<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 30, 1998
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
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 JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION) IDENTIFICATION NO.)
</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. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
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=================================================================================================================================
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM AMOUNT OF
TITLE OF CLASS BEING OFFERING PRICE AGGREGATE OFFERING REGISTRATION
OF SECURITIES BEING REGISTERED REGISTERED (1) PER SHARE (1) PRICE (1) FEE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Series A Preferred Stock, $.01 par value
per share 6,900,000 $25.00 $172,500,000 $50,887.50
=================================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
FORM S-11 ITEM NO. AND HEADING LOCATION OR HEADING IN PROSPECTUS
------------------------------ ---------------------------------
<C> <S> <C>
1. Forepart of Registration Statement and Outside
Front Cover Page of Prospectus................... Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus....................................... Inside Front Cover Page; Outside Back Cover
Page
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges........................ Prospectus Summary; Risk Factors
4. Determination of Offering Price.................. Underwriters
5. Dilution......................................... Not Applicable
6. Selling Security Holders......................... Not Applicable
7. Plan of Distribution............................. Underwriters
8. Use of Proceeds.................................. Use of Proceeds
9. Selected Financial Data.......................... Selected Financial and Other Data
10. Management's Discussion and Analysis of Financial
Condition and Results of Operations.............. Management's Discussion and Analysis of
Financial Condition and Results of Operations
11. General Information as to Registrant............. Prospectus Summary; Business and Properties;
Management; Principal Stockholders;
Description of Certain Provisions of the
Partnership Agreement of the Operating
Partnership
12. Policy with Respect to Certain Activities........ Policies With Respect to Certain Activities
13. Investment Policies of Registrant................ Policies With Respect to Certain Activities
14. Description of Real Estate....................... Management's Discussion and Analysis of
Financial Condition and Results of
Operations; Business and Properties
15. Operating Data................................... Business and Properties
16. Tax Treatment of Registrant and Its Security
Holders.......................................... 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
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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 , 1998
6,000,000 Shares
AMB Property Corporation
% 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 APRIL, JULY, OCTOBER AND JANUARY 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 900,000 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
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
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<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
</TABLE>
<TABLE>
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<S> <C>
THE COMPANY........................................ 25
General......................................... 25
Recent Developments............................. 25
BUSINESS AND OPERATING STRATEGIES.................. 25
National Property Company....................... 26
Two Complementary Property Types................ 26
Select Market Focus............................. 26
Property Management............................. 26
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
</TABLE>
i
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Policies with Respect to Investment Advisory
Services...................................... 71
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................................. 93
Restrictions on Ownership and Transfer.......... 93
CERTAIN PROVISIONS OF MARYLAND LAW AND OF THE
COMPANY'S ARTICLES OF INCORPORATION AND BYLAWS.... 96
Board of Directors.............................. 96
Removal of Directors............................ 96
Opt Out of Business Combinations and Control
Share Acquisition Statutes.................... 96
Amendment to the Articles of Incorporation and
Bylaws........................................ 96
Meetings of Stockholders........................ 97
</TABLE>
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Advance Notice of Director Nominations and New
Business...................................... 97
Dissolution of the Company...................... 97
Limitation of Directors' and Officers'
Liability..................................... 97
DESCRIPTION OF CERTAIN PROVISIONS OF THE
PARTNERSHIP AGREEMENT OF THE OPERATING
PARTNERSHIP....................................... 99
General......................................... 99
Purpose, Business and Management................ 99
Engaging in Other Businesses; Conflicts of
Interest...................................... 100
Reimbursement of the Company; Transactions with
the Company and its Affiliates................ 100
Exculpation and Indemnification of the
Company....................................... 101
Sales of Assets; Liquidation.................... 101
Capital Contribution............................ 102
Removal of the General Partner; Transferability
of the Company's Interests; Treatment of Units
in Significant Transactions................... 102
Redemption/Exchange Rights...................... 103
Performance Units............................... 103
Registration Rights............................. 104
Duties and Conflicts............................ 104
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
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 24, 1998, the Company owned 160 properties (the
"Properties"), comprised of 123 industrial properties (the "Industrial
Properties") and 37 retail properties (the "Retail Properties") located in 28
markets throughout the United States (including five Industrial Properties
acquired since March 31, 1998). The Industrial Properties, principally warehouse
distribution properties, encompass approximately 46.7 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) five Industrial
Properties, comprising 23 buildings and 2.4 million 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 Senior Debt Securities were used to repay borrowings under
the Credit Facility (as defined below).
Acquisitions. From April 1, 1998 to June 24, 1998, the Company acquired for
an aggregate purchase price of approximately $173.9 million (i) five Industrial
Properties, comprising 23 buildings and 2.4 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, payable 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,
payable 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.
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 achieve the
Company's business plan, and risks associated with the Company's reliance
on external
3
<PAGE> 10
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 Chairman of the
Board of Directors, respectively. The inability to find suitable
replacements for these
4
<PAGE> 11
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 an investment-grade
debt rating. 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 sale of the Senior Debt Securities and
the Offering and the application of the proceeds therefrom as if those
transactions had occurred as of that date) would have been approximately
30.7% (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 24, 1998, the
Company acquired (i) 28 Properties comprising 76 buildings and 9.2 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............ 6,000,000 shares of % Series A Cumulative
Redeemable Preferred Stock (or 6,900,000 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 April, July, October and January 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 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 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 other classes or series of
equity securities of the Company upon
7
<PAGE> 14
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 $335,577
Income from operations
before minority
interests................. 798 2,925 3,296 7,140 18,885 103,903 112,044
Net income available to
common stockholders....... 798 2,925 3,262 7,003 18,228 99,508 90,713
Net income per common
share(5):
Basic..................... $ 0.17 $ 0.59 $ 0.64 $ 1.38 $ 1.39 $ 1.16 $ 1.06
Diluted................... 0.17 0.59 0.64 1.38 1.38 1.16 1.05
Distributions per common
share..................... 0.13 1.37 1.37
OTHER DATA:
EBITDA(6)................... $ 195,218 $234,658
Funds from Operations(7).... 147,409 146,635
Cash flows provided by (used
in):
Operating activities...... 131,621 144,958
Investing activities...... (607,768) (941,937)
Financing activities...... 553,199 919,265
Ratio of earnings to fixed
charges and preferred
stock dividends(8)........ 3.1x 2.1x
Ratio of EBITDA to interest
expense and preferred
stock dividends(9)........ 4.3x 2.9x
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 $ 87,517
Income from operations
before minority
interests................. 1,239 29,188 30,367
Net income available to
common stockholders....... 1,239 27,906 24,916
Net income per common
share(5):
Basic..................... $ 0.24 $ 0.32 $ 0.29
Diluted................... 0.24 0.32 0.29
Distributions per common
share..................... 0.34 0.34
OTHER DATA:
EBITDA(6)................... $ 52,815 $ 62,202
Funds from Operations(7).... 40,295 40,422
Cash flows provided by (used
in):
Operating activities...... 34,820 38,088
Investing activities...... (199,520) (49,646)
Financing activities...... 153,316 (12,221)
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)........ 4.5x 3.1x
BALANCE SHEET DATA:
Investments in real estate
at cost................... $2,755,882 $2,929,762
Total assets................ 2,798,190 3,048,090
Secured debt(10)............ 610,111 610,111
Senior Debt Securities...... -- 400,000
Unsecured credit facility... 312,000 --
Stockholders' equity........ 1,670,705 1,815,055
PROPERTY DATA:
INDUSTRIAL PROPERTIES
Total rentable square
footage of properties at
end of period............. 43,964 46,730
Number of properties at end
of period................. 118 123
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. See "Pro Forma Financial
Information."
(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.
(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
12
<PAGE> 19
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 $ 112,044 $ 29,188 $ 30,367
Real estate related depreciation and amortization:
Depreciation and amortization..................... 45,886 53,328 11,786 14,738
Furniture, fixtures and equipment depreciation.... (173) (173) (104) (104)
FFO attributable to minority interests................ (2,207) (7,273) (575) (1,756)
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.................... -- (12,563) -- (3,141)
----------- ----------- ----------- -----------
FFO................................................... $ 147,409 $ 146,635 $ 40,295 $ 40,422
=========== =========== =========== ===========
Weighted average shares and units outstanding
(diluted)........................................... 88,698,719 89,856,956 88,839,192 89,985,136
=========== =========== =========== ===========
</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 $73.9
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 flows and its 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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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 such 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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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 will have met or 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 or 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 all Executive
Officers have entered into or will enter 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."
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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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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THE COMPANY
GENERAL
The Company is one of the largest publicly-traded real estate companies in
the United States. As of June 24, 1998, the Company owned 160 Properties,
comprised of 123 Industrial Properties and 37 Retail Properties located in 28
markets throughout the United States. The Industrial Properties, principally
warehouse distribution properties, encompass approximately 46.7 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 24, 1998, the Company acquired for
an aggregate purchase price of approximately $173.9 million (i) five Industrial
Properties, comprising 23 buildings and 2.4 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, payable 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
payable 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.
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
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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 24, 1998, the Company owned 160 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."
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
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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
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
27
<PAGE> 34
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% even 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 an investment-grade rating on its senior
unsecured debt. The Company also intends to keep the majority of its assets
unencumbered to help facilitate such rating. Upon consummation of the Offering,
the Company's Debt-to-Total Market Capitalization Ratio as of March 31, 1998 on
a pro forma basis would have been approximately 30.7% (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 $73.9 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 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
28
<PAGE> 35
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 24, 1998, the Company acquired (i) 28
Properties comprising 76 buildings and 9.2 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 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
29
<PAGE> 36
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 $144.4
million, after deducting Underwriters' discounts and commissions and estimated
offering expenses aggregating approximately $5.6 million. The Company intends to
use the net proceeds to repay approximately $73.9 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 June 29, 1998, the last reported
sales price per share of the Common Stock on the NYSE was $25. As of June 29,
1998, there were approximately 193 holders of record of the Common Stock
(excluding beneficial owners whose shares are held in the name of Cede & Co.).
The following table sets forth the high and low closing sales prices per share
of the Common Stock reported on the NYSE for the period from November 21, 1997
to June 29, 1998 and the distributions paid by the Company with respect to such
periods.
<TABLE>
<CAPTION>
YEAR HIGH LOW DISTRIBUTION
---- ---- --- ------------
<S> <C> <C> <C>
1997
Fourth Quarter (from November 21, 1997)............ $25 1/8 $22 1/4 $0.1340
1998
First Quarter...................................... $24 15/16 $23 3/8 $0.3425
Second Quarter (through June 29, 1998)............. $25 $22 3/8 --
</TABLE>
On June 19, 1998, the Board of Directors declared a distribution on the
Common Stock of $0.3425 per share, payable 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, payable 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 $ 73,864 $ --
Senior Debt Securities............................... -- 400,000 400,000
Secured debt(1)...................................... 610,111 610,111 610,111
---------- ---------- ----------
Total debt........................................ 922,111 1,083,975 1,010,111
Minority interests..................................... 123,763 141,313 141,313
Stockholders' equity:
Preferred Stock, $.01 par value, 100,000,000 shares
authorized, none issued or outstanding (6,000,000
shares of Series A Preferred Stock issued and
outstanding, pro forma)........................... -- -- 144,350
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 1,815,055
---------- ---------- ----------
Total capitalization.............................. $2,716,579 $2,895,993 $2,966,479
========== ========== ==========
</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) 3,700,400 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 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 $335,577
Income from operations before
minority interests............ 798 2,925 3,296 7,140 18,885 103,903 112,044
Net income available to common
stockholders.................. 798 2,925 3,262 7,003 18,228 99,508 90,713
Net income per common share(5):
Basic......................... $ 0.17 $ 0.59 $ 0.64 $ 1.38 $ 1.39 $ 1.16 $ 1.06
Diluted....................... 0.17 0.59 0.64 1.38 1.38 1.16 1.05
Distributions per common
share......................... 0.13 1.37 1.37
OTHER DATA:
EBITDA(6)....................... $ 195,218 $234,658
Funds from Operations(7)........ 147,409 146,635
Cash flows provided by (used
in):
Operating activities.......... 131,621 144,958
Investing activities.......... (607,768) (941,937)
Financing activities.......... 553,199 919,265
Ratio of earnings to fixed
charges and preferred stock
dividends(8).................. 3.1x 2.1x
Ratio of EBITDA to interest
expense and preferred stock
dividends(9).................. 4.3x 2.9x
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.......... -- -- -- -- 400,000
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 $ 87,517
Income from operations before
minority interests............ 1,239 29,188 30,367
Net income available to common
stockholders.................. 1,239 27,906 24,916
Net income per common share(5):
Basic......................... $ 0.24 $ 0.32 $ 0.29
Diluted....................... 0.24 0.32 0.29
Distributions per common
share......................... 0.34 0.34
OTHER DATA:
EBITDA(6)....................... $ 52,815 $ 62,202
Funds from Operations(7)........ 40,295 40,422
Cash flows provided by (used
in):
Operating activities.......... 34,820 38,088
Investing activities.......... (199,520) (49,646)
Financing activities.......... 153,316 (12,221)
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).................. 4.5x 3.1x
BALANCE SHEET DATA:
Investments in real estate at
cost.......................... $2,755,882 $2,929,762
Total assets.................... 2,798,190 3,048,090
Secured debt(10)................ 610,111 610,111
Senior Debt Securities.......... -- 400,000
Unsecured credit facility....... 312,000 --
Stockholders' equity............ 1,670,705 1,815,055
PROPERTY DATA:
INDUSTRIAL PROPERTIES
Total rentable square footage of
properties at end of period... 43,964 46,730
Number of properties at end of
period........................ 118 123
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 88,284,736 and 86,284,736 shares, respectively.
(6) EBITDA is computed as income from operations before disposal of properties
and minority interests plus interest expense, income taxes, depreciation
and amortization. Management believes that in addition to cash flows and
net income, EBITDA is a useful financial performance measure for assessing
operating performance because, together with net income and cash flows,
EBITDA provides investors with an additional basis to evaluate the ability
to incur and service debt and to fund acquisitions and other capital
expenditures.
34
<PAGE> 41
(7) FFO, as defined by NAREIT, 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. The White Paper
on Funds from Operations approved by the Board of Governors of NAREIT in
March 1995 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 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 $ 112,044 $ 29,188 $ 30,367
Real estate related depreciation and
amortization:
Depreciation and amortization............... 45,886 53,328 11,786 14,738
Furniture, fixtures and equipment
depreciation.............................. (173) (173) (104) (104)
FFO attributable to minority interests.......... (2,207) (7,273) (575) (1,756)
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.............. -- (12,563) -- (3,141)
----------- ----------- ----------- -----------
FFO............................................. $ 147,409 $ 146,635 $ 40,295 $ 40,422
=========== =========== =========== ===========
Weighted average shares and units outstanding
(diluted)..................................... 88,698,719 89,856,956 88,839,192 89,985,136
=========== =========== =========== ===========
</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 UNIT DATA, PERCENTAGES AND NUMBER OF PROPERTIES)
<TABLE>
<CAPTION>
AS OF AND FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------------------------------------
OPERATING PARTNERSHIP
------------------------------------
HISTORICAL AS ADJUSTED PRO FORMA
AMB CONTRIBUTED PROPERTIES(1) (2) (3) (4)
-------------------------------------------------------- ---------- ----------- ---------
1993 1994 1995 1996 1997 1997 1997 1997
-------- -------- ---------- ---------- -------- ---------- ----------- ---------
(UNAUDITED) (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 $ 335,577
Income from operations
before minority
interests............. 6,871 13,753 32,519 54,865 58,068 9,291 103,903 112,044
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 $ 87,517
Income from operations
before minority
interests............. 14,217 29,188 30,367
BALANCE SHEET DATA:
Investments in real
estate at cost........ $2,755,882 $2,929,762
Total assets............ 2,798,190 3,048,090
Secured debt(5)......... 610,111 610,111
PROPERTY DATA:
INDUSTRIAL PROPERTIES
Total rentable square
footage of properties
at end of period...... 43,964 46,730
Number of properties at
end of period......... 118 123
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
$592.6 million, excluding unamortized debt premiums of $17.5 million. The
secured debt bears interest at rates varying from 7.01% to 10.39% per annum
(with a weighted average of 8.01%) 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 an
investment grade rating on its senior unsecured debt. The Company intends to
keep the majority of its assets unencumbered to facilitate such rating. Upon
consummation of the Offering, the Company's Debt-to-Total Market Capitalization
Ratio as of March 31, 1998 on a pro forma basis would have been approximately
30.7% (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, payable 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, payable 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 24, 1998, the Company acquired (i) five
industrial buildings comprising 23 buildings and 2.4 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, for an aggregate purchase price of $173.9
million. The acquisitions were funded through borrowings under the Credit
Facility, cash, debt assumption of approximately $83.5 million, an investment
from a co-investment partner of approximately $37.0 million and the issuance of
Units with a value of approximately $25.8 million at the date of issuance. The
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 $ 112,044 $ 29,188 $ 30,367
Real estate related depreciation and
amortization:
Depreciation and amortization.... 45,886 53,328 11,786 14,738
Furniture, fixtures and equipment
depreciation................... (173) (173) (104) (104)
FFO attributable to minority
interests(1)(2)..................... (2,207) (7,273) (575) (1,756)
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.... -- (12,563) -- (3,141)
----------- ----------- ----------- -----------
FFO(1)................................ $ 147,409 $ 146,635 $ 40,295 $ 40,422
=========== =========== =========== ===========
Weighted average shares and units
outstanding (diluted)............... 88,698,719 89,856,956 88,839,192 89,985,136
=========== =========== =========== ===========
Cash flows provided by (used in):
Operating activities............. $ 131,621 $ 144,958 $ 34,820 $ 38,088
Investing activities............. (607,768) (941,937) (199,520) (49,646)
Financing activities............. 553,199 919,265 153,316 (12,221)
</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
Center...................... West Deptford 13 1979R 779,594 1.8 98.7
Wilmington
Boulden....................... Wilmington 3 1986 266,141 0.6 100.0
--- ---------- -----
Eastern Region Total/Weighted
Average....................... 68 8,729,347 19.9% 92.7%
--- ---------- -----
<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
Center...................... 2,717 1.5 27 3.53
Wilmington
Boulden....................... 1,062 0.6 5 3.99
-------- ----- -----
Eastern Region Total/Weighted
Average....................... $ 33,435 18.7% 109 $4.13
-------- ----- -----
</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
Industrial.................. Elk Grove Village 10 1980 693,459 1.6 81.5
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
Portfolio IV................ Plymouth 4 1985R 514,546 1.2 100.0
Minneapolis Industrial
Portfolio V................. Brooklyn Center 6 1997 499,673 1.1 100.0
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
Average......................... 92 11,199,515 25.5% 93.0%
--- ---------- -----
SOUTHERN
Atlanta
Amwiler-Gwinnett Industrial
Portfolio................... Gwinnett County 9 1996 792,686 1.8% 100.0%
Atlanta South................. Clayton County 9 1994 624,135 1.4 96.2
Norcross/Brookhollow
Portfolio................... Gwinnett County 4 1996 322,399 0.7 96.7
Southfield.................... Gwinnett County 8 1990 780,623 1.8 85.1
Suwanee Creek Distribution
Center(7)................... Atlanta n/a 1998D n/a n/a n/a
Austin
Metric Center(4).............. Austin 6 1996 735,240 1.7 100.0
<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
Industrial.................. 2,422 1.4 13 4.29
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
Portfolio(4)................ 1,090 0.6 3 3.51
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
Portfolio................... 3,798 2.1 25 3.70
Minneapolis Industrial
Portfolio IV................ 1,876 1.1 16 3.65
Minneapolis Industrial
Portfolio V................. 1,594 0.9 16 3.19
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
Average......................... $ 39,075 21.9% 269 $3.75
-------- ----- -----
SOUTHERN
Atlanta
Amwiler-Gwinnett Industrial
Portfolio................... $ 2,974 1.7% 26 $3.75
Atlanta South................. 3,037 1.7 26 5.06
Norcross/Brookhollow
Portfolio................... 1,663 0.9 20 5.34
Southfield.................... 2,762 1.5 32 4.16
Suwanee Creek Distribution
Center(7)................... n/a n/a n/a n/a
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
Portfolio................... Houston 5 1986 464,696 1.1 95.1
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
Average......................... 114 11,262,975 25.6% 95.2%
--- ---------- -----
WESTERN
Los Angeles
Anaheim Industrial............ Anaheim 1 1980 161,500 0.4% 100.0%
Artesia Industrial
Portfolio................... Compton 27 1984 2,496,465 5.7 100.0
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
Portfolio................... Carson, Norwalk 6 1980 818,191 1.9 100.0
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
Portfolio................... 1,408 0.8 17 3.18
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
Average......................... $ 45,096 25.3% 367 $4.20
-------- ----- -----
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
Distribution................ Roseville 1 1994 182,437 0.4 100.0
San Diego
Activity Distribution
Center...................... San Diego 4 1991 252,318 0.6 100.0
San Francisco Bay Area
Acer Distribution Center...... San Jose 1 1974 196,643 0.4 100.0
Alvarado Business Center...... San Leandro 10 1986 695,070 1.5 98.3
Ardenwood Corporate Park...... Fremont 4 1986 295,657 0.7 100.0
Dowe Industrial............... Union City 2 1985R 326,080 0.7 100.0
Fairway Drive
Industrial(4)(6)............ San Leandro 2 1997D 175,324 0.4 100.0
Laurelwood.................... Santa Clara 2 1981 155,500 0.4 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
Portfolio................... San Jose, 5 1978 287,228 0.7 100.0
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
Center...................... Kent 3 1980 325,625 0.6 88.5
--- ---------- -----
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
Distribution................ 630 0.4 1 3.45
San Diego
Activity Distribution
Center...................... 1,366 0.8 15 5.41
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
Industrial(4)(6)............ 797 0.4 2 4.55
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
Portfolio................... 2,376 1.3 9 8.27
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
Center...................... 1,085 0.6 3 3.77
-------- ----- -----
Western Region Total/Weighted
Average......................... 60,809 34.1 320 4.92
-------- ----- -----
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 $50,000(2)
All MSAs $42,000(3)
Total U.S. $37,000(3)
</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)
<TABLE>
<S> <C>
AMB Centers 108,000
U.S. Average 71,000(2)
</TABLE>
(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
<TABLE>
<S> <C>
AMB Centers(1)(2) $498
Total U.S. $398(3)
</TABLE>
(1) Includes sales per square foot for grocer anchors reporting a full year
of sales. Thirty-one of 37 Retail Properties are represented above. Of
the six Retail Properties not represented, (i) four do not have grocer
anchors, (ii) one Property is currently under construction and (iii)
the grocer-anchor store at one Property is not owned by the Company and
does not report sales.
(2) All but nine of the 31 Retail Properties included report sales on a
calendar year basis.
(3) Derived from data published in the Progressive Grocer Annual Report,
April 1998.
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 would have been approximately 30.7% (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 $73.9 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 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
63
<PAGE> 70
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
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
</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>
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
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
</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>
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 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
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<PAGE> 73
"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 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.
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<PAGE> 74
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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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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<PAGE> 81
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. The employment agreements provide for annual
base compensation with the amount of any bonus to be determined by the
Compensation Committee, based on certain performance
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<PAGE> 85
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.
STOCK INCENTIVE PLAN
The Company adopted the Stock Option and Incentive Plan (the "Stock
Incentive Plan") to (i) enable executive officers, employees and directors of
the Company, the Operating Partnership and AMB Investment Management to
participate in the ownership of the Company, (ii) attract and retain executive
officers, other key employees (those employees which from time-to-time are
recognized for exceptional contributions to the Company and its subsidiaries,
including the Operating Partnership) and directors of the Company, the Operating
Partnership and AMB Investment Management and (iii) provide incentives to such
persons to maximize the Company's performance and its cash flow available for
distribution. The Stock Incentive Plan provides for the award to such officers
and key employees (subject to the Ownership Limit, or such other limit as
provided in the Company's Articles of Incorporation or as otherwise permitted by
the Board of Directors) of a broad variety of stock-based compensation
alternatives such as non-qualified stock options, incentive stock options,
restricted stock and stock appreciation rights, and provides for the grant to
Independent Directors and directors of AMB Investment Management of
non-qualified stock options.
The Compensation Committee, which is comprised solely of Independent
Directors, has the authority to determine the terms of options and restricted
shares of common stock granted under the Stock Incentive Plan, including, among
other things, the individuals who shall receive such grants, the times when they
shall receive them, whether an incentive stock option or non-qualified option
shall be granted and the number of shares to be subject to each grant.
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<PAGE> 86
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 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
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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.
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.
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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 set forth below
does not purport to be complete and is subject to and qualified in its entirety
by reference to the Articles Supplementary to the Articles of Incorporation
determining the terms of the Series A Preferred Stock (the "Articles
Supplementary"), and the Bylaws of the Company. Copies of the Articles of
Incorporation, 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 Articles of Incorporation of the Company provide that the Company is
authorized to issue 500,000,000 shares of Common Stock and 100,000,000 shares of
Preferred Stock of which 6,900,000 shares are designated as Series A Preferred
Stock. As of March 31, 1998, 85,874,513 shares of Common Stock and no shares of
Preferred Stock were issued and outstanding.
The Articles of Incorporation authorize 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 series from time to time, in one or more series, as
authorized by the Board of Directors. Prior to issuance of shares of Preferred
Stock of each series, the Board of Directors is required by Maryland law and the
Articles of Incorporation to set, subject to the provisions of the Articles of
Incorporation regarding the restriction on transfer of stock, 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 series. Thus, the Board, without
shareholder 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
determining the terms of the Series A Preferred Stock as a series 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 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 Preference Units (the "Series A Preference
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 Preference Units prior to any distribution of
cash or assets to the holder of Units or to the holders of any other equity
interests in the Operating Partnership, except for any other series of
Preference Units ranking on a parity with such Series A Preference Units as to
distributions or liquidation, as the case may be, and except for distributions
required to enable the Company to maintain its qualification as a REIT. The
Operating Partnership currently has no Preference Units outstanding or any other
equity interests ranking prior to the Common Units.
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 dividend rights and
rights upon voluntary or involuntary liquidation, dissolution or winding up of
the Company, (a) senior to all classes or series of Common Shares 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
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the Company other than those referred 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 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 arrears on the 15th day of each April, July, October and
January, 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, which shall be the 15th
day of the preceding calendar month or such other 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 such Dividend Payment Date (each, a "Dividend
Record Date").
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 its Credit Facility provide
generally that the Company 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
Articles Supplementary contain 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.
If any shares of Series A Preferred Stock are outstanding, no full
dividends will be declared or paid or set apart for payment on any other equity
securities of the Company of any other class or series ranking, as to
distributions or upon liquidation, dissolution or winding up of the Company, on
a parity with or junior to the Series A Preferred Stock 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 Series A
Preferred Stock 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 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 as to dividends on a parity with the Series A
Preferred Stock will be declared pro rata so that the amount of dividends
declared per share of Series A Preferred Stock and each such other equity
securities shall in all cases bear to each other the same ratio that accumulated
dividends per share of Series A Preferred Stock and such other equity securities
(which shall not include any accumulation in respect of unpaid dividends for
prior dividend periods if such other equity securities do not have a cumulative
dividend) bear to each other. 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.
Except as provided in the immediately preceding paragraph, 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 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 liquidation,
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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 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 liquidation, dissolution and
winding up of the Company).
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 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.
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 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 liquidation rights. 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.
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 convertible into or exchangeable for equity
securities) or options to purchase any of the foregoing. Holders of
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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
distributions). 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 Articles Supplementary, 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 or Transfers."
Notwithstanding the foregoing, unless full cumulative dividends on all
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 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 purchase by the Company of
shares of Series A Preferred Stock pursuant to Article of the Articles
Supplementary or otherwise 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 set forth below or as otherwise from time to time required by law.
In any matter in which the holders of Series A Preferred Stock are entitled
to vote (as expressly provided herein or as may be required by law), 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 for a one-year term. 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 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 shareholders) 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 the shareholders, at the next
annual or special meeting of shareholders, and at each subsequent annual meeting
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 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 have the voting rights set
forth in the immediately preceding paragraph and all series 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 (such series voting
separately as a class), (i) authorize or create, or increase the authorized or
issued amount of, any class or series of stock
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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 Articles of Incorporation (including the Articles Supplementary), 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 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 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
shareholders, 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 Articles of Incorporation and Bylaws, copies of which are filed
as exhibits to the Registration Statement of which this Prospectus is a part.
See "Additional Information."
COMMON STOCK
Each outstanding share of Common Stock entitles the holder to one vote on
all matters presented to stockholders for a vote, including the election of
directors, and, except as otherwise required by law and except as provided in
any resolution adopted by the Board of Directors with respect to any other class
or series of stock establishing the designation, powers, preferences and
relative, participating, optional or other special rights and powers of such
series, the holders of such shares possess the exclusive voting power, subject
to the provisions of the Company's Articles of Incorporation regarding the
ownership of shares of Common Stock in excess of the Ownership Limit or such
other limit as provided in the Company's Articles of Incorporation or as
otherwise permitted by the Board of Directors. Holders of shares of Common Stock
do not have any conversion, exchange, sinking fund, redemption or appraisal
rights or any preemptive rights to subscribe for any securities of the Company
or cumulative voting rights in the election of directors. All shares of Common
Stock that are issued and outstanding are duly authorized, fully paid and
nonassessable. Subject to the preferential rights of any other shares or series
of stock and to the provisions of the Articles of Incorporation regarding
ownership of shares of Common Stock in excess of the Ownership Limit, or such
other limit as provided in the Company's Articles of Incorporation or as
otherwise permitted by the Board of Directors, distributions may be paid to the
holders of shares of Common Stock if and when authorized and declared by the
Board of Directors of the Company out of funds legally available therefor. The
Company intends to continue to make quarterly distributions on outstanding
shares of Common Stock.
Under the MGCL, stockholders are generally not liable for the Company's
debts or obligations. If the Company is liquidated, subject to the right of any
holders of Preferred Stock to receive preferential distributions, each
outstanding share of Common Stock will be entitled to participate pro rata in
the assets remaining after payment of, or adequate provision for, all known
debts and liabilities of the Company, including debts and liabilities arising
out of its status as general partner of the Operating Partnership.
Subject to the provisions of the Articles of Incorporation regarding the
ownership of shares of Common Stock in excess of the Ownership Limit, or such
other limit as provided in the Company's Articles of Incorporation or as
otherwise permitted by the Board of Directors described below, all shares of
Common Stock have equal distribution, liquidation and voting rights, and have no
preference or exchange rights.
Under the MGCL, a Maryland corporation generally cannot dissolve, amend its
charter, merge, sell all or substantially all of its assets, engage in a share
exchange or engage in similar transactions outside the ordinary course of
business unless approved by the affirmative vote of stockholders holding at
least two-thirds of the shares entitled to vote on the matter unless a lesser
percentage (but not less than a majority of all of the votes entitled to be cast
on the matter) is set forth in the corporation's charter. Under the MGCL, the
term "substantially all of the Company's assets" is not defined and is,
therefore, subject to Maryland common law and to judicial interpretation and
review in the context of the unique facts and circumstances of any particular
transaction. The Articles of Incorporation do not provide for a lesser
percentage in any such situation.
The Articles of Incorporation authorize the Board of Directors to
reclassify any unissued shares of Common Stock into other classes or series of
classes of stock and to establish the number of shares in each class or series
and to set the preferences, conversion and other rights, voting powers,
restrictions, limitations and restrictions on ownership, limitations as to
dividends or other distributions, qualifications and terms or conditions of
redemption for each such class or series.
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PREFERRED STOCK
Preferred Stock may be issued from time to time, in one or more classes or
series, as authorized by the Board of Directors. No Preferred Stock is currently
issued or outstanding. Prior to the issuance of shares of each class or series,
the Board of Directors is required by the MGCL and the Company's Articles of
Incorporation to fix for each class or series the terms, preferences, conversion
or other rights, voting powers, restrictions, limitations as to distributions,
qualifications and terms or conditions of redemption, as permitted by Maryland
law. Because the Board of Directors has the power to establish the preferences,
powers and rights of each class or series of Preferred Stock, it may afford the
holders of any class or series of Preferred Stock preferences, powers and
rights, voting or otherwise, senior to the rights of holders of shares of Common
Stock. The issuance of Preferred Stock, 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. 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 Articles of Incorporation subject to certain exceptions
as discussed below, provide 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 the Common Stock or of 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 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 Articles of Incorporation further prohibit (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. Any person who acquires or attempts or intends to
acquire actual or constructive ownership of Common Stock or Series A 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
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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 Articles of Incorporation 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 Articles of Incorporation, if any purported transfer of
shares of stock of the Company or any other event would otherwise result in any
person violating the Ownership Limit, such other limit as permitted by the Board
of Directors or the other restrictions in the Articles of Incorporation or
Articles Supplementary, 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 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
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 Market Price (as defined in the Company's
Articles of Incorporation) 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 Ownership
Limit or such other limit as provided in the Company's Articles of Incorporation
or as otherwise permitted by the Board of Directors, then the Articles of
Incorporation provide that the transfer of the excess shares will be void ab
initio.
If any purported transfer of shares would cause the Company to be
beneficially owned by fewer than 100 persons, 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
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Company that might involve a premium price for the shares or otherwise be in the
best interest of stockholders.
Under the Articles of Incorporation, every owner of at least a specified
percentage of the outstanding shares must file a completed questionnaire with
the Company containing information regarding ownership of such shares, as set
forth in the Treasury Regulations. Under current Treasury Regulations, the
percentage will be set between 0.5% and 5.0%, depending upon the number of
record holders of the Company's stock. 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
Articles of Incorporation or as otherwise permitted by the Board of Directors.
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CERTAIN PROVISIONS OF MARYLAND LAW AND OF
THE COMPANY'S ARTICLES OF INCORPORATION AND BYLAWS
The following paragraphs summarize certain provisions of the MGCL and the
Company's Articles of Incorporation and Bylaws. Such paragraphs do not, however,
purport to be complete and are subject to and qualified in their entirety by
reference to the MGCL and the Articles of Incorporation and Bylaws.
BOARD OF DIRECTORS
The Articles of Incorporation provide that the number of directors of the
Company shall be established by the Bylaws but shall not be less than the
minimum number required by the MGCL, which in the case of the Company is three.
The Bylaws currently provide that the Board of Directors consist of not fewer
than five nor more than 13 members which are elected to a one-year term at each
annual meeting of the Company's stockholders. Any vacancy (except for a vacancy
caused by removal) will be filled by a majority of the entire Board of
Directors. The Bylaws provide that a majority of the Board must be "Independent
Directors." An "Independent Director" is a director who is not an employee,
officer or affiliate of the Company or a subsidiary or division thereof, or a
relative of a principal executive officer, or who is not an individual member of
an organization acting as advisor, consultant or legal counsel, receiving
compensation on a continuing basis from the Company in addition to director's
fees.
REMOVAL OF DIRECTORS
While the Articles of Incorporation and the MGCL empower the stockholders
to fill vacancies in the Board of Directors that are caused by the removal of a
director, the Articles of Incorporation preclude stockholders from removing
incumbent directors except upon a substantial affirmative vote. Specifically,
the Articles of Incorporation provide that a director may be removed only for
cause and only by the affirmative vote of at least two-thirds of the votes
entitled to be cast in the election of directors. Under the MGCL, the term
"cause" is not defined and is, therefore, subject to Maryland common law and to
judicial interpretation and review in the context of the unique facts and
circumstances of any particular situation. This provision, when coupled with the
provision in the Bylaws authorizing the Board of Directors to fill vacant
directorships, precludes stockholders from removing incumbent directors except
upon a substantial affirmative vote and filling the vacancies created by such
removal with their own nominees.
OPT OUT OF BUSINESS COMBINATIONS AND CONTROL SHARE ACQUISITION STATUTES
The Company has elected in its Bylaws not to be governed by the "control
share acquisition" provisions of the MGCL (Sections 3-701 through 3-709), and
the Board of Directors has adopted, by irrevocable resolution of the Board of
Directors, not to be governed by the "business combination" provision of the
MGCL (Section 3-602), each of which could have the effect of delaying or
preventing a change of control of the Company. The Bylaws provide that the
Company cannot at a future date determine to be governed by either such
provision without the approval of a majority of the outstanding shares entitled
to vote. In addition, such irrevocable resolution adopted by the Board of
Directors may only be changed by the approval of a majority of the outstanding
shares entitled to vote.
AMENDMENT TO THE ARTICLES OF INCORPORATION AND BYLAWS
The Articles of Incorporation may not be amended without the affirmative
vote of at least two-thirds of the shares of capital stock outstanding and
entitled to vote thereon voting together as a single class. Other than
provisions of the Bylaws (i) opting out of the control share acquisition
statute, (ii) requiring approval by the Independent Directors of transactions
involving executive officers, directors or any limited partners of the Operating
Partnership and their affiliates and (iii) those governing amendment of the
Bylaws, each of which may be amended only with the approval of a majority of the
shares of capital stock entitled to vote, the Bylaws may be amended by the vote
of a majority of the Board of Directors or the shares of the Company's capital
stock entitled to vote thereon.
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MEETINGS OF STOCKHOLDERS
The Bylaws provide for annual meetings of stockholders to elect the Board
of Directors and transact such other business as may properly be brought before
the meeting. Special meetings of stockholders may be called by the President,
the Board of Directors, the Chairman of the Board and/or at the request in
writing of the holders of 50% or more of the outstanding stock of the Company
entitled to vote.
The MGCL provides that any action required or permitted to be taken at a
meeting of stockholders may be taken without a meeting by unanimous written
consent, if such consent sets forth such action and is signed by each
stockholder entitled to vote on the matter and a written waiver of any right to
dissent is signed by each stockholder entitled to notice of the meeting but not
entitled to vote at it.
ADVANCE NOTICE OF DIRECTOR NOMINATIONS AND NEW BUSINESS
The Bylaws provide that (i) with respect to an annual meeting of
stockholders, nominations of persons for election to the Board of Directors and
the proposal of business to be considered by stockholders may be made only (a)
pursuant to the Company's notice of the meeting, (b) by or at the direction of
the Board of Directors or (c) by a stockholder who is entitled to vote at the
meeting and has complied with the advance notice procedures set forth in the
Bylaws, and (ii) with respect to special meetings of stockholders, only the
business specified in the Company's notice of meeting may be brought before the
meeting of stockholders.
The provisions in the Articles of Incorporation on amendments to the
Articles of Incorporation and the advance notice provisions of the Bylaws could
have the effect of discouraging a takeover or other transaction in which holders
of some, or a majority, of the shares of Common Stock might receive a premium
for their shares of Common Stock over the then prevailing market price or which
such holders might believe to be otherwise in their best interests.
DISSOLUTION OF THE COMPANY
Under the MGCL, the Company may be dissolved by (i) the affirmative vote of
a majority of the entire Board of Directors declaring such dissolution to be
advisable and directing that the proposed dissolution be submitted for
consideration at any annual or special meeting of stockholders and (ii) upon
proper notice, stockholder approval by the affirmative vote of the holders of
two-thirds of the total number of shares of capital stock outstanding and
entitled to vote thereon voting as a single class.
LIMITATION OF DIRECTORS' AND OFFICERS' LIABILITY
The Company's officers and directors are indemnified under the MGCL, the
Articles of Incorporation and the Partnership Agreement against certain
liabilities. The Articles of Incorporation and Bylaws require the Company to
indemnify its directors and officers to the fullest extent permitted from time
to time by the MGCL.
The MGCL permits a corporation to indemnify its directors and officers and
certain other parties against judgments, penalties, fines, settlements and
reasonable expenses actually incurred by them in connection with any proceeding
to which they may be made a party by reason of their service in those or other
capacities unless it is established that (i) the act or omission of the director
or officer was material to the matter giving rise to the proceeding and was
committed in bad faith or was the result of active and deliberate dishonesty,
(ii) the director or officer actually received an improper personal benefit in
money, property or services or (iii) in the case of any criminal proceeding, the
director or officer had reasonable cause to believe that the act or omission was
unlawful. Indemnification may be made against judgments, penalties, fines,
settlements and reasonable expenses actually incurred by the director or officer
in connection with the proceeding; provided, however, that if the proceeding is
one by or in the right of the corporation, indemnification may not be made with
respect to any proceeding in which the director or officer has been adjudged to
be liable to the corporation. In addition, a director or officer may not be
indemnified with respect to any proceeding charging improper personal benefit to
the director or officer in which the director or officer was adjudged to be
liable on the basis that personal benefit was received. The termination of any
proceeding by conviction, or upon a plea of nolo contendere or its
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equivalent, or an entry of any order of probation prior to judgment, creates a
rebuttable presumption that the director or officer did not meet the requisite
standard of conduct required for indemnification to be permitted.
The MGCL permits the articles of incorporation of a Maryland corporation to
include a provision limiting the liability of its directors and officers to the
corporation and its stockholders for money damages, subject to specified
restrictions, and the Articles of Incorporation of the Company contain this
provision. The MGCL does not, however, permit the liability of directors and
officers to the corporation or its stockholders to be limited to the extent that
(i) it is proved that the person actually received an improper personal benefit
in money, property or services, (ii) a judgment or other final adjudication is
entered in a proceeding based on a finding that the person's action, or failure
to act, was committed in bad faith or was the result of active and deliberate
dishonesty and was material to the cause of action adjudicated in the proceeding
or (iii) in the case of any criminal proceeding, the director had reasonable
cause to believe that the act or failure to act was unlawful. This provision
does not limit the ability of the Company or its stockholders to obtain other
relief, such as an injunction or rescission.
The Partnership Agreement also provides for indemnification of the Company,
as general partner, and its officers and directors to the same extent
indemnification is provided to officers and directors of the Company in its
Articles of Incorporation, and limits the liability of the Company and its
officers and directors to the Operating Partnership and the partners of the
Operating Partnership to the same extent liability of officers and directors of
the Company to the Company and its stockholders is limited under the Articles of
Incorporation. See "Description of Certain Provisions of the Partnership
Agreement of the Operating Partnership -- Exculpation and Indemnification of the
Company."
Insofar as indemnification for liability arising under the Securities Act
may be permitted to directors, officers or persons controlling the Company
pursuant to the foregoing provisions, the Company has been informed that in the
opinion of the SEC, such indemnification is against public policy as expressed
in the Securities Act and is therefore unenforceable.
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DESCRIPTION OF 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 applicable also
to Performance Units, and holders of Performance Units are treated as limited
partners. The following summary of the Amended and Restated Agreement of Limited
Partnership of the Operating Partnership (the "Partnership Agreement") and the
descriptions of certain provisions set forth elsewhere in this Prospectus are
qualified in their entirety by reference to the Partnership Agreement, which is
filed as an exhibit to the Registration Statement of which this Prospectus is a
part.
GENERAL
Holders of Units hold limited partnership interests in the Operating
Partnership, and all holders of partnership interests (including the Company in
its capacity as general partner) are entitled to share in cash distributions
from, and in the profits and losses of, the Operating Partnership. The number of
units of the general partnership (the "GP Units") held by the Company is equal
to the total number of shares of Common Stock outstanding. Accordingly, the
distributions paid by the Company per share outstanding are expected to be equal
to the distributions per Unit paid on the outstanding Units. The Units have not
been registered pursuant to Federal or state securities laws, and they will not
be listed on the NYSE or any other exchange or quoted on any national market
system. However, the shares of Common Stock that may be issued by the Company
upon redemption of the Units may be sold in registered transactions, or
transactions exempt from registration under the Securities Act. The limited
partners of the Operating Partnership have the rights to which limited partners
are entitled under the Partnership Agreement and the Partnership Act. The
Partnership Agreement imposes certain restrictions on the transfer of Units, as
described below.
PURPOSE, BUSINESS AND MANAGEMENT
The Operating Partnership is organized as a Delaware limited partnership
pursuant to the terms of the Partnership Agreement. The Company is the sole
general partner of the Operating Partnership and conducts substantially all of
its business through the Operating Partnership, except for investment advisory
services (which are conducted through AMB Investment Management). The Operating
Partnership owns 100% of the non-voting preferred stock of AMB Investment
Management (representing 95% of its economic interest) and 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.
Investors who received Units in connection with the Formation Transactions,
as limited partners of the Operating Partnership, have no authority to transact
business for, or participate in the management activities or decisions of, the
Operating Partnership, except as provided in the Partnership Agreement or as
required by applicable law.
ENGAGING IN OTHER BUSINESSES; CONFLICTS OF INTEREST
The Company may not conduct any business other than in connection with the
ownership, acquisition and disposition of Operating Partnership interests as a
general partner and the management of the business of the Operating Partnership,
its operation as a public reporting company with a class (or classes) of
securities registered under the Exchange Act, its operation as a REIT and such
activities as are incidental to such activities (including, without limitation,
ownership of any interest in AMB Property Holding Corporation, AMB Investment
Management or a title holding, management or finance subsidiary organized as a
partnership, limited liability company or corporation) title holding, without
the consent of the holders of a majority of the limited partnership interests.
Except as may otherwise be agreed to in writing, each limited partner, and its
affiliates, is free to engage in any business or activity, even if such business
or activity competes with or is enhanced by the business of the Operating
Partnership. The Partnership Agreement does not prevent another person or entity
that acquires control of the Company in the future from conducting other
businesses or owning other assets, even though such businesses or assets may be
ones that it would be in the best interests of the limited partners for the
Operating Partnership to own. The Company, in the exercise of its power and
authority under the Partnership Agreement, may contract and otherwise deal with
or otherwise obligate the Operating Partnership to entities in which the Company
or any one or more of the officers, directors or stockholders of the Company may
have an ownership or other financial interest, whether direct or indirect.
REIMBURSEMENT OF THE COMPANY; TRANSACTIONS WITH THE COMPANY AND ITS AFFILIATES
The Company does not receive any compensation for its services as general
partner of the Operating Partnership. The Company, however, as a partner in the
Operating Partnership, has the same right to allocations and distributions as
other partners of the Operating Partnership. In addition, the Operating
Partnership reimburses the Company for all expenses it incurs relating to its
activities as general partner, its continued existence and qualification as a
REIT and all other liabilities incurred by the Company in connection with the
pursuit of its business and affairs. The Company may retain such persons or
entities as it shall determine (including itself, any entity in which the
Company has an interest, or any entity with which it is affiliated) to provide
services to or on behalf of the Operating Partnership. The Company is entitled
to reimbursement from the Operating Partnership for its out of pocket expenses
(other than amounts paid or payable to the Company or any entity in which the
Company has an interest or with which it is affiliated) incurred in connection
with Operating Partnership business. Such expenses include those incurred in
connection with the administration and activities of the Operating Partnership,
such as the maintenance of the
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Operating Partnership books and records, management of the Operating Partnership
property and assets, and preparation of information regarding the Operating
Partnership provided to the partners in the preparation of their individual tax
returns. Except as expressly permitted by the Partnership Agreement, however,
affiliates of the Company will not engage in any transactions with the Operating
Partnership except on terms that are fair and reasonable and no less favorable
to the Operating Partnership than would be obtained from an unaffiliated third
party.
EXCULPATION AND INDEMNIFICATION OF THE COMPANY
The Partnership Agreement generally provides that the Company, as general
partner of the Operating Partnership, will incur no liability to the Operating
Partnership or any limited partner for losses sustained, liabilities incurred,
or benefits not derived as a result of errors in judgment or for any mistakes of
fact or law or for anything which it may do or refrain from doing in connection
with the business and affairs of the Operating Partnership if the Company
carried out its duties in good faith. The Company's liability in any event is
limited to its interest in the Operating Partnership. Without limiting the
foregoing, the Company has no liability for the loss of any limited partner's
capital. In addition, the Company is not responsible for any misconduct,
negligent act or omission of any consultant, contractor or agent of the
Operating Partnership or of the Company and has no obligation other than to use
good faith in the selection of all such contractors, consultants and agents. The
Company may consult with counsel, accountants, appraisers, management
consultants, investment bankers, and other consultants and advisors selected by
it. An opinion by any such consultant on a matter which the Company believes to
be within such consultant's professional or expert competence is deemed to be
complete protection as to any action taken or omitted to be taken by the Company
based on such opinion and in good faith.
The Partnership Agreement also requires the Operating Partnership to
indemnify the Company, the directors and officers of the Company, and such other
persons as the Company may from time to time designate against any loss or
damage, including reasonable legal fees and court costs incurred by such person
by reason of anything it may do or refrain from doing for or on behalf of the
Operating Partnership or in connection with its business or affairs unless it is
established that: (i) the act or omission of the indemnified person was material
to the matter giving rise to the proceeding and either was committed in bad
faith or was the result of active and deliberate dishonesty; (ii) the
indemnified person actually received an improper personal benefit in money,
property or services; or (iii) in the case of any criminal proceeding, the
indemnified person had reasonable cause to believe that the act or omission was
unlawful. Any such indemnification claims must be satisfied solely out of the
assets of the Operating Partnership.
SALES OF ASSETS; LIQUIDATION
Under the Partnership Agreement, the Company, as general partner, generally
has the exclusive authority to determine whether, when and on what terms the
assets of the Operating Partnership (including the Properties) will be sold.
However, the Company has agreed, in connection with the contribution of
Properties from taxable Investors in the Formation Transactions (with an
estimated aggregate value of approximately $54.2 million), not to dispose of
such assets in a taxable sale or exchange prior to November 26, 2001 (the fourth
anniversary of the consummation of the Formation Transactions) and, thereafter,
to use commercially reasonable efforts to minimize the adverse tax consequences
of any such sale. The Company 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."
REMOVAL OF THE GENERAL PARTNER; TRANSFERABILITY OF THE COMPANY'S INTERESTS;
TREATMENT OF UNITS IN SIGNIFICANT TRANSACTIONS
The general partner may not be removed by the limited partners, with or
without cause, other than with the consent of the general partner. The
Partnership Agreement provides that the Company may not voluntarily withdraw
from the Operating Partnership, without the consent of the limited partners.
However, except as set forth below, the Company may transfer or assign its
general partner interest in connection with a merger, consolidation or sale of
substantially all the assets of the Company without limited partner consent.
Neither the Company nor the Operating Partnership may engage in any merger,
consolidation or other combination with or into another person, or effect any
reclassification, recapitalization or change of its outstanding equity
interests, and the Company may not sell all or substantially all of its assets
(each a "Termination Transaction") unless in connection with the Termination
Transaction all holders of Units either will receive, or will have the right to
elect to receive, for each Unit an amount of cash, securities or other property
equal to the product of the number of shares of Common Stock into which each
Unit is then exchangeable and the greatest amount of cash, securities or other
property paid to the holder of one Share in consideration of one Share pursuant
to the Termination Transaction. If, in connection with the Termination
Transaction, a purchase, tender or exchange offer shall have been made to and
accepted by the holders of the outstanding shares of Common Stock, each holder
of Units will receive, or will have the right to elect to receive, the greatest
amount of cash, securities or other property which such holder would have
received had it exercised its right to redemption and received shares of Common
Stock in exchange for its Units immediately prior to the expiration of such
purchase, tender or exchange offer and had thereupon accepted such purchase,
tender or exchange offer. Performance Units issued or to be issued will also
have the benefit of such provisions, irrespective of the capital account then
applicable thereto.
A Termination Transaction may also occur if the following conditions are
met: (i) substantially all of the assets directly or indirectly owned by the
surviving entity are held directly or indirectly by the Operating Partnership or
another limited partnership or limited liability company which is the survivor
of a merger, consolidation or combination of assets with the Operating
Partnership (in each case, the "Surviving Partnership"); (ii) the holders of
Units, including the holders of Performance Units issued or to be issued, own a
percentage interest of the Surviving Partnership based on the relative fair
market value of the net assets of the Operating Partnership and the other net
assets of the Surviving Partnership immediately prior to the consummation of
such transaction; (iii) the rights, preferences and privileges of such holders
in the Surviving Partnership, including the holders of Performance Units issued
or to be issued, are at least as favorable as those in effect immediately prior
to the consummation of such transaction and as those applicable to any other
limited partners or non-managing members of the Surviving Partnership (except,
as to Performance Units, for such differences with Units regarding liquidation,
redemption or exchange as are described herein); and (iv) such rights of the
limited partners, including the holders of Performance Units issued or to be
issued, include at least one of the following: (a) the right to redeem their
interests in the Surviving Partnership for the consideration available to such
persons pursuant to the preceding paragraph; or (b) the right to redeem their
Units for cash on terms equivalent to those in effect immediately prior to the
consummation of such
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transaction, or, if the ultimate controlling person of the Surviving Partnership
has publicly traded common equity securities, such common equity securities,
with an exchange ratio based on the relative fair market value of such
securities and the Common Stock. For purposes of this paragraph, the
determination of relative fair market values and rights, preferences and
privileges of the limited partners shall be reasonably determined by the
Company's Board of Directors as of the time of the Termination Transaction and,
to the extent applicable, the values shall be no less favorable to the holders
of Units than the relative values reflected in the terms of the Termination
Transaction.
In addition, in the event of a Termination Transaction, the arrangements
with respect to Performance Units and Performance Shares will be equitably
adjusted to reflect the terms of the transaction, including, to the extent that
the shares are exchanged for consideration other than publicly traded common
equity, the transfer or release of remaining Performance Shares, and resulting
issuance of any Performance Units, as of the consummation of the Termination
Transaction or set forth in the applicable Supplement.
REDEMPTION/EXCHANGE RIGHTS
Holders of Units 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
such exchange. Holders of Performance Units also have limited
redemption/exchange rights, as discussed under the caption "-- Performance
Units" below.
PERFORMANCE UNITS
Notwithstanding the foregoing discussion of distributions and allocations
of income or loss of the Operating Partnership, depending on the trading price
of the Common Stock after November 26, 1998 (the first anniversary of the IPO),
certain of the Executive Officers, in their capacity as limited partners of the
Operating Partnership, may receive Performance Units on each of February 26, May
26, August 26 and November 26, 1999. The Performance Units are similar to Units
in many respects, including (i) the right to share in operating distributions,
and allocations of operating income and loss, of the Operating Partnership on a
pro rata basis with Units; and (ii) certain redemption and exchange rights,
including limited rights to cause the Operating Partnership to redeem such
Performance Units for cash or, at the Company's option, to exchange such units
for shares of Common Stock. Any such redemption rights, however, will be
dependent upon an increase in the value of the assets of the Operating
Partnership (in some cases measured by reference to the trading price of the
shares of Common Stock) subsequent to the issuance of such Performance Units.
Without such an increase, the holders of Performance Units will not be entitled
to receive any proceeds upon the liquidation of the Operating Partnership or the
redemption of their Performance Units.
If any Performance Units are issued to such Executive Officers, in their
capacity as limited partners of the Operating Partnership, an equal number of GP
Units allocable to the Company and Units allocable to Performance Investors who
are limited partners in the Operating Partnership will be transferred to the
Operating Partnership. In addition, if any of the Company's GP Units are
transferred to the Operating Partnership as a result of the issuance of
Performance Units, an equal number of 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
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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 Executive Officers.
REGISTRATION RIGHTS
The Company granted to investors receiving Units in connection with the
Formation Transactions, and those receiving Units in connection with post-IPO
acquisitions of property, certain registration rights (collectively, the
"Registration Rights") with respect to the shares of Common Stock issuable upon
exchange of Units or otherwise (the "Registrable Shares"). The Company has
agreed to file and generally keep continuously effective beginning one year
after the completion of the IPO a registration statement covering the issuance
of shares of Common Stock upon exchange of Units and the resale thereof.
Pursuant to the terms and conditions of such Registration Rights, prior to the
date upon which shares of Common Stock issued as of the date of the consummation
of the IPO would be eligible for resale under Rule 144(k) under the Securities
Act, as such rule may be amended from time to time (or any similar rule or
regulation hereafter adopted by the SEC), each Investor will be limited to
resales of Registrable Shares to the number of Registrable Shares which
otherwise would be eligible for resale by such Investor pursuant to Rule 144,
assuming such Registrable Shares were issued as of the date of the consummation
of the IPO. The shelf registration statement will also cover Shares issuable
upon exchange of Performance Units. The Company may also agree to provide the
Registration Rights or other registration rights to any other person who may
become an owner of Units, provided such person provides the Company with
satisfactory undertakings. The Company will bear expenses incident to its
registration obligations upon exercise of the Registration Rights, including the
payment of Federal securities law and state Blue Sky registration fees, except
that it will not bear any underwriting discounts or commissions or transfer
taxes relating to registration of Registrable Shares. The Company may agree,
from time to time, to grant additional registration rights in connection with
other transactions.
DUTIES AND CONFLICTS
Except as otherwise set forth in "Policies with Respect to Certain
Activities -- Conflicts of Interest Policies" and "Management -- Employment
Agreements," any limited partner of the Operating Partnership may engage in
other business activities outside the Operating Partnership, including business
activities that directly compete with the Operating Partnership.
MEETINGS; VOTING
Meetings of the limited partners may be called by the Company, on its own
motion, or upon written request of limited partners owning at least 25% of the
then outstanding Units. Limited partners may vote either in person or by proxy
at meetings. Any action that is required or permitted to be taken by the limited
partners may be taken either at a meeting of the limited partners or without a
meeting if consents in writing setting forth the action so taken are signed by
limited partners owning not less than the minimum number of Units that would be
necessary to authorize or take such action at a meeting of the limited partners
at which all limited partners entitled to vote on such action were present. On
matters for which limited partners are entitled to vote, each limited partner
has a vote equal to the number of Units the limited partner holds. A transferee
of Units who has not been admitted as a substituted limited partner with respect
to such Units will have no voting rights with respect to such Units, even if
such transferee holds other Units as to which it has been admitted as a limited
partner. The Partnership Agreement does not provide for annual meetings of the
limited partners, and the Company does not anticipate calling such meetings.
AMENDMENT OF THE PARTNERSHIP AGREEMENT
Amendments to the Partnership Agreement may be proposed by the Company or
by limited partners owning at least 25% of the then outstanding Units.
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
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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.
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 considerations
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 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. 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.
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
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(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 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
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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 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,
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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 "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
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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 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.
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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 characterized
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
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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 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 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 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
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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 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.
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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.
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.
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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 Common
Stock and Series A Preferred Stock will not be subject to taxation under FIRPTA.
However, because the shares of 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 the same treatment as domestic
stockholders (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
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
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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 (the "Private REIT") of its assets to the Company in
exchange for shares of Common Stock of the Company, followed by the Private
REIT's distribution to its stockholders of such shares in a taxable liquidation.
In this case, such Private REIT would recognize gain on this deemed taxable
sale. However, assuming each Private REIT at all times qualified for taxation as
a REIT, in calculating its taxable income, it should be entitled to a deduction
in an amount equal to the lesser of (i) its earnings and profits for its taxable
year ending with the Private REIT Merger (including the earnings and profits
arising from the deemed sale of the assets to the Company) or (ii) the fair
market value of the Private REIT Merger consideration it was deemed to
distribute to its stockholders as a result of the Private REIT Merger. As a
result of such deduction, it is expected that neither CIF nor VAF would be
taxable on a material amount of gain for Federal income tax purposes as a result
of such transactions. If either or both of CIF and VAF recognized any such gain
or failed to qualify as a REIT, or if AMB failed to qualify as an S corporation,
for any year prior to the Formation Transactions, the Company could have assumed
a material Federal income
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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.
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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, 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...........................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated....................................
PaineWebber Incorporated....................................
Smith Barney Inc............................................
---------
Total............................................. 6,000,000
=========
</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 900,000 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 convertible into Common Stock) or any securities
convertible into or exercisable or exchangeable for shares of
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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, as identified in Note 1, Organization and Basis of
Presentation to the historical financial statements of the AMB Contributed
Properties, including CIF, VAF, WPF and the Individual Account Investors.
"AMB Property Corporation" means AMB Property Corporation, a Maryland
corporation with its principal office at 505 Montgomery Street, San Francisco,
California 94111.
"AMBCREA" means AMB Corporate Real Estate Advisors, Inc., a California
corporation.
"AMBI" means AMB Investments, Inc., a California corporation.
"AMB Investment Management" means AMB Investment Management Corporation, a
Maryland corporation, of which the Company owns 100% of the non-voting preferred
stock (representing 95% of its economic value) and 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.
"Articles of Incorporation" means the Articles of Incorporation of the
Company and the Company's Articles Supplementary setting forth the rights,
privileges and preferences of the Series A Preferred Stock.
"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.
"CIF" means AMB Current Income Fund, Inc., a Maryland corporation.
"Code" means the Internal Revenue Code of 1986.
"Common Stock" means shares of common stock of the Company.
"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 with respect to the period prior to the IPO, the AMB
Predecessors.
"Credit Agreement" means the Credit Facility, any successor agreement
thereto, and any other credit agreement under which the Operating Partnership is
an obligor.
"Credit Facility" means the Operating Partnership's unsecured $500 million
credit facility among the Operating Partnership, MGT and a syndicate of 12 other
banks.
"Debt-to-Total Market Capitalization Ratio" means the ratio calculated
based on the Company's total consolidated debt and its pro rata share of
unconsolidated debt as a percentage of the market value of outstanding shares of
Common Stock plus the value of the liquidation preference of outstanding shares
of
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<PAGE> 135
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 "may,"
"will," "should," "expect," "anticipate," "estimate" or "continue" 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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<PAGE> 136
"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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<PAGE> 137
"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.
"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 Articles of Incorporation of the Company authorize the Board of Directors to
cause the Company to issue, in series, and to establish the preferences, rights
and other terms of any series so issued.
"Prohibited Owner" means the person or entity holding shares in excess of
the Ownership Limit or such other limit.
"Prohibited Transferee" means the purported transferee of a transfer of
Shares of the Company or any other event that would result in any person
violating the Ownership Limit or such other limit provided in the Company's
Articles of Incorporation or as otherwise permitted by the Board of Directors of
the Company.
"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.
"Proposed Regulations" means certain proposed regulations concerning the
tax treatment of the Private REIT Mergers.
"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.
"Regulations" means regulations issued by the United States Department of
Labor, effective as of March 13, 1987.
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<PAGE> 138
"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 Preference Unit" means the % Series A Cumulative Redeemable
Preference 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.
"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
132
<PAGE> 139
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, 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.
"UPREIT" means an umbrella partnership real estate investment trust which
is a REIT that holds all or substantially all of its properties through a
partnership in which the REIT holds an interest.
"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> 140
INDEX TO FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
AMB PROPERTY CORPORATION
-- Background............................................. F-4
-- Pro forma condensed consolidated balance sheet as of
March 31, 1998......................................... F-5
-- Notes to pro forma condensed consolidated balance
sheet.................................................. F-6
-- Pro forma condensed consolidated statement of
operations for the three months ended March 31, 1998... F-7
-- Notes to pro forma condensed consolidated statement of
operations............................................. F-8
-- Pro forma condensed consolidated statement of
operations for the year ended December 31, 1997........ F-10
-- Notes to pro forma condensed consolidated statement of
operations............................................. F-11
HISTORICAL FINANCIAL INFORMATION
AMB PROPERTY CORPORATION -- March 31, 1998
-- Consolidated balance sheets as of December 31, 1997 and
March 31, 1998 (unaudited)............................. F-16
-- Consolidated statement of operations for the three
months ended March 31, 1997 and 1998 (unaudited)....... F-17
-- Consolidated statement of cash flows for the three
months ended March 31, 1997 and 1998 (unaudited)....... F-18
-- Consolidated statement of stockholders' equity for the
three months ended March 31, 1998 (unaudited).......... F-19
-- Notes to consolidated financial statements
(unaudited)............................................ F-20
AMB PROPERTY CORPORATION -- December 31, 1996 and 1997
-- Report of independent public accountants............... F-25
-- Consolidated balance sheets as of December 31, 1996 and
1997................................................... F-26
-- Consolidated statements of operations for the years
ended December 31, 1995, 1996 and 1997................. F-27
-- Consolidated statements of cash flows for the years
ended December 31, 1995, 1996 and 1997................. F-28
-- Consolidated statements of stockholders' equity for the
years ended December 31, 1995, 1996 and 1997........... F-29
-- Notes to consolidated financial statements............. F-30
-- Schedule III -- Consolidated Real Estate and
Accumulated Depreciation as of December 31, 1997....... F-39
</TABLE>
F-1
<PAGE> 141
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AMB CONTRIBUTED PROPERTIES -- December 31, 1995, 1996 and
1997
-- Report of independent public accountants............... F-44
-- Combined balance sheets as of December 31, 1995 and
1996 and September 30, 1997 (unaudited)................ F-45
-- 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-46
-- 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-47
-- 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-48
-- Notes to combined financial statements................. F-49
Boston Industrial Portfolio
-- Report of independent public accountants............... F-55
-- 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-56
-- Notes to combined statements of revenues and certain
expenses............................................... F-57
The Jamesburg Property
-- Report of independent public accountants............... F-59
-- 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-60
-- Notes to statements of revenues and certain expenses... F-61
Orlando Central Park
-- Report of independent public accountants............... F-62
-- 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-63
-- Notes to statements of revenues and certain expenses... F-64
Totem Lake Malls
-- Report of independent public accountants............... F-65
-- 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-66
-- Notes to statements of revenues and certain expenses... F-67
</TABLE>
F-2
<PAGE> 142
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Dallas Industrial Portfolio
-- Report of independent public accountants............... F-68
-- 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-69
-- Notes to statements of revenues and certain expenses... F-70
Cabot Industrial Portfolio
-- Report of independent public accountants............... F-71
-- 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-72
-- Notes to combined statements of revenue and certain
expenses............................................... F-73
Cabot Business Park
-- Report of independent public accountants............... F-75
-- 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-76
-- Notes to statements of revenues and certain expenses... F-77
Manhattan Village Shopping Center
-- Report of independent public accountants............... F-78
-- 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-79
-- Notes to statements of revenues and certain expenses... F-80
Weslayan Plaza
-- Report of independent public accountants............... F-81
-- 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-82
-- Notes to statements of revenues and certain expenses... F-83
Silicon Valley R&D Portfolio
-- Report of independent public accountants............... F-84
-- 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-85
-- Notes to statements of revenues and certain expenses... F-86
</TABLE>
F-3
<PAGE> 143
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, (iii) 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 (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, 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> 144
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 $173,880 $ -- $2,913,928 $ -- 2,913,928
Cash and cash equivalents........ 28,584 -- -- 28,584 70,486 99,070
Other assets..................... 29,558 -- 5,534 35,092 -- 35,092
---------- -------- --------- ---------- ----------- ----------
Total assets............ $2,798,190 $173,880 $ 5,534 $2,977,604 $ 70,486 $3,048,090
========== ======== ========= ========== =========== ==========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Secured debt..................... $ 610,111 $ -- $ -- $ 610,111 $ -- $ 610,111
Credit facility.................. 312,000 156,330 (394,466) 73,864 (73,864) --
Senior debt securities........... -- -- 400,000 400,000 -- 400,000
Other liabilities................ 81,611 -- -- 81,611 -- 81,611
---------- -------- --------- ---------- ----------- ----------
Total liabilities....... 1,003,722 156,330 5,534 1,165,586 (73,864) 1,091,722
---------- -------- --------- ---------- ----------- ----------
Minority interests............... 123,763 17,550 -- 141,313 -- 141,313
---------- -------- --------- ---------- ----------- ----------
Stockholders' Equity
Series A Preferred Stock....... -- -- -- -- 144,350 144,350
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 -- -- 1,670,705 144,350 1,815,055
---------- -------- --------- ---------- ----------- ----------
Total liabilities and
stockholder's
equity................ $2,798,190 $173,880 $ 5,534 $2,977,604 $ 70,486 $3,048,090
========== ======== ========= ========== =========== ==========
</TABLE>
F-5
<PAGE> 145
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 subsequent to March 31, 1998 for an
estimated total purchase price of approximately $106,080, including estimated
acquisition costs. The Company has funded these acquisitions through (i)
borrowings under its Credit Facility of approximately $88,530, (ii) the issuance
of Operating Partnership Units in the amount of approximately $1,225 and (iii)
minority interest joint venture contributions of approximately $16,325. Such
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........................................ 3,000
Southfield.................................... 10,200
Dallas Industrial Portfolio................... 32,650
Suffolk....................................... 3,500
-----------
$ 106,080
===========
</TABLE>
For purposes of property disclosures included elsewhere in this Prospectus,
Meadowridge/Greenwood is comprised of Meadowridge Business Park and Greenwood
Place. The Dallas Industrial Portfolio represents an investment 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 $16,325 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 $67,800
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 $150,000, resulting in assumed net
proceeds of approximately $144,350 after payment of approximately $5,650 of
offering costs and (ii) the repayment of borrowings under the Credit Facility of
approximately $73,864. The remaining proceeds will be used to fund future
property acquisitions and for general corporate purposes.
F-6
<PAGE> 146
AMB PROPERTY CORPORATION
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(UNAUDITED, DOLLARS IN THOUSANDS, EXCEPT UNIT 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 $10,459 $ -- $ 85,061
Interest and other income............... 1,183 1,273 -- 2,456
----------- ------- ------- -----------
Total revenues................ 75,785 11,732 -- 87,517
----------- ------- ------- -----------
OPERATING EXPENSES
Real estate taxes and property operating
expenses.............................. 20,252 2,345 -- 22,597
Interest expense........................ 11,841 -- 5,256 17,097
Depreciation and amortization........... 11,786 2,952 -- 14,738
General, administrative and other....... 2,718 -- -- 2,718
----------- ------- ------- -----------
Total operating expenses...... 46,597 5,297 5,256 57,150
----------- ------- ------- -----------
Income from operations before minority
interests............................. 29,188 6,435 (5,256) 30,367
Minority interests' share of net
income................................ (1,282) (1,028) -- (2,310)
----------- ------- ------- -----------
Net income.................... 27,906 5,407 (5,256) 28,057(4)
Preferred stock dividends............... -- -- (3,141) (3,141)
----------- ------- ------- -----------
Net income available to common
stockholders.......................... $ 27,906 $ 5,407 $(8,397) $ 24,916
=========== ======= ======= ===========
Net income per share
Basic................................. $ 0.32 $ 0.29
=========== ===========
Diluted............................... $ 0.32 $ 0.29
=========== ===========
Weighted average shares outstanding
Basic................................. 85,874,513 85,874,513
=========== ===========
Diluted............................... 86,284,736 86,284,736
=========== ===========
</TABLE>
F-7
<PAGE> 147
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>
BOSTON ORLANDO TOTEM DALLAS
INDUSTRIAL JAMESBURG CENTRAL LAKE INDUSTRIAL OTHER
PORTFOLIO PROPERTY PARK MALLS PORTFOLIO PROPERTIES TOTAL
---------- --------- ------- ----- ---------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Rental and other revenues......... $2,853 $1,466 $ 804 $ 758 $1,053 $3,525 $10,459
Real estate taxes and property
operating expenses.............. (108) (543) (260) (277) (221) (936) (2,345)
------ ------ ----- ----- ------ ------ -------
Pro forma effect.................. $2,745 $ 923 $ 544 $ 481 $ 832 $2,589 $ 8,114
====== ====== ===== ===== ====== ====== =======
</TABLE>
Three of the acquisitions above, Jamesburg Property, Corporate Park
Industrial and Dallas Industrial Portfolio, represent a joint venture with a
client of AMB Investment Management in which the Company owns a controlling
50.0005% interest. The joint venture acquisitions are accounted for on a
consolidated basis and, accordingly, a minority interest of $1,028 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 and Dallas
Industrial Portfolio included elsewhere in this Prospectus.
The following table sets forth the incremental revenues and certain
expenses for periods prior to acquisition for the Other Properties acquired in
1998, but not included in the statements of revenues and certain expenses of the
Boston Industrial Portfolio, Jamesburg Property, Orlando Central Park, Totem
Lake Malls and Dallas Industrial Portfolio included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
REAL ESTATE
TAXES AND
PROPERTY REVENUES IN
RENTAL OPERATING EXCESS OF
PROPERTY ACQUIRED REVENUES EXPENSES CERTAIN EXPENSES
----------------- -------- ----------- ----------------
<S> <C> <C> <C>
Wilsonville....................... $ 167 $ (41) $ 126
Atlanta South Phase III........... 116 (30) 86
Mansfield Industrial Portfolio.... 71 (2) 69
Corporate Park Industrial......... 757 (130) 627
Cascade........................... 44 (11) 33
Northridge........................ 108 (43) 65
Minneapolis Industrial
Portfolio....................... 592 (230) 362
Houston Service Center............ 534 (188) 346
Meadowridge Business Park......... 800 (180) 620
Northwest Business Center......... 244 (58) 186
Forbes............................ -- -- --
Southfield........................ -- -- --
Suffolk........................... 92 (23) 69
------- ------- ------
$ 3,525 $ (936) $2,589
======= ======= ======
</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.
F-8
<PAGE> 148
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)
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.
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 $592,569 (before premium
of $17,542), assumed interest rate of 7.8%................ $11,485
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.................................. $17,097
=======
</TABLE>
The net change in interest expense is the result of the repayment of
borrowings on the Credit Facility of approximately $468,330 with the net
proceeds from the sale of Senior Debt Securities and the Offering.
Also reflects 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 $106,547, which is based upon pro forma income
from operations before minority interest of approximately $108,596, plus book
depreciation and amortization of approximately $51,916 less other book/tax
differences of approximately $6,649 and less tax depreciation and amortization
of approximately $47,316.
F-9
<PAGE> 149
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............... $45,433 $ -- $ 328,098
Interest and other income.... 5,470 -- 7,479
------- -------- ----------
Total revenues....... 50,903 -- 335,577
------- -------- ----------
OPERATING EXPENSES
Real estate taxes and
property operating
expenses................... 11,463 -- 92,941
Interest expense............. -- 23,857 69,286
Depreciation and
amortization............... 7,442 -- 53,328
General, administrative and
other...................... -- -- 7,978
------- -------- ----------
Total operating
expenses........... 18,905 23,857 223,533
------- -------- ----------
Income from operations before
disposal of real estate and
minority interests......... 31,998 (23,857) 112,044
Gain on disposal of real
estate..................... -- -- --
------- -------- ----------
Income from operations before
minority interests......... 31,998 (23,857) 112,044
Minority interests' share of
net income................. (4,373) -- (8,768)
------- -------- ----------
Net income................... 27,625 (23,857) 103,276(8)
Preferred Stock Dividends.... -- (12,563) (12,563)
------- -------- ----------
Net income available to
common stockholders........ $27,625 $(36,420) 90,713
======= ======== ==========
Net income per share
Basic...................... $ 1.06
==========
Diluted.................... $ 1.05
==========
Weighted average shares
outstanding
Basic...................... 85,874,513
==========
Diluted.................... 86,156,556
==========
</TABLE>
F-10
<PAGE> 150
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 $ 8,317 $ 47,730
Real estate taxes and
property operating
expenses............... (4,775) (895) (1,928) (990) (311) (1,916) (10,815)
------- ------ ------- ------ ------ ------- --------
Pro forma effect......... $18,220 $3,839 $ 3,539 $2,269 $2,647 $ 6,401 $ 36,915
======= ====== ======= ====== ====== ======= ========
</TABLE>
One of the acquisitions 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-11
<PAGE> 151
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........... 1,713 (414) 1,299
Brittania Business Park................ 1,058 (212) 846
Rockford Road.......................... 64 (6) 58
Patuxent............................... 509 (113) 396
Executive.............................. 588 (175) 413
Acer Distribution...................... 716 (129) 587
------- ------- -------
$ 8,317 $(1,916) $ 6,401
======= ======= =======
</TABLE>
4. Reflects the incremental effects of the disposition or partial
disposition of properties during 1997, based upon the historical operations of
such properties. See Note 7 to the historical combined financial statements of
the AMB Contributed Properties included elsewhere in this Prospectus.
5. Reflects the effects of the application of purchase accounting as a
result of the IPO and Formation Transactions, resulting in pro forma expense
adjustments as follows: (i) an increase in depreciation expense of $9,232, (ii)
the reclassification of certain property-related expenses from general and
administrative expense to property operating expense (due to the internalization
of management) of approximately $5,196 and (iii) a net increase in general,
administrative and other expenses of $5,958, after reclassification of
property-related expenses. Such changes are based upon actual expenses incurred
during 1997 adjusted for (a) the estimated changes in costs due to operating as
a public entity including investor relations, accounting and legal fees and
other costs related to the internalization of management and (b) certain
reclassifications to reflect the Company's new organizational structure as a
result of the IPO. Estimated depreciation and amortization has been based upon
asset lives of 5 to 40 years.
Also reflects the elimination of advisory fees charged by 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-12
<PAGE> 152
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-13
<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)
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>
BOSTON ORLANDO DALLAS
INDUSTRIAL JAMESBURG CENTRAL TOTEM LAKE INDUSTRIAL OTHER
PORTFOLIO PROPERTY PARK MALLS PORTFOLIO PROPERTIES TOTAL
---------- --------- ------- ---------- ----------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Rental and other revenues................ $10,403 $ 6,774 $ 3,249 $ 2,822 $4,159 $18,026 $45,433
Real estate taxes and property operating
expenses............................... (802) (2,510) (1,069) (1,293) (961) (4,828) (11,463)
------- ------- ------- ------- ------ ------- -------
Pro forma effect......................... $ 9,601 $ 4,264 $ 2,180 $ 1,529 $3,198 $13,198 $33,970
======= ======= ======= ======= ====== ======= =======
</TABLE>
Three of the acquisitions included in Other Properties above, Jamesburg
Property, Corporate Park Industrial and Dallas Industrial Portfolio, represent
joint ventures with a client of AMB Investment Management in which the Company
owns a controlling 50.0005% interest. The joint venture acquisitions are
accounted for on a consolidated basis and, accordingly, a minority interest of
$4,373 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 and Dallas
Industrial Portfolio 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
------- ------- -------
$18,026 $(4,828) $13,198
======= ======= =======
</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 earnings of
this joint venture of $5,470 is included in interest and other income in the
accompanying pro forma statement of operations.
F-14
<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 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 $592,569 (before premium
of $17,542), assumed interest rate of 7.8%................ $45,940
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.................................. $69,286
=======
</TABLE>
The net change in interest expense is the result of the repayment of
borrowings on the Credit Facility of approximately $468,330 with the net
proceeds from the sale of Senior Debt Securities and the Offering.
Also reflects pro forma Series A Preferred Stock dividends at an assumed
dividend rate.
F-15
<PAGE> 155
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-16
<PAGE> 156
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-17
<PAGE> 157
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-18
<PAGE> 158
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-19
<PAGE> 159
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-20
<PAGE> 160
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-21
<PAGE> 161
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-22
<PAGE> 162
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-23
<PAGE> 163
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-24
<PAGE> 164
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-25
<PAGE> 165
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-26
<PAGE> 166
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-27
<PAGE> 167
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-28
<PAGE> 168
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-29
<PAGE> 169
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-30
<PAGE> 170
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-31
<PAGE> 171
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-32
<PAGE> 172
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-33
<PAGE> 173
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-34
<PAGE> 174
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-35
<PAGE> 175
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-36
<PAGE> 176
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-37
<PAGE> 177
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-38
<PAGE> 178
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-39
<PAGE> 179
<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-40
<PAGE> 180
<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-41
<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>
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-42
<PAGE> 182
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-43
<PAGE> 183
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-44
<PAGE> 184
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-45
<PAGE> 185
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-46
<PAGE> 186
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-47
<PAGE> 187
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-48
<PAGE> 188
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-49
<PAGE> 189
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-50
<PAGE> 190
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-51
<PAGE> 191
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-52
<PAGE> 192
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-53
<PAGE> 193
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-54
<PAGE> 194
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 financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
The accompanying combined statement of revenues and certain expenses has
been prepared for the purpose of complying with the rules and regulations of the
Securities and Exchange Commission, as described in Note 1, and is not intended
to be a complete presentation of the revenues and expenses of the Boston
Industrial Portfolio.
In our opinion, the combined financial statement referred to above presents
fairly, in all material respects, the revenues and certain expenses of the
Boston Industrial Portfolio for the year ended December 31, 1997, in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
San Francisco, California
March 27, 1998
F-55
<PAGE> 195
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-56
<PAGE> 196
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-57
<PAGE> 197
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-58
<PAGE> 198
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 financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
The accompanying statement of revenues and certain expenses has been
prepared for the purpose of complying with the rules and regulations of the
Securities and Exchange Commission, as described in Note 1, and is not intended
to be a complete presentation of the revenues and expenses of the Jamesburg
Property.
In our opinion, the financial statement referred to above presents fairly,
in all material respects, the revenues and certain expenses of the Jamesburg
Property for the year ended December 31, 1997, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
San Francisco, California
March 27, 1998
F-59
<PAGE> 199
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-60
<PAGE> 200
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-61
<PAGE> 201
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 financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
The accompanying statement of revenues and certain expenses has been
prepared for the purpose of complying with the rules and regulations of the
Securities and Exchange Commission, as described in Note 1, and is not intended
to be a complete presentation of the revenues and expenses of Orlando Central
Park.
In our opinion, the financial statement referred to above presents fairly,
in all material respects, the revenues and certain expenses of Orlando Central
Park for the year ended December 31, 1997, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
San Francisco, California
March 27, 1998
F-62
<PAGE> 202
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-63
<PAGE> 203
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-64
<PAGE> 204
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 financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
The accompanying statement of revenues and certain expenses has been
prepared for the purpose of complying with the rules and regulations of the
Securities and Exchange Commission, as described in Note 1, and is not intended
to be a complete presentation of the revenues and expenses of Totem Lake Malls.
In our opinion, the financial statement referred to above presents fairly,
in all material respects, the revenues and certain expenses of Totem Lake Malls
for the year ended December 31, 1997, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
San Francisco, California
March 27, 1998
F-65
<PAGE> 205
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-66
<PAGE> 206
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-67
<PAGE> 207
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To AMB Property Corporation:
We have audited the accompanying statement of revenues and certain expenses
of the Dallas Industrial Portfolio (as defined in Note 1) for the year ended
December 31, 1997. This financial statement is the responsibility of the
management of the AMB Contributed Properties. Our responsibility is to express
an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
The accompanying statement of revenues and certain expenses was prepared
for the purpose of complying with the rules and regulations of the Securities
and Exchange Commission as described in Note 1 and is not intended to be a
complete presentation of the revenues and expenses of the Dallas Industrial
Portfolio.
In our opinion, the financial statement referred to above presents fairly,
in all material respects, the revenues and certain expenses of the Dallas
Industrial Portfolio for the year ended December 31, 1997, in conformity with
generally accounting principles.
ARTHUR ANDERSEN LLP
San Francisco, California,
April 21, 1998
F-68
<PAGE> 208
DALLAS INDUSTRIAL 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-69
<PAGE> 209
DALLAS INDUSTRIAL PORTFOLIO
NOTES TO STATEMENTS OF REVENUES
AND CERTAIN EXPENSES
(DOLLARS IN THOUSANDS)
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PROPERTIES ACQUIRED
The accompanying statements of revenues and certain expenses include the
operations of the Dallas Industrial Portfolio (the "Portfolio") acquired by AMB
Property Corporation (the "Company") from an unrelated party on June 18, 1998
for an initial purchase price of $32,650. The Portfolio is located in 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-70
<PAGE> 210
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 financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
The accompanying combined statement of revenues and certain expenses was
prepared for the purpose of complying with the rules and regulations of the
Securities and Exchange Commission for inclusion in the Registration Statement
on Form S-11 of AMB Property Corporation as described in Note 1 and is not
intended to be a complete presentation of the revenues and expenses of the Cabot
Industrial Portfolio.
In our opinion, the combined financial statement referred to above presents
fairly, in all material respects, the revenues and certain expenses of the Cabot
Industrial Portfolio for the year ended December 31, 1996, in conformity with
generally accounting principles.
ARTHUR ANDERSEN LLP
San Francisco, California,
October 29, 1997
F-71
<PAGE> 211
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-72
<PAGE> 212
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-73
<PAGE> 213
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-74
<PAGE> 214
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Owners of the
AMB Contributed Properties:
We have audited the accompanying statement of revenues and certain expenses
of Cabot Business Park for the year ended December 31, 1996. This financial
statement is the responsibility of the management of the AMB Contributed
Properties. Our responsibility is to express an opinion on this financial
statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
The accompanying statement of revenues and certain expenses was prepared
for the purpose of complying with the rules and regulations of the Securities
and Exchange Commission for inclusion in the Registration Statement on Form S-11
of AMB Property Corporation as described in Note 1 and is not intended to be a
complete presentation of the revenues and expenses of Cabot Business Park.
In our opinion, the financial statement referred to above presents fairly,
in all material respects, the revenues and certain expenses of Cabot Business
Park for the year ended December 31, 1996, in conformity with generally
accounting principles.
ARTHUR ANDERSEN LLP
San Francisco, California,
October 29, 1997
F-75
<PAGE> 215
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-76
<PAGE> 216
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-77
<PAGE> 217
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Owners of the
AMB Contributed Properties:
We have audited the accompanying statement of revenues and certain expenses
of the Manhattan Village Shopping Center for the year ended December 31, 1996.
This financial statement is the responsibility of the management of the AMB
Contributed Properties. Our responsibility is to express an opinion on this
financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
The accompanying statement of revenues and certain expenses was prepared
for the purpose of complying with the rules and regulations of the Securities
and Exchange Commission for inclusion in the Registration Statement on Form S-11
of AMB Property Corporation as described in Note 1 and is not intended to be a
complete presentation of the revenues and expenses of Manhattan Village Shopping
Center.
In our opinion, the financial statement referred to above presents fairly,
in all material respects, the revenues and certain expenses of the Manhattan
Village Shopping Center for the year ended December 31, 1996, in conformity with
generally accounting principles.
ARTHUR ANDERSEN LLP
San Francisco, California,
October 17, 1997
F-78
<PAGE> 218
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-79
<PAGE> 219
MANHATTAN VILLAGE SHOPPING CENTER
NOTES TO STATEMENTS OF REVENUES
AND CERTAIN EXPENSES
(DOLLARS IN THOUSANDS)
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Properties Acquired
The accompanying statements of revenues and certain expenses include the
operations of the Manhattan Village Shopping Center (the "Property") acquired by
the owners of the AMB Contributed Properties (the "Company") from an unrelated
party on August 19, 1998 for an initial purchase price of $79,300. The Property
is located in Manhattan Beach, California and includes 423,950 rentable square
feet.
Basis of Presentation
The accompanying statements of revenues and certain expenses are not
representative of the actual operations of the Property for the periods
presented. Certain expenses may not be comparable to the expenses expected to be
incurred by the Company in the proposed future operations of the Property;
however, the Company is not aware of any material factors relating to the
Property that would cause the reported financial information not to be
indicative of future operating results. Excluded expenses consist of interest,
depreciation and amortization and other costs not directly related to the future
operations of the Property.
Revenue Recognition
All leases are classified as operating leases, and rental revenue is
recognized on a straight-line basis over the terms of the leases.
Uses of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2. LEASING ACTIVITY
The following is a schedule of future minimum rental revenues for 1997 and
annually thereafter on non-cancelable operating leases in effect as of December
31, 1996.
<TABLE>
<CAPTION>
YEAR AMOUNT
---- -------
<S> <C>
1997........................................................ $ 6,546
1998........................................................ 7,287
1999........................................................ 8,566
2000........................................................ 8,756
2001........................................................ 9,005
Thereafter.................................................. 20,473
-------
Total............................................. $60,633
=======
</TABLE>
In addition to minimum rental payments, tenants pay reimbursements for
their pro rata share of specified operating expenses, which amounted to $2,502
and $1,995 for the year ended December 31, 1996 and for the nine months ended
August 19, 1997 (unaudited). Certain leases contain options to renew.
F-80
<PAGE> 220
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Owners of the
AMB Contributed Properties:
We have audited the accompanying statement of revenues and certain expenses
of the Weslayan Plaza (as defined in Note 1) for the year ended December 31,
1996. This financial statement is the responsibility of management of the AMB
Contributed Properties. Our responsibility is to express an opinion on this
financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
The accompanying statement of revenues and certain expenses was prepared
for the purpose of complying with the rules and regulations of the Securities
and Exchange Commission for inclusion in the Registration Statement on Form S-11
of AMB Property Corporation as described in Note 1 and is not intended to be a
complete presentation of the revenues and expenses of Weslayan Plaza.
In our opinion, the financial statement referred to above presents fairly,
in all material respects, the revenues and certain expenses of the Weslayan
Plaza for the year ended December 31, 1996, in conformity with generally
accounting principles.
ARTHUR ANDERSEN LLP
San Francisco, California,
October 17, 1997
F-81
<PAGE> 221
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-82
<PAGE> 222
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-83
<PAGE> 223
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Owners of the
AMB Contributed Properties:
We have audited the accompanying statement of revenues and certain expenses
of the Silicon Valley R&D Portfolio (as defined in Note 1) for the year ended
December 31, 1996. This financial statement is the responsibility of the
management of the AMB Contributed Properties. Our responsibility is to express
an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
The accompanying statement of revenues and certain expenses was prepared
for the purpose of complying with the rules and regulations of the Securities
and Exchange Commission for inclusion in the Registration Statement on Form S-11
of AMB Property Corporation as described in Note 1 and is not intended to be a
complete presentation of the revenues and expenses of the Silicon Valley R&D
Portfolio.
In our opinion, the financial statement referred to above presents fairly,
in all material respects, the revenues and certain expenses of the Silicon
Valley R&D Portfolio for the year ended December 31, 1996, in conformity with
generally accounting principles.
ARTHUR ANDERSEN LLP
San Francisco, California,
October 17, 1997
F-84
<PAGE> 224
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-85
<PAGE> 225
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-86
<PAGE> 226
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> 227
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 statement of operations for the three months ended March 31,
1997 and 1998 (unaudited)
Consolidated statement of cash flows for the three months ended March 31,
1997 and 1998 (unaudited)
Consolidated statement of stockholders' equity for the three months ended
March 31, 1998 (unaudited)
Notes to consolidated financial statements (unaudited)
AMB Property Corporation -- December 31, 1996 and 1997
Report of independent public accountants
Consolidated balance sheets as of December 31, 1996 and 1997
II-2
<PAGE> 228
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> 229
Dallas 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 31, 1998
Notes to combined statements of revenues and certain expenses
Cabot Industrial Portfolio
Report of independent public accountants
Combined statements of revenues and certain expenses for the year ended
December 31, 1996 and 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
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.
II-4
<PAGE> 230
(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 Articles Supplementary for the Series A 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 Latham & Watkins.
*5.2 Opinion of Ballard Spahr Andrews & Ingersoll.
*8.1 Opinion of Latham & Watkins.
10.1 Amended and Restated Agreement of Limited Partnership of AMB
Property, L.P. (incorporated by reference to Exhibit 10.1 to
the Company's Registration Statement on Form S-11 (No.
333-35915)).
10.2 Form of Registration Rights Agreement among the Registrant
and the persons named therein. (incorporated by reference to
Exhibit 10.2 to the Company's Registration Statement on Form
S-11 (No. 333-35915))
10.3 Amended and Restated Credit Agreement, dated August 8, 1997
(incorporated by reference to Exhibit 10.3 to the Company's
Registration Statement on Form S-11 (No. 333 -35915)).
</TABLE>
II-5
<PAGE> 231
<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 Latham & Watkins (included in Exhibit 5.1 above).
23.2 Consent of Ballard Spahr Andrews & Ingersoll (included in
Exhibit 5.2 above).
23.3 Consent of Latham & Watkins (included in Exhibit 8.1 above).
23.4 Consent of Arthur Andersen LLP.
24.1 Power of Attorney (included herein on signature page).
27.1 Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
** 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.
(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
The Registrant hereby undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
II-6
<PAGE> 232
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, each of the
Registrants certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-11 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned thereunto
duly authorized in the City of San Francisco, State of California, on the 29th
day of June, 1998.
AMB PROPERTY CORPORATION
By: /s/ HAMID R. MOGHADAM
---------------------------------------
Hamid R. Moghadam
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints jointly and severally, Hamid R. Moghadam,
S. Davis Carniglia, David S. Fries, John T. Roberts, Jr., and Michael A. Coke
and each of them, his attorney-in-fact, each with the power of substitution, for
him in any and all capacities, to sign any and all amendments to this
Registration Statement (including post effective amendments), and to sign any
registration statement for the same offering covered by this Registration
Statement that is to be effective upon filing pursuant to Rule 462(b)
promulgated under the Securities Act of 1933, and all post-effective amendments
thereto, and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that each of said attorneys-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons on
behalf of each of the Registrants and in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ T. ROBERT BURKE Chairman of the Board and June 29, 1998
- ----------------------------------------------------- Director
T. Robert Burke
/s/ HAMID R. MOGHADAM President, Chief Executive June 29, 1998
- ----------------------------------------------------- Officer and Director
Hamid R. Moghadam (Principal Executive
Officer)
Chairman of Investment June , 1998
- ----------------------------------------------------- Committee and Director
Douglas D. Abbey
/s/ S. DAVIS CARNIGLIA Chief Financial Officer June 29, 1998
- ----------------------------------------------------- (Principal Financial
S. Davis Carniglia Officer)
/s/ MICHAEL A. COKE Vice President and Director June 29, 1998
- ----------------------------------------------------- of Financial Management
Michael A. Coke Reporting (Principal
Accounting Officer)
</TABLE>
II-7
<PAGE> 233
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
Director June , 1998
- -----------------------------------------------------
Daniel H. Case, III
/s/ ROBERT H. EDELSTEIN Director June 29, 1998
- -----------------------------------------------------
Robert H. Edelstein, Ph.D.
/s/ LYNN M. SEDWAY Director June 29, 1998
- -----------------------------------------------------
Lynn M. Sedway
Director June , 1998
- -----------------------------------------------------
Jeffrey L. Skelton, Ph.D.
/s/ THOMAS W. TUSHER Director June 29, 1998
- -----------------------------------------------------
Thomas W. Tusher
/s/ CARYL B. WELBORN Director June 29, 1998
- -----------------------------------------------------
Caryl B. Welborn
</TABLE>
II-8
<PAGE> 234
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 Articles Supplementary for the Series A 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 Latham & Watkins.
*5.2 Opinion of Ballard Spahr Andrews & Ingersoll.
*8.1 Opinion of Latham & Watkins.
10.1 Amended and Restated Agreement of Limited Partnership of AMB
Property, L.P. (incorporated by reference to Exhibit 10.1 to
the Company's Registration Statement on Form S-11 (No.
333-35915)).
10.2 Form of Registration Rights Agreement among the Registrant
and the persons named therein. (incorporated by reference to
Exhibit 10.2 to the Company's Registration Statement on Form
S-11 (No. 333-35915))
10.3 Amended and Restated Credit Agreement, dated August 8, 1997
(incorporated by reference to Exhibit 10.3 to the Company's
Registration Statement on Form S-11 (No. 333 -35915)).
</TABLE>
<PAGE> 235
<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 Latham & Watkins (included in Exhibit 5.1 above).
23.2 Consent of Ballard Spahr Andrews & Ingersoll (included in
Exhibit 5.2 above).
23.3 Consent of Latham & Watkins (included in Exhibit 8.1 above).
23.4 Consent of Arthur Andersen LLP.
24.1 Power of Attorney (included herein on signature page).
27.1 Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
** Previously filed.
<PAGE> 1
EXHIBIT 12.1
AMB PROPERTY CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(IN THOUSANDS, EXCEPT RATIOS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------------------------------------------------
1997 1997 1997
1993 1994 1995 1996 HISTORICAL(1) AS ADJUSTED(2) PRO FORMA(3)
---- ------ ------ ------ ------------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings:
Income (loss) from operations
before minority interests... $798 $2,925 $3,296 $7,140 $18,885 $103,903 $112,044
Interest expense.............. -- -- 4 -- 3,528 45,429 69,286
Amortization of capitalized
interest.................... -- -- -- -- 8 56 77
---- ------ ------ ------ ------- -------- --------
Total earnings.......... $798 $2,925 $3,300 $7,140 $22,421 $149,388 $181,407
==== ====== ====== ====== ======= ======== ========
Fixed charges:
Interest expense(4)........... $ -- $ -- $ 4 $ -- $ 3,528 $ 45,429 $ 69,286
Capitalized interest(5)....... -- -- -- -- 448 3,455 4,118
---- ------ ------ ------ ------- -------- --------
Total fixed charges..... $ -- $ -- $ 4 $ -- $ 3,976 $ 48,884 $ 73,404
==== ====== ====== ====== ======= ======== ========
Series A Preferred
Stock dividends............... -- -- -- -- -- -- 12,563
---- ------ ------ ------ ------- -------- --------
Total fixed charges and
preferred stock
dividends............. $ -- $ -- $ 4 $ -- $ 3,976 $ 48,884 $ 85,967
==== ====== ====== ====== ======= ======== ========
Ratio of earnings to fixed
charges....................... N/A N/A 825x N/A 5.6x 3.1x 2.5x
==== ====== ====== ====== ======= ======== ========
Ratio of earnings to fixed
charges and preferred stock
dividends..................... N/A N/A 825x N/A 5.6x 3.1x 2.1x
==== ====== ====== ====== ======= ======== ========
<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31,
------------------------------------
1998
1997 1998 PRO
HISTORICAL HISTORICAL FORMA(3)
---------- ---------- ----------
<S> <C> <C> <C>
Earnings:
Income (loss) from operations
before minority interests... $1,239 $29,188 $30,367
Interest expense.............. -- 11,841 17,097
Amortization of capitalized
interest.................... -- 24 77
------ ------- -------
Total earnings.......... $1,239 $41,053 $47,541
====== ======= =======
Fixed charges:
Interest expense(4)........... $ -- $11,841 $17,097
Capitalized interest(5)....... -- 1,253 1,253
------ ------- -------
Total fixed charges..... $ -- $13,094 $18,350
====== ======= =======
Series A Preferred
Stock dividends............... -- -- 3,141
------ ------- -------
Total fixed charges and
preferred stock
dividends............. $ -- $13,094 $21,491
====== ======= =======
Ratio of earnings to fixed
charges....................... N/A 3.1x 2.6x
====== ======= =======
Ratio of earnings to fixed
charges and preferred stock
dividends..................... N/A 3.1x 2.2x
====== ======= =======
</TABLE>
- ---------------
(1) Historical ratio of earnings to fixed charges includes the results of the
Predecessor for the period from January 1, 1997 through November 25, 1997,
and the results of the Company subsequent to November 25, 1997, the date of
acquisition by the Company.
(2) As adjusted ratio of earnings to fixed charges has been prepared as if the
Formation Transactions, the IPO and certain 1997 property acquisitions and
dispositions had occurred on January 1, 1997.
(3) Pro forma ratio of earnings to fixed charges has been prepared as if the
1998 property acquisitions and the Offering had occurred on January 1, 1997.
(4) Includes amortization of debt premiums and deferred financing fees.
(5) Historical capitalized interest represents construction interest incurred
subsequent to November 25, 1997, the date of acquisition by the Company.
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
Jurisdiction of Organization
Name of Subsidiary and Type of Entity
- ------------------ ----------------------------
<S> <C>
AMB Property, L.P. Delaware limited partnership
AMB Property Holding Corporation Maryland corporation
AMB Property II, L.P. Delaware limited partnership
Long Gate LLC Delaware limited liability
company
</TABLE>
<PAGE> 1
Exhibit 23.4
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
and to all references to our Firm included in or made a part of this
Registration Statement.
/s/ Arthur Andersen LLP
------------------------------------
ARTHUR ANDERSEN LLP
San Francisco, California
June 26, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FORM 10-Q: CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF OPERATIONS
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH QUARTERLY REPORT ON FORM
10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-1-1998
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 28,584
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 58,142
<PP&E> 2,755,882
<DEPRECIATION> (15,834)
<TOTAL-ASSETS> 2,798,190
<CURRENT-LIABILITIES> 81,611
<BONDS> 922,111
0
0
<COMMON> 859
<OTHER-SE> 1,669,846
<TOTAL-LIABILITY-AND-EQUITY> 2,798,190
<SALES> 0
<TOTAL-REVENUES> 75,785
<CGS> 0
<TOTAL-COSTS> 20,252
<OTHER-EXPENSES> 11,786
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,841
<INCOME-PRETAX> 29,188
<INCOME-TAX> 0
<INCOME-CONTINUING> 29,188
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 27,906
<EPS-PRIMARY> 0.32
<EPS-DILUTED> 0.32
</TABLE>
