformity with generally accounting principles.
ARTHUR ANDERSEN LLP
San Francisco, California,
October 17, 1997
F-85
<PAGE> 226
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-86
<PAGE> 227
MANHATTAN VILLAGE SHOPPING CENTER
NOTES TO STATEMENTS OF REVENUES
AND CERTAIN EXPENSES
(DOLLARS IN THOUSANDS)
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Properties Acquired
The accompanying statements of revenues and certain expenses include the
operations of the Manhattan Village Shopping Center (the "Property") acquired by
the owners of the AMB Contributed Properties (the "Company") from an unrelated
party on August 19, 1997 for an initial purchase price of $79,300. The Property
is located in Manhattan Beach, California and includes 423,950 rentable square
feet.
Basis of Presentation
The accompanying statements of revenues and certain expenses are not
representative of the actual operations of the Property for the periods
presented. Certain expenses may not be comparable to the expenses expected to be
incurred by the Company in the proposed future operations of the Property;
however, the Company is not aware of any material factors relating to the
Property that would cause the reported financial information not to be
indicative of future operating results. Excluded expenses consist of interest,
depreciation and amortization and other costs not directly related to the future
operations of the Property.
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-87
<PAGE> 228
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Owners of the
AMB Contributed Properties:
We have audited the accompanying statement of revenues and certain expenses
of the Weslayan Plaza (as defined in Note 1) for the year ended December 31,
1996. This financial statement is the responsibility of management of the AMB
Contributed Properties. Our responsibility is to express an opinion on this
financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statement of revenues and certain
expenses is free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the statement of
revenues and certain expenses. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
The accompanying statement of revenues and certain expenses was prepared
for the purpose of complying with 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 statement of revenues and certain expenses referred to
above presents fairly, in all material respects, the revenues and certain
expenses of the Weslayan Plaza for the year ended December 31, 1996, in
conformity with generally accounting principles.
ARTHUR ANDERSEN LLP
San Francisco, California,
October 17, 1997
F-88
<PAGE> 229
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-89
<PAGE> 230
WESLAYAN PLAZA
NOTES TO STATEMENTS OF REVENUES
AND CERTAIN EXPENSES
(DOLLARS IN THOUSANDS)
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Properties Acquired
The accompanying statements of revenues and certain expenses include the
operations of Weslayan Plaza (the "Property") acquired by the owners of the AMB
Contributed Properties (the "Company") from an unrelated party, on September 30,
1997 for an initial purchase price of $37,393. The Property is located in
Houston, Texas, and includes 216,870 rentable square feet.
Basis of Presentation
The accompanying statements of revenues and certain expenses are not
representative of the actual operations of the Property for the periods
presented. Certain expenses may not be comparable to the expenses expected to be
incurred by the Company in the proposed future operations of the Property;
however, the Company is not aware of any material factors relating to the
Property that would cause the reported financial information not to be
indicative of future operating results. Excluded expenses consist of interest,
depreciation and amortization and other costs not directly related to the future
operations of the Property.
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-90
<PAGE> 231
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Owners of the
AMB Contributed Properties:
We have audited the accompanying statement of revenues and certain expenses
of the Silicon Valley R&D Portfolio (as defined in Note 1) for the year ended
December 31, 1996. This financial statement is the responsibility of the
management of the AMB Contributed Properties. Our responsibility is to express
an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statement of revenues and certain
expenses is free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the statement of
revenues and certain expenses. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
The accompanying statement of revenues and certain expenses was prepared
for the purpose of complying with 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 statement of revenues and certain expenses referred to
above presents fairly, in all material respects, the revenues and certain
expenses of the Silicon Valley R&D Portfolio for the year ended December 31,
1996, in conformity with generally accounting principles.
ARTHUR ANDERSEN LLP
San Francisco, California,
October 17, 1997
F-91
<PAGE> 232
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-92
<PAGE> 233
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-93
<PAGE> 234
(THIS PAGE INTENTIONALLY LEFT BLANK)
<PAGE> 235
(THIS PAGE INTENTIONALLY LEFT BLANK)
<PAGE> 236
(THIS PAGE INTENTIONALLY LEFT BLANK)
<PAGE> 237
[AMB LOGO]
<PAGE> 238
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........................................ $ 50,888
Rating Agency Fees and Expenses............................. 300,000
NYSE Fees and Expenses...................................... 100,000
Printing and Engraving Expenses............................. 200,000
Legal Fees and Expenses..................................... 200,000
Accounting Fees and Expenses................................ 75,000
Blue Sky Fees and Expenses.................................. 15,000
Miscellaneous Expenses...................................... 59,112
----------
Total............................................. $1,000,000
==========
</TABLE>
All of the costs identified above will be paid by the Company.
ITEM 32. SALES TO SPECIAL PARTIES
See Item 33.
ITEM 33. RECENT SALES OF UNREGISTERED SECURITIES
In connection with its formation, the Company issued 4,746,624 unregistered
shares of Common Stock to AMB for a purchase price of $21.00 per share. In
connection with the Formation Transactions, the Company issued an aggregate of
69,963,529 shares of Common Stock in connection with the mergers of certain
corporations, and the Operating Partnership issued 2,386,910 limited partnership
Units in consideration for the contribution of certain Properties.
In January 1995, AMB issued 101,595 shares of its common stock to one of
its officers, for total consideration of $342,806, and in December 1996, it
issued 101,595 shares of common stock to one of its officers, for total
consideration of $307,071.
All of the above sales were made to "accredited investors" as defined in
Regulation D under the Securities Act in transactions not involving a public
offering pursuant to Regulation D.
ITEM 34. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 2-418 of the MGCL permits a corporation to indemnify its directors
and officers and certain other parties against judgments, penalties, fines,
settlements, and reasonable expenses actually incurred by them in connection
with any proceeding to which they may be made a party by reason of their service
in those or other capacities unless it is established that (i) the act or
omission of the director or officer was material to the matter giving rise to
the proceeding and (a) was committed in bad faith or (b) was the result of
active and deliberate dishonesty; (ii) the director or officer actually received
an improper personal benefit in money, property or services; or (iii) in the
case of any criminal proceeding, the director or officer had reasonable cause to
believe that the act or omission was unlawful. Indemnification may be made
against judgments, penalties, fines, settlements and reasonable expenses
actually incurred by the director or officer in connection with the proceeding;
provided, however, that if the proceeding is one by or in the right of the
corporation, indemnification may not be made with respect to any proceeding in
which the director or officer has been adjudged to be liable to the corporation.
In addition, a director or officer may not be indemnified with respect to any
proceeding charging improper personal benefit to the director or officer,
whether or not involving action in the director's or officer's official
capacity, in which the director or officer was adjudged to be liable on the
II-1
<PAGE> 239
basis that personal benefit was received. The termination of any proceeding by
conviction, or upon a plea of nolo contendere or its equivalent, or an entry of
any order of probation prior to judgment, creates a rebuttable presumption that
the director or officer did not meet the requisite standard of conduct required
for indemnification to be permitted.
In addition, Section 2-418 of the MGCL requires that, unless prohibited by
its charter, a corporation indemnify any director or officer who is made a party
to any proceeding by reason of service in that capacity against reasonable
expenses incurred by the director or officer in connection with the proceeding,
in the event that the director or officer is successful, on the merits or
otherwise, in the defense of the proceeding.
The Company's Charter and Bylaws provide in effect for the indemnification
by the Company of the directors and officers of the Company to the fullest
extent permitted by applicable law. The Company has purchased directors' and
officers' liability insurance for the benefit of its directors and officers.
The Company has entered into indemnification agreements with each of its
executive officers and directors. The indemnification agreements require, among
other matters, that the Company indemnify its executive officers and directors
to the fullest extent permitted by law and reimburse the executive officers and
directors for all related expenses as incurred, subject to return if it is
subsequently determined that indemnification is not permitted.
ITEM 35. TREATMENT OF PROCEEDS FROM STOCK BEING REGISTERED
Not applicable.
ITEM 36. FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES AND EXHIBITS
(a)(1) FINANCIAL STATEMENTS
Pro Forma Financial Information (Unaudited)
AMB Property Corporation
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 Corporation -- 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,
1997 and 1998 (unaudited)
Consolidated statements of cash flows for the three months ended March 31,
1997 and 1998 (unaudited)
Consolidated statements of stockholders' equity for the three months ended
March 31, 1998 (unaudited)
Notes to consolidated financial statements (unaudited)
AMB Property Corporation -- December 31, 1996 and 1997
Report of independent public accountants
Consolidated balance sheets as of December 31, 1996 and 1997
II-2
<PAGE> 240
Consolidated statement of operations for the years ended December 31, 1995,
1996 and 1997, the nine months ended September 30, 1996 (unaudited) and the
period from January 1, 1997 to November 25, 1997
Consolidated statement of stockholders' equity for the years ended December
31, 1995, 1996 and 1997
Consolidated statement of cash flows for the years ended December 31, 1995,
1996 and 1997
Notes to consolidated financial statements
AMB Contributed Properties -- December 31, 1995, 1996 and 1997
Report of independent public accountants
Combined balance sheets as of December 31, 1995 and 1996 and September 30,
1997 (unaudited)
Combined statements of operations for the years ended December 31, 1994,
1995 and 1996, the nine months ended September 30, 1996 (unaudited) and the
period from January 1, 1997 to November 25, 1997 (unaudited)
Combined statements of owners' equity for the years ended December 31,
1994, 1995 and 1996 and the nine months ended September 30, 1997
(unaudited)
Combined statements of cash flows for the years ended December 31, 1994,
1995 and 1996, the nine months ended September 30, 1996 (unaudited) and the
period from January 1, 1997 to November 25, 1997 (unaudited)
Notes to combined financial statements
The 1997 and 1998 Acquired Properties
Boston Industrial Portfolio
Report of independent public accountants
Combined statements of revenues and certain expenses for the year ended
December 31, 1997 and for the period from January 1, 1998 to March 27, 1998
(unaudited)
Notes to combined statement of revenues and certain expenses
The Jamesburg Property
Report of independent public accountants
Statements of revenues and certain expenses for the year ended December 31,
1997 and for the period from January 1, 1998 to March 20, 1998 (unaudited)
Notes to statements of revenues and certain expenses
Orlando Central Park
Report of independent public accountants
Statements of revenues and certain expenses for the year ended December 31,
1997 and for the period from January 1, 1998 to March 24, 1998 (unaudited)
Notes to statements of revenues and certain expenses
Totem Lake Malls
Report of independent public accountants
Statements of revenues and certain expenses for the year ended December 31,
1997 and for the period from January 1, 1998 to March 6, 1998 (unaudited)
Notes to statements of revenues and certain expenses
II-3
<PAGE> 241
Dallas Warehouse Portfolio
Report of independent public accountants
Combined statements of revenues and certain expenses for the year ended
December 31, 1997 and for the period from January 1, 1998 to March 31, 1998
Notes to combined statements of revenues and certain expenses
Twin Cities Office/Showroom Portfolio
Report of independent public accountants
Combined statements of revenues and certain expenses for the year ended
December 31, 1997 and for the period from January 1, 1998 to March 31, 1998
(unaudited)
Notes to combined statements of revenues and certain expenses
Crysen Corridor Warehouse
Report of independent public accountants
Statements of revenues and certain expenses for the year ended December 31,
1997 and for the period from January 1, 1998 to March 31, 1998 (unaudited)
Notes to statements of revenues and certain expenses
Cabot Industrial Portfolio
Report of independent public accountants
Combined statements of revenues and certain expenses for the year ended
December 31, 1996 and the for period from January 1, 1997 to December 30,
1997 (unaudited)
Notes to Combined statements of revenue and certain expenses
Cabot Business Park
Report of independent public accountants
Statements of revenues and certain expenses for the year ended December 31,
1996 and for the period from January 1, 1997 to September 15, 1997
(unaudited)
Notes to statements of revenue and certain expenses
Manhattan Village Shopping Center
Report of independent public accountants
Statements of revenues and certain expenses for the year ended December 31,
1997 and for the period from January 1, 1997 to August 19, 1997 (unaudited)
Notes to statements of revenues and certain expenses
Weslayan Plaza
Report of independent public accountants
Statements of revenues and certain expenses for the year ended December 31,
1997 and for the period from January 1, 1997 to September 30, 1997
(unaudited)
Notes to statement of revenues and certain expenses
II-4
<PAGE> 242
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)).
3.3 Form of Articles Supplementary for the Series A Preferred
Stock.
3.4 Specimen Stock Certificate of the % Series A Cumulative
Redeemable Preferred Stock.
4.1 Indenture (the "Indenture") by and among the Operating
Partnership, the Company and State Street Bank and Trust
Company of California, N.A., as trustee (incorporated by
reference to Exhibit 4.1 of the Company's Registration
Statement on Form S-11 (No. 333-49163)).
4.2 First Supplemental Indenture, by and among the Operating
Partnership, the Company and State Street Bank and Trust
Company of California, N.A., as trustee (incorporated by
reference to Exhibit 4.2 to the Company's Registration
Statement on Form S-11 (No. 333-49163)).
4.3 Second Supplemental Indenture, by and among the Operating
Partnership, the Company and State Street Bank and Trust
Company of California, N.A., as trustee (incorporated by
reference to Exhibit 4.3 to the Company's Registration
Statement on Form S-11 (No. 333-49163)).
4.4 Third Supplemental Indenture, by and among the Operating
Partnership, the Company and State Street Bank and Trust
Company of California, N.A., as trustee (incorporated by
reference to Exhibit 4.4 to the Company's Registration
Statement on Form S-11 (No. 333-49163)).
4.5 Specimen of 7.10% Notes due 2008 (included in the First
Supplemental Indenture incorporated by reference as Exhibit
4.2 to the Company's Registration Statement on Form S-11
(No. 333-49163)).
4.6 Specimen of 7.50% Notes due 2018 (included in the Second
Supplemental Indenture incorporated by reference as Exhibit
4.3 to the Company's Registration Statement on Form S-11
(No. 333-49163)).
4.7 Specimen of 6.90% Reset Put Securities due 2015 (included in
the Third Supplemental Indenture incorporated by reference
as Exhibit 4.4 to the Company's Registration Statement on
Form S-11 (No. 333-49163)).
5.1 Opinion of Ballard Spahr Andrews & Ingersoll, LLP.
</TABLE>
II-5
<PAGE> 243
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
8.1 Opinion of Latham & Watkins.
10.1 Form of Second Amended and Restated Agreement of Limited
Partnership of AMB Property, L.P.
10.2 Form of Registration Rights Agreement among the Registrant
and the persons named therein. (incorporated by reference to
Exhibit 10.2 to the Company's Registration Statement on Form
S-11 (No. 333-35915))
10.3 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
(incorporated by reference to Exhibit 10.6 to the Company's
Registration Statement on Form S-11 (No. 333-49163)).
**12.1 Statement regarding computation of ratios.
**21.1 Subsidiaries of the Registrant.
23.1 Consent of Ballard Spahr Andrews & Ingersoll, LLP (included
in Exhibit 5.1 above).
23.2 Consent of Latham & Watkins (included in Exhibit 8.1 above).
**23.3 Consent of Arthur Andersen LLP.
**24.1 Power of Attorney.
**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> 244
(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> 245
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-11 and has duly caused this Amendment No. 2 to
this Registration Statement to be signed on its behalf by the undersigned
thereunto duly authorized in the City of San Francisco, State of California, on
the 16th day of July, 1998.
AMB PROPERTY CORPORATION
By: *
---------------------------------------
Hamid R. Moghadam
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 1 to this Registration Statement has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Chairman of the Board and July 16, 1998
- ----------------------------------------------------- Director
T. Robert Burke
* President, Chief Executive July 16, 1998
- ----------------------------------------------------- Officer and Director
Hamid R. Moghadam (Principal Executive
Officer)
Chairman of Investment July , 1998
- ----------------------------------------------------- Committee and Director
Douglas D. Abbey
* Chief Financial Officer July 16, 1998
- ----------------------------------------------------- (Principal Financial
S. Davis Carniglia Officer)
/s/ MICHAEL A. COKE Vice President and Director July 16, 1998
- ----------------------------------------------------- of Financial Management
Michael A. Coke Reporting (Principal
Accounting Officer)
Director July , 1998
- -----------------------------------------------------
Daniel H. Case, III
* Director July 16, 1998
- -----------------------------------------------------
Robert H. Edelstein, Ph.D.
* Director July 16, 1998
- -----------------------------------------------------
Lynn M. Sedway
Director July , 1998
- -----------------------------------------------------
Jeffrey L. Skelton, Ph.D.
* Director July 16, 1998
- -----------------------------------------------------
Thomas W. Tusher
* Director July 16, 1998
- -----------------------------------------------------
Caryl B. Welborn
</TABLE>
<TABLE>
<S> <C>
*By: /s/ MICHAEL A. COKE
------------------------------------------------
Michael A. Coke
Attorney-in-Fact
</TABLE>
II-8
<PAGE> 246
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)).
3.3 Form of Articles Supplementary for the Series A Preferred
Stock.
3.4 Specimen Stock Certificate of the % Series A Cumulative
Redeemable Preferred Stock.
4.1 Indenture (the "Indenture") by and among the Operating
Partnership, the Company and State Street Bank and Trust
Company of California, N.A., as trustee (incorporated by
reference to Exhibit 4.1 of the Company's Registration
Statement on Form S-11 (No. 333-49163)).
4.2 First Supplemental Indenture, by and among the Operating
Partnership, the Company and State Street Bank and Trust
Company of California, N.A., as trustee (incorporated by
reference to Exhibit 4.2 of the Company's Registration
Statement on Form S-11 (No. 333-49163)).
4.3 Second Supplemental Indenture, by and among the Operating
Partnership, the Company and State Street Bank and Trust
Company of California, N.A., as trustee (incorporated by
reference to Exhibit 4.3 of the Company's Registration
Statement on Form S-11 (No. 333-49163)).
4.4 Third Supplemental Indenture, by and among the Operating
Partnership, the Company and State Street Bank and Trust
Company of California, N.A., as trustee (incorporated by
reference to Exhibit 4.4 of the Company's Registration
Statement on Form S-11 (No. 333-49163)).
4.5 Specimen of 7.10% Notes due 2008 (included in the First
Supplemental Indenture incorporated by reference as Exhibit
4.2 to the Company's Registration Statement on Form S-11
(No. 333-49163)).
4.6 Specimen of 7.50% Notes due 2018 (included in the Second
Supplemental Indenture incorporated by reference as Exhibit
4.3 to the Company's Registration Statement on Form S-11
(No. 333-49163)).
4.7 Specimen of 6.90% Reset Put Securities due 2015 (included in
the Third Supplemental Indenture incorporated by reference
as Exhibit 4.4 to the Company's Registration Statement on
Form S-11 (No. 333-49163)).
5.1 Opinion of Ballard Spahr Andrews & Ingersoll, LLP.
8.1 Opinion of Latham & Watkins.
10.1 Form of Second Amended and Restated Agreement of Limited
Partnership of AMB Property, L.P.
10.2 Form of Registration Rights Agreement among the Registrant
and the persons named therein. (incorporated by reference to
Exhibit 10.2 to the Company's Registration Statement on Form
S-11 (No. 333-35915))
10.3 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)).
</TABLE>
<PAGE> 247
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
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
(incorporated by reference to Exhibit 10.6 to the Company's
Registration Statement on Form S-11 (No. 333-49163)).
**12.1 Statement regarding computation of ratios.
**21.1 Subsidiaries of the Registrant.
23.1 Consent of Ballard Spahr Andrews & Ingersoll, LLP (included
in Exhibit 5.1 above).
23.2 Consent of Latham & Watkins (included in Exhibit 8.1 above).
**23.3 Consent of Arthur Andersen LLP.
**24.1 Power of Attorney.
**27.1 Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
** Previously filed.
<PAGE> 1
EXHIBIT 1.1
4,000,000 SHARES
AMB PROPERTY CORPORATION
SERIES A CUMULATIVE REDEEMABLE PREFERRED STOCK,
PAR VALUE $.01 PER SHARE
UNDERWRITING AGREEMENT
JULY , 1998
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July , 1998
Morgan Stanley & Co. Incorporated
A.G. Edwards & Sons, Inc.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
PaineWebber Incorporated
Smith Barney Inc.
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
Dear Sirs and Mesdames:
AMB Property Corporation, a Maryland corporation (the "COMPANY"),
proposes to issue and sell to the several Underwriters named in Schedule I
hereto (the "UNDERWRITERS") 4,000,000 shares of its ___% Series A Cumulative
Redeemable Preferred Stock, par value $.01 per share (the "FIRM SHARES"). The
Company also proposes to issue and sell to the several Underwriters not more
than an additional 600,000 shares of its ___% Series A Cumulative Redeemable
Preferred Stock, par value $.01 per share (the "ADDITIONAL SHARES") if and to
the extent that you, as representatives of the offering (the "REPRESENTATIVES"),
shall have determined to exercise, on behalf of the Underwriters, the right to
purchase such shares of preferred stock granted to the Underwriters in Section 2
hereof. The Firm Shares and the Additional Shares are hereinafter collectively
referred to as the "SHARES".
The Company has filed with the Securities and Exchange Commission (the
"COMMISSION") a registration statement on Form S-11 (File No. 333-58107)
relating to the Shares. The registration statement as amended at the time it
becomes effective, including the information (if any) deemed to be part of the
registration statement at the time of effectiveness pursuant to Rule 430A under
the Securities Act of 1933, as amended (the "SECURITIES Act"), is hereinafter
referred to as the "REGISTRATION STATEMENT"; the prospectus in the form first
used to confirm sales of Shares is hereinafter referred to as the "PROSPECTUS."
If the Company has filed an abbreviated registration statement to register
additional shares of ___% Series A Cumulative Redeemable Preferred Stock
pursuant to Rule 462(b) under the Securities Act (the "RULE 462 REGISTRATION
STATEMENT"), then any reference herein to the term "Registration Statement"
shall be deemed to include such Rule 462 Registration Statement.
1. REPRESENTATIONS AND WARRANTIES. The Company and the Operating
Partnership, jointly and severally, represent and warrant to and agree with each
of the Underwriters that:
(a) The Registration Statement has become effective; no stop
order suspending the effectiveness of the Registration Statement is in
effect, and no proceedings for such purpose are pending before or, to
the knowledge of the Company, threatened by the Commission.
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(b) (i) The Registration Statement, when it became effective,
did not contain and, as amended or supplemented, if applicable, will
not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading, (ii) the Registration Statement and
the Prospectus comply and, as amended or supplemented, if applicable,
will comply in all material respects with the Securities Act and the
applicable rules and regulations of the Commission thereunder and (iii)
the Prospectus does not contain and, as amended or supplemented, if
applicable, will not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements therein,
in the light of the circumstances under which they were made, not
misleading, except that the representations and warranties set forth in
this paragraph 1(b) do not apply to statements or omissions in the
Registration Statement or the Prospectus based upon information
relating to any Underwriter furnished to the Company in writing by such
Underwriter through you expressly for use therein, which are (i) the
legend on the inside front cover page of the Prospectus with respect to
stabilizing activity and (ii) the allocation table, and the _______ and
_________ paragraphs under the caption "Underwriters" contained in the
Prospectus.
(c) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Maryland, and has all power and authority necessary to own, lease
and operate its properties and to conduct the businesses in which it is
engaged or proposes to engage as described in the Prospectus and to
enter into and perform its obligations under this Agreement. The
Company is duly qualified or registered as a foreign corporation and is
in good standing in California and is in good standing in each other
jurisdiction in which such qualification or registration is required,
whether by reason of the ownership or leasing of property or the
conduct of business, except where the failure so to qualify or be
registered or to be in good standing in such other jurisdiction would
not result in a material adverse effect on the consolidated financial
position, results of operations or business of the Company, the
Operating Partnership and each subsidiary of the Company set forth on
Schedule II hereto (each, a "SUBSIDIARY," and, collectively, the
"SUBSIDIARIES"), taken as a whole (a "MATERIAL ADVERSE EFFECT").
(d) The Operating Partnership is a limited partnership duly
formed and existing under and by virtue of the laws of the State of
Delaware and is in good standing under the Delaware Revised Uniform
Limited Partnership Act with partnership power and authority to own,
lease and operate its properties, to conduct the business in which it
is engaged or proposes to engage as described in the Prospectus and to
enter into and perform its obligations under this Agreement. The
Operating Partnership is duly qualified or registered as a foreign
partnership and is in good standing in California and is in good
standing in each other jurisdiction in which such qualification or
registration is required, whether by reason of the ownership or leasing
of property or the conduct of business, except where the failure so to
qualify or be registered or to be in good standing in such other
jurisdiction would not have Material Adverse Effect. The Company is the
sole
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general partner of the Operating Partnership and owns the percentage
interest in the Operating Partnership as set forth in the Prospectus.
(e) Each Subsidiary has been, as the case may be, duly
incorporated or organized, is validly existing as a partnership,
corporation, limited liability company or real estate investment trust
in good standing under the laws of its respective jurisdiction of
organization, has the corporate, partnership or other power and
authority to own its property and to conduct its business as described
in the Prospectus. Each Subsidiary is duly qualified to transact
business and is in good standing in each jurisdiction in which the
conduct of its business or its ownership or leasing of property
requires such qualification, except to the extent that the failure to
be so qualified or be in good standing would not have a Material
Adverse Effect; all of the issued shares of capital stock or other
ownership interests of each Subsidiary have been duly and validly
authorized and issued, are fully paid and non-assessable and, except as
set forth in the Prospectus, are owned directly or indirectly by the
Company or the Operating Partnership, free and clear of all liens,
encumbrances, equities or claims. The Company has no subsidiaries other
than the Subsidiaries and the joint venture entities listed on Schedule
III hereto.
(f) Each of the joint venture partnerships or limited
liability companies listed on Schedule III hereto (the "JOINT
VENTURES") has been duly formed and is validly existing as a limited
partnership or limited liability company in good standing under the
laws of its state of organization, with power and authority to own,
lease and operate its properties and to conduct the business in which
it is engaged. Each Joint Venture is duly qualified or registered as a
foreign limited partnership or limited liability company to transact
business in each jurisdiction in which such qualification or
registration is required, whether by reason of the ownership or leasing
of property or the conduct of business, except where the failure so to
qualify or be registered would not have a Material Adverse Effect. The
Company, the Operating Partnership or a Subsidiary owns the partnership
or other equity interest in each of the Joint Ventures as set forth on
Schedule III hereto (the "JOINT VENTURE Interests"), and each of the
Joint Venture Interests is validly issued and fully paid and free and
clear of any security interest, mortgage, pledge, lien encumbrance,
claim or equity.
(g) This Agreement has been duly authorized, executed and
delivered by the Company and the Operating Partnership and constitutes
the valid and binding agreement of the Company and the Operating
Partnership, enforceable against them in accordance with its terms;
provided, however, that the enforceability of this Agreement may be
limited by bankruptcy, insolvency, reorganization or other similar laws
affecting creditors' rights generally.
(h) The Company has an authorized capitalization as set forth
in the Prospectus, and the authorized capital stock of the Company
conforms as to legal matters to the description thereof contained in
the Prospectus.
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(i) All of the issued and outstanding units of the Operating
Partnership (the "UNITS") have been duly and validly authorized and
issued and conform to the description thereof contained in the
Prospectus. The Units owned by the Company are owned directly by the
Company, free and clear of all liens, encumbrances, equities or claims.
(j) The Shares have been duly authorized and classified for
issuance and sale to the Underwriters pursuant to this Agreement. On or
prior to the Closing Date, the Company will have executed and filed
Articles Supplementary ("ARTICLES SUPPLEMENTARY") to its Articles of
Incorporation establishing the terms of the Shares with the State
Department of Assessments and Taxation of Maryland (the "SDAT") and,
when the Shares are duly paid for and certificates therefor are duly
countersigned and delivered as provided herein, the Shares will be
validly issued, fully paid and nonassessable. The issuance of the
Shares is not subject to preemptive or similar rights.
(k) The execution, delivery and performance of this Agreement
by the Company and the Operating Partnership and the consummation of
the transactions contemplated hereby will not (A) conflict with or
result in a breach or violation of any of the terms or provisions of,
or constitute a default under, any indenture, mortgage, deed of trust,
loan agreement, joint venture agreement, partnership agreement, limited
liability company agreement or any other agreement or instrument to
which the Company, the Operating Partnership or any Subsidiary is a
party or by which the Company, the Operating Partnership or any
Subsidiary is bound or to which any of the property or assets of the
Company, the Operating Partnership or any Subsidiary is subject, except
for such breach or violation which would not, singly or in the
aggregate, have a Material Adverse Effect, (B) result in any violation
of the provisions of the charter, by-laws, certificate of limited
partnership, partnership agreement or other organizational documents of
the Company, the Operating Partnership or any Subsidiary, as the case
may be, or (C) result in any violation of any statute or any order,
rule or regulation of any court or governmental agency or body having
jurisdiction over the Company, the Operating Partnership or any
Subsidiary, except where such noncompliance or violation of any such
statute, order, rule or regulation would not, singly or in the
aggregate, have a Material Adverse Effect. No consent, approval,
authorization or order of, or filing or registration with, any such
court or governmental agency or body is required for the execution,
delivery and performance of this Agreement by the Company and the
Operating Partnership and the consummation of the transactions
contemplated hereby, except for (i) the registration of the Shares
under the Securities Act and such consents, approvals, authorizations,
registrations or qualifications as may be required under the Securities
Exchange Act of 1934, as amended (the "EXCHANGE ACT"), and applicable
state and foreign securities laws in connection with the purchase and
distribution of the Shares by the Underwriters and (ii) consents,
approvals, authorizations, orders, filings or registrations that will
be completed on or prior to the Closing Date.
(l) There are no legal or governmental proceedings pending or,
to the knowledge of the Company and the Operating Partnership,
threatened, to which the Company, the Operating Partnership or any
Subsidiary is a party or to which any of the
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properties of the Company, the Operating Partnership or any Subsidiary
are subject that are required to be described in the Registration
Statement or the Prospectus and are not so described, or any statutes,
regulations, contracts or other documents that are required to be
described in the Registration Statement or the Prospectus or to be
filed as exhibits to the Registration Statement that are not described
or filed as required.
(m) Each preliminary prospectus filed as part of the
registration statement as originally filed or as part of any amendment
thereto, or filed pursuant to Rule 424 under the Securities Act,
complied when so filed in all material respects with the Securities Act
and the applicable rules and regulations of' the Commission thereunder.
(n) None of the Company, the Operating Partnership or any
Subsidiary is, and after giving effect to the offering and sale of the
Shares and the application of the proceeds thereof as described in the
Prospectus, none will be, an "investment company" as such term is
defined in the Investment Company Act of 1940, as amended.
(o) Other than as set forth in the Prospectus, there are no
contracts, agreements or understandings between the Company and any
person granting such person the right to require the Company to file a
registration statement under the Securities Act with respect to any
securities of the Company or to require the Company to include such
securities with the Shares registered pursuant to the Registration
Statement.
(p) There has not occurred any material adverse change, or any
development involving a prospective material adverse change, in the
condition, financial or otherwise, or in the earnings, business or
operations of the Company from that set forth in the Prospectus
(exclusive of any amendments or supplements thereto subsequent to the
date of this Agreement). Subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus:
(i) the Company, the Operating Partnership and the Subsidiaries have
not incurred any material liability or obligation, direct or
contingent, nor entered into any material transaction not in the
ordinary course of business; (ii) the Company has not purchased any of
its outstanding capital stock, nor declared, paid or otherwise made any
dividend or distribution of any kind on its capital stock; (iii) the
Operating Partnership has not purchased any of its outstanding Units,
nor declared, paid or otherwise made any dividend or distribution of
any kind on its Units; and (iv) there has not been any material change
in the capital stock, short-term debt or long-term debt of the Company,
the Operating Partnership or the Subsidiaries, except in each case as
described in or contemplated by the Prospectus.
(q) Except as otherwise disclosed in the Prospectus:
(i) the Company has good and marketable fee simple
title to the land underlying the Properties (as defined in the
Prospectus) and good and marketable title to the improvements
thereon, other than those improvements located on land which
the Company acts as the ground lessor, as disclosed in the
Prospectus (the "TENANT OWNED IMPROVEMENTS"), and all other
assets that are required for the effective operation of such
Properties in the manner in which they currently are
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operated, subject, however, to existing mortgages on such
Properties, to utility easements serving such Properties and
other immaterial easements, reciprocal easement agreements and
licenses, to liens of ad valorem taxes and other assessments
not delinquent as of the Closing Date, to zoning and similar
governmental land use matters affecting such Properties that
are consistent with the current uses of such Properties, to
matters of title not adversely affecting marketability of
title to such Properties, other material statutory liens not
due and payable as of the Closing Date, title matters that may
be material in character, amount or extent but which do not
materially detract from the value, or interfere with the use
of, the Properties or otherwise materially impair the business
operations being conducted or proposed to be conducted
thereon, service marks and trade names used in connection with
such Properties, ownership by others of certain items of
equipment and other items of personal property that are not
material to the conduct of business operations at such
Properties and ownership of improvements pursuant to certain
valid, existing and enforceable ground leases;
(ii) with respect to the Properties held through
Joint Ventures (the "JOINT VENTURE PROPERTIES"), the Joint
Ventures that currently own such Properties have good and
marketable fee simple title to the land underlying such
Properties and good and marketable title to the improvements
thereon, other than the Tenant Owned Improvements, and all
other assets that are required for the effective operation of
such Properties in the manner in which they currently are
operated, subject to the exceptions set forth in clause (i)
above;
(iii) all liens, charges, encumbrances, claims, or
restrictions on or affecting any of the Properties or the
assets of the Company which are required to be disclosed in
the Prospectus are disclosed therein;
(iv) neither the Company nor any tenant of any of the
Properties is in default under any of the leases pursuant to
which the Company, as lessor, leases its Property (and neither
the Company nor the Operating Partnership knows of any event
which, but for the passage of time or the giving of notice, or
both, would constitute a default under any of such leases)
other than such defaults that would not result in a Material
Adverse Effect;
(v) any real property and buildings held under lease
by the Company, the Operating Partnership or the Subsidiaries
are held by them under valid, subsisting and enforceable
leases with such exceptions as are not material and do not
interfere with the use made and proposed to be made of such
property and buildings by the Company, the Operating
Partnership or the Subsidiaries, in each case except as
described in or contemplated by the Prospectus;
(vi) no person has an option or right of first
refusal to purchase all or part of any Property or any
interest therein which is material to the Company;
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(vii) each of the Properties complies with all
applicable codes, laws and regulations (including, without
limitation, building and zoning codes, laws and regulations
and laws relating to access to the Properties), except if and
to the extent disclosed in the Prospectus and except for such
failures to comply that would not individually or in the
aggregate result in a Material Adverse Effect;
(viii) neither of the Operating Partnership or the
Company has knowledge of any pending or threatened
condemnation proceedings, zoning change, or other similar
proceeding or action that will in any manner affect the size
of, use of, improvements on, construction on or access to any
of the Properties, except such proceedings or actions that
would not have a Material Adverse Effect; and
(ix) the ground leases identified in the Prospectus
are in full force and effect, and the Company, the Operating
Partnership and the Subsidiaries and, to the knowledge of the
Company and the Operating Partnership, the Joint Ventures or
other named lessees under such leases (A) are not in default
in respect of any of the terms or provisions of such leases,
other than any such defaults which would not, singly or in the
aggregate, have a Material Adverse Effect and (B) have not
received notice of the assertion of any claim by anyone
adverse to such person's or entity's rights as lessees under
such leases, or affecting or questioning such person's or
entity's right to the continued possession or use of the
Property under such leases or of a default under such leases.
(r) Except as disclosed in the Prospectus:
(i) each Property, including, without limitation, the
Environment (as defined below) associated with such Property,
is free of any Hazardous Substance (as defined below) in
violation of any Environmental Law (as defined below)
applicable to such Property, except for Hazardous Substances
that would not result in a Material Adverse Effect;
(ii) none of the Company, the Operating Partnership
or any Subsidiary has caused or suffered to occur any Release
(as defined below) of any Hazardous Substance into the
Environment on, in, under or from any Property in violation of
any Environmental Law applicable to such Property, other than
such Releases which, singly or in the aggregate, do not
require significant remediation, and no condition exists on,
in, under or, to the knowledge of the Company and the
Operating Partnership, adjacent to any Property that could
result in the incurrence of liabilities or any violations of
any Environmental Law applicable to such Property, give rise
to the imposition of any Lien (as defined below) under any
Environmental Law, or cause or constitute a health, safety or
environmental hazard to any property, person or entity, except
in each case that would not, singly or in the aggregate, have
a Material Adverse Effect;
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(iii) none of the Company, the Operating Partnership
or any Subsidiary is engaged, and neither the Company, the
Operating Partnership nor any Subsidiary intends to engage in
any manufacturing or any other similar operations at the
Properties that (A) require the use, handling, transportation,
storage, treatment or disposal of any Hazardous Substance
(other than cleaning solvents and similar materials and other
than insecticides and herbicides or other Hazardous Substances
that are used in the ordinary course of operating the
Properties and in compliance with all applicable Environmental
Laws) or (B) require permits or are otherwise regulated
pursuant to any Environmental Law;
(iv) neither the Company, the Operating Partnership
nor any Subsidiary has received any written notice of a claim
under or pursuant to any Environmental Law applicable to a
Property or under common law pertaining to Hazardous
Substances on or originating from any Property, except for any
such claims which would not, singly or in the aggregate, have
a Material Adverse Effect;
(v) neither the Company, the Operating Partnership
nor any Subsidiary has received any written notice from any
Governmental Authority (as defined below) claiming any
violation of any Environmental Law applicable to a Property
that is uncured or unremediated as of the date hereof, except
for any such violations which would not, singly or in the
aggregate, have a Material Adverse Effect;
(vi) (A) no Property is included or, to the knowledge
of the Company and the Operating Partnership, proposed for
inclusion on the National Priorities List issued pursuant to
CERCLA (as defined below) by the United States Environmental
Protection Agency (the "EPA"); (B) to the knowledge of the
Company and the Operating Partnership, no Property (1) is
included or proposed for inclusion on the Comprehensive
Environmental Response, Compensation and Liability Information
System database maintained by the EPA, (2) has otherwise been
identified by the EPA as a potential CERCLA removal, remedial
or response site or (3) is included or proposed for inclusion
on any similar list of potentially contaminated sites pursuant
to any other applicable Environmental Law; (C) nor has the
Company, the Operating Partnership or any Subsidiary received
any written notice from the EPA or any other Governmental
Authority proposing the inclusion of any Property on such list
set forth in (A) and (B) above;
(vii) the Company, the Operating Partnership and the
Subsidiaries (i) have received all permits, licenses or other
approvals required of them under applicable Environmental Laws
to conduct their respective businesses and (ii) are in
compliance with all terms and conditions of any such permit,
license or approval, except in each case where such
noncompliance, failure to receive required permits, licenses
or other approvals or failure to comply with the terms and
conditions of such permits, licenses or approvals would not,
singly or in the aggregate, have a Material Adverse Effect;
and
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(viii) there are no costs or liabilities associated
with Environmental Laws (including, without limitation, any
capital or operating expenditures required for clean-up,
closure of properties or compliance with Environmental Laws or
any permit, license or approval, any related constraints on
operating activities and any potential liabilities to third
parties) which would, singly or in the aggregate, have a
Material Adverse Effect.
As used herein: "HAZARDOUS SUBSTANCE" shall include, without
limitation, any hazardous substance, hazardous waste, toxic or
dangerous substance, pollutant, solid waste or similarly designated
materials, including, without limitation, oil, petroleum or any
petroleum-derived substance or waste, asbestos or asbestos-containing
materials, PCBs, pesticides, explosives, radioactive materials,
dioxins, urea formaldehyde insulation or any constituent of any such
substance, pollutant or waste, including any such substance, pollutant
or waste identified or regulated under any Environmental Law
(including, without limitation, materials listed in the United States
Department of Transportation Optional Hazardous Material Table, 49
C.F.R. Section 172.101, as heretofore amended, or in the EPA's List of
Hazardous Substances and Reportable Quantities, 40 C.F.R. Part 302, as
heretofore amended); "Environment" shall mean any surface water,
drinking water, ground water, land surface, subsurface strata, river
sediment, buildings, structures, and ambient, workplace and indoor air;
"ENVIRONMENTAL Law" shall mean the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended (42 U.S.C.
Section 9601 et seq.) ("CERCLA"), the Resource Conservation and
Recovery Act of 1976, as amended (42 U.S.C. Section 6901, et seq.), the
Clean Air Act, as amended (42 U.S.C. Section 7401, et seq.), the Clean
Water Act, as amended (33 U.S.C. Section 1251, et seq.), the Toxic
Substances Control Act, as amended (15 U.S.C. Section 2601, et seq.),
the Occupational Safety and Health Act of 1970, as amended (29 U.S.C.
Section 651, et seq.), the Hazardous Materials Transportation Act, as
amended (49 U.S.C. Section 1801, et seq.), and all other applicable
federal, state and local laws, ordinances, regulations, rules, orders,
decisions and permits relating to the protection of the environment or
of human health from environmental effects; "GOVERNMENTAL AUTHORITY"
shall mean any federal, state or local governmental office, agency or
authority having the duty or authority to promulgate, implement or
enforce any Environmental Law; "LIEN" shall mean, with respect to any
Property, any mortgage, deed of trust, pledge, security interest, lien,
encumbrance, penalty, fine, charge, assessment, judgment or other
liability in, on or affecting such Property; and "RELEASE" shall mean
any spilling, leaking, pumping, pouring, emitting, emptying,
discharging, injecting, escaping, leaching, dumping, emanating or
disposing of any Hazardous Substance into the Environment, including,
without limitation, the abandonment or discard of barrels, containers,
tanks (including, without limitation, underground storage tanks) or
other receptacles containing or previously containing any Hazardous
Substance or any release, emission, discharge or similar term, as those
terms are defined or used in any Environmental Law.
(s) Arthur Andersen LLP, who have certified certain financial
statements in the Registration Statement, whose report appears in the
Prospectus, are independent
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public accountants as required by the Securities Act and the rules and
regulations of the Commission thereunder during the periods covered by
the financial statements on which they reported contained in the
Prospectus.
(t) The Company, the Operating Partnership and each of the
Subsidiaries are insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as are
prudent and customary in the businesses in which they are engaged; none
of the Company, the Operating Partnership nor any Subsidiary has been
refused any insurance coverage sought or applied for; and none of the
Company, the Operating Partnership nor any Subsidiary has any reason to
believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar
coverage from similar insurers as may be necessary to continue its
business at a cost that would not materially and adversely affect the
condition, financial or otherwise, or the earnings, business or
operations of the Company, the Operating Partnership and the
Subsidiaries, taken as a whole, except as described in or contemplated
by the Prospectus.
(u) The Company, the Operating Partnership and the
Subsidiaries possess all certificates, authorizations and permits
issued by the appropriate federal, state or foreign regulatory
authorities necessary to conduct their respective businesses, and none
of the Company, the Operating Partnership nor any Subsidiary has
received any notice of proceedings relating to the revocation or
modification of any such certificate, authorization or permit which,
singly or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, would result in a Material Adverse Effect, except as
described in or contemplated by the Prospectus.
(v) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or
specific authorizations; (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset accountability;
(iii) access to assets is permitted only in accordance with
management's general or specific authorization; and (iv) the recorded
accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to
any differences.
(w) The Company has complied with all provisions of Section
517.075, Florida Statutes relating to doing business with the
Government of Cuba (the "CUBA ACT") or with any person or affiliate
located in Cuba.
(x) Each of the Company, the Operating Partnership, the
Subsidiaries, AMB Institutional Realty Advisors, Inc. ("AMBIRA"), AMB
Current Income Fund, Inc. ("CIF"), AMB Value Added Fund, Inc. ("VAF")
and AMB Western Properties Fund-I ("WPF," and collectively with AMBIRA,
CIF and VAF, the "PREDECESSOR ENTITIES") has filed, when due, all
federal, state and local returns for Taxes (as defined below) which
have been required to be filed; all such returns were prepared in the
manner required by applicable law and were true, correct and complete
in all material respects; and the
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Company, the Operating Partnership, the Subsidiaries and the
Predecessor Entities have paid all Taxes reported as due in such
returns and have paid any other material Taxes for which they may be
liable, to the extent that any of the foregoing is due and payable,
except, in all cases, for any Tax that is being contested in good faith
(and except in any case in which the failure to so file or pay would
not have a Material Adverse Effect). No audit, inquiry, investigation
or similar proceeding with respect to Taxes is currently pending or
threatened against the Company or any of its assets with respect to
which it may be liable for the payment of Taxes, an adverse outcome of
which would have a Material Adverse Effect. As used in the above
paragraph, the term "TAX" or "TAXES" shall include all United States
federal, state, local and foreign taxes, assessments or other
governmental charges (whether imposed directly or through withholding),
including any interest, penalties and additions to taxes applicable
thereto.
(y) The financial statements (including the notes thereto)
included in the Registration Statement and the Prospectus present
fairly the financial position of the respective entity or entities
presented therein at the respective dates indicated and the results of
their operations for the respective periods specified, and except as
otherwise stated in the Registration Statement, said financial
statements have been prepared in conformity with generally accepted
accounting principles ("GAAP") applied on a consistent basis. The
supporting schedules included in the Registration Statement present
fairly the information required to be stated therein. The financial
information and data included in the Registration Statement and the
Prospectus present fairly the information included therein and have
been prepared on a basis consistent with that of the books and records
of the respective entities presented therein. Pro forma financial
information included in the Prospectus has been prepared in accordance
with the applicable requirements of Rules 11-01 and 11-02 of Regulation
S-X under the 1933 Act, and the necessary pro forma adjustments have
been properly applied to the historical amounts in the compilation of
such information, and, in management's opinion, the assumptions used in
the preparation thereof are reasonable and the adjustments used therein
are appropriate to give effect to the transactions and circumstances
referred to therein.
(z) No relationship, direct or indirect, exists between or
among the Operating Partnership or the Company on the one hand, and the
directors, officers, stockholders (in the case of the Company), limited
partners (in the case of the Operating Partnership), customers or
suppliers of the Operating Partnership or the Company on the other
hand, which is required to be described in the Prospectus which is not
so described.
(aa) The Company and the Operating Partnership are in
compliance in all material respects with all presently applicable
provisions of the Employee Retirement Income Security Act of 1974, as
amended, including the regulations and published interpretations
thereunder ("ERISA"); no "reportable event" (as defined in ERISA) has
occurred with respect to any "pension plan" (as defined in ERISA) for
which the Operating Partnership or the Company would have any
liability; neither the Company nor the Operating Partnership has
incurred and does not expect to incur liability under (i) Title IV of
ERISA with respect to termination of, or withdrawal from, any "pension
plan"
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or (ii) Sections 412 or 4971 of the Code including the regulations and
published interpretations thereunder; each "pension plan" for which the
Operating Partnership or the Company would have any liability that is
intended to be qualified under Section 401(a) of the Code is so
qualified in all material respects and nothing has occurred, whether by
action or by failure to act, which would cause the loss of such
qualification; and each "pension plan" for which the Company, the
Operating Partnership or any of their affiliates has any liability or
with respect to which the Company, the Operating Partnership or any of
their affiliates is a disqualified person (as defined in the Code) or
party-in-interest (as defined in ERISA) has not been a party to any
"prohibited transaction" (as defined in ERISA and the Code), except for
such noncompliance, reportable events, liabilities, or failures to
qualify that would not have a Material Adverse Effect.
(bb) Neither the Company nor the Operating Partnership, nor
any director, officer, agent, employee or other person associated with
or acting on behalf of the Operating Partnership or the Company, has
used any corporate funds for any unlawful contribution, gift,
entertainment or other unlawful expense relating to political activity;
made any direct or indirect unlawful payment to any foreign or domestic
government official or employee from corporate funds; violated or is in
violation of any provision of the Foreign Corrupt Practices Act of
1977; or made any bribe, rebate, payoff, influence payment, kickback or
other unlawful payment.
(cc) The Company, the Operating Partnership and the
Subsidiaries are currently in compliance with all presently applicable
provisions of the Americans with Disabilities Act, except for such
noncompliance which would not, singly or in the aggregate, have a
Material Adverse Effect, and no failure of the Company, the Operating
Partnership or any Subsidiary to comply with all presently applicable
provisions of the Americans with Disabilities Act would have a Material
Adverse Effect.
(dd) Beginning with its taxable year ended December 31, 1997,
the Company has been and is organized to qualify as a "real estate
investment trust" under the Internal Revenue Code of 1986, as amended
(the "CODE"), and the Company's assets, income and its method of
operation has at all times enabled it, and its proposed assets, income
and method of operation will enable it, to meet the requirements for
qualification and taxation as a "real estate investment trust" under
the Code.
(ee) Neither the Company, the Operating Partnership nor any
Subsidiary, nor any of their directors, officers or controlling
persons, has taken or will take, directly or indirectly, any action
designed to cause or result under the Exchange Act, or otherwise in, or
which has constituted or which reasonably might be expected to
constitute, the unlawful stabilization or manipulation of the price of
any security of the Company to facilitate the sale or resale of the
Shares.
2. AGREEMENTS TO SELL AND PURCHASE. The Company hereby agrees to sell
to the several Underwriters, and each Underwriter, upon the basis of the
representations and warranties
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herein contained, but subject to the conditions hereinafter stated, agrees,
severally and not jointly, to purchase from the Company the respective numbers
of Firm Shares set forth in Schedule I hereto opposite its name at $_____ a
share (the "PURCHASE PRICE") plus accrued dividends, if any, to the Closing
Date.
On the basis of the representations and warranties contained in this
Agreement, and subject to its terms and conditions, the Company agrees to sell
to the Underwriters the Additional Shares, and the Underwriters shall have a
one-time right to purchase, severally and not jointly, up to 600,000 Additional
Shares at the Purchase Price plus accrued dividends, if any, to the Closing
Date. If you, on behalf of the Underwriters, elect to exercise such option, you
shall so notify the Company in writing not later than 30 days after the date of
this Agreement, which notice shall specify the number of Additional Shares to be
purchased by the Underwriters and the date on which such shares are to be
purchased. Such date may be the same as the Closing Date (as defined below) but
not earlier than the Closing Date nor later than ten business days after the
date of such notice. Additional Shares may be purchased as provided in Section 4
hereof solely for the purpose of covering over-allotments made in connection
with the offering of the Firm Shares. If any Additional Shares are to be
purchased, each Underwriter agrees, severally and not jointly, to purchase the
number of Additional Shares (subject to such adjustments to eliminate fractional
shares as you may determine) that bears the same proportion to the total number
of Additional Shares to be purchased as the number of Firm Shares set forth in
Schedule I hereto opposite the name of such Underwriter bears to the total
number of Firm Shares.
The Company hereby agrees that, without the prior written consent of
Morgan Stanley & Co. Incorporated on behalf of the Underwriters, it will not,
during the period commencing on the date hereof and ending 30 days after the
date of the Prospectus, (i) offer, pledge, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell, grant
any option, right or warrant to purchase, lend or otherwise transfer or dispose
of, directly or indirectly, any shares of ___% Series A Cumulative Redeemable
Preferred Stock (the "SERIES A PREFERRED STOCK"), any other equity securities of
the Company which are substantially similar to the Series A Preferred Stock or
any securities convertible into or exercisable or exchangeable for Series A
Preferred Stock or such substantially similar equity securities or (ii) enter
into any swap or other arrangement that transfers to another, in whole or in
part, any of the economic consequences of ownership of the Series A Preferred
Stock or any other equity securities of the Company which are substantially
similar to the Series A Preferred Stock, whether any such transaction described
in clause (i) or (ii) above is to be settled by delivery of Series A Preferred
Stock or such other securities, in cash or otherwise. The restrictions described
in the foregoing sentence shall not apply to the Shares to be sold hereunder.
3. TERMS OF PUBLIC OFFERING. The Company is advised by you that the
Underwriters propose to make a public offering of their respective portions of
the Shares as soon after the Registration Statement and this Agreement have
become effective as in your judgment is advisable. The Company is further
advised by you that the Shares are to be offered to the public initially at
$25.00 a share (the "PUBLIC OFFERING PRICE") plus accrued dividends, if any, to
the Closing Date, and to certain dealers selected by you at a price that
represents a concession not in excess of $.___ a share under the Public Offering
Price, and that any Underwriter may allow,
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<PAGE> 15
and such dealers may reallow, a concession, not in excess of $.___ a share, to
any Underwriter or to certain other dealers.
4. PAYMENT AND DELIVERY. Payment for the Firm Shares shall be made to
the Company in federal or other funds immediately available in New York City
against delivery of such Firm Shares for the respective accounts of the several
Underwriters at 10:00 A.M., New York City time, on July ___, 1998, or at such
other time on the same or such other date, not later than July ___, 1998, as
shall be designated in writing by you. The time and date of such payment are
hereinafter referred to as the "CLOSING DATE."
Payment for any Additional Shares shall be made to the Company in
federal or other funds immediately available in New York City against delivery
of such Additional Shares for the respective accounts of the several
Underwriters at 10:00 A.M., New York City time, on the date specified in the
notice described in Section 2 or at such other time on the same or on such other
date, in any event not later than August ___, 1998, as shall be designated in
writing by you. The time and date of such payment are hereinafter referred to as
the "OPTION CLOSING DATE."
Certificates for the Firm Shares and Additional Shares shall be in
definitive form and registered in such names and in such denominations as you
shall request in writing not later than one full business day prior to the
Closing Date or the Option Closing Date, as the case may be. The certificates
evidencing the Firm Shares and Additional Shares shall be delivered to you on
the Closing Date or the Option Closing Date, as the case may be, for the
respective accounts of the several Underwriters, with any transfer taxes payable
in connection with the transfer of the Shares to the Underwriters duly paid,
against payment of the Purchase Price therefor.
5. CONDITIONS TO THE UNDERWRITERS' OBLIGATIONS. The obligations of the
Company to sell the Shares to the Underwriters and the several obligations of
the Underwriters to purchase and pay for the Shares on the Closing Date are
subject to the condition that the Registration Statement shall have become
effective not later than 5:30 P.M. (New York City time) on the date hereof.
The several obligations of the Underwriters are subject to the
following further conditions:
(a) Subsequent to the execution and delivery of this Agreement
and prior to the Closing Date:
(i) there shall not have occurred any downgrading,
nor shall any notice have been given of any intended or
potential downgrading or of any review for a possible change
that does not indicate the direction of the possible change,
in the rating accorded the Company, the Operating Partnership,
any of their respective securities or in the rating outlook
for either of them by any "nationally recognized statistical
rating organization," as such term is defined for purposes of
Rule 436(g)(2) under the Securities Act; and
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<PAGE> 16
(ii) there shall not have occurred any change, or any
development involving a prospective change, in the condition,
financial or otherwise, or in the earnings, business or
operations of the Company, the Operating Partnership and the
Subsidiaries, taken as a whole, from that set forth in the
Prospectus (exclusive of any amendments or supplements thereto
subsequent to the date of this Agreement) that, in your
judgment, is material and adverse and that makes it, in your
judgment, impracticable to market the Shares on the terms and
in the manner contemplated in the Prospectus.
(b) The Underwriters shall have received on the Closing Date a
certificate, dated the Closing Date and signed by an executive officer
of the Company on behalf of the Company and in the Company's capacity
as general partner of the Operating Partnership, to the effect set
forth in clause (a)(i) above and to the effect that the representations
and warranties of the Company and the Operating Partnership contained
in this Agreement are true and correct as of the Closing Date and that
the Company and the Operating Partnership have complied with all of the
agreements and satisfied all of the conditions on their part to be
performed or satisfied hereunder on or before the Closing Date. The
officer signing and delivering such certificate may rely upon the best
of his or her knowledge as to proceedings threatened.
(c) The Underwriters shall have received on the Closing Date
an opinion of Latham & Watkins, outside counsel for the Company, dated
the Closing Date, to the effect that:
(i) the Operating Partnership is a limited
partnership duly formed and existing under and by virtue of
the laws of the State of Delaware and, based solely upon the
certificates of public officials, is in good standing under
the Delaware Revised Uniform Limited Partnership Act, with
partnership power and authority to own, lease and operate its
properties, to conduct the business in which it is engaged or
proposes to engage as described in the Prospectus and to enter
into and perform its obligations under the Underwriting
Agreement. Based solely upon the certificates of public
officials, the Operating Partnership is duly qualified or
registered as a foreign partnership and is in good standing in
each jurisdiction listed on Exhibit A-1 to such opinion. The
Operating Partnership is duly qualified or registered as a
foreign partnership but is not in good standing in each
jurisdiction listed on Exhibit A-2 to such opinion, if any.
The Company is the sole general partner of the Operating
Partnership and, assuming the due authorization by the
Company, in its capacity as the sole general partner of the
Operating Partnership, and assuming the valuation of the
property and other assets contributed by the partners to the
Operating Partnership as set forth in Exhibit A to the
Partnership Agreement, owns outstanding partnership interests
in the Operating Partnership as set forth in the Prospectus;
(ii) based solely upon the certificates of public
officials, the Company is duly qualified to transact business
and is in good standing in each jurisdiction
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<PAGE> 17
listed on Exhibit B-1 to such opinion. The Company is duly
qualified or registered as a foreign corporation but is not in
good standing in each jurisdiction listed on Exhibit B-2 to
such opinion, if any;
(iii) each of AMB Property II, L.P., a Delaware
limited partnership ("AMB Property II"), and Long Gate, LLC, a
Delaware limited liability company ("Long Gate," and together
with AMB Property II, the "Subsidiaries"), has been duly
incorporated, is validly existing as a partnership,
corporation or limited liability company in good standing
under the laws of its respective jurisdiction of organization,
has the corporate, partnership or other power and authority to
own its property and to conduct its business as described in
the Prospectus. Each Subsidiary is duly qualified to transact
business and is in good standing in each jurisdiction listed
on Exhibit C-1 to such opinion. The Subsidiaries are duly
qualified or registered as a foreign partnership or limited
liability company (as applicable) but are not in good standing
in each jurisdiction listed on Exhibit C-2 to such opinion, if
any. To such counsel's knowledge, each of the partnership or
member agreements of the Subsidiaries (as applicable) is in
full force and effect;
(iv) the issued and outstanding Units of the
Operating Partnership have been, assuming the due
authorization by the Company in its capacity as the sole
general partner of the Operating Partnership, duly authorized
for issuance by the Operating Partnership to the holders
thereof and are validly issued and conform to the description
thereof contained in the Prospectus. The Units owned by the
Company are owned of record directly by the Company, to the
best of such counsel's knowledge in reliance upon a UCC lien
search in the State of Delaware and an officers' certificate,
free and clear of all liens, encumbrances, equities or claims;
(v) the execution, delivery and performance of this
Agreement by the Company and the Operating Partnership and the
consummation of the transactions contemplated hereby (A) will
not conflict with or result in a breach or violation of any of
the terms or provisions of, or constitute a default under, any
of the documents set forth on Schedule IV hereto as of the
Closing Date, except for any such conflicts, breaches or
violations which are not, singly or in the aggregate,
material, (B) will not result in any violation of the
provisions of the charter, by-laws, certificate of limited
partnership, partnership agreement or other organizational
documents of the Company, the Operating Partnership or any
Subsidiary, as the case may be and (C) will not, to the best
of such counsel's knowledge, result in any violation of
federal securities laws, California law and the General
Corporation Law of the State of Delaware. Except for the
registration of the Shares under the Securities Act, such
consents, approvals, authorizations, registrations and
qualifications as may be required under the Exchange Act, and
applicable state Blue Sky and foreign securities laws in
connection with the purchase and distribution of the Shares by
the Underwriters and such other consents, approvals,
authorizations, registrations and qualifications which if not
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<PAGE> 18
obtained would not, singly or in the aggregate, have a
Material Adverse Effect, no consent, approval, authorization
or order of, or filing or registration with, any federal or
California court or governmental agency or body is required
under the covered laws by the Company, the Operating
Partnership or any Subsidiary for the execution, delivery and
performance of this Agreement by the Company and the Operating
Partnership and the consummation of the transactions
contemplated hereby;
(vi) the Underwriting Agreement has been duly
authorized, executed and delivered by the Operating
Partnership (assuming due authorization by the Company in its
capacity as the sole general partner of the Operating
Partnership) and is a valid and binding agreement of the
Operating Partnership and the Company;
(vii) the statements (A) in the Prospectus under the
captions "Federal Income Tax Consequences," "ERISA
Considerations" and "Underwriters" and (B) in the Registration
Statement in Items 33 and 34, in each case insofar as such
statements constitute summaries of the legal matters referred
to therein, have been reviewed by such counsel and are
accurate in all material respects in each case insofar as such
statements constitute summaries of the documents or
proceedings referred to therein, and such statements fairly
present the information called for with respect to such
documents and proceedings and fairly summarize the matters
referred to therein;
(viii) based solely upon the representations of the
Company contained in this Agreement and the certificate of an
officer of the Company, such counsel does not know of any
legal or governmental proceedings pending or threatened to
which the Company, the Operating Partnership or any Subsidiary
is a party or to which any of the properties of the Company,
the Operating Partnership or any Subsidiary is subject that
are required to be described in the Registration Statement or
the Prospectus and are not so described or any statutes,
regulations, contracts or other documents that are required to
be described in the Registration Statement or the Prospectus
or to be filed as exhibits to the Registration Statement that
are not described or filed as required. To the best knowledge
of such counsel, all descriptions in the Registration
Statement of contracts and other documents to which the
Company, the Operating Partnership or any Subsidiary is a
party fairly present the information called for with respect
to such documents and fairly summarize the matters referred to
therein;
(ix) none of the Company, the Operating Partnership
or any Subsidiary is, and, after giving effect to the offering
and sale of the Shares and the application of the proceeds
thereof as described in the Prospectus, none will be, an
"investment company" as such term is defined in the Investment
Company Act of 1940, as amended;
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(x) commencing with the Company's taxable year ended
December 31, 1997, the Company has been organized and operated
in conformity with the requirements for qualification and
taxation as a "real estate investment trust" under the Code,
and the Company's present and contemplated operations, assets
and income will enable it to meet the requirements for
qualification and taxation as a "real estate investment trust"
under the Code;
(xi) the Operating Partnership is and will be treated
as a partnership for federal income tax purposes; and
(xii) such counsel is of the opinion that the
Registration Statement and Prospectus (except for financial
statements and schedules and other financial and statistical
data included therein as to which such counsel need not
express any opinion) comply as to form in all material
respects with the Securities Act and the applicable rules and
regulations of the Commission thereunder.
(d) The Underwriters shall have received on the Closing Date
an opinion of Ballard Spahr Andrews & Ingersoll, LLP, special Maryland
counsel for the Company, dated the Closing Date, to the effect that:
(i) the Company has been duly incorporated and is
validly existing as a corporation in good standing under the
laws of the State of Maryland;
(ii) the Company has the requisite corporate power
and corporate authority to own its properties and to conduct
its business as described in the Prospectus and to enter into
and perform its obligations under this Agreement;
(iii) the Company has duly executed and filed the
Articles Supplementary with the State Department of
Assessments and Taxation of Maryland (the "SDAT");
(iv) the Shares have been duly authorized and, when
issued and delivered in accordance with the terms of this
Agreement, against payment of the agreed consideration, will
be validly issued, fully paid and non-assessable, and the
issuance of such Shares will not be subject to any preemptive
or similar rights arising by operation of the Maryland General
Corporation Law (the "MGCL") or under the charter or bylaws of
the Company or any agreement or other instrument known to such
counsel;
(v) the execution and delivery by the Company, in its
individual capacity and in its capacity as the general partner
of the Operating Partnership, of this Agreement, have been
duly authorized by all necessary corporate action required
under the charter and bylaws of the Company and the MGCL; and
this Agreement has been duly executed and, to such counsel's
knowledge, delivered by the Company in its individual capacity
and in its capacity as the general partner of the Operating
Partnership;
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<PAGE> 20
(vi) the execution, delivery and performance of this
Agreement by the Company, in its individual capacity and in
its capacity as the general partner of the Operating
Partnership, and the consummation of the transactions
contemplated hereby: (A) will not contravene any provision of
the MGCL, (B) will not result in any violation of the
provisions of the charter or by-laws of the Company; and (C)
will not, to the best of such counsel's knowledge, result in
any violation of any order, rule, regulation or decree of any
court or governmental agency or authority of the State of
Maryland issued under or pursuant to the MGCL and applicable
to the properties, assets or businesses owned directly or
indirectly by the Company;
(vii) no consent, approval, authorization, order of
or qualification with any court or governmental agency or
authority of the State of Maryland is required to be obtained
by the Company, the Operating Partnership or any Subsidiary
under the MGCL in connection with the offering, issuance or
sale of the Shares to the Underwriters under this Agreement,
except for such as have been obtained;
(viii) the form of certificate used to evidence the
Shares is in due and proper form and complies in all material
respects with all applicable statutory requirements under the
laws of the State of Maryland;
(ix) the information in the Prospectus under the
caption "Description of Capital Stock" (except for the
information under the subsection thereof entitled
"Restrictions on Ownership and Transfer"), to the extent to
which it constitutes matters of Maryland corporate law,
summaries of legal matters, documents or proceedings, or legal
conclusions under Maryland corporate law, has been reviewed by
such counsel and is correct in all material respects, and the
information under "Description of Capital Stock--Restrictions
on Ownership and Transfer," to the extent that it constitutes
a summary of the provisions of the Company's charter, has been
reviewed by such counsel and is correct in all material
respects.
(e) The Underwriters shall have received on the Closing Date
an opinion of Gibson, Dunn & Crutcher LLP, counsel for the
Underwriters, dated the Closing Date, in form and substance
satisfactory to the Underwriters.
With respect to Section 5(c)(xii), Latham & Watkins may state
that its opinion and belief are based upon (i) its participation in the
preparation of the Registration Statement and Prospectus and any
amendments or supplements thereto and review and discussion of the
contents thereof, but are without independent check or verification,
except as specified, and (ii) representations of the Company, the
Operating Partnership and the Subsidiaries as to factual matters.
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<PAGE> 21
The opinions of Latham & Watkins and Ballard Spahr Andrews &
Ingersoll, LLP described in paragraph (c) and (d) above shall be
rendered to the Underwriters at the request of the Company and shall so
state therein.
(f) The Underwriters shall have received, on each of the date
hereof and the Closing Date, a letter dated the date hereof or the
Closing Date, as the case may be, in form and substance satisfactory to
the Underwriters, from Arthur Andersen LLP, independent public
accountants, containing statements and information of the type
ordinarily included in accountants' "comfort letters" to underwriters
with respect to the financial statements and certain financial
information contained in the Registration Statement and the Prospectus;
provided that the letter delivered on the Closing Date shall use a
"cut-off date" not earlier than the date hereof.
The several obligations of the Underwriters to purchase Additional
Shares hereunder are subject to the delivery to you on the Option Closing Date
of such documents as you may reasonably request with respect to the good
standing of the Company and the Operating Partnership, the due authorization and
issuance of the Additional Shares and other matters related to the issuance of
the Additional Shares.
6. COVENANTS OF THE COMPANY. In further consideration of the agreements
of the Underwriters herein contained, the Company covenants with each
Underwriter as follows:
(a) The Company will advise the Representatives promptly of
the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or of the institution of
any proceedings for that purpose, and will use its best efforts to
prevent the issuance of any such stop order and to obtain as soon as
possible the lifting thereof, if issued. The Company will advise the
Representatives promptly of any request by the Commission for any
amendment of or supplement to the Registration Statement or the
Prospectus or for additional information, and will not at any time file
any amendment to the Registration Statement or supplement to the
Prospectus which shall not previously have been submitted to the
Representatives a reasonable time prior to the proposed filing or use
thereof or to which the Representatives shall reasonably object or
which is not in compliance with the Securities Act and the rules and
regulations thereunder. The Company will advise you promptly when the
Prospectus has been filed pursuant to Rule 424(b) of the Securities
Act.
(b) To furnish to you, without charge, six signed copies of
the Registration Statement (including exhibits thereto) and for
delivery to each other Underwriter a conformed copy of the Registration
Statement (without exhibits thereto) and to furnish to you in New York
City, without charge, prior to 10:00 A.M. New York City time on the
business day next succeeding the date of this Agreement and during the
period mentioned in Section 6(c) below, as many copies of the
Prospectus and any supplements and amendments thereto or to the
Registration Statement as you may reasonably request.
(c) If, during such period after the first date of the public
offering of the Shares, in the opinion of counsel for the Underwriters,
the Prospectus is required by law
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<PAGE> 22
to be delivered in connection with sales by an Underwriter or dealer,
any event shall occur or condition exist as a result of which it is
necessary to amend or supplement the Prospectus in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading when the Prospectus is delivered to a
purchaser, or if, in the opinion of counsel for the Underwriters, it is
necessary to amend or supplement the Prospectus to comply with
applicable law, forthwith to prepare, file with the Commission and
furnish, at its own expense, to the Underwriters and to the dealers
(whose names and addresses you will furnish to the Company) to which
Shares may have been sold by you on behalf of the Underwriters and to
any other dealers upon request, either amendments or supplements to the
Prospectus so that the statements in the Prospectus as so amended or
supplemented will not, in the light of the circumstances under which
they were made, be misleading when the Prospectus is delivered to a
purchaser, or so that the Prospectus, as amended or supplemented, will
comply with law.
(d) To endeavor to qualify the Shares for offer and sale under
the securities or Blue Sky laws and real estate syndication laws of
such jurisdictions as you shall reasonably request.
(e) To make generally available to the Company's security
holders and to you as soon as practicable an earnings statement
covering the twelve-month period beginning after the effective date of
the Registration Statement that satisfies the provisions of Section
11(a) of the Securities Act and the rules and regulations of the
Commission thereunder.
(f) Whether or not the transactions contemplated in this
Agreement are consummated or this Agreement is terminated, to pay or
cause to be paid all expenses incident to the performance of its
obligations under this Agreement, including: (i) the fees,
disbursements and expenses of counsel for the Company and the Company's
accountants in connection with the registration and delivery of the
Shares under the Securities Act and all other fees or expenses in
connection with the preparation and filing of the Registration
Statement, any preliminary prospectus, the Prospectus and amendments
and supplements to any of the foregoing, including all printing costs
associated therewith, and the mailing and delivering of copies thereof
to the Underwriters and dealers, in the quantities hereinabove
specified, (ii) all costs and expenses related to the transfer and
delivery of the Shares to the Underwriters, including any transfer or
other taxes payable thereon, (iii) the cost of printing or producing
any Blue Sky or Legal Investment memorandum in connection with the
offer and sale of the Shares under state securities laws and all
expenses in connection with the qualification of the Shares for offer
and sale under state securities laws as provided in Section 6(d)
hereof, including filing fees and the reasonable fees and disbursements
of counsel for the Underwriters in connection with such qualification
and in connection with the Blue Sky or Legal Investment memorandum,
(iv) all filing fees and the reasonable fees and disbursements of
counsel to the Underwriters incurred in connection with the review and
qualification of the offering of the Shares by the National Association
of Securities Dealers, Inc., if any, (v) any fees charged by the rating
agencies for the rating of the Shares, (vi) all fees and
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<PAGE> 23
expenses in connection with the preparation and filing of the
registration statement on Form 8-A relating to the Shares, (vii) all
costs and expenses incident to listing the Shares on the New York Stock
Exchange, (viii) the cost of printing certificates representing the
Shares, (ix) the fees and expenses of any transfer agent, registrar or
depositary in connection with the issuance of the Shares, (x) the costs
and expenses of the Company relating to investor presentations on any
"road show" undertaken in connection with the marketing of the offering
of the Shares, including, without limitation, expenses associated with
the production of road show slides and graphics, fees and expenses of
any consultants engaged in connection with the road show presentations
with the prior approval of the Company, travel and lodging expenses of
the representatives and officers of the Company and any such
consultants, and, with the prior approval of the Company, the cost of
any aircraft chartered in connection with the road show and (xi) all
other costs and expenses incident to the performance of the obligations
of the Company and the Operating Partnership hereunder for which
provision is not otherwise made in this Section. It is understood,
however, that except as provided in this Section, Section 7 entitled
"Indemnity and Contribution" and the last paragraph of Section 9 below,
the Underwriters will pay all of their costs and expenses, including
fees and disbursements of their counsel, stock transfer taxes payable
on resale of any of the Shares by them and any advertising expenses
connected with any offers they may make.
(g) The Company will use the net proceeds received by it from
the sale of the Shares sold by it in the manner specified in the
Prospectus under the caption "Use of Proceeds."
(h) The Shares will be listed on the New York Stock Exchange
(the "NYSE") on or prior to the date hereof, and the Company shall use
its best efforts to maintain the listing of such Shares on the NYSE.
(i) Except for the authorization of actions permitted to be
taken by the underwriters as contemplated herein or in the Prospectus,
neither the Company nor the Operating Partnership will (i) take,
directly or indirectly, any action designed to cause or to result in,
or that might reasonably be expected to constitute, the stabilization
or manipulation of the price of any security of the Company to
facilitate the sale or resale of the Shares, (ii) sell, bid for or
purchase the Shares or pay any person any compensation for soliciting
purchases of the Shares or (iii) pay or agree to pay to any person any
compensation for soliciting another to purchase any other securities of
the Company.
(j) In accordance with the provisions of the Cuba Act, if
applicable, and without limitation to the provisions of Section 7
hereof, the Company and the Operating Partnership will indemnify each
Underwriter against any and all losses, claims, damages, liabilities
and expenses (including attorneys' fees) arising out of or based upon
any violation by the Company of the Cuba Act.
7. INDEMNITY AND CONTRIBUTION. (a) The Company and the Operating
Partnership, jointly and severally, agree to indemnify and hold harmless each
Underwriter and each person, if
22
<PAGE> 24
any, who controls any Underwriter within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act, from and against any and all
losses, claims, damages and liabilities (including, without limitation, any
legal or other expenses reasonably incurred in connection with defending or
investigating any such action or claim) caused by any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement or any amendment thereof, any preliminary prospectus or the Prospectus
(as amended or supplemented if the Company shall have furnished any amendments
or supplements thereto), or caused by any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, except insofar as such losses, claims,
damages or liabilities are caused by any such untrue statement or omission or
alleged untrue statement or omission based upon information relating to any
Underwriter furnished to the Company in writing by such Underwriter through you
expressly for use therein and set forth in Section 1(b) hereof; provided,
however, that the foregoing indemnity agreement with respect to any preliminary
prospectus shall not inure to the benefit of any Underwriter from whom the
person asserting any such losses, claims, damages or liabilities purchased
Shares, or any person controlling such Underwriter, if a copy of the Prospectus
(as then amended or supplemented if the Company shall have furnished any
amendments or supplements thereto) was not sent or given by or on behalf of such
Underwriter to such person, if required by law so to have been delivered, at or
prior to the written confirmation of the sale of the Shares to such person, and
if the Prospectus (as so amended or supplemented) would have cured the defect
giving rise to such losses, claims, damages or liabilities, unless such failure
is the result of noncompliance by the Company with Section 6(b) hereof.
(b) Each Underwriter agrees, severally and not jointly, to
indemnify and hold harmless the Company and the Company, the Operating
Partnership's directors, its officers who sign the Registration Statement and
each person, if any, who controls the Company or the Operating Partnership
within the meaning of either Section 15 of the Securities Act or Section 20 of
the Exchange Act to the same extent as the foregoing indemnities from the
Company and the Operating Partnership to such Underwriter, but only with
reference to information relating to such Underwriter furnished to the Company
in writing by such Underwriter through you expressly for use in the Registration
Statement, any preliminary prospectus, the Prospectus or any amendments or
supplements thereto.
(c) In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of which
indemnity may be sought pursuant to Section 7(a) or 7(b), such person (the
"indemnified party") shall promptly notify the person against whom such
indemnity may be sought (the "indemnifying party") in writing and the
indemnifying party, upon request of the indemnified party, shall retain counsel
reasonably satisfactory to the indemnified party to represent the indemnified
party and any others the indemnifying party may designate in such proceeding and
shall pay the fees and disbursements of such counsel related to such proceeding.
In any such proceeding, any indemnified party shall have the right to retain its
own counsel, but the fees and expenses of such counsel shall be at the expense
of such indemnified party unless (i) the indemnifying party and the indemnified
party shall have mutually agreed to the retention of such counsel or (ii) the
named parties to any such proceeding (including any impleaded parties) include
both the indemnifying party and the
23
<PAGE> 25
indemnified party and representation of both parties by the same counsel would
be inappropriate due to actual or potential differing interests between them. It
is understood that the indemnifying party shall not, in respect of the legal
expenses of any indemnified party in connection with any proceeding or related
proceedings in the same jurisdiction, be liable for the fees and expenses of
more than one separate firm (in addition to any local counsel) for all such
indemnified parties and that all such fees and expenses shall be reimbursed as
they are incurred. Such firm shall be designated in writing by Morgan Stanley &
Co. Incorporated, in the case of parties indemnified pursuant to Section 7(a),
and by the Company or the Operating Partnership, in the case of parties
indemnified pursuant to Section 7(b). The indemnifying party shall not be liable
for any settlement of any proceeding effected without its written consent, but
if settled with such consent or if there be a final judgment for the plaintiff,
the indemnifying party agrees to indemnify the indemnified party from and
against any loss or liability by reason of such settlement or judgment.
Notwithstanding the foregoing sentence, if at any time an indemnified party
shall have requested an indemnifying party in writing to reimburse the
indemnified party for fees and expenses of counsel as contemplated by the second
and third sentences of this paragraph, the indemnifying party agrees that it
shall be liable for any settlement of any proceeding effected without its
written consent if (i) such settlement is entered into more than 60 days after
receipt by such indemnifying party of the aforesaid request and (ii) such
indemnifying party shall not have reimbursed the indemnified party in accordance
with such request prior to the date of such settlement. No indemnifying party
shall, without the prior written consent of each indemnified party, effect any
settlement of any pending or threatened proceeding in respect of which any
indemnified party is or could have been a party and indemnity could have been
sought hereunder by such indemnified party, unless such settlement includes an
unconditional release of such indemnified party from all liability on claims
that are the subject matter of such proceeding.
(d) To the extent the indemnification provided for in Section
7(a) or 7(b) is unavailable to an indemnified party or insufficient in respect
of any losses, claims, damages or liabilities referred to therein, then each
indemnifying party under such paragraph, in lieu of indemnifying such
indemnified party thereunder, shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company and the Operating Partnership on the one hand
and the Underwriters on the other hand from the offering of the Shares or (ii)
if the allocation provided by clause (i) above is not permitted by applicable
law, in such proportion as is appropriate to reflect not only the relative
benefits referred to in clause (i) above but also the relative fault of the
Company and the Operating Partnership on the one hand and of the Underwriters on
the other hand in connection with the statements or omissions that resulted in
such losses, claims, damages or liabilities, as well as any other relevant
equitable considerations. The relative benefits received by the Company and the
Operating Partnership on the one hand and the Underwriters on the other hand in
connection with the offering of the Shares shall be deemed to be in the same
respective proportions as the net proceeds from the offering of the Shares
(before deducting expenses) received by the Company and the total underwriting
discounts and commissions received by the Underwriters, in each case as set
forth in the table on the cover of the Prospectus, bear to the aggregate Public
Offering Price of the Shares. The relative fault of the Company and the
Operating Partnership on the one hand and the Underwriters on the other hand
shall be determined by reference to, among other things,
24
<PAGE> 26
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or the Operating Partnership or by the Underwriters and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission. The Underwriters' respective
obligations to contribute pursuant to this Section 7 are several in proportion
to the respective number of Shares they have purchased hereunder, and not joint.
(e) The Company, the Operating Partnership and the
Underwriters agree that it would not be just or equitable if contribution
pursuant to this Section 7 were determined by pro rata allocation (even if the
Underwriters were treated as one entity for such purpose) or by any other method
of allocation that does not take account of the equitable considerations
referred to in Section 7(d). The amount paid or payable by an indemnified party
as a result of the losses, claims, damages and liabilities referred to in the
immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this Section 7, no
Underwriter shall be required to contribute any amount in excess of the amount
by which the total price at which the Shares underwritten by it and distributed
to the public were offered to the public exceeds the amount of any damages that
such Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The remedies provided for in this
Section 7 are not exclusive and shall not limit any rights or remedies which may
otherwise be available to any indemnified party at law or in equity.
(f) The indemnity and contribution provisions contained in
this Section 7 and the representations, warranties and other statements of the
Company and the Operating Partnership contained in this Agreement shall remain
operative and in full force and effect regardless of (i) any termination of this
Agreement, (ii) any investigation made by or on behalf of any Underwriter or any
person controlling any Underwriter or by or on behalf of the Company or the
Company, the Operating Partnership's officers or directors or any person
controlling the Company or the Operating Partnership and (iii) acceptance of and
payment for any of the Shares.
8. TERMINATION. This Agreement shall be subject to termination by
notice given by you to the Company, if (a) after the execution and delivery of
this Agreement and prior to the Closing Date (i) trading generally shall have
been suspended or materially limited on or by, as the case may be, any of the
New York Stock Exchange, the American Stock Exchange, the National Association
of Securities Dealers, Inc., the Chicago Board of Options Exchange, the Chicago
Mercantile Exchange or the Chicago Board of Trade, (ii) trading of any
securities of the Company shall have been suspended on any exchange or in any
over-the-counter market, (iii) a general moratorium on commercial banking
activities in New York shall have been declared by either federal or New York
State authorities or (iv) there shall have occurred any outbreak or escalation
of hostilities or any change in financial markets or any calamity or crisis
that, in your judgment, is material and adverse and (b) in the case of any of
the events specified in clauses (a)(i) through (iv), such event, singly or
together with any other such event, makes it, in
25
<PAGE> 27
your judgment, impracticable to market the Shares on the terms and in the manner
contemplated in the Prospectus.
9. EFFECTIVENESS; DEFAULTING UNDERWRITERS. This Agreement shall become
effective upon the execution and delivery hereof by the parties hereto.
If, on the Closing Date or the Option Closing Date, as the case may be,
any one or more of the Underwriters shall fail or refuse to purchase Shares that
it has or they have agreed to purchase hereunder on such date, and the aggregate
number of Shares which such defaulting Underwriter or Underwriters agreed but
failed or refused to purchase is not more than one-tenth of the aggregate number
of the Shares to be purchased on such date, the other Underwriters shall be
obligated severally in the proportions that the number of Firm Shares set forth
opposite their respective names in Schedule I bears to the aggregate number of
Firm Shares set forth opposite the names of all such non-defaulting
Underwriters, or in such other proportions as you may specify, to purchase the
Shares which such defaulting Underwriter or Underwriters agreed but failed or
refused to purchase on such date; provided that in no event shall the number of
Shares that any Underwriter has agreed to purchase pursuant to this Agreement be
increased pursuant to this Section 9 by an amount in excess of one-ninth of such
number of Shares without the written consent of such Underwriter. If, on the
Closing Date, any Underwriter or Underwriters shall fail or refuse to purchase
Firm Shares and the aggregate number of Firm Shares with respect to which such
default occurs is more than one-tenth of the aggregate number of Firm Shares to
be purchased, and arrangements satisfactory to you and the Company for the
purchase of such Firm Shares are not made within 36 hours after such default,
this Agreement shall terminate without liability on the part of any
non-defaulting Underwriter or the Company. In any such case either you or the
Company shall have the right to postpone the Closing Date, but in no event for
longer than seven days, in order that the required changes, if any, in the
Registration Statement and in the Prospectus or in any other documents or
arrangements may be effected. If, on the Option Closing Date, any Underwriter or
Underwriters shall fail or refuse to purchase Additional Shares and the
aggregate number of Additional Shares with respect to which such default occurs
is more than one-tenth of the aggregate number of Additional Shares to be
purchased, the non-defaulting Underwriters shall have the option to (i)
terminate their obligation hereunder to purchase Additional Shares or (ii)
purchase not less than the number of Additional Shares that such non-defaulting
Underwriters would have been obligated to purchase in the absence of such
default. Any action taken under this paragraph shall not relieve any defaulting
Underwriter from liability in respect of any default of such Underwriter under
this Agreement.
If this Agreement shall be terminated by the Underwriters, or any of
them, because of any failure or refusal on the part of the Company or the
Operating Partnership to comply with the terms or to fulfill any of the
conditions of this Agreement, or if for any reason the Company or the Operating
Partnership shall be unable to perform their obligations under this Agreement,
the Company and the Operating Partnership will, jointly and severally, reimburse
the Underwriters or such Underwriters as have so terminated this Agreement with
respect to themselves, severally, for all out-of-pocket expenses (including the
fees and disbursements of their counsel) reasonably incurred by such
Underwriters in connection with this Agreement or the offering contemplated
hereunder.
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<PAGE> 28
10. COUNTERPARTS. This Agreement may be signed in two or more
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
11. APPLICABLE LAW. This Agreement shall be governed by and construed
in accordance with the internal laws of the State of New York.
27
<PAGE> 29
12. HEADINGS. The headings of the sections of this Agreement have been
inserted for convenience of reference only and shall not be deemed a part of
this Agreement.
Very truly yours,
AMB PROPERTY CORPORATION
By:
------------------------------
Name:
Title:
AMB PROPERTY, L.P.
By: AMB PROPERTY CORPORATION,
its General Partner
By:
---------------------
Name:
Title:
Accepted as of the date hereof
MORGAN STANLEY & CO. INCORPORATED
A.G. EDWARDS & SONS, INC.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
PAINEWEBBER INCORPORATED
SMITH BARNEY INC.
Acting severally on behalf of themselves
and the several Underwriters named in
Schedule I hereto.
By Morgan Stanley & Co. Incorporated
By:
-----------------------------------
Michael M. Fusco, Vice President
28
<PAGE> 30
<TABLE>
<S> <C>
SCHEDULE I
UNDERWRITERS
NUMBER OF FIRM SHARES
UNDERWRITER TO BE PURCHASED
- ----------- -------------------
Morgan Stanley & Co. Incorporated.......................................
A.G. Edwards & Sons, Inc................................................
Merrill Lynch, Pierce, Fenner & Smith Incorporated......................
PaineWebber Incorporated................................................
Smith Barney Inc........................................................
Total Firm Shares................................................... 4,000,000
=========
</TABLE>
<PAGE> 31
SCHEDULE II
SUBSIDIARIES OF THE COMPANY
AMB Property II, L.P.
AMB Property Holding Corporation
Long Gate LLC
AMB Investment Management, Inc.
AMB Investment Management Limited Partnership
<PAGE> 32
SCHEDULE III
JOINT VENTURES
OWNERSHIP INTEREST
NAME OF JOINT VENTURE IN JOINT VENTURE
American Beauty General 50.0001% G.P. Interest
CH-VAF Orlando Joint Venture 90% G.P. Interest
Dark Starr Limited Partnership 50.0001% L.P. Interest
Fairway Drive Venture LLC 70.00% Member Interest
Hamilton Lakes/AMB CIF 50% L.P. Interest
Met Phase I 95, Ltd. 87.15% L.P. Interest
St. Stephen Limited Partnership 50.0001% L.P. Interest
Met 4/12, Ltd. 87.15% L.P. Interest
Manhattan Village, LLC 90.00% Member Interest
AMB/ERIE, L.P. 50.0005% G.P. Interest
Sugar Magnolia L.L.C. (formerly AMB-TC 95% Member Interest
OCP FL 2000 L.L.C.
Elk Grove Village Industrial Park, Ltd. 56.0617% Beneficial L.P.
Interest
Terrapin Station Limited Partnership 50.0001% L.P. Interest
Keep Your Day Job, LLC 90% Member Interest
AMB-TC Southriver Park NJ L.L.C. 95% Member Interest
<PAGE> 33
SCHEDULE IV
CERTAIN MATERIAL CONTRACTS
1. All agreements filed as Exhibits (including by incorporation by
reference) to the Company's Registration Statements on Form S-11 (Files
No. 333-35915 and 333-49163).
2. All joint venture agreements documenting the interests of the Company,
the Operating Partnership or one of their subsidiaries in the Joint
Ventures listed on Schedule III hereto.
3. The loan agreements and other documents governing the $500 million
Credit Facility with Morgan Guaranty Trust Company of New York.
4. The loan agreements and other documents governing the $73 million CIF
secured credit facility that bears interest at a fixed rate of 7.53%.
<PAGE> 1
EXHIBIT 3.3
AMB PROPERTY CORPORATION
ARTICLES SUPPLEMENTARY
ESTABLISHING AND FIXING THE RIGHTS AND
PREFERENCES OF __% SERIES A PREFERRED STOCK
AMB Property Corporation, a corporation organized and existing under
the laws of the State of Maryland (the "Corporation"), certifies to the State
Department of Assessments and Taxation of Maryland that:
FIRST: Pursuant to the authority expressly vested in the Board of
Directors of the Corporation (sometimes referred to herein as the "Board") by
Article IV of the Articles of Incorporation of the Corporation filed with the
Department on November 24, 1997, which comprises, together with these Articles
Supplementary, the charter (the "Charter") of the Corporation, and Section 2-105
of the Maryland General Corporation Law (the "MGCL"), the Board of Directors of
the Corporation, by resolutions duly adopted on June 19, 1998, adopted
resolutions (i) classifying and designating a separate class of authorized but
unissued Preferred Stock of the Corporation to consist of not more than
10,000,000 shares, (ii) pursuant to the powers contained in the Bylaws of the
Corporation and the MGCL, appointing a Committee (the "Committee") of the Board
of Directors comprised of Hamid R. Moghadam, and (iii) delegating to the
Committee, to the fullest extent permitted by Maryland law and the Charter and
Bylaws of the Corporation, all powers of the Board of Directors with respect to
designating and establishing the preferences, conversion and other rights,
voting powers, restrictions, limitations as to distributions, qualification and
terms and conditions of redemption and other terms and conditions of such class
of Preferred Stock, and determining the number of shares of such class of
Preferred Stock (not in excess of the aforesaid maximum number) to be issued,
and the price and other terms and conditions upon which shares of such series of
Preferred Stock are to be offered, sold and issued.
SECOND: Pursuant to the authority conferred upon the Committee as
aforesaid, the Committee has on July __, 1998, adopted resolutions classifying
and designating or confirming the designation and classification of) the
aforesaid class of Preferred Stock as the ___% Series A Cumulative Redeemable
Preferred Stock, with the preferences, conversions and other rights, voting
powers, restrictions, limitations as to distributions, qualifications and terms
and conditions of redemptions and other terms and conditions of such ___% Series
A Cumulative Redeemable Preferred Stock (to the extent not set by the Board of
Directors in the resolutions referred to in Article FIRST of these Articles
Supplementary) and establishing 4,600,000 as the number of shares to be so
classified and designated, and authorizing the issuance of up to 4,600,000
shares of _____% Series A Cumulative Redeemable Preferred Stock.
THIRD: The separate class of Preferred Stock of the Corporation created
by the resolutions duly adopted by the Board of Directors of the Corporation and
by the Committee and
<PAGE> 2
referred to in Articles FIRST and SECOND of these Articles Supplementary shall
have the designation, number of shares, preferences, conversion and other
rights, voting powers, restrictions and limitations as to dividends,
qualifications, terms and conditions of redemption and other terms and
conditions as follows (and which, upon any restatement of the Charter, may be
made a part of Article IV thereof, with any necessary or appropriate changes to
the numeration or lettering of the sections of subsections hereof):
(1) DESIGNATION AND NUMBER. A class of Preferred Stock, designated the
"____% Series A Cumulative Redeemable Preferred Stock" (the "Series A Preferred
Stock"), is hereby established. The number of shares of Series A Preferred Stock
shall be 4,600,000 (the "Series A Preferred Shares").
(2) RANK. The Series A Preferred Shares will rank, with respect to
dividend rights and rights upon voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, (a) senior to all classes or
series of Common Stock (as defined in the Charter) and to all equity securities
of the Corporation the terms of which provide that such equity securities shall
rank junior to such Series A Preferred Shares; (b) on a parity with all equity
securities issued by the Corporation other than those referred to in clauses (a)
and (c); and (c) junior to all equity securities issued by the Corporation which
rank senior to the Series A Preferred Shares in accordance with Section 6(d).
The term "equity securities" does not include convertible debt securities.
(3) DIVIDENDS.
(a) Holders of Series A Preferred Shares shall be entitled to receive,
if, when and as authorized by the Board, out of funds legally available for the
payment of dividends, cumulative preferential cash dividends at the rate of
______% of the $25.00 liquidation preference per annum (equivalent to $________
per annum per share). Such dividends shall accumulate on a daily basis computed
on the basis of a 360-day year consisting of twelve 30-day months and be
cumulative from July __, 1998 and shall be payable quarterly in equal amounts in
arrears on the 15th day of each January, April, July and October, or, if not a
business day, the next succeeding business day, commencing October 15, 1998
(each a "Dividend Payment Date"). Dividends shall be payable to holders of
record as they appear in the share records of the Corporation at the close of
business on the applicable record date (each a "Dividend Record Date"), which
shall be the date designated by the Board for the payment of dividends that is
not more than 30 nor less than 10 days prior to the applicable payment date
therefor. Any dividend payable on the Series A Preferred Shares for any partial
dividend period shall be prorated and computed on the basis of a 360-day year
consisting of twelve 30-day months. Notwithstanding any provision to the
contrary contained herein, each outstanding share of Series A Preferred Stock
shall be entitled to receive, and shall receive, a dividend with respect to any
Dividend Record Date equal to the dividend paid with respect to each other share
of Series A Preferred Stock which is outstanding on such date.
(b) No dividend on the Series A Preferred Shares shall be authorized by
the Board or be paid or set apart for payment by the Corporation at such time as
the terms and provisions of any agreement of the Corporation, including any
agreement relating to its indebtedness, prohibits such authorization, payment or
setting apart for payment or provides that such authorization,
2
<PAGE> 3
payment or setting apart for payment would constitute a breach thereof, or a
default thereunder, or if such authorization or payment shall be restricted or
prohibited by law.
(c) Notwithstanding anything to the contrary contained herein,
dividends on the Series A Preferred Shares shall accumulate whether or not
restrictions exist in respect thereof, whether or not there are funds legally
available for the payment thereof and whether or not such dividends are
declared. Accumulated but unpaid dividends on the Series A Preferred Shares will
accumulate as of the Dividend Payment Date on which they first become payable or
on the date of redemption, as the case may be.
(d) If any Series A Preferred Shares are outstanding, no full dividends
will be declared or paid or set apart for payment on any other equity securities
of the Corporation of any other class or series ranking, as to distributions or
upon liquidation, dissolution or winding up of the Corporation, on a parity with
or junior to the Series A Preferred Shares unless full cumulative dividends have
been or contemporaneously are declared and paid or declared and a sum sufficient
for the payment thereof set apart for such payment on the Series A Preferred
Shares for all past dividend periods and the then current dividend period. When
dividends are not paid in full (or a sum sufficient for such full payment is not
so set apart) upon the Series A Preferred Shares and any other equity securities
ranking as to dividends on a parity with the Series A Preferred Shares, all
dividends declared upon the Series A Preferred Shares and any other equity
securities of the Corporation ranking as to dividends on a parity with the
Series A Preferred Shares shall be declared pro rata so that the amount of
dividends declared per Series A Preferred Share and each such other equity
securities shall in all cases bear to each other the same ratio that accumulated
dividends per Series A Preferred Share and such other equity securities (which
shall not include any accumulation in respect of unpaid dividends for prior
dividend periods if such other equity securities do not have a cumulative
dividend) bear to each other. No interest, or sum of money in lieu of interest,
shall be payable in respect of any dividend payment or payments on Series A
Preferred Shares which may be in arrears.
(e) Except as provided in the immediately preceding paragraph, unless
full cumulative dividends on the Series A Preferred Shares have been or
contemporaneously are declared and paid or declared and a sum sufficient for the
payment thereof is set apart for payment for all past dividend periods and the
then current dividend period, no dividends (other than in Common Stock or other
equity securities of the Corporation ranking junior to the Series A Preferred
Shares as to dividends and upon liquidation, dissolution and winding up of the
Corporation) shall be declared or paid or set aside for payment nor shall any
other dividend be declared or made upon the Common Stock or any other equity
securities of the Corporation ranking or upon liquidation, dissolution or
winding up of the Corporation junior to or on a parity with the Series A
Preferred Shares, nor shall any Common Stock or any other equity securities of
the Corporation ranking junior to or on a parity with the Series A Preferred
Shares as to dividends or upon liquidation, dissolution or winding up of the
Corporation be redeemed, purchased or otherwise acquired for any consideration
(or any monies be paid to or made available for a sinking fund for the
redemption of any such securities) by the Corporation (except by conversion into
or exchange for other equity securities of the Corporation ranking junior to
3
<PAGE> 4
\the Series A Preferred Shares as to dividends and upon liquidation, dissolution
and winding up of the Corporation, and, except pursuant to Section 7 of this
Article Third to ensure the Corporation's continued status as a REIT or
comparable Charter provisions with respect to other classes or series of the
Corporation's stock).
(f) Accumulated but unpaid dividends on the Series A Preferred Shares
will not bear interest and holders of Series A Preferred Shares shall not be
entitled to any dividend in excess of full cumulative dividends as described
above. Any dividend payment made on the Series A Preferred Shares shall first be
credited against the earliest accumulated but unpaid dividend due with respect
to such shares which remains payable.
(g) If, for any taxable year, the Corporation elects to designate as a
"capital gain dividend" (as defined in Section 857 of the Code), any portion
(the "Capital Gains Amount") of the dividends paid or made available for the
year to holders of any class or series of stock of the Corporation, the portion
of the Capital Gains Amount that shall be allocable to holders of the Series A
Preferred Stock shall be the amount that the total dividends (as determined for
Federal income tax purposes) paid or made available to the holders of the Series
A Preferred Stock for the year bears to the aggregate amount of dividends (as
determined for Federal income tax purposes) paid or made available to the
holders of all classes or series of stock of the Corporation for such year.
(4) LIQUIDATION PREFERENCE.
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of Series A Preferred
Shares then outstanding shall be entitled to receive out of the assets of the
Corporation legally available for distribution to its stockholders remaining
after payment or provision for payment of all debts and liabilities of the
Corporation, a liquidation preference in cash of $25.00 per share, plus an
amount equal to any accumulated and unpaid dividends to the date of such
payment, before any distribution of assets is made to holders of Common Stock or
any other equity securities of the Corporation that rank junior to the Series A
Preferred Shares as to liquidation rights.
(b) If, upon any such voluntary or involuntary liquidation, dissolution
or winding up of the Corporation, the assets of the Corporation are insufficient
to make full payment to holders of Series A Preferred Shares and the
corresponding amounts payable on all shares of other classes or series of equity
securities of the Corporation ranking on a parity with the Series A Preferred
Shares as to liquidation rights, then the holders of the Series A Preferred
Shares and all other such classes or series of equity securities shall share
ratably in any such distribution of assets in proportion to the full liquidating
distributions to which they would otherwise be respectively entitled.
(c) Written notice of any such liquidation, dissolution or winding up
of the Corporation, stating the payment date or dates when, and the place or
places where, the amounts distributable in such circumstances shall be payable,
shall be given by first class mail, postage pre-paid, not less than 30 nor more
than 60 days prior to the payment date stated therein, to each record holder of
the Series A Preferred Shares at the respective addresses of such holders as the
same shall appear on the stock transfer records of the Corporation.
(d) After payment of the full amount of the liquidating distributions
to which they are entitled, the holders of Series A Preferred Shares will have
no right or claim to any of the remaining assets of the Corporation.
(e) The consolidation or merger of the Corporation with or into another
entity, a merger of another entity with or into the Corporation, a statutory
share exchange by the Corporation or a sale, lease, transfer or conveyance of
all or substantially all of the Corporation's property or business shall not be
deemed to constitute a liquidation, dissolution or winding up of the
Corporation.
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(f) In determining whether a distribution (other than upon voluntary or
involuntary liquidation) by dividend, redemption or other acquisition of shares
of stock of the Corporation or otherwise is permitted under the MGCL, no effect
shall be given to amounts that would be needed, if the Corporation were to be
dissolved at the time of the distribution, to satisfy the preferential rights
upon dissolution of holders of the Series A Preferred Shares whose preferential
rights upon dissolution are superior to those receiving the distribution.
(5) OPTIONAL REDEMPTION.
(a) The Series A Preferred Shares are not redeemable prior to July __,
2003. To ensure that the Corporation remains a qualified real estate investment
trust ("REIT") for federal income tax purposes, however, the Series A Preferred
Shares shall be subject to the provisions of Section 7 of this Article Third
pursuant to which Series A Preferred Shares owned by a stockholder in excess of
the Ownership Limit (as defined in Section 7 of this Article Third) or certain
other limitations shall automatically be transferred to a Trust for the benefit
of a Charitable Beneficiary (as defined in Section 7 of this Article Third) and
the Corporation shall have the right to purchase such shares, as provided in
Section 7 of this Article Third. On and after July __, 2003, the Corporation, at
its option, upon giving notice as provided below, may redeem the Series A
Preferred Shares, in whole or from time to time in part, for cash, at a
redemption price of $25.00 per share, plus all accumulated and unpaid dividends
on such Series A Preferred Shares to the date fixed for redemption.
(b) The redemption price of the Series A Preferred Shares (other than
the portion thereof consisting of accumulated and unpaid dividends) is payable
solely from the sale proceeds of other equity securities of the Corporation, and
not from any other source. For purposes of the preceding sentence, "equity
securities" means any equity securities (including Common Stock and Preferred
Stock (as defined in the Charter)), depositary shares in respect of any of the
foregoing, interests, participations or other ownership interests (however
designated) and any rights (other than debt securities convertible into or
exchangeable for equity securities) or options to purchase any of the foregoing.
(c) If fewer than all of the outstanding Series A Preferred Shares are
to be redeemed, the shares to be redeemed shall be selected pro rata (as nearly
as practicable without creating fractional shares) or by lot or by any other
equitable method determined by the Corporation. If such redemption is to be by
lot and, as a result of such redemption, any holder of Series A Preferred Shares
would become a holder of a number of Series A Preferred Shares in excess of the
Ownership Limit (or other limitations set forth in Section 7 of this Article
Third) because such holder's Series A Preferred Shares were not redeemed, or
were only redeemed in part, then, except as otherwise provided in the Charter,
the Corporation will redeem the requisite number of Series A Preferred Shares of
such holder such that no holder will hold in excess of the Ownership Limit (or
such other limits) subsequent to such redemption.
(d) Notwithstanding anything to the contrary contained herein, unless
full cumulative dividends on all Series A Preferred Shares shall have been or
contemporaneously are declared and paid or declared and a sum sufficient for the
payment thereof set apart for payment for all
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past dividend periods and the then current dividend period, no Series A
Preferred Shares shall be redeemed unless all outstanding Series A Preferred
Shares are simultaneously redeemed; provided, however, that the foregoing shall
not prevent the purchase by the Corporation of Series A Preferred Shares
pursuant to Section 7 of this Article Third or otherwise in order to ensure that
the Corporation remains qualified as a REIT for Federal or state income tax
purposes or the purchase or acquisition of Series A Preferred Shares pursuant to
a purchase or exchange offer made on the same terms to holders of all
outstanding Series A Preferred Shares. In addition, unless full cumulative
dividends on all outstanding Series A Preferred Shares have been or
contemporaneously are declared and paid or declared and a sum sufficient for the
payment thereof set apart for payment for all past dividend periods and the then
current dividend period, the Corporation shall not purchase or otherwise acquire
directly or indirectly any Series A Preferred Shares or any equity securities of
the Corporation ranking junior to or on a parity with the Series A Preferred
Shares as to dividends or upon voluntary or involuntary liquidation, dissolution
or winding up of the Corporation (except by conversion into or exchange for
equity securities of the Corporation ranking junior to the Series A Preferred
Shares as to dividends and upon voluntary or involuntary liquidation,
dissolution or winding up of the Corporation and except pursuant to Section 7 of
this Article Third or comparable Charter provisions with respect to the other
classes or series of the Corporation's stock).
(e) The holders of shares of Series A Preferred Stock at the close of
business on a Dividend Record Date will be entitled to receive the dividend
payable with respect to the shares of Series A Preferred Stock held on the
corresponding Dividend Payment Date notwithstanding the redemption thereof
between such Dividend Record Date and the corresponding Dividend Payment Date or
the Corporation's default in the payment of the dividend due. Except as provided
herein, the Corporation will make no payment or allowance for unpaid dividends,
whether or not in arrears, on Series A Preferred Shares to be redeemed.
(f) The following provisions set forth the procedures for Redemption:
(i) Notice of redemption will be given by publication in a
newspaper of general circulation in the City of New York, such publication to be
made once a week for two successive weeks commencing not less than 30 nor more
than 60 days, prior to the redemption date. A similar notice will be mailed by
the Corporation, postage prepaid, not less than 30 nor more than 60 days, prior
to the redemption date, addressed to the respective holders of record of the
Series A Preferred Shares to be redeemed at their respective addresses as they
appear on the share records of the Corporation. No failure to give such notice
or any defect therein or in the mailing thereof shall affect the validity of the
proceedings for the redemption of any Series A Preferred Shares except as to the
holder to whom notice was defective or not given.
(ii) In addition to any information required by law or by the
applicable rules of any exchange upon which the Series A Preferred Shares may be
listed or admitted to trading, such notice shall state: (A) the redemption date;
(B) the redemption price; (C) the number of Series A Preferred Shares to be
redeemed; (D) the place or places where the certificates evidencing shares of
Series A Preferred Shares are to be surrendered for payment of the redemption
price; and (E) that dividends on the Series A Preferred Shares to be redeemed
will cease to accumulate on such redemption date. If fewer than all of the
Series A Preferred Shares
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held by any holder are to be redeemed, the notice mailed to such holder shall
also specify the number of Series A Preferred Shares to be redeemed from such
holder.
(iii) On or after the redemption date, each holder of Series A
Preferred Shares to be redeemed shall present and surrender the certificates
representing such holder's Series A Preferred Shares to the Corporation at the
place designated in the notice of redemption and shall be entitled to the
redemption price and any accumulated and unpaid dividends payable upon such
redemption upon such surrender and thereupon the redemption price of such shares
(including all accumulated and unpaid dividends up to the redemption date) shall
be paid to or on the order of the person whose name appears on such certificate
representing Series A Preferred Shares as the owner thereof and each surrendered
certificate shall be canceled. If fewer than all the shares represented by any
such certificate representing Series A Preferred Shares are to be redeemed, a
new certificate shall be issued representing the unredeemed shares.
(iv) If notice of redemption of any Series A Preferred Shares
has been given and if the funds necessary for such redemption have been set
aside by the Corporation in trust for the benefit of the holders thereof, then
from and after the redemption date all dividends on such Series A Preferred
Shares shall cease to accumulate and any such Series A Preferred Shares will no
longer be deemed outstanding and all rights of the holders thereof will
terminate, except the right to receive the redemption price (including all
accumulated and unpaid dividends up to the redemption date) and such shares
shall not thereafter be transferred (except with the consent of the Corporation)
on the Corporation's stock transfer records. At its election, the Corporation,
prior to a redemption date, may irrevocably deposit the redemption price
(including accumulated and unpaid dividends to the redemption date) of the
Series A Preferred Shares so called for redemption in trust for the holders
thereof with a bank or trust company, in which case the redemption notice to
holders of the Series A Preferred Shares to be redeemed shall (A) state the date
of such deposit, (B) specify the office of such bank or trust company as the
place of payment of the redemption price and (C) require such holders to
surrender the certificates representing such shares at such place on or about
the date fixed in such redemption notice (which may not be later than the
redemption date) against payment of the redemption price (including all
accumulated and unpaid dividends to the redemption date). Any monies so
deposited which remain unclaimed by the holders of the Series A Preferred Shares
at the end of two years after the redemption date shall be returned by such bank
or trust company to the Corporation.
(g) Any Series A Preferred Shares that shall at any time have been
redeemed shall, after such redemption, have the status of authorized but
unissued Preferred Stock, without further designation as to series or class
until such shares are once more designated as part of a particular series or
class by the Board.
(6) VOTING RIGHTS.
(a) Holders of the Series A Preferred Shares will not have any voting
rights, except as set forth below.
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(b) Whenever dividends on any Series A Preferred Shares shall remain
unpaid for six or more quarterly periods (whether or not consecutive) (a
"Preferred Dividend Default"), the holders of such Series A Preferred Shares
(voting as a single class with all other equity securities of the Corporation
ranking on a parity with the Series A Preferred Shares as to dividends and upon
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation ("Parity Preferred Stock") upon which like voting rights have been
conferred and are exercisable) will be entitled to vote for the election of two
additional directors of the Corporation (the "Preferred Stock Directors"), who
will be elected for a one-year term and until their successors are duly elected
and shall qualify (or until such director's right to hold such office terminates
as provided herein, whichever occurs earlier, subject to such directors earlier
death, disqualification, resignation or removal), at a special meeting called by
the holders of at least 20% of the outstanding Series A Preferred Shares or the
holders of shares of any other class or series of Parity Preferred Stock with
respect to which dividends are so unpaid (unless such request is received less
than 90 days before the date fixed for the next annual or special meeting of
stockholders) or, if the request for a special meeting is received by the
Corporation less than 90 days before the date fixed for the next annual or
special meeting of stockholders, at the next annual or special meeting of
stockholders, and at each subsequent annual meeting until all dividends
accumulated on the Series A Preferred Shares for all past dividend periods and
the dividend for the then current dividend period shall have been fully paid or
declared and a sum sufficient for the payment thereof set aside for payment in
full.
(c) If and when all accumulated dividends and the dividend for the then
current dividend period on the Series A Preferred Shares shall have been paid in
full or declared by the Corporation and set aside for payment in full, the
holders of Series A Preferred Shares shall be divested of the voting rights set
forth in Section 6(b) hereof (subject to revesting in the event of each and
every Preferred Dividend Default) and, if all accumulated dividends and the
dividend for the then current dividend period have been paid in full or declared
by the Corporation and set aside for payment in full on all other classes or
series of Parity Preferred Stock upon which like voting rights have been
conferred and are exercisable, the term of office of each Preferred Stock
Director so elected shall forthwith terminate. Any Preferred Stock Director
elected by the holders of Series A Preferred Shares and any other such Parity
Preferred Shares may be removed at any time with or without cause by the vote
of, and shall not be removed otherwise than by the vote of, the holders of a
majority of the outstanding Series A Preferred Shares when they only have the
voting rights set forth, or like those set forth, in Section 6(b) hereof and by
the majority vote of the Series A Preferred Shares and all other classes or
series of Parity Preferred Stock upon which like voting rights have been
conferred and are exercisable (voting as a single class when the Series A
Preferred Shares and such Parity Preferred Stock is entitled to vote thereon).
So long as a Preferred Dividend Default shall continue, any vacancy in the
office of a Preferred Stock Director so elected may be filled by written consent
of the Preferred Stock Director so elected remaining in office, or if none
remains in office, by a vote of the holders of a majority of the outstanding
Series A Preferred Shares when they only have the voting rights set forth, or
like those set forth, in Section 6(b) and by the majority vote of the Series A
Preferred Shares and other classes or series of Parity Preferred Stock upon
which like voting rights have been conferred and are exercisable (voting as a
single class) when the Series A Preferred Shares and such Parity Preferred Stock
is entitled to vote thereon.
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(d) So long as any Series A Preferred Shares remain outstanding, the
Corporation shall not, without the affirmative vote or consent of the holders of
at least two-thirds of the Series A Preferred Shares outstanding at the time,
given in person or by proxy, either in writing or at a meeting (such Series A
Preferred Stock voting separately as a class), (i) authorize or create, or
increase the authorized or issued amount of, any class or series of stock
ranking senior to the Series A Preferred Shares with respect to payment of
dividends or the distribution of assets upon voluntary or involuntary
liquidation, dissolution or winding up of the Corporation or reclassify any
authorized shares of the Corporation into any such stock, or create, authorize
or issue any obligation or security convertible into exchangeable or exercisable
for, or evidencing the right to purchase any such stock; or (ii) amend, alter or
repeal the provisions of the Charter (including these Articles Supplementary),
whether by merger or consolidation (each and "Event") or otherwise, so as to
materially and adversely affect any right, preference, privilege or voting power
of the Series A Preferred Shares or the holders thereof; provided, however, that
with respect to the occurrence of any of the Events set forth in (ii) above, so
long as Series A Preferred Shares (or shares issued by a surviving entity in
substitution for the Series A Preferred Shares) remain outstanding with the
terms thereof materially unchanged, taking into account that upon the occurrence
of such an Event, the Corporation may not be the surviving entity, the
occurrence of any such Event shall not be deemed to materially and adversely
affect such rights, preferences, privileges or voting powers of the holders of
the Series A Preferred Shares; and provided further that (x) any increase in the
amount of the authorized Preferred Stock or the creation or issuance of any
other class or series of Preferred Stock or (y) any increase in the amount of
authorized Series A Preferred Shares or any other class or series of Preferred
Stock, in each case ranking on a parity with or junior to the Series A Preferred
Shares with respect to payment of dividends or the distribution of assets upon
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation, shall not be deemed to materially and adversely affect such rights,
preferences, privileges or voting powers.
(e) The foregoing voting provisions shall not apply if, at or prior to
the time when the act with respect to which such vote would otherwise be
required shall be effected, all outstanding Series A Preferred Shares shall have
been redeemed or called for redemption upon proper notice and sufficient funds
shall have been deposited in trust to effect such redemption.
Section 7. Restrictions on Ownership and Transfer to Preserve Tax Benefit.
(a) Definitions. for the purposes of Section 7 of these Articles
Supplementary, the following terms shall have the following meanings:
"Beneficial Ownership" shall mean ownership of Series
A Preferred Stock by a Person who is or would be treated as an
owner of such Series A Preferred Stock either actually or
constructively through the application of Section 544 of the
Code, as modified by Section 856(h)(1)(B) of the Code. The
terms "Beneficial Owner," "Beneficially Owns" and
"Beneficially Owned" shall have the correlative meanings.
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"Charitable Beneficiary" shall mean one or more
beneficiaries of a Trust, as determined pursuant to Section
7(c)(vi) of these Articles Supplementary, each of which shall
be an organization described in Sections 170(b)(1)(A),
170(c)(2) and 501(c)(3) of the Code.
"Code" shall mean the Internal Revenue Code of 1986,
as amended. All section references to the Code shall include
any successor provisions thereof as may be adopted from time
to time.
"Constructive Ownership" shall mean ownership of
Series A Preferred Stock by a Person who is or would be
treated as an owner of such Series A Preferred Stock either
actually or constructively through the application of Section
318 of the Code, as modified by Section 856(d)(5) of the Code.
The terms "Constructive Owner," "Constructively Owns" and
"Constructively Owned" shall have the correlative meanings.
"IRS" means the United States Internal Revenue
Service.
"Market Price" shall mean the last reported sales
price reported on the New York Stock Exchange of the Series A
Preferred Stock on the trading day immediately preceding the
relevant date, or if the Series A Preferred Stock is not then
traded on the New York Stock Exchange, the last reported sales
price of the Series A Preferred Stock on the trading day
immediately preceding the relevant date as reported on any
exchange or quotation system over which the Series A Preferred
Stock may be traded, or if the Series A Preferred Stock is not
then traded over any exchange or quotation system, then the
market price of the Series A Preferred Stock on the relevant
date as determined in good faith by the Board of Directors of
the Corporation.
"MGCL" shall mean the Maryland General Corporation
Law, as amended from time to time, and any successor statute
hereafter enacted.
"Ownership Limit" shall mean 9.8% (by value or by
number of shares, whichever is more restrictive) of the
outstanding Series A Preferred Stock of the Corporation.
"Person" shall mean an individual, corporation,
partnership, limited liability company, estate, trust
(including a trust qualified under Section 401(a) or
501(c)(17) of the Code), a portion of a trust permanently set
aside for or to be used exclusively for the purposes described
in Section 642(c) of the Code, association, private foundation
within the meaning of Section 509(a) of the Code, joint stock
company or other entity; but does not include an underwriter
acting in a capacity as such in a public offering of shares of
Series A Preferred Stock provided that the ownership of such
shares of Series A Preferred Stock by such underwriter would
not result in the Corporation being "closely held" within the
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meaning of Section 856(h) of the Code, or otherwise result in
the Corporation failing to qualify as a REIT.
"Purported Beneficial Transferee" shall mean, with
respect to any purported Transfer (or other event) which
results in a transfer to a Trust, as provided in Section
7(b)(ii) of this these Articles Supplementary, the Purported
Record Transferee, unless the Purported Record Transferee
would have acquired or owned shares of Series A Preferred
Stock for another Person who is the beneficial transferee or
owner of such shares, in which case the Purported Beneficial
Transferee shall be such Person.
"Purported Record Transferee" shall mean, with
respect to any purported Transfer (or other event) which
results in a transfer to a Trust, as provided in Section
7(b)(ii) of these Articles Supplementary, the record holder of
the Series A Preferred Stock if such Transfer had been valid
under Section 7(b)(i) of these Articles Supplementary.
"REIT" shall mean a real estate investment trust
under Sections 856 through 860 of the Code and, for purposes
of taxation of the Corporation under applicable state law,
comparable provisions of the law of such state.
"Restriction Termination Date" shall mean the first
day after the date hereof on which the Board of Directors of
the Corporation determines that it is no longer in the best
interests of the Corporation to attempt to, or continue to,
qualify as a REIT.
"Transfer" shall mean any sale, transfer, gift,
assignment, devise or other disposition of Series A Preferred
Stock, (including (i) the granting of any option or entering
into any agreement for the sale, transfer or other disposition
of Series A Preferred Stock or (ii) the sale, transfer,
assignment or other disposition of any securities (or rights
convertible into or exchangeable for Series A Preferred
Stock), whether voluntary or involuntary, whether such
transfer has occurred of record or beneficially or
Beneficially or Constructively (including but not limited to
transfers of interests in other entities which result in
changes in Beneficial or Constructive Ownership of Series A
Preferred Stock), and whether such transfer has occurred by
operation of law or otherwise.
"Trust" shall mean each of the trusts provided for in
Section 7(c) of these Articles Supplementary.
"Trustee" shall mean any Person unaffiliated with the
Corporation, or a Purported Beneficial Transferee, or a
Purported Record Transferee, that is appointed by the
Corporation to serve as trustee of a Trust.
(b) Restriction on Ownership and Transfers.
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(i) Prior to the Restriction Termination Date:
(A) except as provided in Section 7(i) of these
Articles Supplementary, no Person shall Beneficially Own Series A Preferred
Stock in excess of the Ownership Limit;
(B) except as provided in Section 7(i) of these
Articles Supplementary, no Person shall Constructively Own Series A Preferred
Stock in excess of the Ownership Limit;
(C) no Person shall Beneficially or Constructively
Own Series A Preferred Stock which, taking into account any other capital stock
of the Corporation Beneficially or Constructively Owned by such Person, would
result in the Corporation being "closely held" within the meaning of Section
856(h) of the Code, or otherwise failing to qualify as a REIT (including but not
limited to Beneficial or Constructive Ownership that would result in the
Corporation owning (actually or Constructively) an interest in a tenant that is
described in Section 856(d)(2)(B) of the Code if the income derived by the
Corporation (either directly or indirectly through one or more partnerships or
limited liability companies) from such tenant would cause the
Corporation to fail to satisfy any of the gross income requirements of Section
856(c) of the Code or comparable provisions of state law).
(ii) If, prior to the Restriction Termination Date, any
Transfer (whether or not such Transfer is the result of a transaction entered
into through the facilities of the New York Stock Exchange ("NYSE")) or other
event occurs that, if effective, would result in any Person Beneficially or
Constructively Owning Series A Preferred Stock in violation of Section 7(b)(i)
of these Articles Supplementary, (1) then that number of shares of Series A
Preferred Stock that otherwise would cause such Person to violate Section
7(b)(i) of these Articles Supplementary (rounded up to the nearest whole share)
shall be automatically transferred to a Trust for the benefit of a Charitable
Beneficiary, as described in Section 7(c), effective as of the close of business
on the business day prior to the date of such Transfer or other event, and such
Purported Beneficial Transferee shall thereafter have no rights in such shares
or (2) if, for any reason, the transfer to the Trust described in clause (1) of
this sentence is not automatically effective as provided therein to prevent any
Person from Beneficially or Constructively Owning Series A Preferred Stock in
violation of Section 7(b)(i) of these Articles Supplementary, then the Transfer
of that number of shares of Series A Preferred Stock that otherwise would cause
any Person to violate Section 7(b)(i) shall be void ab initio, and the Purported
Beneficial Transferee shall have no rights in such shares.
(iii) Notwithstanding any other provisions contained herein,
prior to the Restriction Termination Date, any Transfer of Series A Preferred
Stock (whether or not such Transfer is the result of a transaction entered into
through the facilities of the NYSE) that, if effective, would result in the
capital stock of the Corporation being beneficially owned by less than 100
Persons (determined without reference to any rules of attribution) shall be void
ab initio, and the intended transferee shall acquire no rights in such Series A
Preferred Stock.
(c) Transfers of Series A Preferred Stock in Trust.
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(i) Upon any purported Transfer or other event described in
Section 7(b)(ii) of these Articles Supplementary, such Series A Preferred Stock
shall be deemed to have been transferred to the Trustee in his capacity as
trustee of a Trust for the exclusive benefit of one or more Charitable
Beneficiaries. Such transfer to the Trustee shall be deemed to be effective as
of the close of business on the business day prior to the purported Transfer or
other event that results in a transfer to the Trust pursuant to Section
7(b)(ii). The Trustee shall be appointed by the Corporation and shall be a
Person unaffiliated with the Corporation, any Purported Beneficial Transferee,
or any Purported Record Transferee. Each Charitable Beneficiary shall be
designated by the Corporation as provided in Section 7(c)(vi) of these Articles
Supplementary.
(ii) Series A Preferred Stock held by the Trustee shall be
issued and outstanding Series A Preferred Stock of the Corporation. The
Purported Beneficial Transferee or Purported Record Transferee shall have no
rights in the shares of Series A Preferred Stock held by the Trustee. The
Purported Beneficial Transferee or Purported Record Transferee shall not benefit
economically from ownership of any shares held in trust by the Trustee, shall
have no rights to dividends and shall not possess any rights to vote or other
rights attributable to the shares of Series A Preferred Stock held in the Trust.
(iii) The Trustee shall have all voting rights and rights to
dividends with respect to Series A Preferred Stock held in the Trust, which
rights shall be exercised for the exclusive benefit of the Charitable
Beneficiary. Any dividend or distribution paid prior to the discovery by the
Corporation that shares of Series A Preferred Stock have been transferred to the
Trustee shall be paid to the Trustee upon demand, and any dividend or
distribution declared but unpaid shall be paid when due to the Trustee with
respect to such Series A Preferred Stock. Any dividends or distributions so paid
over to the Trustee shall be held in trust for the Charitable Beneficiary.
The Purported Record Transferee and Purported Beneficial
Transferee shall have no voting rights with respect to the Series A Preferred
Stock held in the Trust and, subject to Maryland law, effective as of the date
the Series A Preferred Stock has been transferred to the Trustee, the Trustee
shall have the authority (at the Trustee's sole discretion) (i) to rescind as
void any vote cast by a Purported Record Transferee with respect to such Series
A Preferred Stock prior to the discovery by the Corporation that the Series A
Preferred Stock has been transferred to the Trustee and (ii) to recast such vote
in accordance with the desires of the Trustee acting for the benefit of the
Charitable Beneficiary; provided, however, that if the Corporation has already
taken irreversible corporate action, then the Trustee shall not have the
authority to rescind and recast such vote. Notwithstanding any other provision
of these Articles Supplementary to the contrary, until the Corporation has
received notification that the Series A Preferred Stock has been transferred
into a Trust, the Corporation shall be entitled to rely on its share transfer
and other stockholder records for purposes of preparing lists of stockholders
entitled to vote at meetings, determining the validity and authority of proxies
and otherwise conducting votes of stockholders.
(iv) Within 20 days of receiving notice from the Corporation
that shares of Series A Preferred Stock have been transferred to the Trust, the
Trustee of the Trust shall sell the shares of Series A Preferred Stock held in
the Trust to a Person, designated by the Trustee, whose
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ownership of the shares of Series A Preferred Stock will not violate the
ownership limitations set forth in Section 7(b)(i). Upon such sale, the interest
of the Charitable Beneficiary in the shares of Series A Preferred Stock sold
shall terminate and the Trustee shall distribute the net proceeds of the sale to
the Purported Record Transferee and to the Charitable Beneficiary as provided in
this Section 7(c)(iv). The Purported Record Transferee shall receive the lesser
of (1) the price paid by the Purported Record Transferee for the shares of
Series A Preferred Stock in the transaction that resulted in such transfer to
the Trust (or, if the event which resulted in the transfer to the Trust did not
involve a purchase of such shares of Series A Preferred Stock at Market Price,
the Market Price of such shares of Series A Preferred Stock on the day of the
event which resulted in the transfer of such shares of Series A Preferred Stock
to the Trust) and (2) the price per share received by the Trustee (net of any
commissions and other expenses of sale) from the sale or other disposition of
the shares of Series A Preferred Stock held in the Trust. Any net sales proceeds
in excess of the amount payable to the Purported Record Transferee shall be
immediately paid to the Charitable Beneficiary together with any dividends or
other distributions thereon. If, prior to the discovery by the Corporation that
shares of such Series A Preferred Stock have been transferred to the Trustee,
such shares of Series A Preferred Stock are sold by a Purported Record
Transferee then (i) such shares of Series A Preferred Stock shall be deemed to
have been sold on behalf of the Trust and (ii) to the extent that the Purported
Record Transferee received an amount for such shares of Series A Preferred Stock
that exceeds the amount that such Purported Record Transferee was entitled to
receive pursuant to this Section 7(c)(iv), such excess shall be paid to the
Trustee upon demand.
(v) Series A Preferred Stock transferred to the Trustee shall
be deemed to have been offered for sale to the Corporation, or its designee, at
a price per share equal to the lesser of (i) the price paid by the Purported
Record Transferee for the shares of Series A Preferred Stock in the transaction
that resulted in such transfer to the Trust (or, if the event which resulted in
the transfer to the Trust did not involve a purchase of such shares of Series A
Preferred Stock at Market Price, the Market Price of such shares of Series A
Preferred Stock on the day of the event which resulted in the transfer of such
shares of Series A Preferred Stock to the Trust) and (ii) the Market Price on
the date the Corporation, or its designee, accepts such offer. The Corporation
shall have the right to accept such offer until the Trustee has sold the shares
of Series A Preferred Stock held in the Trust pursuant to Section 7(c)(iv). Upon
such a sale to the Corporation, the interest of the Charitable Beneficiary in
the shares of Series A Preferred Stock sold shall terminate and the Trustee
shall distribute the net proceeds of the sale to the Purported Record Transferee
and any dividends or other distributions held by the Trustee with respect to
such Series A Preferred Stock shall thereupon be paid to the Charitable
Beneficiary.
(vi) By written notice to the Trustee, the Corporation shall
designate one or more nonprofit organizations to be the Charitable Beneficiary
of the interest in the Trust such that the Series A Preferred Stock held in the
Trust would not violate the restrictions set forth in Section 7(b)(i) in the
hands of such Charitable Beneficiary.
(d) Remedies For Breach. If the Board of Directors or a committee
thereof or other designees if permitted by the MGCL shall at any time determine
in good faith that a Transfer or other event has taken place in violation of
Section 7(b) of these Articles Supplementary or that a
14
<PAGE> 15
Person intends to acquire, has attempted to acquire or may acquire beneficial
ownership (determined without reference to any rules of attribution), Beneficial
Ownership or Constructive Ownership of any shares of Series A Preferred Stock of
the Corporation in violation of Section 7(b) of these Articles Supplementary,
the Board of Directors or a committee thereof or other designees if permitted by
the MGCL shall take such action as it deems advisable to refuse to give effect
or to prevent such Transfer, including, but not limited to, causing the
Corporation to redeem shares of Series A Preferred Stock, refusing to give
effect to such Transfer on the books of the Corporation or instituting
proceedings to enjoin such Transfer; provided, however, that any Transfers (or,
in the case of events other than a Transfer, ownership or Constructive Ownership
or Beneficial Ownership) in violation of Section 7(b)(i) of these Articles
Supplementary, shall automatically result in the transfer to a Trust as
described in Section 7(b)(ii) and any Transfer in violation of Section 7(b)(iii)
shall automatically be void ab initio irrespective of any action (or non-action)
by the Board of Directors.
(e) Notice of Restricted Transfer. Any Person who acquires or attempts
to acquire shares of Series A Preferred Stock in violation of Section 7(b) of
these Articles Supplementary, or any Person who is a Purported Beneficial
Transferee such that an automatic transfer to a Trust results under Section
7(b)(ii) of these Articles Supplementary, shall immediately give written notice
to the Corporation of such event and shall provide to the Corporation such other
information as the Corporation may request in order to determine the effect, if
any, of such Transfer or attempted Transfer on the Corporation's status as a
REIT.
(f) Owners Required To Provide Information. Prior to the Restriction
Termination Date each Person who is a beneficial owner or Beneficial Owner or
Constructive Owner of Series A Preferred Stock and each Person (including the
shareholder of record) who is holding Series A Preferred Stock for a beneficial
owner or Beneficial Owner or Constructive Owner shall provide to the Corporation
such information that the Corporation may request, in good faith, in order to
determine the Corporation's status as a REIT.
(g) Remedies Not Limited. Nothing contained in these Articles
Supplementary (but subject to Section 7(l) of these Articles Supplementary)
shall limit the authority of the Board of Directors to take such other action as
it deems necessary or advisable to protect the Corporation and the interests of
its shareholders by preservation of the Corporation's status as a REIT.
(h) Ambiguity. In the case of an ambiguity in the application of any of
the provisions of this Section 7 of these Articles Supplementary, including any
definition contained in Section 7(a), the Board of Directors shall have the
power to determine the application of the provisions of this Section 7 with
respect to any situation based on the facts known to it (subject, however, to
the provisions of Section 7(l) of these Articles Supplementary). In the event
Section 7 requires an action by the Board of Directors and these Articles
Supplementary fail to provide specific guidance with respect to such action, the
Board of Directors shall have the power to determine the action to be taken so
long as such action is not contrary to the provisions of Section 7. Absent a
decision to the contrary by the Board of Directors (which the Board may make in
its sole and absolute discretion), if a Person would have (but for the remedies
set forth in Section 7(b)) acquired
15
<PAGE> 16
Beneficial or Constructive Ownership of Series A Preferred Stock in violation of
Section 7(b)(i), such remedies (as applicable) shall apply first to the shares
of Series A Preferred Stock which, but for such remedies, would have been
actually owned by such Person, and second to shares of Series A Preferred Stock
which, but for such remedies, would have been Beneficially Owned or
Constructively Owned (but not actually owned) by such Person, pro rata among the
Persons who actually own such shares of Series A Preferred Stock based upon the
relative number of the shares of Series A Preferred Stock held by each such
Person.
(i) Exceptions.
(i) Subject to Section 7(b)(i)(C), the Board of Directors, in
its sole discretion, may exempt a Person from the limitation on a Person
Beneficially Owning shares of Series A Preferred Stock in violation of Section
7(b)(i)(A) if the Board of Directors obtains any representations and
undertakings from such Person as are reasonably necessary in the opinion of the
Board of Directors to ascertain that no individual's Beneficial Ownership of
such shares of Series A Preferred Stock will violate Section 7(b)(i)(A) or that
any such violation will not cause the Corporation to fail to qualify as a REIT
under the Code, and that any violation of such representations or undertaking
(or other action which is contrary to the restrictions contained in Section 7(b)
of these Articles Supplementary) or attempted violation will result in such
Series A Preferred Stock being transferred to a Trust in accordance with Section
7(b)(ii) of these Articles Supplementary.
(ii) Subject to Section 7(b)(i)(C), the Board of Directors, in
its sole discretion, may exempt a Person from the limitation on a Person
Constructively Owning Series A Preferred Stock in violation of Section
7(b)(i)(B), if the Corporation obtains any representations and undertakings from
such Person as are reasonably necessary in the opinion of the Board of Directors
to ascertain that such Person does not and will not own, actually or
Constructively, an interest in a tenant of the Corporation (or a tenant of any
entity owned in whole or in part by the Corporation) that would cause the
Corporation to own, actually or Constructively, more than a 9.8% interest (as
set forth in Section 856(d)(2)(B) of the Code) in such tenant and that any
violation or attempted violation will result in such Series A Preferred Stock
being transferred to a Trust in accordance with Section 7(b)(ii) of these
Articles Supplementary. Notwithstanding the foregoing, the inability of a Person
to make the certification described in this Section 7(i)(ii) shall not prevent
the Board of Directors, in its sole discretion, from exempting such Person from
the limitation on a Person Constructively Owning Series A Preferred Stock in
violation of Section 7(b)(i)(B) if the Board of Directors determines that the
resulting application of Section 856(d)(2)(B) of the Code would affect the
characterization of less than 0.5% of the gross income (as such term is used in
Section 856(c)(2) of the Code) of the Corporation in any taxable year, after
taking into account the effect of this sentence with respect to all other Series
A Preferred Stock to which this sentence applies.
(iii) Prior to granting any exception pursuant to Section 7(i)(i) or
(ii) of these Articles Supplementary, the Board of Directors may require a
ruling from the Internal Revenue Service, or an opinion of counsel, in either
case in form and substance satisfactory to the Board of Directors in its sole
discretion, as it may deem necessary or advisable in order to determine or
ensure the Corporation's status as a REIT.
16
<PAGE> 17
(j) Legends. Each certificate for Series A Preferred Stock shall bear
substantially the following legends:
CLASS OF STOCK
"THE CORPORATION IS AUTHORIZED TO ISSUE CAPITAL STOCK OF MORE THAN ONE
CLASS, CONSISTING OF COMMON STOCK AND ONE OR MORE CLASSES OF PREFERRED
STOCK. THE BOARD OF DIRECTORS IS AUTHORIZED TO DETERMINE THE
PREFERENCES, LIMITATIONS AND RELATIVE RIGHTS OF ANY CLASS OF PREFERRED
STOCK BEFORE THE ISSUANCE OF SHARES OF SUCH CLASS OF PREFERRED STOCK.
THE CORPORATION WILL FURNISH, WITHOUT CHARGE, TO ANY STOCKHOLDER MAKING
A WRITTEN REQUEST THEREFOR, A COPY OF THE CORPORATION'S CHARTER AND A
WRITTEN STATEMENT OF THE DESIGNATIONS, RELATIVE RIGHTS, PREFERENCES,
CONVERSION OR OTHER RIGHTS, VOTING POWERS, RESTRICTIONS, LIMITATIONS AS
TO DIVIDENDS AND OTHER DISTRIBUTIONS, QUALIFICATIONS AND TERMS AND
CONDITIONS OF REDEMPTION OF THE STOCK OF EACH CLASS WHICH THE
CORPORATION HAS THE AUTHORITY TO ISSUE AND, IF THE CORPORATION IS
AUTHORIZED TO ISSUE ANY PREFERRED OR SPECIAL CLASS IN SERIES, (i) THE
DIFFERENCES IN THE RELATIVE RIGHTS AND PREFERENCES BETWEEN THE SHARES
OF EACH SERIES TO THE EXTENT SET, AND (ii) THE AUTHORITY OF THE BOARD
OF DIRECTORS TO SET SUCH RIGHTS AND PREFERENCES OF SUBSEQUENT SERIES.
REQUESTS FOR SUCH WRITTEN STATEMENT MAY BE DIRECTED TO THE SECRETARY OF
THE CORPORATION AT ITS PRINCIPAL OFFICE."
RESTRICTION ON OWNERSHIP AND TRANSFER
"THE SHARES OF SERIES A PREFERRED STOCK REPRESENTED BY THIS CERTIFICATE
ARE SUBJECT TO RESTRICTIONS ON BENEFICIAL AND CONSTRUCTIVE OWNERSHIP
AND TRANSFER FOR THE PURPOSE OF THE CORPORATION'S MAINTENANCE OF ITS
STATUS AS A REAL ESTATE INVESTMENT TRUST UNDER THE INTERNAL REVENUE
CODE OF 1986, AS AMENDED (THE "CODE"). SUBJECT TO CERTAIN FURTHER
RESTRICTIONS AND EXCEPT AS EXPRESSLY PROVIDED IN THE ARTICLES
SUPPLEMENTARY FOR THE SERIES A PREFERRED STOCK, (i) NO PERSON MAY
BENEFICIALLY OWN SHARES OF THE CORPORATION'S SERIES A PREFERRED STOCK
IN EXCESS OF 9.8% (BY VALUE OR BY NUMBER OF SHARES, WHICHEVER IS MORE
RESTRICTIVE) OF THE OUTSTANDING SERIES A PREFERRED STOCK OF THE
CORPORATION; (ii) NO PERSON MAY CONSTRUCTIVELY OWN SHARES OF THE
17
<PAGE> 18
CORPORATION'S SERIES A PREFERRED STOCK IN EXCESS OF 9.8% (BY VALUE OR
BY NUMBER OF SHARES, WHICHEVER IS MORE RESTRICTIVE) OF THE OUTSTANDING
SERIES A PREFERRED STOCK OF THE CORPORATION; (iii) NO PERSON MAY
BENEFICIALLY OR CONSTRUCTIVELY OWN SHARES OF THE CORPORATION'S SERIES A
PREFERRED STOCK THAT, TAKING INTO ACCOUNT ANY OTHER CAPITAL STOCK OF
THE CORPORATION BENEFICIALLY OR CONSTRUCTIVELY OWNED BY SUCH PERSON,
WOULD RESULT IN THE CORPORATION BEING "CLOSELY HELD" UNDER SECTION
856(h) OF THE CODE OR OTHERWISE CAUSE THE CORPORATION TO FAIL TO
QUALIFY AS A REIT; AND (iv) NO PERSON MAY TRANSFER SHARES OF SERIES A
PREFERRED STOCK IF SUCH TRANSFER WOULD RESULT IN THE CAPITAL STOCK OF
THE CORPORATION BEING OWNED BY FEWER THAN 100 PERSONS. ANY PERSON WHO
BENEFICIALLY OR CONSTRUCTIVELY OWNS OR ATTEMPTS TO BENEFICIALLY OR
CONSTRUCTIVELY OWN SERIES A PREFERRED STOCK WHICH CAUSES OR WILL CAUSE
A PERSON TO BENEFICIALLY OR CONSTRUCTIVELY OWN SERIES A PREFERRED STOCK
IN EXCESS OF THE ABOVE LIMITATIONS MUST IMMEDIATELY NOTIFY THE
CORPORATION. IF ANY OF THE RESTRICTIONS ON TRANSFER OR OWNERSHIP ARE
VIOLATED, THE SERIES A PREFERRED STOCK REPRESENTED HEREBY WILL BE
AUTOMATICALLY TRANSFERRED TO THE TRUSTEE OF A TRUST FOR THE BENEFIT OF
ONE OR MORE CHARITABLE BENEFICIARIES. IN ADDITION, THE CORPORATION MAY
REDEEM SHARES UPON THE TERMS AND CONDITIONS SPECIFIED BY THE BOARD OF
DIRECTORS IN ITS SOLE DISCRETION IF THE BOARD OF DIRECTORS DETERMINES
THAT OWNERSHIP OR A TRANSFER OR OTHER EVENT MAY VIOLATE THE
RESTRICTIONS DESCRIBED ABOVE. FURTHERMORE, UPON THE OCCURRENCE OF
CERTAIN EVENTS, ATTEMPTED TRANSFERS IN VIOLATION OF THE RESTRICTIONS
DESCRIBED ABOVE MAY BE VOID AB INITIO. ALL TERMS IN THIS LEGEND WHICH
ARE DEFINED IN THE ARTICLES SUPPLEMENTARY FOR THE SERIES A PREFERRED
STOCK SHALL HAVE THE MEANINGS ASCRIBED TO THEM IN SUCH ARTICLES
SUPPLEMENTARY, AS THE SAME MAY BE AMENDED FROM TIME TO TIME, A COPY OF
WHICH, INCLUDING THE RESTRICTIONS ON TRANSFER AND OWNERSHIP, WILL BE
FURNISHED TO EACH HOLDER OF SERIES A PREFERRED STOCK ON REQUEST AND
WITHOUT CHARGE. REQUESTS FOR SUCH A COPY MAY BE DIRECTED TO THE
SECRETARY OF THE CORPORATION AT ITS PRINCIPAL OFFICE."
(k) Severability. If any provision of this Section 7 or any application
of any such provision is determined to be invalid by any Federal or state court
having jurisdiction over the issues, the validity of the remaining provisions
shall not be affected and other applications of such
18
<PAGE> 19
provision shall be affected only to the extent necessary to comply with the
determination of such court.
(l) NYSE. Nothing in this Section 7 shall preclude the settlement of
any transaction entered into through the facilities of the NYSE. The shares of
Series A Preferred Stock that are the subject of such transaction shall continue
to be subject to the provisions of this Section 7 after such settlement.
(m) Applicability of Section 7. The provisions set forth in this
Section 7 shall apply to the Series A Preferred Stock notwithstanding any
contrary provisions of the Series A Preferred Stock provided for elsewhere in
these Articles Supplementary.
(8) CONVERSION. The Series A Preferred Shares are not convertible into
or exchangeable for any other property or securities of the Corporation.
19
<PAGE> 20
FOURTH: The Series A Preferred Shares have been classified and
designated by the Board under the authority contained in the Charter.
FIFTH: These Articles Supplementary have been approved by the Board in
the manner and by the vote required by law.
SIXTH: These Articles Supplementary shall be effective at the time the
State Department of Assessments and Taxation of Maryland accepts these Articles
Supplementary for record.
SEVENTH: The undersigned President of the Corporation acknowledges
these Articles Supplementary to be the act of the Corporation and, as to all
matters or facts required to be verified under oath, the undersigned President
acknowledges that to the best of his knowledge, information and belief, these
matters and facts are true in all material respects and that this statement is
made under the penalties for perjury.
IN WITNESS WHEREOF, the Corporation has caused these Articles
Supplementary to be executed under seal in its name and on its behalf by its
President and attested to by its Secretary on this _____ day of July, 1998.
AMB PROPERTY CORPORATION
By: _______________________________________________
Hamid R. Moghadam
President, Chief Executive Officer and Director
[SEAL]
ATTEST:
________________________
David S. Fries
Secretary
20
<PAGE> 1
EXHIBIT 3.4
Temporary Certificate - Exchangeable for Definitive Engraved Certificate When
Ready for Delivery
[AMB LOGO]
____% SERIES A CUMULATIVE REDEEMABLE ____% SERIES A CUMULATIVE REDEEMABLE
PREFERRED STOCK PREFERRED STOCK
AMB
INCORPORATED UNDER THE LAWS SEE REVERSE FOR IMPORTANT NOTICE
OF THE STATE OF MARYLAND ON TRANSFER RESTRICTIONS
AND OTHER INFORMATION
CUSIP ________
THIS CERTIFIES THAT
IS THE RECORD HOLDER OF
FULLY PAID AND NONASSESSABLE SHARES OF THE ____% SERIES A CUMULATIVE REDEEMABLE
PREFERRED STOCK, $0.01 PAR VALUE PER SHARE, OF
AMB PROPERTY CORPORATION
(the "Corporation") transferable on the books of the Corporation by the holder
hereof in person or by its duly authorized attorney, upon surrender of this
Certificate properly endorsed. This Certificate and the shares represented
hereby are issued and shall be paid subject to all of the provisions of the
charter of the Corporation (the "Charter") and the Bylaws of the Corporation
and any amendments thereto. This Certificate is not valid unless countersigned
and registered by the Transfer Agent and Registrar.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
executed on its behalf by its duly authorized officers.
Date:
___________________________________ __________________________________
SECRETARY PRESIDENT
[AMB SEAL]
TRANSFER AGENT AND REGISTRAR
BY:_________________________
AUTHORIZED SIGNATURE
<PAGE> 2
THE CORPORATION IS AUTHORIZED TO ISSUE CAPITAL STOCK OF MORE THAN ONE CLASS,
CONSISTING OF COMMON STOCK AND ONE OR MORE CLASSES OF PREFERRED STOCK. THE BOARD
OF DIRECTORS IS AUTHORIZED TO DETERMINE THE PREFERENCES, LIMITATIONS AND
RELATIVE RIGHTS OF ANY CLASS OF PREFERRED STOCK BEFORE THE ISSUANCE OF SHARES OF
SUCH CLASS OF PREFERRED STOCK. THE CORPORATION WILL FURNISH, WITHOUT CHARGE, TO
ANY STOCKHOLDER MAKING A WRITTEN REQUEST THEREFOR, A COPY OF THE CORPORATION'S
CHARTER AND A WRITTEN STATEMENT OF THE DESIGNATIONS, RELATIVE RIGHTS,
PREFERENCES, CONVERSION OR OTHER RIGHTS, VOTING POWERS, RESTRICTIONS,
LIMITATIONS AS TO DIVIDENDS AND OTHER DISTRIBUTIONS, QUALIFICATIONS AND TERMS
AND CONDITIONS OF REDEMPTION OF THE STOCK OF EACH CLASS WHICH THE CORPORATION
HAS THE AUTHORITY TO ISSUE AND, IF THE CORPORATION IS AUTHORIZED TO ISSUE ANY
PREFERRED OR SPECIAL CLASS IN SERIES, (i) THE DIFFERENCES IN THE RELATIVE RIGHTS
AND PREFERENCES BETWEEN THE SHARES OF EACH SERIES TO THE EXTENT SET, AND (ii)
THE AUTHORITY OF THE BOARD OF DIRECTORS TO SET SUCH RIGHTS AND PREFERENCES OF
SUBSEQUENT SERIES. REQUESTS FOR SUCH WRITTEN STATEMENT MAY BE DIRECTED TO THE
SECRETARY OF THE CORPORATION AT ITS PRINCIPAL OFFICE.
If this certificate represents shares of preferred stock, the
following restrictions shall apply:
THE SHARES OF SERIES A PREFERRED STOCK REPRESENTED BY THIS CERTIFICATE ARE
SUBJECT TO RESTRICTIONS ON BENEFICIAL AND CONSTRUCTIVE OWNERSHIP AND TRANSFER
FOR THE PURPOSE OF THE CORPORATION'S MAINTENANCE OF ITS STATUS AS A REAL ESTATE
INVESTMENT TRUST UNDER THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE
"CODE"). SUBJECT TO CERTAIN FURTHER RESTRICTIONS AND EXCEPT AS EXPRESSLY
PROVIDED IN THE ARTICLES SUPPLEMENTARY FOR THE SERIES A PREFERRED STOCK, (i) NO
PERSON MAY BENEFICIALLY OWN SHARES OF THE CORPORATION'S SERIES A PREFERRED STOCK
IN EXCESS OF 9.8% (BY VALUE OR BY NUMBER OF SHARES, WHICHEVER IS MORE
RESTRICTIVE) OF THE OUTSTANDING SERIES A PREFERRED STOCK OF THE CORPORATION;
(ii) NO PERSON MAY CONSTRUCTIVELY OWN SHARES OF THE CORPORATION'S SERIES A
PREFERRED STOCK IN EXCESS OF 9.8% (BY VALUE OR BY NUMBER OF SHARES, WHICHEVER IS
MORE RESTRICTIVE) OF THE OUTSTANDING SERIES A PREFERRED STOCK OF THE
CORPORATION; (iii) NO PERSON MAY BENEFICIALLY OR CONSTRUCTIVELY OWNS SHARES OF
THE CORPORATION'S SERIES A PREFERRED STOCK THAT, TAKING INTO ACCOUNT ANY OTHER
CAPITAL STOCK OF THE CORPORATION BENEFICIALLY OR CONSTRUCTIVELY OWNED BY SUCH
PERSON, WOULD RESULT IN THE CORPORATION BEING "CLOSELY HELD" UNDER SECTION
856(h) OF THE CODE OR OTHERWISE CAUSE THE CORPORATION TO FAIL TO QUALIFY AS A
REIT; AND (iv) NO PERSON MAY TRANSFER SHARES OF SERIES A PREFERRED STOCK IF SUCH
TRANSFER WOULD RESULT IN THE CAPITAL STOCK OF THE CORPORATION BEING OWNED BY
FEWER THAN 100 PERSONS. ANY PERSON WHO BENEFICIALLY OR CONSTRUCTIVELY OWNS OR
ATTEMPTS TO BENEFICIALLY OR CONSTRUCTIVELY OWN SERIES A PREFERRED STOCK WHICH
CAUSES OR WILL CAUSE A PERSON TO BENEFICIALLY OR CONSTRUCTIVELY OWN SERIES A
PREFERRED STOCK IN EXCESS OF THE ABOVE LIMITATIONS MUST IMMEDIATELY NOTIFY THE
CORPORATION. IF ANY OF THE RESTRICTIONS ON TRANSFER OR OWNERSHIP ARE VIOLATED,
THE SERIES A PREFERRED STOCK REPRESENTED HEREBY WILL BE AUTOMATICALLY
TRANSFERRED TO THE TRUSTEE OF A TRUST FOR THE BENEFIT OF ONE OR MORE CHARITABLE
BENEFICIARIES. IN ADDITION, THE CORPORATION MAY REDEEM SHARES UPON THE TERMS AND
CONDITIONS SPECIFIED BY THE BOARD OF DIRECTORS IN ITS SOLE DISCRETION IF THE
BOARD OF DIRECTORS DETERMINES THAT OWNERSHIP OR A TRANSFER OR OTHER EVENT MAY
VIOLATE THE RESTRICTIONS DESCRIBED ABOVE. FURTHERMORE, UPON THE OCCURRENCE OF
CERTAIN EVENTS, ATTEMPTED TRANSFERS IN VIOLATION OF THE RESTRICTIONS DESCRIBED
ABOVE MAY BE VOID AB INITIO. ALL TERMS IN THIS LEGEND WHICH ARE DEFINED IN THE
ARTICLES SUPPLEMENTARY FOR THE SERIES A PREFERRED STOCK SHALL HAVE THE MEANINGS
ASCRIBED TO THEM IN SUCH ARTICLES SUPPLEMENTARY, AS THE SAME MAY BE AMENDED FROM
TIME TO TIME, A COPY OF WHICH, INCLUDING THE RESTRICTIONS ON TRANSFER AND
OWNERSHIP, WILL BE FURNISHED TO EACH HOLDER OF SERIES A PREFERRED STOCK ON
REQUEST AND WITHOUT CHARGE. REQUESTS FOR SUCH A COPY MAY BE DIRECTED TO THE
SECRETARY OF THE CORPORATION AT ITS PRINCIPAL OFFICE.
If this certificate represents shares of common stock, the
following restrictions shall apply:
THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
RESTRICTIONS ON BENEFICIAL AND CONSTRUCTIVE OWNERSHIP AND TRANSFER FOR THE
PURPOSE OF THE CORPORATION'S MAINTENANCE OF ITS STATUS AS A REAL ESTATE
INVESTMENT TRUST UNDER THE INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE
"CODE"). SUBJECT TO CERTAIN FURTHER RESTRICTIONS AND EXCEPT AS EXPRESSLY
PROVIDED IN THE CORPORATION'S CHARTER, (i) NO PERSON MAY BENEFICIALLY OR
CONSTRUCTIVELY OWN SHARES OF THE CORPORATION'S COMMON STOCK IN EXCESS OF 9.8%
(BY VALUE OR BY NUMBER OF SHARES, WHICHEVER IS MORE RESTRICTIVE) OF THE
OUTSTANDING COMMON STOCK OF THE CORPORATION; (ii) NO PERSON MAY BENEFICIALLY OR
CONSTRUCTIVELY OWN SHARES OF COMMON STOCK THAT WOULD RESULT IN THE CORPORATION
BEING "CLOSELY HELD" UNDER SECTION 856(h) OF THE CODE OR OTHERWISE CAUSE THE
CORPORATION TO FAIL TO QUALIFY AS A REIT; AND (iii) NO PERSON MAY TRANSFER
SHARES OF COMMON STOCK IF SUCH TRANSFER WOULD RESULT IN THE CAPITAL STOCK OF
THE CORPORATION BEING OWNED BY FEWER THAN 100 PERSONS. ANY PERSON WHO
BENEFICIALLY OR CONSTRUCTIVELY OWNS OR ATTEMPTS TO BENEFICIALLY OR
CONSTRUCTIVELY OWN SHARES OF COMM0N STOCK IN VIOLATION OF THE ABOVE LIMITATIONS
MUST IMMEDIATELY NOTIFY THE CORPORATION. IF ANY OF THE RESTRICTIONS ON TRANSFER
OR OWNERSHIP ARE VIOLATED, THE SHARES OF COMMON STOCK REPRESENTED HEREBY WILL
BE AUTOMATICALLY TRANSFERRED TO THE TRUSTEE OF A TRUST FOR THE BENEFIT OF ONE
OR MORE CHARITABLE BENEFICIARIES. IN ADDITION, THE CORPORATION MAY REDEEM
SHARES UPON THE TERMS AND CONDITIONS SPECIFIED BY THE BOARD OF DIRECTORS IN ITS
SOLE DISCRETION IF THE BOARD OF DIRECTORS DETERMINES THAT OWNERSHIP OR A
TRANSFER OR OTHER EVENT MAY VIOLATE THE RESTRICTIONS DESCRIBED ABOVE.
FURTHERMORE, UPON THE OCCURRENCE OF CERTAIN EVENTS, ATTEMPTED TRANSFERS IN
VIOLATION OF THE RESTRICTIONS DESCRIBED ABOVE MAY BE VOID AB INITIO. ALL TERMS
IN THIS LEGEND THAT ARE DEFINED IN THE CHARTER OF THE CORPORATION SHALL HAVE
THE MEANINGS ASCRIBED TO THEM IN THE CHARTER OF THE CORPORATION, AS THE SAME
MAY BE AMENDED FROM TIME TO TIME, A COPY OF WHICH, INCLUDING THE RESTRICTIONS
ON TRANSFER AND OWNERSHIP, WILL BE FURNISHED TO EACH HOLDER OF SHARES OF COMMON
STOCK ON REQUEST AND WITHOUT CHARGE. REQUESTS FOR SUCH A COPY MAY BE DIRECTED TO
THE SECRETARY OF THE CORPORATION AT ITS PRINCIPAL OFFICE.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -- as tenants in common UNIF GIFT MIN ACT -- Customer
--------------
(Cust)
TEN ENT -- as tenants by the entireties under Uniform Act to Minors
JT TEN -- as joint tenants with the right of --------------
survivorship and not as tenants (Minor)
in common
2
<PAGE> 3
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, _____________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
______________________________________
______________________________________
_______________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
_______________________________________________________________________________
_______________________________________________________________________________
________________________________________________________________________ Shares
of the Series A Preferred Stock represented by the within Certificate, and do
hereby irrevocably constitute and appoint
______________________________________________________________________ Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated _________________________
X ______________________________________
X ______________________________________
NOTICE THE SIGNATURE(S) TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME(S) AS
WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR
ANY CHANGE WHATEVER
Signature(s) guaranteed
By ___________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED
BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN
ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE
GUARANTEE MEDALLION PROGRAM), PURSUANT TO
S.E.C. RULE 17Ad-15
3
<PAGE> 1
[LETTERHEAD OF BALLARD SPAHR ANDREWS & INGERSOLL, LLP]
EXHIBIT 5.1
July 17, 1998
AMB Property Corporation
505 Montgomery Street
San Francisco, California 94111
Re: AMB Property Corporation
Registration Statement on Form S-11
(Registration Statement No. 333-52231)
--------------------------------------
Ladies and Gentlemen:
We have served as Maryland counsel to AMB Property Corporation, a Maryland
corporation (the "Company"), in connection with certain matters of Maryland law
arising out of the registration of 4,600,000 shares of % Series A Cumulative
Redeemable Preferred Stock of the Company, par value $.01 per share (including
600,000 shares of % Series A Cumulative Redeemable Preferred Stock which the
underwriters have the option to purchase to cover over-allotments, if any) (the
"Shares"), covered by the above-referenced Registration Statement (the
"Registration Statement"), filed by the Company with the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended (the
"1933 Act"). Unless otherwise defined herein, capitalized terms used herein
shall have the meanings assigned to them in the Registration Statement.
In connection with our representation of the Company, and as a basis for
the opinion hereinafter set forth, we have examined originals, or copies
certified or otherwise identified to our satisfaction, of the following
documents (hereinafter collectively referred to as the "Documents"):
1. The Registration Statement and the related form of prospectus included
therein in the form in which it was transmitted to the Commission under the 1933
Act;
<PAGE> 2
AMB Property Corporation
July 17, 1998
Page 2
2. The charter of the Company (the "Charter"), certified as of a recent
date by the State Department of Assessments and Taxation of Maryland (the
"SDAT");
3. The Bylaws of the Company, certified as of a recent date by an
officer of the Company;
4. Resolutions adopted by the Board of Directors of the Company (the
"Board") or a duly authorized committee thereof, relating to the sale, issuance
and registration of the Shares, certified as of a recent date by an officer of
the Company (the "Resolutions");
5. A certificate of the SDAT as to the good standing of the Company,
dated as of a recent date;
6. A certificate executed by an officer of the Company, dated as of a
recent date;
7. An unexecuted copy of Articles Supplementary for % Series A
Cumulative Redeemable Preferred Stock of the Company (the "Articles
Supplementary"), provided to us by Latham & Watkins, counsel to the Company; and
8. Such other documents and matters as we have deemed necessary or
appropriate to express the opinion set forth in this letter, subject to the
assumptions, limitations and qualifications stated herein.
In expressing the opinion set forth below, we have assumed, and so far as
is known to us there are no facts inconsistent with, the following:
1. Each of the parties (other than the Company) executing any of the
Documents has duly and validly executed and delivered each of the Documents to
which such party is a signatory, and such party's obligations set forth therein
are legal, valid and binding.
2. Each individual executing any of the Documents on behalf of a party
(other than the Company) is duly authorized to do so.
3. Each individual executing any of the Documents, whether on behalf of
such individual or another person, is legally competent to do so.
<PAGE> 3
AMB Property Corporation
July 17, 1998
Page 3
4. All Documents submitted to us as originals are authentic. The form
and content of the Documents submitted to us as unexecuted drafts do not differ
in any respect relevant to this opinion from the form and content of such
Documents as executed and delivered. All Documents submitted to us as certified
or photostatic copies conform to the original documents. All signatures on all
such Documents are genuine. All public records reviewed or relied upon by us or
on our behalf are true and complete. All statements and information contained
in the Documents are true and complete. There are no modifications of or
amendments to the Documents, and there has been no waiver of any of the
provisions of the Documents, by action or omission of the parties or otherwise.
5. The Articles Supplementary will be duly approved, executed and
properly filed with and accepted for record by the SDAT prior to the sale or
issuance of the Shares.
6. The form of certificate representing a share of % Series A
Cumulative Redeemable Preferred Stock of the Company, when issued, will be in
accordance with the Maryland General Corporation Law.
7. The issuance and certain terms of the Shares to be issued by the
Company from time to time will be approved by the Board of Directors of the
Company, or a duly authorized Committee thereof, in accordance with the
Maryland General Corporation Law (with such approval referred to herein as the
"Corporate Proceedings").
The phrase "known to us" is limited to the actual knowledge, without
independent inquiry, of the lawyers at our firm who have performed legal
services in connection with the issuance of this opinion.
Based upon the foregoing, and subject to the assumptions, limitations and
qualifications stated herein, it is our opinion that:
1. The Company is a corporation duly incorporated and existing under and
by virtue of the laws of the State of Maryland and is in good standing with the
SDAT.
2. Upon completion of the Corporate Proceedings relating to the Shares,
the Shares will be duly authorized and, when and if delivered in accordance
with the Resolutions and any other
<PAGE> 4
AMB Property Corporation
July 17, 1998
Page 4
resolutions of the Board of Directors, or a duly authorized committee of the
Board of Directors authorizing their issuance, will be validly issued, fully
paid and nonassessable.
The foregoing opinion is limited to the substantive laws of the State of
Maryland and we do not express any opinion herein concerning any other law. We
express no opinion as to the applicability or effect of any federal or state
securities laws, including the securities laws of the State of Maryland, or as
to federal or state laws regarding fraudulent transfers. To the extent that any
matter as to which our opinion is expressed herein would be governed by any
jurisdiction other than the State of Maryland, we do not express any opinion on
such matter.
We assume no obligation to supplement this opinion if any applicable law
changes after the date hereof or if we become aware of any fact that might
change the opinion expressed herein after the date hereof.
This opinion is being furnished to you solely for your submission to the
Commission as an exhibit to the Registration Statement.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of the name of our firm in the section
entitled "Legal Matters" in the Registration Statement. In giving this consent,
we do not admit that we are within the category of persons whose consent is
required by Section 7 of the 1933 Act.
Very truly yours,
/s/ BALLARD SPAHR ANDREWS & INGERSOLL, LLP
<PAGE> 1
EXHIBIT 8.1
[Letterhead of Latham & Watkins]
July 17, 1998
AMB Property Corporation
505 Montgomery Street
San Francisco, California 94111
Re: Registration Statement of AMB Property Corporation (File No. 333-58107)
Federal Income Tax Consequences
Ladies and Gentlemen:
We have acted as tax counsel to AMB Property Corporation, a
Maryland corporation (the "Company"), in connection with its sale of up to
4,600,000 shares of Series A Preferred Stock of the Company pursuant to a
registration statement on Form S-11 under the Securities Act of 1933, filed with
the Securities and Exchange Commission on June 30, 1998 (file number 333-58107),
as amended as of the date hereof (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 Company and 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 and AMB Property, L.P. (the "Operating Partnership"),
and their subsidiaries. We have also been furnished with, and with your consent
have relied upon, certain representations made by the Company and the Operating
Partnership with respect to certain factual matters through a certificate of an
officer of the Company (the "Officer's Certificate"). With respect to matters of
Maryland law, we
<PAGE> 2
AMB Property Corporation
July 17, 1998
Page 2
have relied upon the opinion of Ballard Spahr Andrews & Ingersoll, counsel for
the Company, dated July 17, 1998.
In our capacity as tax counsel to the Company, 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 statements in the Registration Statement set forth under
the caption "Federal Income Tax Consequences," to the extent that such
statements constitute matters of law, summaries of legal matters or legal
conclusions, are an accurate summary of the material Federal income tax
consequences of the Offering, and we hereby confirm the opinions set forth
therein.
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 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 representations described
above, including in the Registration Statement or the Officer's Certificate, may
affect the conclusions stated herein. Moreover, the Company's qualification and
taxation as a real estate investment trust depends upon the Company's ability to
meet (through actual annual operating results, distribution levels and diversity
of stock ownership) the various qualification tests imposed under the Code, the
results of which have not been and will not be reviewed by Latham & Watkins.
Accordingly, no assurance can be given that the actual results of the Company's
operation for any one taxable year will satisfy such requirements.
This opinion is rendered to you, and is for your use in
connection with the transactions set forth in the Registration Statement.
<PAGE> 3
AMB Property Corporation
July 17, 1998
Page 3
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 written 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 10.1
- --------------------------------------------------------------------------------
SECOND AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
AMB PROPERTY, L.P.
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE 1. DEFINED TERMS AND RULES OF CONSTRUCTION............................... 2
Section 1.1. Definitions............................................ 2
Section 1.2. Rules of Construction..................................17
ARTICLE 2. ORGANIZATIONAL MATTERS................................................18
Section 2.1. Organization...........................................18
Section 2.2. Name...................................................18
Section 2.3. Resident Agent; Principal Office.......................18
Section 2.4. Power of Attorney......................................18
Section 2.5. Term...................................................20
Section 2.6. Number of Partners.....................................20
ARTICLE 3. PURPOSE...............................................................20
Section 3.1. Purpose and Business...................................20
Section 3.2. Powers.................................................20
Section 3.3. Partnership Only for Purposes Specified................21
Section 3.4. Representations and Warranties by the Parties..........21
Section 3.5. Certain ERISA Matters..................................23
ARTICLE 4. CAPITAL CONTRIBUTIONS.................................................23
Section 4.1. Capital Contributions of the Partners..................23
Section 4.2. Loans by Third Parties.................................23
Section 4.3. Additional Funding and Capital Contributions...........23
Section 4.4. Stock Incentive Plan...................................26
Section 4.5. No Preemptive Rights...................................26
Section 4.6. Other Contribution Provisions..........................26
ARTICLE 5. DISTRIBUTIONS.........................................................27
Section 5.1. Requirement and Characterization of Distributions......27
Section 5.2. Distributions in Kind..................................27
Section 5.3. Distributions Upon Liquidation.........................27
Section 5.4. Distributions to Reflect Issuance of Additional
Partnership Interests................................28
Section 5.5 Character of PLP Distributions.........................28
ARTICLE 6. ALLOCATIONS...........................................................28
Section 6.1. Timing and Amount of Allocations of Net Income and
Net Loss.............................................28
Section 6.2. General Allocations....................................28
Section 6.3. Additional Allocation Provisions.......................30
Section 6.4. Tax Allocations........................................33
ARTICLE 7. MANAGEMENT AND OPERATIONS OF BUSINESS.................................33
Section 7.1. Management.............................................33
Section 7.2. Certificate of Limited Partnership.....................37
Section 7.3. Restrictions on General Partner's Authority............37
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
Section 7.4. Reimbursement of the General Partner..................40
Section 7.5. Outside Activities of the General Partner.............40
Section 7.6. Contracts with Affiliates.............................41
Section 7.7. Indemnification.......................................42
Section 7.8. Liability of the General Partner......................44
Section 7.9. Other Matters Concerning the General Partner..........44
Section 7.10. Title to Partnership Assets..........................45
Section 7.11. Reliance by Third Parties............................45
ARTICLE 8. RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS............................46
Section 8.1. Limitation of Liability...............................46
Section 8.2. Management of Business................................46
Section 8.3. Outside Activities of Limited Partners................46
Section 8.4. Return of Capital.....................................47
Section 8.5. Rights of Limited Partners Relating to the
Partnership.........................................47
Section 8.6. Limited Partner Redemption Rights.....................48
ARTICLE 9. BOOKS, RECORDS, ACCOUNTING AND REPORTS................................50
Section 9.1. Records and Accounting................................50
Section 9.2. Fiscal Year...........................................50
Section 9.3. Reports...............................................50
Section 9.4. Nondisclosure of Certain Information..................51
ARTICLE 10. TAX MATTERS..........................................................51
Section 10.1. Preparation of Tax Returns...........................51
Section 10.2. Tax Elections........................................51
Section 10.3. Tax Matters Partner..................................51
Section 10.4. Organizational Expenses..............................53
Section 10.5. Withholding..........................................53
ARTICLE 11. TRANSFERS AND WITHDRAWALS............................................54
Section 11.1. Transfer.............................................54
Section 11.2. Transfer of General Partner's Partnership Interest...54
Section 11.3. Limited Partners' Rights to Transfer.................56
Section 11.4. Substituted Limited Partners.........................58
Section 11.5. Assignees............................................58
Section 11.6. General Provisions...................................59
ARTICLE 12. ADMISSION OF PARTNERS................................................61
Section 12.1. Admission of Successor General Partner...............61
Section 12.2. Admission of Additional Limited Partners.............61
Section 12.3. Amendment of Agreement and Certificate of Limited
Partnership........................................62
ARTICLE 13. DISSOLUTION AND LIQUIDATION..........................................62
Section 13.1. Dissolution..........................................62
Section 13.2. Winding Up...........................................63
Section 13.3. Compliance with Timing Requirements of Regulations...64
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
Section 13.4. Deemed Distribution and Recontribution...............64
Section 13.5. Rights of Limited Partners...........................65
Section 13.6. Notice of Dissolution................................65
Section 13.7. Cancellation of Certificate of Limited Partnership...65
Section 13.8. Reasonable Time for Winding-Up.......................65
Section 13.9. Waiver of Partition..................................65
ARTICLE 14. AMENDMENT OF PARTNERSHIP AGREEMENT; CONSENTS.........................66
Section 14.1. Amendments...........................................66
Section 14.2. Action by the Partners...............................66
ARTICLE 15. GENERAL PROVISIONS...................................................67
Section 15.1. Addresses and Notice.................................67
Section 15.2. Titles and Captions..................................67
Section 15.3. Pronouns and Plurals.................................67
Section 15.4. Further Action.......................................67
Section 15.5. Binding Effect.......................................67
Section 15.6. Creditors............................................68
Section 15.7. Waiver...............................................68
Section 15.8. Counterparts.........................................68
Section 15.9. Applicable Law.......................................68
Section 15.10. Invalidity of Provisions............................68
Section 15.11. Limitation to Preserve REIT Status..................68
Section 15.12. Entire Agreement....................................69
Section 15.13. No Rights as Stockholders...........................69
ARTICLE 16. SERIES A PREFERRED UNITS.............................................69
Section 16.1. Designation and Number...............................69
Section 16.2. Distributions........................................70
Section 16.3. Liquidation Proceeds.................................71
Section 16.4. Redemption...........................................71
Section 16.5. Voting Rights........................................73
Section 16.6. Transfer Restrictions................................73
Section 16.7. No Conversion Rights.................................73
Section 16.8. No Sinking Fund......................................73
</TABLE>
iii
<PAGE> 5
SECOND AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
AMB PROPERTY, L.P.
THIS SECOND AMENDED AND RESTATED AGREEMENT OF LIMITED
PARTNERSHIP, dated as of July __, 1998, is entered into by and among AMB
Property Corporation, a Maryland corporation (the "Company"), as the General
Partner, and the Persons whose names are set forth on Exhibit A attached hereto,
as the Limited Partners (the "Existing Limited Partners"), together with any
other Persons who become Partners in the Partnership as provided herein.
WHEREAS, the General Partner and the Existing Limited Partners
are parties to that certain Amended and Restated Agreement of Limited
Partnership, dated November 21, 1997, as amended;
WHEREAS, in connection with the public offering and sale of
Series A Cumulative Redeemable Preferred Stock, par value $.01 per share (the
"Series A Preferred Shares") of the General Partner, the General Partner deems
it to be in the best interest of the Partnership to authorize for issuance
Series A Cumulative Redeemable Preferred Units of the Partnership (the "Series A
Preferred Units");
WHEREAS, pursuant to Section 4.3.C of the Partnership
Agreement, the General Partner may, in its sole and absolute discretion subject
to Delaware law, in connection with any Capital Contribution, issue additional
Partnership Interests in one or more classes, or one or more series of any such
classes, with such designations, preferences and relative, participating,
optional or other special rights, powers, and duties, including rights, powers,
and duties senior to then existing Limited Partnership Interests; and
WHEREAS, on the date hereof, the General Partner, in
connection with the public offering of its Series A Preferred Stock, has made a
Capital Contribution of cash to the Partnership in exchange for which the
General Partner shall receive Series A Preferred Units in the Partnership, in
each case in the amounts set forth in Exhibit A, with the rights, preferences,
exchange and other rights, voting powers and restrictions, limitations as to
distributions, qualifications and terms and conditions as set forth herein.
NOW, THEREFORE, for good and adequate consideration, the
receipt of which is hereby acknowledged, the parties hereto agree as follows:
<PAGE> 6
ARTICLE 1.
DEFINED TERMS AND RULES OF CONSTRUCTION
Section 1.1. Definitions
The following definitions shall be for all purposes, unless
otherwise clearly indicated to the contrary, applied to the terms used in this
Agreement.
"Act" means the Delaware Revised Uniform Limited Partnership
Act, as it may be amended from time to time, and any successor to such statute.
"Additional Funds" shall have the meaning set forth in Section
4.3.A.
"Additional Limited Partner" means a Person admitted to the
Partnership as a Limited Partner pursuant to Section 12.2 and who is shown as
such on the books and records of the Partnership.
"Adjusted Capital Account Deficit" means, with respect to any
Partner, the deficit balance, if any, in such Partner's Capital Account as of
the end of the relevant fiscal year, after giving effect to the following
adjustments:
(i) decrease such deficit by any amounts which such
Partner is obligated to restore pursuant to this
Agreement or is deemed to be obligated to restore
pursuant to Regulations Section 1.704-1(b)(2)(ii)(c)
or the penultimate sentence of each of Regulations
Sections 1.704-2(i)(5) and 1.704-2(g); and
(ii) increase such deficit by the items described in
Regulations Section 1.704-1(b)(2)(ii)(d)(4), (5) and
(6).
The foregoing definition of Adjusted Capital Account Deficit
is intended to comply with the provisions of Regulations Section
1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith.
"Adjustment Date" shall have the meaning set forth in Section
4.3.E.
"Affiliate" means, with respect to any Person, any Person
directly or indirectly controlling, controlled by or under common control with
such Person.
"Agreed Value" means (i) in the case of any Contributed
Property set forth in Exhibit A and as of the time of its contribution to the
Partnership, the Agreed Value of such property as set forth in Exhibit A; (ii)
in the case of any Contributed Property not set forth in Exhibit A and as of the
time of its contribution to the Partnership, the fair market value of such
property or other consideration as determined by the General Partner, reduced by
any liabilities either assumed by the Partnership upon such contribution or to
which such property is subject when contributed; and (iii) in the case of any
property distributed to a Partner by the Partnership, the fair market value of
such property as determined by the General Partner at the time such property is
distributed, reduced by any indebtedness either assumed by such Partner upon
such
2
<PAGE> 7
distribution or to which such property is subject at the time of the
distribution as determined under Section 752 of the Code and the Regulations
thereunder.
"Agreement" means this Second Amended and Restated Agreement
of Limited Partnership, as it may be amended, modified, supplemented or restated
from time to time.
"Appraisal" means with respect to any assets, the opinion of
an independent third party experienced in the valuation of similar assets,
selected by the General Partner in good faith; such opinion may be in the form
of an opinion by such independent third party that the value for such asset as
set by the General Partner is fair, from a financial point of view, to the
Partnership.
"Assignee" means a Person to whom one or more Partnership
Units have been transferred in a manner permitted under this Agreement, but who
has not become a Substituted Limited Partner, and who has the rights set forth
in Section 11.5.
"Available Cash" means, with respect to any period for which
such calculation is being made, (i) the sum of:
(a) the Partnership's Net Income or Net Loss (as the
case may be) for such period,
(b) Depreciation and all other noncash charges
deducted in determining Net Income or Net Loss for such
period,
(c) the amount of any reduction in reserves of the
Partnership referred to in clause (ii)(f) below (including,
without limitation, reductions resulting because the General
Partner determines such amounts are no longer necessary),
(d) the excess of the net proceeds from the sale,
exchange, disposition, or refinancing of Partnership property
for such period over the gain (or loss, as the case may be)
recognized from any such sale, exchange, disposition, or
refinancing during such period (excluding Terminating Capital
Transactions), and
(e) all other cash received by the Partnership for
such period that was not included in determining Net Income or
Net Loss for such period;
(ii) less the sum of:
(a) all principal debt payments made during such
period by the Partnership,
(b) capital expenditures made by the Partnership
during such period,
(c) investments in any entity (including loans made
thereto) to the extent that such investments are not otherwise
described in clauses (ii)(a) or (b),
(d) all other expenditures and payments not deducted
in determining Net Income or Net Loss for such period,
3
<PAGE> 8
(e) any amount included in determining Net Income or
Net Loss for such period that was not received by the
Partnership during such period,
(f) the amount of any increase in reserves
established during such period which the General Partner
determines are necessary or appropriate in its sole and
absolute discretion, and
(g) the amount of any working capital accounts and
other cash or similar balances which the General Partner
determines to be necessary or appropriate in its sole and
absolute discretion.
Notwithstanding the foregoing, Available Cash shall not
include any cash received or reductions in reserves, or take into account any
disbursements made or reserves established, after commencement of the
dissolution and liquidation of the Partnership.
"Board of Directors" means the Board of Directors of the
General Partner.
"Business Day" means each day, other than a Saturday or a
Sunday, which is not a day on which banking institutions in Los Angeles,
California or New York, New York are authorized or required by law, regulation
or executive order to close.
"Capital Account" means, with respect to any Partner, the
Capital Account maintained for such Partner in accordance with the following
provisions:
(i) To each Partner's Capital Account there shall be added
such Partner's Capital Contributions, such Partner's share of Net Income and any
items in the nature of income or gain which are specially allocated pursuant to
Section 6.3, and the amount of any Partnership liabilities assumed by such
Partner or which are secured by any property distributed to such Partner.
(ii) From each Partner's Capital Account there shall be
subtracted the amount of cash and the Gross Asset Value of any property
distributed to such Partner pursuant to any provision of this Agreement, such
Partner's distributive share of Net Losses and any items in the nature of
expenses or losses which are specially allocated pursuant to Section 6.3 hereof,
and the amount of any liabilities of such Partner assumed by the Partnership or
which are secured by any property contributed by such Partner to the
Partnership.
(iii) In the event any interest in the Partnership is
transferred in accordance with the terms of this Agreement, the transferee shall
succeed to the Capital Account of the transferor to the extent it relates to the
transferred interest.
(iv) In determining the amount of any liability for purposes
of subsections (i) and (ii) hereof, there shall be taken into account Code
Section 752(c) and any other applicable provisions of the Code and Regulations.
(v) The foregoing provisions and the other provisions of this
Agreement relating to the maintenance of Capital Accounts are intended to comply
with Regulations Sections 1.704-1(b) and 1.704-2, and shall be interpreted and
applied in a manner consistent with
4
<PAGE> 9
such Regulations. In the event the General Partner shall determine that it is
prudent to modify the manner in which the Capital Accounts, or any debits or
credits thereto (including, without limitation, debits or credits relating to
liabilities which are secured by contributed or distributed property or which
are assumed by the Partnership, the General Partner, or the Limited Partners)
are computed in order to comply with such Regulations, the General Partner may
make such modification; provided that, it is not likely to have a material
effect on the amounts distributable to any Person pursuant to Article 13 of this
Agreement upon the dissolution of the Partnership. The General Partner also
shall (a) make any adjustments that are necessary or appropriate to maintain
equality between the Capital Accounts of the Partners and the amount of
Partnership capital reflected on the Partnership's balance sheet, as computed
for book purposes, in accordance with Regulations Section 1.704-1(b)(2)(iv)(q)
and (b) make any appropriate modifications in the event unanticipated events
might otherwise cause this Agreement not to comply with Regulations Section
1.704-1(b) or Section 1.704-2.
"Capital Contribution" means, with respect to any Partner, the
amount of money and the initial Gross Asset Value of any property (other than
money) contributed to the Partnership by such Partner.
"Cash Amount" means, with respect to any Partnership Units
subject to a Redemption, an amount of cash equal to the Deemed Partnership
Interest Value attributable to such Partnership Units.
"Certificate" means the Certificate of Limited Partnership
relating to the Partnership filed in the office of the Secretary of State of
Delaware, as amended from time to time in accordance with the terms hereof and
the Act.
"Charter" means the Company's Articles of Incorporation as of
November 24, 1997, as amended by the Articles Supplementary filed with the
Maryland Department of Assessments and Taxation on July __, 1998, and as further
amended or restated from time to time.
"Code" means the Internal Revenue Code of 1986, as amended
from time to time or any successor statute thereto, as interpreted by the
applicable regulations thereunder. Any reference herein to a specific section or
sections of the Code shall be deemed to include a reference to any corresponding
provision of future law.
"Common Unit" means each Partnership Unit that is not entitled
to any preference with respect to any other Partnership Unit as to distribution
or voluntary or involuntary liquidation, dissolution or winding up of the
Partnership.
"Consent" means the consent to, approval of, or vote on a
proposed action by a Partner given in accordance with Article 14 hereof.
"Consent of the Limited Partners" means the Consent of a
Majority in Interest of the Limited Partners which Consent shall be obtained
prior to the taking of any action for which it is required by this Agreement and
may be given or withheld by a Majority in Interest of the Limited Partners,
unless otherwise expressly provided herein, in their sole and absolute
discretion.
5
<PAGE> 10
"Consent of the Partners" means the Consent of Partners
holding Percentage Interests that in the aggregate are equal to or greater than
a majority of the aggregate Percentage Interests of all Partners which Consent
shall be obtained prior to the taking of any action for which it is required by
this Agreement and may be given or withheld by such Partners, in their sole and
absolute discretion.
"Constructively Own" means ownership under the constructive
ownership rules described in Exhibit C.
"Contributed Property" means each property or other asset, in
such form as may be permitted by the Act, but excluding cash, contributed or
deemed contributed to the Partnership (or, to the extent provided in applicable
regulations, deemed contributed by the Partnership on termination and
reconstitution thereof pursuant to Section 708 of the Code).
"Debt" means, as to any Person, as of any date of
determination: (i) all indebtedness of such Person for borrowed money or for the
deferred purchase price of property or services; (ii) all amounts owed by such
Person to banks or other Persons in respect of reimbursement obligations under
letters of credit, surety bonds and other similar instruments guaranteeing
payment or other performance of obligations by such Person; (iii) all
indebtedness for borrowed money or for the deferred purchase price of property
or services secured by any lien on any property owned by such Person, to the
extent attributable to such Person's interest in such property, even though such
Person has not assumed or become liable for the payment thereof; and (iv) lease
obligations of such Person which, in accordance with generally accepted
accounting principles, should be capitalized.
"Deemed Partnership Interest Value" means, as of any date with
respect to any class of Partnership Interests, the Deemed Value of the
Partnership Interests of such class multiplied by the applicable Partner's
Percentage Interest of such class.
"Deemed Value of the Partnership Interests" means, as of any
date with respect to any class or series of Partnership Interests, (i) the total
number of Partnership Units of the General Partner in such class or series of
Partnership Interests (as provided for in Sections 4.1 and 4.3.C) issued and
outstanding as of the close of business on such date multiplied by the Fair
Market Value determined as of such date of a share of capital stock of the
General Partner which corresponds to such class or series of Partnership
Interests; (ii) divided by the Percentage Interest of the General Partner in
such class or series of Partnership Interests on such date; provided, that if no
outstanding shares of capital stock of the General Partner correspond to a class
of series of Partnership Interests, the Deemed Value of the Partnership
Interests with respect to such class or series shall be equal to an amount
reasonably determined by the General Partner.
"Depreciation" means, for each fiscal year or other period, an
amount equal to the depreciation, amortization or other cost recovery deduction
allowable with respect to an asset for such year or other period, except that if
the Gross Asset Value of an asset differs from its adjusted basis for Federal
income tax purposes at the beginning of such year or other period, Depreciation
shall be an amount which bears the same ratio to such beginning Gross Asset
Value as the Federal income tax depreciation, amortization or other cost
recovery deduction for such year or other period bears to such beginning
adjusted tax basis; provided, however, that if the
6
<PAGE> 11
Federal income tax depreciation, amortization or other cost recovery deduction
for such year is zero, Depreciation shall be determined with reference to such
beginning Gross Asset Value using any reasonable method selected by the General
Partner.
"Effective Date" means the date of closing of the initial
public offering of REIT Shares upon which date contributions set forth on
Exhibit A shall become effective.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"Escrow Agreements" means one or more of the agreements
between the Company, the Partnership and one or more of the Performance
Investors, dated as of the closing of the date of the initial public offering of
the common stock of the General Partner, pursuant to which the Performance
Investors have deposited their Performance Shares in escrow for possible
transfer to the General Partner or the Partnership (as applicable).
"Excess Performance Capital" means, with respect to a
Performance Partner, an amount equal to the number of Partnership Units held by
such Performance Partner, multiplied by the excess of (i) the Capital Account
per Partnership Unit for such Performance Partner; over (ii) the Capital Account
per Partnership Unit for a Limited Partner which is not a PLP or a Performance
Partner. For purposes of (ii) above, it shall be assumed that the Limited
Partner has no special arrangements with the Partnership, other than as set
forth in this Agreement, which would cause its Capital Account per Partnership
Unit to be different from the Capital Account per Partnership Unit of other
Limited Partners who are not Performance Partners or PLPs. If the Partner
described in (ii) above does not exist, the amount used for purposes of (ii)
shall be the projected Capital Account balance per Partnership Unit for such
Partner, determined in the reasonable discretion of the General Partner.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Securities and Exchange Commission
promulgated thereunder.
"Fair Market Value" means, with respect to any share of
capital stock of the General Partner, the average of the daily market price for
the ten (10) consecutive trading days immediately preceding the date with
respect to which "Fair Market Value" must be determined hereunder or, if such
date is not a Business Day, the immediately preceding Business Day. The market
price for each such trading day shall be (i) if such shares are listed or
admitted to trading on any securities exchange or the Nasdaq National Market,
the closing price, regular way, on such day, or if no such sale takes place on
such day, the average of the closing bid and asked prices on such day, (ii) if
such shares are not listed or admitted to trading on any securities exchange or
the Nasdaq National Market, the last reported sale price on such day or, if no
sale takes place on such day, the average of the closing bid and asked prices on
such day, as reported by a reliable quotation source designated by the General
Partner or (iii) if such shares are not listed or admitted to trading on any
securities exchange or the Nasdaq National Market and no such last reported sale
price or closing bid and asked prices are available, the average of the reported
high bid and low asked prices on such day, as reported by a reliable quotation
source designated by the General Partner, or if there shall be no bid and asked
prices on such day, the average of the high bid and low asked prices, as so
reported, on the most recent day (not more
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<PAGE> 12
than ten (10) days prior to the date in question) for which prices have been so
reported; provided, that if there are no bid and asked prices reported during
the ten (10) days prior to the date in question, the Fair Market Value of such
shares shall be determined by the General Partner acting in good faith on the
basis of such quotations and other information as it considers, in its
reasonable judgment, appropriate. In the event the REIT Shares Amount for such
shares includes rights that a holder of such shares would be entitled to
receive, then the Fair Market Value of such rights shall be determined by the
General Partner acting in good faith on the basis of such quotations and other
information as it considers, in its reasonable judgment, appropriate; provided,
that in connection with determining the Deemed Value of the Partnership
Interests for purposes of determining the number of additional Partnership Units
issuable upon a Capital Contribution funded by an underwritten public offering
of shares of capital stock of the General Partner, the Fair Market Value of such
shares shall be the public offering price per share of such class of capital
stock sold. Notwithstanding the foregoing, the General Partner in its reasonable
discretion may use a different "Fair Market Value" for purposes of making the
determinations under subparagraph (ii) of the definition of "Gross Asset Value"
and Section 4.3.E. in connection with the contribution of Property to the
Partnership by a third-party, provided such value shall be based upon the value
per REIT Share (or per Partnership Unit) agreed upon by the General Partner and
such third-party for purposes of such contribution.
"Funding Debt" means the incurrence of any Debt by or on
behalf of the General Partner for the purpose of providing funds to the
Partnership.
"General Partner" means the Company or its successors as
general partner of the Partnership.
"General Partner Interest" means a Partnership Interest held
by the General Partner. A General Partner Interest may be expressed as a number
of Partnership Units.
"General Partner Loan" shall have the meaning set forth in
Section 4.3.B.
"General Partner Payment" shall have the meaning set forth in
Section 15.11.
"Gross Asset Value" means, with respect to any asset, the
asset's adjusted basis for Federal income tax purposes, except as follows:
(i) The initial Gross Asset Value of any asset contributed by
a Partner to the Partnership shall be the gross fair market value of such asset,
as determined by the contributing Partner and the General Partner (as set forth
on Exhibit A attached hereto, as such Exhibit may be amended from time to time);
provided, that if the contributing Partner is the General Partner then, except
with respect to the General Partner's initial Capital Contribution which shall
be determined as set forth on Exhibit A, or capital contributions of cash, REIT
Shares or other shares of capital stock of the General Partner, the
determination of the fair market value of the contributed asset shall be
determined by (a) the price paid by the General Partner if the asset is acquired
by the General Partner contemporaneously with its contribution to the
Partnership or (b) by Appraisal if otherwise acquired by the General Partner.
(ii) Immediately prior to the times listed below, the Gross
Asset Values of all Partnership assets shall be adjusted to equal their
respective gross fair market values, as
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<PAGE> 13
determined by the General Partner using such reasonable method of valuation as
it may adopt; provided, however, that for such purpose, the net value of all of
the Partnership assets, in the aggregate, shall be equal to the Deemed Value of
the Partnership Interests of all classes of Partnership Interests then
outstanding, regardless of the method of valuation adopted by the General
Partner:
(a) the acquisition of an additional interest in the
Partnership by a new or existing Partner in exchange
for more than a de minimis Capital Contribution, if
the General Partner reasonably determines that such
adjustment is necessary or appropriate to reflect the
relative economic interests of the Partners in the
Partnership;
(b) the distribution by the Partnership to a Partner of
more than a de minimis amount of Partnership property
as consideration for an interest in the Partnership
if the General Partner reasonably determines that
such adjustment is necessary or appropriate to
reflect the relative economic interests of the
Partners in the Partnership; the Partners agree that
such an adjustment is appropriate when the
Partnership effects a Redemption;
(c) the liquidation of the Partnership within the meaning
of Regulations Section 1.704-1(b)(2)(ii)(g);
(d) the issuance of Performance Units; and
(e) at such other times as the General Partner shall
reasonably determine necessary or advisable in order
to comply with Regulations Sections 1.704-1(b) and
1.704-2.
(iii) The Gross Asset Value of any Partnership asset
distributed to a Partner shall be the gross fair market value of such asset on
the date of distribution as determined by the distributee and the General
Partner; provided, that if the distributee is the General Partner, or if the
distributee and the General Partner cannot agree on such a determination, by
Appraisal.
(iv) The Gross Asset Values of Partnership assets shall be
increased (or decreased) to reflect any adjustments to the adjusted basis of
such assets pursuant to Code Section 734(b) or Code Section 743(b), but only to
the extent that such adjustments are taken into account in determining Capital
Accounts pursuant to Regulations Section 1.704-1(b)(2)(iv)(m); provided,
however, that Gross Asset Values shall not be adjusted pursuant to this
subparagraph (iv) to the extent that the General Partner reasonably determines
that an adjustment pursuant to subparagraph (ii) is necessary or appropriate in
connection with a transaction that would otherwise result in an adjustment
pursuant to this subparagraph (iv).
(v) If the Gross Asset Value of a Partnership asset has been
determined or adjusted pursuant to subparagraph (i), (ii) or (iv), such Gross
Asset Value shall thereafter be adjusted by the Depreciation taken into account
with respect to such asset for purposes of computing Net Income and Net Losses.
"Holder" means either the Partner or Assignee owning a
Partnership Unit.
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<PAGE> 14
"Immediate Family" means, with respect to any natural Person,
such natural Person's estate or heirs or current spouse or former spouse,
parents, parents-in-law, children, siblings and grandchildren and any trust or
estate, all of the beneficiaries of which consist of such Person or such
Person's spouse, former spouse, parents, parents-in-law, children, siblings or
grandchildren.
"IMS" means AMB Investment Management, Inc., a Maryland
corporation, and any of its direct or indirect subsidiaries.
"Incapacity" or "Incapacitated" means: (i) as to any
individual Partner, death, total physical disability or entry by a court of
competent jurisdiction adjudicating him or her incompetent to manage his or her
Person or his or her estate; (ii) as to any corporation which is a Partner, the
filing of a certificate of dissolution, or its equivalent, for the corporation
or the revocation of its charter; (iii) as to any partnership which is a
Partner, the dissolution and commencement of winding up of the partnership; (iv)
as to any estate which is a Partner, the distribution by the fiduciary of the
estate's entire interest in the Partnership; (v) as to any trustee of a trust
which is a Partner, the termination of the trust (but not the substitution of a
new trustee); or (vi) as to any Partner, the bankruptcy of such Partner. For
purposes of this definition, bankruptcy of a Partner shall be deemed to have
occurred when (a) the Partner commences a voluntary proceeding seeking
liquidation, reorganization or other relief under any bankruptcy, insolvency or
other similar law now or hereafter in effect, (b) the Partner is adjudged as
bankrupt or insolvent, or a final and nonappealable order for relief under any
bankruptcy, insolvency or similar law now or hereafter in effect has been
entered against the Partner, (c) the Partner executes and delivers a general
assignment for the benefit of the Partner's creditors, (d) the Partner files an
answer or other pleading admitting or failing to contest the material
allegations of a petition filed against the Partner in any proceeding of the
nature described in clause (b) above, (e) the Partner seeks, consents to or
acquiesces in the appointment of a trustee, receiver or liquidator for the
Partner or for all or any substantial part of the Partner's properties, (f) any
proceeding seeking liquidation, reorganization or other relief under any
bankruptcy, insolvency or other similar law now or hereafter in effect has not
been dismissed within one hundred and twenty (120) days after the commencement
thereof, (g) the appointment without the Partner's consent or acquiescence of a
trustee, receiver or liquidator has not been vacated or stayed within ninety
(90) days of such appointment or (h) an appointment referred to in clause (g) is
not vacated within ninety (90) days after the expiration of any such stay.
"Indemnitee" means (i) any Person subject to a claim or demand
or made or threatened to be made a party to, or involved or threatened to be
involved in, an action, suit or proceeding by reason of his or her status as (a)
the General Partner or (b) a director, officer, employee or agent of the
Partnership or the General Partner and (ii) such other Persons (including
Affiliates of the General Partner or the Partnership) as the General Partner may
designate from time to time, in its sole and absolute discretion.
"IRS" means the Internal Revenue Service, which administers
the internal revenue laws of the United States.
"Junior Units" shall have the meaning set forth in Section
16.2.D hereof.
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<PAGE> 15
"Limited Partner" means any Person (including any PLP) named as a Limited
Partner in Exhibit A attached hereto, as such Exhibit may be amended from time
to time, any Substituted Limited Partner or Additional Limited Partner, in such
Person's capacity as a Limited Partner in the Partnership.
"Limited Partnership Interest" means a Partnership Interest of
a Limited Partner representing a fractional part of the Partnership Interests of
all Limited Partners and includes any and all benefits to which the holder of
such a Partnership Interest may be entitled as provided in this Agreement,
together with all obligations of such Person to comply with the terms and
provisions of this Agreement. A Limited Partnership Interest may be expressed as
a number of Partnership Units.
"Liquidating Events" shall have the meaning set forth in
Section 13.1.
"Liquidator" shall have the meaning set forth in Section
13.2.A.
"Majority in Interest of the Limited Partners" means Limited
Partners (other than the General Partner, any Limited Partner 50% or more of
whose equity is owned, directly or indirectly, by the General Partner) holding
Percentage Interests that in the aggregate are greater than fifty percent (50%)
of the aggregate Percentage Interests of all Limited Partners (other than the
General Partner, any Limited Partner 50% or more of whose equity is owned,
directly or indirectly, by the General Partner).
"Majority in Interest of Partners" means Partners holding
Percentage Interests that are greater than fifty percent (50%) of the aggregate
Percentage Interests of all Partners.
"Net Income" or "Net Loss" means for each fiscal year of the
Partnership, an amount equal to the Partnership's taxable income or loss for
such fiscal year, determined in accordance with Code Section 703(a) (for this
purpose, all items of income, gain, loss or deduction required to be stated
separately pursuant to Code Section 703(a)(1) shall be included in taxable
income or loss), with the following adjustments:
(i) Any income of the Partnership that is exempt from Federal
income tax and not otherwise taken into account in computing Net Income or Net
Loss pursuant to this definition of Net Income or Net Loss shall be added to
such taxable income or loss;
(ii) Any expenditures of the Partnership described in Code
Section 705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures
pursuant to Regulations Section 1.704-1(b)(2)(iv)(i), and not otherwise taken
into account in computing Net Income or Net Loss pursuant to this definition of
Net Income or Net Loss shall be subtracted from such taxable income or loss;
(iii) In the event the Gross Asset Value of any Partnership
asset is adjusted pursuant to subparagraph (iii) of the definition of Gross
Asset Value, the amount of such adjustment shall be taken into account as gain
or loss from the disposition of such asset for purposes of computing Net Income
or Net Loss; in the event the Gross Asset Value of any Partnership asset is
adjusted pursuant to subparagraph (ii) of the definition of Gross Asset Value,
the amount of such adjustment shall be taken into account as gain or loss from
the disposition of
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<PAGE> 16
all Partnership assets in a Terminating Capital Transaction for purposes of
computing Net Income or Net Loss as set forth in Section 6.2.B.3, subject to
Section 6.3; any Net Loss arising under this subparagraph (iii) shall be
allocated to the Partners as set forth in Section 6.2.A, subject to Section 6.3;
(iv) Gain or loss resulting from any disposition of property
with respect to which gain or loss is recognized for Federal income tax purposes
shall be computed by reference to the Gross Asset Value of the property disposed
of, notwithstanding that the adjusted tax basis of such property differs from
its Gross Asset Value;
(v) In lieu of the depreciation, amortization, and other cost
recovery deductions taken into account in computing such taxable income or loss,
there shall be taken into account Depreciation for such fiscal year;
(vi) To the extent an adjustment to the adjusted tax basis of
any Partnership asset pursuant to Code Section 734(b) or Code Section 743(b) is
required pursuant to Regulations Section 1.704-1(b)(2)(iv)(m)(4) to be taken
into account in determining Capital Accounts as a result of a distribution other
than in liquidation of a Partner's interest in the Partnership, the amount of
such adjustment shall be treated as an item of gain (if the adjustment increases
the basis of the asset) or loss (if the adjustment decreases the basis of the
asset) from the disposition of the asset and shall be taken into account for
purposes of computing Net Income or Net Loss; and
(vii) Notwithstanding any other provision of this definition
of Net Income or Net Loss, any items which are specially allocated pursuant to
Section 6.3 shall not be taken into account in computing Net Income or Net Loss.
The amounts of the items of Partnership income, gain, loss, or deduction
available to be specially allocated pursuant to Section 6.3 shall be determined
by applying rules analogous to those set forth in this definition of Net Income
or Net Loss.
"New Securities" means (i) any rights, options, warrants or
convertible or exchangeable securities having the right to subscribe for or
purchase REIT Shares or other shares of capital stock of the General Partner,
excluding grants under any Stock Incentive Plan or (ii) any Debt issued by the
General Partner that provides any of the rights described in clause (i).
"Nonrecourse Deductions" shall have the meaning set forth in
Regulations Section 1.704-2(b)(1), and the amount of Nonrecourse Deductions for
a Partnership Year shall be determined in accordance with the rules of
Regulations Section 1.704-2(c).
"Nonrecourse Liability" shall have the meaning set forth in
Regulations Section 1.752-1(a)(2).
"Notice of Redemption" means the Notice of Redemption
substantially in the form of Exhibit B to this Agreement.
"Offering Costs" means the aggregate amounts expended by the
General Partner which related to the organization of the Partnership and the
General Partner, or to the initial public offering or subsequent offerings of
REIT Shares or other shares of capital stock of the
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<PAGE> 17
General Partner, the net proceeds of which were used to make a contribution to
the Partnership, in each case to the extent such expenses of the General Partner
were not reimbursed by the Partnership.
"Parity Preferred Unit" means any class or series of
Partnership Interests of the Partnership now or hereafter authorized, issued or
outstanding expressly designated by the Partnership to rank on a parity with the
Series A Preferred Units with respect to distributions or rights upon voluntary
or involuntary liquidation, winding up or dissolution of the Partnership, or
both, as the context may require.
"Partner" means a General Partner or a Limited Partner, and
"Partners" means the General Partner and the Limited Partners.
"Partner Minimum Gain" means an amount, with respect to each
Partner Nonrecourse Debt, equal to the Partnership Minimum Gain that would
result if such Partner Nonrecourse Debt were treated as a Nonrecourse Liability,
determined in accordance with Regulations Section 1.704-2(i)(3).
"Partner Nonrecourse Debt" shall have the meaning set forth in
Regulations Section 1.704-2(b)(4).
"Partner Nonrecourse Deductions" shall have the meaning set
forth in Regulations Section 1.704-2(i)(2), and the amount of Partner
Nonrecourse Deductions with respect to a Partner Nonrecourse Debt for a
Partnership Year shall be determined in accordance with the rules of Regulations
Section 1.704-2(i)(2).
"Partnership" means the limited partnership formed under the
Act and pursuant to this Agreement, and any successor thereto.
"Partnership Interest" means, an ownership interest in the
Partnership of either a Limited Partner or the General Partner and includes any
and all benefits to which the holder of such a Partnership Interest may be
entitled as provided in this Agreement, together with all obligations of such
Person to comply with the terms and provisions of this Agreement. There may be
one or more classes of Partnership Interests as provided in Section 4.3. A
Partnership Interest may be expressed as a number of Partnership Units. Unless
otherwise expressly provided for by the General Partner at the time of the
original issuance of any Partnership Interests, all Partnership Interests
(whether of a Limited Partner or a General Partner) shall be of the same class.
The Partnership Interest represented by the Common Units (including Performance
Units) and the Series A Preferred Units are the only Partnership Interests and
are separate classes of Partnership Interest for all purposes of this Agreement.
"Partnership Minimum Gain" shall have the meaning set forth in
Regulations Section 1.704-2(b)(2), and the amount of Partnership Minimum Gain,
as well as any net increase or decrease in Partnership Minimum Gain, for a
Partnership Year shall be determined in accordance with the rules of Regulations
Section 1.704-2(d).
"Partnership Record Date" means the record date established by
the General Partner for the distribution of Available Cash with respect to
Common Units pursuant to Section
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<PAGE> 18
5.1 which record date shall be the same as the record date established by the
General Partner for a distribution to its stockholders of some or all of its
portion of such distribution.
"Partnership Unit" means, with respect to any class of
Partnership Interest, a fractional, undivided share of such class of Partnership
Interest issued pursuant to Sections 4.1 and 4.3 (including Performance Units).
The ownership of Partnership Units may be evidenced by a certificate for units
substantially in the form of Exhibit D-1 or D-2 hereto or as the General Partner
may determine with respect to any class of Partnership Units issued from time to
time under Sections 4.1 and 4.3.
"Partnership Year" means the fiscal year of the Partnership,
which shall be the calendar year.
"Percentage Interest" means, as to a Partner holding a class
of Partnership Interests, its interest in the Partnership as determined by
dividing the Partnership Units of such class owned by such Partner by the total
number of Partnership Units of such class then outstanding as specified in
Exhibit A attached hereto, as such Exhibit may be amended from time to time. If
the Partnership issues more than one class of Partnership Interest, the interest
in the Partnership among the classes of Partnership Interests shall be
determined as set forth in the amendment to the Partnership Agreement setting
forth the rights and privileges of such additional classes of Partnership
Interest, if any, as contemplated by Section 4.3.C.
"Performance Amount" means, with respect to a PLP on a
specified date, (i) in the case of a Redemption, a number of Performance Units
equal to (a) the amount of such PLP's Capital Account balance immediately
following the revaluation of the Partnership's assets as of such date pursuant
to the definitions of "Gross Asset Value" (paragraph (ii) therein) and "Net
Income" (paragraph (iii) therein), divided by (b) the Fair Market Value of a
REIT Share; and (ii) in the case of an exchange of Performance Units for the
REIT Shares Amount, the same number of Performance Units as determined pursuant
to subparagraph (i) above.
"Performance Investors" means shareholders of the General
Partner and Limited Partners who are parties to one or more of the Escrow
Agreements.
"Performance Partners" means Partners which had the number of
their Partnership Units reduced pursuant to Section 4.3.F.
"Performance Shares" means a portion of the REIT Shares or
Partnership Units issued to the Performance Investors which were escrowed
pursuant to the Escrow Agreements for possible transfer to the General Partner
or the Partnership (as applicable), the applicable number of which for each
Performance Investor is described in the applicable Escrow Agreement.
"Performance Units" means those Partnership Units issued
pursuant to Section 4.3.F.
"Permitted Reason" means a termination of employment by reason
of death, disability, termination by the employer without "cause," or
termination by a Person of their employment for "good reason." For purposes of
this definition, "cause" shall mean (i) gross
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<PAGE> 19
negligence or willful misconduct, (ii) breach by the Person of the covenant not
to compete provided in their employment agreement during the one year period
following the closing of the initial public offering of common stock of the
General Partner, (iii) fraud or other conduct against the material best
interests of the General Partner, the Partnership or their subsidiaries, or (iv)
conviction of a felony if such conviction has a material adverse effect on the
General Partner, the Partnership or their subsidiaries. For purposes of this
definition, "good reason" means (a) a substantial adverse change in the nature
or scope of a Person's responsibilities or authority under the Person's
employment agreement, or (b) an uncured breach by the employer of any of its
material obligations under such employment agreement.
"Person" means an individual or a corporation, partnership,
limited liability company, trust, unincorporated organization, association or
other entity.
"Plan Asset Regulation" means the regulations promulgated by
the United States Department of Labor in Title 29, Code of Federal Regulations,
Part 2510, Section 101-3, and any successor regulations thereto.
"Pledge" shall have the meaning set forth in Section 11.3.A.
"PLP" means at any time, any Person who then owns one or more
Performance Units, including Performance Units which have not vested.
"Preferred Capital" means a Capital Account balance equal to
the product of (i) the number of Series A Preferred Units then held by the
General Partner multiplied by (ii) the sum of $25 and any Preferred Distribution
Shortfall per Series A Preferred Unit.
"Preferred Distribution Shortfall" shall have the meaning
given to such term in Section 5.1 hereof.
"Preferred Partner" means a Partner holding any series of
Preferred Units.
"Preferred Share" means a share of the General Partner's
preferred stock, par value $.01 per share, with such rights, priorities and
preferences as shall be designated by the Board of Directors in accordance with
the Charter.
"Preferred Unit" means a Partnership Unit representing a
Partnership Interest, with such rights, priorities and preferences as shall be
designated by the General Partner pursuant to Section 4.3.C hereof.
"Priority Return" shall mean, an amount equal to [ %] per
annum, on an amount equal to $25 per Series A Preferred Unit then outstanding
(equivalent to $____ per annum). Such amount shall be determined on a daily
basis computed on the basis of a 360-day year of twelve 30-day months (or actual
days for any month which is shorter than a full monthly period), cumulative from
July __, 1998 to the extent not distributed for any given distribution period
pursuant to Sections 5.1 and 16.2 hereof. Notwithstanding the foregoing,
distributions on the Series A Preferred Units will accrue
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<PAGE> 20
whether or not the terms and provisions of any agreement of the Partnership at
any time prohibit the current payment of distributions, whether or not the
Partnership has earnings, whether or not there are funds legally available for
the payment of such of such distributions and whether or not such distributions
are authorized. Accrued but unpaid distributions on the Series A Preferred Units
will accumulate as of the Preferred Unit Distribution Payment Date on which they
first become payable.
"Properties" means such interests in real property and
personal property including without limitation, fee interests, interests in
ground leases, interests in joint ventures, interests in mortgages, and Debt
instruments as the Partnership may hold from time to time.
"Qualified REIT Subsidiary" means any Subsidiary of the
General Partner that is a "qualified REIT subsidiary" within the meaning of
Section 856(i) of the Code.
"Qualified Transferee" means an "Accredited Investor" as
defined in Rule 501 promulgated under the Securities Act.
"Redemption" shall have the meaning set forth in Section
8.6.A.
"Regulations" means the Income Tax Regulations promulgated
under the Code, as such regulations may be amended from time to time (including
corresponding provisions of succeeding regulations).
"Regulatory Allocations" shall have the meaning set forth in
Section 6.3.A(viii).
"REIT" means a real estate investment trust under Sections 856
through 860 of the Code.
"REIT Requirements" shall have the meaning set forth in
Section 5.1.
"REIT Share" means a share of common stock, par value $.01 per
share, of the General Partner.
"REIT Shares Amount" means, as of any date, an aggregate
number of REIT Shares equal to the number of Tendered Units, or in the case of
Section 11.2.B, all Units, as adjusted pursuant to Section 7.5 (in the event the
General Partner acquires material assets, other than on behalf of the
Partnership) and for stock dividends and distributions, stock splits and
subdivisions, reverse stock splits and combinations, distributions of rights,
warrants or options, and distributions of evidences of indebtedness or assets
relating to assets not received by the General Partner pursuant to a pro rata
distribution by the Partnership.
"Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations of the Securities and Exchange Commission
promulgated thereunder.
"Series A Articles Supplementary" means the Articles
Supplementary of the General Partner in connection with its Series A Preferred
Shares, as filed with the Maryland Department of Revenue and Taxation on July
___, 1998.
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<PAGE> 21
"Series A Preferred Share" means a share of [ %] Series A
Cumulative Redeemable Preferred Stock, par value $.01 per share, liquidation
preference $25 per share, of the General Partner.
"Series A Preferred Units" means the Partnership's [ %] Series
A Cumulative Redeemable Partnership Units.
"Series A Preferred Unit Distribution Payment Date" shall have
the meaning set forth in Section 16.2.A hereof.
"Specified Redemption Date" means the day of receipt by the
General Partner of a Notice of Redemption.
"Stock Incentive Plan" means any stock incentive plan of the
General Partner.
"Subsidiary" shall mean, with respect to any person, any
corporation, partnership, limited liability company, joint venture or other
entity of which a majority of (i) the voting power of the voting equity
securities or (ii) the outstanding equity interests, is owned, directly or
indirectly, by such person.
"Subsidiary Partnership" means any partnership or limited
liability company that is a Subsidiary of the Partnership.
"Substituted Limited Partner" means a Person who is admitted
as a Limited Partner to the Partnership pursuant to Section 11.4.
"Surviving Partnership" shall have the meaning set forth in
Section 11.2.C.
"Tax Items" shall have the meaning set forth in Section 6.4.A.
"Tenant" means any tenant from which the General Partner
derives rent either directly or indirectly through partnerships, including the
Partnership.
"Tendered Units" shall have the meaning set forth in Section
8.6.A.
"Tendering Partner" shall have the meaning set forth in
Section 8.6.A.
"Terminating Capital Transaction" means any sale or other
disposition of all or substantially all of the assets of the Partnership or a
related series of transactions that, taken together, result in the sale or other
disposition of all or substantially all of the assets of the Partnership.
"Termination Transaction" shall have the meaning set forth in
Section 11.2.B.
Section 1.2. Rules of Construction
Unless otherwise indicated, all references herein to "REIT,"
"REIT Requirements," "REIT Shares" and "REIT Shares Amount" with respect to the
General Partner shall apply only with reference to the Company.
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ARTICLE 2.
ORGANIZATIONAL MATTERS
Section 2.1. Organization
The Partnership is a limited partnership formed pursuant to
the provisions of the Act and upon the terms and conditions set forth in this
Agreement. Except as expressly provided herein, the rights and obligations of
the Partners and the administration and termination of the Partnership shall be
governed by the Act. The Partnership Interest of each Partner shall be personal
property for all purposes.
Section 2.2. Name
The name of the Partnership is AMB Property, L.P. The
Partnership's business may be conducted under any other name or names deemed
advisable by the General Partner, including the name of the General Partner or
any Affiliate thereof. The words "Limited Partnership," "L.P.," "Ltd." or
similar words or letters shall be included in the Partnership's name where
necessary for the purposes of complying with the laws of any jurisdiction that
so requires. The General Partner in its sole and absolute discretion may change
the name of the Partnership at any time and from time to time and shall notify
the Limited Partners of such change in the next regular communication to the
Limited Partners.
Section 2.3. Resident Agent; Principal Office
The name and address of the resident agent of the Partnership
in the State of Delaware is The Corporation Trust Company, 1209 Orange Street,
Wilmington, Delaware 19801. The address of the principal office of the
Partnership in the State of Delaware is The Corporation Trust Company, 1209
Orange Street, Wilmington, Delaware 19801 at such address. The principal office
of the Partnership is located at 505 Montgomery Street, San Francisco,
California 94111, or such other place as the General Partner may from time to
time designate by notice to the Limited Partners. The Partnership may maintain
offices at such other place or places within or outside the State of Delaware as
the General Partner deems advisable.
Section 2.4. Power of Attorney
A. Each Limited Partner and each Assignee constitutes and
appoints the General Partner, any Liquidator, and authorized officers and
attorneys-in-fact of each, and each of those acting singly, in each case with
full power of substitution, as its true and lawful agent and attorney-in-fact,
with full power and authority in its name, place and stead to:
(i) execute, swear to, acknowledge, deliver, file and
record in the appropriate public offices: (a) all
certificates, documents and other instruments
(including, without limitation, this Agreement and
the Certificate and all amendments or restatements
thereof) that the General Partner or the Liquidator
deems appropriate or necessary to form, qualify or
continue the existence or qualification of the
Partnership as a limited partnership (or a
partnership in which the Limited Partners have
limited liability) in the State of Delaware and in
all other jurisdictions in which the Partnership
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may conduct business or own property; (b) all
instruments that the General Partner or any
Liquidator deems appropriate or necessary to reflect
any amendment, change, modification or restatement of
this Agreement in accordance with its terms; (c) all
conveyances and other instruments or documents that
the General Partner or any Liquidator deems
appropriate or necessary to reflect the dissolution
and liquidation of the Partnership pursuant to the
terms of this Agreement, including, without
limitation, a certificate of cancellation; (d) all
instruments relating to the admission, withdrawal,
removal or substitution of any Partner pursuant to,
or other events described in, Articles 11, 12 and 13
or the Capital Contribution of any Partner; and (e)
all certificates, documents and other instruments
relating to the determination of the rights,
preferences and privileges of Partnership Interests;
and
(ii) execute, swear to, acknowledge and file all ballots,
consents, approvals, waivers, certificates and other
instruments appropriate or necessary, in the sole and
absolute discretion of the General Partner or any
Liquidator, to make, evidence, give, confirm or
ratify any vote, consent, approval, agreement or
other action which is made or given by the Partners
hereunder or is consistent with the terms of this
Agreement or appropriate or necessary, in the sole
discretion of the General Partner or any Liquidator,
to effectuate the terms or intent of this Agreement.
Nothing contained herein shall be construed as authorizing the General Partner
or any Liquidator to amend this Agreement except in accordance with Article 14
or as may be otherwise expressly provided for in this Agreement.
B. The foregoing power of attorney is hereby declared to be
irrevocable and a power coupled with an interest, in recognition of the fact
that each of the Partners will be relying upon the power of the General Partner
and any Liquidator to act as contemplated by this Agreement in any filing or
other action by it on behalf of the Partnership, and it shall survive and not be
affected by the subsequent Incapacity of any Limited Partner or Assignee and the
transfer of all or any portion of such Limited Partner's or Assignee's
Partnership Units and shall extend to such Limited Partner's or Assignee's
heirs, successors, assigns and personal representatives. Each such Limited
Partner or Assignee hereby agrees to be bound by any representation made by the
General Partner or any Liquidator, acting in good faith pursuant to such power
of attorney; and each such Limited Partner or Assignee hereby waives any and all
defenses which may be available to contest, negate or disaffirm the action of
the General Partner or any Liquidator, taken in good faith under such power of
attorney. Each Limited Partner or Assignee shall execute and deliver to the
General Partner or any Liquidator, within fifteen (15) days after receipt of the
General Partner's or Liquidator's request therefor, such further designation,
powers of attorney and other instruments as the General Partner or the
Liquidator, as the case may be, deems necessary to effectuate this Agreement and
the purposes of the Partnership.
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Section 2.5. Term
The term of the Partnership commenced on October 15, 1997 and
shall continue until December 31, 2096 unless it is dissolved sooner pursuant to
the provisions of Article 13 or as otherwise provided by law.
Section 2.6. Number of Partners
Without the consent of the General Partner which may be given
or withheld in its sole discretion, the Partnership shall not at any time have
more than one hundred (100) partners (including as partners those persons
indirectly owning an interest in the Partnership through a partnership, limited
liability company, S corporation or grantor trust (such entity, a "flow through
entity"), but only if substantially all of the value of such person's interest
in the flow through entity is attributable to the flow through entity's interest
(direct or indirect) in the Partnership).
ARTICLE 3.
PURPOSE
Section 3.1. Purpose and Business
The purpose and nature of the business to be conducted by the
Partnership is (i) to conduct any business that may be lawfully conducted by a
limited partnership organized pursuant to the Act; provided, however, that such
business shall be limited to and conducted in such a manner as to permit the
General Partner at all times to be classified as a REIT for Federal income tax
purposes, unless the General Partner ceases to qualify as a REIT for reasons
other than the conduct of the business of the Partnership, (ii) to enter into
any partnership, joint venture or other similar arrangement to engage in any of
the foregoing or to own interests in any entity engaged, directly or indirectly,
in any of the foregoing and (iii) to do anything necessary or incidental to the
foregoing. In connection with the foregoing, and without limiting the General
Partner's right in its sole discretion to cease qualifying as a REIT, the
Partners acknowledge that the General Partner's current status as a REIT inures
to the benefit of all the Partners and not solely the General Partner.
Section 3.2. Powers
The Partnership is empowered to do any and all acts and things
necessary, appropriate, proper, advisable, incidental to or convenient for the
furtherance and accomplishment of the purposes and business described herein and
for the protection and benefit of the Partnership, including, without
limitation, full power and authority, directly or through its ownership interest
in other entities, to enter into, perform and carry out contracts of any kind,
borrow money and issue evidences of indebtedness, whether or not secured by
mortgage, deed of trust, pledge or other lien, acquire and develop real
property, and manage, lease, sell, transfer and dispose of real property;
provided, however, not withstanding anything to the contrary in this Agreement,
the Partnership shall not take, or refrain from taking, any action which, in the
judgment of the General Partner, in its sole and absolute discretion, (i) could
adversely affect the ability of the General Partner to continue to qualify as a
REIT, (ii) could subject the General Partner to any taxes under Section 857 or
Section 4981 of the Code or (iii) could violate any law
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or regulation of any governmental body or agency having jurisdiction over the
General Partner or its securities, unless any such action (or inaction) under
the foregoing clauses (i), (ii) or (iii) shall have been specifically consented
to by the General Partner in writing.
Section 3.3. Partnership Only for Purposes Specified
The Partnership shall be a partnership only for the purposes
specified in Section 3.1, and this Agreement shall not be deemed to create a
partnership among the Partners with respect to any activities whatsoever other
than the activities within the purposes of the Partnership as specified in
Section 3.1. Except as otherwise provided in this Agreement, no Partner shall
have any authority to act for, bind, commit or assume any obligation or
responsibility on behalf of the Partnership, its properties or any other
Partner. No Partner, in its capacity as a Partner under this Agreement, shall be
responsible or liable for any indebtedness or obligation of another Partner, nor
shall the Partnership be responsible or liable for any indebtedness or
obligation of any Partner, incurred either before or after the execution and
delivery of this Agreement by such Partner, except as to those responsibilities,
liabilities, indebtedness or obligations incurred pursuant to and as limited by
the terms of this Agreement and the Act.
Section 3.4. Representations and Warranties by the Parties
A. Each Partner that is an individual represents and warrants
to each other Partner that (i) such Partner has in the case of any Person other
than an individual, the power and authority, and in the case of an individual,
the legal capacity, to enter into this Agreement and perform such Partner's
obligations hereunder, (ii) the consummation of the transactions contemplated by
this Agreement to be performed by such Partner will not result in a breach or
violation of, or a default under, any agreement by which such Partner or any of
such Partner's property is or are bound, or any statute, regulation, order or
other law to which such Partner is subject, (iii) such Partner is neither a
"foreign person" within the meaning of Section 1445(f) of the Code nor a
"foreign partner" within the meaning of Section 1446(e) of the Code and (iv)
this Agreement has been duly executed and delivered by such Partner and is
binding upon, and enforceable against, such Partner in accordance with its
terms.
B. Each Partner that is not an individual represents and
warrants to each other Partner that (i) its execution and delivery of this
Agreement and all transactions contemplated by this Agreement to be performed by
it have been duly authorized by all necessary action, including without
limitation, that of its general partner(s), committee(s), trustee(s),
beneficiaries, directors and/or stockholder(s), as the case may be, as required,
(ii) the consummation of such transactions shall not result in a breach or
violation of, or a default under, its certificate of limited partnership,
partnership agreement, trust agreement, limited liability company operating
agreement, charter or by-laws, as the case may be, any agreement by which such
Partner or any of such Partner's properties or any of its partners,
beneficiaries, trustees or stockholders, as the case may be, is or are bound, or
any statute, regulation, order or other law to which such Partner or any of its
partners, trustees, beneficiaries or stockholders, as the case may be, is or are
subject, (iii) such Partner is neither a "foreign person" within the meaning of
Section 1445(f) of the Code nor a "foreign partner" within the meaning of
Section 1446(e) of the Code and (iv) this
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Agreement has been duly executed and delivered by such Partner and is binding
upon, and enforceable against, such Partner in accordance with its terms.
C. Each Partner represents, warrants and agrees that it has
acquired and continues to hold its interest in the Partnership for its own
account for investment only and not for the purpose of, or with a view toward,
the resale or distribution of all or any part thereof, nor with a view toward
selling or otherwise distributing such interest or any part thereof at any
particular time or under any predetermined circumstances. Each Partner further
represents and warrants that it is a sophisticated investor, able and accustomed
to handling sophisticated financial matters for itself, particularly real estate
investments, and that it has a sufficiently high net worth that it does not
anticipate a need for the funds it has invested in the Partnership in what it
understands to be a highly speculative and illiquid investment.
D. Each Partner further represents, warrants and agrees as
follows:
(i) Except as provided in Exhibit E, at any time such
Partner actually or constructively owns a 25% or greater capital
interest or profits interest in the Partnership, it does not and will
not, without the prior written consent of the General Partner, actually
own or Constructively Own (a) with respect to any Tenant that is a
corporation, any stock of such Tenant and (b) with respect to any
Tenant that is not a corporation, any interests in either the assets or
net profits of such Tenant.
(ii) Except as provided in Exhibit F, at any time
such Partner actually or constructively owns a 25% or greater capital
interest or profits interest in the Partnership, it does not, and
agrees that it will not without the prior written consent of the
General Partner, actually own or Constructively Own, any stock in the
General Partner, other than any REIT Shares or other shares of capital
stock of the General Partner such Partner may acquire (a) as a result
of an exchange of Tendered Units pursuant to Section 8.6 or (b) upon
the exercise of options granted or delivery of REIT Shares pursuant to
any Stock Incentive Plan, in each case subject to the ownership
limitations set forth in the General Partner's Charter.
(iii) Upon request of the General Partner, it will
disclose to the General Partner the amount of REIT Shares or other
shares of capital stock of the General Partner that it actually owns or
Constructively Owns.
(iv) It understands that if, for any reason, (a) the
representations, warranties or agreements set forth in Section 3.4.D(i)
or (ii) are violated or (b) the Partnership's actual or Constructive
Ownership of the REIT Shares or other shares of capital stock of the
General Partner violates the limitations set forth in the Charter, then
(x) some or all of the Redemption rights of the Partners may become
non-exercisable, and (y) some or all of the REIT Shares owned by the
Partners may be automatically transferred to a trust for the benefit of
a charitable beneficiary, as provided in the Charter.
E. The representations and warranties contained in Sections
3.4.A, 3.4.B, 3.4.C and 3.4.D shall survive the execution and delivery of this
Agreement by each Partner and the dissolution and winding up of the Partnership.
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F. Each Partner hereby acknowledges that no representations as
to potential profit, cash flows, funds from operations or yield, if any, in
respect of the Partnership or the General Partner have been made by any Partner
or any employee or representative or Affiliate of any Partner, and that
projections and any other information, including, without limitation, financial
and descriptive information and documentation, which may have been in any manner
submitted to such Partner shall not constitute any representation or warranty of
any kind or nature, express or implied.
Section 3.5. Certain ERISA Matters
Each Partner acknowledges that the Partnership is intended to
qualify as a "real estate operating company" (as such term is defined in the
Plan Asset Regulation). The General Partner will use its reasonable best efforts
to structure the investments in, relationships with and conduct with respect to
Properties and any other assets of the Partnership so that the Partnership will
be a "real estate operating company" (as such term is defined in the Plan Asset
Regulation).
ARTICLE 4.
CAPITAL CONTRIBUTIONS
Section 4.1. Capital Contributions of the Partners
At the time of their respective execution of this Agreement,
the Partners shall make or shall have made Capital Contributions as set forth in
Exhibit A to this Agreement. The Partners shall own Partnership Units of the
class and in the amounts set forth in Exhibit A and shall have a Percentage
Interest in the Partnership as set forth in Exhibit A, which Percentage Interest
shall be adjusted in Exhibit A from time to time by the General Partner to the
extent necessary to accurately reflect exchanges, redemptions, Capital
Contributions, the issuance of additional Partnership Units (including the
issuance of Performance Units pursuant to Section 4.3.F) or similar events
having an effect on a Partner's Percentage Interest. Except as required by law
or as otherwise provided in Sections 4.3, 4.4 and 10.5, no Partner shall be
required or permitted to make any additional Capital Contributions or loans to
the Partnership. Unless otherwise specified by the General Partner at the time
of the creation of any class of Partnership Interests, the corresponding class
of capital stock for any Partnership Units issued shall be REIT Shares.
Section 4.2. Loans by Third Parties
Subject to Section 4.3, the Partnership may incur Debt, or
enter into other similar credit, guarantee, financing or refinancing
arrangements for any purpose (including, without limitation, in connection with
any further acquisition of Properties) with any Person that is not the General
Partner upon such terms as the General Partner determines appropriate; provided,
that the Partnership shall not incur any Debt that is recourse to the General
Partner, except to the extent otherwise agreed to by the General Partner in its
sole discretion.
Section 4.3. Additional Funding and Capital Contributions
A. General. The General Partner may, at any time and from time
to time, determine that the Partnership requires additional funds ("Additional
Funds") for the acquisition
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of additional Properties or for such other Partnership purposes as the General
Partner may determine. Additional Funds may be raised by the Partnership, at the
election of the General Partner, in any manner provided in, and in accordance
with, the terms of this Section 4.3. No Person shall have any preemptive,
preferential or similar right or rights to subscribe for or acquire any
Partnership Interest, except as set forth in this Section 4.3.
B. General Partner Loans. The General Partner may enter into a
Funding Debt, including, without limitation, Funding Debt that is convertible
into REIT Shares, and lend the Additional Funds to the Partnership (a "General
Partner Loan"); provided, however, that the General Partner shall not be
obligated to lend the net proceeds of any Funding Debt to the Partnership in a
manner that would be inconsistent with the General Partner's ability to remain
qualified as a REIT. If the General Partner enters into such a Funding Debt, the
General Partner Loan will consist of the net proceeds from such Funding Debt and
will be on comparable terms and conditions, including interest rate, repayment
schedule and costs and expenses, as shall be applicable with respect to or
incurred in connection with such Funding Debt.
C. Issuance of Additional Partnership Interests. The General
Partner may raise all or any portion of the Additional Funds by accepting
additional Capital Contributions of cash. The General Partner may also accept
additional Capital Contributions of real property or other non-cash assets. In
connection with any such additional Capital Contributions (of cash or property),
the General Partner is hereby authorized to cause the Partnership from time to
time to issue to Partners (including the General Partner) or other Persons
(including, without limitation, in connection with the contribution of property
to the Partnership) additional Partnership Units or other Partnership Interests
in one or more classes, or one or more series of any of such classes, with such
designations, preferences and relative, participating, optional or other special
rights, powers, and duties, including rights, powers, and duties senior to then
existing Limited Partnership Interests, all as shall be determined by the
General Partner in its sole and absolute discretion subject to Delaware law, and
as set forth by amendment to this Agreement, including without limitation: (i)
the allocations of items of Partnership income, gain, loss, deduction, and
credit to such class or series of Partnership Interests; (ii) the right of each
such class or series of Partnership Interests to share in Partnership
distributions; (iii) the rights of each such class or series of Partnership
Interests upon dissolution and liquidation of the Partnership; and (iv) the
right to vote, including, without limitation, the limited partner approval
rights set forth in Section 11.2.A; provided, that no such additional
Partnership Units or other Partnership Interests shall be issued to the General
Partner unless either (a) the additional Partnership Interests are issued in
connection with the grant, award, or issuance of shares of the General Partner
pursuant to Section 4.3.D below, which shares have designations, preferences,
and other rights (except voting rights) such that the economic interests
attributable to such shares are substantially similar to the designations,
preferences and other rights of the additional Partnership Interests issued to
the General Partner in accordance with this Section 4.3.C or (b) the additional
Partnership Interests are issued to all Partners holding Partnership Interests
in the same class in proportion to their respective Percentage Interests in such
class. In the event that the Partnership issues additional Partnership Interests
pursuant to this Section 4.3.C, the General Partner shall make such revisions to
this Agreement (including but not limited to the revisions described in Sections
5.4, 6.2.C, and 8.6) as it determines are necessary to reflect the issuance of
such additional Partnership Interests.
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D. Issuance of REIT Shares or Other Securities by the General
Partner. The General Partner shall not issue any additional REIT Shares (other
than REIT Shares issued pursuant to Section 8.6 or pursuant to a dividend or
distribution (including any stock split) of REIT Shares to all of its
stockholders or all of its stockholders who hold a class of stock of the General
Partner), other shares of capital stock of the General Partner or New Securities
unless the General Partner shall make a Capital Contribution of the net proceeds
(including, without limitation, cash and Properties) from the issuance of such
additional REIT Shares, other shares of capital stock or New Securities, as the
case may be, and from the exercise of the rights contained in such additional
New Securities, as the case may be. The General Partner's Capital Account shall
be increased by the amount of cash or the value of Properties so contributed.
E. Percentage Interest Adjustments in the Case of Capital
Contributions for Partnership Units. Upon the acceptance of additional Capital
Contributions in exchange for any class or series of Partnership Units, the
Percentage Interest related thereto shall be equal to a fraction, the numerator
of which is equal to the amount of cash and the Agreed Value of the Properties
contributed as of the Business Day immediately preceding the date on which the
additional Capital Contributions are made (an "Adjustment Date") and the
denominator of which is equal to the sum of (i) the Deemed Value of the
Partnership Interests of such class or series (computed as of the Business Day
immediately preceding the Adjustment Date) plus (ii) the aggregate amount of
cash and the Agreed Value of the Property contributed to the Partnership on such
Adjustment Date in respect of such class or series of Partnership Interests. The
Percentage Interest of each other Partner holding Partnership Interests of such
class or series not making a full pro rata Capital Contribution shall be
adjusted to equal a fraction, the numerator of which is equal to the sum of (i)
the Deemed Partnership Interest Value of such Limited Partner in respect of such
class or series (computed as of the Business Day immediately preceding the
Adjustment Date) plus (ii) the amount of cash and the Agreed Value of the
Property contributed by such Partner to the Partnership in respect of such class
or series as of such Adjustment Date, and the denominator of which is equal to
the sum of (a) the Deemed Value of the Partnership Interests of such class
(computed as of the Business Day immediately preceding the Adjustment Date),
plus (b) the aggregate amount of cash and the Agreed Value of the Property
contributed to the Partnership on such Adjustment Date in respect of such class
or series. Notwithstanding the foregoing, solely for purposes of calculating a
Partner's Percentage Interest pursuant to this Section 4.3.E, (i) in the case of
cash Capital Contributions by the General Partner, such Capital Contributions
will be deemed to equal the cash contributed by the General Partner plus, in the
case of cash contributions funded by an offering of REIT Shares or other shares
of capital stock of the General Partner, the offering costs attributable to the
cash contributed to the Partnership, and (ii) in the case of the contribution of
Properties (or any portion thereof) by the General Partner which were acquired
by the General Partner in exchange for REIT Shares immediately prior to such
contribution, the General Partner shall be issued a number of Partnership Units
equal to the number of REIT Shares issued by the General Partner in exchange for
such Properties, the Partnership Units held by the other Partners shall not be
adjusted, and the Partners' Percentage Interests shall be adjusted accordingly.
The General Partner shall promptly give each Partner written notice of its
Percentage Interest, as adjusted.
F. Issuance of Performance Units to the PLPs. Performance
Investors may be required pursuant to the terms of the Escrow Agreements to
transfer all or a portion of their Performance Shares to the General Partner or
the Partnership (as applicable). To the extent
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Performance Shares (i.e., REIT Shares) are transferred by Performance Investors
to the General Partner pursuant to the Escrow Agreements, the number of
Partnership Units held by the General Partner shall be automatically reduced by
such amount on such date. To the extent Performance Shares (i.e., Partnership
Units) are transferred by Performance Investors to the Partnership pursuant the
Escrow Agreements, the number of Partnership Units held by each such Performance
Investor shall be automatically reduced by such amount on such date. To the
extent the Partnership Units held by the General Partner or Performance
Investors are reduced as set forth in the preceding two sentences, the
Partnership shall immediately issue an equal number of Performance Units to the
Persons listed on Schedule G-1 and Schedule G-2 to Exhibit G in accordance with
the allocations set forth on Exhibit G. The adjustments in the number of
Partnership Units held by the Performance Partners and the PLPs set forth above
shall have no effect on each such Partners' Capital Account in the Partnership
(except with respect to subsequent allocations of items of Partnership income,
gain, loss, deduction, and credit made to such Partners and possibly with
respect to the reissuance of a Performance Unit subsequent to its forfeiture by
a PLP) and no PLP shall have an obligation to make a contribution to the capital
of the Partnership in connection with the issuance of Performance Units.
Section 4.4. Stock Incentive Plan
If at any time or from time to time the General Partner sells
or issues REIT Shares pursuant to any Stock Incentive Plan, the General Partner
shall contribute any proceeds therefrom to the Partnership as an additional
Capital Contribution and shall receive an amount of additional Partnership Units
equal to the number of REIT Shares so sold or issued. The General Partner's
Capital Account shall be increased by the amount of cash so contributed.
Section 4.5. No Preemptive Rights
Except to the extent expressly granted by the Partnership
pursuant to another agreement, no Person shall have any preemptive, preferential
or other similar right with respect to (i) additional Capital Contributions or
loans to the Partnership or (ii) issuance or sale of any Partnership Units or
other Partnership Interests.
Section 4.6. Other Contribution Provisions
In the event that any Partner is admitted to the Partnership
and is given (or is treated as having received) a Capital Account in exchange
for services rendered to the Partnership, such transaction shall be treated by
the Partnership and the affected Partner as if the Partnership had compensated
such Partner in cash, and the Partner had contributed such cash to the capital
of the Partnership. In addition, with the consent of the General Partner, in its
sole discretion, one or more Limited Partners may enter into contribution
agreements with the Partnership which have the effect of providing a guarantee
of certain obligations of the Partnership.
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ARTICLE 5.
DISTRIBUTIONS
Section 5.1. Requirement and Characterization of
Distributions
The General Partner shall cause the Partnership to distribute
all, or such portion as the General Partner may in its discretion determine,
Available Cash generated by the Partnership (i) first, to the extent that the
amount of cash distributed with respect to any Partnership Interests that are
entitled to any preference in distribution for any prior distribution period was
less than the required distribution for such outstanding Partnership Interests
for such prior distribution period, and to the extent such deficiency has not
been subsequently distributed pursuant to this Section 5.1 (a "Preferred
Distribution Shortfall"), in accordance with the rights of such class of
Partnership Interests (and within such class, pro rata in proportion to the
respective Percentage Interests on the applicable record date) and to the
Partners who are Partners on the applicable record date with respect to such
distribution, (ii) second, with respect to any Partnership Interests that are
entitled to any preference in distribution, in accordance with the rights of
such class of Partnership Interests (and within such class, pro rata in
proportion to the respective Percentage Interests on the applicable record date)
and (iii) third, with respect to Partnership Interests that are not entitled to
any preference in distribution, pro rata to each such class on a quarterly basis
and in accordance with the terms of such class to Partners who are Partners of
such class on the Partnership Record Date with respect to such distribution (and
within each such class, pro rata in proportion with the respective Percentage
Interests on such Partnership Record Date). Unless otherwise expressly provided
for in Article 16 with respect to the Series A Preferred Units and in an
agreement, if any, at the time a new class of Partnership Interests is created
in accordance with Article 4, no Partnership Interest shall be entitled to a
distribution in preference to any other Partnership Interest. The General
Partner shall take such reasonable efforts, as determined by it in its sole and
absolute discretion and consistent with its qualification as a REIT, to cause
the Partnership to distribute sufficient amounts to enable the General Partner,
for so long as the General Partner has determined to qualify as a REIT, to pay
stockholder dividends that will (a) satisfy the requirements for qualifying as a
REIT under the Code and Regulations ("REIT Requirements") and (b) except to the
extent otherwise determined by the General Partner, avoid any Federal income or
excise tax liability of the General Partner.
Section 5.2. Distributions in Kind
Except as expressly provided herein, no right is given to any
Partner to demand and receive property other than cash. The General Partner may
determine, in its sole and absolute discretion, to make a distribution in kind
to the Partners of Partnership assets, and such assets shall be distributed in
such a fashion as to ensure that the fair market value is distributed and
allocated in accordance with Articles 5, 6 and 10.
Section 5.3. Distributions Upon Liquidation
Proceeds from a Terminating Transaction shall be distributed
to the Partners in accordance with Section 13.2.
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Section 5.4. Distributions to Reflect Issuance of
Additional Partnership Interests
In the event that the Partnership issues additional
Partnership Interests (other than Performance Units, which shall receive
distributions as set forth in Section 5.1) to the General Partner or any
Additional Limited Partner pursuant to Section 4.3.C or 4.4, the General Partner
shall make such revisions to this Article 5 as it determines are necessary to
reflect the issuance of such additional Partnership Interests. In the absence of
any agreement to the contrary, an Additional Limited Partner shall be entitled
to the distributions set forth in Section 5.1 (without regard to this Section
5.4) with respect to the quarter during which the closing of its contribution to
the Partnership occurs, multiplied by a fraction the numerator of which is the
number of days from and after the date of such closing through the end of the
applicable quarter, and the denominator of which is the total number of days in
such quarter.
Section 5.5 Character of PLP Distributions
Distributions to each PLP pursuant to this Agreement shall be
advances or drawings of money or property against such Partner's distributive
share of Net Income (or items thereof) as described in Treasury Regulation
Section 1.731-1(a)(1)(ii).
ARTICLE 6.
ALLOCATIONS
Section 6.1. Timing and Amount of Allocations of Net
Income and Net Loss
Net Income and Net Loss of the Partnership shall be determined
and allocated with respect to each fiscal year of the Partnership as of the end
of each such year. Subject to the other provisions of this Article 6, an
allocation to a Partner of a share of Net Income or Net Loss shall be treated as
an allocation of the same share of each item of income, gain, loss or deduction
that is taken into account in computing Net Income or Net Loss.
Section 6.2. General Allocations
A. In General. Except as otherwise provided in this Article 6,
Net Income and Net Loss allocable with respect to a class of Partnership
Interests, shall be allocated to each of the Partners holding such class of
Partnership Interests in accordance with their respective Percentage Interest of
such class.
B.1. Net Income. Except as provided in Section 6.2.B.3, Net
Income for any Partnership Year shall be allocated in the following manner and
order of priority:
(a) First, 100% to the General Partner in an amount equal
to the remainder, if any, of the cumulative Net
Losses allocated to the General Partner pursuant to
Section 6.2.B.2(c) for all prior Partnership Years
minus the cumulative Net Income allocated to the
General Partner pursuant to this Section 6.2.B.1(a)
for all prior Partnership Years;
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(b) Second, 100% to the General Partner in respect of the
Series A Preferred Units in an amount equal to the
remainder, if any, of the cumulative Net Losses
allocated to the Series A Preferred Units pursuant to
Section 6.2.B.2(b) for all prior Partnership Years
minus the cumulative Net Income allocated to the
Series A Preferred Units pursuant to this Section
6.2.B.1(b) for all prior Partnership Years;
(c) Third, 100% to the General Partner and the Limited
Partners in an amount equal to the remainder, if any,
of the cumulative Net Losses allocated to each such
Partner pursuant to Section 6.2.B.2(a) for all prior
Partnership Years minus the cumulative Net Income
allocated to each Partner pursuant to this Section
6.2.B.1(c) for all prior Partnership Years;
(d) Fourth, 100% to the General Partner in respect of the
Series A Preferred Units until the General Partner
has been allocated an amount equal to the remainder,
if any, of (i) the cumulative Priority Return to the
last day of the current Partnership Year or to the
date of redemption, to the extent Series A Preferred
Units are redeemed during such year, minus (ii) the
cumulative Net Income allocated to the General
Partner pursuant to this Section 6.2.B.1(d) for all
prior Partnership Years;
(e) Fifth, 100% to the General Partner and the Limited
Partners in accordance with their respective
Percentage Interests in the Common Units.
B.2. Net Losses. Except as provided in Section 6.2.B.3, Net
Losses for any Partnership Year shall be allocated in the following manner and
order of priority:
(a) First, 100% to the General Partner and the Limited
Partners in accordance with their respective
Percentage Interests in the Common Units (to the
extent consistent with this Section 6.2.B.2(a)) until
the Adjusted Capital Account (ignoring for this
purpose any amounts the General Partner is deemed
obligated to restore pursuant to Regulations Section
1.704-1(b)(2)(ii)(c)(2) and ignoring the General
Partner's Preferred Capital) of each such Partner is
zero;
(b) Second, 100% to the General Partner until the
Adjusted Capital Account of the General Partner is
zero; and
(c) Third, 100% to the General Partner.
B.3. Terminating Capital Transactions.
(a) If no Performance Units are outstanding at the time
of a Terminating Capital Transaction, any Net Income
attributable to such Terminating Capital Transaction
shall first be allocated to the General Partner in an
amount equal to the Offering Costs, to the extent the
General Partner's Capital Account has not previously
been adjusted to account for such amounts.
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(b) If Performance Units are outstanding at the time of
a Terminating Capital Transaction --
(1) any Net Income attributable to such
Terminating Capital Transaction shall be
allocated as follows: such Net Income shall
first be tentatively allocated solely as an
interim step in calculating final
allocations pursuant to this Section
6.2.B.3(b)(1), among the Partners in
accordance with Section 6.2.B.3(a), Section
6.2.A and Section 6.2.B.1. Then the amount
so tentatively allocated to each Performance
Partner, to the extent of each such
Performance Partner's Excess Performance
Capital, shall instead be allocated to the
PLPs, pro rata to the number of Performance
Units held by each PLP.
(2) any Net Loss attributable to such
Terminating Capital Transaction shall be
allocated as follows: such Net Loss shall
first be tentatively allocated, solely as an
interim step in calculating final
allocations pursuant to this Section
6.2.B.3(b)(2), among the Partners in
accordance with Section 6.2.A and Section
6.2.B.2. Then the amount so tentatively
allocated to the PLPs shall instead be
allocated to the Performance Partners to the
extent of the aggregate Excess Performance
Capital of the Performance Partners. Any
amounts so allocated away from the PLPs
shall be done on a basis which is
proportionate to each PLP's Performance
Units. Any amounts so allocated to the
Performance Partners shall be done on a
basis which is proportionate to each
Performance Partner's Excess Performance
Capital.
C. Allocations to Reflect Issuance of Additional Partnership
Interests. In the event that the Partnership issues additional Partnership
Interests to the General Partner or any Additional Limited Partner pursuant to
Section 4.3 or 4.4, the General Partner shall make such revisions to this
Section 6.2 or to Section 12.2.B as it determines are necessary to reflect the
terms of the issuance of such additional Partnership Interests, including making
preferential allocations to certain classes of Partnership Interests, subject to
the terms of the Series A Preferred Units. In addition, for any quarter in which
Performance Units were issued, Net Income and Net Loss relating to such units
shall be allocated among (i) the PLPs who received such units and (ii) the
Performance Partners who returned the corresponding Partnership Units to the
Partnership, in accordance with any method selected by the General Partner which
is permitted under Section 706 of the Code.
Section 6.3. Additional Allocation Provisions
Notwithstanding the foregoing provisions of this Article 6:
A. Regulatory Allocations.
(i) Minimum Gain Chargeback. Except as otherwise
provided in Regulations Section 1.704-2(f), notwithstanding the
provisions of Section 6.2, or any
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other provision of this Article 6, if there is a net decrease in
Partnership Minimum Gain during any fiscal year, each Partner shall be
specially allocated items of Partnership income and gain for such year
(and, if necessary, subsequent years) in an amount equal to such
Partner's share of the net decrease in Partnership Minimum Gain, as
determined under Regulations Section 1.704-2(g). Allocations pursuant
to the previous sentence shall be made in proportion to the respective
amounts required to be allocated to each Partner pursuant thereto. The
items to be allocated shall be determined in accordance with
Regulations Sections 1.704-2(f)(6) and 1.704-2(j)(2). This Section
6.3.A(i) is intended to qualify as a "minimum gain chargeback" within
the meaning of Regulation Section 1.704-2(f) which shall be controlling
in the event of a conflict between such Regulation and this Section
6.3.A(i).
(ii) Partner Minimum Gain Chargeback. Except as
otherwise provided in Regulations Section 1.704-2(i)(4), and
notwithstanding the provisions of Section 6.2, or any other provision
of this Article 6 (except Section 6.3.A(i)), if there is a net decrease
in Partner Minimum Gain attributable to a Partner Nonrecourse Debt
during any fiscal year, each Partner who has a share of the Partner
Minimum Gain attributable to such Partner Nonrecourse Debt, determined
in accordance with Regulations Section 1.704-2(i)(5), shall be
specially allocated items of Partnership income and gain for such year
(and, if necessary, subsequent years) in an amount equal to such
Partner's share of the net decrease in Partner Minimum Gain
attributable to such Partner Nonrecourse Debt, determined in accordance
with Regulations Section 1.704-2(i)(4). Allocations pursuant to the
previous sentence shall be made in proportion to the respective amounts
required to be allocated to each General Partner and Limited Partner
pursuant thereto. The items to be so allocated shall be determined in
accordance with Regulations Sections 1.704-2(i)(4) and 1.704-2(j)(2).
This Section 6.3.A(ii) is intended to qualify as a "chargeback of
partner nonrecourse debt minimum gain" within the meaning of Regulation
Section 1.704-2(i) which shall be controlling in the event of a
conflict between such Regulation and this Section 6.3.A(ii).
(iii) Nonrecourse Deductions and Partner Nonrecourse
Deductions. Any Nonrecourse Deductions for any fiscal year shall be
specially allocated to the Partners in accordance with their respective
Percentage Interest in Common Units. Any Partner Nonrecourse
Deductions for any fiscal year shall be specially allocated to the
Partner(s) who bears the economic risk of loss with respect to the
Partner Nonrecourse Debt to which such Partner Nonrecourse Deductions
are attributable, in accordance with Regulations Sections
1.704-2(b)(4) and 1.704-2(i).
(iv) Qualified Income Offset. If any Partner
unexpectedly receives an adjustment, allocation or distribution
described in Regulations Section 1.704-1(b)(2)(ii)(d)(4), (5) or (6),
items of Partnership income and gain shall be allocated, in accordance
with Regulations Section 1.704-1(b)(2)(ii)(d), to the Partner in an
amount and manner sufficient to eliminate, to the extent required by
such Regulations, the Adjusted Capital Account Deficit of the Partner
as quickly as possible provided that an allocation pursuant to this
Section 6.3.A(iv) shall be made if and only to the extent that such
Partner would have an Adjusted Capital Account Deficit after all other
allocations provided in this Article 6 have been tentatively made as if
this Section 6.3.A(iv) were not in the
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Agreement. It is intended that this Section 6.3.A(iv) qualify and be
construed as a "qualified income offset" within the meaning of
Regulations 1.704-1(b)(2)(ii)(d), which shall be controlling in the
event of a conflict between such Regulations and this Section
6.3.A(iv).
(v) Gross Income Allocation. In the event any Partner
has a deficit Capital Account at the end of any fiscal year which is in
excess of the sum of (a) the amount (if any) such Partner is obligated
to restore to the Partnership and (b) the amount such Partner is deemed
to be obligated to restore pursuant to Regulations Section
1.704-1(b)(2)(ii)(c) or the penultimate sentences of Regulations
Sections 1.704-2(g)(1) and 1.704-2(i)(5), each such Partner shall be
specially allocated items of Partnership income and gain in the amount
of such excess as quickly as possible; provided, that an allocation
pursuant to this Section 6.3.A(v) shall be made if and only to the
extent that such Partner would have a deficit Capital Account in excess
of such sum after all other allocations provided in this Article 6 have
been tentatively made as if this Section 6.3.A(v) and Section 6.3.A(iv)
were not in the Agreement.
(vi) Limitation on Allocation of Net Loss. To the
extent any allocation of Net Loss would cause or increase an Adjusted
Capital Account Deficit as to any Partner, such allocation of Net Loss
shall be reallocated among the other Partners in accordance with their
respective Percentage Interests in Common Units, subject to the
limitations of this Section 6.3.A(vi).
(vii) Section 754 Adjustment. To the extent an
adjustment to the adjusted tax basis of any Partnership asset pursuant
to Code Section 734(b) or Code Section 743(b) is required, pursuant to
Regulations Section 1.704-1(b)(2)(iv)(m)(2) or Regulations Section
1.704-1(b)(2)(iv)(m)(4), to be taken into account in determining
Capital Accounts as the result of a distribution to a Partner in
complete liquidation of his interest in the Partnership, the amount of
such adjustment to the Capital Accounts shall be treated as an item of
gain (if the adjustment increases the basis of the asset) or loss (if
the adjustment decreases such basis) and such gain or loss shall be
specially allocated to the Partners in accordance with their interests
in the Partnership in the event that Regulations Section
1.704-1(b)(2)(iv)(m)(2) applies, or to the Partners to whom such
distribution was made in the event that Regulations Section
1.704-1(b)(2)(iv)(m)(4) applies.
(viii) Curative Allocation. The allocations set forth
in Sections 6.3.A(i), (ii), (iii), (iv), (v), (vi), and (vii) (the
"Regulatory Allocations") are intended to comply with certain
regulatory requirements, including the requirements of Regulations
Sections 1.704-1(b) and 1.704-2. Notwithstanding the provisions of
Sections 6.1 and 6.2, the Regulatory Allocations shall be taken into
account in allocating other items of income, gain, loss and deduction
among the Partners so that, to the extent possible, the net amount of
such allocations of other items and the Regulatory Allocations to each
Partner shall be equal to the net amount that would have been allocated
to each such Partner if the Regulatory Allocations had not occurred.
B. For purposes of determining a Partner's proportional share
of the "excess nonrecourse liabilities" of the Partnership within the meaning of
Regulations Section 1.752-
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3(a)(3), each Partner's interest in Partnership profits shall be such Partner's
Percentage Interest in Common Units.
Section 6.4. Tax Allocations
A. In General. Except as otherwise provided in this Section
6.4, for income tax purposes each item of income, gain, loss and deduction
(collectively, "Tax Items") shall be allocated among the Partners in the same
manner as its correlative item of "book" income, gain, loss or deduction is
allocated pursuant to Sections 6.2 and 6.3.
B. Allocations Respecting Section 704(c) Revaluations.
Notwithstanding Section 6.4.A, Tax Items with respect to Partnership property
that is contributed to the Partnership by a Partner shall be shared among the
Partners for income tax purposes pursuant to Regulations promulgated under
Section 704(c) of the Code, so as to take into account the variation, if any,
between the basis of the property to the Partnership and its initial Gross Asset
Value. With respect to Partnership property that is initially contributed to the
Partnership upon its formation pursuant to Section 4.1, such variation between
basis and initial Gross Asset Value shall be taken into account under the
"traditional method" as described in Regulations Section 1.704-3(b). With
respect to properties subsequently contributed to the Partnership, the
Partnership shall account for such variation under any method approved under
Section 704(c) of the Code and the applicable regulations as chosen by the
General Partner. In the event the Gross Asset Value of any Partnership asset is
adjusted pursuant to subparagraph (ii) of the definition of Gross Asset Value
(provided in Article 1), subsequent allocations of Tax Items with respect to
such asset shall take account of the variation, if any, between the adjusted
basis of such asset and its Gross Asset Value in the same manner as under
Section 704(c) of the Code and the applicable regulations consistent with the
requirements of Regulations Section 1.704-1(b)(2)(iv)(g) using any method
approved under 704(c) of the Code and the applicable regulations as chosen by
the General Partner.
ARTICLE 7.
MANAGEMENT AND OPERATIONS OF BUSINESS
Section 7.1. Management
A. Except as otherwise expressly provided in this Agreement,
all management powers over the business and affairs of the Partnership are
exclusively vested in the General Partner, and no Limited Partner shall have any
right to participate in or exercise control or management power over the
business and affairs of the Partnership. The General Partner may not be removed
by the Limited Partners with or without cause, except with the consent of the
General Partner. In addition to the powers now or hereafter granted a general
partner of a limited partnership under the Act and other applicable law or which
are granted to the General Partner under any other provision of this Agreement,
the General Partner, subject to the other provisions hereof including Section
7.3, shall have full power and authority to do all things deemed necessary or
desirable by it to conduct the business of the Partnership, to exercise all
powers set forth in Section 3.2 and to effectuate the purposes set forth in
Section 3.1, including, without limitation:
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(i) the making of any expenditures, the lending or
borrowing of money (including, without limitation,
making prepayments on loans and borrowing money to
permit the Partnership to make distributions to its
Partners in such amounts as will permit the General
Partner (for so long as the General Partner has
determined to qualify as a REIT) to avoid the payment
of any Federal income tax (including, for this
purpose, any excise tax pursuant to Section 4981 of
the Code) and to make distributions to its
stockholders sufficient to permit the General Partner
to maintain REIT status), the assumption or guarantee
of, or other contracting for, indebtedness and other
liabilities, the issuance of evidences of
indebtedness (including the securing of same by
mortgage, deed of trust or other lien or encumbrance
on all or any of the Partnership's assets) and the
incurring of any obligations it deems necessary for
the conduct of the activities of the Partnership;
(ii) the making of tax, regulatory and other filings, or
rendering of periodic or other reports to
governmental or other agencies having jurisdiction
over the business or assets of the Partnership;
(iii) subject to the provisions of Section 7.3.D, the
acquisition, disposition, mortgage, pledge,
encumbrance, hypothecation or exchange of any assets
of the Partnership or the merger or other combination
of the Partnership with or into another entity;
(iv) the mortgage, pledge, encumbrance or hypothecation of
all or any assets of the Partnership, and the use of
the assets of the Partnership (including, without
limitation, cash on hand) for any purpose consistent
with the terms of this Agreement and on any terms it
sees fit, including, without limitation, the
financing of the conduct or the operations of the
General Partner or the Partnership, the lending of
funds to other Persons (including, without
limitation, the General Partner (if necessary to
permit the financing or capitalization of a
subsidiary of the General Partner or the Partnership)
and any Subsidiaries of the Partnership) and the
repayment of obligations of the Partnership, any of
its Subsidiaries and any other Person in which it has
an equity investment;
(v) the negotiation, execution, and performance of any
contracts, leases, conveyances or other instruments
that the General Partner considers useful or
necessary to the conduct of the Partnership's
operations or the implementation of the General
Partner's powers under this Agreement;
(vi) the distribution of Partnership cash or other
Partnership assets in accordance with this Agreement;
(vii) the selection and dismissal of employees of the
Partnership (including, without limitation, employees
having titles such as "president," "vice president,"
"secretary" and "treasurer"), and agents, outside
attorneys,
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accountants, consultants and contractors of the
Partnership, the determination of their compensation
and other terms of employment or hiring, including
waivers of conflicts of interest and the payment of
their expenses and compensation out of the
Partnership's assets;
(viii) the maintenance of such insurance for the benefit of
the Partnership and the Partners as it deems
necessary or appropriate;
(ix) the formation of, or acquisition of an interest in,
and the contribution of property to, any further
limited or general partnerships, joint ventures or
other relationships that it deems desirable
(including, without limitation, the acquisition of
interests in, and the contributions of property to
any Subsidiary and any other Person in which it has
an equity investment from time to time); provided
that, as long as the General Partner has determined
to continue to qualify as a REIT, the Partnership may
not engage in any such formation, acquisition or
contribution that would cause the General Partner to
fail to qualify as a REIT;
(x) the control of any matters affecting the rights and
obligations of the Partnership, including the conduct
of litigation and the incurring of legal expense and
the settlement of claims and litigation, and the
indemnification of any Person against liabilities and
contingencies to the extent permitted by law;
(xi) the undertaking of any action in connection with the
Partnership's direct or indirect investment in any
Person (including, without limitation, contributing
or loaning Partnership funds to, incurring
indebtedness on behalf of, or guarantying the
obligations of any such Persons);
(xii) subject to the other provisions in this Agreement,
the determination of the fair market value of any
Partnership property distributed in kind using such
reasonable method of valuation as it may adopt;
provided that, such methods are otherwise consistent
with requirements of this Agreement;
(xiii) the management, operation, leasing, landscaping,
repair, alteration, demolition or improvement of any
real property or improvements owned by the
Partnership or any Subsidiary of the Partnership or
any Person in which the Partnership has made a direct
or indirect equity investment;
(xiv) holding, managing, investing and reinvesting cash and
other assets of the Partnership;
(xv) the collection and receipt of revenues and income of
the Partnership;
(xvi) the exercise, directly or indirectly through any
attorney-in-fact acting under a general or limited
power of attorney, of any right, including the right
to vote, appurtenant to any asset or investment held
by the Partnership;
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(xvii) the exercise of any of the powers of the General
Partner enumerated in this Agreement on behalf of or
in connection with any Subsidiary of the Partnership
or any other Person in which the Partnership has a
direct or indirect interest, or jointly with any such
Subsidiary or other Person;
(xviii) the exercise of any of the powers of the General
Partner enumerated in this Agreement on behalf of any
Person in which the Partnership does not have an
interest, pursuant to contractual or other
arrangements with such Person; and
(xix) the making, execution and delivery of any and all
deeds, leases, notes, deeds to secure debt,
mortgages, deeds of trust, security agreements,
conveyances, contracts, guarantees, warranties,
indemnities, waivers, releases or legal instruments
or other agreements in writing necessary or
appropriate in the judgment of the General Partner
for the accomplishment of any of the powers of the
General Partner enumerated in this Agreement.
B. Each of the Limited Partners agrees that the General
Partner is authorized to execute, deliver and perform the above-mentioned
agreements and transactions on behalf of the Partnership without any further
act, approval or vote of the partners, notwithstanding any other provisions of
this Agreement (except as provided in Section 7.3), the Act or any applicable
law, rule or regulation. The execution, delivery or performance by the General
Partner or the Partnership of any agreement authorized or permitted under this
Agreement shall not constitute a breach by the General Partner of any duty that
the General Partner may owe the Partnership or the Limited Partners or any other
Persons under this Agreement or of any duty stated or implied by law or equity.
C. At all times from and after the date hereof, the General
Partner may cause the Partnership to obtain and maintain (i) casualty, liability
and other insurance (including, without limitation, earthquake insurance) on the
properties of the Partnership and (ii) liability insurance for the Indemnities
hereunder.
D. At all times from and after the date hereof, the General
Partner may cause the Partnership to establish and maintain working capital and
other reserves in such amounts as the General Partner, in its sole and absolute
discretion, deems appropriate and reasonable from time to time.
E. In exercising its authority under this Agreement, the
General Partner may, but other than as set forth in the following sentence and
as expressly set forth in the agreements listed on Exhibit I hereto, shall be
under no obligation to, take into account the tax consequences to any Partner
(including the General Partner) of any action taken by the General Partner. The
General Partner, on behalf of the Partnership, shall use commercially reasonable
efforts to cooperate with the Limited Partners to minimize any taxes payable in
connection with any sale, exchange or any other disposition of assets of the
Partnership. The General Partner and the Partnership shall not have liability to
a Limited Partner under any circumstances as a result of an income tax liability
incurred by such Limited Partner as a result of an action (or inaction) by the
General Partner pursuant to its authority under this Agreement.
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F. Except as otherwise provided herein, to the extent the
duties of the General Partner require expenditures of funds to be paid to third
parties, the General Partner shall not have any obligations hereunder except to
the extent that Partnership funds are reasonably available to it for the
performance of such duties, and nothing herein contained shall be deemed to
authorize or require the General Partner, in its capacity as such, to expend its
individual funds for payment to third parties or to undertake any individual
liability or obligation on behalf of the Partnership.
Section 7.2. Certificate of Limited Partnership
To the extent that such action is determined by the General
Partner to be reasonable and necessary or appropriate, the General Partner shall
file amendments to and restatements of the Certificate and do all the things to
maintain the Partnership as a limited partnership (or a partnership in which the
limited partners have limited liability) under the laws of the State of Delaware
and to maintain the Partnership's qualification to do business as a foreign
limited partnership in each other state, the District of Columbia or other
jurisdiction, in which the Partnership may elect to do business or own property.
Subject to the terms of Section 8.5.A(iv), the General Partner shall not be
required, before or after filing, to deliver or mail a copy of the Certificate
or any amendment thereto to any Limited Partner. The General Partner shall use
all reasonable efforts to cause to be filed such other certificates or documents
as may be reasonable and necessary or appropriate for the formation,
continuation, qualification and operation of a limited partnership (or a
partnership in which the limited partners have limited liability) in the State
of Delaware, and any other state, or the District of Columbia or other
jurisdiction, in which the Partnership may elect to do business or own property.
Section 7.3. Restrictions on General Partner's Authority
A. The General Partner may not take any action in
contravention of this Agreement, including, without limitation:
(i) take any action that would make it impossible to
carry on the ordinary business of the Partnership,
except as otherwise provided in this Agreement;
(ii) possess Partnership property, or assign any rights in
specific Partnership property, for other than a
Partnership purpose except as otherwise provided in
this Agreement;
(iii) admit a Person as a Partner, except as otherwise
provided in this Agreement (including with respect to
the PLPs, who shall become Partners upon their
receipt of Performance Units);
(iv) perform any act that would subject a Limited Partner
to liability as a general partner in any jurisdiction
or any other liability except as provided herein or
under the Act; or
(v) enter into any contract, mortgage, loan or other
agreement that prohibits or restricts, or has the
effect of prohibiting or restricting, the ability of
a
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Limited Partner to exercise its rights to a
Redemption in full, except with the written consent
of such Limited Partner.
B. The General Partner shall not, without the prior Consent of
the Partners (in addition to any Consent of the Limited Partners required by any
other provision hereof), undertake, on behalf of the Partnership, any of the
following actions or enter into any transaction which would have the effect of
such transactions:
(i) except as provided in Section 7.3.D below, amend,
modify or terminate this Agreement other than to
reflect the admission, substitution, termination or
withdrawal of partners pursuant to Article 12;
(ii) make a general assignment for the benefit of
creditors or appoint or acquiesce in the appointment
of a custodian, receiver or trustee for all or any
part of the assets of the Partnership;
(iii) institute any proceeding for bankruptcy on behalf of
the Partnership;
(iv) confess a judgment against the Partnership; or
(v) enter into a merger (including a triangular merger),
consolidation or other combination of the Partnership
with or into another entity.
C. Except in the case of a Liquidating Event pursuant to
Section 13.1 (other than Section 13.1.F), the General Partner shall not, without
the prior Consent of the Limited Partners, undertake, on behalf of the
Partnership, any actions or enter into any transaction which would have the
effect of a dissolution of the Partnership, including a sale, exchange, transfer
or other disposition of all or substantially all of the Partnership's assets in
a single transaction or a series of related transactions.
D. Notwithstanding Sections 7.3.B and 7.3.C, but subject to
Section 7.3.E, the General Partner shall have the power, without the Consent of
the Partners, to amend this Agreement as may be required to facilitate or
implement any of the following purposes:
(i) to add to the obligations of the General Partner or
surrender any right or power granted to the General
Partner or any Affiliate of the General Partner for
the benefit of the Limited Partners;
(ii) to reflect the issuance of additional Partnership
Interests pursuant to Sections 4.3.C, 4.3.F and 4.4,
or the admission, substitution, termination,
reduction in Partnership Units or withdrawal of
Partners in accordance with this Agreement (which may
be effected through the replacement of Exhibit A with
an amended Exhibit A);
(iii) to set forth or amend the designations, rights,
powers, duties, and preferences of the holders of any
additional Partnership Interests issued pursuant to
Article 4;
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(iv) to reflect a change that is of an inconsequential
nature and does not adversely affect the Limited
Partners in any material respect, or to cure any
ambiguity in, correct or supplement any provision, or
make other changes with respect to matters arising
under, this Agreement that will not be inconsistent
with law or with the provisions of this Agreement;
(v) to satisfy any requirements, conditions, or
guidelines contained in any order, directive,
opinion, ruling or regulation of a Federal, state of
local agency or contained in Federal, state or local
law.
(vi) to reflect such changes as are reasonably necessary
for the General Partner to maintain its status as a
REIT, including changes which may be necessitated due
to a change in applicable law (or an authoritative
interpretation thereof) or a ruling of the IRS; and
(vii) to modify, as set forth in the definition of "Capital
Account," the manner in which Capital Accounts are
computed.
The General Partner will provide notice to the Limited Partners when any action
under this Section 7.3.D is taken.
E. Notwithstanding Sections 7.3.B, 7.3.C and 7.3.D, this
Agreement shall not be amended, and no action may be taken by the General
Partner, including in either case through merger or sale of assets of the
Partnership or otherwise, without the Consent of each Partner adversely affected
if such amendment or action would (i) convert a Limited Partner's interest in
the Partnership into a general partner's interest (except as the result of the
General Partner acquiring such interest), (ii) modify the limited liability of a
Limited Partner, (iii) alter rights of the Partner to receive distributions
pursuant to Article 5, Section 13.2.A(4) or Article 16 or the allocations
specified in Article 6 (except as permitted pursuant to Section 4.3 and Section
7.3.D), (iv) alter or modify the rights to a Redemption or the REIT Shares
Amount as set forth in Section 8.6, and related definitions hereof, or (v) amend
this Section 7.3.E. Further, no amendment may alter the restrictions on the
General Partner's authority set forth elsewhere in this Section 7.3 without the
Consent specified in such section. In addition, (a) Section 11.2 of this
Agreement shall not be amended, and no action in contravention of Section 11.2
shall be taken, including in either case through merger or sale of assets of the
Partnership or otherwise, without the Consent of the Limited Partners and (b)
this Agreement shall not be amended, and no action shall be taken, including in
either case through merger or sale of assets of the Partnership or otherwise,
which would adversely affect the rights of the Persons set forth in Exhibit G to
receive Performance Units as described herein.
F. Other than incident to a transaction pursuant to Sections
11.2.B or 11.2.C, the General Partner shall not undertake to dispose of any
Partnership Property listed in Exhibit H in a taxable sale or taxable exchange
prior to November 26, 2001 without the prior consent of each Limited Partner
which contributed all or any portion of an interest in such Property to the
Partnership, as set forth opposite each such Property on such Exhibit H.
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Section 7.4. Reimbursement of the General Partner
A. Except as provided in this Section 7.4 and elsewhere in
this Agreement (including the provisions of Articles 5 and 6 regarding
distributions, payments and allocations to which it may be entitled), the
General Partner shall not be compensated for its services as general partner of
the Partnership.
B. Subject to Section 15.11, the General Partner shall be
reimbursed on a monthly basis, or such other basis as the General Partner may
determine in its sole and absolute discretion, for all expenses it incurs
relating to the ownership of interests in and operation of, or for the benefit
of, the Partnership. The Limited Partners acknowledge that the General Partner's
sole business is the ownership of interests in and operation of the Partnership
and that such expenses are incurred for the benefit of the Partnership; provided
that, the General Partner shall not be reimbursed for expenses it incurs
relating to the organization of the Partnership and the General Partner, or the
initial public offering or subsequent offerings of REIT Shares, other shares of
capital stock or Funding Debt by the General Partner, but shall be reimbursed
for expenses it incurs with respect to any other issuance of additional
Partnership Interests pursuant to the provisions hereof. Such reimbursements
shall be in addition to any reimbursement to the General Partner as a result of
indemnification pursuant to Section 7.7.
C. If and to the extent any reimbursements to the General
Partner pursuant to this Section 7.4 constitute gross income of the General
Partner (as opposed to the repayment of advances made by the General Partner on
behalf of the Partnership), such amounts shall constitute guaranteed payments
within the meaning of Section 707(c) of the Code, shall be treated consistently
therewith by the Partnership and all Partners, and shall not be treated as
distributions for purposes of computing the Partners' Capital Accounts.
Section 7.5. Outside Activities of the General Partner
A. Except in connection with a transaction authorized in
Section 11.2, without the Consent of the Limited Partners, the General Partner
shall not, directly or indirectly, enter into or conduct any business, other
than in connection with the ownership, acquisition and disposition of
Partnership Interests as a General Partner and the management of the business of
the 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 the same. Without the Consent of
the Limited Partners, the General Partner shall not, directly or indirectly,
participate in or otherwise acquire any interest in any real or personal
property, except its General Partner Interest, its interest in any Subsidiary
Partnership(s) (held directly or indirectly through a Qualified REIT Subsidiary)
that the General Partner holds in order to maintain such Subsidiary
Partnership's status as a partnership, and such bank accounts, similar
instruments or other short-term investments as it deems necessary to carry out
its responsibilities contemplated under this Agreement and the Charter. In the
event the General Partner desires to contribute cash to any Subsidiary
Partnership to acquire or maintain an interest of 1% or less in the capital of
such partnership, the General Partner may acquire such cash from the [Operating]
Partnership in exchange for a reduction in the General Partner's OP Units, in an
amount equal to the amount of such cash divided by the Fair Market Value of a
REIT Share on the day such cash is received by the General Partner.
Notwithstanding the foregoing, the General Partner may
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acquire Properties in exchange for REIT Shares, to the extent such Properties
are immediately contributed by the General Partner to the Partnership, pursuant
to the terms described in Section 4.3.E. Any Limited Partner Interests acquired
by the General Partner, whether pursuant to exercise by a Limited Partner of its
right of Redemption, or otherwise, shall be automatically converted into a
General Partner Interest comprised of an identical number of Partnership Units
with the same rights, priorities and preferences as the class or series so
acquired. If, at any time, the General Partner acquires material assets (other
than on behalf of the Partnership) the definition of "REIT Shares Amount" shall
be adjusted, as reasonably agreed to by the General Partner and the other
Limited Partners, to reflect the relative Fair Market Value of a share of
capital stock of the General Partner relative to the Deemed Partnership Interest
Value of the related Partnership Unit. The General Partner's General Partner
Interest in the Partnership, its minority interest in any Subsidiary
Partnership(s) (held directly or indirectly through a Qualified REIT Subsidiary)
that the General Partner holds in order to maintain such Subsidiary
Partnership's status as a partnership, and interests in such short-term liquid
investments, bank accounts or similar instruments as the General Partner deems
necessary to carry out its responsibilities contemplated under this Agreement
and the Charter are interests which the General Partner is permitted to acquire
and hold for purposes of this Section 7.5.A.
B. In the event the General Partner exercises its rights under
the Charter to purchase REIT Shares or Preferred Shares, then the General
Partner shall cause the Partnership to redeem from it a number of Partnership
Units of the appropriate class as determined based on, in the case of REIT
Shares, the REIT Shares Amount equal to the number of REIT Shares so purchased,
or in the case of Preferred Shares an equal number of Preferred Units which
correspond in ranking to the Preferred Shares so purchased, in each case on the
same terms that the General Partner purchased such REIT Shares or Preferred
Shares (as applicable).
Section 7.6. Contracts with Affiliates
A. Except as expressly permitted by this Agreement, the
Partnership shall not, directly or indirectly, sell, transfer or convey any
property to, or purchase any property from, or borrow funds from, or lend funds
to, any Partner or any Affiliate of the Partnership that is not also a
Subsidiary of the Partnership, except pursuant to transactions that are on terms
that are fair and reasonable and no less favorable to the Partnership than would
be obtained from an unaffiliated third party.
B. The General Partner, in its sole and absolute discretion
and without the approval of the Limited Partners, may propose and adopt on
behalf of the Partnership employee benefit plans funded by the Partnership for
the benefit of employees of the General Partner, the Partnership, Subsidiaries
of the Partnership or any Affiliate of any of them in respect of services
performed, directly or indirectly, for the benefit of the Partnership, the
General Partner, or any of the Partnership's Subsidiaries. The General Partner
also is expressly authorized to cause the Partnership to issue to it Partnership
Units corresponding to REIT Shares issued by the General Partner pursuant to its
Stock Incentive Plan or any similar or successor plan and to repurchase such
Partnership Units from the General Partner to the extent necessary to permit the
General Partner to repurchase such REIT Shares in accordance with such plan.
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Section 7.7. Indemnification
A. The Partnership shall indemnify an Indemnitee from and
against any and all losses, claims, damages, liabilities, joint or several,
expenses (including legal fees and expenses), judgments, fines, settlements, and
other amounts arising from any and all claims, demands, actions, suits or
proceedings, civil, criminal, administrative or investigative, that relate to
the operations of the Partnership as set forth in this Agreement in which any
Indemnitee may be involved, or is threatened to be involved, as a party or
otherwise, unless it is established that: (i) the act or omission of the
Indemnitee 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 Indemnitee actually received an improper personal benefit
in money, property or services; or (iii) in the case of any criminal proceeding,
the Indemnitee had reasonable cause to believe that the act or omission was
unlawful. Without limitation, the foregoing indemnity shall extend to any
liability of any Indemnitee, pursuant to a loan guaranty or otherwise, for any
indebtedness of the Partnership or any Subsidiary of the Partnership (including,
without limitation, any indebtedness which the Partnership or any Subsidiary of
the Partnership has assumed or taken subject to), and the General Partner is
hereby authorized and empowered, on behalf of the Partnership, to enter into one
or more indemnity agreements consistent with the provisions of this Section 7.7
in favor of any Indemnitee having or potentially having liability for any such
indebtedness. The termination of any proceeding by judgment, order or settlement
does not create a presumption that the Indemnitee did not meet the requisite
standard of conduct set forth in this Section 7.7.A. The termination of any
proceeding by conviction or upon a plea of nolo contendere or its equivalent, or
any entry of an order of probation prior to judgment, creates a rebuttable
presumption that the Indemnitee acted in a manner contrary to that specified in
this Section 7.7.A. Any indemnification pursuant to this Section 7.7 shall be
made only out of the assets of the Partnership, and any insurance proceeds from
the liability policy covering the General Partner and any Indemnitee, and
neither the General Partner nor any Limited Partner shall have any obligation to
contribute to the capital of the Partnership or otherwise provide funds to
enable the Partnership to fund its obligations under this Section 7.7.
B. Reasonable expenses incurred by an Indemnitee who is a
party to a proceeding may be paid or reimbursed by the Partnership in advance of
the final disposition of the proceeding upon receipt by the Partnership of (i) a
written affirmation by the Indemnitee of the Indemnitee's good faith belief that
the standard of conduct necessary for indemnification by the Partnership as
authorized in Section 7.7.A has been met and (ii) a written undertaking by or on
behalf of the Indemnitee to repay the amount if it shall ultimately be
determined that the standard of conduct has not been met.
C. The indemnification provided by this Section 7.7 shall be
in addition to any other rights to which an Indemnitee or any other Person may
be entitled under any agreement, pursuant to any vote of the Partners, as a
matter of law or otherwise, and shall continue as to an Indemnitee who has
ceased to serve in such capacity.
D. The Partnership may purchase and maintain insurance, on
behalf of the Indemnitees and such other Persons as the General Partner shall
determine, against any liability that may be asserted against or expenses that
may be incurred by any such Person in connection
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with the Partnership's activities, regardless of whether the Partnership would
have the power to indemnify such Person against such liability under the
provisions of this Agreement.
E. For purposes of this Section 7.7, the Partnership shall be
deemed to have requested an Indemnitee to serve as fiduciary of an employee
benefit plan whenever the performance by it of its duties to the Partnership
also imposes duties on, or otherwise involves services by, it to the plan or
participants or beneficiaries of the plan; excise taxes assessed on an
Indemnitee with respect to an employee benefit plan pursuant to applicable law
shall constitute fines within the meaning of Section 7.7; and actions taken or
omitted by the Indemnitee with respect to an employee benefit plan in the
performance of its duties for a purpose reasonably believed by it to be in the
interest of the participants and beneficiaries of the plan shall be deemed to be
for a purpose which is not opposed to the best interests of the Partnership.
F. In no event may an Indemnitee subject the Limited Partners
to personal liability by reason of the indemnification provisions set forth in
this Agreement.
G. An Indemnitee shall not be denied indemnification in whole
or in part under this Section 7.7 because the Indemnitee had an interest in the
transaction with respect to which the indemnification applies if the transaction
was otherwise permitted by the terms of this Agreement.
H. The provisions of this Section 7.7 are for the benefit of
the Indemnitees, their heirs, successors, assigns and administrators and shall
not be deemed to create any rights for the benefit of any other Persons. Any
amendment, modification or repeal of this Section 7.7 or any provision hereof
shall be prospective only and shall not in any way affect the limitations on the
Partnership's liability to any Indemnitee under this Section 7.7 as in effect
immediately prior to such amendment, modification or repeal with respect to
claims arising from or relating to matters occurring, in whole or in part, prior
to such amendment, modification or repeal, regardless of when such claims may
arise or be asserted.
I. If and to the extent any reimbursements to the General
Partner pursuant to this Section 7.7 constitute gross income of the General
Partner (as opposed to the repayment of advances made by the General Partner on
behalf of the Partnership) such amounts shall constitute guaranteed payments
within the meaning of Section 707(c) of the Code, shall be treated consistently
therewith by the Partnership and all Partners, and shall not be treated as
distributions for purposes of computing the Partners' Capital Accounts.
J. Any indemnification hereunder is subject to, and limited
by, the provisions of Section 17-108 of the Act.
K. In the event the Partnership is made a party to any
litigation or otherwise incurs any loss or expense as a result of or in
connection with any Partner's personal obligations or liabilities unrelated to
Partnership business, such Partner shall indemnify and reimburse the Partnership
for all such loss and expense incurred, including legal fees, and the
Partnership Interest of such Partner may be charged therefor. The liability of a
Partner under this Section 7.7.K shall not be limited to such Partner's
Partnership Interest, but shall be enforceable against such Partner personally.
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Section 7.8. Liability of the General Partner
A. Notwithstanding anything to the contrary set forth in this
Agreement, none of the General Partner and any of its officers, directors,
agents and employees shall be liable or accountable in damages or otherwise to
the Partnership, any Partners or any Assignees, or their successors or assigns,
for losses sustained, liabilities incurred or benefits not derived as a result
of errors in judgment or mistakes of fact or law or any act or omission if the
General Partner acted in good faith.
B. The Limited Partners expressly acknowledge that the General
Partner is acting for the benefit of the Partnership, the Limited Partners and
the General Partner's stockholders collectively, that the General Partner is
under no obligation to give priority to the separate interests of the Limited
Partners or the General Partner's stockholders (including, without limitation,
the tax consequences to Limited Partners or Assignees or to stockholders) in
deciding whether to cause the Partnership to take (or decline to take) any
actions and that the General Partner shall not be liable to the Partnership or
to any Limited Partner for monetary damages for losses sustained, liabilities
incurred, or benefits not derived by Limited Partners in connection with such
decisions; provided, that the General Partner has acted in good faith.
C. Subject to its obligations and duties as General Partner
set forth in Section 7.1.A, the General Partner may exercise any of the powers
granted to it by this Agreement and perform any of the duties imposed upon it
hereunder either directly or by or through its agents. The General Partner shall
not be responsible for any misconduct or negligence on the part of any such
agent appointed by it in good faith. In no event shall the liability of the
General Partner and its officers, directors, agents and employees, to the
Partnership and the Limited Partners under this Section 7.8 be greater than the
Partnership Interest of the General Partner.
D. Any amendment, modification or repeal of this Section 7.8
or any provision hereof shall be prospective only and shall not in any way
affect the limitations on the liability of the General Partner and any of its
officers, directors, agents and employees to the Partnership and the Limited
Partners under this Section 7.8 as in effect immediately prior to such
amendment, modification or repeal with respect to claims arising from or
relating to matters occurring, in whole or in part, prior to such amendment,
modification or repeal, regardless of when such claims may arise or be asserted.
Section 7.9. Other Matters Concerning the General Partner
A. The General Partner may rely and shall be protected in
acting or refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, consent, order, bond, debenture,
or other paper or document believed by it to be genuine and to have been signed
or presented by the proper party or parties.
B. The General Partner may consult with legal counsel,
accountants, appraisers, management consultants, investment bankers and other
consultants and advisers selected by it, and any act taken or omitted to be
taken in reliance upon the opinion of such Persons as to matters which such
General Partner reasonably believes to be within such Person's professional or
expert competence shall be conclusively presumed to have been done or omitted in
good faith and in accordance with such opinion.
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C. The General Partner shall have the right, in respect of any
of its powers or obligations hereunder, to act through any of its duly
authorized officers and a duly appointed attorney or attorneys-in-fact. Each
such attorney shall, to the extent provided by the General Partner in the power
of attorney, have full power and authority to do and perform all and every act
and duty which is permitted or required to be done by the General Partner
hereunder.
D. Notwithstanding any other provisions of this Agreement or
any non-mandatory provision of the Act, any action of the General Partner on
behalf of the Partnership or any decision of the General Partner to refrain from
acting on behalf of the Partnership, undertaken in the good faith belief that
such action or omission is necessary or advisable in order to protect the
ability of the General Partner, for so long as the General Partner has
determined to qualify as a REIT, to (i) continue to qualify as a REIT or (ii)
avoid the General Partner incurring any taxes under Section 857 or Section 4981
of the Code is expressly authorized under this Agreement and is deemed approved
by all of the Limited Partners.
E. So long as the Company holds any interest in the
Partnership (as either a General Partner or Limited Partner), the Company shall
have "management rights" (as such term is defined in the Plan Asset Regulation)
with respect to the Partnership and its Properties to the extent necessary to
qualify the Company as a "venture capital operating company" (as such term is
defined in the Plan Asset Regulation).
Section 7.10. Title to Partnership Assets
Title to Partnership assets, whether real, personal or mixed
and whether tangible or intangible, shall be deemed to be owned by the
Partnership as an entity, and no Partners, individually or collectively, shall
have any ownership interest in such Partnership assets or any portion thereof.
Title to any or all of the Partnership assets may be held in the name of the
Partnership, the General Partner or one or more nominees, as the General Partner
may determine, including Affiliates of the General Partner. The General Partner
hereby declares and warrants that any Partnership assets for which legal title
is held in the name of the General Partner or any nominee or Affiliate of the
General Partner shall be deemed held by the General Partner or such nominee or
Affiliate for the use and benefit of the Partnership in accordance with the
provisions of this Agreement; provided, however, that the General Partner shall
use its best efforts to cause beneficial and record title to such assets to be
vested in the Partnership as soon as reasonably practicable. All Partnership
assets shall be recorded as the property of the Partnership in its books and
records, irrespective of the name in which legal title to such Partnership
assets is held.
Section 7.11. Reliance by Third Parties
Notwithstanding anything to the contrary in this Agreement,
any Person dealing with the Partnership shall be entitled to assume that the
General Partner has full power and authority to encumber, sell or otherwise use
in any manner any and all assets of the Partnership and to enter into any
contracts on behalf of the Partnership, and such Person shall be entitled to
deal with the General Partner as if it were the Partnership's sole party in
interest, both legally and beneficially. Each Limited Partner hereby waives any
and all defenses or other remedies which may be available against such Person to
contest, negate or disaffirm any action of the General Partner in connection
with any such dealing. In no event shall any Person dealing with the
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General Partner or its representatives be obligated to ascertain that the terms
of this Agreement have been complied with or to inquire into the necessity or
expedience of any act or action of the General Partner or its representatives.
Each and every certificate, document or other instrument executed on behalf of
the Partnership by the General Partner or its representatives shall be
conclusive evidence in favor of any and every Person relying thereon or claiming
thereunder that (i) at the time of the execution and delivery of such
certificate, document or instrument, this Agreement was in full force and
effect, (ii) the Person executing and delivering such certificate, document or
instrument was duly authorized and empowered to do so for and on behalf of the
Partnership and (iii) such certificate, document or instrument was duly executed
and delivered in accordance with the terms and provisions of this Agreement and
is binding upon the Partnership.
ARTICLE 8.
RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS
Section 8.1. Limitation of Liability
The Limited Partners shall have no liability under this
Agreement except as expressly provided in this Agreement or under the Act.
Section 8.2. Management of Business
No Limited Partner or Assignee (other than the General
Partner, any of its Affiliates or any officer, director, employee, general
partner, agent or trustee of the General Partner, the Partnership or any of
their Affiliates, in their capacity as such) shall take part in the operations,
management or control (within the meaning of the Act) of the Partnership's
business, transact any business in the Partnership's name or have the power to
sign documents for or otherwise bind the Partnership. The transaction of any
such business by the General Partner, any of its Affiliates or any officer,
director, employee, general partner, agent or trustee of the General Partner,
the Partnership or any of their Affiliates, in their capacity as such, shall not
affect, impair or eliminate the limitations on the liability of the Limited
Partners or Assignees under this Agreement.
Section 8.3. Outside Activities of Limited Partners
Subject to any agreements entered into by a Limited Partner or
its Affiliates with the General Partner, Partnership or a Subsidiary, any
Limited Partner and any officer, director, employee, agent, trustee, Affiliate
or stockholder of any Limited Partner shall be entitled to and may have business
interests and engage in business activities in addition to those relating to the
Partnership, including business interests and activities in direct competition
with the Partnership or that are enhanced by the activities of the Partnership.
Neither the Partnership nor any Partners shall have any rights by virtue of this
Agreement in any business ventures of any Limited Partner or Assignee. Subject
to such agreements, none of the Limited Partners nor any other Person shall have
any rights by virtue of this Agreement or the partnership relationship
established hereby in any business ventures of any other Person, other than the
Limited Partners benefiting from the business conducted by the General Partner,
and such other Person shall have no obligation pursuant to this Agreement to
offer any interest in any such business ventures to the Partnership, any Limited
Partner or any such other Person, even if such opportunity is of a character
which, if
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presented to the Partnership, any Limited Partner or such other Person, could be
taken by such other Person.
Section 8.4. Return of Capital
Except pursuant to the rights of Redemption set forth in
Section 8.6, no Limited Partner shall be entitled to the withdrawal or return of
his or her Capital Contribution, except to the extent of distributions made
pursuant to this Agreement or upon termination of the Partnership as provided
herein. Except as expressly set forth herein with respect to the rights,
priorities and preferences of the Preferred Partners holding any series of
Preferred Units, no Partner or Assignee shall have priority over any other
Partner or Assignee either as to the return of Capital Contributions, or as
otherwise expressly provided in this Agreement, as to profits, losses,
distributions or credits.
Section 8.5. Rights of Limited Partners Relating to the
Partnership
A. In addition to other rights provided by this Agreement or
by the Act, and except as limited by Section 8.5.C, each Limited Partner shall
have the right, for a purpose reasonably related to such Limited Partner's
interest as a limited partner in the Partnership, upon written demand with a
statement of the purpose of such demand and at the Partnership's expense:
(i) to obtain a copy of the most recent annual and
quarterly reports filed with the Securities and
Exchange Commission by the General Partner pursuant
to the Exchange Act, and each communication sent to
the stockholders of the General Partner;
(ii) to obtain a copy of the Partnership's Federal, state
and local income tax returns for each Partnership
Year;
(iii) to obtain a current list of the name and last known
business, residence or mailing address of each
Partner;
(iv) to obtain a copy of this Agreement and the
Certificate and all amendments thereto, together with
executed copies of all powers of attorney pursuant to
which this Agreement, the Certificate and all
amendments thereto have been executed; and
(v) to obtain true and full information regarding the
amount of cash and a description and statement of any
other property or services contributed by each
Partner and which each Partner has agreed to
contribute in the future, and the date on which each
became a Partner.
B. The Partnership shall notify each Limited Partner in
writing of any adjustment made in the calculation of the REIT Shares Amount
within ten (10) Business Days of the date such change becomes effective.
C. Notwithstanding any other provision of this Section 8.5,
the General Partner may keep confidential from the Limited Partners, for such
period of time as the General
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Partner determines in its sole and absolute discretion to be reasonable, any
information that (i) the General Partner believes to be in the nature of trade
secrets or other information the disclosure of which the General Partner in good
faith believes is not in the best interests of the Partnership or (ii) the
Partnership or the General Partner is required by law or by agreements with
unaffiliated third parties to keep confidential.
Section 8.6. Limited Partner Redemption Rights
A. On or after the date one year after the Effective Date, or
on or after such later date as expressly provided in an agreement entered into
between the Partnership and any Limited Partner, each Limited Partner shall have
the right (subject to the terms and conditions set forth herein and in any other
such agreement, as applicable) to require the Partnership to redeem all or a
portion of the Partnership Units held by such Limited Partner (such Partnership
Units being hereafter referred to as "Tendered Units") in exchange for the Cash
Amount (a "Redemption"); provided, that the terms of such Partnership Units do
not provide that such Partnership Units are not entitled to a right of
Redemption. Unless otherwise expressly provided in this Agreement or a separate
agreement entered into between the Partnership and the holders of such
Partnership Units, all Partnership Units shall be entitled to a right of
Redemption hereunder. Notwithstanding the foregoing, a PLP shall not have the
right to require the Partnership to redeem, and the Partnership may not redeem,
(i) a number of Performance Units held by such PLP in excess of the Performance
Amount; or (ii) any Performance Units prior to the second anniversary of their
issuance. Any Redemption shall be exercised pursuant to a Notice of Redemption
delivered to the General Partner by the Limited Partner who is exercising the
right (the "Tendering Partner"). The Cash Amount shall be delivered as a
certified check payable to the Tendering Partner within ten (10) days of the
Specified Redemption Date in accordance with the instructions set forth in the
Notice of Redemption.
B. Notwithstanding Section 8.6.A above, if a Limited Partner
has delivered to the General Partner a Notice of Redemption then the General
Partner may, in its sole and absolute discretion, (subject to the limitations on
ownership and transfer of REIT Shares set forth in Article IV.E of the Charter)
elect to acquire some or all of the Tendered Units from the Tendering Partner in
exchange for the REIT Shares Amount (as of the Specified Redemption Date) and,
if the General Partner so elects, the Tendering Partner shall sell the Tendered
Units to the General Partner in exchange for the REIT Shares Amount. In such
event, the Tendering Partner shall have no right to cause the Partnership to
redeem such Tendered Units. The General Partner shall promptly give such
Tendering Partner written notice of its election, and the Tendering Partner may
elect to withdraw its redemption request at any time prior to the acceptance of
the Cash Amount or REIT Shares Amount by such Tendering Partner.
C. The REIT Shares Amount, if applicable, shall be delivered
as duly authorized, validly issued, fully paid and nonassessable REIT Shares
and, if applicable, free of any pledge, lien, encumbrance or restriction, other
than those provided in the Charter, the Bylaws of the General Partner, the
Securities Act, relevant state securities or blue sky laws and any applicable
registration rights agreement with respect to such REIT Shares entered into by
the Tendering Partner. The REIT Shares Amount shall be registered in the name
and otherwise delivered as set forth in the Notice of Redemption.
Notwithstanding any delay in such delivery (but subject to Section 8.6.E below),
the Tendering Partner shall be deemed the owner of such
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REIT Shares for all purposes, including without limitation, rights to vote or
consent, and receive dividends, as of the Specified Redemption Date.
D. Each Limited Partner covenants and agrees with the General
Partner that all Tendered Units shall be delivered to the General Partner free
and clear of all liens, claims and encumbrances whatsoever and should any such
liens, claims and/or encumbrances exist or arise with respect to such Tendered
Units, the General Partner shall be under no obligation to acquire the same.
Each Limited Partner further agrees that, in the event any state or local
property transfer tax is payable as a result of the transfer of its Tendered
Units to the General Partner (or its designee), such Limited Partner shall
assume and pay such transfer tax.
E. Notwithstanding the provisions of Sections 8.6.A, 8.6.B,
8.6.C or any other provision of this Agreement, a Limited Partner (i) shall not
be entitled to effect a Redemption for cash or an exchange for REIT Shares to
the extent the ownership or right to acquire REIT Shares pursuant to such
exchange by such Partner on the Specified Redemption Date would cause such
Partner or any other Person, or, in the opinion of counsel selected by the
General Partner, may cause such Partner or any other Person, to violate the
restrictions on ownership and transfer of REIT Shares set forth in Article IV.E
of the Charter and (ii) shall have no rights under this Agreement to acquire
REIT Shares which would otherwise be prohibited under the Charter. To the extent
any attempted Redemption or exchange for REIT Shares would be in violation of
this Section 8.6.E, it shall be null and void ab initio and such Limited Partner
shall not acquire any rights or economic interest in the cash otherwise payable
upon such redemption or the REIT Shares otherwise issuable upon such exchange.
F. Notwithstanding anything herein to the contrary (but
subject to Section 8.6.E above), with respect to any Redemption or exchange for
REIT Shares pursuant to this Section 8.6:
(i) All Partnership Units acquired by the General Partner
pursuant thereto shall automatically, and without
further action required, be converted into and deemed
to be General Partner Interests comprised of the same
number and class of Partnership Units.
(ii) Without the consent of the General Partner, each
Limited Partner may not effect a Redemption for less
than 10,000 Partnership Units or, if the Limited
Partner holds less than 10,000 Partnership Units, all
of the Partnership Units held by such Limited
Partner.
(iii) Without the consent of the General Partner, each
Limited Partner may not effect a Redemption during
the period after the Partnership Record Date with
respect to a distribution and before the record date
established by the General Partner for a distribution
to its common stockholders of some or all of its
portion of such distribution.
(iv) The consummation of any Redemption or exchange for
REIT Shares shall be subject to the expiration or
termination of the applicable waiting period, if any,
under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended.
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(v) Each Tendering Partner shall continue to own all
Partnership Units subject to any Redemption or
exchange for REIT Shares, and be treated as a Limited
Partner with respect to such Partnership Units for
all purposes of this Agreement, until such
Partnership Units are transferred to the General
Partner and paid for or exchanged as of the Specified
Redemption Date. Until a Specified Redemption Date,
the Tendering Partner shall have no rights as a
stockholder of the General Partner with respect to
such Tendering Partner's Partnership Units.
G. In the event that the Partnership issues additional
Partnership Interests to any Additional Limited Partner pursuant to Section
4.3.C, the General Partner shall make such revisions to this Section 8.6 as it
determines are necessary to reflect the issuance of such additional Partnership
Interests.
ARTICLE 9.
BOOKS, RECORDS, ACCOUNTING AND REPORTS
Section 9.1. Records and Accounting
The General Partner shall keep or cause to be kept at the
principal office of the Partnership appropriate books and records with respect
to the Partnership's business, including without limitation, all books and
records necessary to provide to the Limited Partners any information, lists and
copies of documents required to be provided pursuant to Section 9.3. Any records
maintained by or on behalf of the Partnership in the regular course of its
business may be kept on, or be in the form of, punch cards, magnetic tape,
photographs, micrographics or any other information storage device; provided,
that the records so maintained are convertible into clearly legible written form
within a reasonable period of time. The books of the Partnership shall be
maintained, for financial and tax reporting purposes, on an accrual basis in
accordance with generally accepted accounting principles.
Section 9.2. Fiscal Year
The fiscal year of the Partnership shall be the calendar year.
Section 9.3. Reports
A. As soon as practicable, but in no event later than one
hundred and five (105) days after the close of each Partnership Year, or such
earlier date as they are filed with the Securities and Exchange Commission, the
General Partner shall cause to be mailed to each Limited Partner as of the close
of the Partnership Year, an annual report containing financial statements of the
Partnership, or of the General Partner if such statements are prepared solely on
a consolidated basis with the General Partner, for such Partnership Year,
presented in accordance with generally accepted accounting principles, such
statements to be audited by a nationally recognized firm of independent public
accountants selected by the General Partner.
B. As soon as practicable, but in no event later than
forty-five (45) days after the close of each calendar quarter (except the last
calendar quarter of each year), or such earlier date as they are filed with the
Securities and Exchange Commission, the General Partner shall
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cause to be mailed to each Limited Partner as of the last day of the calendar
quarter, a report containing unaudited financial statements of the Partnership,
or of the General Partner, if such statements are prepared solely on a
consolidated basis with the General Partner, presented in accordance with the
applicable law or regulation, or as the General Partner determines to be
appropriate.
Section 9.4. Nondisclosure of Certain Information
Notwithstanding the provisions of Sections 9.1 and 9.3, the
General Partner may keep confidential from the Limited Partners any information
that the General Partner believes to be in the nature of trade secrets or other
information the disclosure of which the General Partner in good faith believes
is not in the best interests of the Partnership or which the Partnership is
required by law or by agreements with unaffiliated third parties to keep
confidential.
ARTICLE 10.
TAX MATTERS
Section 10.1. Preparation of Tax Returns
The General Partner shall arrange for the preparation and
timely filing of all returns of Partnership income, gains, deductions, losses
and other items required of the Partnership for Federal and state income tax
purposes and shall use all reasonable efforts to furnish, within ninety (90)
days of the close of each taxable year, the tax information reasonably required
by Limited Partners for Federal and state income tax reporting purposes. The
Limited Partners shall promptly provide the General Partner with such
information relating to the Contributed Properties contributed by such Partner
to the Partnership on or after July __, 1998, including tax basis and other
relevant information, as may be reasonably requested by the General Partner from
time to time.
Section 10.2. Tax Elections
Except as otherwise provided herein, the General Partner
shall, in its sole and absolute discretion, determine whether to make any
available election pursuant to the Code, including the election under Section
754 of the Code. The General Partner shall have the right to seek to revoke any
such election (including without limitation, any election under Section 754 of
the Code) upon the General Partner's determination in its sole and absolute
discretion that such revocation is the best interests of the Partners.
Section 10.3. Tax Matters Partner
A. The General Partner shall be the "tax matters partner" of
the Partnership for Federal income tax purposes. Pursuant to Section 6223(c) of
the Code, upon receipt of notice from the IRS of the beginning of an
administrative proceeding with respect to the Partnership, the tax matters
partner shall furnish the IRS with the name, address and profit interest of each
of the Limited Partners and Assignees; provided, however, that such information
is provided to the Partnership by the Limited Partners and Assignees.
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B. The tax matters partner is authorized, but not
required:
(i) to enter into any settlement with the IRS with
respect to any administrative or judicial proceedings
for the adjustment of Partnership items required to
be taken into account by a Partner for income tax
purposes (such administrative proceedings being
referred to as a "tax audit" and such judicial
proceedings being referred to as "judicial review"),
and in the settlement agreement the tax matters
partner may expressly state that such agreement shall
bind all Partners, except that such settlement
agreement shall not bind any Partner (a) who (within
the time prescribed pursuant to the Code and
Regulations) files a statement with the IRS providing
that the tax matters partner shall not have the
authority to enter into a settlement agreement on
behalf of such Partner or (b) who is a "notice
partner" (as defined in Section 6231 of the Code) or
a member of a "notice group" (as defined in Section
6223(b)(2) of the Code);
(ii) in the event that a notice of a final administrative
adjustment at the Partnership level of any item
required to be taken into account by a Partner for
tax purposes (a "final adjustment") is mailed to the
tax matters partner, to seek judicial review of such
final adjustment, including the filing of a petition
for readjustment with the Tax Court or the United
States Claims Court, or the filing of a complaint for
refund with the District Court of the United States
for the district in which the Partnership's principal
place of business is located;
(iii) to intervene in any action brought by any other
Partner for judicial review of a final adjustment;
(iv) to file a request for an administrative adjustment
with the IRS at any time and, if any part of such
request is not allowed by the IRS, to file an
appropriate pleading (petition or complaint) for
judicial review with respect to such request;
(v) to enter into an agreement with the IRS to extend the
period for assessing any tax which is attributable to
any item required to be taken into account by a
Partner for tax purposes, or an item affected by such
item; and
(vi) to take any other action on behalf of the Partners of
the Partnership in connection with any tax audit or
judicial review proceeding to the extent permitted by
applicable law or regulations.
The taking of any action and the incurring of any expense by
the tax matters partner in connection with any such proceeding, except to the
extent required by law, is a matter in the sole and absolute discretion of the
tax matters partner and the provisions relating to indemnification of the
General Partner set forth in Section 7.7 shall be fully applicable to the tax
matters partner in its capacity as such.
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C. The tax matters partner shall receive no compensation for
its services. All third party costs and expenses incurred by the tax matters
partner in performing its duties as such (including legal and accounting fees)
shall be borne by the Partnership. Nothing herein shall be construed to restrict
the Partnership from engaging an accounting firm to assist the tax matters
partner in discharging its duties hereunder, so long as the compensation paid by
the Partnership for such services is reasonable.
Section 10.4. Organizational Expenses
The Partnership shall elect to deduct expenses, if any,
incurred by it in organizing the Partnership ratably over a sixty (60) month
period as provided in Section 709 of the Code.
Section 10.5. Withholding
Each Limited Partner hereby authorizes the Partnership to
withhold from or pay on behalf of or with respect to such Limited Partner any
amount of Federal, state, local, or foreign taxes that the General Partner
determines that the Partnership is required to withhold or pay with respect to
any amount distributable or allocable to such Limited Partner pursuant to this
Agreement, including, without limitation, any taxes required to be withheld or
paid by the Partnership pursuant to Sections 1441, 1442, 1445 or 1446 of the
Code. Any amount paid on behalf of or with respect to a Limited Partner shall
constitute a loan by the Partnership to such Limited Partner, which loan shall
be repaid by such Limited Partner within fifteen (15) days after notice from the
General Partner that such payment must be made unless (i) the Partnership
withholds such payment from a distribution which would otherwise be made to the
Limited Partner or (ii) the General Partner determines, in its sole and absolute
discretion, that such payment may be satisfied out of the available funds of the
Partnership which would, but for such payment, be distributed to the Limited
Partner. Any amounts withheld pursuant to the foregoing clauses (i) or (ii)
shall be treated as having been distributed to such Limited Partner. Each
Limited Partner hereby unconditionally and irrevocably grants to the Partnership
a security interest in such Limited Partner's Partnership Interest to secure
such Limited Partner's obligation to pay to the Partnership any amounts required
to be paid pursuant to this Section 10.5. In the event that a Limited Partner
fails to pay any amounts owed to the Partnership pursuant to this Section 10.5
when due, the General Partner may, in its sole and absolute discretion, elect to
make the payment to the Partnership on behalf of such defaulting Limited
Partner, and in such event shall be deemed to have loaned such amount to such
defaulting Limited Partner and shall succeed to all rights and remedies of the
Partnership as against such defaulting Limited Partner (including, without
limitation, the right to receive distributions and the holding of a security
interest in such Limited Partner's Partnership Interest). Any amounts payable by
a Limited Partner hereunder shall bear interest at the base rate on corporate
loans at large United States money center commercial banks, as published from
time to time in the Wall Street Journal, plus two percentage points (but not
higher than the maximum lawful rate) from the date such amount is due (i.e., 15
days after demand) until such amount is paid in full. Each Limited Partner shall
take such actions as the Partnership or the General Partner shall request in
order to perfect or enforce the security interest created hereunder.
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ARTICLE 11.
TRANSFERS AND WITHDRAWALS
Section 11.1. Transfer
A. The term "transfer," when used in this Article 11 with
respect to a Partnership Interest, shall be deemed to refer to a transaction by
which the General Partner purports to assign its General Partner Interest to
another Person or by which a Limited Partner purports to assign its Limited
Partnership Interest to another Person, and includes a sale, assignment, gift
(outright or in trust), pledge, encumbrance, hypothecation, mortgage, exchange
or any other disposition by law or otherwise. Except to the extent otherwise
specified, the term "transfer" when used in this Article 11 does not include any
Redemption or exchange for REIT Shares pursuant to Section 8.6. No part of the
interest of a Limited Partner shall be subject to the claims of any creditor,
any spouse for alimony or support, or to legal process, and may not be
voluntarily or involuntarily alienated or encumbered, except as may be
specifically provided for in this Agreement.
B. No Partnership Interest shall be transferred, in whole or
in part, except in accordance with the terms and conditions set forth in this
Article 11. Any transfer or purported transfer of a Partnership Interest not
made in accordance with this Article 11 shall be null and void ab initio unless
otherwise consented by the General Partner in its sole and absolute discretion.
Section 11.2. Transfer of General Partner's Partnership
Interest
A. The General Partner shall not withdraw from the Partnership
and shall not transfer all or any portion of its interest in the Partnership
(whether by sale, statutory merger, consolidation, liquidation or otherwise)
without the Consent of the Limited Partners which may be given or withheld by
each such Limited Partner in its sole and absolute discretion, and only upon the
admission of a successor General Partner pursuant to Section 12.1; provided,
however, that, subject to Sections 11.2.B, 11.2.C, 11.2.D and 11.2.E, the
General Partner may withdraw from the Partnership and transfer all of its
interest upon the merger, consolidation or sale of substantially all of the
assets of the General Partner without the consent of any Limited Partners. Upon
any transfer of a Partnership Interest in accordance with the provisions of this
Section 11.2, the transferee shall become a substitute General Partner for all
purposes herein, and shall be vested with the powers and rights of the
transferor General Partner, and shall be liable for all obligations and
responsible for all duties of the General Partner, once such transferee has
executed such instruments as may be necessary to effectuate such admission and
to confirm the agreement of such transferee to be bound by all the terms and
provisions of this Agreement with respect to the Partnership Interest so
acquired. It is a condition to any transfer otherwise permitted hereunder that
the transferee assumes, by operation of law or express agreement, all of the
obligations of the transferor General Partner under this Agreement with respect
to such transferred Partnership Interest, and no such transfer (other than
pursuant to a statutory merger or consolidation wherein all obligations and
liabilities of the transferor General Partner are assumed by a successor
corporation by operation of law) shall relieve the transferor General Partner of
its obligations under this Agreement without the Consent of the Partners, in
their reasonable discretion. In the event the General Partner withdraws from the
Partnership, or otherwise
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dissolves or terminates, or upon the Incapacity of the General Partner, all of
the remaining Partners may elect to continue the Partnership business by
selecting a substitute General Partner in accordance with the Act.
B. Neither the General Partner nor the 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 General Partner may not sell all or substantially all
of its assets (each a "Termination Transaction") unless in connection with the
Termination Transaction all holders of Partnership Units either will receive, or
will have the right to elect to receive, for each Partnership Unit an amount of
cash, securities or other property equal to the product of the REIT Share Amount
and the greatest amount of cash, securities or other property paid to the holder
of one REIT Share in consideration of one REIT 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 REIT Shares, each holder of Partnership 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
rights to Redemption (as set forth in Section 8.6) and received REIT Shares in
exchange for its Partnership Units immediately prior to the expiration of such
purchase, tender or exchange offer and had thereupon accepted such purchase,
tender or exchange offer. The PLPs shall have the benefit of the foregoing
provisions with respect to all of their Performance Units, notwithstanding the
limitation set forth in Section 8.6.A on a PLPs ability to exercise its rights
to a Redemption.
C. 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 Partnership
or another limited partnership or limited liability company which is the
survivor of a merger, consolidation or combination of assets with the
Partnership (in each case, the "Surviving Partnership"); (ii) the holders of
Partnership 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 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 Partnership Units regarding
liquidation, Redemption and exchange as are set forth 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 Section 11.2.B; or (b) the right to redeem
their Partnership Units for cash on terms equivalent to those in effect with
respect to their Partnership Units immediately prior to the consummation of such
transaction, or, if the ultimate controlling person of the Surviving Partnership
has publicly traded common equity securities, such common equity securities,
with an exchange ratio based on the determination of relative fair market value
of such securities and the REIT Shares.
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D. In connection with any transaction permitted by Section
11.2.B or 11.2.C the determination of relative fair market values and rights,
preferences and privileges of the Limited Partners shall be reasonably
determined by the General Partner'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 Partnership Units than the relative values
reflected in the terms of the Termination Transaction.
E. 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 REIT Shares are exchanged for consideration other than publicly traded
common equity, the transfer or release of remaining Performance Shares pursuant
to the Escrow Agreements, and resulting issuance of any Performance Units as set
forth in Section 4.3.F.
Section 11.3. Limited Partners' Rights to Transfer
A. Any Limited Partner may, at any time without the consent of
the General Partner, (i) transfer all or any portion of its Partnership Interest
to the General Partner, (ii) transfer all or any portion of its Partnership
Interest to an Affiliate controlled thereby or to an Immediate Family member,
subject to the provisions of Section 11.6, (iii) transfer all or any portion of
its Partnership Interest to a trust for the benefit of a charitable beneficiary
or to a charitable foundation, subject to the provisions of Section 11.6 and
(iv) subject to the provisions of Section 11.6, (a) pledge (a "Pledge") all or
any portion of its Partnership Interest to a lending institution, which is not
an Affiliate of such Limited Partner, as collateral or security for a bona fide
loan or other extension of credit, or (b) transfer such pledged Partnership
Interest to such lending institution in connection with the exercise of remedies
under such loan or extension of credit. In addition, each Limited Partner or
Assignee (resulting from a transfer made pursuant to clauses (i)-(iv) of the
preceding sentence) shall have the right to transfer all or any portion of its
Partnership Interest, subject to the provisions of Section 11.6 and the
satisfaction of each of the following conditions:
(a) General Partner Right of First Refusal. The
transferring Partner shall give written notice of the
proposed transfer to the General Partner, which
notice shall state (x) the identity of the proposed
transferee and (y) the amount and type of
consideration proposed to be received for the
transferred Partnership Units. The General Partner
shall have ten (10) days upon which to give the
transferring Partner notice of its election to
acquire the Partnership Units on the proposed terms.
If it so elects, it shall purchase the Partnership
Units on such terms within ten (10) days after giving
notice of such election. If it does not so elect, the
transferring Partner may transfer such Partnership
Units to a third party, on economic terms no more
favorable to the transferee than the proposed terms,
subject to the other conditions of this Section 11.3.
(b) Qualified Transferee. Any transfer of a Partnership
Interest shall be made only to Qualified Transferees.
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It is a condition to any transfer otherwise permitted
hereunder that the transferee assumes by operation of law or express agreement
all of the obligations of the transferor Limited Partner under this Agreement
with respect to such transferred Partnership Interest and no such transfer
(other than pursuant to a statutory merger or consolidation wherein all
obligations and liabilities of the transferor Partner are assumed by a successor
corporation by operation of law) shall relieve the transferor Partner of its
obligations under this Agreement without the approval of the General Partner, in
its reasonable discretion. Notwithstanding the foregoing, any transferee of any
transferred Partnership Interest shall be subject to any and all ownership
limitations contained in the Charter and to the representations set forth in
Section 3.4.D. Any transferee, whether or not admitted as a Substituted Limited
Partner, shall take subject to the obligations of the transferor hereunder.
Unless admitted as a Substituted Limited Partner, no transferee, whether by a
voluntary transfer, by operation of law or otherwise, shall have any rights
hereunder, other than the rights of an Assignee as provided in Section 11.5.
B. If a Limited Partner is subject to Incapacity, the
executor, administrator, trustee, committee, guardian, conservator, or receiver
of such Limited Partner's estate shall have all the rights of a Limited Partner,
but not more rights than those enjoyed by other Limited Partners, for the
purpose of settling or managing the estate, and such power as the Incapacitated
Limited Partner possessed to transfer all or any part of his or its interest in
the Partnership. The Incapacity of a Limited Partner, in and of itself, shall
not dissolve or terminate the Partnership.
C. The General Partner may prohibit any transfer otherwise
permitted under this Section 11.3 by a Limited Partner of his or her Partnership
Units if, in the opinion of legal counsel to the Partnership, such transfer
would require the filing of a registration statement under the Securities Act by
the Partnership or would otherwise violate any Federal or state securities laws
or regulations applicable to the Partnership or the Partnership Unit.
D. No transfer by a Limited Partner of his or her Partnership
Units (including any Redemption or exchange for REIT Shares pursuant to Section
8.6, or any other acquisition of Partnership Units by the General Partner or the
Partnership) may be made to any person if (i) in the opinion of legal counsel
for the Partnership, it could result in the Partnership being treated as an
association taxable as a corporation or (ii) such transfer could be treated as
effectuated through an "established securities market" or a "secondary market
(or the substantial equivalent thereof)" within the meaning of Section 7704 of
the Code.
E. No transfer of any Partnership Units may be made to a
lender to the Partnership or any Person who is related (within the meaning of
Section 1.752-4(b) of the Regulations) to any lender to the Partnership whose
loan constitutes a Nonrecourse Liability, without the consent of the General
Partner, in its sole and absolute discretion; provided, that as a condition to
such consent, the lender will be required to enter into an arrangement with the
Partnership and the General Partner to redeem or exchange for the REIT Shares
Amount any Partnership Units in which a security interest is held simultaneously
with the time at which such lender would be deemed to be a partner in the
Partnership for purposes of allocating liabilities to such lender under Section
752 of the Code.
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F. No Limited Partner may withdraw from the Partnership except
as a result of transfer, redemption or exchange of Partnership Units pursuant
hereto.
G. No PLP (or any transferee described below) shall be
entitled to transfer any Performance Units prior to the second anniversary of
their issuance, without the consent of the General Partner, which may be given
or withheld in its sole discretion; provided, however, no such consent shall be
required under this Section 11.3.G (but subject to the other limitations of this
Article 11) for a transfer of all or a portion of such Performance Units to an
Affiliate, to Immediate Family Members, to a trust described in Section
11.3.A(iii), pursuant to a Pledge, or a transfer of such pledged units to such
lending institution in connection with the exercise of remedies under such loan
or extension of credit.
Section 11.4. Substituted Limited Partners
A. No Limited Partner shall have the right to substitute a
transferee as a Limited Partner in his or her place (including any transferee
permitted by Section 11.3 above). The General Partner shall, however, have the
right to consent to the admission of a permitted transferee of the interest of a
Limited Partner, as a Substituted Limited Partner, pursuant to this Section
11.4, which consent may be given or withheld by the General Partner in its sole
and absolute discretion. The General Partner's failure or refusal to permit a
transferee of any such interests to become a Substituted Limited Partner shall
not give rise to any cause of action against the Partnership or any Partner.
B. A transferee who has been admitted as a Substituted Limited
Partner in accordance with this Article 11 shall have all the rights and powers
and be subject to all the restrictions and liabilities of a Limited Partner
under this Agreement. The admission of any transferee as a Substituted Limited
Partner shall be subject to the transferee executing and delivering to the
Partnership an acceptance of all of the terms and conditions of this Agreement
(including, without limitation, the provisions of Section 2.4 and such other
documents or instruments as may be required to effect the admission, each in
form and substance satisfactory to the General Partner) and the acknowledgment
by such transferee that each of the representations and warranties set forth in
Section 3.4 are true and correct with respect to such transferee as of the date
of the transfer of the Partnership Interest to such transferee.
C. Upon the admission of a Substituted Limited Partner, the
General Partner shall amend Exhibit A to reflect the name, address, number of
Partnership Units, and Percentage Interest of such Substituted Limited Partner
and to eliminate or adjust, if necessary, the name, address and interest of the
predecessor of such Substituted Limited Partner.
Section 11.5. Assignees
If the General Partner, in its sole and absolute discretion,
does not consent to the admission of any permitted transferee under Section 11.3
as a Substituted Limited Partner, as described in Section 11.4, such transferee
shall be considered an Assignee for purposes of this Agreement. An Assignee
shall be entitled to all the rights of an assignee of a limited partnership
interest under the Act, including the right to receive distributions from the
Partnership and the share of Net Income, Net Losses, gain and loss attributable
to the Partnership Units assigned to such transferee, the rights to transfer the
Partnership Units provided in this Article 11, the right of
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Redemption provided in Section 8.6, but shall not be deemed to be a holder of
Partnership Units for any other purpose under this Agreement, and shall not be
entitled to effect a Consent with respect to such Partnership Units on any
matter presented to the Limited Partners for approval (such Consent remaining
with the transferor Limited Partner). In the event any such transferee desires
to make a further assignment of any such Partnership Units, such transferee
shall be subject to all the provisions of this Article 11 to the same extent and
in the same manner as any Limited Partner desiring to make an assignment of
Partnership Units. Notwithstanding anything contained in this Agreement to the
contrary, as a condition to becoming an Assignee, any prospective Assignee must
first execute and deliver to the Partnership an acknowledgment that each of the
representations and warranties set forth in Section 3.4 hereof are true and
correct with respect to such prospective Assignee as of the date of the
prospective assignment of the Partnership Interest to such prospective Assignee
and will continue to be true to the extent required by such representations or
warranties.
Section 11.6. General Provisions
A. No Limited Partner may withdraw from the Partnership other
than as a result of (i) a permitted transfer of all of such Limited Partner's
Partnership Units in accordance with this Article 11 and the transferee(s) of
such Units being admitted to the Partnership as a Substituted Limited Partner(s)
or (ii) pursuant to the exercise of its right of Redemption of all of such
Limited Partner's Partnership Units under Section 8.6.
B. Any Limited Partner who shall transfer all of such Limited
Partner's Partnership Units in a transfer permitted pursuant to this Article 11
where such transferee was admitted as a Substituted Limited Partner or pursuant
to the exercise of its rights of Redemption of all of such Limited Partner's
Partnership Units under Section 8.6 shall cease to be a Limited Partner.
C. Transfers pursuant to this Article 11 may only be made
effective on the last day of the month set forth on the written instrument of
transfer, unless the General Partner otherwise agrees.
D. If any Partnership Interest is transferred, assigned or
redeemed during any quarterly segment of the Partnership's fiscal year in
compliance with the provisions of this Article 11 or transferred or redeemed
pursuant to Sections 8.6 or 16.4, on any day other than the first day of a
Partnership Year, then Net Income, Net Losses, each item thereof and all other
items attributable to such Partnership Interest for such fiscal year shall be
divided and allocated between the transferor Partner and the transferee Partner
by taking into account their varying interests during the fiscal year in
accordance with Section 706(d) of the Code, using the interim closing of the
books method. Except as otherwise required by Section 706(d) of the Code or as
otherwise specified in this Agreement or as otherwise determined by the General
Partner (to the extent consistent with Section 706(d) of the Code), solely for
purposes of making such allocations, each of such items for the calendar month
in which the transfer, assignment or redemption occurs shall be allocated among
all the Partners and Assignees in a manner determined by the General Partner in
its sole discretion.
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E. In addition to any other restrictions on transfer herein
contained, including without limitation the provisions of this Article 11 and
Section 2.6, in no event may any transfer or assignment of a Partnership
Interest by any Partner (including by way of a Redemption) be made (i) to any
person or entity who lacks the legal right, power or capacity to own a
Partnership Interest; (ii) in violation of applicable law; (iii) of any
component portion of a Partnership Interest, such as the Capital Account, or
rights to distributions, separate and apart from all other components of a
Partnership Interest; (iv) if in the opinion of legal counsel to the Partnership
such transfer would cause a termination of the Partnership for Federal or state
income tax purposes (except as a result of the Redemption or exchange for REIT
Shares of all Partnership Units held by all Limited Partners or pursuant to a
Termination Transaction expressly permitted under Section 11.2); (v) if in the
opinion of counsel to the Partnership such transfer would cause the Partnership
to cease to be classified as a partnership for Federal or state income tax
purposes (except as a result of the Redemption or exchange for REIT Shares of
all Partnership Units held by all Limited Partners); (vi) if such transfer would
cause the Partnership to become, with respect to any employee benefit plan
subject to Title I of ERISA, a "party-in-interest" (as defined in Section 3(14)
of ERISA) or a "disqualified person" (as defined in Section 4975(c) of the
Code); (vii) if such transfer would, in the opinion of counsel to the
Partnership, cause any portion of the assets of the Partnership to constitute
assets of any employee benefit plan pursuant to Department of Labor Regulations
Section 2510.2-101; (viii) if such transfer requires the registration of such
Partnership Interest pursuant to any applicable Federal or state securities
laws; (ix) if such transfer is effectuated through an "established securities
market" or a "secondary market" (or the substantial equivalent thereof) within
the meaning of Section 7704 of the Code or such transfer causes the Partnership
to become a "Publicly Traded Partnership," as such term is defined in Sections
469(k)(2) or 7704(b) of the Code; (x) if such transfer subjects the Partnership
to be regulated under the Investment Company Act of 1940, the Investment
Advisors Act of 1940 or the Employee Retirement Income Security Act of 1974,
each as amended; (xi) if the transferee or assignee of such Partnership Interest
is unable to make the representations set forth in Section 3.4.D or such
transfer could otherwise adversely affect the ability of the General Partner to
remain qualified as a REIT; or (xii) if in the opinion of legal counsel for the
Partnership such transfer would adversely affect the ability of the General
Partner to continue to qualify as a REIT or subject the General Partner to any
additional taxes under Section 857 or Section 4981 of the Code.
F. The General Partner shall monitor the transfers of
interests in the Partnership (including any acquisition of Partnership Units by
the Partnership or the General Partner) to determine (i) if such interests are
being traded on an "established securities market" or a "secondary market (or
the substantial equivalent thereof)" within the meaning of Section 7704 of the
Code and (ii) whether such transfers of interests would result in the
Partnership being unable to qualify for at least one of the "safe harbors" set
forth in Regulations Section 1.7704-1 (or such other applicable guidance
subsequently published by the IRS setting forth safe harbors under which
interests will not be treated as "readily tradable on a secondary market (or the
substantial equivalent thereof)" within the meaning of Section 7704 of the Code)
(the "Safe Harbors"). The General Partner shall have authority to take any steps
it determines are necessary or appropriate in its sole and absolute discretion
to prevent any trading of interests which could cause the Partnership to become
a "publicly traded partnership," or any recognition by the Partnership of such
transfers to insure that at least one of the Safe Harbors is met.
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ARTICLE 12.
ADMISSION OF PARTNERS
Section 12.1. Admission of Successor General Partner
A successor to all of the General Partner's General Partner
Interest pursuant to Section 11.2 who is proposed to be admitted as a successor
General Partner shall be admitted to the Partnership as the General Partner,
effective upon such transfer. Any such transferee shall carry on the business of
the Partnership without dissolution. In each case, the admission shall be
subject to the successor General Partner executing and delivering to the
Partnership an acceptance of all of the terms and conditions of this Agreement
and such other documents or instruments as may be required to effect the
admission. In the case of such admission on any day other than the first day of
a Partnership Year, all items attributable to the General Partner Interest for
such Partnership Year shall be allocated between the transferring General
Partner and such successor as provided in Article 11.
Section 12.2. Admission of Additional Limited Partners
A. A Person who makes a Capital Contribution to the
Partnership in accordance with this Agreement shall be admitted to the
Partnership as an Additional Limited Partner only upon furnishing to the General
Partner (i) evidence of acceptance in form satisfactory to the General Partner
of all of the terms and conditions of this Agreement, including, without
limitation, the power of attorney granted in Section 2.4 and (ii) such other
documents or instruments as may be required in the discretion of the General
Partner in order to effect such Person's admission as an Additional Limited
Partner.
B. Notwithstanding anything to the contrary in this Section
12.2, no Person shall be admitted as an Additional Limited Partner without the
consent of the General Partner, which consent may be given or withheld in the
General Partner's sole and absolute discretion. The admission of any Person as
an Additional Limited Partner shall become effective on the date upon which the
name of such Person is recorded on the books and records of the Partnership,
following the receipt of the Capital Contribution in respect of such Limited
Partner, the documents set forth in this Section 12.2.A and the consent of the
General Partner to such admission. If any Additional Limited Partner is admitted
to the Partnership on any day other than the first day of a Partnership Year,
then Net Income, Net Losses, each item thereof and all other items allocable
among Partners and Assignees for such Partnership Year shall be allocated among
such Limited Partner and all other Partners and Assignees by taking into account
their varying interests during the Partnership Year in accordance with Section
706(d) of the Code, using the interim closing of the books method. Solely for
purposes of making such allocations, each of such items for the calendar month
in which an admission of an Additional Limited Partner occurs shall be allocated
among all the Partners and Assignees, including such Additional Limited Partner,
in a manner determined by the General Partner in its sole discretion.
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Section 12.3. Amendment of Agreement and Certificate of
Limited Partnership
For the admission to the Partnership of any Partner, the
General Partner shall take all steps necessary and appropriate under the Act to
amend the records of the Partnership and, if necessary, to prepare as soon as
practical an amendment of this Agreement (including an amendment of Exhibit A)
and, if required by law, shall prepare and file an amendment to the Certificate
and may for this purpose exercise the power of attorney granted pursuant to
Section 2.4.
ARTICLE 13.
DISSOLUTION AND LIQUIDATION
Section 13.1. Dissolution
The Partnership shall not be dissolved by the admission of
Substituted Limited Partners or Additional Limited Partners or by the admission
of a successor General Partner in accordance with the terms of this Agreement.
Upon the withdrawal of the General Partner, any successor General Partner
(selected as described in Section 13.1.B below) shall continue the business of
the Partnership. The Partnership shall dissolve, and its affairs shall be wound
up, upon the first to occur of any of the following ("Liquidating Events"):
A. the expiration of its term as provided in Section 2.5;
B. an event of withdrawal of the General Partner, as defined
in the Act, unless, within ninety (90) days after the withdrawal, all of the
remaining Partners agree in writing, in their sole and absolute discretion, to
continue the business of the Partnership and to the appointment, effective as of
the date of withdrawal, of a substitute General Partner;
C. prior to December 31, 2096, an election to dissolve the
Partnership made by the General Partner with the consent of Limited Partners who
hold ninety percent (90%) of the outstanding Units held by Limited Partners;
D. subject to the provisions of Section 7.3.C, an election to
dissolve the Partnership made by the General Partner in its sole and absolute
discretion;
E. entry of a decree of judicial dissolution of the
Partnership pursuant to the provisions of the Act;
F. the sale or disposition of all or substantially all of the
assets and properties of the Partnership; or
G. a final and non-appealable judgment is entered by a court
of competent jurisdiction ruling that the General Partner is bankrupt or
insolvent, or a final and non-appealable order for relief is entered by a court
with appropriate jurisdiction against the General Partner, in each case under
any Federal or state bankruptcy or insolvency laws as now or hereafter in
effect, unless prior to or at the time of the entry of such order or judgment a
Majority in Interest of the remaining Limited Partners Consent in writing to
continue the business of the Partnership and to
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the appointment, effective as of a date prior to the date of such order or
judgment, of a substitute General Partner.
Section 13.2. Winding Up
A. Upon the occurrence of a Liquidating Event, the Partnership
shall continue solely for the purposes of winding up its affairs in an orderly
manner, liquidating its assets, and satisfying the claims of its creditors and
Partners. No Partner shall take any action that is inconsistent with, or not
necessary to or appropriate for, the winding up of the Partnership's business
and affairs. The General Partner (or, in the event there is no remaining General
Partner, any Person elected by a Majority in Interest of the Limited Partners
(the "Liquidator")) shall be responsible for overseeing the winding up and
dissolution of the Partnership and shall take full account of the Partnership's
liabilities and assets and the Partnership property shall be liquidated as
promptly as is consistent with obtaining the fair value thereof, and the
proceeds therefrom (which may, to the extent determined by the General Partner,
include shares of stock of the General Partner) shall be applied and distributed
in the following order:
(i) First, to the payment and discharge of all of the
Partnership's debts and liabilities to creditors
other than the Partners;
(ii) Second, to the payment and discharge of all of the
Partnership's debts and liabilities to the General
Partner;
(iii) Third, to the payment and discharge of all of the
Partnership's debts and liabilities to the other
Partners; and
(iv) The balance, if any, to the Partners in accordance
with their Capital Account balances determined after
giving effect to all contributions and distributions
for all periods, and after taking into account all
Capital Account adjustments for the Partnership
taxable year during which the liquidation occurs
(other than those made as a result of the liquidating
distribution set forth in this Section 13.2.A(iv)).
The General Partner shall not receive any additional compensation for any
services performed pursuant to this Article 13 other than reimbursement of its
expenses as provided in Section 7.4.
B. Notwithstanding the provisions of Section 13.2.A which
require liquidation of the assets of the Partnership, but subject to the order
of priorities set forth therein, if prior to or upon dissolution of the
Partnership the Liquidator determines that an immediate sale of part or all of
the Partnership's assets would be impractical or would cause undue loss to the
Partners, the Liquidator may, in its sole and absolute discretion, defer for a
reasonable time the liquidation of any assets except those necessary to satisfy
liabilities of the Partnership (including to those Partners as creditors) and/or
distribute to the Partners, in lieu of cash, as tenants in common and in
accordance with the provisions of Section 13.2.A, undivided interests in such
Partnership assets as the Liquidator deems not suitable for liquidation. Any
such distributions in kind shall be made only if, in the good faith judgment of
the Liquidator, such distributions in kind are in the best interest of the
Partners, and shall be subject to such conditions relating to the disposition
and management of such properties as the Liquidator deems reasonable and
equitable
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and to any agreements governing the operation of such properties at such time.
The Liquidator shall determine the fair market value of any property distributed
in kind using such reasonable method of valuation as it may adopt.
C. The Partnership shall be terminated when any notes received
in connection with any such sale or disposition referenced in Section 13.1.E
above, or in connection with the liquidation of the Partnership have been paid
and all of the cash or property available for application and distribution under
this Agreement have been applied and distributed in accordance with this
Agreement.
Section 13.3. Compliance with Timing Requirements of
Regulations
In the event the Partnership is "liquidated" within the
meaning of Regulations Section 1.704-1(b)(2)(ii)(g), distributions shall be made
pursuant to this Article 13 to the General Partner and Limited Partners who have
positive Capital Accounts in compliance with Regulations Section
1.704-1(b)(2)(ii)(b)(2). If any Partner has a deficit balance in his or her
Capital Account (after giving effect to all contributions, distributions and
allocations for the taxable years, including the year during which such
liquidation occurs), such Partner shall have no obligation to make any
contribution to the capital of the Partnership with respect to such deficit, and
such deficit shall not be considered a debt owed to the Partnership or to any
other Person for any purpose whatsoever, except to the extent otherwise agreed
to by such Partner and the General Partner. In the discretion of the Liquidator
or the General Partner, a pro rata portion of the distributions that would
otherwise be made to the General Partner and Limited Partners pursuant to this
Article 13 may be:
A. distributed to a trust established for the benefit of the
General Partner and Limited Partners for the purposes of liquidating Partnership
assets, collecting amounts owed to the Partnership, and paying any contingent or
unforeseen liabilities or obligations of the Partnership or of the General
Partner arising out of or in connection with the Partnership. The assets of any
such trust shall be distributed to the General Partner and Limited Partners from
time to time, in the reasonable discretion of the Liquidator or the General
Partner, in the same proportions and the amount distributed to such trust by the
Partnership would otherwise have been distributed to the General Partner and
Limited Partners pursuant to this Agreement; or
B. withheld to establish any reserves deemed necessary or
appropriate for any contingent or unforeseen liabilities or obligations of the
Partnership; and to reflect the unrealized portion of any installment
obligations owed to the Partnership; provided that, such withheld amounts shall
be distributed to the General Partner and Limited Partners as soon as
practicable.
Section 13.4. Deemed Distribution and Recontribution
Notwithstanding any other provision of this Article 13, in the
event the Partnership is liquidated within the meaning of Regulations Section
1.704-1(b)(2)(ii)(g) but no Liquidating Event has occurred, the Partnership's
property shall not be liquidated, the Partnership's liabilities shall not be
paid or discharged, and the Partnership's affairs shall not be wound up.
Instead, the Partnership shall be deemed to have distributed the Partnership
property in kind to the General Partner and Limited Partners, who shall be
deemed to have assumed and taken such property subject to all Partnership
liabilities, all in accordance with their respective
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Capital Accounts. Immediately thereafter, the General Partner and Limited
Partners shall be deemed to have recontributed the Partnership property in kind
to the Partnership, which shall be deemed to have assumed and taken such
property subject to all such liabilities.
Section 13.5. Rights of Limited Partners
Except as otherwise provided in this Agreement, each Limited
Partner shall look solely to the assets of the Partnership for the return of his
Capital Contribution and shall have no right or power to demand or receive
property from the General Partner. No Limited Partner shall have priority over
any other Limited Partner as to the return of his Capital Contributions,
distributions or allocations.
Section 13.6. Notice of Dissolution
In the event a Liquidating Event occurs or an event occurs
that would, but for provisions of Section 13.1, result in a dissolution of the
Partnership, the General Partner shall, within thirty (30) days thereafter,
provide written notice thereof to each of the Partners and to all other parties
with whom the Partnership regularly conducts business (as determined in the
discretion of the General Partner) and shall publish notice thereof in a
newspaper of general circulation in each place in which the Partnership
regularly conducts business (as determined in the discretion of the General
Partner).
Section 13.7. Cancellation of Certificate of Limited
Partnership
Upon the completion of the liquidation of the Partnership cash
and property as provided in Section 13.2, the Partnership shall be terminated
and the Certificate and all qualifications of the Partnership as a foreign
limited partnership in jurisdictions other than the State of Delaware shall be
canceled and such other actions as may be necessary to terminate the Partnership
shall be taken.
Section 13.8. Reasonable Time for Winding-Up
A reasonable time shall be allowed for the orderly winding-up
of the business and affairs of the Partnership and the liquidation of its assets
pursuant to Section 13.2, in order to minimize any losses otherwise attendant
upon such winding-up, and the provisions of this Agreement shall remain in
effect between the Partners during the period of liquidation.
Section 13.9. Waiver of Partition
Each Partner hereby waives any right to partition of the
Partnership property.
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ARTICLE 14.
AMENDMENT OF PARTNERSHIP AGREEMENT; CONSENTS
Section 14.1. Amendments
A. The actions requiring consent or approval of the Partners
or of the Limited Partners pursuant to this Agreement, including Section 7.3, or
otherwise pursuant to applicable law, are subject to the procedures in this
Article 14.
B. Amendments to this Agreement requiring the consent or
approval of Limited Partners may be proposed by the General Partner or by
Limited Partners holding twenty-five percent (25%) or more of the Partnership
Interests held by Limited Partners. Following such proposal, the General Partner
shall submit any proposed amendment to the Partners or of the Limited Partners,
as applicable. The General Partner shall seek the written consent or approval of
the Partners or of the Limited Partners on the proposed amendment or shall call
a meeting to vote thereon and to transact any other business that it may deem
appropriate. For purposes of obtaining a written consent, the General Partner
may require a response within a reasonable specified time, but not less than
fifteen (15) days, and failure to respond in such time period shall constitute a
consent which is consistent with the General Partner's recommendation (if so
recommended); provided that, an action shall become effective at such time as
requisite consents are received even if prior to such specified time.
Section 14.2. Action by the Partners
A. Meetings of the Partners may be called by the General
Partner and shall be called upon the receipt by the General Partner of a written
request by Limited Partners holding twenty-five percent (25%) or more of the
Partnership Interests held by the Limited Partners. The call shall state the
nature of the business to be transacted. Notice of any such meeting shall be
given to all Partners not less than seven days nor more than thirty (30) days
prior to the date of such meeting. Partners may vote in person or by proxy at
such meeting. Whenever the vote of the Percentage Interests of the Partners, or
the Consent of the Partners or Consent of the Limited Partners is permitted or
required under this Agreement, such vote or Consent may be given at a meeting of
Partners or may be given in accordance with the procedure prescribed in Section
14.1.
B. Any action required or permitted to be taken at a meeting
of the Partners may be taken without a meeting if a written consent setting
forth the action so taken is signed by the Percentage Interests as is expressly
required by this Agreement for the action in question. Such consent may be in
one instrument or in several instruments, and shall have the same force and
effect as a vote of the Percentage Interests of the Partners (expressly required
by this Agreement). Such consent shall be filed with the General Partner. An
action so taken shall be deemed to have been taken at a meeting held on the
effective date so certified.
C. Each Limited Partner may authorize any Person or Persons to
act for him by proxy on all matters in which a Limited Partner is entitled to
participate, including waiving notice of any meeting, or voting or participating
at a meeting. Every proxy must be signed by the Limited Partner or his
attorney-in-fact. No proxy shall be valid after the expiration of eleven (11)
months from the date thereof unless otherwise provided in the proxy. Every proxy
shall be revocable at the pleasure of the Limited Partner executing it.
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D. Each meeting of Partners shall be conducted by the General
Partner or such other Person as the General Partner may appoint pursuant to such
rules for the conduct of the meeting as the General Partner or such other Person
deems appropriate.
E. On matters on which Limited Partners are entitled to vote,
each Limited Partner shall have a vote equal to the number of Partnership Units
held.
ARTICLE 15.
GENERAL PROVISIONS
Section 15.1. Addresses and Notice
Any notice, demand, request or report required or permitted to
be given or made to a Partner or Assignee under this Agreement shall be in
writing and shall be deemed given or made when delivered in person or when sent
by certified first class United States mail, nationally recognized overnight
delivery service or facsimile transmission to the Partner or Assignee at the
address set forth in Exhibit A or such other address as the Partners shall
notify the General Partner in writing.
Section 15.2. Titles and Captions
All article or section titles or captions in this Agreement
are for convenience only. They shall not be deemed part of this Agreement and in
no way define, limit, extend or describe the scope or intent of any provisions
hereof. Except as specifically provided otherwise, references to "Articles" and
"Sections" are to Articles and Sections of this Agreement.
Section 15.3. Pronouns and Plurals
Whenever the context may require, any pronoun used in this
Agreement shall include the corresponding masculine, feminine or neuter forms,
and the singular form of nouns, pronouns and verbs shall include the plural and
vice versa.
Section 15.4. Further Action
The parties shall execute and deliver all documents, provide
all information and take or refrain from taking action as may be necessary or
appropriate to achieve the purposes of this Agreement.
Section 15.5. Binding Effect
This Agreement shall be binding upon and inure to the benefit
of the parties hereto including the Persons set forth in Exhibit G, and their
heirs, executors, administrators, successors, legal representatives and
permitted assigns.
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Section 15.6. Creditors
Other than as expressly set forth herein with respect to
Indemnitees, none of the provisions of this Agreement shall be for the benefit
of, or shall be enforceable by, any creditor of the Partnership.
Section 15.7. Waiver
No failure or delay by any party to insist upon the strict
performance of any covenant, duty, agreement or condition of this Agreement or
to exercise any right or remedy consequent upon any breach thereof shall
constitute waiver of any such breach or any other covenant, duty, agreement or
condition.
Section 15.8. Counterparts
This Agreement may be executed in counterparts, all of which
together shall constitute one agreement binding on all the parties hereto,
notwithstanding that all such parties are not signatories to the original or the
same counterpart. Each party shall become bound by this Agreement immediately
upon affixing its signature hereto.
Section 15.9. Applicable Law
This Agreement shall be construed in accordance with and
governed by the laws of the State of Delaware, without regard to the principles
of conflicts of law.
Section 15.10. Invalidity of Provisions
If any provision of this Agreement is or becomes invalid,
illegal or unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained herein shall not be
affected thereby.
Section 15.11. Limitation to Preserve REIT Status
To the extent that any amount paid or credited to the General
Partner or its officers, directors, employees or agents pursuant to Section 7.4
or 7.7 would constitute gross income to the General Partner for purposes of
Sections 856(c)(2) or 856(c)(3) of the Code (a "General Partner Payment") then,
notwithstanding any other provision of this Agreement, the amount of such
General Partner Payments for any fiscal year shall not exceed the lesser of:
(i) an amount equal to the excess, if any, of (a)
4.17% of the General Partner's total gross income (but not including
the amount of any General Partner Payments) for the fiscal year which
is described in subsections (A) through (H) of Section 856(c)(2) of the
Code over (b) the amount of gross income (within the meaning of Section
856(c)(2) of the Code) derived by the General Partner from sources
other than those described in subsections (A) through (H) of Section
856(c)(2) of the Code (but not including the amount of any General
Partner Payments); or
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(ii) an amount equal to the excess, if any, of (a)
25% of the General Partner's total gross income (but not including the
amount of any General Partner Payments) for the fiscal year which is
described in subsections (A) through (I) of Section 856(c)(3) of the
Code over (b) the amount of gross income (within the meaning of Section
856(c)(3) of the Code) derived by the General Partner from sources
other than those described in subsections (A) through (I) of Section
856(c)(3) of the Code (but not including the amount of any General
Partner Payments);
provided, however, that General Partner Payments in excess of the amounts set
forth in subparagraphs (i) and (ii) above may be made if the General Partner, as
a condition precedent, obtains an opinion of tax counsel that the receipt of
such excess amounts would not adversely affect the General Partner's ability to
qualify as a REIT. To the extent General Partner Payments may not be made in a
year due to the foregoing limitations, such General Partner Payments shall carry
over and be treated as arising in the following year; provided, however, that
such amounts shall not carry over for more than five years, and if not paid
within such five year period, shall expire; provided, further, that (a) as
General Partner Payments are made, such payments shall be applied first to carry
over amounts outstanding, if any and (b) with respect to carry over amounts for
more than one Partnership Year, such payments shall be applied to the earliest
Partnership Year first.
Section 15.12. Entire Agreement
This Agreement (together with the agreements listed on Exhibit
I hereto as to rights and obligations in respect of the Units held by the
Limited Partners who are parties thereto, or their permitted transferees)
contains the entire understanding and agreement among the Partners with respect
to the subject matter hereof and supersedes any other prior written or oral
understandings or agreements among them with respect thereto.
Section 15.13. No Rights as Stockholders
Nothing contained in this Agreement shall be construed as
conferring upon the holders of Partnership Units any rights whatsoever as
stockholders of the General Partner, including without limitation any right to
receive dividends or other distributions made to stockholders of the General
Partner or to vote or to consent or to receive notice as stockholders in respect
of any meeting of stockholders for the election of directors of the General
Partner or any other matter.
ARTICLE 16.
SERIES A PREFERRED UNITS
Section 16.1. Designation and Number
A series of Partnership Units in the Partnership designated as
the [ %] Series A Cumulative Redeemable Preferred Units (the "Series A Preferred
Units") is hereby established. The number Series A Preferred Units shall be
[4,600,000].
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Section 16.2. Distributions
A. Payment of Distributions. Subject to the rights of holders
of Parity Preferred Units as to the payment of distributions, pursuant to
Section 5.1 hereof, the General Partner, as holder of the Series A Preferred
Units, will be entitled to receive, when, as and if declared by the Partnership
acting through the General Partner, out of Available Cash, cumulative
preferential cash distributions in an amount equal to the Priority Return. Such
distributions will be payable (A) quarterly in arrears, on the ___ day of March,
June, September and December of each year and (B) in the event of a redemption
of Series A Preferred Units, on the redemption date (each a "Preferred Unit
Distribution Payment Date"), commencing on the first of such payment dates to
occur following their original date of issuance. If any date on which
distributions are to be made on the Series A Preferred Units is not a Business
Day, then payment of the distribution to be made on such date will be made on
the next succeeding day that is a Business Day (and without any interest or
other payment in respect of any such delay) except that, if such Business Day is
in the next succeeding calendar year, such payment shall be made on the
immediately preceding Business Day, in each case with the same force and effect
as if made on such date.
B. No Distributions in Contravention of Agreements. No
distribution on the Series A Preferred Units shall be authorized by the General
Partner or made or set apart for payment by the Partnership at such time as the
terms and provisions of any agreement of the Partnership or the General
Partner, including any agreement relating to indebtedness, prohibits such
declaration, payment or setting apart for payment or provides that such
declaration, payment or setting apart for payment would constitute a breach
thereof, or a default thereunder, or if such declaration or payment shall be
restricted or prohibited by law.
C. Priority as to Distributions. (i) Except to the extent set
forth in Section 16.2.C (ii), so long as any Series A Preferred Units are
outstanding, no distribution of cash or other property shall be authorized,
declared, paid or set apart for payment on or with respect to any class or
series of Partnership Interest of the Partnership ranking, as to distributions
or voluntary or involuntary liquidation, dissolution or winding up of the
Partnership, junior to the Series A Preferred Units (collectively, "Junior
Units"), nor shall any Junior Units or Parity Preferred Units be redeemed,
purchased or otherwise acquired for any consideration (or any monies be paid to
or made available for a sinking fund for the redemption of any such Junior Units
or Parity Preferred Units) by the Partnership (except by conversion into or
exchange for other Junior Units or Parity Preferred Units) unless, in each case,
full cumulative distributions have been or contemporaneously are authorized and
paid or authorized and a sum sufficient for the payment thereof set apart for
such payment on the Series A Preferred Units for all past distribution periods
and the current distribution period. The foregoing sentence will not prohibit
(a) distributions payable solely in Junior Units, (b) the exchange of Junior
Units or Parity Preferred Units into Partnership Interests of the Partnership
ranking junior to the Series A Preferred Units as to
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distributions, or (c) the redemption of Partnership Interests corresponding to
REIT Series A Preferred Shares, Parity Preferred Stock with respect to
distributions or Junior Stock to be purchased by the General Partner pursuant to
the Charter to preserve the General Partner's status as a real estate investment
trust, provided that such redemption shall be upon the same terms as the
corresponding STOCK purchase pursuant to the Charter.
(ii) So long as distributions have not been paid in full (or a
sum sufficient for such full payment is not so set apart) upon the Series A
Preferred Units and any other Parity Preferred Units, all distributions
authorized and declared on the Series A Preferred Units and all classes or
series of outstanding Parity Preferred Units shall be authorized and declared
pro rata so that the amount of distributions authorized and declared per Series
A Preferred Unit and such other classes or series of Parity Preferred Units
shall in all cases bear to each other the same ratio that accrued distributions
per Series A Preferred Unit and such other classes or series of Parity Preferred
Units (which shall not include any accumulation in respect of unpaid
distributions for prior distribution periods if such class or series of Parity
Preferred Units do not have cumulative distribution rights) bear to each other.
No interest, or sum of money in lieu of interest, shall be payable in respect of
any distributions or payments on Series A Preferred Shares which may be in
arrears.
D. No Further Rights. The General Partner, as holder of the
Series A Preferred Units, shall not be entitled to any distributions, whether
payable in cash, other property or otherwise, in excess of the full cumulative
distributions described herein. Any distribution payment made on the Series A
Preferred Units shall first be credited against the earliest accrued but unpaid
distribution due with respect to such Series A Preferred Units which remain
payable.
Section 16.3. Liquidation Proceeds
A. Upon voluntary or involuntary liquidation, dissolution or
winding-up of the Partnership, distributions on the Series A Preferred Units
shall be made in accordance with Article 13 of this Agreement.
B. Notice. Written notice of any such voluntary or involuntary
liquidation, dissolution or winding-up of the Partnership, stating the payment
date or dates when, and the place or places where, the amounts distributable in
such circumstances shall be payable, shall be given by the General Partner
pursuant to Section 13.6 hereof.
C. No Further Rights. After payment of the full amount of the
liquidating distributions to which they are entitled, the General Partner, as
holder of the Series A Preferred Units, will have no right or claim to any of
the remaining assets of the Partnership.
D. Consolidation, Merger or Certain Other Transactions. None
of a consolidation or merger of the Partnership with or into another entity, a
merger of another entity with or into the Partnership, or a sale, lease,
transfer or conveyance of all or substantially all of the Partnership's
property or business shall be considered a liquidation, dissolution or winding
up of the Partnership.
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Section 16.4. Redemption
A. Redemption. The Series A Preferred Units may not be
redeemed prior to June __, 2003. If, on or after such date, the General Partner
elects to redeem any of the Series A Preferred Shares, the Partnership shall, on
the date set for redemption of such Series A Preferred Shares, redeem the number
of Series A Preferred Units equal to the number of Series A Preferred Shares for
which the General Partner has given notice of redemption pursuant to Section 5
of Article First of the Series A Articles Supplementary, at a redemption price,
payable in cash, equal to the product of (i) the number of Series A Preferred
Units being redeemed, and (ii) the sum of $25 and the Preferred Distribution
Shortfall per Series A Preferred Unit, if any.
B. Limitation on Redemption. The Redemption Price of the
Series A Preferred Units (other than the portion thereof consisting of
accumulated but unpaid distributions) is payable solely out of the sale proceeds
of capital stock of the General Partner, which will be contributed by the
General Partner to the Partnership as an additional capital contribution, or out
of the sale of limited partner interests in the Partnership and from no other
source. For purposes of the preceding sentence, "capital stock" means any equity
securities (including Common Stock and Preferred Stock (as such terms are
defined in the Charter)), depository shares, interests, participation or other
ownership interests (however designated) and any rights (other than debt
securities convertible into or exchangeable for equity securities) or options to
purchase any of the foregoing.
C. Payment of Accumulated Distributions. Immediately prior to
any redemption of Series A Preferred Units, the Partnership shall pay, in cash,
any accumulated and unpaid distributions on the Series A Preferred Units to be
redeemed through the redemption date. Except as provided above, the Partnership
will make no payment or allowance for unpaid distributions, whether or not in
arrears, on Series A Preferred Units for which a notice of redemption has been
given.
D. Procedures for Redemption. The following provisions set
forth the procedures for Redemption:
(i) Notice of redemption will be given by the General Partner
to the Partnership concurrently with the notice of the General Partner sent to
the holders of its Series A Preferred Shares in connection with such redemption.
Such notice shall state: (A) the redemption date; (B) the redemption price; (C)
the number of Series A Preferred Units to be redeemed; (D) the place or places
where the Series A Preferred Units are to be surrendered for payment of the
redemption price; and (E) that distributions on the Series A Preferred Units to
be redeemed will cease to accumulate on such redemption date. If less than all
of the Series A Preferred Units are to be redeemed, the notice shall also
specify the number of Series A Preferred Units to be redeemed.
(ii) On or after the redemption date, the General Partner
shall present and surrender the certificates, if any, representing the Series A
Preferred Units to the Partnership at the place designated in the notice of
redemption and thereupon the redemption price of such Units (including all
accumulated and unpaid distributions up to the redemption date) shall be paid to
the General Partner and each surrendered Unit certificate, if any, shall be
canceled. If
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<PAGE> 77
fewer than all the Units represented by any such certificate representing Series
A Preferred Units are to be redeemed, a new certificate shall be issued
representing the unredeemed shares.
(iii) From and after the redemption date (unless the
Partnership defaults in payment of the redemption price), all distributions on
the Series A Preferred Units designated for redemption in such notice shall
cease to accumulate and all rights of the General Partner, except the right to
receive the redemption price thereof (including all accumulated and unpaid
distributions up to the redemption date), shall cease and terminate, and such
Units shall not be deemed to be outstanding for any purpose whatsoever. At its
election, the Partnership, prior to a redemption date, may irrevocably deposit
the redemption price (including accumulated and unpaid distributions to the
redemption date) of the Series A Preferred Units so called for redemption in
trust for the General Partner with a bank or trust company, in which case the
redemption notice to General Partner shall (A) state the date of such deposit,
(B) specify the office of such bank or trust company as the place of payment of
the redemption price and (C) require the General Partner to surrender the
certificates, if any, representing such Series A Preferred Units at such place
on or about the date fixed in such redemption notice (which may not be later
than the redemption date) against payment of the redemption price (including all
accumulated and unpaid distributions to the redemption date). Any monies so
deposited which remain unclaimed by the General Partner at the end of two years
after the redemption date shall be returned by such bank or trust company to the
Partnership.
E. No Further Rights. Any Series A Preferred Units that shall
at any time have been redeemed shall, after such redemption, have the status of
authorized but unissued Preferred Units, without designation as to series until
such shares are once more designated as part of a particular series by the
General Partner.
Section 16.5. Voting Rights
The General Partner shall not have any voting or consent
rights in respect of its partnership interest represented by the Series A
Preferred Units.
Section 16.6. Transfer Restrictions
The Series A Preferred Units shall not be transferable.
Section 16.7. No Conversion Rights
The Series A Preferred Units shall not be convertable into any
other class or series of interest in the Partnership.
Section 16.8. No Sinking Fund
No sinking fund shall be established for the retirement or
redemption of Series A Preferred Units.
(Signature Pages Follows)
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IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
GENERAL PARTNER:
AMB PROPERTY CORPORATION,
a Maryland corporation
By:_________________________________
S. Davis Carniglia
Chief Financial Officer
S-1
<PAGE> 79
EXHIBIT A
PARTNERS, CONTRIBUTIONS AND PARTNERSHIP INTERESTS
<TABLE>
<CAPTION>
AGREED VALUE OF
CASH CONTRIBUTED GROSS ASSET TOTAL PARTNERSHIP PERCENTAGE
NAME OF PARTNER CONTRIBUTIONS PROPERTY* VALUE CONTRIBUTIONS UNITS INTEREST
- ------------------------- ------------- ---------------- ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
- ------------------------- ------------- ---------------- ----------- ------------- ----------- -----------
- ------------------------- ------------- ---------------- ----------- ------------- ----------- -----------
- ------------------------- ------------- ---------------- ----------- ------------- ----------- -----------
- ------------------------- ------------- ---------------- ----------- ------------- ----------- -----------
- ------------------------- ------------- ---------------- ----------- ------------- ----------- -----------
- ------------------------- ------------- ---------------- ----------- ------------- ----------- -----------
Totals:
</TABLE>
- ----------
*Net of Debt (if any)
A-1
<PAGE> 80
EXHIBIT B
NOTICE OF REDEMPTION
The undersigned hereby [irrevocably] (i) exchanges
Limited Partnership Units in AMB Property, L.P. in accordance with
- -------------
the terms of the Limited Partnership Agreement of AMB Property, L.P. dated as of
, as amended, and the rights of Redemption referred to therein,
- -----------------
(ii) surrenders such Limited Partnership Units and all right, title and interest
therein and (iii) directs that the cash (or, if applicable, REIT Shares)
deliverable upon Redemption or exchange be delivered to the address specified
below, and if applicable, that such REIT Shares be registered or placed in the
name(s) and at the address(es) specified below.
Dated:
------------------------
Name of Limited Partner:
---------------------------------
(Signature of Limited Partner)
---------------------------------
(Street Address)
---------------------------------
(City) (State) (Zip Code)
Signature Guaranteed by:
---------------------------------
Issue REIT Shares in the name of:
Please insert social security or identifying number:
Address (if different than above):
B-1
<PAGE> 81
EXHIBIT C
CONSTRUCTIVE OWNERSHIP DEFINITION
The term "Constructively Owns" means ownership determined
through the application of the constructive ownership rules of Section 318 of
the Code, as modified by Section 856(d)(5) of the Code. Generally, these rules
provide the following:
a. an individual is considered as owning the Ownership Interest that is
owned, actually or constructively, by or for his spouse, his children, his
grandchildren, and his parents;
b. an Ownership Interest that is owned, actually or constructively, by
or for a partnership, limited liability company or estate is considered as owned
proportionately by its partners, members or beneficiaries;
c. an Ownership Interest that is owned, actually or constructively, by
or for a trust is considered as owned by its beneficiaries in proportion to the
actuarial interest of such beneficiaries (provided, however, that in the case of
a "grantor trust" the Ownership Interest will be considered as owned by the
grantors);
d. if ten percent (10%) or more in value of the stock in a corporation
is owned, actually or constructively, by or for any person, such person shall be
considered as owning the Ownership Interest that is owned, actually or
constructively, by or for such corporation in that proportion which the value of
the stock which such person so owns bears to the value of all the stock in such
corporation;
e. an Ownership Interest that is owned, actually or constructively, by
or for a partner or member which actually or constructively owns a 25% or
greater capital interest or profits interest in a partnership or limited
liability company, or by or for a beneficiary of an estate or trust, shall be
considered as owned by the partnership, limited liability company, estate, or
trust (or, in the case of a grantor trust, the grantors);
f. if ten percent (10%) or more in value of the stock in a corporation
is owned, actually or constructively, by or for any person, such corporation
shall be considered as owning the Ownership Interest that is owned, actually or
constructively, by or for such person;
g. if any person has an option to acquire an Ownership Interest
(including an option to acquire an option or any one of a series of such
options), such Ownership Interest shall be considered as owned by such person;
h. an Ownership Interest that is constructively owned by a person by
reason of the application of the rules described in paragraphs (a) through (g)
above shall, for purposes of applying paragraphs (a) through (g), be considered
as actually owned by such person provided, however, that (i) an Ownership
Interest constructively owned by an individual by reason of paragraph (a) shall
not be considered as owned by him for purposes of again applying paragraph (a)
in order to make another the constructive owner of such Ownership Interest, (ii)
an Ownership Interest constructively owned by a partnership, estate, trust, or
corporation by reason of the application of paragraphs (e) or (f) shall not be
considered as owned by it for purposes of applying paragraphs (b), (c), or (d)
in order to make another the constructive owner of such Ownership Interest,
(iii) if an Ownership Interest may be considered as owned by an individual under
paragraphs (a) or (g), it shall be considered as owned by him under paragraph
(g) and (iv) for purposes of the above described rules, an S corporation shall
be treated as a partnership and any stockholder of the S corporation shall be
treated as a partner of such partnership except that this rule shall not apply
for purposes of determining whether stock in the S corporation is constructively
owned by any person.
i. For purposes of the above summary of the constructive ownership
rules, the term "Ownership Interest" means the ownership of stock with respect
to a corporation and, with respect to any other type of entity, the ownership of
an interest in either its assets or net profits.
C-1
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EXHIBIT D-1
FORM OF PARTNERSHIP UNIT CERTIFICATE
CERTIFICATE FOR PARTNERSHIP UNITS OF
AMB PROPERTY, L.P.
No. _______________ ____________ UNITS
AMB Property Corporation as the General Partner of AMB
Property, L.P., a Delaware limited partnership (the "Operating Partnership"),
hereby certifies that ________________ is a Limited Partner of the Operating
Partnership whose Partnership Interests therein, as set forth in the Agreement
of Limited Partnership of AMB Property, L.P., dated as of ______________, 199__
(as it may be amended, modified or supplemented from time to time in accordance
with its terms, (the "Partnership Agreement"), under which the Operating
Partnership is existing and as filed in the office of the Delaware [State
Department of Assessments and Taxation] (copies of which are on file at the
Operating Partnership's principal office at ________________________________,
represent _________ units of limited partnership interest in the Operating
Partnership (the "Partnership Units").
THE PARTNERSHIP UNITS REPRESENTED BY THIS CERTIFICATE OR
INSTRUMENT MAY NOT BE TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR
OTHERWISE DISPOSED OF UNLESS SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE,
HYPOTHECATION OR OTHER DISPOSITION COMPLIES WITH THE PROVISIONS OF THE
PARTNERSHIP AGREEMENT (A COPY OF WHICH IS ON FILE WITH THE OPERATING
PARTNERSHIP). EXCEPT AS OTHERWISE PROVIDED IN THE PARTNERSHIP AGREEMENT, NO
TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION OF THE
PARTNERSHIP UNITS REPRESENTED BY THIS CERTIFICATE MAY BE MADE EXCEPT (A)
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"), OR (B) IF THE OPERATING PARTNERSHIP HAS BEEN
FURNISHED WITH A SATISFACTORY OPINION OF COUNSEL FOR THE HOLDER OF THE
PARTNERSHIP UNITS REPRESENTED BY THIS CERTIFICATE THAT SUCH TRANSFER, SALE
ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION IS EXEMPT FROM THE
PROVISIONS OF SECTION 5 OF THE ACT AND THE RULES AND REGULATIONS IN EFFECT
THEREUNDER.
DATED: __________________, 199__.
AMB PROPERTY CORPORATION
General Partner of AMB
Property, L.P.
ATTEST:
By:______________________________ By:_______________________________
D-1
<PAGE> 83
EXHIBIT D-2
FORM OF PARTNERSHIP UNIT CERTIFICATE
CERTIFICATE FOR PERFORMANCE UNITS OF
AMB PROPERTY, L.P.
No. _______________ ____________ UNITS
AMB Property Corporation as the General Partner of AMB
Property, L.P., a Delaware limited partnership (the "Operating Partnership"),
hereby certifies that _________________ is a Limited Partner of the Operating
Partnership whose Partnership Interests therein, as set forth in the Agreement
of Limited Partnership of AMB Property, L.P., dated as of ______________, 199_
(as it may be amended, modified or supplemented from time to time in accordance
with its terms, (the "Partnership Agreement"), under which the Operating
Partnership is existing and as filed in the office of the Delaware [State
Department of Assessments and Taxation] (copies of which are on file at the
Operating Partnership's principal office at _______________________________,
represent ___________ performance units (as defined in the Partnership
Agreement) of limited partnership interest in the Operating Partnership (the
"Performance Units").
THE PERFORMANCE UNITS REPRESENTED BY THIS CERTIFICATE OR
INSTRUMENT MAY NOT BE TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR
OTHERWISE DISPOSED OF UNLESS SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE,
HYPOTHECATION OR OTHER DISPOSITION COMPLIES WITH THE PROVISIONS OF THE
PARTNERSHIP AGREEMENT (A COPY OF WHICH IS ON FILE WITH THE OPERATING
PARTNERSHIP). EXCEPT AS OTHERWISE PROVIDED IN THE PARTNERSHIP AGREEMENT, NO
TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION OF THE
PERFORMANCE UNITS REPRESENTED BY THIS CERTIFICATE MAY BE MADE EXCEPT (A)
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"), OR (B) IF THE OPERATING PARTNERSHIP HAS BEEN
FURNISHED WITH A SATISFACTORY OPINION OF COUNSEL FOR THE HOLDER OF THE
PERFORMANCE UNITS REPRESENTED BY THIS CERTIFICATE THAT SUCH TRANSFER, SALE
ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION IS EXEMPT FROM THE
PROVISIONS OF SECTION 5 OF THE ACT AND THE RULES AND REGULATIONS IN EFFECT
THEREUNDER.
DATED: ___________________, 199_.
AMB PROPERTY CORPORATION
General Partner of AMB
Property, L.P.
ATTEST:
By: _____________________________ By: _____________________________
D-2
<PAGE> 84
EXHIBIT E
SCHEDULE OF PARTNERS' OWNERSHIP
WITH RESPECT TO TENANTS
E-1
<PAGE> 85
EXHIBIT F
SCHEDULE OF REIT SHARES
ACTUALLY OR CONSTRUCTIVELY OWNED BY 25% LIMITED PARTNERS
OTHER THAN THOSE ACQUIRED PURSUANT TO AN EXCHANGE
F-1
<PAGE> 86
EXHIBIT G
PERFORMANCE UNITS
Any Performance Units to be issued by the Partnership pursuant
to Section 4.3.F. shall be issued to the following Persons in the following
amounts:
1. The first 3,000,000 Performance Units to be issued shall be
issued 90% to the "Old PLPs" (as defined below) and 10% to the "New PLPs" (as
defined below).
2. Any Performance Units to be issued in excess of those set
forth in paragraph 1. above shall be issued 80% to the Old PLPs and 20% to the
New PLPs.
3. The Performance Units allocable to each group of PLPs
pursuant to paragraphs 1. and 2. above shall be allocated among the PLPs within
such group in accordance with each PLP's percentage interest as set forth in the
definitions below.
4. The receipt of Performance Units by a PLP is subject to the
following vesting requirements:
A. Any Person who is listed in the definition of Old PLP
or New PLP and who does not remain employed, by one or more of the Partnership,
the IMS or their affiliates, for at least one (1) year from the closing of the
initial public offering of the common stock of the General Partner, other than
Persons who cease to be so employed as a result of a Permitted Reason, shall
have their name removed from such definition and such Person's percentage as set
forth in such definition shall be transferred to the other Persons listed in
such definition in proportion to their immediately preceding percentages.
B. Performance Units issued to a New PLP shall be subject
to a vesting requirement pursuant to which a New PLP will have their ownership
of Performance Units vest in 25% increments on each anniversary of such
issuance, beginning on the first such anniversary and ending on the fourth such
anniversary. In order for such portion of the Performance Units to vest on an
anniversary, the New PLP must continue to be employed by one or more of the
Partnership, the IMS or their affiliates on such anniversary (the "Employment
Requirement"). In the event a New PLP ceases to meet the Employment Requirement,
he or she shall immediately forfeit any Performance Units which have not
previously vested. Notwithstanding the foregoing, (i) all Performance Units held
by New PLPs meeting the Employment Requirement at the effective time of a
Termination Transaction shall vest at such time; and (ii) the General Partner
may, in its sole and absolute discretion, cause the immediate vesting of some or
all of the Performance Units issued to one or more of the New PLPs
C. Any Performance Units forfeited pursuant to paragraph
B. above shall be reissued by the Partnership to each of the Old PLPs and New
PLPs in proportion to the number of Performance Units originally issued to each
such PLP (including Performance Units then held by a New PLP which have not yet
vested). Any Performance Units which are reissued to a New PLP pursuant to this
paragraph 4.C. with respect to such New PLP'S Performance Units which have not
yet vested (based on the percentage of such New PLP'S Performance Units that
have not yet vested), shall be unvested performance units and shall vest or be
G-1
<PAGE> 87
forfeited in accordance with or at the same time as the Performance Units with
respect to which such reissued Performance Units were acquired. Any other
Performance Units which are reissued to a PLP pursuant to this paragraph 4.C.
shall be fully vested upon such reissuance.
D. Units which have not vested may not be exchanged or
redeemed (including pursuant to Section 8.6), sold or otherwise disposed of by a
PLP.
E. If by January 31, 1999, 100% of the percentage
interests allocable to the New PLPs have not been allocated (i.e., a portion of
such percentage interests continues to be allocable to "TBD"), any such
unallocated percentage interests shall be reallocated on such date to the other
Persons listed in such definition in proportion to their immediately preceding
percentages.
Definitions
"Old PLPs" means the Persons set forth on Schedule G-1 attached hereto, with the
percentage interest so indicated, as adjusted pursuant to paragraph 4.A. above.
"New PLPs" means the Persons set forth on Schedule G-2 attached hereto, with the
percentage interest so indicated, as adjusted pursuant to paragraph 4.A. above.
G-2
<PAGE> 88
EXHIBIT H
PROPERTIES WITH RESTRICTIONS ON DISPOSITION
PURSUANT TO SECTION 7.3.F
H-1
<PAGE> 89
EXHIBIT I
SCHEDULE OF CERTAIN AGREEMENTS CONTAINING
LIMITATIONS ON GENERAL PARTNERS GENERAL AUTHORITY
1. Contribution Agreement, dated March 30, 1998, by and among AMB
Property, L.P. and the other parties named therein.
2. AMB Property, L.P., First Amendment to Amended and Restated Agreement
of Limited Partnership, dated as of March 30, 1998.
3. Contribution Agreement, dated March 31, 1998, by and among AMB
Property, L.P. and Steve Liefschultz, Stephen M. Vincent, Alan Wilensky
and Craig Gagnon.
4. AMB Property, L.P., Second Amendment to Amended and Restated Agreement
of Limited Partnership, dated as of March 31, 1998.
5. Contribution Agreement, dated June 4, 1998, by and among AMB Property,
L.P. and the other parties named therein.
6. AMB Property, L.P. Third Amendment to Amended and Restated Agreement of
Limited Partnership, dated as of June 4, 1998.
7. Contribution Agreement, dated June 30, 1998, by and among AMB Property,
L.P. and the other parties named therein.
8. AMB Property, L.P. Fourth Amendment to Amended and Restated Agreement
of Limited Partnership, dated as of June 30, 1998.
I-1
