<PAGE>
As filed with the Securities and Exchange Commission on August 14, 1998.
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-11
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
CABOT INDUSTRIAL TRUST
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS GOVERNING INSTRUMENTS)
TWO CENTER PLAZA, SUITE 200
BOSTON, MASSACHUSETTS 02108
(617) 723-0900
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
ROBERT E. PATTERSON
PRESIDENT
CABOT INDUSTRIAL TRUST
TWO CENTER PLAZA, SUITE 200
BOSTON, MASSACHUSETTS 02108
(617) 723-0900
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
COPY TO:
JAMES R. WALTHER, ESQ.
MAYER, BROWN & PLATT
350 SOUTH GRAND AVENUE
LOS ANGELES, CALIFORNIA 90071-1503
(213) 229-9597
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this registration statement becomes effective.
---------------
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) 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(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [_]
---------------
CALCULATION OF REGISTRATION FEE
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- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
AMOUNT MAXIMUM AGGREGATE AMOUNT OF
TITLE OF SHARES BEING OFFERING PRICE OFFERING REGISTRATION
BEING REGISTERED REGISTERED PER UNIT(1) PRICE(1) FEE
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<S> <C> <C> <C> <C>
Common Shares of Beneficial
Interest, par value $0.01
per share................ 1,074,683 $19.16 $20,590,926 $6,074
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Preferred Share Purchase
Rights................... 1,074,683 N/A N/A N/A
</TABLE>
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(1) Estimated solely for the purpose of determining the registration fee pur-
suant to Rule 457(c), based on the average of the high and low sales price
of the Common Shares on the New York Stock Exchange on August 12, 1998.
---------------
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>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT 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 JURISDICTION. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION
AUGUST 14, 1998
PROSPECTUS
1,074,683 Shares
LOGO
Common Shares of Beneficial Interest
(par value $.01 per share)
This Prospectus relates to 1,074,683 common shares of beneficial interest,
$0.01 par value per share ("Common Shares"), of Cabot Industrial Trust (the
"Company"), a Maryland real estate investment trust, that may be offered by the
Selling Shareholders named herein from time to time. See "Selling Sharehold-
ers." The Company will not receive any proceeds from such sales of Common
Shares, but has agreed to bear certain expenses of registration of such Common
Shares under federal and state securities laws.
The Common Shares may be offered in transactions on the New York Stock
Exchange, or in negotiated transactions, and may be offered at fixed prices
that may be changed from time to time, at market prices prevailing at the time
of sale, at prices related to such prevailing market prices or at negotiated
prices. The Selling Shareholders may effect such transactions directly or by
selling the Common Shares to or through broker-dealers. Such broker-dealers may
receive compensation in the form of discounts, concessions or commissions from
the Selling Shareholders and/or the purchasers of the Common Shares for whom
such broker-dealers may act as agent or to whom they may sell as principal or
both, which compensation to a particular broker-dealer may be in excess of cus-
tomary brokerage commissions. Each of the Selling Shareholders reserves the
right to accept or reject, in whole or in part, any proposed purchase of the
Common Shares to be made directly or through agents or broker-dealers. See
"Plan of Distribution."
The Common Shares are listed on the New York Stock Exchange (the "NYSE") under
the symbol "CTR." To ensure that the Company maintains its qualification as a
real estate investment trust ("REIT") for federal income tax purposes, the Com-
pany has restricted ownership of more than 9.8% in number or value of the
issued and outstanding Common Shares by any single shareholder, with certain
exceptions. See "Description of Shares of Beneficial Interest--Restrictions on
Transfer."
Any agents or broker-dealers that participate in a distribution of Common
Shares hereunder may be deemed to be "underwriters" within the meaning of the
Securities Act of 1933, as amended (the "Securities Act"), and any commissions
received or any profit realized by them on the resale of the Common Shares may
be deemed to be underwriting commissions or discounts under the Securities Act.
See "Plan of Distribution" for a description of certain indemnification
arrangements between the Company and the Selling Shareholders.
SEE "RISK FACTORS" BEGINNING ON PAGE 13 FOR DESCRIPTIONS OF CERTAIN FACTORS
RELEVANT TO AN INVESTMENT IN THE COMMON SHARES, INCLUDING:
. No assurance can be given that the Company will be able to sustain its cur-
rent level of distributions;
. Limitation of share ownership to 9.8% of the outstanding shares of beneficial
interest, staggered elections of Trustees, the Company's Shareholder Rights
Plan and other provisions may deter third parties from seeking to acquire the
Company;
. Taxation of the Company as a corporation if it fails to qualify as a REIT and
the reductions in distributable cash that would result;
. Management's lack of experience in operating the Company as a REIT;
. The Board of Trustee's ability to change the Company's investment, financing
and conflict of interest policies without shareholder approval;
. Industrial real estate investment risks, such as failure of tenants to make
lease payments, the effect of national and local economic and other condi-
tions on real estate values and environmental issues;
. Conflicts of interest involving management and Contributing Investors, which
could result in decisions that do not fully reflect the interests of all
shareholders; and
. Three Contributing Investors own 23.5%, 13.7% and 12.6%, respectively, of the
Company's common equity, assuming all outstanding Units not held by the Com-
pany are exchanged for Common Shares on a one-for-one basis.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
----------
The date of this Prospectus is , 1998.
<PAGE>
No person has been authorized to give any information or to make any represen-
tations not contained in this Prospectus and, if given or made, such informa-
tion or representations must not be relied upon as having been authorized by
the Company or any Selling Shareholder or underwriter. This Prospectus does not
constitute an offer to sell, or a solicitation of an offer to buy, the Common
Shares in any jurisdiction 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 subsequent to the date hereof.
TABLE OF CONTENTS
<TABLE>
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PAGE
<S> <C>
Prospectus Summary..................... 1
The Company.......................... 1
Risk Factors......................... 1
Industrial Real Estate Business...... 3
Business and Growth Strategies....... 3
Properties........................... 6
The Formation and Other
Transactions........................ 7
Structure of the Company............. 9
Tax Status of the Company............ 10
Summary Financial and Other Data..... 10
Risk Factors........................... 13
Risk of Inability to Sustain
Distribution Level.................. 13
Antitakeover Effects of Ownership
Limit, Staggered Board and Power to
Issue Additional Shares............. 13
Taxation as a Corporation if the
Company Fails to Qualify as a REIT;
Other Tax Risks..................... 14
Possible Changes in Policies Without
Shareholder Approval; No Limitation
on Debt............................. 15
Real Estate Investment Risks......... 15
Conflicts of Interest in the
Formation Transactions and the
Business of the Company............. 18
Limited Period of Public Market for
Common Shares....................... 19
Possible Adverse Effect of Market
Interest Rates on Price of Common
Shares.............................. 19
Possible Adverse Effect on Price of
Common Shares of Shares Available
for Future Sale..................... 20
ERISA Risks.......................... 20
Possible Unknown Adverse
Characteristics of Recently Acquired
New Properties; Lack of Operating
History............................. 20
Real Estate Financing Risks.......... 20
Management Company Risks............. 21
Dependence on Key Personnel.......... 21
Risks Associated with Reliance on
Forward-Looking Statements.......... 21
The Company............................ 22
General.............................. 22
Industrial Real Estate Business...... 24
</TABLE>
<TABLE>
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PAGE
<S> <C>
Business Strategies........................ 24
Growth Strategies.......................... 25
Operations................................. 26
Third-Party Investment Management.......... 27
Financial Strategies....................... 27
Price Range of Common Shares and Distribution
History..................................... 28
Capitalization............................... 29
Cabot Industrial Trust Pro Forma Condensed
Combined Financial Statements (Unaudited)... 30
Selected Financial and Other Data............ 38
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................. 41
General.................................... 41
Results of Operations...................... 41
Capital Resources and Liquidity............ 43
Inflation.................................. 45
Funds from Operations...................... 45
Properties................................... 46
General.................................... 46
Property Overview.......................... 47
Industrial Property Market Information..... 53
Tenant Information......................... 54
Lease Expirations--Portfolio Total......... 55
Insurance.................................. 55
Environmental Matters...................... 56
Competition................................ 56
Legal Proceedings.......................... 56
Policies with Respect to Certain Activities.... 57
Investment Policies.......................... 57
Financing Policies........................... 57
Conflict of Interest Policies................ 58
Working Capital Reserves..................... 59
Management..................................... 60
Trustees and Executive Officers.............. 60
Board of Trustees.............................. 62
Committees of the Board of Trustees.......... 62
Compensation of Trustees..................... 62
Executive Compensation....................... 63
Employment Agreements........................ 64
Indemnification.............................. 64
Formation and Other Transactions............... 65
Formation Transactions....................... 65
Concurrent Placement......................... 66
</TABLE>
i
<PAGE>
<TABLE>
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PAGE
<S> <C>
Limitations on Representations and
Warranties.......................... 67
Certain Relationships and Related
Transactions.......................... 68
Repayment of Debt.................... 69
Options Granted...................... 69
Principal and Management Shareholders.. 70
Selling Shareholders................... 72
Plan of Distribution................... 72
Description of Shares of Beneficial
Interest.............................. 73
General.............................. 73
Common Shares........................ 73
Shareholder Rights Plan.............. 74
Classification or Reclassification of
Common Shares or Preferred Shares... 75
Restrictions on Transfer............. 76
Certain Provisions of Maryland Law and
of the Company's Declaration of Trust
and Bylaws............................ 78
Classification of the Board of
Trustees............................ 78
Vacancies............................ 78
Removal of Trustees.................. 78
Business Combinations................ 78
Control Share Acquisitions........... 78
Shareholders' Meetings............... 79
Annual Report........................ 79
Amendment............................ 79
Limitation of Liability and
Indemnification..................... 80
Operations; Maryland Asset
Requirements........................ 80
Termination of the Trust and REIT
Status.............................. 81
Advance Notice of Trustee Nominations
and New Business.................... 81
</TABLE>
<TABLE>
<CAPTION>
PAGE
<S> <C>
Possible Antitakeover Effect of Certain Provisions of Maryland Law and of the Declaration of Trust and Bylaws.. 81
Shares Available for Future Sale............................................................................... 82
Partnership Agreement of Operating Partnership................................................................. 84
General...................................................................................................... 84
Management................................................................................................... 84
Indemnification.............................................................................................. 85
Capital Contributions........................................................................................ 85
Tax Matters.................................................................................................. 85
Operations................................................................................................... 85
Duties and Conflicts......................................................................................... 85
Term......................................................................................................... 86
Federal Income Tax Consequences................................................................................ 87
Taxation of the Company...................................................................................... 87
Tax Aspects of the Company's Investments in Partnerships..................................................... 91
Taxation of Shareholders..................................................................................... 92
Other Tax Considerations..................................................................................... 94
ERISA Considerations........................................................................................... 96
General Fiduciary Considerations............................................................................. 96
Prohibited Transactions...................................................................................... 96
Plan Assets Issues........................................................................................... 96
Legal Matters.................................................................................................. 97
Experts........................................................................................................ 98
Additional Information......................................................................................... 98
Glossary....................................................................................................... 99
Index to Financial Statements.................................................................................. F-1
</TABLE>
INFORMATION CONTAINED IN THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS,
WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT, 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," "BELIEVE" OR "CONTINUE"
OR THE NEGATIVE THEREOF OR OTHER VARIATIONS THEREON OR COMPARABLE TERMINOLOGY.
THE CAUTIONARY STATEMENTS SET FORTH UNDER THE CAPTION "RISK FACTORS" AND ELSE-
WHERE IN THIS PROSPECTUS IDENTIFY IMPORTANT FACTORS WITH RESPECT TO SUCH FOR-
WARD-LOOKING STATEMENTS, INCLUDING CERTAIN RISKS AND UNCERTAINTIES THAT COULD
CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE CONTEMPLATED IN SUCH FOR-
WARD-LOOKING STATEMENTS.
ii
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed infor-
mation and financial statements, including the notes thereto, appearing else-
where in this Prospectus. Unless the context otherwise requires, as used in
this Prospectus (i) the "Company" means Cabot Industrial Trust and its oper-
ating subsidiaries, including the Operating Partnership, of which the Company
is the sole general partner, and Cabot Advisors, Inc., a Delaware corporation
(the "Management Company"), (ii) "Cabot Partners" means Cabot Partners Limited
Partnership and (iii) the "Contributing Investors" means those Cabot Partners
advisory clients who contributed Properties (or where such clients held title
through another entity, such title holding entity), C-M Holdings, L.P. ("C-M
Holdings") and certain affiliated partnerships (collectively, with C-M Hold-
ings, the "C-M Property Partnerships") and certain other investors who contrib-
uted Properties in the Formation Transactions of the Company described herein.
All other capitalized terms used in this Prospectus have the meanings set forth
in the Glossary.
THE COMPANY
The Company is an internally managed, fully integrated real estate company
formed to continue and expand the national industrial real estate business of
Cabot Partners. The Company commenced operations in its current form through
the concurrent completion of its initial public offering ("IPO") and the Forma-
tion Transactions described herein on February 4, 1998. At June 30, 1998, the
Company had a portfolio of 171 Properties located in 22 states throughout the
United States, containing approximately 24.5 million rentable square feet. The
Properties were approximately 96% leased to 315 tenants at that date, with no
single tenant accounting for more than 4.4% of the Company's total Annualized
Base Rent. Since June 30, 1998, the Company has acquired 9 additional Proper-
ties containing approximately 650,000 rentable square feet, which Properties
are 98.5% leased to 44 tenants as of the date hereof. See "Properties--Gener-
al."
The Company's goal is to be the preeminent national real estate company focused
on serving a variety of industrial space users in the country's principal com-
mercial markets. The Company owns and operates a diversified portfolio of bulk
distribution, multitenant distribution and "workspace" (light assembly and
flex/R&D) properties and has a significant market presence across the United
States, owning Properties in a total of 22 markets. The Company believes that
its geographic and property diversification and substantial presence in mul-
tiple markets is a strategic advantage that allows it to (i) serve industrial
space users with multiple site and property type requirements, (ii) compete
more effectively in its chosen markets and (iii) respond quickly to acquisition
opportunities across the country. The Company, through its investment in the
Management Company, has also continued Cabot Partners' industrial real estate
investment management business.
The senior management of the Company has an average of approximately 18 years
of experience in the real estate industry and beneficially owns 3.9% of the
Company's common equity, assuming all outstanding Units not held by the Company
are exchanged for Common Shares on a one-for-one basis. Members of the
Company's senior management have worked together since 1987 as the executive
officers of Cabot Partners and, previously, Cabot, Cabot & Forbes Realty Advi-
sors, Inc. ("Cabot Advisors"). Cabot Advisors was founded in 1986 as an affil-
iate of Cabot, Cabot & Forbes Company ("CC&F"), a nationwide real estate devel-
opment, investment, construction and management firm that pioneered the devel-
opment of large-scale planned industrial parks. Cabot Partners, a real estate
investment advisor which provided industrial real estate investment and manage-
ment services to public and private pension funds and others, was formed as a
separate entity in 1990 to purchase the real estate advisory management busi-
ness of Cabot Advisors.
The Company is organized as a real estate investment trust under Maryland law
and expects to qualify as a REIT for federal income tax purposes.
RISK FACTORS
An investment in the Common Shares involves various risks. Prospective
investors should carefully consider the matters discussed under "Risk Factors"
prior to making an investment in the Company. Such risks include, among others:
. No assurance can be given that the Company will be able to sustain its
current level of distributions.
. The antitakeover effects of limiting actual or constructive ownership of
shares of the Company by a single person to 9.8% of the number of issued
and outstanding shares of beneficial interest of the Company or the total
equity value
1
<PAGE>
of such shares (subject to certain exceptions), staggered elections of
Trustees, certain other provisions contained in the organizational docu-
ments of the Company and the Operating Partnership, and the Company's
Shareholder Rights Plan, each of which may have the effect of delaying,
deferring or preventing a change in control of the Company or other trans-
action that might involve a price for the Common Shares that exceeds their
then current market price or that may otherwise be considered by the
Company's shareholders to be desirable.
. Tax risks, including taxation of the Company as a corporation if it fails
to qualify as a REIT for federal income tax purposes and the resulting
decrease in cash that would be available for distribution, and the fact
that the Company's management lacks experience in operating in accordance
with the requirements for maintaining qualification as a REIT.
. The Company's Board of Trustees may change the Company's investment,
financing, distribution and other policies at any time without share-
holder approval.
. Investment in and operation of commercial real estate generally involves
certain risks, including failure of tenants to make lease payments,
inability to renew or re-lease space upon the expiration of leases
(leases accounting for 21.7% of the Company's Annualized Base Rents are
scheduled to expire during the period from July 1, 1998 through December
31, 1999), the effect of national and local economic and other conditions
on real estate values, including effects associated with cyclical weak-
nesses or demographic changes in real estate markets, competition from
other REITs and real estate investors seeking properties of the types
which the Company intends to acquire, costs relating to renovation and
re-leasing costs, the impact on the Company's properties of competition
from other existing properties and from newly constructed properties in
future periods, environmental issues and changes in the ability of the
Company's properties to generate sufficient cash flow to meet operating
expenses (including debt service requirements).
. The Company may in the future be deemed to constitute a "pension-held
REIT" for federal income tax purposes. If this were to occur, certain
types of borrowings or other activities, if engaged in by the Company,
would result in a portion of the dividends received by any qualified pen-
sion plan owning more than 10.0% in value of the Company's shares being
taxable to such plan as unrelated business taxable income.
. Conflicts of interest between the Company, the Cabot Group Participants
(most of whom serve as executive officers and Trustees of the Company)
and the other Contributing Investors with respect to the Formation Trans-
actions and the ongoing business decisions regarding the Company, which
could result in decisions that do not fully reflect the interests of all
of the Company's shareholders. Three Contributing Investors own 23.5%,
13.7%, and 12.6%, respectively, of the Company's common equity, assuming
all outstanding Units not held by the Company are exchanged for Common
Shares on a one-for-one basis.
. The potential negative effects of rising interest rates on the market
price of the Common Shares and the effect of the availability of shares
for future sale on the price of the Common Shares.
. The possibility that certain of the Properties, particularly newly
acquired Properties and properties acquired in the future, may fail to
perform as expected or may have characteristics or defects unknown to the
Company.
. As a result, among other things, of the annual income distribution
requirements applicable to REITs under the Code, the Company expects to
rely on borrowings and other external sources of financing to fund the
costs of new property acquisitions, capital expenditures and other items.
Accordingly, the Company will be subject to real estate financing risks,
including changes from period to period in the availability of such
financing, increased interest expense that may be incurred on variable
rate debt in rising interest rate markets and the risk that the Company's
cash flow may not be sufficient to cover both required debt service pay-
ments and distributions to shareholders at desired levels.
. The Company is dependent on the efforts of its executive officers and the
loss of their services could have an adverse effect on the operations of
the Company.
. This Prospectus contains certain forward-looking statements which involve
risks and uncertainties. The Company's actual results may differ signifi-
cantly from the results discussed in such forward-looking statements.
Factors that could cause such differences include, but are not limited
to, the risks described in the "Risk Factors" section of this Prospectus.
2
<PAGE>
INDUSTRIAL REAL ESTATE BUSINESS
Attractive Real Estate Sector
Industrial real estate has historically generated a high level of cash income
and attractive rates of return as compared with other types of real estate
investments. The Company believes that industrial properties tend to be less
costly to manage and require lower amounts of capital expenditures and tenant-
specific improvement costs. Such properties provide generic storage and work
space suitable for and adaptable to a broad range of tenants and uses. Indus-
trial properties also generally require relatively short development periods,
which enables better balancing of supply and demand for such properties and
reduces overbuilding risks.
Strong Demand
The Company believes that, at least for the near term, the demand for desir-
able, well-located industrial properties will continue. Continuing demand for
well-located, modern industrial properties is expected to increase due to (i)
increasing consumption on a per capita basis, coupled with population growth,
(ii) business' increasing need for efficient inventory management, (iii)
growing international trade, and (iv) the growing significance of smaller com-
panies seeking efficient and flexible work space in well-located, suburban
industrial parks.
Industry Consolidation
The historically fragmented industrial real estate business is being reshaped
by strong pressures toward consolidation resulting from the substantial advan-
tages enjoyed by large, integrated and well-capitalized firms over local owners
and developers. These advantages include professional management, greater
access to public and private capital, economies of scale and greater opportuni-
ties to increase revenue by serving the changing needs of industrial tenants.
In addition, there is an increasing trend toward securitization of real estate
holdings as institutional real estate investors shift from direct private own-
ership to indirect public ownership of real estate. The Company believes that
both of these trends provide substantial opportunities for publicly held real
estate companies that have the managerial and financial resources to maintain
an active acquisition and development program.
Diverse Tenant Needs
Different types of industrial space users have significantly different property
and space requirements. Large national and major regional distributors gener-
ally require efficient, well-located bulk distribution properties. Smaller com-
panies generally demand more flexible workspace, including light assembly
facilities and flex/R&D space. While these properties are generally more costly
to manage, the Company believes that such properties offer the prospect of
higher current returns because the users of such space are location sensitive
and less inclined to move if the properties they occupy are well located and
managed. Moreover, the Company believes that the continued employment growth
resulting from smaller companies will result in strong demand for these
workspace properties.
BUSINESS AND GROWTH STRATEGIES
The Company's fundamental business objective is to maximize the total return to
its shareholders through growth in its cash available for distribution per
Common Share and in the value of its portfolio of industrial properties and its
operations.
BUSINESS STRATEGIES
Leveraging Substantial National Market Presence
The Company's substantial presence in markets throughout the country positions
it well to market its industrial space to national companies with space
requirements in multiple locations. The Company has developed a national tenant
marketing program that, in addition to the quality and attractive locations of
the Company's properties, emphasizes the advantages of dealing with a single
source for a company's industrial space needs. These advantages include greater
efficiency of lease negotiations and day-to-day property management, as well as
better understanding of the tenant's current needs and prospective space
requirements.
3
<PAGE>
Within each local market, having a substantial inventory of properties and sig-
nificant leasing activity increases the Company's visibility to prospective
tenants and enables the Company to establish strong relationships with leasing
brokers and other local market participants who serve as sources of information
and referrals of potential tenants. In addition, the Company has increased
opportunities to relocate tenants to one or more of its other properties as
their needs change.
Serving a Variety of Tenants by Offering a Broad Spectrum of Industrial
Property Types
Offering a broad spectrum of industrial property types and the Company's size
enable it to provide better service, on a more cost-efficient basis, to
national customers who often need workspace properties, in addition to distri-
bution properties, for their local operations. At the same time, offering an
array of property types suitable for smaller companies enables the Company to
capture a larger share of the growth in its chosen industrial property markets.
GROWTH STRATEGIES
Acquisitions
The Company seeks to capitalize on its competitive advantages primarily by
acquiring additional modern, high-quality properties in attractive submarkets
within major industrial markets.
The Company's acquisitions are based on extensive research in each targeted
market regarding (i) economic and demographic trends, (ii) supply of and demand
for industrial space in targeted submarkets, (iii) existing and potential
tenant space requirements, (iv) rent levels and trends and (v) the physical
characteristics of buildings within the market. The Company's research also
involves physical site inspections and continuing contacts with leasing brokers
and other market participants. The results of the Company's research are com-
piled into a proprietary database covering each market and submarket in which
it has invested or that it has targeted. This database is updated periodically
and contains computerized profiles, keyed to Company-prepared aerial maps, of
the Company's properties and each of the buildings deemed most competitive to
the Company's properties or attractive for acquisition. Each profile includes
information regarding the building's age, physical characteristics and current
tenant and lease information.
At June 30, 1998, the Company had approximately $17.5 million of long-term debt
secured by real estate assets, $68 million of long-term unsecured debt under
its Acquisition Facility, $5.4 million of available cash and a Debt-to-Total
Market Capitalization Ratio of 8.3%. The Company's Acquisition Facility, which
authorizes up to $325 million of borrowings at any time, enables the Company to
move quickly in completing proposed property acquisitions and the Company
believes that its ability to do so enhances its credibility with potential
property sellers. In addition, the Company's UPREIT structure (i.e., ownership
of properties through the Operating Partnership), which enables it to acquire
industrial properties on a non-cash basis by exchanging Units in the Operating
Partnership for such properties in a tax-deferred manner, provides an attrac-
tive alternative to taxable cash sales for tax-paying property owners.
The Company's management has extensive knowledge of and, the Company believes,
a favorable reputation with public and private pension funds and other institu-
tional real estate investors as a result of Cabot Partners' focus on serving
such investors. The Company believes that it will benefit from its relation-
ships with these investors through further acquisitions as they increasingly
seek to securitize their direct real estate investments.
Internal Growth
The Company's primary internal growth strategy is to increase the cash flow
generated by the Properties, and from properties that it acquires in the
future, by renewing or replacing expiring leases with new leases at higher
rents and through rent increase provisions in its leases. In addition, the Com-
pany intends to work actively to (i) maintain its historically high occupancy
levels by retaining existing tenants, thereby minimizing "down time" and re-
leasing costs, (ii) improve the occupancy levels of any newly acquired proper-
ties that have low occupancy levels, (iii) realize economies of scale from the
size of its portfolio of properties and (iv) control costs.
4
<PAGE>
Development
The Company's senior management has extensive real estate development experi-
ence, including experience derived from the industrial park development activi-
ties of CC&F. The Company is engaging its existing tenants in discussions about
future space needs and, based on such discussions, believes that financially
attractive build-to-suit opportunities from its tenant base may be available
over time. The Company also believes that in select target markets there are
attractive opportunities for new development with potentially greater returns
than those available from the purchase of existing stabilized properties, and
it is pursuing a development program where such opportunities exist. The Com-
pany pursues its development activities by engaging local or regional builders
with whom it has established strong relationships. As of July 31, 1998, the
Company had approved 9 development projects with total projected development
costs of approximately $70 million, of which development agreements for approx-
imately $29 million of projects had been entered into with builders as of that
date. The projects are located in seven of the Company's existing markets and
involve construction of each of the Company's principal property types. The
Company intends to continue pursuing a policy of geographic and property type
diversity in its development activities and expects that its development pro-
jects will generally involve individual project development costs ranging from
$5 million to $15 million. In the future, the Company intends to expand its in-
house development staff as the Company's development activities increase.
FINANCIAL STRATEGIES
The Company's financial strategy is to minimize its cost of capital by main-
taining adequate working capital and conservative debt levels. The Company has
a $325 million unsecured revolving line of credit facility (the "Acquisition
Facility") provided by a syndicate of banks lead by Morgan Guaranty Trust Com-
pany of New York to be used primarily for property acquisitions. The Company's
current policy is to operate with a Debt-to-Total Market Capitalization Ratio
generally not exceeding 40%, although the Company's Declaration of Trust and
Bylaws do not impose any limit on the incurrence of debt.
The Company believes that the size and diversity of its portfolio of Properties
provides it access to the public debt and equity markets which are not gener-
ally available to smaller, less diversified property owners. The Company also
believes that its UPREIT structure enables it to acquire industrial properties
in exchange for Units in the Operating Partnership, thereby reducing its need
to incur indebtedness to support future acquisitions.
5
<PAGE>
PROPERTIES
The Company categorizes its properties into three types: bulk distribution
properties, multitenant distribution properties and workspace properties. See
"Properties--General." At June 30, 1998, the Company owned a portfolio of 171
such Properties, summarized in the tables below, which had an aggregate of
approximately 24.5 million rentable square feet, and were approximately 96%
leased to 315 tenants at that date. Since June 30, 1998, the Company has
acquired 9 additional Properties having an aggregate of approximately 650,000
rentable square feet, of which 32% is multitenant distribution and 68% is
workspace property. These properties are 98.5% leased to 44 tenants at the date
hereof. See "Properties--General."
<TABLE>
<CAPTION>
------------------------------------------------------------------------
RENTABLE SQUARE FEET ANNUALIZED NET RENT(1)
--------------------- ------------------------------
PER
NUMBER LEASED
OF SQUARE PERCENT
PROPERTY TYPE BY REGION PROPERTIES AMOUNT % OF TOTAL AMOUNT % OF TOTAL FOOT LEASED
- ----------------------- ---------- ---------- ---------- ----------- ---------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
BULK DISTRIBUTION
PROPERTIES:
West 15 3,200,962 13.1% $10,768,889 11.9% $3.36 100.0%
Southwest 4 1,326,200 5.4 3,591,795 4.0 3.08 87.9
Midwest 18 4,275,492 17.4 11,891,441 13.1 3.03 91.8
Southeast 5 1,355,266 5.6 4,351,626 4.8 3.21 100.0
Northeast 10 2,496,262 10.2 9,392,046 10.4 3.76 100.0
<CAPTION>
---------- ---------- ---------- ----------- ---------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
Subtotal/weighted
average 52 12,654,182 51.7% $39,995,797 44.2% $3.29 96.0%
<CAPTION>
---------- ---------- ---------- ----------- ---------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
MULTITENANT DISTRIBUTION
PROPERTIES:
West 8 1,226,821 5.0% $ 4,185,118 4.6% $3.87 88.2%
Southwest 5 592,074 2.4 1,907,025 2.1 3.36 95.8
Midwest 14 2,237,576 9.2 8,433,875 9.3 3.91 96.5
Southeast 7 1,274,745 5.2 4,237,959 4.7 3.53 94.2
Northeast 11 2,065,503 8.5 8,008,466 8.8 3.88 100.0
<CAPTION>
---------- ---------- ---------- ----------- ---------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
Subtotal/weighted
average 45 7,396,719 30.3% $26,772,443 29.5% $3.78 95.7%
<CAPTION>
---------- ---------- ---------- ----------- ---------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
WORKSPACE PROPERTIES:
West 36 1,692,310 6.9% $ 9,107,151 10.1% $5.51 97.6%
Southwest 2 255,736 1.1 2,048,714 2.2 8.01 100.0
Midwest 10 687,772 2.8 3,978,116 4.4 6.32 91.4
Southeast 14 1,010,907 4.1 4,342,552 4.8 4.38 98.1
Northeast 12 767,445 3.1 4,347,400 4.8 5.73 98.9
<CAPTION>
---------- ---------- ---------- ----------- ---------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
Subtotal/weighted
average 74 4,414,170 18.0% $23,823,933 26.3% $5.56 97.1%
<CAPTION>
---------- ---------- ---------- ----------- ---------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
Total/weighted average 171 24,465,071 100.0% $90,592,173 100.0% $3.85 96.1%
<CAPTION>
========== ========== ========== =========== ========== ====== =======
------------------------------------------------------------------------
RENTABLE SQUARE FEET ANNUALIZED NET RENT(1)
--------------------- ------------------------------
PER
NUMBER LEASED
OF SQUARE PERCENT
PROPERTY BY REGION PROPERTIES AMOUNT % OF TOTAL AMOUNT % OF TOTAL FOOT LEASED
- ------------------ ---------- ---------- ---------- ----------- ---------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
West 59 6,120,093 25.0% $24,061,158 26.6% $4.05 97.0%
Southwest 11 2,174,010 8.9 7,547,534 8.3 3.79 91.5
Midwest 42 7,200,840 29.4 24,303,432 26.8 3.62 93.3
Southeast 26 3,640,918 14.9 12,932,137 14.3 3.64 97.5
Northeast 33 5,329,210 21.8 21,747,912 24.0 4.09 99.8
<CAPTION>
---------- ---------- ---------- ----------- ---------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
Total/weighted average 171 24,465,071 100.0% $90,592,173 100.0% $3.85 96.1%
<CAPTION>
========== ========== ========== =========== ========== ====== =======
</TABLE>
- -------
(1) "Annualized Net Rent" means annualized monthly Net Rent from leases in
effect as of June 30, 1998. "Net Rent" means contractual rent, excluding any
reimbursements for real estate taxes or operating expenses.
6
<PAGE>
THE FORMATION AND OTHER TRANSACTIONS
Cabot Partners and the Contributing Investors undertook certain Formation
Transactions for the purpose of organizing the Company and the Operating Part-
nership in preparation for the Company's IPO and to transfer certain of the
Properties and Cabot Partners' real estate advisory and management business to
the Operating Partnership and the Management Company in a tax-efficient manner.
The Contributing Investors included certain of the advisory clients of Cabot
Partners at the time of the Formation Transactions or their holding entities
(collectively referred to herein as the "Existing Investors") and certain other
industrial real estate investors or their holding entities. As a result of the
completion of the Formation Transactions, (i) the Properties and Cabot Part-
ners' operating assets, with certain exceptions, are held by the Operating
Partnership, of which the Company is the sole general partner, and (ii) the
assets of Cabot Partners' advisory and management business relating to indus-
trial properties that were not contributed pursuant to the Formation Transac-
tions are held by, and such business is conducted through, the Management Com-
pany. See "Formation and Other Transactions."
The following transactions were effected in connection with the formation of
the Company:
.The Company was organized by Cabot Partners as a real estate investment
trust under Maryland law.
. The Operating Partnership was formed as a limited partnership under Dela-
ware law, with the Company as its sole general partner.
. The Properties that were contributed to the Company in the Formation
Transactions included previously owned Properties of the Existing
Investors that had been managed by Cabot Partners and are referred to in
the historical and pro forma financial statements included in this Pro-
spectus as the "Existing Investors Property Group" and Properties owned
by the other Contributing Investors (the "New Investors Property Group").
. Pursuant to agreements entered into in contemplation of the IPO, the
Operating Partnership purchased 21 Properties shortly after the Closing
Date of the IPO at an aggregate purchase price of approximately $144 mil-
lion, including approximately $8 million of existing mortgage indebted-
ness secured by certain of the Properties which was assumed by the Oper-
ating Partnership.
. Cabot Partners contributed its real estate advisory and management busi-
ness and related assets, including its investment advisory and management
contracts with certain of its advisory clients (the "Advisory Contracts")
relating to industrial properties that were not contributed in the Forma-
tion Transactions, to the Management Company, or to the Operating Part-
nership for transfer to the Management Company, concurrently with the
closing of the IPO. The Operating Partnership owns 100% of the non-voting
preferred stock of the Management Company, representing 95.0% of the eco-
nomic interest in the Management Company. Ferdinand Colloredo-Mansfeld,
the Company's Chief Executive Officer, owns 100% of the voting common
stock of the Management Company, representing 5.0% of the economic
interest in the Management Company.
. The contributions of Properties and other assets by the Contributing
Investors and Cabot Partners were made in exchange for Units in the Oper-
ating Partnership that may, subject to certain limitations and excep-
tions, be exchanged for Common Shares or, in certain cases, were made in
exchange for Common Shares.
. Contemporaneously with the closing of the IPO, the Company sold $20.0
million of Common Shares at the IPO Price of $20.00 per Common Share to
the Concurrent Investor in the Concurrent Placement.
. As a result of the Formation Transactions, the Contributing Investors and
Cabot Partners became equity investors in the Company and the Operating
Partnership. The Contributing Investors received an aggregate of
23,068,699 Units and 8,961,714 Common Shares and Cabot Partners received
an aggregate of 1,819,587 Units, which Units have since been distributed
to the owners of Cabot Partners. See "Principal and Management Sharehold-
ers." Such ownership by the Contributing Investors and the former part-
ners in Cabot Partners represented approximately 73.7% and 4.2%, respec-
tively, of the common equity of the Company at the Closing Date, assuming
the exchange of all outstanding Units not held by the Company for Common
Shares on a one-for-one basis. Of the Units that were received by Cabot
Partners (i) Ferdinand Colloredo-Mansfeld received 875,792 Units having a
value, based on the IPO Price, of approximately $17.5 million and (ii)
Robert E. Patterson, the President of the Company, received 128,590 Units
having a value, based on the IPO Price, of approximately $2.6 million.
. The Company contributed the net proceeds from the IPO received by it to
the Operating Partnership in exchange for 8,625,000 general partnership
interests ("GP Units") in the Operating Partnership, which equals the
number of
7
<PAGE>
Common Shares sold in the IPO. The Company also contributed the net pro-
ceeds from the Concurrent Placement received by it to the Operating Part-
nership in exchange for 1,000,000 GP Units in the Operating Partnership,
which equals the number of Common Shares sold in the Concurrent Placement.
As a result of such contributions and its receipt of Units in connection
with the Formation Transactions, and subsequent transactions, at June 30,
1998, the Company held a 42.7% general partnership interest (before
exchange of Units) in the Operating Partnership. The Company is an indi-
rect owner of the contributed Properties and other assets held by the
Operating Partnership through and to the extent of such general partner-
ship interest.
8
<PAGE>
STRUCTURE OF THE COMPANY
The following chart illustrates the structure of the Company and the beneficial
ownership of the Company, the Operating Partnership and the Management Company
as of June 30, 1998.
THE COMPANY
<TABLE>
<CAPTION>
--------------------
PERCENT PERCENT
OF COMMON OF COMMON
SHARES SHARES
BEFORE AFTER
EXCHANGE EXCHANGE
OWNER OF UNITS OF UNITS
----- --------- ---------
<S> <C> <C>
Public Investors(1).............................. 44.7% 19.1%
Contributing Investors, Concurrent Investor and
Others(2),(3) 55.1 77.0
Management(4).................................... 0.2 3.9
THE OPERATING PARTNERSHIP
<CAPTION>
--------------------
OWNERSHIP OWNERSHIP
INTEREST INTEREST
BEFORE AFTER
EXCHANGE EXCHANGE
OWNER OF UNITS OF UNITS
----- --------- ---------
<S> <C> <C>
Company.......................................... 42.7% 100.0%
Contributing Investors and Others(2), (3)........ 53.4 --
Management(4).................................... 3.9 --
</TABLE>
THE MANAGEMENT COMPANY
<TABLE>
<CAPTION>
---------------------------
NON-
VOTING VOTING TOTAL
COMMON PREFERRED ECONOMIC
OWNER STOCK STOCK INTEREST
----- ------ --------- --------
<S> <C> <C> <C>
Operating Partnership(5).................... -- 100.0% 95.0%
Ferdinand Colloredo-Mansfeld................ 100.0% -- 5.0
</TABLE>
- -------
(1) Excludes Common Shares purchased by Management. See Note (4) below. Also
excludes Common Shares purchased by Contributing Investors subsequent to the
Formation Transactions. See Note (2) below.
(2) Includes each of the Contributing Investors other than the C-M Property
Partnerships and those holders of interests in Cabot Partners who are not offi-
cers or Trustees of the Company or the Management Company. The C-M Property
Partnerships were owned by Ferdinand Colloredo-Mansfeld, who is the Company's
Chief Executive Officer, and members of his immediate family. The ownership
interests attributable to the C-M Property Partnerships are included under
"Management." See Note (4) below. Each of the Contributing Investors received
Units or Common Shares in the Formation Transactions in exchange for their
interests in the Properties. See "Formation and Other Transactions." Also
includes Common Shares purchased by Contributing Investors subsequent to the
Formation Transactions.
(3) Includes investors admitted to the Operating Partnership subsequent to the
Formation Transactions.
(4) Includes certain officers and Trustees and members of their immediate fami-
lies who received beneficial ownership of Units in exchange for their interests
in Cabot Partners and/or the C-M Property Partnerships which were contributed
in the Formation Transactions. See "Formation and Other Transactions." Also
includes Common Shares purchased by Management subsequent to the Formation
Transactions.
(5) As a result of the Operating Partnership's ownership of non-voting pre-
ferred stock of the Management Company, the Company, through the Operating
Partnership, expects to receive 95% of the after-tax economic benefits of the
Management Company. See "The Company--Third-Party Investment Management."
9
<PAGE>
TAX STATUS OF THE COMPANY
The Company intends to qualify and will elect to be taxed as a REIT under Sec-
tions 856 through 860 of the Code, commencing with its taxable year ending
December 31, 1998. If the Company qualifies for taxation as a REIT, the Company
generally will not be subject to federal income tax on its taxable income that
is distributed to its shareholders. A REIT is subject to a number of organiza-
tional and operational requirements, including a requirement that it currently
distribute at least 95% of its annual taxable income (excluding net capital
gain). The Company does not intend to request a ruling from the Service as to
its REIT status. The Company has received an opinion of its legal counsel that,
based on certain assumptions and representations described in "Federal Income
Tax Consequences," the Company has been organized in conformity with the
requirements for qualification as a REIT beginning with its taxable year ending
December 31, 1998, and its actual and proposed method of operation as repre-
sented by the Company to its legal counsel and described in "Federal Income Tax
Consequences" will enable it to satisfy the requirements for such qualifica-
tion. Investors should be aware, however, that opinions of counsel are not
binding on the Service or any court. Even if the Company qualifies for taxation
as a REIT, the Company may be subject to certain federal, state and local taxes
on its income and property. Failure to qualify as a REIT would subject the Com-
pany to tax (including any alternative minimum tax) on its taxable income at
regular corporate rates, and distributions to the Company's shareholders in any
such year would not be deductible by the Company. See "Risk Factors--Taxation
as a Corporation if the Company Fails to Qualify as a REIT; Other Tax Risks"
and "Federal Income Tax Consequences--Taxation of the Company."
SUMMARY FINANCIAL AND OTHER DATA
Set forth below are (i) summary historical financial and other data for (A) the
Properties that were managed by Cabot Partners as of December 31, 1997 for the
Contributing Investors (such Contributing Investors are referred to herein as
the "Existing Investors" and such Properties (including the related assets and
liabilities) are referred to herein as the "Existing Investors Property Group")
and (B) the real estate advisory business of Cabot Partners, and (ii) summary
financial and other data for the Company on a historical and a pro forma basis.
The summary financial data presented below as of December 31, 1997, in the case
of the Company, and as of December 31, 1997 and 1996 and for each of the three
years in the period ended December 31, 1997, in the case of both the Existing
Investors Property Group and Cabot Partners, have been derived from Existing
Investors Property Group combined financial statements and Cabot Partners
financial statements that have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their reports included elsewhere in this
Prospectus. This information should be read in conjunction with such financial
statements and the notes thereto included elsewhere in this Prospectus. The
summary financial data presented below as of December 31, 1995, 1994 and 1993
and for the years ended December 31, 1994 and 1993 for Cabot Partners and as of
December 31, 1995 and 1994 and for the year ended December 31, 1994 for the
Existing Investors Property Group are derived from Cabot Partners financial
statements and Existing Investors Property Group combined financial statements
and the notes thereto not included in this Prospectus which have been audited
by Arthur Andersen LLP. The summary financial data presented below as of and
for the year ended December 31, 1993 for the Existing Investors Property Group
and as of and for the six months ended June 30, 1998 for the Company have not
been audited but, in the opinion of management, include all adjustments (con-
sisting only of normal recurring accruals) necessary to present fairly such
information in accordance with generally accepted accounting principles
("GAAP") applied on a consistent basis. The results of operations for the six
months ended June 30, 1998 of the Company are not necessarily indicative of
results for the entire year. Other Data (including Property data) for all
periods and dates presented are unaudited.
The pro forma condensed combined operating and other data for the six months
ended June 30, 1998 and the year ended December 31, 1997 have been prepared to
reflect (i) the contribution to the Company of (A) the Existing Investors Prop-
erty Group, (B) the New Investors Property Group and (C) the Properties
acquired during the year ended December 31, 1997 by the Existing Investors
Property Group, (ii) Properties acquired by the Company during the six months
ended June 30, 1998 and (iii) certain other adjustments, as if each of such
contributions, transactions and adjustments had occurred on January 1, 1997.
In the opinion of management, the pro forma combined consolidated financial
statements include all adjustments necessary to reflect the effects of the
foregoing transactions and adjustments. The pro forma statements are unaudited
and are not necessarily indicative of the combined results that would have been
obtained if the transactions and adjustments reflected therein had been consum-
mated on the dates indicated, or on any particular date in the future, nor do
they purport to represent the financial position, results of operations or
changes in cash flows as of any future date or for any future period.
10
<PAGE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------
SIX MONTHS
ENDED JUNE 30, YEARS ENDED DECEMBER 31,
--------------------- --------------------------------------------------
COMPANY COMPANY
PRO FORMA COMPANY(1) PRO FORMA EXISTING INVESTORS PROPERTY GROUP(2)
--------- ---------- --------- ---------------------------------------
In thousands, 1998 1998 1997 1997 1996 1995 1994 1993
except per share data --------- ---------- --------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA
Revenues $55,738 $ 41,614 $105,793 $40,554 $35,180 $28,794 $28,209 $25,252
Real estate tax expense 6,481 4,742 12,320 5,932 5,037 3,979 3,769 5,144
Property operating
expenses 3,754 2,516 7,870 4,272 4,323 3,357 3,063 3,227
General and
administrative expenses 3,179 2,790 4,416 -- -- -- -- --
Interest expense 4,009 952 8,127 2,134 1,931 2,097 2,082 2,013
Depreciation and
amortization expense 11,178 8,246 24,614 8,953 7,966 7,118 6,606 6,111
<CAPTION>
--------- ---------- --------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operating income 27,137 22,368 48,446 19,263 15,923 12,243 12,689 8,757
Gain on sale -- -- -- -- -- -- 186 --
<CAPTION>
--------- ---------- --------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net income before
minority interest 27,137 22,368 48,446 19,263 15,923 12,243 12,875 8,757
Minority interest (15,546) (12,809) (27,753) -- -- -- -- --
<CAPTION>
--------- ---------- --------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net income $11,591 $ 9,559 $ 20,693 $19,263 $15,923 $12,243 $12,875 $ 8,757
<CAPTION>
========= ========== ========= ======= ======= ======= ======= =======
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net income per Common
Share(3) $ .62 $ .51 $ 1.11
<CAPTION>
========= ========== =========
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cash distributions paid
per Common Share $ .202
<CAPTION>
==========
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------
AS OF JUNE 30, AS OF DECEMBER 31,
-------------- ----------------------------------------------------
COMPANY COMPANY EXISTING INVESTORS PROPERTY GROUP(2)
-------------- ------- --------------------------------------------
1998 1997 1997 1996 1995 1994 1993
In thousands -------------- ------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Rental properties
(before accumulated
depreciation) $917,720 -- $417,138 $336,836 $301,059 $250,387 $255,050
Rental properties, net 910,787 -- 377,613 304,308 274,629 229,451 237,101
Total assets 938,746 $3,481 393,268 318,732 289,337 241,026 247,615
Unsecured borrowings 68,000 -- -- -- -- -- --
Mortgage debt 17,533 -- 18,433 19,292 20,083 20,608 20,550
Limited Partners
interest in Operating
Partnership 476,722 -- -- -- -- -- --
Shareholders'/Owners'
equity 355,254 1 341,600 291,286 261,629 213,203 220,621
</TABLE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
--------------------- ------------------------------------------------------
COMPANY COMPANY
PRO FORMA COMPANY(1) PRO FORMA EXISTING INVESTORS PROPERTY GROUP(2)
--------- ---------- --------- -------------------------------------------
In thousands, 1998 1998 1997 1997 1996 1995 1994 1993
except number of properties and percentages --------- ---------- --------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA
EBITDA(4) $ 42,324 $ 31,566 $ 81,187 $30,350 $25,820 $21,458 $21,377 $16,881
Funds From Operations(5) 38,315 30,604 73,060 28,141 23,809 19,298 19,193 14,764
Cash flows provided by
(used in):
Operating activities 51,249 37,854 86,744 28,153 25,695 19,401 17,552 17,471
Investing activities (260,997) (253,940) (344,527) (81,834) (39,074) (53,868) 2,037 (17,393)
Financing activities 210,266 221,471 256,355 54,000 13,204 35,680 (19,596) (278)
Total rentable square
footage of properties
at end of period 24,465 24,465 11,215 9,069 7,879 6,253 6,644
Number of properties at
end of period 171 171 79 67 61 53 57
Occupancy rate at end of
period 96% 96% 97% 92% 99% 90% 90%
</TABLE>
11
<PAGE>
CABOT PARTNERS(6)
<TABLE>
<CAPTION>
------------------------------------------------
YEARS ENDED DECEMBER 31,
------------------------------------------------
1997 1996 1995 1994 1993
In thousands -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
OPERATING DATA
Revenues $ 9,080 $ 7,908 $ 6,516 $ 4,159 $ 4,088
General and administrative
expenses 7,045 5,888 5,069 4,267 4,074
Depreciation and
amortization expense 977 419 453 474 480
Net income (loss) 1,058 1,594 1,057 (536) (428)
<CAPTION>
------------------------------------------------
AS OF DECEMBER 31,
------------------------------------------------
1997 1996 1995 1994 1993
In thousands -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Total assets $ 5,339 $ 6,075 $ 5,628 $ 4,300 $ 4,923
Total liabilities 760 485 563 292 379
Total partners' capital 4,579 5,590 5,065 4,008 4,544
<CAPTION>
------------------------------------------------
YEARS ENDED DECEMBER 31,
------------------------------------------------
1997 1996 1995 1994 1993
In thousands -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
OTHER DATA
Cash flows provided by (used
in):
Operating activities $ 1,062 $ 1,283 $ 1,351 $ (12) $ (173)
Investing activities (193) 113 (6) 40 25
Financing activities (2,069) (1,069) -- -- --
Assets under management(7) 861,000 979,000 778,000 515,000 472,000
</TABLE>
- -------
(1) Since the Company was formed in October 1997 and did not begin operations
until February 4, 1998, the results for the six months ended June 30, 1998 rep-
resent activity for 147 days only, and no comparison of results to a prior year
six-month period is available.
(2) Represents historical combined financial and other data for the Existing
Investors Property Group for the periods indicated. See Note (1) to Combined
Financial Statements of the Existing Investors Property Group.
(3) Net income per Common Share for the pro forma year ended December 31, 1997,
and pro forma six months ended June 30, 1998 equals the pro forma net income
divided by 18,586,764 issued and outstanding Common Shares.
(4) EBITDA is computed as operating income before gain on sale of properties
plus interest expense, income taxes, depreciation and amortization. Management
believes that in addition to cash flows and net income, EBITDA is a useful
financial performance measure for assessing the operating performance of an
equity REIT because, together with net income and cash flows, EBITDA provides
investors with an additional basis to evaluate the ability of a REIT to incur
and service debt and to fund acquisitions and other capital expenditures. To
evaluate EBITDA and the trends it depicts, the components of EBITDA, such as
revenues, property operating expenses, real estate taxes and general and admin-
istrative expenses should be considered. See "Management's Discussion and Anal-
ysis of Financial Condition and Results of Operations." Excluded from EBITDA
are financing costs such as interest, as well as depreciation and amortization,
each of which can significantly affect a REIT's results of operations and
liquidity and should be considered in evaluating a REIT's operating perfor-
mance. Further, EBITDA does not represent net income or cash flows from operat-
ing, financing and investing activities as defined by GAAP and does not neces-
sarily indicate that cash flows will be sufficient to fund cash needs. It
should not be considered as an alternative to net income as an indicator of a
REIT's operating performance or to cash flows as a measure of liquidity.
(5) Funds from Operations ("FFO") represents net income before minority inter-
ests and extraordinary items, adjusted for depreciation on real property and
amortization of tenant improvements costs and lease commissions and gains from
the sale of properties. In addition to cash flow and net income, management
generally considers FFO to be one additional measure of the performance of an
equity REIT because, together with net income and cash flows, FFO provides
investors with an additional basis to evaluate the ability of a REIT to incur
and service debt and to fund acquisitions and other capital expenditures. How-
ever, FFO does not measure whether cash flow is sufficient to fund all of an
entity's cash needs, including principal amortization, capital improvements and
distributions to stockholders. FFO also does not represent cash generated from
operating, investing or financing activities as determined in accordance with
GAAP. It should not be considered as an alternative to net income as an indi-
cator of a REIT's operating performance or to cash flows as a measure of
liquidity. Further, FFO as disclosed by other REITs may not be comparable to
the Company's calculation of FFO. The Company calculates FFO in accordance with
the White Paper on Funds from Operations approved by the Board of Governors of
NAREIT in March 1995 (the "White Paper").
(6) Represents the historical financial and other data of Cabot Partners for
periods prior to the Formation Transactions.
(7) Based on the estimated fair market value of such assets as of the dates
indicated.
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RISK FACTORS
An investment in the Common Shares involves various risks. Prospective
investors should carefully consider the following information in conjunction
with the other information contained in this Prospectus before making a deci-
sion to purchase Common Shares.
RISK OF INABILITY TO SUSTAIN DISTRIBUTION LEVEL
The Company's intended distribution level for 1998 is based on a number of
assumptions, including assumptions relating to future operations of the Com-
pany. These assumptions concern, among other matters, continued property occu-
pancy and profitability of tenants, the amount of future capital expenditures
and expenses relating to the Company's properties, the level of leasing
activity and future rental rates, the strength of the industrial real estate
market, competition, the costs of compliance with environmental and other laws,
the amount of uninsured losses and decisions by the Company to reinvest rather
than distribute cash available for distribution. Accordingly, while the Company
currently expects to maintain its initial distribution level throughout 1998,
no assurance can be given that the Company will be able to maintain its initial
distribution level.
ANTITAKEOVER EFFECTS OF OWNERSHIP LIMIT, STAGGERED BOARD AND POWER TO ISSUE
ADDITIONAL SHARES
ANTITAKEOVER EFFECTS OF OWNERSHIP LIMITATION. For the Company to maintain its
qualification as a REIT under the Code, not more than 50% in value of the out-
standing shares of beneficial interest of the Company may be owned, directly or
indirectly, by five or fewer persons (defined in the Code to include certain
entities) at any time during the last half of any taxable year other than the
first taxable year for which the election to be treated as a REIT has been
made. See "Federal Income Tax Considerations--Taxation of the Company." For
this purpose, among others, the Company's Declaration of Trust authorizes the
Trustees, subject to certain exceptions, to take such actions as may be neces-
sary or desirable to preserve its qualification as a REIT, and limits any
person to direct or indirect ownership of no more than (i) 9.8% of the
Company's number of issued and outstanding shares of beneficial interest or
(ii) 9.8% of the total equity value of such shares of beneficial interest (the
"Ownership Limit"). The Company's Board of Trustees, upon receipt of a ruling
from the Service, an opinion of counsel or other evidence satisfactory to the
Board, and upon such other conditions as the Board may establish, is authorized
by the Charter to exempt a proposed transferee from the Ownership Limit. How-
ever, the Board may not grant an exemption from the Ownership Limit to any pro-
posed transferee whose ownership, direct or indirect, of shares of beneficial
interest of the Company in excess of the Ownership Limit would result in the
termination of the Company's status as a REIT. A transfer of shares in viola-
tion of the above limits may be void under certain circumstances. The foregoing
restrictions on transferability and ownership will continue to apply until the
Board of Trustees determines that it is no longer in the best interests of the
Company to attempt to qualify, or to continue to qualify, as a REIT. The Owner-
ship Limit may have the effect of delaying, deferring or preventing a transac-
tion or a change in control of the Company that might involve a premium over
the then prevailing market price for the Common Shares or otherwise be in the
best interest of the shareholders. See "Description of Shares of Beneficial
Interest--Restrictions on Transfer."
ANTITAKEOVER EFFECTS OF STAGGERED ELECTIONS OF TRUSTEES. The Company's Board of
Trustees is divided into three classes, with staggered terms of three years
each and with one class to be elected each year. The staggered terms of the
Trustees may reduce the possibility of a tender offer or an attempt to change
control of the Company, even though a tender offer or change in control might
be considered by the shareholders to be desirable. See "Certain Provisions of
Maryland Law and of the Company's Declaration of Trust and Bylaws--Classifica-
tion of the Board of Trustees."
POTENTIAL ANTITAKEOVER AND DILUTIVE EFFECTS OF SHAREHOLDER RIGHTS PLAN, ISSU-
ANCE OF ADDITIONAL SHARES, OTHER MATTERS. The Company's Declaration of Trust
authorizes the Board of Trustees to (i) amend the Declaration of Trust in order
to increase or decrease the aggregate number of shares of beneficial interest
of any class, including Common Shares, that the Company has the authority to
issue, without shareholder approval, (ii) cause the Company to issue additional
authorized but unissued shares of beneficial interest and (iii) classify or
reclassify any unissued Common Shares and Preferred Shares and to set the pref-
erences, rights and other terms of such shares. See "Description of Shares of
Beneficial Interest." In addition, the Company has established a Shareholder
Rights Plan that could delay, defer or prevent a transaction or a change in
control of the Company that might involve a price for the Common Shares or
other attributes that the shareholders may consider to be desirable. See "De-
scription of Shares of Beneficial Interest--Shareholder Rights Plan." The Dec-
laration of Trust and Bylaws of the Company also contain other provisions that
may have the effect of delaying, deferring or preventing a transaction or a
change in control of the Company that might involve a price for the Common
Shares or other attributes that the shareholders may consider to be desirable.
See "Certain Provisions of Maryland Law and of the Company's Declaration of
Trust and Bylaws--Removal of Trustees," "--Control Share Acquisitions" and " --
Advance Notice of Trustee Nominations and New Business." The Company also may
cause the Operating
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Partnership to offer additional Units in exchange for property or otherwise.
Under Maryland law, existing shareholders will have no preemptive right to
acquire any such equity securities, and any such issuance of equity securities
could result in dilution of an existing shareholder's investment in the Com-
pany.
TAXATION AS A CORPORATION IF THE COMPANY FAILS TO QUALIFY AS A REIT; OTHER TAX
RISKS
ADVERSE CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT; LACK OF MANAGEMENT EXPE-
RIENCE IN MAINTAINING QUALIFICATION AS A REIT. The Company intends to operate
so as to qualify as a REIT for federal income tax purposes. The Company has not
requested, and does not expect to request, a ruling from the Service that it
qualifies as a REIT. The Company has received an opinion of its legal counsel
that, based on certain assumptions and representations described in "Federal
Income Tax Consequences," the Company has been organized in conformity with the
requirements for qualification as a REIT beginning with its taxable year ending
December 31, 1998, and its actual and proposed method of operation as repre-
sented by the Company to its legal counsel and described in "Federal Income Tax
Consequences" will enable it to satisfy the requirements for such qualifica-
tion. Investors should be aware, however, that opinions of counsel are not
binding on the Service or any court. The REIT qualification opinion only repre-
sents the view of counsel to the Company based on such counsel's review and
analysis of existing law, which includes no controlling precedent. Furthermore,
both the validity of the opinion and the qualification of the Company as a REIT
will depend on the Company's continuing ability to meet various requirements
concerning, among other things, the ownership of its outstanding stock, the
nature of its assets, the sources of its income and the amount of its distribu-
tions to its shareholders. Because management of the Company has no history of
operating so as to qualify as a REIT, there can be no assurance that the Com-
pany will do so successfully. See "Federal Income Tax Consequences--Taxation of
the Company."
If the Company were to fail to qualify as a REIT for any taxable year, the Com-
pany would not be allowed a deduction for distributions to its shareholders in
computing its taxable income and would be subject to federal income tax (in-
cluding any alternative minimum tax) on its taxable income at regular corporate
rates. Unless entitled to relief under certain Code 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. As a result, cash
available for distribution would be reduced for each of the years involved.
Although management intends to operate the Company in a manner designed to meet
the REIT qualification requirements, it is possible that future economic, mar-
ket, legal, tax or other considerations may cause the Board of Trustees to
revoke the REIT election. See "Federal Income Tax Consequences."
OTHER TAX LIABILITIES. Even if the Company qualifies as a REIT, it will be sub-
ject to certain state and local taxes on its income and property, and may be
subject to certain federal taxes. See "Federal Income Tax Consequences--Taxa-
tion of the Company." In addition, the net taxable income, if any, from activi-
ties conducted through the Management Company will be subject to federal and
state income tax.
BORROWINGS MAY BE REQUIRED TO MEET REIT MINIMUM DISTRIBUTION REQUIREMENTS; POS-
SIBLE INCURRENCE OF ADDITIONAL DEBT. In order to qualify as a REIT, the Company
generally is required each year to distribute to its shareholders at least 95%
of its net taxable income (excluding any net capital gain). In addition, the
Company is subject to a 4% nondeductible excise tax on the amount, if any, by
which certain distributions paid by it with respect to any calendar year are
less than the sum of (i) 85% of its ordinary income for that year, (ii) 95% of
its capital gain net income for that year and (iii) 100% of its undistributed
taxable income from prior years. The Company intends to make distributions to
its shareholders to comply with the 95% distribution requirement and to avoid
the nondeductible excise tax. The Company's income consists primarily of its
share of the income of the Operating Partnership, and the cash available for
distribution by the Company to its shareholders consists of its share of cash
distributions from the Operating Partnership. Differences in timing 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 tax-
able income of the Company, could require the Company to borrow funds on a
short-term (or possible long-term) basis to meet the 95% distribution require-
ment and to avoid the nondeductible excise tax.
POSSIBLE TAXATION OF DIVIDENDS RECEIVED BY PENSION PLANS. Significant amounts
of Units of the Operating Partnership, which may, subject to certain limita-
tions, be exchanged for Common shares, are held by pension funds. As a result,
the Company could become a "pension-held REIT" through future exchanges of
Units for Common Shares or market purchases of Common Shares by pension funds.
If the Company were to become a pension-held REIT, certain types of borrowings
or other activities, if engaged in by the Company, could result in a portion of
dividends received by any qualified pension plan owning more than 10% in value
of the Company's shares being taxable to such plan as unrelated business tax-
able income.
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<PAGE>
POSSIBLE CHANGES IN POLICIES WITHOUT SHAREHOLDER APPROVAL; NO LIMITATION ON
DEBT
The Company's investment, financing and distribution policies, and its policies
with respect to all other activities, including growth, capitalization and
operations, are determined by the Board of Trustees. The Company's "Debt Limi-
tation" described elsewhere in this Prospectus is a policy limiting the
Company's Debt-to-Total Market Capitalization Ratio to 40%. The organizational
documents of the Company do not contain any limitation on the amount of indebt-
edness the Company may incur. Although the Company's Board of Trustees has no
present intention to do so, these policies may be amended or revised at any
time and from time to time at the discretion of the Board of Trustees without a
vote of the shareholders of the Company. A change in these policies could
adversely affect the Company's financial condition or results of operations or
the market price of the Common Shares. See "Policies with Respect to Certain
Activities."
REAL ESTATE INVESTMENT RISKS
GENERAL RISKS. Real property investments are subject to varying degrees of
risk. The yields available from equity investments in real estate depend in
large part on the amount of rental income earned and capital appreciation gen-
erated, as well as property operating and other expenses incurred. If the
Company's properties do not generate revenues sufficient to meet operating
expenses, including debt service, tenant improvements, leasing commissions and
other capital expenditures, the Company may have to borrow additional amounts
to cover fixed costs, and the Company's cash flow and ability to make distribu-
tions to its shareholders may be adversely affected.
The Company's revenues and the value of its properties may be adversely
affected by a number of factors, including (i) the national, state and local
economic climate and real estate conditions (such as oversupply of or reduced
demand for space and changes in market rental rates), (ii) the perceptions of
prospective tenants of the attractiveness, convenience and safety of the
Company's properties, (iii) the ability of the Company to provide adequate man-
agement, maintenance and insurance, (iv) the Company's ability to collect all
rent from tenants on a timely basis, (v) the expense of periodically renovat-
ing, repairing and reletting spaces and (vi) increasing operating costs (in-
cluding real estate taxes and utilities) to the extent that such increased
costs cannot be passed through to tenants. Certain significant costs associated
with investments in real estate (such as mortgage payments, real estate taxes,
insurance and maintenance costs) generally are not reduced when circumstances
cause a reduction in rental revenues from the property and vacancies result in
a loss of the ability to receive tenant reimbursements of operating costs cus-
tomarily borne by industrial real estate tenants. In addition, real estate
values and income from properties are also affected by such factors as compli-
ance with laws applicable to real property, including environmental and tax
laws, interest rate levels and the availability of financing. Furthermore, the
amount of available rentable square feet of commercial property is often
affected by market conditions and may therefore fluctuate over time.
TENANT DEFAULTS AND BANKRUPTCY. The majority of the Company's income is derived
from rental income from its properties. The Company's distributable cash flow
and ability to make expected distributions to shareholders would be adversely
affected if a significant number of its tenants failed to meet their lease
obligations. Tenants may seek the protection of the bankruptcy laws, which
could result in delays in rental payments or in the rejection and termination
of such tenant's lease and thereby cause a reduction in the Company's cash flow
and the amounts available for distribution to its shareholders. No assurance
can be given that tenants will not file for bankruptcy protection in the future
or, if any tenants do file for such protection, that they will affirm their
leases and continue to make rental payments in a timely manner. In addition, a
tenant from time to time may experience a downturn in its business which may
weaken its financial condition and result in the failure to make rental pay-
ments when due. If tenant leases are not affirmed following bankruptcy or if a
tenant's financial condition weakens, the Company's cash flow and the amounts
available for distribution to its shareholders may be adversely affected.
OPERATING RISKS. The Company's properties are subject to operating risks common
to commercial real estate in general, any and all of which may adversely affect
occupancy and rental rates. Such properties are subject to increases in oper-
ating expenses such as cleaning, electricity, heating, ventilation and air con-
ditioning and maintenance, insurance and administrative costs, and other gen-
eral costs associated with security, landscaping, repairs and maintenance.
While the Company's current tenants generally are obligated to pay a portion of
these escalating costs, there can be no assurance that tenants will agree to
pay all or any portion of such costs upon renewal or that new tenants will
agree to pay such costs. If operating expenses increase, the local rental
market may limit the extent to which rents may be increased to meet increased
expenses without decreasing occupancy rates. Although the Company intends to
implement cost-saving incentive measures at its properties, the Company's
ability to make distributions to shareholders could be adversely affected if
operating expenses increase without a corresponding increase in revenues,
including tenant reimbursements of operating costs.
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RISKS OF NON-RENEWAL OF LEASES AND VACANCIES. The Company is subject to the
risk that upon expiration of leases for space located in its properties, the
leases may not be renewed, the space may not be relet or the terms of renewal
or reletting (including the cost of required renovations) may be less favorable
than expiring lease terms. Leases accounting for approximately 21.7% of the
Company's Annualized Base Rent will expire during the period from July 1, 1998
through December 31, 1999. The Company has established annual reserves for ren-
ovation and reletting expenses, which take into consideration its views of both
the current and expected business conditions in the appropriate markets, but no
assurance can be given that these reserves will be sufficient to cover such
expenses. If the Company were unable to promptly relet or renew the leases for
all or a substantial portion of the Company's space, if the rental rates upon
such renewal or reletting were significantly lower than expected rates or if
its reserves for these purposes proved inadequate, then the Company's cash flow
and ability to make expected distributions to shareholders may be adversely
affected.
COMPETITION; RISK OF NOT MEETING TARGETED LEVEL OF LEASING ACTIVITY, ACQUISI-
TIONS AND DEVELOPMENT. Numerous industrial properties compete with the Proper-
ties in attracting tenants to lease space and additional properties can be
expected to be built in the markets in which the Company's properties are
located. The number and quality of competitive industrial properties in a par-
ticular area will have a material effect on the Company's ability to lease
space at the Properties or at newly acquired properties and on the rents
charged. Some of these competing properties may be newer or better located than
the Company's properties. In addition, the industrial real estate market has
become highly competitive. There are a significant number of buyers of indus-
trial property, including other publicly traded industrial REITs, many of which
have significant financial resources. This has resulted in increased competi-
tion in acquiring attractive industrial properties. See "--Real Estate Invest-
ment Risks--Possible Adverse Effects of Acquisition, Development and Construc-
tion Activities." Accordingly, it is possible that the Company may not be able
to meet its targeted level of property acquisitions and developments due to
such competition or other factors which may have an adverse effect on the
Company's expected growth in FFO.
POSSIBLE ENVIRONMENTAL LIABILITIES. Under various federal, state and local
environmental laws, ordinances and regulations, a current or previous owner or
operator of real property may be liable for the costs of removal or remediation
of hazardous or toxic substances on, under or in such property. Such laws often
impose liability whether or not the owner or operator knew of, or was respon-
sible for, the presence of such hazardous or toxic substances. In addition, the
presence of hazardous or toxic substances, or the failure to remediate such
property properly, may adversely affect the owner's ability to borrow using
such real property as collateral. Persons who arrange for the disposal or
treatment of hazardous or toxic substances may also be liable for the costs of
removal or remediation of hazardous substances at the disposal or treatment
facility, whether or not such facility is or ever was owned or operated by such
person. Certain environmental laws and common law principles could be used to
impose liability for release of and exposure to hazardous substances, including
asbestos-containing materials ("ACMs"), into the air, and third parties may
seek recovery from owners or operators of real properties for personal injury
or property damage associated with exposure to released hazardous substances,
including ACMs. As the owner of real properties, the Company may be potentially
liable for any such costs. Phase I environmental site assessment reports
("Phase I ESAs") were obtained in connection with the initial acquisition of
the Properties by the Contributing Investors, for those Properties managed by
Cabot Partners as of February 3, 1998, and, for all other Properties contrib-
uted to the Company in the Formation Transactions, in connection with such con-
tribution to the Company. In accordance with the Company's acquisition poli-
cies, the Company has also obtained Phase I ESA's for all Properties subse-
quently acquired by it. The purpose of Phase I ESAs is to identify potential
sources of contamination for which the Company may be responsible and to assess
the status of environmental regulatory compliance. The earliest of such Phase I
ESAs were obtained in 1988 and Phase I ESAs on approximately 22% of the Proper-
ties were obtained prior to 1995. Commonly accepted standards and procedures
for such Phase I ESAs have evolved to encompass higher standards and more
extensive procedures over the period from 1988 to the present. Where recom-
mended in the Phase I ESA, invasive procedures, such as soil sampling and
testing or the installation and monitoring of groundwater wells, were subse-
quently performed.
The Phase I ESAs, including subsequent procedures where applicable, have not
revealed any environmental liability that the Company believes would have a
material adverse affect on the Company's business, assets or results of opera-
tions, nor is the Company aware of any such material environmental liability.
Nevertheless, it is possible that the Phase I ESAs relating to the Properties
do not reveal all environmental liabilities or that there are material environ-
mental 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 the presence of under-
ground storage tanks) or by third parties unrelated to the Company.
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ADVERSE EFFECT OF POSSIBLE ADDITIONAL COSTS OF COMPLIANCE WITH AMERICANS WITH
DISABILITIES ACT ON CASH FLOW AND DISTRIBUTIONS. Under the Americans with Disa-
bilities Act of 1990 (the "ADA"), all public accommodations and commercial
facilities are required to meet certain federal requirements related to access
and use by disabled persons. Existing industrial properties generally are
exempt from the provisions of the ADA but may be subject to provisions
requiring that buildings be made accessible to people with disabilities. Com-
pliance with the ADA requirements could require removal of access barriers, and
non-compliance could result in imposition of fines by the U.S. government or an
award of damages to private litigants. While the amounts of such compliance
costs, if any, are not currently ascertainable, they are not expected to have a
material effect on the Company.
CHANGES IN LAWS. Because increases in income or service taxes generally are not
passed through to tenants under leases, such increases may adversely affect the
Company's cash flow and its ability to make distributions to shareholders. The
Company's properties also are subject to various federal, state and local regu-
latory requirements and to 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 currently are in material 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 Com-
pany and could have an adverse effect on the Company's cash flow and ability to
make expected distributions to shareholders.
UNINSURED LOSSES. The Company generally carries commercial general liability
insurance, standard "all-risk" property insurance, and flood and earthquake
(where appropriate) and rental loss insurance with respect to its properties
with policy terms and conditions customarily carried for similar properties. No
assurance can be given, however, that material losses in excess of insurance
proceeds will not occur in the future which would adversely affect the business
of the Company and its financial condition and results of operations. In addi-
tion, certain types of losses (such as from wars or from earthquakes for prop-
erties located in California) may be either uninsurable or not economically
insurable. Should an uninsured loss or a loss in excess of insured limits
occur, the Company could lose its capital invested in a property, as well as
the anticipated future revenue from such property, and would continue to be
obligated on any mortgage indebtedness or other obligations related to the
property. In light of the California earthquake risk, California building codes
have since the early 1970's established construction standards for all new
buildings and also contain guidelines for seismic upgrading of existing build-
ings that are intended to reduce the possibility and severity of loss from
earthquakes. Such construction standards and upgrading, however, do not elimi-
nate the possibility of earthquake loss. It is the Company's current policy to
obtain earthquake insurance if available at acceptable cost. Of the Company's
45 Properties located in California, 43 are covered by earthquake insurance.
Seismic upgrading has been completed on ten of the California Properties and is
expected to be completed on 13 additional California Properties within nine
months from the date hereof. The Company currently maintains blanket earthquake
insurance coverage for all Properties located outside California in amounts it
deems reasonable.
POSSIBLE ADVERSE EFFECTS OF ILLIQUIDITY OF REAL ESTATE INVESTMENTS. Equity real
estate investments are relatively illiquid. Such illiquidity will tend to limit
the ability of the Company to vary its portfolio promptly in response to
changes in economic or other conditions. In addition, the Code limits the
ability of a REIT to sell properties held for fewer than four years, which may
affect the Company's ability to sell properties without adversely affecting
returns to holders of Common Shares.
POSSIBLE ADVERSE EFFECTS OF ACQUISITION, DEVELOPMENT AND CONSTRUCTION
ACTIVITIES. The Company intends to acquire existing industrial properties to
the extent that they can be acquired on advantageous terms and meet the
Company's investment criteria. See "The Company--Growth Strategies--Acquisi-
tions." Acquisitions of such properties entail general investment risks associ-
ated with any real estate investment, including the risk that investments will
fail to perform in accordance with expectations or that estimates of the costs
of improvements to bring an acquired property up to the Company's standards may
prove inaccurate.
The Company also intends to grow through the selective development and con-
struction of industrial properties, including build-to-suit properties and
speculative development, as suitable opportunities arise. See "The Company--
Business Strategies." Additional risks associated with such real estate devel-
opment and construction activities include the risk that the Company may
abandon development activities after expending significant resources to deter-
mine their feasibility; the construction cost of a project may exceed original
estimates; occupancy rates and rents at a newly completed property may not be
sufficient to make the property profitable; financing may not be available on
favorable terms for development of a property; and the construction and lease
up of a property may not be completed on schedule (resulting in increased debt
service and construction costs). Development activities are also subject to
risks relating to inability to obtain, or delays in
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<PAGE>
obtaining, necessary zoning, land-use, building occupancy and other required
governmental permits and authorizations. If any of the above occur, the
Company's cash flow and ability to make expected distributions to shareholders
could be adversely affected. In addition, new development activities, regard-
less of whether they are ultimately successful, may require a substantial por-
tion of management's time and attention.
POSSIBLE ADDITIONAL COST RESULTING FROM REASSESSMENT OF PROPERTIES. Certain
local real property tax assessors may seek to reassess certain of the Proper-
ties as a result of the Formation Transactions and the transfer of interests
which 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 Con-
tributing Investors' period of ownership. Where appropriate, the Company would
contest vigorously any such reassessment. Certain of the current leases may
permit the Company to pass through to tenants the effect of any increases in
real estate taxes resulting from any such reassessment.
CONFLICTS OF INTEREST IN THE FORMATION TRANSACTIONS AND THE BUSINESS OF THE
COMPANY
BENEFITS TO THE CABOT GROUP PARTICIPANTS AND THE CONTRIBUTING INVESTORS. The
Cabot Group Participants and the Contributing Investors received certain bene-
fits from the Formation Transactions. As such, these persons may have interests
that differ from, and may in certain cases conflict with, the interests of per-
sons acquiring Common Shares. The benefits the Cabot Group Participants and the
Contributing Investors have received might have been different if they had not
participated in structuring the Formation Transactions. These benefits include
the following: (i) receipt by senior executive officers of the Company of
options to purchase an aggregate of 1,675,000 Units under the Company's Long
Term Incentive Plan at $20 per Unit, subject to certain vesting requirements,
which have an aggregate purchase price of approximately $33.5 million, (ii)
deferral of certain tax consequences to the Cabot Group Participants from the
contribution of their interests in Cabot Partners and the C-M Property Partner-
ships to the Operating Partnership and (iii) the Operating Partnership's
assumption and repayment from the proceeds of the IPO of approximately $18.4
million and $13.2 million, respectively, in debt relating to the Properties
beneficially owned by certain of the Cabot Group Participants. In addition,
certain methods of accounting that may be selected by the Operating Partnership
for Book-Tax Differences could result in the allocation of lower amounts of
taxable income to the Cabot Group Participants, and correspondingly higher
amounts of taxable income to the Company (with a resulting lower return of cap-
ital dividend component to shareholders). See "Certain Relationships and
Related Transactions--Benefits to Related Parties," and "Management--Long Term
Incentive Plan."
LIMITATIONS ON REPRESENTATIONS AND WARRANTIES COULD LIMIT THE COMPANY'S
REMEDIES. The Contributing Investors and Cabot Partners each made certain rep-
resentations and warranties to the Company in the Contribution Agreement
entered into among the parties in connection with the Formation Transactions.
Such representations and warranties, which in the case of environmental matters
and certain other matters are limited to the knowledge of specified entities
and persons, relate to, among other things, their authority to enter into the
Formation Transactions, their ownership of the Properties or other assets con-
tributed by them, the absence of certain liabilities and other matters relating
to the Properties and such assets. The respective obligations of each Contrib-
uting Investor and of Cabot Partners to indemnify the Company in the event of
breach of any of such representations and warranties, or breach of certain
other provisions of the Contribution Agreement or under certain other circum-
stances, is subject to an overall limitation under the Contribution Agreement
equal to the value of the Units or Common Shares received in the Formation
Transactions of $20 per Unit or Common Share (or in lieu thereof, the return to
the Company of all such Units or Common Shares received), and is subject to the
further limitation that any such indemnification obligation relating to a spe-
cific Property is limited to the contribution amount assigned to such Property
by the parties in connection with the Formation Transactions. The obligation to
make any such indemnification payments may be satisfied by making cash payments
or by delivering Common Shares or Units, valued at the then market price for
Common Shares, to the Company. In addition, such indemnification obligations
are, with certain limited exceptions, limited to claims for indemnification
made within one year after the consummation of the Formation Transactions. Any
losses to the Company resulting from breaches of such representations and war-
ranties or other provisions of the Contribution Agreement in excess of the
foregoing indemnification limitations would have to be satisfied out of the
Company's assets, with the potential consequences of adversely affecting the
Company's financial condition and of decreasing cash available for distribution
to the shareholders.
POSSIBLE FAILURE TO ENFORCE TERMS OF CONTRIBUTION AND OTHER AGREEMENTS. The
Cabot Group Participants, some of whom are Trustees and executive officers of
the Company, and the other Contributing Investors each, directly or indirectly,
had ownership interests in certain of the Properties and in the other assets
acquired by the Company in the Formation Transactions. Under the agreements
relating to the contribution of the Properties and such other assets,
18
<PAGE>
the Company is entitled to indemnification and damages in the event of breaches
of certain of the terms thereof. Due to conflicts of interest or in order to
maintain an ongoing business relationship with the entity or individual
involved, such officers and Trustees may cause the Company to choose to enforce
its rights under any of these contribution agreements and to pursue available
remedies, such as actions for damages or injunctive relief, less vigorously
than it otherwise might.
DIFFERING OBJECTIVES BETWEEN THE CABOT GROUP PARTICIPANTS AND THE COMPANY
RELATING TO THE SALE OF THE PROPERTIES. As holders of Units, the Cabot Group
Participants have unrealized taxable gain associated with their interests in
certain Properties contributed to the Operating Partnership in the Formation
Transactions. Because the Cabot Group Participants may incur different and more
adverse tax consequences than the Company upon the sale of those Properties,
the Cabot Group Participants and the Company may have different views regarding
the appropriate pricing and timing of any sale of such Properties. While the
Company has the exclusive authority to determine whether and on what terms to
sell an individual Property, the Cabot Group Participants, through their status
as holders of Units and senior executives and Trustees of the Company, could
have an incentive to influence the Company not to sell certain Properties even
though such sales might otherwise be financially advantageous to the Company.
See "Policies With Respect to Certain Activities--Conflict of Interest Poli-
cies."
INFLUENCE OF SIGNIFICANT SHAREHOLDERS, TRUSTEES AND EXECUTIVE OFFICERS. The IBM
Retirement Plan Trust, the New York State Teachers' Retirement System and the
Pennsylvania Public School Employes' Retirement System are deemed beneficially
to own approximately 23.5%, 13.7% and 12.6%, respectively, of the outstanding
Common Shares (assuming the exchange of all Units not held by the Company for
Common Shares). In addition, the senior management of the Company beneficially
owns approximately 3.9% of the outstanding Common Shares (assuming the exchange
of all Units not held by the Company for Common Shares). The foregoing Contrib-
uting Investors and senior management, both as shareholders and management,
have influence on the management and operations of the Company and the outcome
of matters submitted to a vote of the Company's shareholders. Such influence
could be exercised in a manner that is inconsistent with the interests of other
shareholders.
RISKS RELATING TO THE OPERATING PARTNERSHIP. Persons holding Units in the Oper-
ating Partnership (including the Cabot Group Participants) have the right to
vote, as limited partners of the Operating Partnership ("Limited Partners"), on
certain amendments to the Operating Partnership Agreement (most of which
require approval by a majority in interest of the Limited Partners), and on
certain other matters during the first year following the closing of the IPO of
the Company (such as a merger of the Company or an amendment to the Declaration
of Trust that requires the approval of the Company's shareholders), see "Part-
nership Agreement of Operating Partnership--Management," and individually to
approve certain amendments that would adversely affect their rights. Such
voting rights may be exercised in a manner that conflicts with the interests of
the Company's shareholders. The Company, as the general partner of the Oper-
ating Partnership, has fiduciary duties to the Limited Partners, the discharge
of which may conflict with interests of the Company's shareholders. Pursuant to
the Operating Partnership Agreement, however, the Limited Partners have
acknowledged that the Company is acting both on behalf of the Company's share-
holders and, in its capacity as general partner of the Operating Partnership,
on behalf of the Limited Partners. The Limited Partners have agreed that the
Company is under no obligation to consider the separate interests of the Lim-
ited Partners in deciding whether to cause the Operating Partnership to take
(or decline to take) any actions which the General Partner has taken in good
faith on behalf of the Operating Partnership.
LIMITED PERIOD OF PUBLIC MARKET FOR COMMON SHARES
Prior to the IPO, there was no public market for the Common Shares and there
can be no assurance that an active trading market will be sustained on the
NYSE. The market value of the Common Shares may be substantially affected by
general market conditions, including changes in interest rates. Moreover,
numerous other factors, such as regulatory action and changes in tax laws,
could have a significant impact on the future market price of the Common
Shares. There also can be no assurances that the Company will continue to meet
the criteria for continued listing of the Common Shares on the NYSE.
POSSIBLE ADVERSE EFFECT OF MARKET INTEREST RATES ON PRICE OF COMMON SHARES
One of the factors that influences the market price of the Common Shares is the
annual distribution rate on the Common Shares. An increase in market interest
rates may lead purchasers of REIT shares to demand higher annual distribution
rates, which could adversely affect the market price of the Common Shares.
19
<PAGE>
POSSIBLE ADVERSE EFFECT ON PRICE OF COMMON SHARES OF SHARES AVAILABLE FOR
FUTURE SALE
Sales of a substantial number of Common Shares, or the perception that such
sales could occur, could adversely affect prevailing market prices of the
Common Shares. The Company issued an aggregate of 22,598,735 Units and
8,961,714 Common Shares to the Contributing Investors (excluding for this pur-
pose the C-M Property Partnerships), 469,964 Units to the C-M Property Partner-
ships and 1,819,587 Units to Cabot Partners in the Formation Transactions. See
"Formation and Other Transactions." The Company has since redeemed 60,832 Units
and has issued an additional 101,149 Units that are exchangeable for Common
Shares, subject to certain limitations. The Contributing Investors and the
Cabot Group Participants are not permitted to offer, sell, contract to sell or
otherwise dispose of the Units or Common Shares received by them, except in
certain limited circumstances, for one year after the February 4, 1998 closing
of the IPO in the case of the Contributing Investors or two years thereafter in
the case of the partners of Cabot Partners and of the partners of the C-M Prop-
erty Partnerships. See "Shares Available for Future Sale." At the conclusion of
such periods, and, in the case of Units, upon the subsequent exchange of Units
for Common Shares, such Common Shares may be sold in the public market pursuant
to registration statements which the Company is obligated to file on behalf of
the Contributing Investors and the Cabot Group Participants or pursuant to any
available exemptions from applicable registration requirements. In addition,
options to purchase a total of 2,142,000 Units and Common Shares have been
granted to certain executive officers, employees and Trustees, including
2,095,600 options issued upon the closing of the IPO. See "Management--Compen-
sation of Trustees" and "--Long Term Incentive Plan." No prediction can be made
concerning the effect that future sales of any of such Common Shares will have
on the market price of Common Shares.
ERISA RISKS
ERISA and section 4975 of the Code prohibit certain transactions that involve
an ERISA plan and a "party in interest" or "disqualified person" (collectively
referred to herein as a "party in interest") with respect to the plan. Cabot
Partners is a party in interest with respect to one ERISA plan that is a Con-
tributing Investor. It is not clear that the Formation Transactions would have
constituted a prohibited transaction with respect to such plan. Nevertheless,
such plan has informed the Company that it relied on Prohibited Transaction
Exemption 84-14 ("PTE 84-14") and retained a Qualified Professional Asset Man-
ager ("QPAM") to decide whether or not to enter into the Formation Transac-
tions. The applicability of such exemption in certain circumstances has been
questioned by the Department of Labor. If it were ultimately determined that
the Formation Transactions constituted a prohibited transaction, and also that
PTE 84-14 did not apply to such plan's participation in the Formation Transac-
tions, then sanctions could be imposed on Cabot Partners and the fiduciaries of
such plan that could include reallocation of Units between Cabot Partners and
such plan or other remedies, possibly including rescission of the Property
transfers from such plan, intended to put such plan in a financial position not
worse than that in which it would have been if the parties had acted in accor-
dance with the requirements of ERISA. Cabot Partners and the Company received
an opinion from Mayer, Brown & Platt in connection with the Formation Transac-
tions that PTE 84-14 applied to the Formation Transactions with respect to such
plan; however, such opinion is not binding on the Department of Labor, the
Service or any court. See "ERISA Considerations."
POSSIBLE UNKNOWN ADVERSE CHARACTERISTICS OF RECENTLY ACQUIRED NEW PROPERTIES;
LACK OF OPERATING HISTORY
Certain of the Properties acquired by the Company in the Formation Transactions
had not previously been, or only recently had been, under the management of
Cabot Partners. Such Properties, in addition to properties subsequently
acquired or properties acquired in the future, may have characteristics or
deficiencies unknown to the Company affecting their valuation or revenue poten-
tial, and the operating performance of such Properties may therefore be less
than anticipated or may decline. As the Company acquires additional properties,
the Company will be subject to risks associated with managing new properties,
including lease-up and tenant retention. In addition, the Company's ability to
manage its growth effectively will require it to successfully integrate its new
acquisitions into its existing management structure.
REAL ESTATE FINANCING RISKS
DEBT FINANCING AND POTENTIAL ADVERSE EFFECTS ON CASH FLOWS AND
DISTRIBUTIONS. As a result, among other things, of the annual income distribu-
tion requirements applicable to REITs under the Code, the Company has relied on
borrowings to fund acquisitions, capital expenditures and other items and
expects to continue to rely on borrowings and other external sources of
financing to fund the costs of new property acquisitions, capital expenditures
and other items. Accordingly, the Company is subject to real estate financing
risks, including changes from period to period in the availability of such
financing, the risk that the Company's cash flow may not be sufficient to cover
both required debt service payments and distributions to shareholders, and the
risk that indebtedness secured by properties 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. If the
20
<PAGE>
Company becomes unable to meet its required mortgage payment obligations, the
property or properties subject to such mortgage indebtedness could be fore-
closed upon by or otherwise transferred to the mortgagee, with a consequent
loss of income and asset value to the Company.
RISING INTEREST RATES. The Acquisition Facility that the Company has obtained
bears interest at variable rates, and the Company may incur additional vari-
able rate indebtedness in the future. Variable-rate debt creates higher debt
service requirements if market interest rates increase, which would adversely
affect the Company's cash flow and the amounts available for distribution to
its shareholders. While the Company has entered into arrangements that are
intended to reduce its exposure to rising interest rates and may enter into
additional arrangements for that purpose in the future, it will remain subject
to effects of changes in interest rates. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Capital Resources
and Liquidity."
MANAGEMENT COMPANY RISKS
POSSIBLE ADVERSE CONSEQUENCES OF LACK OF CONTROL OVER THE MANAGEMENT
COMPANY. In order to permit the Company to share in the income of the Manage-
ment Company while maintaining its status as a REIT, the Operating Partnership
owns all of the Management Company's non-voting preferred stock (representing
approximately 95% of its economic interest) and Ferdinand Colloredo-Mansfeld,
the Company's Chief Executive Officer, owns all of the Management Company's
voting common stock (representing approximately 5% of its economic interest).
Although the Company receives substantially all of the economic benefit of the
Management Company's business through dividends from the Operating Partner-
ship, the Company is not able to vote on the election of the Management
Company's directors or officers and, as a result, does not have the ability to
control the Management Company's operations or require its board of directors
to declare and pay cash dividends. See "Formation and Other Transactions. "
UNCERTAINTY AS TO MANAGEMENT COMPANY FEES. Fees earned by the Management Com-
pany are dependent upon various factors outside the control of the Company and
the Operating Partnership, including the ability of a contracting party gener-
ally to terminate any of the Advisory Contracts or advisory contracts entered
into by the Management Company upon 30 days notice.
DEPENDENCE ON KEY PERSONNEL
The Company is dependent on the efforts of its executive officers, including,
Ferdinand Colloredo-Mansfeld and Robert E. Patterson, the Company's Chief
Executive Officer and President, respectively. The loss of either of their
services could have an adverse effect on the operations of the Company.
RISKS ASSOCIATED WITH RELIANCE ON FORWARD-LOOKING STATEMENTS
This Prospectus contains "forward-looking 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," "believe" or
"continue" or the negative thereof or other variations thereon or comparable
terminology. The Company's actual results may differ significantly from the
results discussed in such "forward-looking statements." Factors that could
cause such differences include, but are not limited to, the risks described in
this Risk Factors section of this Prospectus.
21
<PAGE>
THE COMPANY
GENERAL
The Company is an internally managed, fully integrated real estate company that
was formed to continue and expand the national industrial real estate business
of Cabot Partners. At June 30, 1998, the Company's portfolio included 171 Prop-
erties containing approximately 24.5 million rentable square feet located in 22
states throughout the country. The Properties were approximately 96% leased to
315 tenants, with no single tenant accounting for more than 4.4% of the
Company's total Annualized Base Rent, at that date. Since June 30, 1998, the
Company has acquired 9 additional Properties containing approximately 650,000
rentable square feet, which Properties are 98.5% leased to 44 tenants as of the
date hereof. See "Properties--General."
The Company's goal is to be the preeminent national real estate company focused
on serving a variety of industrial space users. The Company currently owns and
operates a diversified portfolio of properties and has a significant market
presence across the United States, owning properties in a total of 22 markets.
Its tenant base ranges from large national distributors using bulk warehouse
and other types of industrial space in multiple locations to small companies
located in single flexible workspace properties. The Company believes that its
geographic and property diversification and substantial presence in multiple
markets is a strategic advantage that allows it (i) to serve industrial space
users with multiple site and industrial property type requirements, (ii) com-
pete more effectively in its individual markets and (iii) respond quickly to
acquisition opportunities in markets across the country.
A summary of the Company's property holdings by region and principal local mar-
kets as of June 30, 1998 is presented in the following table.
<TABLE>
<CAPTION>
--------------------------------------------------------
RENTABLE SQUARE FEET ANNUALIZED NET RENT
--------------------- ----------------------
NUMBER
OF
BY REGION(1) PROPERTIES AMOUNT % OF TOTAL AMOUNT % OF TOTAL
- ------------ ---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
WESTERN REGION
San Francisco area
market 17 813,119 3.3% $ 3,950,173 4.4%
Los Angeles area market 23 2,814,445 11.5 10,815,512 11.9
Phoenix area market 9 1,540,625 6.3 4,469,373 4.9
San Diego area market 5 549,144 2.3 2,946,696 3.3
Seattle area market 5 402,760 1.6 1,879,404 2.1
<CAPTION>
---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Subtotal Western Region 59 6,120,093 25.0% $24,061,158 26.6%
<CAPTION>
---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
SOUTHWEST REGION
Dallas area market 11 2,174,010 8.9% $ 7,547,534 8.3%
<CAPTION>
---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
MIDWEST REGION
Chicago area market 14 2,682,728 11.0% $10,019,090 11.0%
Cincinnati/Northern
Kentucky area market 12 1,989,953 8.1 6,260,693 6.9
Columbus area market 9 1,609,599 6.6 4,490,577 5.0
Minneapolis area market 4 320,328 1.3 1,747,650 1.9
Other area markets 3 598,232 2.4 1,785,422 2.0
<CAPTION>
---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Subtotal Midwest Region 42 7,200,840 29.4% $24,303,432 26.8%
<CAPTION>
---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
SOUTHEAST REGION
Orlando area market 12 1,843,907 7.5% $ 6,987,188 7.7%
Memphis area market 1 336,080 1.4 795,326 0.9
Atlanta area market 9 941,401 3.8 3,174,011 3.5
Charlotte area market 3 359,530 1.5 1,304,226 1.4
Other area markets 1 160,000 0.7 671,386 0.8
<CAPTION>
---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Subtotal Southeast
Region 26 3,640,918 14.9% $12,932,137 14.3%
<CAPTION>
---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
NORTHEAST REGION
Boston area market 3 208,197 0.8 $ 1,086,841 1.2%
New York/New Jersey area
market 16 3,366,643 13.8 13,368,714 14.8
Baltimore/Washington,
D.C. area market 10 882,170 3.6 4,304,701 4.7
Harrisburg area market 4 872,200 3.6 2,987,656 3.3
<CAPTION>
---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Subtotal Northeast
Region 33 5,329,210 21.8% $21,747,912 24.0%
<CAPTION>
---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Total 171 24,465,071 100.0% $90,592,173 100.0%
<CAPTION>
========== ========== ========== =========== ==========
</TABLE>
- -------
(1) References to specific cities include suburban portions of the relevant
metropolitan areas.
22
<PAGE>
The Company offers a broad spectrum of industrial property types to meet the
diverse needs of its tenants. The Company classifies its properties into three
general categories: bulk distribution properties, multitenant distribution
properties and workspace properties (light assembly and flex/R&D). The fol-
lowing table provides information concerning the general characteristics and
the Company's holdings of each of these property types as of June 30, 1998.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------
RENTABLE SQUARE FEET ANNUALIZED NET RENT
---------------------- -----------------------------------
PROPERTY % OF PER LEASED
TYPE PROPERTY CHARACTERISTICS NUMBER TOTAL AMOUNT % OF TOTAL SQUARE FOOT
-------- ------------------------ ------------ --------- ----------- ---------- -----------
<C> <S> <C> <C> <C> <C> <C>
Bulk Buildings configured for
Distribution large tenants (generally
at least 100,000 square
feet; building depths of
240 feet or more) 12,654,182 51.7% $39,995,797 44.2% $3.29
Multitenant Buildings configured for
Distribution multitenant use
(generally tenant sizes
of 10,000-100,000 square
feet; building depths of
less than 240 feet) 7,396,719 30.3 26,772,443 29.5 3.78
Workspace Light assembly and
flex/R&D (generally
tenant sizes of 3,000-
70,000 square feet) 4,414,170 18.0 23,823,933 26.3 5.56
<CAPTION>
------------ --------- ----------- ---------- -----------
<C> <S> <C> <C> <C> <C> <C>
Total/weighted average 24,465,071 100.0% $90,592,173 100.0% $3.85
<CAPTION>
============ ========= =========== ========== ===========
</TABLE>
The Company's principal growth strategy is to acquire modern, high-quality
industrial properties in attractive submarkets within the markets it currently
serves. Cabot Partners completed the acquisition of approximately $251 million
and $191 million of industrial properties on behalf of its clients in 1995 and
1996, respectively, and acquired approximately $275 million of industrial prop-
erties on behalf of its clients in 1997. During 1997, Cabot Partners also nego-
tiated the contribution to the Company in the Formation Transactions of approx-
imately $270 million of industrial properties not previously owned by its advi-
sory clients. During the six months ended June 30, 1998, the Company acquired
49 properties (21 of which properties were identified in its prospectus dated
January 30, 1998). As of August 14, 1998, the Company has contracts to purchase
12 additional properties for an aggregate purchase price of approximately $65
million.
The senior management of the Company has an average of approximately 18 years
of experience in the real estate industry and beneficially owns 3.9% of the
Company's common equity as of June 30, 1998, assuming all outstanding Units not
held by the Company are exchanged for Common Shares on a one-for-one basis.
Members of the Company's senior management have worked together since 1987 as
the executive officers of Cabot Partners and, previously, Cabot Advisors. Cabot
Advisors was founded as an affiliate of CC&F, a nationwide real estate develop-
ment, investment, construction and management firm established in 1904. CC&F
pioneered the development of large-scale planned industrial parks. In 1990,
Ferdinand Colloredo-Mansfeld, the Chief Executive Officer of Cabot Partners,
who was also the Chief Executive Officer of CC&F from 1976 to 1989, and other
senior managers of CC&F formed Cabot Partners as a separate entity to purchase
the real estate advisory and management business of Cabot Advisors. Cabot Part-
ners was established as a registered investment advisor to provide real estate
investment services primarily to public and private pension funds and others.
The Company is organized as a REIT under the laws of Maryland and expects to
qualify as a REIT for federal income tax purposes. See "Federal Income Tax Con-
siderations." The Company's principal executive offices are located at Two
Center Plaza, Suite 200, Boston, Massachusetts 02108, and its telephone number
is (617) 723-0900.
23
<PAGE>
INDUSTRIAL REAL ESTATE BUSINESS
Attractive Real Estate Sector
The industrial sector of the real estate market has historically generated a
high level of cash income and attractive annual rates of return as compared
with other types of real estate investments. Industrial properties tend to be
less costly to manage and require lower amounts of capital expenditures and
tenant-specific improvement costs. Such properties provide generic storage and
work space suitable for and adaptable to a broad range of tenants and uses.
Industrial properties also generally require shorter development periods as
compared with other commercial property types, such as office buildings, which
enables better balancing of supply and demand for such properties and reduces
risk of overbuilding.
Strong Demand
The Company believes that, at least for the near term, the demand for desir-
able, well-located industrial properties will continue due to the following
factors: (i) increasing consumption on a per capita basis, coupled with popula-
tion growth, (ii) business' increasing need for efficient inventory management,
(iii) growing international trade, and (iv) the growing significance of smaller
business establishments which are increasingly looking for efficient and flex-
ible work space in well located, suburban industrial parks. The Company
believes that much of the available supply of industrial property is function-
ally obsolete and is at a significant competitive disadvantage to modern, well-
designed types of facilities. Older facilities often do not have the modern
design configurations required to satisfy current truck handling and efficiency
standards of major distributors and third-party logistics companies.
Industry Consolidation
The historically fragmented industrial real estate business is being reshaped
by strong pressures toward consolidation resulting from the substantial advan-
tages enjoyed by large, integrated and well capitalized firms over local owners
and developers. These advantages include professional management, greater
access to public and private capital, economies of scale and greater opportuni-
ties to increase revenue by serving the changing needs of industrial space
users. In addition, there is an increasing trend toward securitization of real
estate holdings as institutional real estate investors shift from direct pri-
vate ownership to indirect public ownership of real estate. The Company
believes that both of these trends provide substantial opportunities for pub-
licly held real estate companies that have the managerial and financial
resources to maintain an active acquisition and development program.
Diverse Tenant Needs
Different types of industrial space users have significantly different property
and space requirements. Large national and major regional distributors gener-
ally require efficient, well-located bulk distribution properties. These prop-
erties offer the advantages of predictable incomes, less costly management
operations and additional growth opportunities through targeted marketing of
additional sites to large national companies having space requirements in mul-
tiple locations, as well as rental growth resulting from favorable supply and
demand factors. Smaller companies generally demand more flexible work space,
including light assembly facilities and flex/R&D space. While these properties
are generally more costly to manage, the Company believes that such properties
offer the prospect of higher current returns because the users of such space
are location sensitive and less inclined to move if the properties they occupy
are well located and managed. Moreover, the Company believes that continued
employment growth resulting from smaller companies will result in strong demand
in the near future for these workspace properties.
BUSINESS STRATEGIES
The Company's fundamental business objective is to maximize the total return to
its shareholders through growth in its cash available for distribution per
Common Share and in the value of its portfolio of industrial properties and its
operations. The Company believes that it is well positioned to take advantage
of the opportunities presented by today's changing industrial real estate mar-
kets through the business strategies and operations described below.
Leveraging Substantial National Market Presence
The Company believes that having a substantial presence in targeted markets
across the country will be an important factor in achieving future growth and
its targeted returns on investment. The Company's substantial market presence
in its principal markets provides significant strategic advantages. Foremost
among these advantages is that the Company is well positioned to market its
industrial space to national companies and third-party logistics companies who
have space
24
<PAGE>
requirements in multiple markets. The Company has a national tenant marketing
program that, in addition to the quality and attractive locations of the Prop-
erties, emphasizes the advantages of dealing with a single source for a
company's industrial space needs. These advantages include greater efficiency
of lease negotiations and day-to-day property management, as well as better
understanding of the tenants' current needs and prospective space requirements.
Within each local market, having a substantial inventory of properties and sig-
nificant leasing activities increases the Company's visibility to prospective
tenants and enables the Company to establish strong relationships with leasing
brokers and other local market participants. Such persons serve as sources of
information and potential tenant referrals. In addition, larger inventories
increase the Company's opportunities to relocate tenants to one or more of its
other properties as their needs change. Critical mass also permits the Company
to achieve the economies of scale necessary to support the management personnel
and infrastructure needed to build long-term tenant relationships.
Serving a Variety of Tenants By Offering a Broad Spectrum of Industrial
Property Types
The Company believes that its broad offering strategy provides complementary
benefits in meeting the Company's growth objectives. Offering a broad spectrum
of industrial property types and the Company's size enable it to provide better
service, on a more cost-efficient basis, to national customers who often need
various types of workspace properties, in addition to distribution space, for
their local operations. At the same time, offering a variety of property types
to smaller companies enables the Company to capture a larger share of the
growth in its chosen industrial property markets. The Company's strategy of
offering diverse property types also enables the Company to pursue opportuni-
ties as they arise across industry segments by responding to shifts in demand
at different stages of the economic cycle.
GROWTH STRATEGIES
The Company intends to achieve its growth objectives through a combination of
property acquisitions, development and internal growth.
Acquisitions
The Company seeks to capitalize on its competitive advantages primarily by
acquiring additional modern, high-quality properties in attractive submarkets
within the industrial markets that it currently serves.
Investment Criteria. The Company follows a disciplined, value-oriented strategy
in its property acquisitions. The Company seeks to acquire modern, cost-effi-
cient buildings located in key national and regional distribution centers. The
Company's investment considerations include (i) capitalization rates, (ii) eco-
nomic fundamentals in the market, (iii) replacement costs, (iv) rent levels and
trends, (v) construction quality and property condition, (vi) historical occu-
pancy rates, (vii) access to transportation, (viii) proximity to housing, (ix)
operating costs, (x) location in modern industrial parks and (xi) local crime
rates.
Emphasis on Market Research. The Company's property acquisitions are based on
extensive research in each targeted market regarding (i) economic and demo-
graphic trends; (ii) the supply of and demand for industrial space in targeted
sub-markets; (iii) existing and potential tenant space requirements; (iv) rent
levels and trends; and (v) the physical characteristics of buildings within the
market. The Company's research includes extensive in-market activity by Company
employees, including physical site inspections and continuing contacts with
leasing brokers and other active participants in the local markets. The Company
has compiled the results of its extensive research over the years into a pro-
prietary database, which is updated periodically, covering each market and
submarket in which it has invested or that it has targeted. The database con-
tains computerized profiles, keyed to Company-prepared aerial maps of the
Company's properties and each of the buildings deemed most competitive to the
Company's properties or attractive for acquisition. Such profiles include
information regarding the building's age, physical characteristics (including
overall dimensions, clear heights and truck court dimensions) and current
tenant and lease information.
Diversification of Industrial Property Types. To date, the majority of the
Company's properties (73.7% of the Properties based on Annualized Net Rents at
June 30, 1998) have been bulk distribution and multitenant distribution facili-
ties because of the opportunities for superior returns such properties have
provided. While the Company expects that both types of properties will continue
to be an important focus of its future acquisition program, the Company
believes that workspace properties (light assembly and flex/R&D facilities) are
also attractive in selected markets where they are in limited supply and strong
demand exists. The Company has begun to increase its acquisitions of workspace
properties, which represented approximately 26.3% of its Properties (based on
Annualized Net Rents) at June 30, 1998.
25
<PAGE>
Relationships with Institutional Real Estate Investors. Over the ten years pre-
ceding the Company's formation, Cabot Partners' operations had been focused on
serving public and private pension funds and other institutional real estate
investors in connection with investments in and management of industrial real
estate. This has provided the Company's management with an extensive knowledge
of and, the Company believes, a favorable reputation with such investors. The
Company believes that it will benefit from its relationships with these
investors through further acquisitions as they increasingly seek to securitize
their direct real estate investments.
Capital and UPREIT Structure. The Company intends to exploit its relatively
unleveraged capital structure and substantial equity base in its acquisition
and future development activities. At June 30, 1998, the Company had approxi-
mately $17.5 million of long term debt secured by real estate assets, $68 mil-
lion of long term unsecured debt outstanding under its $325 million Acquisition
Facility, approximately $5.4 million of available cash and a Debt-to-Total
Market Capitalization Ratio of 8.3%. The Company's Acquisition Facility enables
it to move quickly in completing proposed property acquisitions. The Company
believes that its ability to do so enhances its credibility with potential
property sellers. The Company's UPREIT structure, which enables it to acquire
industrial properties on a non-cash basis by exchanging Units in the Operating
Partnership for properties in a tax-deferred manner, provides an attractive
alternative to a taxable cash sale for tax paying property owners. See "--
Financial Strategies" below.
Internal Growth
The Company's primary internal growth strategy is to increase the cash flow
generated by its Properties, and from properties that it acquires in the
future, by renewing or replacing expiring leases with new leases at higher
rental rates and through rent increase provisions in its leases. In addition,
the Company intends to work actively to (i) maintain its historically high
occupancy levels by retaining existing tenants, thereby minimizing "down time"
and re-leasing costs, (ii) improve the occupancy levels of any newly acquired
properties that have lower occupancy levels than the Company typically expects
from its existing properties, (iii) capitalize on economies of scale arising
from the size of its portfolio of properties, and (iv) control costs. The Com-
pany also seeks internal growth through converting its properties to more
intensive, higher margin uses if and to the extent that suitable opportunities
to do so arise.
Development
The Company's senior management has extensive real estate development experi-
ence, including experience derived from the industrial park development activi-
ties of CC&F. The Company is engaging its existing tenants in discussions about
future space needs and believes that financially attractive build-to-suit
opportunities from its tenant base may be available over time. The Company also
believes that in select target markets there are attractive opportunities for
new development with potentially greater returns than those available from the
purchase of existing stabilized properties, and is pursuing a development pro-
gram where such opportunities exist. The Company pursues its development activ-
ities by engaging local or regional builders with whom it has established
strong relationships. As of July 31, 1998, the Company had approved 9 develop-
ment projects with total projected development costs of approximately $70 mil-
lion, of which development agreements for approximately $29 million of projects
had been entered into with builders as of that date. The projects are located
in seven of the Company's existing markets and involve construction of each of
the Company's principal property types. The Company intends to continue pur-
suing a policy of geographic and property type diversity in its development
activities and expects that its development projects will generally involve
individual project development costs ranging from $5 million to $15 million. In
the future, the Company intends to expand its in-house development staff as the
Company's development activities increase.
OPERATIONS
Real Estate Operations. The Company's property management functions with
respect to its own properties include strategic planning and decision making,
centralized leasing activities and other property management activities. The
Director of Real Estate Operations and the Company's regional asset managers,
all of whom are located in the Company's Boston headquarters, oversee property
management activities relating to the Company's properties, which include con-
trolling capital expenditures and expenses that are not reimbursable by ten-
ants, making regular property inspections, overseeing rent collections and cost
control and planning and budgeting activities. Tenant relations functions,
including monitoring of tenant compliance with their property maintenance obli-
gations and other lease provisions, had been handled by in-house personnel for
most of the properties under Cabot Partners' management located in its North-
east Region and by third-party building managers for most other properties
under its management. The Company has internalized such tenant relations func-
tions by opening local offices in Chicago, Cincinnati, Dallas, Los Angeles and
Orlando, and as a result of which approximately 75% of the Company's Properties
(based on rentable square feet) at June 30, 1998 have internalized building
management.
Leasing. The Company's leasing activities are the primary responsibility of the
Company's Director of Leasing, who reports to the Director of Real Estate Oper-
ations. The Director of Leasing leads the negotiation of most leases with major
26
<PAGE>
tenants and oversees all other leasing negotiations. Smaller tenant leasing and
marketing efforts are typically handled by the Company's regional asset manag-
ers, working with local leasing brokers and under the overall direction of the
Director of Leasing. The Company believes that centralizing its leasing activi-
ties provides greater coordination and control of its leasing strategy. The
Company seeks to maximize rental income by working actively to retain existing
tenants and by aggressively marketing space for which tenant renewals are not
obtained. The Company takes an active approach to managing its lease portfolio,
typically preparing its renewal or releasing strategy 24 months prior to sched-
uled lease expiration dates and entering into discussions with tenants well in
advance of such dates. The Company also seeks to stagger lease termination
dates so as to minimize the possibility of large blocks of space becoming
vacant at the same time.
National Marketing. The Company has a national tenant marketing program which
emphasizes the advantages of dealing with a single source supplier of indus-
trial space for industrial space needs across the country and the flexibility
in structuring lease maturities and other terms that the Company is able to
offer.
Service Orientation. The Company has continued Cabot Partners' emphasis on pro-
viding high-quality service to its tenants. Examples of such service include
promptly addressing tenant concerns, determining and regularly reassessing
tenant space requirements and engaging in cooperative cost reduction efforts
with or for the benefit of tenants. As part of its ongoing program of building
mutually beneficial long-term tenant relationships, the Company's regional
asset managers meet with tenants frequently to supplement the day-to-day activ-
ities of the Company's building managers. The Company believes that the quality
of its tenant services is evidenced by its high tenant retention rates.
Financial and Cost Controls. The Company maintains strict financial and cost
controls in administering its asset/property management operations. These
include (i) close monitoring and active collection of rents and tenant expense
reimbursements, (ii) use of competitive bidding procedures for all maintenance
and other material expenses and for capital expenditures, (iii) regular real
estate tax assessment appeals where warranted, (iv) approval of all
nonreimbursable expenses and capital expenditures by the Company's regional
managers and (v) active lease administration, including close monitoring of
tenants' compliance with their lease responsibilities. The Company also
requires extensive planning and budgeting activities for each of its properties
using a standardized, zero-basis budgeting format in an annual process that is
updated quarterly and is coordinated by the Director of Real Estate Operations.
The results of this budgeting process are then incorporated into the Company's
overall budgeting and planning process.
THIRD-PARTY INVESTMENT MANAGEMENT
The Management Company provides investment advisory and management services to
the former clients of Cabot Partners which elected not to contribute some or
all of their industrial properties to the Company. On a pro forma basis for the
six months ended June 30, 1998, the Management Company would have generated pro
forma net income of less than 2% of the Company's pro forma net income. The
Management Company does not provide services relating to any industrial real
estate acquisition or development activities that would conflict with the
Company's own acquisition and development activities. The Company believes that
its investment in the Management Company will help it achieve economies of
scale with its property management systems, increase market penetration and
provide access to further acquisition opportunities.
FINANCIAL STRATEGIES
The Company's financial strategy is to minimize its cost of capital by main-
taining adequate working capital and conservative debt levels. As of June 30,
1998, the Company's Debt-to Total Market Capitalization Ratio was 8.3%. The
Company intends to operate with a Debt-to-Total Market Capitalization Ratio
that generally will not exceed 40%, although the Company's Declaration of Trust
and By-laws do not impose any limit on the incurrence of debt.
The Company has obtained an Acquisition Facility from Morgan Guaranty Trust
Company of New York, as lead agent for a syndicate of banks, under which the
Company is permitted to borrow up to $325 million on a revolving credit basis.
As of June 30, 1998, the Company had $68 million outstanding under the Acquisi-
tion Facility. The Acquisition Facility is expected to be used primarily in
connection with the acquisition of additional properties.
The Company believes that the size and diversity of its portfolio of properties
provides it with access to the public debt and equity markets which are not
generally available to smaller, less diversified property owners. The Company
also believes that its UPREIT structure enables it to acquire industrial prop-
erties in exchange for Units in the Operating Partnership, thereby reducing its
need to incur indebtedness to support future acquisitions. Contributions of
properties to the Operating Partnership by the owners thereof in exchange for
such Units, if properly structured, permit the transferring property owner to
defer recognition, for federal income tax purposes, of gains realized on such
transactions and thereby provide attractive alternatives to a cash sale for
property owners.
27
<PAGE>
PRICE RANGE OF COMMON SHARES AND DISTRIBUTION HISTORY
The Common Shares are traded on the New York Stock Exchange (the "NYSE") under
the symbol "CTR." On August 10, 1998, the last reported sales price per Common
Share on the NYSE was $19.875. As of August 10, 1998, there were approximately
1,427 beneficial holders of the Common Shares. The following table sets forth
the high and low closing sales prices per Common Share reported on the NYSE for
the periods indicated.
<TABLE>
<CAPTION>
1998 HIGH LOW
- ---- -------- --------
<S> <C> <C>
First Quarter (from January 30).............................. $23.8125 $20.875
Second Quarter............................................... 24.25 19.9375
Third Quarter (through August 10)............................ 22.1875 17.75
</TABLE>
On April 8, 1998, the Board of Trustees of the Company declared a distribution
of $.202 per Common Share, which was paid on April 30, 1998 to shareholders of
record as of April 22, 1998. A corresponding distribution of $.202 per Unit was
concurrently declared and paid on the outstanding Units of the Operating Part-
nership. These distributions covered the period from February 4, 1998 through
March 31, 1998 and were based on the Company's current intended distribution
rate of $.325 per Unit or Common Share, as applicable, for a full quarter.
On June 11, 1998, the Board of Trustees declared a distribution of $.325 per
Common Share and per Unit, which was paid on July 30, 1998 to holders of record
as of July 10, 1998.
The Company intends to continue to make regular quarterly cash distributions to
the holders of Common Shares and Units at the current quarterly rate of $.325
per Common Share, or $1.30 per year, through at least the remainder of 1998
unless actual results of operations, economic conditions or other factors
differ materially from the assumptions used in calculating the estimate of its
cash available for distribution. Future distributions by the Company will be at
the discretion of the Board of Trustees and will depend on the actual cash
available for distribution, the Company's financial condition and capital
requirements, the annual distribution requirements under the REIT provisions of
the Code (see "Federal Income Tax Consequences--Taxation of the Company--Annual
Distribution Requirements") and such other factors as the Board of Trustees
deems relevant. See "Risk Factors--Risk of Inability to Sustain Distribution
Level" and "Possible Changes in Policies Without Shareholder Approval; No Limi-
tation on Debt."
28
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of June 30,
1998. The information set forth in the table should be read in conjunction with
the combined historical and pro forma financial statements of the Company and
notes thereto included elsewhere in this Prospectus and the discussion under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
-------------
AS OF
JUNE 30, 1998
Dollars in thousands -------------
<S> <C>
Mortgage debt $ 17,533
Unsecured debt 68,000
Limited Partners' Interest in Operating Partnership 476,722
Shareholders' equity:
Common shares, $.01 par value; 150,000,000 shares authorized;
18,586,764 shares issued and outstanding(1) 186
Additional paid-in capital 349,264
Retained Earnings 5,804
<CAPTION>
-------------
<S> <C>
Total shareholders' equity 355,254
<CAPTION>
-------------
<S> <C>
Total capitalization $917,509
<CAPTION>
=============
</TABLE>
- -------
(1) Does not include Common Shares reserved for issuance upon (i) possible
exchange of 24,928,603 Units issued and outstanding (the issuance of which
would reduce Limited Partners' Interest in the Operating Partnership), or (ii)
2,142,000 Common Shares subject to options granted pursuant to the Company's
Long Term Incentive Plan (see "Management--Long Term Incentive Plan").
29
<PAGE>
CABOT INDUSTRIAL TRUST
PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
The pro forma condensed combined statements of operations for the six months
ended June 30, 1998 and the year ended December 31, 1997 have been prepared to
reflect (i) the contribution to the Company of (A) the Existing Investors Prop-
erty Group, (B) the New Investors Property Group and (C) the Properties
acquired during the year ended December 31, 1997, (ii) the other Formation
Transactions, (iii) the Properties acquired by the Company during the six
months ended June 30, 1998, (iv) the use of a portion of the net proceeds of
the IPO and the Concurrent Placement described elsewhere herein to repay
indebtedness and (v) certain other adjustments, as if each of such contribu-
tions, transactions and adjustments had occurred on January 1, 1997.
In the opinion of management, the pro forma condensed combined financial state-
ments include all adjustments necessary to reflect the effects of the foregoing
transactions and adjustments. The pro forma statements are unaudited and are
not necessarily indicative of what the Company's financial position would have
been or the combined results of the Company's operations that would have been
obtained if the transactions and adjustments reflected therein had been consum-
mated on the dates indicated, or on any particular date in the future, nor do
they purport to represent the financial position, results of operations or
changes in cash flows of the Company as of any future date or for any future
period.
30
<PAGE>
CABOT INDUSTRIAL TRUST
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRE-
IPO
CABOT
EXISTING NEW INDUSTRIAL
CABOT INVESTORS INVESTORS OTHER TRUST
INDUSTRIAL CABOT PROPERTY PROPERTY FORMATION PRO
TRUST PARTNERS(B) GROUP(B) GROUP(A)(B) TRANSACTIONS FORMA ACQUISITIONS(K)
---------- ----------- --------- ----------- ------------ ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES
Rental $ 35,655 $ -- $3,849 $2,460 $ 23(J) $ 41,987 $5,671
Tenant
reimbursements 5,237 -- 832 216 -- 6,285 952
Other -- -- 2 2 -- 4 104
Advisory fee
income 161 2,542 -- -- (2,542)(E) 161 --
Advisory fee
income
associated with
the Existing
Investors
Property Group -- 241 -- -- (241)(D) -- --
Interest 561 -- 6 7 -- 574 --
-------- ------ ------ ------ ------- -------- ------
Total Revenues 41,614 2,783 4,689 2,685 (2,760) 49,011 6,727
-------- ------ ------ ------ ------- -------- ------
EXPENSES
Real estate
taxes 4,742 -- 823 183 -- 5,748 733
Property
operating 2,516 -- 557 213 (28)(D) 3,258 496
Advisory fees -- -- 173 91 (264)(D) -- --
General and
administrative 2,790 603 -- -- (307)(D),(E) 3,086 --
Interest 952 -- 344 -- (193)(F) 1,103 3,012 (M)
Depreciation and
amortization 8,246 853 1,040 622 (784)(G),(H),(I) 9,977 1,201
-------- ------ ------ ------ ------- -------- ------
Total Expenses 19,246 1,456 2,937 1,109 (1,576) 23,172 5,442
-------- ------ ------ ------ ------- -------- ------
Net income
before Minority
Interest 22,368 1,327 1,752 1,576 (1,184) 25,839 1,285
Minority
Interest (12,809) -- -- -- (6,190) (18,999) (736)
-------- ------ ------ ------ ------- -------- ------
Net income $ 9,559 $1,327 $1,752 $1,576 $(7,374) $ 6,840 $ 549
======== ====== ====== ====== ======= ======== ======
Net income per
common share
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Weighted average
common shares
outstanding
<CAPTION>
--------------------------
IPO CABOT
AND INDUSTRIAL
CONCURRENT TRUST
PLACEMENT PRO FORMA
-------------- -----------
<S> <C> <C>
REVENUES
Rental $ -- $ 47,658
Tenant
reimbursements -- 7,237
Other -- 108
Advisory fee
income -- 161
Advisory fee
income
associated with
the Existing
Investors
Property Group -- --
Interest -- 574
-------------- -----------
Total Revenues -- 55,738
-------------- -----------
EXPENSES
Real estate
taxes -- 6,481
Property
operating -- 3,754
Advisory fees -- --
General and
administrative 93 (L) 3,179
Interest (106)(F) 4,009
Depreciation and
amortization -- 11,178
-------------- -----------
Total Expenses (13) 28,601
-------------- -----------
Net income
before Minority
Interest 13 27,137
Minority
Interest 4,189 (15,546)
-------------- -----------
Net income $4,202 $ 11,591
============== ===========
Net income per
common share $ .62
<CAPTION>
===========
<S> <C> <C>
Weighted average
common shares
outstanding 18,586,764
===========
</TABLE>
31
<PAGE>
CABOT INDUSTRIAL TRUST
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRE-
IPO
CABOT
EXISTING NEW INDUSTRIAL
CABOT INVESTORS INVESTORS OTHER TRUST
INDUSTRIAL CABOT PROPERTY PROPERTY 1997 FORMATION PRO
TRUST PARTNERS GROUP GROUP(A) ACQUISITIONS(C) TRANSACTIONS FORMA ACQUISITIONS(K)
---------- -------- --------- --------- --------------- ------------ ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES
Rental $ -- $ -- $33,417 $28,518 $6,525 $ 1,074 (J) $69,534 $22,308
Tenant
reimbursements -- -- 6,388 2,045 970 -- 9,403 3,330
Other -- -- 611 148 -- -- 759 197
Advisory fee
income -- 6,235 -- -- -- (6,214)(E) 21 --
Advisory fee
income
associated with
the Existing
Investors
Property Group -- 2,845 -- -- -- (2,845)(D) -- --
Interest -- -- 138 103 -- -- 241 --
------ ------ ------- ------- ------ -------- ------- -------
Total Revenues -- 9,080 40,554 30,814 7,495 (7,985) 79,958 25,835
------ ------ ------- ------- ------ -------- ------- -------
EXPENSES
Real estate
taxes -- -- 5,932 2,660 1,004 -- 9,596 2,724
Property
operating -- -- 2,743 2,753 743 (112)(D) 6,127 1,743
Advisory fees -- -- 1,529 2,887 -- (4,416)(D) -- --
General and
administrative -- 7,045 -- -- -- (3,629)(D),(E) 3,416 --
Interest -- -- 2,134 -- -- (570)(F) 1,564 7,696 (M)
Depreciation and
amortization -- 977 8,953 7,268 1,370 516 (G),(H),(I) 19,084 5,530
------ ------ ------- ------- ------ -------- ------- -------
Total Expenses -- 8,022 21,291 15,568 3,117 (8,211) 39,787 17,693
------ ------ ------- ------- ------ -------- ------- -------
Net income
before minority
interest -- 1,058 19,263 15,246 4,378 226 40,171 8,142
Minority
interest -- -- -- -- -- (29,538) (29,538) (4,665)
------ ------ ------- ------- ------ -------- ------- -------
Net income $ -- $1,058 $19,263 $15,246 $4,378 $(29,312) $10,633 $ 3,477
====== ====== ======= ======= ====== ======== ======= =======
Net income per
common share
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Weighted average
common shares
outstanding
<CAPTION>
<CAPTION>
---------------------------
IPO CABOT
AND INDUSTRIAL
CONCURRENT TRUST
PLACEMENT PRO FORMA
-------------- ------------
<S> <C> <C>
REVENUES
Rental $ -- $ 91,842
Tenant
reimbursements -- 12,733
Other -- 956
Advisory fee
income -- 21
Advisory fee
income
associated with
the Existing
Investors
Property Group -- --
Interest -- 241
-------------- ------------
Total Revenues -- 105,793
-------------- ------------
EXPENSES
Real estate
taxes -- 12,320
Property
operating -- 7,870
Advisory fees -- --
General and
administrative 1,000 (L) 4,416
Interest (1,133)(F) 8,127
Depreciation and
amortization -- 24,614
-------------- ------------
Total Expenses (133) 57,347
-------------- ------------
Net income
before minority
interest 133 48,446
Minority
interest 6,450 (27,753)
-------------- ------------
Net income $6,583 $ 20,693
============== ============
Net income per
common share $ 1.11
<CAPTION>
============
<S> <C> <C>
Weighted average
common shares
outstanding 18,586,764
<CAPTION>
============
</TABLE>
32
<PAGE>
CABOT INDUSTRIAL TRUST
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
(DOLLARS IN THOUSANDS)
New Investors Property Group
(A) The New Investors Property Group is the combination of the financial infor-
mation for the following Contributing Investors whose financial statements are
included elsewhere in this Prospectus:
Orlando Central Park and 500 Memorial Drive
Knickerbocker Properties, Inc. II
Pennsylvania Public School Employes' Retirement System Industrial Prop-
erties Portfolio
Prudential Properties Group
West Coast Industrial, LLC
The 4 B's
(B) Reflects actual operations for the period from January 1, 1998 through Feb-
ruary 3, 1998.
Acquisitions during the year ended December 31, 1997
(C) To reflect the operations and the depreciation expense for the pro forma
condensed combined statement of operations for the year ended December 31,
1997: for the period from January 1, 1997 through the date of acquisition for
the following Properties acquired in 1997:
<TABLE>
<CAPTION>
------------------
ACQUIRED PROPERTY DATE ACQUIRED
----------------- ------------------
<S> <C>
South 55th Avenue, Phoenix, AZ March 27, 1997
North 47th Avenue, Phoenix, AZ March 27, 1997
South Rockefeller Avenue, Ontario, CA July 17, 1997
Huntwood Avenue, Hayward, CA September 12, 1997
Diplomat Drive, Carrollton, TX September 19, 1997
Remington Street, Bolingbrook, IL October 7, 1997
Ambassador Road, Naperville, IL October 9, 1997
Luna Road, Carrollton, TX October 17, 1997
Herrod Boulevard, South Brunswick, NJ October 22, 1997
Blue Ash, OH December 18, 1997
</TABLE>
Other Formation Transactions
(D) To eliminate advisory fee revenues of Cabot Partners and the related advi-
sory fee expense of the Existing Investors Property Group arising from Advisory
Contracts which were terminated as a part of the Formation Transactions and to
restate advisory fees paid by the New Investors Property Group to third parties
as general and administrative expenses of the Company using an estimate of the
cost to manage the real estate assets.
33
<PAGE>
CABOT INDUSTRIAL TRUST
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS--(CONTINUED)
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
(DOLLARS IN THOUSANDS)
(E) To reflect the effects of establishing the Company's investment in the Man-
agement Company by reclassifying the associated revenues, operating expenses
and amortization expense for the period from January 1, 1998 through February
3, 1998 and the year ended December 31, 1997. The pro forma operations of the
Management Company and the Company's share of the Management Company's net
income, based upon its 95% economic interest, are as follows:
<TABLE>
<CAPTION>
-------------------------
JANUARY 1,
1998
THROUGH YEAR ENDED
FEBRUARY 3, DECEMBER 31,
1998 1997
----------- ------------
<S> <C> <C>
Advisory fee revenues $432 $4,956
General and administrative expenses (343) (4,056)
Amortization expense (89) (864)
<CAPTION>
----------- ------------
<S> <C> <C>
Income before income taxes -- 36
Income tax (assumed effective tax rate of
40%) -- (14)
<CAPTION>
----------- ------------
<S> <C> <C>
Net income -- 22
<CAPTION>
----------- ------------
<S> <C> <C>
Company's share of net income $-- $ 21
<CAPTION>
=========== ============
</TABLE>
Advisory fee revenues consist of actual fees earned by Cabot Partners during
the period from January 1, 1998 through February 3, 1998 and the year ended
December 31, 1997 from the assets not owned by the Existing Investors except
that revenues related to acquisitions and dispositions are excluded because
such fees will no longer be earned by the Management Company.
General and administrative expenses consist of direct and indirect costs allo-
cated by the Company to the Management Company. Such indirect costs have been
allocated based upon the percentage of total assets expected to be managed by
the Management Company. Costs related to acquisitions have been reclassed to
general and administrative costs of the Company, since acquisition activities
will be performed by the Company.
(F) To reflect the reduction of interest expense associated with the repayment
of mortgage debt with a portion of the net proceeds of the IPO and the Concur-
rent Placement and the conversion to equity of related party indebtedness.
(G) To eliminate deferred loan cost amortization of $6 for the period from Jan-
uary 1, 1998 through February 3, 1998 and $75 for the year ended December 31,
1997 historically recognized by Existing Investors Property.
(H) To fully amortize in 1997 the unamortized intangible assets of Cabot Part-
ners ($764 in the year ended December 31, 1997); to eliminate the historical
amortization related to the Advisory Contracts which have been terminated as a
result of a sale of the underlying properties or as part of the Formation
Transactions ($9 and $113 for the period from January 1, 1998 through February
3, 1998 and the year ended December 31, 1997, respectively), and to reclassify
to the Management Company $89 and $864 for the period from January 1, 1998
through February 3, 1998 and the year ended December 31, 1997, respectively.
34
<PAGE>
CABOT INDUSTRIAL TRUST
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS--(CONTINUED)
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
(DOLLARS IN THOUSANDS)
(I) The depreciation adjustment for the period from January 1, 1998 through
February 3, 1998 and the year ended December 31, 1997, respectively, includes
the following:
<TABLE>
<CAPTION>
---------
<S> <C>
Issuance of 32,030,413 Common Shares and Units at $20.00 per
Common Share/Unit to the Contributing Investors for equity
interests in real estate assets $ 640,608
Plus: Mortgage debt assumed 18,433
Other acquisition costs and liabilities assumed 8,713
Less: Historical net book value of Properties and other
acquired assets (632,029)
<CAPTION>
---------
<S> <C>
Cost of assets acquired in excess of historical book value 35,725
Less: Portion allocated to land, estimated at 10% (3,573)
<CAPTION>
---------
<S> <C>
$ 32,152
<CAPTION>
=========
<S> <C>
Depreciation expense based on a weighted average estimated
useful life of 40 years--
For the period from January 1, 1998 through February 3, 1998 $ 75
<CAPTION>
=========
<S> <C>
For the year ended December 31, 1997 $ 804
<CAPTION>
=========
</TABLE>
(J) To reflect the adjustment for the straight-line effect of scheduled rent
increases, assuming the transactions closed on January 1, 1997.
35
<PAGE>
CABOT INDUSTRIAL TRUST
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS--(CONTINUED)
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
(DOLLARS IN THOUSANDS)
Acquisitions during the six months ended June 30, 1998
(K) To reflect the operations and the depreciation expense for the period from
January 1, 1998 through the date of acquisition and the year ended December 31,
1997 for the Properties acquired by the Company during the six months ended
June 30, 1998, as follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------
EXPECTED
NUMBER OF SQUARE ACQUISITION
PROPERTY LOCATION BUILDINGS BUILDING TYPE FEET COST
- ----------------- --------- ---------------------------------- --------- -----------
<S> <C> <C> <C> <C>
Grapevine, TX 2/1 Bulk Distribution/Workspace 1,182,361 $ 51,734
Mira Loma, CA,
Dacula, GA,
Mechanicsburg, PA 3 Bulk Distribution 916,603 34,520
Mechanicsburg, PA 2 Bulk Distribution 494,400 17,118
San Diego, CA 1 Bulk Distribution 220,000 10,898
Orlando, FL 4 Workspace 213,430 11,053
Tucker, GA 3 Workspace 134,163 5,575
Atlanta, GA 2 Workspace 128,000 5,363
Florence, KY 2 Workspace 61,555 4,054
Tempe, AZ 1 Workspace 81,817 3,319
Phoenix, AZ 1 Multitenant Distribution 144,592 4,016
Tolleson, AZ 1 Bulk Distribution 278,142 6,815
Mounds View, MN 1/3 Multitenant Distribution/Workspace 320,328 20,242
Mt. Prospect, IL 1 Workspace 57,150 4,872
Kennesaw, GA 2 Workspace 121,384 5,802
Sun Valley, CA 1 Bulk Distribution 181,670 9,770
Otay Mesa, CA 2 Workspace 123,136 7,752
Ontario, CA 2 Multitenant Distribution 161,180 6,310
Mt. Prospect, IL 1 Workspace 43,250 3,617
Cincinnati, OH 2 Bulk Distribution 403,406 12,320
Plano, TX 2 Multitenant Distribution 206,939 8,393
Huntington Beach, CA 1 Workspace 125,000 7,960
Piscataway, NJ 1 Workspace 101,553 4,081
Phoenix, AZ 1 Multitenant Distribution 89,423 6,744
Simi Valley, CA 6 Workspace 112,271 8,735
<CAPTION>
--------- --------- -----------
<S> <C> <C> <C> <C>
49 Total Acquisitions 5,901,753 $261,063
<CAPTION>
========= ========= ===========
</TABLE>
IPO
(L) To reflect additional general and administrative expenses expected to be
incurred on an annual basis, as a result of reporting as a public company, as
follows:
<TABLE>
<CAPTION>
---------
<S> <C>
Legal, audit and tax services $ 350
Printing and mailing 350
Directors and officers insurance 100
Investor relations 50
Other 150
<CAPTION>
---------
<S> <C>
Totals $ 1,000
<CAPTION>
=========
</TABLE>
(M) To recognize interest expense associated with the assumption of $12,453 of
debt and the assumed borrowings under the Acquisition Facility necessary for
the property acquisitions discussed in Note K.
36
<PAGE>
CABOT INDUSTRIAL TRUST
NOTES TO PRO FORMA CONDENSED COMBINED STATEMENTS OF OPERATIONS--(CONTINUED)
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
(DOLLARS IN THOUSANDS)
Pro Forma Condensed Combined Statement of Operations Adjustment Summary:
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30, 1998
-------------------------------------------------------------------------------------------------------------
NOTE D NOTE D NOTE E NOTE G NOTE H NOTE H NOTE I
------------ ---------------- ------------- ----------------- --------------- -------------- ------------
ELIMINATE ESTABLISH ELIMINATE FULLY AMORTIZE
RELATED RESTATE COMPANY'S HISTORICAL INTANGIBLE
ADVISORY FEE ADVISORY INVESTMENT IN ELIMINATE AMORTIZATION ASSETS OF
REVENUE FEES PAID BY THE MANAGEMENT DEFERRED LOAN OF ADVISORY CABOT PARTNERS DEPRECIATION
AND EXPENSES NEW INVESTORS COMPANY COST AMORTIZATION CONTRACTS IN 1997 ADJUSTMENT
------------ ---------------- ------------- ----------------- --------------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Advisory fee
income $ $ $(2,542) $ $ $ $
Advisory fee
income
associated with
the Existing
Investors
Property Group (241)
Operating
expenses 28
Advisory fees 173 91
General and
Administrative 40 (76) 343
Depreciation and
amortization 89 6 9 755 (75)
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997
-------------------------------------------------------------------------------------------------------------
NOTE D NOTE D NOTE E NOTE G NOTE H NOTE H NOTE I
------------ ---------------- ------------- ----------------- --------------- -------------- ------------
ELIMINATE RESTATE ESTABLISH ELIMINATE
RELATED ADVISORY COMPANY'S ELIMINATE HISTORICAL FULLY AMORTIZE
ADVISORY FEE FEES PAID INVESTMENT IN DEFERRED AMORTIZATION OF INTANGIBLE
REVENUE BY THE MANAGEMENT LOAN COST ADVISORY ASSETS OF DEPRECIATION
AND EXPENSES NEW INVESTORS COMPANY AMORTIZATION CONTRACTS CABOT PARTNERS ADJUSTMENT
------------ ---------------- ------------- ----------------- --------------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Advisory fee
income $ $ $(6,214) $ $ $ $
Advisory fee
income
associated with
the Existing
Investors
Property Group (2,845)
Operating
expenses 112
Advisory fees 1,529 2,887
General and
Administrative 484 (911) 4,056
Depreciation and
amortization 864 75 113 (764) (804)
<CAPTION>
--------
TOTAL
--------
<S> <C> <C>
Advisory fee
income $(2,542)
Advisory fee
income
associated with
the Existing
Investors
Property Group (241)
Operating
expenses 28
Advisory fees 264
General and
Administrative 307
Depreciation and
amortization 784
<CAPTION>
--------
TOTAL
--------
<S> <C> <C>
Advisory fee
income $(6,214)
Advisory fee
income
associated with
the Existing
Investors
Property Group (2,845)
Operating
expenses 112
Advisory fees 4,416
General and
Administrative 3,629
Depreciation and
amortization (516)
</TABLE>
37
<PAGE>
SELECTED FINANCIAL AND OTHER DATA
Set forth below are selected historical financial and other data for (i) the
Existing Investors Property Group, (ii) the real estate advisory business of
Cabot Partners and (iii) the Company. The selected financial data presented
below as of December 31, 1997 and 1996, and for each of the three years in the
period ended December 31, 1997 in the case of both the Existing Investors
Property Group and Cabot Partners, have been derived from Existing Investors
Property Group combined financial statements and the Cabot Partners financial
statements that have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their reports included elsewhere in this
Prospectus. This information should be read in conjunction with such financial
statements and the notes thereto included elsewhere in this Prospectus. The
selected financial data presented below as of December 31, 1995, 1994 and 1993
and for the years ended December 31, 1994 and 1993 for Cabot Partners are
derived from the Cabot Partners financial statements and as of December 31,
1995 and 1994 and for the year ended December 31, 1994 for the Existing
Investors Property Group are derived from Existing Investors Property Group
combined financial statements and the notes thereto not included in this
Prospectus which have been audited by Arthur Andersen LLP. The selected
financial data presented below as of and for the year ended December 31, 1993
with respect to the Existing Investors Property Group and as of and for the six
months ended June 30, 1998 for the Company have not been audited but, in the
opinion of management, include all adjustments (consisting only of normal
recurring accruals) necessary to present fairly such information in accordance
with GAAP applied on a consistent basis. Other Data (including Property data)
for all periods and dates presented are unaudited and are derived from the
unaudited financial and other records of Cabot Partners, the Existing Investors
Property Group and the Company.
38
<PAGE>
CABOT INDUSTRIAL TRUST
SELECTED FINANCIAL AND OTHER DATA
<TABLE>
<CAPTION>
------------------------------------------------------------------
SIX MONTHS ENDED
JUNE 30, 1998 YEARS ENDED DECEMBER 31,
---------------- ------------------------------------------------
COMPANY(1) EXISTING INVESTORS PROPERTY GROUP(2)
---------------- ------------------------------------------------
1997 1996 1995 1994 1993
In thousands -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA
Revenues $ 41,614 $ 40,554 $ 35,180 $ 28,794 $ 28,209 $ 25,252
Real estate tax expense 4,742 5,932 5,037 3,979 3,769 5,144
Property operating
expenses 2,516 4,272 4,323 3,357 3,063 3,227
General and
administrative expenses 2,790 -- -- -- -- --
Interest expense 952 2,134 1,931 2,097 2,082 2,013
Depreciation and
amortization expense 8,246 8,953 7,966 7,118 6,606 6,111
-------- -------- -------- -------- -------- --------
Operating income 22,368 19,263 15,923 12,243 12,689 8,757
Gain on sale of
properties -- -- -- -- 186 --
-------- -------- -------- -------- -------- --------
Net before Minority
Interest 22,368 19,263 15,923 12,243 12,875 8,757
Minority Interest (12,809) -- -- -- -- --
-------- -------- -------- -------- -------- --------
Net Income $ 9,559 $ 19,263 $ 15,923 $ 12,243 $ 12,875 $ 8,757
======== ======== ======== ======== ======== ========
Net income per share $ .51
========
Cash distributions paid
per Common Share $ .202
========
<CAPTION>
------------------------------------------------------------------
AS OF DECEMBER 31,
AS OF ------------------------------------------------
JUNE 30, 1998 EXISTING INVESTORS PROPERTY GROUP(2)
---------------- ------------------------------------------------
COMPANY 1997 1996 1995 1994 1993
In thousands ---------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Rental properties
(before accumulated
depreciation) $917,720 $417,138 $336,836 $301,059 $250,387 $255,050
Rental properties, net 910,787 377,613 304,308 274,629 229,451 237,101
Total assets 938,746 393,268 318,732 289,337 241,026 247,615
Unsecured borrowings 68,000 -- -- -- -- --
Mortgage debt 17,533 18,433 19,292 20,083 20,608 20,550
Limited Partners
interest in Operating
Partnership 476,722 -- -- -- -- --
Owners' equity 355,254 341,600 291,286 261,629 213,203 220,621
<CAPTION>
------------------------------------------------------------------
SIX MONTHS ENDED
JUNE 30, 1998 YEARS ENDED DECEMBER 31,
---------------- ------------------------------------------------
COMPANY(1) EXISTING INVESTORS PROPERTY GROUP(2)
---------------- ------------------------------------------------
In thousands
except number of properties 1997 1996 1995 1994 1993
and percentages -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
OTHER DATA
EBITDA(3) $ 31,566 $ 30,350 $ 25,820 $ 21,458 $ 21,377 $ 16,881
Funds From Operations(4) 30,604 28,141 23,809 19,298 19,193 14,764
Cash flows provided by
(used in):
Operating activities 37,854 28,153 25,695 19,401 17,552 17,471
Investing activities (253,940) (81,834) (39,074) (53,868) 2,037 (17,393)
Financing activities 221,471 54,000 13,204 35,680 (19,596) (278)
Total rentable square
footage of properties
at end of period 24,465 11,215 9,069 7,879 6,253 6,644
Number of properties at
end of period 171 79 67 61 53 57
Occupancy rate at end of
period 96% 97% 92% 99% 90% 90%
</TABLE>
- -------
(1) Since the Company was formed in October 1997 and did not begin operations
until February 4, 1998, the results for the six months ended June 30, 1998 rep-
resent activity for 147 days only, and no comparison of results to a prior year
six- month period is available.
(2) Represents historical combined financial and other data for the Existing
Investors Property Group for the periods indicated. See Note (1) to Combined
Financial Statements of the Existing Investors Property Group.
(3) EBITDA is computed as operating income before gain on sale of properties
plus interest expense, income taxes, depreciation and amortization. Management
believes that in addition to cash flows and net income, EBITDA is a useful
financial performance measure for assessing the operating performance of an
equity REIT because, together with net income and cash flows, EBITDA provides
investors with an additional basis to evaluate the ability of a REIT to incur
and service debt and to fund acquisitions and other capital expenditures. To
evaluate EBITDA and the trends it depicts, the components of EBITDA, such as
revenues, property operating expenses, real estate taxes and general and admin-
istrative expenses should be considered. See "Management's Discussion and Anal-
ysis of Financial Condition and Results of Operations." Excluded from EBITDA
are financing costs such as interest, as well as depreciation and amortization,
each of which
(notes continued on next page)
39
<PAGE>
<TABLE>
<CAPTION>
CABOT PARTNERS(5)
- ----------------- -----------------------------------
YEARS ENDED DECEMBER 31,
-----------------------------------
1997 1996 1995 1994 1993
In thousands ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
OPERATING DATA
Revenues $9,080 $7,908 $6,516 $4,159 $4,088
General and administrative expenses 7,045 5,888 5,069 4,267 4,074
Depreciation and amortization expense 977 419 453 474 480
Net income (loss) 1,058 1,594 1,057 (536) (428)
<CAPTION>
-----------------------------------
AS OF DECEMBER 31,
-----------------------------------
1997 1996 1995 1994 1993
In thousands ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Total assets $5,339 $6,075 $5,628 $4,300 $4,923
Total liabilities 760 485 563 292 379
Total partners' capital 4,579 5,590 5,065 4,008 4,544
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------------
YEARS ENDED DECEMBER 31,
-------------------------------------------
1997 1996 1995 1994 1993
In thousands ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
OTHER DATA
Cash flows provided by (used in):
Operating activities $ 1,062 $ 1,283 $ 1,351 $ (12) $ (173)
Investing activities (193) 113 (6) 40 25
Financing activities (2,069) (1,069) -- -- --
Assets under management(6) 861,000 979,000 778,000 515,000 472,000
</TABLE>
- -------
(notes continued from preceding page)
can significantly affect a REIT's results of operations and liquidity and
should be considered in evaluating a REIT's operating performance. Further,
EBITDA does not represent net income or cash flows from operating, financing
and investing activities as defined by GAAP and does not necessarily indicate
that cash flows will be sufficient to fund cash needs. It should not be consid-
ered as an alternative to net income as an indicator of a REIT's operating per-
formance or to cash flows as a measure of liquidity.
(4) FFO represents net income before minority interest expense and extraordi-
nary items, adjusted for depreciation on real property and amortization of
tenant improvements costs and lease commissions and gains from the sale of
properties. In addition to cash flow and net income, management and industry
analysts generally consider FFO to be an additional measure of the performance
of an equity REIT because, together with net income and cash flows, FFO pro-
vides investors with a basis to evaluate the ability of a REIT to incur and
service debt and to fund acquisitions and other capital expenditures. However,
FFO does not measure whether cash flow is sufficient to fund all of an entity's
cash needs including principal amortization, capital improvements and distribu-
tions to stockholders. FFO also does not represent cash generated from operat-
ing, investing or financing activities as determined in accordance with GAAP.
It should not be considered as an alternative to net income as an indicator of
a REIT's operating performance or to cash flows as a measure of liquidity. Fur-
ther, FFO as disclosed by other REITs may not be comparable to the Company's
calculation of FFO. The Company calculates FFO in accordance with the White
Paper.
(5) Represents the historical financial and other data of Cabot Partners for
periods prior to completion of the Formation Transactions.
(6) Based on the estimated fair market value of such assets as of the dates
indicated.
40
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Statements contained in this "Management's Discussion and Analysis of Financial
Condition and Results of Operations" which are not historical facts may be for-
ward-looking statements within the meaning of Section 27A of the Securities
Act. 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. See "Risk Factors--Risks Associated with
Reliance on Forward-Looking Statements."
GENERAL
The Company
The Company is a fully integrated, internally managed, real estate company
formed to continue and expand the national real estate business of Cabot Part-
ners. The Company is the result of combining the properties of the Contributing
Investors and the advisory business of Cabot Partners contributed in the Forma-
tion Transactions described in this Prospectus, the IPO and the Concurrent
Placement and the use of the net proceeds therefrom to fund acquisitions and to
repay indebtedness, and activity of the Company subsequent to the Formation
Transactions. At June 30, 1998 the Company owned 171 Properties, 122 of which
Properties were acquired in connection with the Formation Transactions and 21
of which Properties were acquired shortly after the IPO pursuant to contracts
entered into in contemplation of the IPO. The Company's growth will be depen-
dent upon its ability to acquire and develop additional Properties, attract low
cost debt and equity capital and to increase the occupancy and rental rates of
its properties.
Existing Investors Property Group
The Existing Investors Property Group referred to herein is not a separate
legal entity and did not conduct operations as such for any period. References
to the Existing Investors Property Group, and the combined financial statements
and related notes thereto contained in this Prospectus, are intended to
reflect, in accordance with the accounting requirements of the Commission and
GAAP, the Properties contributed by the Contributing Investors that were actu-
ally managed by Cabot Partners as of the dates indicated on a combined histor-
ical basis. The New Investors Property Group operations, as well as the opera-
tions of certain Properties acquired or to be acquired are presented separately
in the other financial statements included in this Prospectus.
The timing and amount of funds used for property acquisitions by the Existing
Investors was primarily the result of individual decisions of the Existing
Investors to commit additional capital to industrial real estate investments.
The Existing Investors Property Group financial statements and related notes
contained elsewhere in this Prospectus should be read in conjunction with the
other historical financial statements relating to Cabot Partners, the other
Properties that were contributed to the Company in the Formation Transactions
and the 21 Properties purchased by the Company shortly after the IPO and cer-
tain Properties acquired or to be acquired, as well as the historical and pro
forma financial statements and related notes, for more complete information
concerning the combined operations, assets and liabilities of the Company.
Cabot Partners
Cabot Partners was the real estate advisory and management entity that was the
sponsor and organizer of the Company. Its revenues primarily consisted of asset
management and acquisition fees earned under Advisory Contracts with large
institutional investors. Cabot Partners' property acquisitions on the behalf of
its clients for the years ended 1995, 1996 and 1997 were approximately $251
million, $191 million and $275 million, respectively.
RESULTS OF OPERATIONS
The Company
Since the Company was formed in October 1997 and did not begin operations until
February 4, 1998, the results for the six months ended June 30, 1998 represent
activity for 147 days only, and no comparison of results to a prior periods are
available.
Six Months Ended June 30, 1998
Net income attributable to common shareholders for the six months ended June
30, 1998 totaled $9.6 million, or $.51 per share.
41
<PAGE>
Total revenues for the six months ended June 30, 1998 were $41.6 million.
Rental revenues for the six months ended June 30, 1998 were $40.9 million,
including tenant reimbursements of $5.2 million. Total rental revenue of $33.3
million was generated by the 122 properties owned as of February 4, 1998 as a
result of the Formation Transactions and $7.6 million was generated by the 49
properties acquired subsequent to February 4, 1998. The ratio of tenant reim-
bursements to operating and real estate tax expenses was approximately 72%.
Depreciation and amortization related to real estate investments totaled $8.2
million for the six months ended June 30, 1998.
Interest and other income included $561,000 of interest income, consisting of
interest earned on the Company's invested cash balances. Interest expense rep-
resents $450,000 of interest incurred on $17.5 million of mortgage indebtedness
outstanding and also includes interest expense of $502,000 related to
borrowings under the Acquisition Facility, net of amounts capitalized to devel-
opment projects.
Minority interest expense represents net income allocable to holders of Oper-
ating Partnership Units. At June 30, 1998, the Company owned 42.7% of the Oper-
ating Partnership and, therefore, minority interest ownership was 57.3%.
Existing Investors Property Group
The historical financial data presented herein show increases in revenues and
expenses attributable to property acquisitions and increases in occupancy and
rental rates. Therefore, the analysis below describes (i) changes resulting
from properties that were held during the entire period for both periods being
compared (the "Base Line Properties") and (ii) changes attributable to acquisi-
tion activity. Base Line Properties consisted of 61 properties for the compar-
ison between the years ended December 31, 1997 and 1996, and 53 properties for
the comparison between the years ended December 31, 1996 and 1995.
Years Ended December 31, 1997 and 1996
Revenues. Revenues include rental revenues, tenant reimbursements, interest and
other rental revenues. Revenues increased by $5.4 million for the year ended
December 31, 1997, or 15.3%, to $40.6 million as compared to $35.2 million for
the year ended December 31, 1996. Approximately $2.4 million, or 45.2%, of the
increase was attributable to twelve properties acquired during the year ended
December 31, 1997 which had partial operations in 1997. Approximately $1.9 mil-
lion, or 35.3%, of the increase was attributable to six properties acquired
during the year ended December 31, 1996 which had a full year of operations in
1997. The remaining $1.1 million was attributable to growth in rental revenue
in the Base Line Properties primarily from leasing vacant space and tenant
expansions.
Real estate tax expense. Real estate tax expense increased by $895,000 for the
year ended December 31, 1997, or 17.8%, to $5.9 million as compared to $5.0
million for the year ended December 31, 1996. Substantially all of this
increase was attributable to twelve properties acquired during the year ended
December 31, 1997 and six properties acquired during the year ended December
31, 1996.
Property operating expenses. Property operating expenses (excluding real estate
tax expense) decreased by $51,000 for the year ended December 31, 1997, or
1.2%, as compared to the year ended December 31, 1996. The decrease was pri-
marily the result of a decrease in the provision for doubtful tenant accounts
receivable and recovery of previously reserved tenant accounts receivable in
1997, offset in part by increases in other operating expenses, primarily
attributable to twelve properties acquired during the year ended December 31,
1997 and six properties acquired during the year ended December 31, 1996.
Depreciation and amortization expense. Depreciation and amortization expense
increased by $987,000 for the year ended December 31, 1997, or 12.4%, to $9.0
million as compared to $8.0 million for the year ended December 31, 1996.
Approximately $838,000, or 84.9%, of this increase was attributable to twelve
properties acquired during the year ended December 31, 1997 and six properties
acquired during the year ended December 31, 1996. The remaining $149,000 of
this increase was attributable to depreciation and amortization of capital and
tenant improvements and leasing commissions made at the Base Line Properties in
1997 and 1996.
Years Ended December 31, 1996 and 1995
Revenues. Revenues increased by $6.4 million for the year ended December 31,
1996, or 22.2%, to $35.2 million as compared to $28.8 million for the year
ended 1995. Approximately $2.7 million, or 42.1%, of the increase was attribut-
able to eight properties acquired in 1995 which had a full year of operations
in 1996 and approximately $1.4 million, or 21.7%, of the increase was attribut-
able to a partial year of ownership of six properties acquired in 1996. The
remaining $2.3 million was attributable to growth in rental revenue in the Base
Line Properties primarily from leasing vacant space.
42
<PAGE>
Real estate tax expense. Real estate tax expense increased by $1.1 million for
the year ended December 31, 1996, or 26.6%, to $5.0 million as compared to $4.0
million for the year ended December 31, 1995. Approximately $530,000, or 50.1%,
of the increase was attributable to eight properties acquired in 1995 which had
a full year of operations in 1996 and approximately $84,000, or 7.9%, of the
increase was attributable to six properties acquired in 1996 which had partial
operations during the year. The Base Line Properties increase of approximately
$443,000 was primarily attributable to lower real estate tax expense due to tax
abatements received in 1995 that related to 1995 and prior years.
Property operating expenses. Property operating expenses (excluding real estate
tax expense) increased by $966,000 for the year ended December 31, 1996, or
28.8%, to $4.3 million as compared to $3.4 million for the year ended December
31, 1995. Approximately $512,000, or 53.0%, of this increase was attributable
to Base Line Properties. The increase in property operating expenses for Base
Line Properties was due primarily to additional provisions for doubtful tenant
accounts receivable associated with two tenants totaling approximately $226,000
and unusually high snow removal costs. The remainder of the increase was
attributable to eight properties acquired in 1995, and six properties acquired
in 1996.
Depreciation and amortization expense. Depreciation and amortization expense
increased by $848,000 for the year ended December 31, 1996, or 11.9%, to $8.0
million as compared to $7.1 million for the year ended December 31, 1995.
Approximately $444,000, or 52.4%, of the increase was attributable to eight
properties acquired in 1995 which had a full year of operations in 1996 and
approximately $236,000, or 27.8%, of the increase was attributable to six prop-
erties acquired in 1996 which had partial operations during the year. The
increase in the Base Line Properties was related to depreciation and amortiza-
tion of capital and tenant improvements and leasing commissions incurred at the
Base Line Properties in 1996 and 1995.
Cabot Partners
Years Ended December 31, 1997 and 1996
Revenues. Revenues, primarily consisting of asset management fees and acquisi-
tion fees, increased by $1.2 million for the year ended December 31, 1997, or
14.8%, to $9.1 million as compared to $7.9 million for the year ended December
31, 1996. The increase was due to a $191 million increase in average assets
under management for the year ended December 31, 1997 as compared to the year
ended December 31, 1996, which resulted in an $850,000 increase in asset man-
agement fees. In addition, acquisition fees increased by $262,000 in 1997 as
compared to 1996 due to an increase in fee earning acquisitions of $37 million.
General and administrative expenses. General and administrative expenses
increased by $1.2 million for the year ended December 31, 1997, or 19.7%, to
$7.0 million as compared to $5.9 million for the year ended December 31, 1996.
Compensation expense increases accounted for $798,000, or 69.0%, of the
increase. The remainder of the increase was primarily due to higher profes-
sional services fees. General and administrative expenses as a percent of reve-
nues for 1997 and 1996 was 77.6% and 74.5%, respectively.
Depreciation and amortization expenses. Depreciation and amortization expense
increased by $558,000 for the year ended December 31, 1997 to $977,000 due to
increased amortization of two advisory contracts terminated during 1997.
Years Ended December 31, 1996 and 1995
Revenues. Revenues, primarily consisting of asset management fees and acquisi-
tion fees, increased by $1.4 million for the year ended December 31, 1996, or
21.4%, to $7.9 million as compared to $6.5 million for the year ended December
31, 1995 due to a $201 million, or 25.8%, increase in assets under management.
General and administrative expense. General and administrative expenses for the
year ended December 31, 1996 increased by approximately 16.2% over the prior
year due primarily to compensation expense increases. General and administra-
tive expense as a percent of revenues for 1996 and 1995 was 74.5% and 77.8%,
respectively.
CAPITAL RESOURCES AND LIQUIDITY
The principal sources of funding for acquisitions, expansions and renovation of
the Existing Investors Property Group historically had been capital contribu-
tions from its investors and cash flow provided by operations. The Company
intends to rely on cash provided by operations, unsecured and secured
borrowings from institutional sources, and public debt as its primary sources
of funding for acquisition, development, expansion or renovation of properties.
The Company may also consider equity financing when such financing is available
on attractive terms. In March 1998 the Company
43
<PAGE>
obtained its Acquisition Facility, which is a $325 million unsecured revolving
line of credit, from Morgan Guaranty Trust Company of New York as lead agent
for a syndicate of banks. The Acquisition Facility will be used to fund prop-
erty acquisitions, development activities, building expansions, tenant leasing
costs and for other general corporate purposes. The Acquisition Facility con-
tains certain restrictions and requirements, such as required ratios of total
debt-to-assets, debt service coverage, minimum unencumbered assets to unsecured
debt and other limitations. The Company believes cash flow from operations not
distributed to shareholders will be sufficient to cover tenant allowances and
costs associated with renewal or replacement of current tenants as their leases
expire and recurring non-incremental revenue generating capital expenditures.
The Company
In February 1998, the Company issued 8,625,000 Common Shares to the public in
the IPO and 1,000,000 additional Common Shares to a group of investors in a
concurrent private placement of shares. All of the Common Shares were sold at a
price of $20.00 per share. The proceeds from these offerings, net of offering
costs, were $176.7 million.
In the normal course of operations, the Company has purchased approximately $37
million of real estate assets subsequent to June 30, 1998. The real estate
assets acquired were primarily funded through Acquisition Facility borrowings.
At August 14, 1998, the Company also has contracts to purchase approximately
$65 million of additional real estate assets. These contracts are subject to a
number of conditions and it is, therefore, not certain whether all of these
assets will actually be purchased.
As of June 30, 1998, the Operating Partnership had $17.5 million of fixed rate
debt secured by properties, approximately $68 million of unsecured borrowings
under its Acquisition Facility and an 8.3% Debt-To-Total Market Capitalization
Ratio. The Debt-To-Total Market Capitalization Ratio is calculated based on the
Company's total consolidated debt as a percentage of the market value of out-
standing Common Shares and Units plus total debt. The Company has entered into
an interest rate collar arrangement relating to its LIBOR-based Acquisition
Facility for a notional amount of $65 million for the period August 1, 1998
through December 31, 1998. The arrangement is intended to result in limiting
the LIBOR component of the Company's interest rate on an equivalent amount of
borrowings to the range of 5.64% to 5.9% per annum. The Company has also
entered into an interest rate hedge transaction involving the notional future
sale of $100 million of Treasury Securities based on the current rate for such
securities in anticipation of a future debt issuance.
The Company is in the process of assessing its Year 2000 readiness, determining
the extent of Year 2000 issues, and developing a Year 2000 remedial plan to
address identified issues. The Company expects such plan to be developed by the
end of 1998, and is currently not aware of any significant Year 2000 issues.
Cash and cash equivalents totaled $5.4 million at June 30, 1998. Cash provided
by operating activities for the six months ended June 30, 1998 was $37.9 mil-
lion.
Existing Investors Property Group
Year Ended December 31, 1997 and 1996
Cash and cash equivalents increased by approximately $319,000, to approximately
$2.7 million, at December 31, 1997 compared to $2.4 million at December 31,
1996. This was the result of $28.2 million of cash generated from operations,
reduced by $81.8 million of cash used for investing activities and increased by
$54.0 million from financing activities. Cash flow generated by operations
increased by $2.5 million, from $25.7 million to $28.2 million, primarily due
to additional cash flow generated by an increase in the number of properties
owned. Net cash used for investing activities increased by $42.8 million, from
$39.1 million to $81.8 million, due to a $43.8 million increase in property
acquisitions, net of decreased capital expenditures and lease acquisition
costs. Net cash provided by financing activities was $54.0 million compared to
net cash provided by financing activities of $13.2, primarily due to a $20.7
million increase in capital contributions, and a $23.5 million increase in
advances from related parties.
Years ended December 31, 1996 and 1995
Cash and cash equivalents decreased by $175,000, to $2.4 million at December
31, 1996 compared to $2.6 million at December 31, 1995. This was the result of
$25.7 million generated from operations and $13.2 million provided by financing
activities, reduced by $39.1 million of net cash used for investing activities.
Cash generated by operations increased by $6.3 million, from $19.4 million to
$25.7 million, primarily due to additional cash flow generated by an increase
in the number of properties owned. Net cash used for investing activities
decreased by $14.8 million, from $53.9 million to $39.1 million, primarily due
to a decrease in the number of properties purchased during 1996 as compared to
44
<PAGE>
1995. Net cash provided by financing activities decreased by $22.5 million,
from $35.7 million to $13.2 million due to a $15.1 million decrease in capital
contributions and a $7.4 million increase in distributions.
Cabot Partners
Cabot Partners relied primarily on cash payments of asset management fees and
acquisition fees from its advisory clients to fund its operating expenses and
distributions to its partners. The receivables related to these fees had
increased significantly over the last three years due to the increase in acqui-
sition activity and assets under management discussed above. In addition, sev-
eral Advisory Contracts provided for quarterly, rather than monthly, fee pay-
ments in arrears, further increasing amounts receivable. Finally, approximately
$1.2 million of the increase results from amounts due from the Company as reim-
bursement of costs incurred in connection with the Formation Transaction, the
IPO and the Concurrent Placement. The increase in accounts receivable is not an
indication of a collectibility problem.
INFLATION
Substantially all of the leases of the Properties require the tenant to pay, as
additional rent, either all real estate taxes and operating expenses or all
increases in real estate taxes and operating expenses over a base amount. In
addition, many of such leases provide for fixed increases in base rent or
indexed escalations (based on the consumer price index or other measures). Man-
agement believes that inflationary increases in operating expenses will be off-
set, in part, by the expense reimbursements and contractual rent increases
described above.
FUNDS FROM OPERATIONS
Management believes that "FFO" as defined by NAREIT is an appropriate measure
of performance for an equity REIT. The following table reflects the calculation
of the Existing Investors Property Group's FFO on a historical combined basis
for the years ended December 31, 1997, 1996 and 1995.
<TABLE>
<CAPTION>
-----------------------
FOR THE YEARS ENDED
DECEMBER 31,
-----------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Income before gain on sale of properties $19,263 $15,923 $12,243
Real estate depreciation and amortization 8,878 7,886 7,055
<CAPTION>
------- ------- -------
<S> <C> <C> <C>
FFO(1) $28,141 $23,809 $19,298
<CAPTION>
======= ======= =======
</TABLE>
- -------
(1) The White Paper defines FFO 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 to be 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 activi-
ties (determined in accordance with GAAP) as a measure of the Company's liquid-
ity, nor is it indicative of funds available to fund the Company's cash needs,
including its ability to make distributions.
45
<PAGE>
PROPERTIES
GENERAL
At June 30, 1998, the Company owned a geographically diversified portfolio of
171 Properties located in major industrial markets and having an aggregate of
approximately 24.5 million rentable square feet, approximately 96% of which
space was leased to 315 tenants. The Properties are located in 22 states and in
each of the five principal regions of the United States.
Since June 30, 1998, the Company has acquired 9 Properties located in Maryland,
Florida and Illinois for an aggregate purchased price of approximately $37 mil-
lion. These Properties have an aggregate of approximately 650,000 rentable
square feet, of which 32% is multitenant distribution and 68% is workspace
property, and are currently 98.5% leased to 44 tenants. In addition, the Com-
pany has entered into agreements to acquire 12 additional properties, com-
prising approximately 1.7 million square feet, for an aggregate purchase price
of approximately $65 million. Such agreements are subject to various contingen-
cies and there is no assurance that any or all of such pending acquisitions
will be completed. Unless otherwise indicated, none of the Properties acquired
or proposed to be acquired by the Company after June 30, 1998 are included in
the statistical or other information set forth in this Prospectus.
The Company categorizes its properties into three types: bulk distribution
properties, multitenant distribution properties, and workspace properties. Bulk
distribution properties are oriented primarily to large national and regional
distribution tenants. These properties generally have at least 100,000 square
feet of rentable space, building depths of at least 240 feet, clear heights of
24 feet or more, truck courts in excess of 100 feet in depth to accommodate
larger modern trucks, a ratio of loading docks to rentable space of one or more
per 10,000 square feet, and a location with good access to interstate highways.
Multitenant distribution properties are oriented primarily to smaller regional
and local distribution tenants, and are generally designed to be subdivided to
suit tenants whose space requirements generally range from 10,000 square feet
to 100,000 square feet. These properties generally have clear heights of 20
feet or more, building depths of less than 240 feet (unless configured with
loading docks on two sides), and a location with good access to regional and
interstate highways. Both types of distribution property are used predominately
for the storage and distribution of goods. Workspace properties (also known as
flex/R&D) are designed to serve a variety of industrial tenants with workspace
related requirements, including light manufacturing and assembly, research,
testing, re-packaging and sorting, back office and sales office functions.
Workspace tenants include smaller companies whose space requirements generally
range from 3,000 square feet to 70,000 square feet. Workspace properties gener-
ally have clear heights of 14 to 24 feet, attractive building exteriors, office
finish of up to 30% or more, parking ratios of one to four spaces per 1,000
rentable square feet, and locations with good access to executive residential
areas and local highways, labor supply, and dining and shopping amenities.
The Properties typically are leased on a triple net basis, with tenants paying
their proportionate share of real estate taxes, operating costs and utilities
costs. However, some of the Properties are leased at higher gross rents with
the Company being responsible for paying a stated amount of real estate taxes,
operating costs and utilities costs and tenants being responsible for any and
all increases in such taxes and costs above that stated amount. Excluding lease
renewal options, lease terms typically range from three to five years or, for
leases that are renewed, a shorter period of generally two to three years.
46
<PAGE>
PROPERTY OVERVIEW
Information regarding the Properties by region as of June 30, 1998 is set forth
below.
PROPERTIES BY REGION
<TABLE>
<CAPTION>
---------------------------------------------------------------------------
RENTABLE SQUARE FEET ANNUALIZED NET RENT(1)
--------------------------------- --------------------------------
PER
NUMBER LEASED
OF SQUARE PERCENT
PROPERTY TYPE BY REGION PROPERTIES NUMBER % OF TOTAL AMOUNT % OF TOTAL FOOT LEASED
- ----------------------- ---------- ---------- ---------- ----------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BULK DISTRIBUTION PROP-
ERTIES:
West 15 3,200,962 13.1% $10,768,889 11.9% $3.36 100.0%
Southwest 4 1,326,200 5.4 3,591,795 4.0 3.08 87.9
Midwest 18 4,275,492 17.4 11,891,441 13.1 3.03 91.8
Southeast 5 1,355,266 5.6 4,351,626 4.8 3.21 100.0
Northeast 10 2,496,262 10.2 9,392,046 10.4 3.76 100.0
<CAPTION>
---------- ---------- ---------- ----------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Subtotal/weighted
average 52 12,654,182 51.7% $39,995,797 44.2% $3.29 96.0%
<CAPTION>
---------- ---------- ---------- ----------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
MULTITENANT DISTRIBUTION
PROPERTIES:
West 8 1,226,821 5.0% $ 4,185,118 4.6% $3.87 88.2%
Southwest 5 592,074 2.4 1,907,025 2.1 3.36 95.8
Midwest 14 2,237,576 9.2 8,433,875 9.3 3.91 96.5
Southeast 7 1,274,745 5.2 4,237,959 4.7 3.53 94.2
Northeast 11 2,065,503 8.5 8,008,466 8.8 3.88 100.0
<CAPTION>
---------- ---------- ---------- ----------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Subtotal/weighted
average 45 7,396,719 30.3% $26,772,443 29.5% $3.78 95.7%
<CAPTION>
---------- ---------- ---------- ----------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
WORKSPACE PROPERTIES:
West 36 1,692,310 6.9% $ 9,107,151 10.1% $5.51 97.6%
Southwest 2 255,736 1.1 2,048,714 2.2 8.01 100.0
Midwest 10 687,772 2.8 3,978,116 4.4 6.32 91.4
Southeast 14 1,010,907 4.1 4,342,552 4.8 4.38 98.1
Northeast 12 767,445 3.1 4,347,400 4.8 5.73 98.9
<CAPTION>
---------- ---------- ---------- ----------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Subtotal/weighted
average 74 4,414,170 18.0% $23,823,933 26.3% $5.56 97.1%
<CAPTION>
---------- ---------- ---------- ----------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Total/weighted average 171 24,465,071 100.0% $90,592,173 100.0% $3.85 96.1%
<CAPTION>
========== ========== ========== =========== ========== ======== ========
</TABLE>
- -------
(1) "Annualized Net Rent" means annualized monthly Net Rent from leases in
effect as of June 30, 1998. "Net Rent" means contractual rent, excluding any
reimbursements for real estate taxes or operating expenses.
47
<PAGE>
PROPERTIES BY REGION AND MARKET
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------
RENTABLE SQUARE FEET ANNUALIZED NET RENT(1)
----------------------- -----------------------------------
YEAR BUILT/ NUMBER OF PER LEASED
PROPERTY TYPE AND LOCATION RENOVATED PROPERTIES NUMBER % LEASED AMOUNT % OF TOTAL SQUARE FOOT
- -------------------------- ----------- ---------- ----------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BULK DISTRIBUTION
PROPERTIES:
WEST REGION
Los Angeles Market
DeForest Circle, Mira
Loma, CA............... 1992 1 250,584 100% $ 857,943 0.9% $ 3.42
South Vintage Avenue,
Building 1, Ontario,
CA..................... 1986 1 272,448 100 723,389 0.8 2.66
South Vintage Avenue,
Building 2, Ontario,
CA..................... 1986 1 248,064 100 788,844 0.9 3.18
South Rockefeller
Avenue, Ontario, CA.... 1986 1 164,140 100 551,510 0.6 3.36
East Jurupa Street,
Ontario, CA............ 1986 1 142,404 100 461,388 0.5 3.24
Vintage Avenue, Ontario,
CA..................... 1988 1 284,559 100 973,200 1.1 3.42
Santa Anita Avenue,
Rancho Cucamonga, CA... 1988 1 212,300 100 764,280 0.8 3.60
San Fernando Road, Sun
Valley, CA............. 1980 1 181,670 100 925,792 1.1 5.10
--- ----------- -------- ----------- ------ -------
Market Subtotal........ 8 1,756,169 100% $ 6,046,346 6.7% $ 3.44
San Diego Market
Dornoch Court, San
Diego, CA.............. 1988 1 220,000 100% $ 996,017 1.1% $ 4.53
--- ----------- -------- ----------- ------ -------
Phoenix Market
North 47th Avenue,
Phoenix, AZ............ 1986 1 163,200 100% $ 434,283 0.5% $ 2.66
South 63rd Avenue,
Phoenix, AZ............ 1990 1 168,165 100 450,494 0.5 2.68
South 55th Avenue,
Phoenix, AZ............ 1986 1 100,000 100 300,000 0.3 3.00
North 104th Avenue,
Tolleson, AZ........... 1995 1 279,279 100 807,591 0.9 2.89
South 84th Avenue,
Tolleson, AZ........... 1989 1 236,007 100 802,488 0.9 3.40
West Van Buren,
Tolleson, AZ........... 1997 1 278,142 100 931,670 1.0 3.35
--- ----------- -------- ----------- ------ -------
Market Subtotal........ 6 1,224,793 100% $ 3,726,526 4.1% $ 3.04
--- ----------- -------- ----------- ------ -------
WEST REGION SUBTOTAL... 15 3,200,962 100% $10,768,889 11.9% $ 3.36
SOUTHWEST REGION
Dallas Market
Luna Road, Carrollton,
TX..................... 1997 1 205,400 100% $ 679,992 0.8% $ 3.31
Airline Drive, Building
2, Coppell, TX......... 1990 1 140,800 100 492,804 0.5 3.50
DFW Trade Center,
Building 1, Grapevine,
TX..................... 1996 1 540,000 85 1,368,999 1.5 2.98
DFW Trade Center,
Building 2, Grapevine,
TX..................... 1997 1 440,000 82 1,050,000 1.2 2.92
--- ----------- -------- ----------- ------ -------
SOUTHWEST REGION/MARKET
SUBTOTAL.............. 4 1,326,200 88% $ 3,591,795 4.0% $ 3.08
MIDWEST REGION
Chicago Market
West 73rd Street,
Building 1, Bedford
Park, IL............... 1982 1 233,282 66% $ 466,871 0.5% $ 3.05
West 73rd Street,
Building 2, Bedford
Park, IL............... 1986 1 380,269 100 1,034,331 1.1 2.72
West 73rd Street,
Building 3, Bedford
Park, IL............... 1979 1 232,000 100 727,667 0.8 3.14
Remington Street,
Bolingbrook, IL........ 1996 1 212,333 100 796,925 0.9 3.75
Harvester Drive,
Chicago, IL............ 1974 1 212,922 100 798,458 0.9 3.75
Arthur Avenue, Elk
Grove, IL.............. 1978 1 230,768 100 653,076 0.7 2.83
Ambassador Road,
Naperville, IL......... 1996 1 203,500 65 503,366 0.6 3.80
Mark Street, Wood Dale,
IL..................... 1985 1 234,000 100 833,392 0.9 3.56
--- ----------- -------- ----------- ------ -------
Market Subtotal........ 8 1,939,074 92% $ 5,814,086 6.4% $ 3.25
Cincinnati/Northern
Kentucky Market
International Way,
Hebron, KY............. 1990 1 192,000 100% $ 556,800 0.6% $ 2.90
Holton Drive,
Independence, KY....... 1996 1 352,000 100 991,951 1.1 2.82
International Road,
Building 1, Cincinnati,
OH..................... 1990 1 192,000 100 528,000 0.6 2.75
International Road,
Building 2, Cincinnati,
OH..................... 1990 1 204,800 100 721,520 0.8 3.52
Kingsley Drive, Building
1, Cincinnati, OH...... 1981 1 154,004 100 429,999 0.5 2.79
Kingsley Drive, Building
2, Cincinnati, OH...... 1981 1 249,402 100 710,000 0.8 2.85
--- ----------- -------- ----------- ------ -------
Market Subtotal........ 6 1,344,206 100% $ 3,938,270 4.4% $ 2.93
Columbus Market
Equity Drive, Building
1, Columbus, OH........ 1980 1 227,480 13% $ 79,800 0.1% $ 2.66
Westbelt Drive, Building
2, Columbus, OH........ 1980 1 229,200 100 640,552 0.7 2.79
--- ----------- -------- ----------- ------ -------
Market Subtotal........ 2 456,680 57% $ 720,352 0.8% $ 2.78
</TABLE>
48
<PAGE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------
RENTABLE SQUARE FEET ANNUALIZED NET RENT(1)
------------------------ -----------------------------------
YEAR BUILT/ NUMBER OF PER LEASED
PROPERTY TYPE AND LOCATION RENOVATED PROPERTIES NUMBER % LEASED AMOUNT % OF TOTAL SQUARE FOOT
- -------------------------- ----------- ---------- ------------ ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Other Market
North State Rd. #9,
Howe, IN................ 1988 1 346,515 100% $ 762,333 0.8% $ 2.20
Lakefront Drive, Earth
City, MO................ 1995 1 189,017 100 656,400 0.7 3.47
--- ------------ -------- ----------- ------ -------
Market Subtotal......... 2 535,532 100% $ 1,418,733 1.5% $ 2.65
--- ------------ -------- ----------- ------ -------
MIDWEST REGION
SUBTOTAL............... 18 4,275,492 92% $11,891,441 13.1% $ 3.03
SOUTHEAST REGION
Memphis Market
Pilot Drive, Memphis,
TN...................... 1987 1 336,080 100% $ 795,326 0.9% $ 2.37
--- ------------ -------- ----------- ------ -------
Orlando Market
Landstreet Road,
Building 1, Orlando,
FL...................... 1997 1 355,732 100% $ 1,639,782 1.8% $ 4.61
--- ------------ -------- ----------- ------ -------
Charlotte Market
Reames Road, Charlotte,
NC...................... 1994 1 105,600 100% $ 318,226 0.3% $ 3.01
--- ------------ -------- ----------- ------ -------
Atlanta Market
Westgate Parkway,
Atlanta, GA............. 1988 1 231,835 100% $ 556,404 0.6% $ 2.40
Highway 316, Dacula,
GA...................... 1989 1 326,019 100 1,041,888 1.2 3.20
--- ------------ -------- ----------- ------ -------
Market Subtotal......... 2 557,854 100% $ 1,598,292 1.8% $ 2.87
--- ------------ -------- ----------- ------ -------
SOUTHEAST REGION
SUBTOTAL............... 5 1,355,266 100% $ 4,351,626 4.8% $ 3.21
NORTHEAST REGION
Baltimore/Washington
Market
Tar Bay Drive, Jessup,
MD...................... 1990 1 210,000 100% $ 800,527 0.9% $ 3.81
Oceano Avenue, Jessup,
MD...................... 1987 1 243,500 100 998,349 1.1 4.10
--- ------------ -------- ----------- ------ -------
Market Subtotal 2 453,500 100% $ 1,798,876 2.0% $ 3.97
New York/New Jersey
Market
Pepes Farm Road,
Milford, CT............. 1980 1 200,000 100% $ 829,998 0.9% $ 4.15
Birch Creek Road,
Bridgeport, NJ.......... 1991/1997 1 203,229 100 792,463 0.9 3.90
South Middlesex Avenue,
Building 1,
Cranbury, NJ............ 1989 1 204,369 100 735,728 0.8 3.60
Pierce Street, Franklin
Township, NJ............ 1984 1 182,764 100 776,748 0.9 4.25
Herrod Boulevard, South
Brunswick, NJ........... 1989 1 418,000 100 1,719,547 1.9 4.11
--- ------------ -------- ----------- ------ -------
Market Subtotal......... 5 1,208,362 100% $ 4,854,484 5.4% $ 4.02
Harrisburg Market
Brackbill Boulevard,
Building 1,
Mechanicsburg, PA....... 1984 1 259,200 100% $ 835,587 0.9% $ 3.22
Brackbill Boulevard,
Building 2,
Mechanicsburg, PA....... 1985 1 235,200 100 758,132 0.8 3.22
Cumberland Parkway,
Mechanicsburg, PA....... 1992 1 340,000 100 1,144,967 1.3 3.37
--- ------------ -------- ----------- ------ -------
Market Subtotal......... 3 834,400 100% $ 2,738,686 3.0% $ 3.28
--- ------------ -------- ----------- ------ -------
NORTHEAST REGION
SUBTOTAL............... 10 2,496,262 100% $ 9,392,046 10.4% $ 3.76
--- ------------ -------- ----------- ------ -------
BULK DISTRIBUTION
PROPERTIES TOTAL...... 52 12,654,182 96% $39,995,797 44.2% $ 3.29
MULTITENANT DISTRIBUTION
PROPERTIES:
WEST REGION
Los Angeles Market
East Santa Ana Street,
Building 1, Ontario,
CA...................... 1990 1 98,782 100% $ 355,615 0.4% $ 3.60
East Santa Ana Street,
Building 2, Ontario,
CA...................... 1990 1 62,398 100 224,632 0.2 3.60
East Dyer Road, Santa
Ana, CA................. 1954/1965 1 372,096 100 1,319,594 1.4 3.55
--- ------------ -------- ----------- ------ -------
Market Subtotal......... 3 533,276 100% $ 1,899,841 2.0% $ 3.56
San Francisco Market
Reed Avenue, Building 1,
West Sacramento, CA..... 1988 1 103,110 100% $ 459,237 0.5% $ 4.45
Reed Avenue, Building 2,
West Sacramento, CA..... 1988 1 105,600 100 423,336 0.5 4.01
--- ------------ -------- ----------- ------ -------
Market Subtotal......... 2 208,710 100% $ 882,573 1.0% $ 4.23
Seattle Market
Kent West Corporate
Park, II, Kent, WA...... 1989 1 250,820 100% $ 966,492 1.1% $ 3.85
--- ------------ -------- ----------- ------ -------
Phoenix Market
South 9th Street,
Phoenix, AZ............. 1983 1 89,423 100% 436,212 0.5% $ 4.88
44th Avenue, Phoenix,
AZ...................... 1997 1 144,592 0 0 0.0 0.00
--- ------------ -------- ----------- ------ -------
Market Subtotal......... 2 234,015 38% 436,212 0.5% $ 4.88
--- ------------ -------- ----------- ------ -------
WEST REGION SUBTOTAL.... 8 1,226,821 88% $ 4,185,118 4.6% $ 3.87
</TABLE>
49
<PAGE>
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------
RENTABLE SQUARE FEET ANNUALIZED NET RENT(1)
----------------------- -----------------------------------
YEAR BUILT/ NUMBER OF PER LEASED
PROPERTY TYPE AND LOCATION RENOVATED PROPERTIES NUMBER % LEASED AMOUNT % OF TOTAL SQUARE FOOT
- -------------------------- ----------- ---------- ----------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
SOUTHWEST REGION
Dallas Market
113th Street, Arlington,
TX..................... 1979 1 79,735 100% $ 291,032 0.3% $ 3.65
Airline Drive, Building
1, Coppell, TX......... 1991 1 75,000 100 262,500 0.3 3.50
North Lake Drive,
Coppell, TX............ 1982 1 230,400 100 632,581 0.7 2.75
10th Street, Building 1,
Plano, TX.............. 1997 1 99,679 75 297,826 0.3 3.99
10th Street, Building 2,
Plano, TX.............. 1997 1 107,260 100 423,086 0.5 3.94
--- ----------- -------- ----------- ------ -------
SOUTHWEST REGION/MARKET
SUBTOTAL.............. 5 592,074 96% $ 1,907,025 2.1% $ 3.36
MIDWEST REGION
Chicago Market
Western Avenue, Lisle,
IL..................... 1970/1985 1 67,996 100 $ 383,143 0.4% $ 5.63
High Grove Lane,
Naperville, IL......... 1994 1 95,000 100 392,549 0.4 4.13
Medinah Road, Building
1, Roselle, IL......... 1986 1 319,459 100% 1,741,840 1.9 5.45
Medinah Road, Building
2, Roselle, IL......... 1986 1 160,799 100 876,751 1.0 5.45
--- ----------- -------- ----------- ------ -------
Market Subtotal........ 4 643,254 100% $ 3,394,283 3.7% $ 5.28
Cincinnati/Northern
Kentucky Market
Lake Forest Drive,
Building 1, Blue Ash,
OH..................... 1978 1 239,891 98% $ 633,838 0.7% $ 2.69
Lake Forest Drive,
Building 2, Blue Ash,
OH..................... 1979 1 176,956 100 459,775 0.5 2.60
--- ----------- -------- ----------- ------ -------
Market Subtotal........ 2 416,847 99% $ 1,093,613 1.2% $ 2.65
Columbus Market
International Street,
Columbus, OH........... 1988 1 152,800 100% $ 420,200 0.5% $ 2.75
Port Road, Building 1,
Columbus, OH........... 1995 1 205,109 100 672,906 0.7 3.28
Port Road, Building 2,
Columbus, OH........... 1995 1 156,000 100 425,899 0.5 2.73
Westbelt Drive, Building
1, Columbus, OH........ 1979 1 202,000 100 1,010,000 1.1 5.00
Dividend Drive,
Columbus, OH........... 1980 1 144,850 100 443,241 0.5 3.06
Twin Creek Drive,
Columbus, OH........... 1989 1 176,000 76 382,608 0.4 2.85
--- ----------- -------- ----------- ------ -------
Market Subtotal........ 6 1,036,759 96% $ 3,354,854 3.7% $ 3.37
Minneapolis Market
Woodale Drive, Building
1, Mounds View, MN..... 1992 1 78,016 58% 224,436 0.3% 4.92
--- ----------- -------- ----------- ------ -------
Other Market
Sysco Court, Grand
Rapids, MI............. 1985 1 62,700 100% $ 366,689 0.4% $ 5.85
--- ----------- -------- ----------- ------ -------
MIDWEST REGION
SUBTOTAL.............. 14 2,237,576 97% $ 8,433,875 9.3% $ 3.91
SOUTHEAST REGION
Orlando Market
Orlando Central Park,
Orlando, FL............ 1983 6 1,172,875 94% $ 3,832,980 4.2% $ 3.47
Kingspointe Parkway,
Orlando, FL............ 1991 1 101,870 100 404,979 0.5 3.98
--- ----------- -------- ----------- ------ -------
SOUTHEAST REGION/MARKET
SUBTOTAL.............. 7 1,274,745 94% $ 4,237,959 4.7% $ 3.53
NORTHEAST REGION
Boston Market
First Avenue, Needham,
MA..................... 1961/1992 1 119,573 100% $ 686,246 0.7% $ 5.74
--- ----------- -------- ----------- ------ -------
New York/New Jersey
Market
Pulaski Boulevard,
Bayonne, NJ............ 1974/1982 1 224,664 100% $ 703,139 0.8% $ 3.13
South Middlesex Ave.,
Building 2, Cranbury,
NJ..................... 1982 1 203,404 100 661,062 0.7 3.25
Colony Road, Building 1,
Jersey City, NJ........ 1976 1 262,453 100 918,438 1.0 3.50
Colony Road, Building 2,
Jersey City, NJ........ 1974 1 124,933 100 524,718 0.6 4.20
Industrial Drive,
Building 1, Jersey
City, NJ............... 1976 1 263,717 100 1,002,125 1.1 3.80
Industrial Drive,
Building 2, Jersey
City, NJ............... 1976 1 154,000 100 615,996 0.7 4.00
Industrial Drive,
Building 3, Jersey
City, NJ............... 1972 1 45,274 100 181,095 0.2 4.00
Port Jersey Boulevard,
Building 1, Jersey
City, NJ............... 1974 1 425,121 100 1,711,836 1.9 4.03
Port Jersey Boulevard,
Building 2, Jersey
City, NJ............... 1974 1 204,564 100 754,841 0.8 3.69
--- ----------- -------- ----------- ------ -------
Market Subtotal........ 9 1,908,130 100% $ 7,073,250 7.8% $ 3.71
Harrisburg Market
Ritter Road,
Mechanicsburg, PA...... 1986 1 37,800 100% $ 248,970 0.3% $ 6.59
--- ----------- -------- ----------- ------ -------
NORTHEAST REGION
SUBTOTAL.............. 11 2,065,503 100% $ 8,008,466 8.8% $ 3.88
--- ----------- -------- ----------- ------ -------
MULTITENANT
DISTRIBUTION
PROPERTIES TOTAL..... 45 7,396,719 96% $26,772,443 29.5% $ 3.78
</TABLE>
50
<PAGE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------
RENTABLE SQUARE FEET ANNUALIZED NET RENT(1)
------------------------- ----------------------------------
YEAR BUILT/ NUMBER OF PER LEASED
PROPERTY TYPE AND LOCATION RENOVATED PROPERTIES NUMBER % LEASED AMOUNT % OF TOTAL SQUARE FOOT
- -------------------------- ----------- ---------- ------------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
WORKSPACE PROPERTIES:
WEST REGION
Los Angeles Market
East Howell Avenue,
Building 1, Anaheim,
CA..................... 1968 1 81,475 100% $ 327,882 0.4% $4.02
East Howell Avenue,
Building 2, Anaheim,
CA..................... 1991 1 25,962 100 109,040 0.1 4.20
Artesia Avenue, Building
1, Fullerton, CA....... 1991 1 55,498 100 209,244 0.2 3.77
Artesia Avenue, Building
2, Fullerton, CA....... 1991 1 60,502 100 232,164 0.3 3.84
Commonwealth Avenue,
Fullerton, CA.......... 1965 1 64,292 100 250,048 0.3 3.89
Kovacs Lane, Huntington
Beach, CA.............. 1988 1 125,000 100 929,028 1.0 7.43
Royal Avenue, Simi
Valley, CA............. 1988 1 26,120 100 157,950 0.2 6.05
Union Place, Building 1,
Simi Valley, CA........ 1985 1 22,710 100 145,769 0.2 6.42
Union Place, Building 2,
Simi Valley, CA........ 1987 1 36,538 100 324,360 0.4 8.88
Anza Drive, Building 2,
Valencia, CA........... 1990 1 8,663 100 62,400 0.1 7.20
Anza Drive, Building 3,
Valencia, CA........... 1990 1 10,296 100 64,248 0.1 6.24
Anza Drive, Building 21,
Valencia, CA........... 1990 1 7,944 100 57,192 0.1 7.20
<CAPTION>
---------- ------------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Market Subtotal........ 12 525,000 100% $2,869,325 3.4% $5.47
San Diego Market
Avenida Encinas,
Building 1, Carlsbad,
CA..................... 1972 1 80,000 100% $ 637,720 0.7% $7.97
Avenida Encinas,
Building 2, Carlsbad,
CA..................... 1993 1 126,008 100 716,846 0.8 5.69
Airway Road, Building 1,
Otay Mesa, CA.......... 1996 1 44,840 100 283,757 0.3 6.33
Airway Road, Building 2,
Otay Mesa, CA.......... 1996 1 78,296 71 312,356 0.3 5.64
<CAPTION>
---------- ------------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Market Subtotal........ 4 329,144 93% $1,950,679 2.1% $6.37
San Francisco Market
Brisbane Industrial
Park, Brisbane, CA..... 1965 14 542,378 100% $2,620,972 2.8% $4.83
Huntwood Avenue,
Hayward, CA............ 1982 1 62,031 100 446,628 0.5 7.20
<CAPTION>
---------- ------------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Market Subtotal........ 15 604,409 100% $3,067,600 3.3% $5.08
Phoenix Market
East Encanto Drive,
Tempe, AZ.............. 1990 1 81,817 100% $ 306,635 0.3% $3.75
<CAPTION>
---------- ------------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Seattle Market
Kent West Corporate Park
I, Kent, WA............ 1989 4 151,940 88% $ 912,912 1.0% $6.82
<CAPTION>
---------- ------------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
WEST REGION SUBTOTAL... 36 1,692,310 98% $9,107,151 10.1% $5.51
SOUTHWEST REGION
Dallas Market
Diplomat Drive,
Carrollton, TX......... 1997 1 53,375 100% $ 325,044 0.3% $6.09
DFW Trade Center,
Building 3, Grapevine,
TX..................... 1997 1 202,361 100% 1,723,670 1.9 8.52
<CAPTION>
---------- ------------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
SOUTHWEST REGION/MARKET
SUBTOTAL.............. 2 255,736 100% $2,048,714 2.2% $8.01
MIDWEST REGION
Chicago Market
Business Center, Mount
Prospect, IL........... 1985 1 43,250 100% $ 356,379 0.4% $8.24
Feehanville Drive, Mount
Prospect, IL........... 1987 1 57,150 100 454,342 0.5 7.95
<CAPTION>
---------- ------------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Market Subtotal........ 2 100,400 100% $ 810,721 0.9% $8.07
Cincinnati/Northern
Kentucky Market
Empire Drive, Florence,
KY..................... 1991 1 101,250 100% $ 318,999 0.3% $3.15
Spiral Drive, Building
1, Florence, KY........ 1988 1 26,556 100 249,225 0.3 9.38
Spiral Drive, Building
2, Florence, KY........ 1989 1 34,999 83 241,686 0.3 8.36
Creek Road, Blue Ash,
OH..................... 1983 1 66,095 88 418,900 0.4 7.19
<CAPTION>
---------- ------------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Market Subtotal........ 4 228,900 94% $1,228,810 1.3% $5.72
<CAPTION>
---------- ------------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Columbus Market
Equity Drive, Building
2, Columbus, OH........ 1980 1 116,160 61% $ 415,371 0.5% $5.83
<CAPTION>
---------- ------------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Minneapolis Market
Woodale Drive, Building
2, Mounds View, MN..... 1989 1 55,742 100% $ 470,356 0.5% $8.44
Woodale Drive, Building
3, Mounds View, MN..... 1990 1 144,019 100 844,751 1.0 5.87
Woodale Drive, Building
4, Mounds View, MN..... 1992 1 42,551 100 208,107 0.2 4.89
<CAPTION>
---------- ------------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Market Subtotal........ 3 242,312 100% 1,523,214 1.7% $6.29
<CAPTION>
---------- ------------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
MIDWEST REGION
SUBTOTAL.............. 10 687,772 91% $3,978,116 4.4% $6.32
</TABLE>
51
<PAGE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------
RENTABLE SQUARE FEET ANNUALIZED NET RENT(1)
------------------------- -----------------------------------
YEAR BUILT/ NUMBER OF PER LEASED
PROPERTY TYPE AND LOCATION RENOVATED PROPERTIES NUMBER % LEASED AMOUNT % OF TOTAL SQUARE FOOT
- -------------------------- ----------- ---------- ------------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
SOUTHEAST REGION
Charlotte Market
Airport Road, Monroe,
NC...................... 1957/1972 1 118,930 100% $ 591,600 0.7% $4.97
Old Charlotte Highway,
Monroe, NC.............. 1957/1972 1 135,000 100 394,400 0.4 2.92
<CAPTION>
---------- ------------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Market Subtotal......... 2 253,930 100% 986,000 1.1% $3.88
Atlanta Market
Cobb International
Place, Building 1,
Atlanta, GA............. 1996 1 60,000 100% $ 259,650 0.3% $4.33
Cobb International
Place, Building 2,
Atlanta, GA............. 1996 1 68,000 80 209,698 0.2 3.85
Town Park Drive,
Building 1, Atlanta,
GA...................... 1995 1 65,830 100 311,797 0.3 4.74
Town Park Drive,
Building 2, Atlanta,
GA...................... 1995 1 55,554 100 243,045 0.3 4.37
South Royal Drive,
Building 1, Tucker,
GA...................... 1987 1 53,402 91 226,936 0.3 4.67
South Royal Drive,
Building 2, Tucker,
GA...................... 1987 1 43,720 100 176,422 0.2 4.04
South Royal Drive,
Building 3, Tucker,
GA...................... 1989 1 37,041 100 148,171 0.2 4.00
<CAPTION>
---------- ------------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Market Subtotal......... 7 383,547 95% $ 1,575,719 1.8% $4.31
Orlando Market
Boggy Creek Road,
Building 1, Orlando,
FL...................... 1992 1 52,500 99% $ 252,098 0.3% $4.84
Boggy Creek Road,
Building 2, Orlando,
FL...................... 1996 1 55,456 100 297,948 0.3 5.37
Landstreet Road,
Building 2, Orlando,
FL...................... 1997 1 55,456 100 311,812 0.3 5.62
Landstreet Road,
Building 3, Orlando,
FL...................... 1996 1 50,018 100 247,589 0.3 4.95
<CAPTION>
---------- ------------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Market Subtotal......... 4 213,430 100% $ 1,109,447 1.2% $5.21
Other Market
Industrial Drive South,
Gluckstadt, MS.......... 1988 1 160,000 100% $ 671,386 0.7% $4.20
<CAPTION>
---------- ------------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
SOUTHEAST REGION
SUBTOTAL............... 14 1,010,907 98% $ 4,342,552 4.8% $4.38
NORTHEAST REGION
Baltimore/Washington
Market
The Crysen Center,
Jessup, MD.............. 1985 2 151,863 100% $ 726,288 0.8% $4.78
Oakville Industrial
Park, Alexandria, VA.... 1948 6 276,807 97 1,779,537 2.0 6.63
<CAPTION>
---------- ------------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Market Subtotal......... 8 428,670 98% $ 2,505,825 2.8% $5.96
Boston Market
Technology Drive,
Auburn, MA.............. 1973 1 54,400 100% $ 194,448 0.2% $3.57
John Hancock Road,
Taunton, MA............. 1986 1 34,224 100 206,147 0.2 6.02
<CAPTION>
---------- ------------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Market Subtotal......... 2 88,624 100% $ 400,595 0.4% $4.52
New York/New Jersey
Market
Memorial Drive, Franklin
Township, NJ............ 1988 1 148,598 100% $ 1,036,119 1.2% $6.97
New England Avenue,
Piscataway, NJ.......... 1975/1995 1 101,553 100 404,861 0.4 3.99
<CAPTION>
---------- ------------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Market Subtotal......... 2 250,151 100% 1,440,980 1.6% $5.76
<CAPTION>
---------- ------------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
NORTHEAST REGION
SUBTOTAL............... 12 767,445 99% $ 4,347,400 4.8% $5.73
<CAPTION>
---------- ------------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
WORKSPACE PROPERTIES
TOTAL................. 74 4,414,170 97% $23,823,933 26.3% $5.56
<CAPTION>
---------- ------------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
GRAND TOTAL............... 171 24,465,071 96% $90,592,173 100.0% $3.85
<CAPTION>
========== ============= =========== =========== ========== ===========
</TABLE>
- -------
(1) "Annualized Net Rent" means annualized monthly Net Rent from leases in
effect as of June 30, 1998. "Net Rent" means contractual rent, excluding any
reimbursements for real estate taxes or operating expenses.
52
<PAGE>
INDUSTRIAL PROPERTY MARKET INFORMATION
Information regarding the Company's 22 markets, as of June 30, 1998, is set
forth below.
<TABLE>
<CAPTION>
---------------------
PERCENT OF PERCENT OF
ANNUALIZED RENTABLE
MARKET NET RENT AREA
------ ---------- ----------
<S> <C> <C>
New York/New Jersey 14.8% 13.8%
Los Angeles, including Riverside 11.9 11.5
Chicago 11.0 11.0
Dallas 8.3 8.9
Orlando 7.7 7.5
Cincinnati/Northern Kentucky 6.9 8.1
Columbus 5.0 6.6
Phoenix 4.9 6.3
Baltimore/Washington, D.C. 4.7 3.6
San Francisco, including San Jose 4.4 3.3
Atlanta 3.5 3.8
Harrisburg 3.3 3.6
San Diego 3.3 2.3
Seattle 2.1 1.6
Minneapolis 1.9 1.3
Charlotte 1.4 1.5
Boston 1.2 0.8
Memphis 0.9 1.4
Other Markets (4 markets) 2.8 3.1
------ ------
Total 100.0% 100.0%
====== ======
</TABLE>
53
<PAGE>
TENANT INFORMATION
The following table sets forth the Company's 20 largest tenants based on
Annualized Base Rent as of June 30, 1998.
<TABLE>
<CAPTION>
--------------------------------------------
WEIGHTED
AVERAGE
MONTHS
TOTAL REMAINING
LEASED ANNUALIZED PERCENT OF AFTER
SQUARE BASE ANNUALIZED JUNE 30,
TENANTS(1) FEET(1) RENT(1)(2) BASERENT(1) 1998
- ---------- --------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
GATX Logistics, Inc. 1,296,872 $ 4,079,130 4.39% 39
Exel Logistics, Inc. (Merchants
Home Delivery) 1,014,648 3,383,328 3.64 61
Forestville Industries
(guaranteed by North American
Philips Corporation) 480,258 2,618,591 2.82 37
B. Dalton Bookseller (guaranteed
by Barnes & Noble, Inc.) 418,000 1,606,548 1.73 26
Goodtimes Home Video Corp. 358,564 1,370,837 1.47 46
GTE Communications Corp. 96,517 1,278,850 1.38 112
Enesco Corporation 234,000 1,088,100 1.17 11
Wal-Mart 278,142 1,052,747 1.13 8
CGM, Inc. 202,000 1,010,000 1.09 131
Menlo Logistics, Inc. (guaranteed
by Emery Air Freight
Corporation) 167,264 1,008,415 1.08 44
CPC International, Inc. 263,717 1,002,125 1.08 46
Giant of Maryland, Inc. 243,500 998,350 1.07 12
Hitachi Home Electronics 220,000 996,018 1.07 52
Appleton Papers, Inc. 352,000 991,952 1.07 96
Yale Security, Inc. 253,930 986,000 1.06 39
Skechers U.S.A., Inc. 284,559 973,200 1.05 53
Food Warehousing Corp. 223,412 949,502 1.02 25
Southwest Quilted Products, Inc. 125,000 929,028 1.00 62
Reebok International Ltd. 336,080 924,219 0.99 21
Port Jersey Distribution
Services, Inc. 262,453 918,438 0.99 46
<CAPTION>
--------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Total 7,110,916 $28,165,378 30.30% 46
<CAPTION>
========= =========== =========== =========
</TABLE>
- -------
(1) Aggregate of all affiliated entities based on information known.
(2) Annualized Base Rent means annual contractual rent.
The following table sets forth information relating to the distribution of the
Company's leases at the Properties based upon rentable square feet under lease
as of June 30, 1998.
<TABLE>
<CAPTION>
-------------------------------------------------------------------
PERCENT OF ANNUALIZED PERCENT
PERCENT TOTAL AGGREGATE BASE OF PORTFOLIO
SQUARE FOOTAGE NUMBER OF OF ALL LEASED LEASED RENT (IN ANNUALIZED
UNDER LEASE LEASES LEASES SQUARE FEET SQUARE FEET THOUSANDS) BASE RENT
- -------------- --------- ------- ----------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Less than 10,001 88 25.2% 502,873 2.1% $ 3,345 3.6%
10,001-20,000 45 12.9 628,951 2.7 3,488 3.8
20,001-50,000 79 22.6 2,499,653 10.6 12,086 13.0
50,001-100,000 51 14.6 3,686,638 15.7 16,561 17.8
100,001 and over 86 24.7 16,189,831 68.9 57,481 61.8
<CAPTION>
--------- ------- ----------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Total 349 100.0% 23,507,946 100.0% $92,961 100.0%
<CAPTION>
========= ======= =========== =========== ========== ============
</TABLE>
54
<PAGE>
LEASE EXPIRATIONS--PORTFOLIO TOTAL
The following table sets forth a summary schedule of lease expirations for the
Properties for leases in place as of June 30, 1998, assuming that none of the
tenants exercise renewal options or termination rights, if any, at or prior to
the scheduled expirations.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------
ANNUALIZED PERCENT OF
ANNUALIZED BASE RENT ANNUALIZED
NUMBER OF EXPIRING LEASES BASE RENT OF EXPIRING BASE RENT OF
YEAR OF LEASES ---------------------- OF EXPIRING LEASES PER EXPIRING
LEASE EXPIRATION EXPIRING SQUARE FEET % OF TOTAL LEASES(1) SQUARE FOOT(1) LEASES(1)
- ---------------- --------- ----------- ---------- ----------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
1998(2) 26 1,385,073 5.4% $ 5,200,290 $3.75 5.6%
1999 58 3,818,162 15.8 14,983,295 3.92 16.1
2000 70 3,114,182 13.5 12,593,702 4.04 13.5
2001 64 3,504,926 15.0 13,926,812 3.97 15.0
2002 53 4,445,699 18.8 17,335,719 3.90 18.7
2003 35 2,517,195 10.7 9,771,468 3.88 10.5
2004 10 803,108 3.3 3,035,989 3.78 3.3
2005 10 827,910 3.9 3,639,489 4.40 3.9
2006 4 650,691 2.8 2,546,279 3.91 2.7
2007 10 1,126,664 5.4 5,043,522 4.48 5.4
2008 and beyond 9 1,314,336 5.4 4,884,288 3.72 5.3
<CAPTION>
--------- ----------- ---------- ----------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
349 23,507,946 100.0% $92,960,853 $3.95 100.0%
<CAPTION>
========= =========== ========== =========== ============== ============
</TABLE>
- -------
(1) Based on currently payable rent.
(2) Represents lease expirations from July 1 to December 31, 1998 and month-to-
month leases.
The following reconciles the square footage of expiring leases set forth above
to the Company's total rentable square footage as of June 30, 1998.
<TABLE>
<CAPTION>
---------------------
SQUARE PERCENTAGE
FOOTAGE TOTAL
---------- ----------
<S> <C> <C>
Square footage occupied by tenants 23,507,946 96.1%
Square footage vacant 957,125 3.9
<CAPTION>
---------- ----------
<S> <C> <C>
Total net rentable square footage 24,465,071 100.0%
<CAPTION>
========== ==========
</TABLE>
INSURANCE
The Company maintains comprehensive insurance, including liability, fire,
workers' compensation, extended coverage, rental loss and, when available on
commercially reasonable terms, flood and earthquake insurance, with policy
specifications, limits and deductibles customarily carried for other properties
similar to the Properties. The Company currently maintains blanket earthquake
insurance on all Properties located outside of California in amounts it deems
reasonable. In light of the California earthquake risk, California building
codes have since the early 1970's established construction standards for all
new buildings and also contain standards for seismic upgrading of existing
buildings that are intended to reduce the possibility and severity of loss from
earthquakes. Such construction standards and upgrading, however, do not
eliminate the possibility of earthquake loss. It is the Company's current
policy to obtain earthquake insurance if available at acceptable cost. Of the
Company's 45 Properties located in California, 43 are covered by earthquake
insurance. Seismic upgrading has been completed on ten of the California
Properties and is expected to be completed on 13 additional California
Properties within nine months from the date hereof. Certain types of losses,
such as those arising from subsidence activity, are insurable only to the
extent that certain standard policy exceptions to insurability are waived by
agreement with the insurer. The Company believes, however, that the Properties
are insured in accordance with industry standards.
55
<PAGE>
ENVIRONMENTAL MATTERS
In connection with the ownership and operation of the Properties, the Company
may be potentially liable for costs associated with the removal or remediation
of certain hazardous or toxic substances or the release into the air of or
exposure to hazardous substances, including ACMs. See "Risk Factors--Real
Estate Investment Risks--Possible Environmental Liabilities."
Phase I ESAs were obtained in connection with the initial acquisition of the
Properties by the Contributing Investors, for those Properties managed by Cabot
Partners as of February 3, 1998, and for all other Properties contributed to
the Company in the Formation Transactions in connection with such contribution
to the Company. In accordance with the Company's acquisition policies, the Com-
pany has also obtained Phase I ESA's for all Properties subsequently acquired
by it. The purpose of Phase I ESAs is to identify potential sources of contami-
nation for which the Company may be responsible and to assess the status of
environmental regulatory compliance. The earliest of such Phase I ESAs were
obtained in 1988 and Phase I ESAs on approximately 22% of the Properties were
obtained prior to 1995. Commonly accepted standards and procedures for such
Phase I ESAs have evolved to encompass higher standards and more extensive pro-
cedures over the period from 1988 to the present. Where recommended in the
Phase I ESA, invasive procedures, such as soil sampling and testing or the
installation and monitoring of groundwater wells, have been performed.
The Phase I ESAs, including subsequent procedures where applicable, have not
revealed any environmental liability that the Company believes would have a
material adverse affect on the Company's business, assets or results of opera-
tions, nor is the Company aware of any such material environmental liability.
Nevertheless, it is possible that the Phase I ESAs relating to any one of the
Properties do not reveal all environmental liabilities or that there are mate-
rial environmental liabilities of which the Company is unaware. Neither the
Company nor, to the knowledge of the Company, any of the current owners of the
Properties has been notified by any governmental authority of any material non-
compliance, liability or claim relating to hazardous or toxic substances or
other environmental substances in connection with any of its present or former
properties.
COMPETITION
The Company operates nationally and has no markets with a concentration of
leasable square feet in excess of 14% of its total leasable square feet.
Although the industrial real estate business is highly fragmented, with no dom-
inant competitors, the Company faces substantial competition in both its
leasing and property acquisition activities. There are numerous other indus-
trial properties located in close proximity to each of the Properties. The
amount of leasable space available in any market could have a material adverse
effect on the Company's ability to rent space and on the rents charged. Compe-
tition for acquisition of existing industrial properties from institutional
investors and other publicly traded REITs has increased substantially in the
past several years. In many of the Company's markets, institutional investors
and owners and developers of industrial facilities compete vigorously for the
acquisition, development and lease of industrial space. Many of these competi-
tors have substantial resources and experience.
LEGAL PROCEEDINGS
Neither the Company nor any of the Properties is presently subject to any mate-
rial litigation nor, to the Company's knowledge, is any litigation threatened
against the Company or any of the Properties, other than routine actions
arising in the ordinary course of business, substantially all of which are
expected to be covered by liability insurance and which in the aggregate are
not expected to have a material adverse effect on the business, results of
operations or financial condition of the Company.
56
<PAGE>
POLICIES WITH RESPECT TO CERTAIN ACTIVITIES
The following is a description of certain investment, financing and other poli-
cies of the Company. These policies have been adopted by the Company's Board of
Trustees and may be amended or revised from time to time without the approval
of the Company's shareholders, except that (i) the Company may not change its
policy of holding its assets and conducting its businesses only through the
Operating Partnership and its subsidiaries and other affiliates, including the
Management Company and joint ventures in which the Operating Partnership or a
subsidiary may be a partner, without the consent of the Limited Partners as
provided in the Operating Partnership Agreement and (ii) changes in certain
policies with respect to conflicts of interest must be consistent with legal
requirements.
INVESTMENT POLICIES
The Company conducts all of its investment activities through the Operating
Partnership and its subsidiaries and other affiliates, including the Management
Company, and may in the future conduct activities through joint ventures in
which the Operating Partnership or a subsidiary may be a partner. The Company's
investment objectives are to provide quarterly cash distributions and achieve
long-term capital appreciation through increases in the value of the Company's
portfolio of properties and its operations. For a discussion of the Company's
Properties and its property acquisition and other strategic objectives, see
"Properties" and "The Company--Business Strategies" and "--Operations." The
Company's policies are to (i) purchase income-producing industrial properties
primarily for long-term capital appreciation and rental growth, and (ii) expand
and improve the Properties or other properties purchased or to sell such prop-
erties, in whole or in part, when circumstances warrant.
Equity investments may be subject to existing mortgage financing and other
indebtedness or to such financing or indebtedness as may be incurred in connec-
tion with acquiring or refinancing such equity investments. Debt service with
respect to such financing or indebtedness will have a priority over any distri-
butions with respect to the Common Shares. Investments are also subject to the
Company's policy not to be treated as an investment company under the Invest-
ment Company Act of 1940.
The Company pursues its investment objectives primarily through the direct own-
ership of the Properties by the Operating Partnership. The Company currently
intends to invest primarily in existing improved properties but also has begun
investment in development projects as well. Future investment or development
activities will not be limited to any geographic area or product type or to a
specified percentage of the Company's assets. While the Company intends to
maintain diversity in its investments in terms of property locations, size and
market, the Company does not have any limit on the amount or percentage of its
assets that may be invested in any one property or any one geographic area. The
Company intends to engage in such investment and development activities in a
manner which is consistent with the maintenance of its status as a REIT for
federal income tax purposes.
While the Company's current portfolio consists of, and the Company's business
objectives emphasize, equity investments in industrial real estate, the Company
may, in the discretion of the Board of Trustees, invest in mortgages and deeds
of trust, consistent with the Company's continued qualification as a REIT for
federal income tax purposes, including participating or convertible mortgages
if the Company concludes that it may benefit from the cash flow or any appreci-
ation in value of the property secured by such mortgages. Investments in real
estate mortgages entail the risk that one or more borrowers may default under
such mortgages and that the collateral securing such mortgages may not be suf-
ficient to enable the Company to recoup its full investment.
Subject to the limitations on ownership of certain types of assets and the
gross income tests imposed by the Code, the Company also may invest in the
securities of other REITs, other entities engaged in real estate activities or
other issuers, including for the purpose of exercising control over such enti-
ties. See "Federal Income Tax Consequences--Taxation of the Company--Gross
Income Tests" and "--Taxation of the Company--Asset Tests." The Company may
enter into joint ventures or partnerships for the purpose of obtaining an
equity interest in a particular property in accordance with the Company's
investment policies. Such investments may permit the Company to own interests
in larger assets without unduly restricting diversification and, therefore, add
flexibility in structuring its portfolio. The Company will not enter into a
joint venture or partnership to make an investment that would not meet its
investment policies.
FINANCING POLICIES
As a general policy, the Company intends to limit its total consolidated
indebtedness incurred so that at the time any debt is incurred, the Company's
Debt-to-Total Market Capitalization Ratio does not exceed 40%. The Company's
Declaration of
57
<PAGE>
Trust and Bylaws do not, however, limit the amount or percentage of indebted-
ness that the Company may incur. In addition, the Company may from time to time
modify its debt policy in light of current economic conditions, relative costs
of debt and equity capital, the market values of its properties, general condi-
tions in the market for debt and equity securities, fluctuations in the market
price of its Common Shares, growth and acquisition opportunities and other fac-
tors. Accordingly, the Company may increase its Debt-to-Total Market Capital-
ization Ratio beyond the limit described above. If its debt policy were
changed, the Company could become more highly leveraged, resulting in an
increased risk of default on its obligations and a related increase in debt
service requirements that could adversely affect the financial condition and
results of operations of the Company and the Company's ability to make distri-
butions to shareholders.
The Company has established its debt policy on the basis of its Debt-to-Total
Market Capitalization Ratio, rather than on the basis of a ratio of debt to the
book value of its assets, a ratio that is frequently employed, because it
believes that the book value of its assets (which to a large extent is the
depreciated value of real property, the Company's primary tangible asset) does
not accurately reflect its ability to borrow and to meet debt service require-
ments. The Debt-to-Total Market Capitalization Ratio, however, is subject to
greater fluctuation than book value ratios, and does not necessarily reflect
the fair market value of the underlying assets of the Company. Moreover, due to
fluctuations in the value of the Company's portfolio of properties over time,
and since any determination of the Company's Debt-to-Total Market Capitaliza-
tion Ratio is made only at the time debt is incurred, the Debt-to-Total Market
Capitalization Ratio could exceed the 40% level.
The Company has not established any limit on the number or amount of mortgages
that may be placed on any single property or on its portfolio as a whole.
Although the Company will consider factors other than its Debt-to-Total Market
Capitalization Ratio in making decisions regarding the incurrence of debt (such
as the purchase price of properties to be acquired with debt financing, the
estimated market value of properties upon refinancing and the ability of par-
ticular properties and the Company as a whole to generate sufficient cash flow
to cover expected debt service), there can be no assurance that the Debt-to-
Total Market Capitalization Ratio, or any other financial measure, at the time
the debt is incurred or at any other time, will be consistent with any partic-
ular level of distributions to shareholders. See "Risk Factors--Possible
Changes in Policies Without Shareholder Approval; No Limitation on Debt."
To the extent that the Board of Trustees decides to obtain additional capital,
the Company may raise such capital through additional equity offerings (in-
cluding offerings of senior securities), debt financings or retention of cash
available for distribution (subject to provisions in the Code concerning tax-
ability of undistributed REIT income), or a combination of these methods. As
long as the Operating Partnership is in existence, the net proceeds of the sale
of Common Shares by the Company will be transferred to the Operating Partner-
ship in exchange for that number of Units in the Operating Partnership that
equals the number of Common Shares sold by the Company. The Company presently
anticipates that any additional borrowings would be made through the Operating
Partnership, although the Company may incur indebtedness directly and loan the
proceeds to the Operating Partnership. Borrowings may be unsecured or may be
secured by any or all of the assets of the Company, the Operating Partnership
or any existing or new property owning partnership and may have full or limited
recourse to all or any portion of the assets of the Company, the Operating
Partnership or any existing or new property owning partnership. Indebtedness
incurred by the Company may be in the form of bank borrowings, purchase money
obligations to sellers of properties, publicly or privately placed debt instru-
ments or financing from institutional investors or other lenders. The proceeds
from borrowings by the Company may be used for working capital, to refinance
existing indebtedness or to finance acquisitions, expansions or the development
of new properties, and for the payment of distributions. See "Federal Income
Tax Consequences."
CONFLICT OF INTEREST POLICIES
The Company has adopted certain policies that are intended to minimize poten-
tial conflicts of interest. However, there can be no assurance that these poli-
cies will be successful in eliminating the influence of such conflicts and, if
they are not successful, decisions could be made that do not fully reflect the
interests of all shareholders.
Declaration of Trust and Bylaw Provisions
The Company's Declaration of Trust requires, with limited exceptions, that a
majority of the Company's Board of Trustees be comprised of individuals who are
not officers or employees of the Company ("Independent Trustees"). The fore-
going requirement may not be amended, altered, changed or repealed without the
affirmative vote of a majority of all of the outstanding shares of the Company
entitled to vote on the matter. The Declaration of Trust also includes a provi-
sion generally permitting the Company to enter into any agreement or transac-
tion with any person, including any Trustee,
58
<PAGE>
officer, employee or agent of the Company. The Company's Bylaws provide that
Section 2-419 of the MGCL, relating to transactions by interested directors,
shall be available for and apply to contracts and other transactions between
the Company and any of its Trustees or between the Company and any other trust,
corporation, firm or other entity of or in which any of the Company's Trustees
is a trustee or director or has a material financial interest. Under Section 2-
419 of the MGCL, a contract or other transaction between a corporation and any
of its directors and any other corporation, firm or other entity in which any
of its directors is a director or has a material financial interest is not void
or voidable solely because of (a) the common directorship or interest, (b) the
presence of the director at the meeting of the board or a committee of the
board that authorizes, approves or ratifies the contract or transaction or (c)
the counting of the vote of the director for the authorization, approval or
ratification of the contract or transaction if (i) after disclosure of the
interest, the transaction is authorized, approved or ratified by the affirma-
tive vote of a majority of the disinterested directors, or by the affirmative
vote of a majority of the votes cast by stockholders entitled to vote other
than the votes of shares owned of record or beneficially by the interested
director or such corporation, firm or other entity, or (ii) the transaction is
fair and reasonable to the corporation.
The Operating Partnership
The Operating Partnership Agreement gives the Company, in its capacity as gen-
eral partner, full, complete and exclusive discretion in managing and control-
ling the business of the Operating Partnership and in making all decisions
affecting the business and assets of the Operating Partnership, subject to cer-
tain limited exceptions as described under "Partnership Agreement of the Oper-
ating Partnership--Management." Pursuant to the Operating Partnership Agree-
ment, the Limited Partners have agreed that the Company is acting on behalf of
the Operating Partnership and the Company's shareholders generally and, in its
capacity as general partner of the Operating Partnership, the Company is under
no obligation to consider the separate interests of the Limited Partners in
deciding whether to cause the Operating Partnership to take (or decline to
take) any actions which the Company, in its capacity as general partner, has
undertaken in good faith on behalf of the Operating Partnership. In addition,
the Company in its capacity as general partner is not responsible for any mis-
conduct or negligence on the part of its agents, provided that such agents were
appointed in good faith. The Operating Partnership Agreement also provides that
neither the Company nor any of its affiliates (including its officers and
Trustees) may sell, transfer or convey any property to, or purchase any prop-
erty from, the Operating Partnership except on terms that are fair and reason-
able and no less favorable than would be obtained from an unaffiliated party.
Policies with Respect to Other Activities
The Company may, but does not presently intend to, make investments other than
as previously described. The Company has authority to offer its Common Shares,
other shares of beneficial interest or other securities for cash or in exchange
for property and to repurchase or otherwise reacquire its shares or any other
securities and may engage in such activities in the future. As described under
"Shares Available for Future Sale," the Company expects to issue Common Shares
to holders of Units upon exercise of their Exchange Rights. The Company has no
outstanding loans to other entities or persons, including its officers and
Trustees. The Company has not engaged in trading, underwriting or agency dis-
tribution or sale of securities of other issuers, nor has the Company invested
in the securities of other companies other than the Operating Partnership, for
the purpose of exercising control and currently does not intend to do so. The
Company makes and intends to continue to make investments in such a way that it
will not be treated as an investment company under the Investment Company Act
of 1940. The Company's policies with respect to such activities may be reviewed
and modified or amended from time to time by the Company's Board of Trustees
without approval of the Company's shareholders.
At all times, the Company intends to make investments in a manner 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 Regu-
lations), the Company's Board of Trustees determines that it is no longer in
the best interests of the Company to qualify as a REIT.
WORKING CAPITAL RESERVES
The Company intends to maintain working capital reserves in amounts that the
Board of Trustees determines to be adequate to meet normal contingencies in
connection with the operation of the Company's business and investments.
59
<PAGE>
MANAGEMENT
TRUSTEES AND EXECUTIVE OFFICERS
The following table sets forth information with respect to the Company's offi-
cers and Trustees as of June 30, 1998.
<TABLE>
- ------------------------------------------------------------------------------
<CAPTION>
TERM
AS
TRUSTEE
NAME AGE POSITION EXPIRES
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Ferdinand Colloredo- 58 Chairman of the Board and Chief
Mansfeld(1) Executive Officer, Trustee 2000
Robert E. Patterson 53 President, Trustee 2000
Noah T. Herndon(2),(3) 66 Trustee 2001
Christopher C. Milli- 53
ken(2),(3) Trustee 2000
Maurice Segall(2),(3) 69 Trustee 2001
W. Nicholas Thorndike(2),(3) 65 Trustee 1999
Ronald L. Skates(2) 56 Trustee 1999
Franz Colloredo-Mansfeld(1) 35 Chief Financial Officer
Andrew D. Ebbott 42 Senior Vice President--Director of
Acquisitions
Howard B. Hodgson, Jr. 42 Senior Vice President--Director of
Real Estate Operations
Neil E. Waisnor 43 Senior Vice President--Finance,
Treasurer and Secretary
Eugene F. Reilly 37 Senior Vice President--Director of
Marketing and Development
</TABLE>
- -------
(1) Messrs. Ferdinand and Franz Colloredo-Mansfeld are father and son.
(2) Member of Audit Committee.
(3) Member of Compensation Committee.
The Company's officers are appointed by and serve at the will of the Board of
Trustees. The following paragraphs summarize the business experience of the
Trustees and officers of the Company.
FERDINAND COLLOREDO-MANSFELD has served as Chairman of the Board of Trustees
and Chief Executive Officer of the Company since its formation in October 1997.
Mr. Colloredo-Mansfeld also serves as the Chairman and Chief Executive Officer
of the Management Company. Mr. Colloredo-Mansfeld served as Chairman, Chief
Executive Officer and Chief Investment Officer of Cabot Partners from 1990 to
1997, having previously served in the same positions with Cabot Advisors since
its formation in 1986. Mr. Colloredo-Mansfeld began his real estate career in
1970 when he joined Cabot, Cabot & Forbes, a national real estate development,
management and construction firm, becoming its Chief Financial Officer in 1973,
Chief Operating Officer in 1974 and Chief Executive Officer in 1976, a position
he held until his retirement from Cabot, Cabot & Forbes in 1989. As Chief Exec-
utive Officer, Mr. Colloredo-Mansfeld oversaw the development and management of
approximately $4 billion of commercial properties in twenty states, including
35 master planned suburban business and industrial parks. Mr. Colloredo-
Mansfeld is a graduate of Harvard College and Harvard Business School. He is a
limited partner in Brown Brothers Harriman & Co. and is a Director of Data Gen-
eral Corporation and Raytheon Company. He is Chairman of the Board of Trustees
of Massachusetts General Hospital.
ROBERT E. PATTERSON has served as President and a Trustee of the Company since
its formation in October 1997. Mr. Patterson served as Executive Vice Presi-
dent, Director of Acquisitions and a member of the Investment Committee of
Cabot Advisors and Cabot Partners from 1987 to 1997. Mr. Patterson began his
real estate career in 1972 as a lawyer with the firm of Gaston Snow & Ely Bart-
lett. In 1978, he became the first Executive Director of the Massachusetts
Industrial Finance Agency and remained in that position until 1983 when he
joined the Beal Companies, a Boston-based real estate development, management
and investment firm as Senior Vice President. He joined Cabot Advisors in 1987
to head its acquisitions group and was a founding partner of Cabot Partners
upon its formation as an independent entity in 1990. Mr. Patterson is a grad-
uate of Harvard College and Harvard Law School. He is a Trustee of the Putnam
Group of Mutual Funds, the Sea Education Association and is Chairman of the
Board of Trustees of the Joslin Diabetes Center. He is a member of numerous
industry associations including the National Association of Real Estate Invest-
ment Trusts, and the Urban Land Institute and the National Association of Real
Estate Investment Managers.
60
<PAGE>
NOAH T. HERNDON has been a Trustee of the Company since February 1998. Mr.
Herndon is a Partner of Brown Brothers Harriman & Co., where he has worked
since 1958. Mr. Herndon is a Director of Scully Signal Company, Standard Mutual
Insurance Company, Watts Industries, Inc., and Zoll Medical Corporation. He is
a Trustee and the Treasurer of Dumaines Trust, and a Trustee of the The Carroll
School.
CHRISTOPHER C. MILLIKEN has been a Trustee of the Company since February 1998.
He has been President, Chief Executive Officer, and a Director of the Boise
Cascade Office Products Corporation since April 1998, previously having served
as Senior Vice President, Operations from 1995 to April 1998 and Eastern Region
Manager from 1990 to 1995. Prior to beginning his career at Boise Cascade
Office Products Corporation in 1977, Mr. Milliken served in various merchandise
management positions at Marshall Field & Company from 1970 to 1977.
MAURICE SEGALL has been a Trustee of the Company since February 1998. Mr.
Segall has been a senior lecturer at the MIT-Sloan School of Management and a
senior advisor to the Boston Consulting Group since 1989. Until 1989, he was
Chairman, President and Chief Executive Corporate Officer of Zayre Corporation,
which he joined as President and Chief Executive Officer in 1978. Mr. Segall is
a Director of AMR Corporation and Harcourt General, Inc. He is a Trustee of
Massachusetts General Hospital, and the Boston Museum of Fine Arts.
RONALD L. SKATES has been a Trustee of the Company since February 1998. Mr.
Skates has been President, Chief Executive Officer and a Director of Data Gen-
eral Corporation since 1989. Prior to joining Data General Corporation in 1986,
Mr. Skates was a Partner of Price Waterhouse LLP, certified public accountants.
He is a member of the American Institute of Certified Public Accountants and
the Massachusetts Society of Certified Public Accountants. He is also a Trustee
of Massachusetts General Hospital, and Vice Chairman and a Director of the Mas-
sachusetts High Technology Council.
W. NICHOLAS THORNDIKE has served as a Trustee of the Company since February
1998. Mr. Thorndike retired in 1988 from Wellington Management
Company/Thorndike, Doran, Paine and Lewis where he was Chairman of the Board
and Managing Partner. Mr. Thorndike serves as a Director of Courier Corpora-
tion, Data General Corporation, The Providence Journal (where he is Chairman of
the Executive Committee), and Bradley Real Estate Inc. He also serves as a
Trustee of Massachusetts General Hospital, having served as Chairman of the
Board from 1987 to 1992 and President from 1992 to 1994, and serves as a
Trustee of Eastern Utilities Associates, Northeastern University and The Putnam
Funds.
FRANZ COLLOREDO-MANSFELD has been Chief Financial Officer of the Company since
October 1997 and served as a Senior Vice President of Cabot Partners from 1996
to October 1997. He was a Senior Engagement Manager of McKinsey & Company, Inc.
from 1992 through 1996. He previously worked for the Deutsche Bank real estate
investment group in 1992 and was a Robert Bosch Fellow at the German Central
Bank (Bundesbank) in Frankfurt, Germany in 1991. He was also an investment
banker with Merrill Lynch & Co. from 1986 through 1989 where he specialized in
mergers and acquisitions. Mr. Colloredo-Mansfeld is a graduate of Harvard Col-
lege and Harvard Business School. He is on the Board of Advisors of Gilbane
Inc. and a director or trustee of numerous charitable organizations.
ANDREW D. EBBOTT has served as Senior Vice President--Director of Acquisitions
of the Company since October 1997. Mr. Ebbott joined Cabot Advisors in 1988 as
Director of Research and a member of its acquisition department, becoming a
Vice President in 1991 and a Senior Vice President in 1995 of Cabot Partners.
Mr. Ebbott is a graduate of Dartmouth College and the University of Chicago
Business School. He has over 12 years experience in real estate finance,
investment and research and is a member of the American Institute of Certified
Public Accountants, the National Association of Real Estate Investment Managers
and the National Council of Real Estate Investment Fiduciaries.
HOWARD B. HODGSON, JR. has been a Senior Vice President--Director of Real
Estate Operations of the Company since October 1997, and served as Senior Vice
President--Director of Asset Management and Member of the Investment Committee
of Cabot Partners from 1992 to October 1997. Mr. Hodgson began his real estate
career in 1979 with the Boston-based real estate firm R.M. Bradley & Co., Inc.,
becoming the head of its institutional property management group prior to
joining CC&F Asset Management Company, an affiliate of Cabot, Cabot & Forbes,
in 1991 as a Senior Vice President and head of its property management group.
Mr. Hodgson is a graduate of Northeastern University. He is a Trustee and a
member of the Board of Investment of the Cambridge Savings Bank. He is a member
of the Building Owners and Managers Association, the National Association of
Industrial and Office Parks and the National Council of Real Estate Investment
Fiduciaries.
NEIL E. WAISNOR has served as Senior Vice President--Finance, Treasurer and
Secretary of the Company since October 1997. Mr. Waisnor was a founding partner
of Cabot Partners, joining as a Vice President and Treasurer in 1990 and
61
<PAGE>
becoming a Senior Vice President and Chief Financial Officer in 1995. Prior to
joining Cabot Partners, he was Vice President and Controller of Cabot, Cabot &
Forbes, where he served in a variety of financial capacities since 1985. He
worked for Arthur Andersen & Co. from 1977 until 1985 where he was a senior
audit manager serving real estate and high technology companies. Mr. Waisnor is
a graduate of the University of Massachusetts at Amherst, is a member of the
American Institute of Certified Public Accountants, the Massachusetts Society
of Certified Public Accountants and has served on the Accounting Committee of
the National Council of Real Estate Investment Fiduciaries.
EUGENE F. REILLY has been Senior Vice President--Director of Marketing and
Development of the Company since October 1997. Mr. Reilly served as Director of
Leasing and Marketing of Cabot Partners from 1992 to October 1997, becoming
Senior Vice President in 1996. Mr. Reilly began his real estate career with the
Boston commercial real estate brokerage firm of Leggat McCall and Werner in
1983 and subsequently became a leasing broker with Julien J. Studley, Inc. In
1985, he joined National Development Corporation where he became a Senior Vice
President prior to joining Cabot Partners as a Vice President in 1992. Mr.
Reilly is a graduate of Harvard College. He is a member of the National Associ-
ation of Industrial and Office Parks and The Council of Logistics Managers.
BOARD OF TRUSTEES
The business and affairs of the Company are managed under the direction of the
Board of Trustees. Pursuant to the terms of the Company's Declaration of Trust,
the Trustees are divided into three classes. One class held office initially
for a term which expired at the annual meeting of shareholders held on June 12,
1998 and which class was reelected to serve for a term expiring at the annual
meeting of shareholders to be held in 2001. A second class will hold office
initially for a term expiring at the annual meeting of shareholders to be held
in 1999, and a third class will hold office initially for a term expiring at
the annual meeting of shareholders to be held in 2000. At each annual meeting
of the shareholders of the Company, the successors to the class of Trustees
whose terms expire at that meeting will be elected to hold office for a term
continuing until the annual meeting of shareholders held in the third year fol-
lowing the year of their election and the election and qualification of their
successors. The Company's Declaration of Trust requires that a majority of the
Trustees be Independent Trustees. See "Certain Provisions of Maryland Law and
of the Company's Declaration of Trust and Bylaws."
COMMITTEES OF THE BOARD OF TRUSTEES
Audit Committee. The Board of Trustees of the Company has established an Audit
Committee consisting of five Independent Trustees. 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 accoun-
tants, considers the range of audit and non-audit fees and reviews the adequacy
of the Company's internal accounting controls. Mr. Skates is the Chairman of
the Audit Committee.
Executive Compensation Committee. The Board of Trustees has established an
Executive Compensation Committee (the "Compensation Committee") consisting of
four Independent Trustees which determines the compensation levels and policies
for the Company's executive officers and implements the Company's Long Term
Incentive Plan. Mr. Thorndike is the Chariman of the Compensation Committee.
The Board of Trustees does not have a standing nominating committee.
COMPENSATION OF TRUSTEES
The Independent Trustees receive annual retainer fees of $18,000 and per
meeting compensation of $1,000. The chairmen of the Audit Committee and the
Compensation Committee each receive an additional $1,000 annually for their
services in such capacities, and each Trustee is reimbursed for travel expenses
incurred in connection with attendance at Board and committee meetings. In
addition, each Independent Trustee received an initial grant of options to pur-
chase 10,000 Common Shares at the IPO Price and will receive additional annual
grants of options to purchase 4,000 Common Shares at the market price for
Common Shares at the date of grant during his period of service as a Trustee.
Officers of the Company who are Trustees do not receive any separate compensa-
tion for their service as Trustees.
62
<PAGE>
EXECUTIVE COMPENSATION
The Company was organized in October 1997 and did not pay any compensation to
its executive officers during 1997. The following table sets forth information
concerning the base compensation to be paid, and the initial amounts of options
to purchase Units granted to Ferdinand Colloredo-Mansfeld, Robert E. Patterson,
Franz Colloredo-Mansfeld, Andrew D. Ebbott, Howard B. Hodgson, Jr., Neil E.
Waisnor and Eugene F. Reilly (collectively, the "Named Executive Officers")
during the fiscal year ending December 31, 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
-------------------------------------
LONG-TERM
ANNUAL COMPENSATION
COMPENSATION AWARDS
------------ ------------
SECURITIES
BASE UNDERLYING
NAME AND PRINCIPAL POSITION FISCAL YEAR SALARY RATE OPTIONS(#)
- --------------------------- ----------- ------------ ------------
<S> <C> <C> <C>
Ferdinand Colloredo-Mansfeld 1998 $265,000 350,000
Chairman of the Board and Chief Executive
Officer
Robert E. Patterson 1998 245,000 275,000
President
Franz Colloredo-Mansfeld 1998 175,000 250,000
Chief Financial Officer
Andrew D. Ebbott 1998 175,000 200,000
Senior Vice President--Director of Acqui-
sitions
Howard B. Hodgson, Jr. 1998 175,000 200,000
Senior Vice President--Director of Real
Estate Operations
Eugene F. Reilly 1998 175,000 200,000
Senior Vice President--Director of Mar-
keting and Development
Neil E. Waisnor 1998 175,000 200,000
Senior Vice President--Finance, Treasurer
and Secretary
</TABLE>
OPTION GRANTS
The following table sets forth certain information concerning grants of options
to purchase Units to the Named Executive Officers made in February 1998.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES
NUMBER OF PERCENT OF OF STOCK PRICE
SECURITIES TOTAL APPRECIATION
UNDERLYING OPTIONS EXERCISE OR FOR OPTION TERM(2)
OPTIONS GRANTED TO BASE PRICE EXPIRATION --------------------------
NAME GRANTED(1) EMPLOYEES(3) PER SHARE DATE 5% 10%
- ---- ---------- ------------ ----------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Ferdinand Colloredo-
Mansfeld 350,000 17.1% $20.00 2/4/2008 $ 4,402,262 $ 11,156,197
Robert E. Patterson 275,000 13.4 20.00 2/4/2008 3,458,920 8,765,584
Franz Colloredo-Mansfeld 250,000 12.2 20.00 2/4/2008 3,144,473 7,968,712
Andrew D. Ebbott 200,000 9.8 20.00 2/4/2008 2,515,579 6,374,971
Howard B. Hodgson, Jr. 200,000 9.8 20.00 2/4/2008 2,515,579 6,374,971
Neil E. Waisnor 200,000 9.8 20.00 2/4/2008 2,515,579 6,374,971
Eugene F. Reilly 200,000 9.8 20.00 2/4/2008 2,515,579 6,374,971
</TABLE>
- -------
(1)Options granted under the Company's Long Term Incentive Plan upon the
closing of the Company's IPO in February 1998. Options vest in four equal
annual installments beginning on the first anniversary of the date of grant,
except that all of the Options would vest upon a change in control of the Com-
pany (as defined in the Long Term Incentive Plan).
(2)Hypothetical gains based on assumed rates of annual compounded share price
appreciation of 5% and 10% from the date of grant over the full option term.
The 5% and 10% assumed rates of appreciation are mandated by the rules of the
Securities and Exchange Commission and do not represent the Company's estimate
or projection of future increases in the price of its Common Shares or the
Units.
(3)Based on an aggregate of options to purchase 2,045,600 Units granted to
employees upon the closing of the Company's IPO.
63
<PAGE>
In addition to cash compensation in the form of annual base salary, the Company
has a cash bonus incentive plan pursuant to which cash bonuses may be awarded
to executive officers and other key employees based on attainment of specified
personal and corporate objectives. The amounts of such bonuses may, depending
on the level of an individual's corporate responsibility and attainment of
specified objectives, range up to 100% of the individual's annual base salary.
EMPLOYMENT AGREEMENTS
Messrs. Ferdinand Colloredo-Mansfeld, Robert E. Patterson and Franz Colloredo-
Mansfeld and each of the other Named Executive Officers have entered into
employment agreements with the Company and the Operating Partnership. Each of
the agreements with Messrs. Ferdinand Colloredo-Mansfeld, Robert E. Patterson
and Franz Colloredo-Mansfeld is for an initial term of three years, which will
be automatically extended for successive one-year periods unless otherwise ter-
minated. The agreements with each of the other Named Executive Officers are for
initial terms of two years, which will be automatically extended for successive
one-year periods unless otherwise terminated. The agreements each provide for
base annual compensation in the amounts set forth in the Summary Compensation
Table above and incentive compensation to be determined by the Board of
Trustees or the Compensation Committee thereof. The base annual compensation
may be increased in subsequent years by action of the Board of Trustees or the
Compensation Committee. Each of the employment agreements provides for certain
severance payments equal to three times current base salary, plus the amount of
any bonus paid for the preceding year and certain tax reimbursements, in the
event of termination by the Company without cause or by the employee after a
change in control of the Company. Each executive is required under the terms of
his employment agreement to devote substantially all of his business time to
the affairs of the Company. The agreements will also prohibit each executive
from engaging, directly or indirectly, during the term of his employment in
activities that compete with those of the Company.
INDEMNIFICATION
The Company has entered into indemnification agreements with each of its execu-
tive officers and Trustees that require that the Company indemnify such persons
to the fullest extent permitted by Maryland law and reimburse them for legal
and related expenses as incurred in connection with litigation to which they
may become subject as a result of their positions with the Company, subject to
an obligation to reimburse the Company if it is ultimately determined that
indemnification is not permitted under the circumstances. Although the indemni-
fication agreements provide substantially the same scope of indemnification as
that to which the Company's officers and Trustees will be entitled under the
Company's Bylaws and applicable Maryland law, such agreements may provide
greater assurance to Trustees and executive officers that indemnification will
be available, because, as contracts, they cannot be modified unilaterally by
the Board of Trustees or the shareholders to eliminate the rights they provide.
For a description of the limitation of liability and indemnification rights of
the Company's officers and Trustees, see "Certain Provisions of Maryland Law
and of the Company's Declaration of Trust and Bylaws--Limitation of Liability
and Indemnification."
64
<PAGE>
FORMATION AND OTHER TRANSACTIONS
The Formation Transactions and the other transactions described below were
effected to consolidate the ownership of the Properties and Cabot Partners'
industrial real estate business (and certain of its related assets) in the
Company, to facilitate the IPO and to enable the Company to qualify as a REIT
commencing with its taxable year ending December 31, 1998.
FORMATION TRANSACTIONS
The principal focus of Cabot Partners' real estate advisory services for third
parties had been on assisting pension funds and other institutional investors
in developing industrial real estate investment strategies that were appro-
priate to their needs, implementing such strategies through identifying suit-
able properties for acquisition, acquiring and managing such properties for
the advisory clients and, ultimately, deciding when to sell such investments
and conducting the sale process. Such services were provided pursuant to the
Advisory Contracts entered into between Cabot Partners and the advisory cli-
ent. The advisory clients hold or held such real estate investments in a
variety of forms, predominantly including single asset corporations of which a
single pension fund or other advisory client is the sole direct or indirect
stockholder, but also including direct ownership of the properties in certain
cases and ownership through a corporation established and managed by Cabot
Partners for the purpose of providing a vehicle for pooled investment by
institutional clients.
In preparation for the IPO, Cabot Partners and the Contributing Investors
undertook the transactions summarized below (the "Formation Transactions") for
the purpose of organizing the Company, the Operating Partnership and the Man-
agement Company, and transferring the Properties and Cabot Partners' real
estate advisory and management business and certain related assets to the Com-
pany, the Operating Partnership and the Management Company in a tax efficient
manner. As a result of the Formation Transactions, the Contributing Investors,
including the C-M Property Partnerships (all of the partnership interests in
which were owned by Ferdinand Colloredo-Mansfeld and Franz Colloredo-Mansfeld
and members of their immediate families), became equity investors in the Com-
pany through, in certain cases, direct ownership of Common Shares or, in most
cases, ownership of Units in the Operating Partnership that may, subject to
the limitations described below, be exchanged for Common Shares, which Units
and Common Shares were received by them in exchange for their contributions of
Properties to the Company or the Operating Partnership. Cabot Partners con-
tributed to the Operating Partnership its real estate advisory and management
business and other assets that relate to the Properties contributed to the
Operating Partnership pursuant to the Formation Transactions. Cabot Partners'
Advisory Contracts and assets relating to industrial properties that were not
contributed pursuant to the Formation Transactions are held by the Management
Company. As a result of such contributions, the Company became the indirect
owner of the contributed Properties, through and to the extent of its general
partnership interest in the Operating Partnership, and does not receive advi-
sory or management fees with respect to such Properties. The Properties con-
tributed by the Contributing Investors, including those of the C-M Property
Partnerships, did not comprise all of the industrial properties for which
Cabot Partners provided advisory or management services, nor did the Contrib-
uting Investors comprise all of the advisory clients of Cabot Partners. Each
of the advisory clients of Cabot Partners was offered the opportunity to par-
ticipate in the Formation Transactions.
The Formation Transactions included the following:
(i) The Company was formed as a real estate investment trust under Maryland
law through the filing of the Company's Declaration of Trust with the Mary-
land Secretary of State on October 10, 1997.
(ii) The Operating Partnership was formed as a limited partnership under
Delaware law on October 10, 1997.
(iii) The Operating Partnership incorporated the Management Company as its
wholly-owned subsidiary through the filing of a certificate of incorpora-
tion for the Management Company with the Delaware Secretary of State on
December 22, 1997 and the contemporaneous initial purchase by the Operating
Partnership of 100 shares of the non-voting preferred stock of the Manage-
ment Company.
(iv) The Contributing Investors, including the partners of the C-M Property
Partnerships, contributed certain of their industrial real estate invest-
ment properties (comprising certain of the Properties described herein),
directly or indirectly, to the Operating Partnership. Such contributions
were effected pursuant to the Contribution Agreement, dated as of October
10, 1997, entered into among the Company, the Operating Partnership, Cabot
Partners and each of the Contributing Investors. The Contribution Agreement
provided, among other things, that the Contributing Investors would convey
to the Operating Partnership, or in certain cases directly to the Company,
all of their interests in the Properties, in exchange for a number of
Units, or Common Shares, determined on the basis of the relative derived
contribution amounts of the Properties contributed as compared to the
aggregate derived contribution amounts of all of the Properties and assets
contributed by the Contributing Investors and Cabot Partners in the Forma-
tion Transactions. In the case of contributions of Properties that the Con-
tribution Agreement provided were to be made directly to the
65
<PAGE>
Company in exchange for Common Shares, the Contributing Investor conveyed
such Properties to the Operating Partnership, in exchange for which the
Operating Partnership issued to the Company a number of GP Units in the
Operating Partnership equal to the number of Common Shares issued by the
Company to the Contributing Investor. The determinations of the specific
forms of such contribution transactions and whether Units or Common Shares
were issued in connection therewith were made on bases intended to maximize
the tax efficiency of such contributions taking into account the specific
facts relating to and the organizational structure of the respective con-
tributing entities. As a result of such contributions, and after considera-
tion of the issuance and sale of Common Shares in the IPO and the Concur-
rent Placement, the Contributing Investors (excluding for this purpose the
C-M Property Partnerships) received a total of 22,598,735 Units and
8,961,714 Common Shares. See "Principal and Management Shareholders" for a
listing of Units and Common Shares owned by principal Contributing
Investors as of June 30, 1998.
(v) The Contribution Agreement also provided, among other things, that
Cabot Partners, most of whose partners were Cabot Group Participants, would
contribute to the Operating Partnership (or to a subsidiary thereof) the
Advisory Contracts and other assets relating to Cabot Partner's advisory
and management business, including furniture, fixtures and equipment, gen-
eral intangibles, intellectual property, books and records. As a result of
such contribution and the contribution of the C-M Property Partnerships,
and after consideration of the issuance and sale of Common Shares in the
IPO and the Concurrent Placement, Cabot Partners (on behalf of its indi-
vidual partners) and the partners of the C-M Property Partnerships received
a total of 2,289,551 Units. Of the Units that were received by Cabot Part-
ners and the partners of the C-M Property Partnerships, (i) Ferdinand
Colloredo-Mansfeld, Chief Executive Officer of the Company, received
1,331,657 Units having a value, based on the IPO Price, of approximately
$26.6 million, (ii) Robert E. Patterson, President of the Company, received
128,590 Units having a value, on the same basis, of approximately $2.6 mil-
lion and (iii) no other individual partner of Cabot Partners received more
than 135,515 Units having a value, on the same basis, of approximately $2.7
million. See "Principal and Management Shareholders" for a listing of Units
and Common Shares owned by certain members of management as of June 30,
1998. Cabot Partners' Advisory Contracts and assets relating to industrial
properties that were not contributed pursuant to the Formation Transactions
are held by the Management Company. The Operating Partnership owns 100% of
the non-voting preferred stock of the Management Company. The Operating
Partnership, as the holder of the non-voting preferred stock of the Manage-
ment Company, is entitled to receive quarterly cash dividends equal to 95%
of the Management Company's net operating cash flow and is senior to the
extent of the liquidation preference thereof in a liquidation or dissolu-
tion to any class of the Management Company's common equity. The non-voting
preferred stock is not redeemable by the Management Company or the holder
thereof. Ferdinand Colloredo-Mansfeld owns 100% of the voting common stock
of the Management Company and is entitled to receive quarterly cash divi-
dends equal to 5% of the Management Company's net operating cash flow.
(vi) The Units and Common Shares received by the Contributing Investors
(excluding the C-M Property Partnerships) in connection with the Formation
Transactions are exchangeable for Common Shares on a one-for-one basis or
the cash equivalent thereof (as determined by the Company) beginning Feb-
ruary 4, 1999, or such earlier date as the Company may authorize.
(vii) The Units received by Cabot Partners and the partners of the C-M
Property Partnerships, including Messrs. Colloredo-Mansfeld and members of
their immediate families, in connection with their contributions pursuant
to the Formation Transactions are exchangeable into Common Shares on a one-
for-one basis or the cash equivalent thereof (as determined by the Compa-
ny), beginning February 4, 1999 (or such earlier date as the Company may
authorize); however, such Units or Common Shares may not, subject to cer-
tain exceptions, be disposed of until February 4, 2000 (or such earlier
date as the Company and J.P. Morgan Securities Inc., which firm was the
managing underwriter in the IPO, may authorize).
(viii) The Operating Partnership used approximately $13.2 million of the
net proceeds of the IPO and Concurrent Placement to repay mortgage indebt-
edness secured by certain of the Properties. See "Certain Relationships and
Related Transactions."
In addition to the Properties that were contributed by the Contributing
Investors in the Formation Transactions, the Company agreed prior to the IPO to
purchase 21 Properties from unaffiliated third parties for an aggregate pur-
chase price of approximately $144 million, including approximately $8 million
of existing mortgage indebtedness secured by certain of the Properties which
was assumed by the Operating Partnership. The purchase of such Properties was
completed shortly after the IPO closing. See "Properties."
66
<PAGE>
CONCURRENT PLACEMENT
Concurrently with the Company's sale of Common Shares in its IPO, the Company
also sold $20 million of Common Shares at the IPO Price of $20.00 per Common
Share in the Concurrent Placement to the following investors, for whom Morgan
Stanley Asset Management Inc. ("MSAM") acted as advisor (collectively, the
"Concurrent Investor"): Stichting Bedrijspensioenfonds Voor De
Metaalnijhverheid, Stichting Pensioenfonds ABP, MS Real Estate Special Situa-
tions Inc., The Morgan Stanley Real Estate Special Situations Funds I, L.P.,
The Morgan Stanley Real Estate Special Situations Fund II, L.P. and Morgan
Stanley Real Estate Special Situations Real Estate Investors, L.P. Under the
agreements related to the sale of such shares to the Concurrent Investor, the
Company agreed to file a registration statement with the Commission 180 days
after the Closing Date for the purpose of registering resales, subject to cer-
tain exceptions, of the Common Shares issued to the Concurrent Investor in the
Concurrent Placement and to reimburse the Concurrent Investor for up to
$25,000 of its legal expenses related to the Concurrent Placement. The regis-
tration statement of which this prospectus forms a part was filed in compli-
ance with such agreements.
LIMITATIONS ON REPRESENTATIONS AND WARRANTIES
The Contributing Investors and Cabot Partners have each made certain represen-
tations and warranties to the Company in the Contribution Agreement entered
into among the parties in connection with the Formation Transactions. Such
representations and warranties, which in the case of environmental matters and
certain other matters are limited to the knowledge of specified entities and
persons, relate to, among other things, their authority to enter into the For-
mation Transactions, their ownership of the Properties or other assets con-
tributed by them, and the absence of certain liabilities, and other matters
relating primarily to the condition and operation of the Properties and such
assets. The respective obligations of each Contributing Investor and of Cabot
Partners to indemnify the Company in the event of breach of any of such repre-
sentations and warranties, or breach of certain other provisions of the Con-
tribution Agreement or under certain other circumstances is subject to an
overall limitation under the Contribution Agreement equal to the value (based
on the IPO Price) of the Units or Common Shares received by the Contributing
Investor in the Formation Transactions (or in lieu thereof, the return to the
Company of all such Units or Common Shares received), and is subject to the
further limitation that any such indemnification obligation relating to a spe-
cific Property is limited to the contribution amount assigned to such Property
by the parties in connection with the Formation Transactions. In addition,
such indemnification obligations are generally limited to claims for indemni-
fication made within one year after the completion of the Formation Transac-
tions.
67
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In connection with the formation of the Company and the Operating Partnership
in October 1997, certain Trustees and executive officers, members of their
family and certain other persons (collectively, the "Cabot Group Participants")
received a total of 1,705,506 Units in exchange for their interests in C-M
Holdings L.P. and its affiliated partnerships ("C-M Property Partnerships")
and/or Cabot Partners, respectively. These Units (representing approximately
3.9% of the common equity of the Company, assuming all outstanding Units not
held by the Company are exchanged for Common Shares on a one-for-one basis) had
a total value of approximately $34.1 million, based on the IPO Price of $20.00
per share. The Cabot Group Participants' partnership interests for the C-M
Property Partnerships and Cabot Partners had an aggregate net book value of
$5.1 million as of September 30, 1997. The aggregate cost to the Cabot Group
Participants for these partnership interests was $8.8 million, resulting in an
unrealized gain of approximately $25.3 million. The C-M Property Partnerships
were owned by Ferdinand Colloredo-Mansfeld, the Company's Chairman and Chief
Executive Officer, and members of his immediate family, including Franz
Colloredo-Mansfeld, the Company's Chief Financial Officer, with Ferdinand
Colloredo-Mansfeld owning a 97% partnership interest therein and Franz
Colloredo-Mansfeld and other family members holding 1% and 2% partnership
interests therein, respectively. Of the total number of Units received by the
Cabot Group Participants in connection with the formation of the Company and
the Operating Partnership, (i) Ferdinand Colloredo-Mansfeld received 1,331,657
Units having a value, based on the IPO Price, of approximately $26.6 million in
exchange for his partnership interests in the C-M Property Partnerships and
Cabot Partners, which had an aggregate cost of $4.7 million and $3.9 million,
respectively, (ii) Robert E. Patterson, President of the Company, received
128,590 Units having a value, on such basis, of approximately $2.6 million in
exchange for his partnership interests in Cabot Partners, which had an aggre-
gate cost of $59,000, and (iii) the other executive officers of the Company
received 165,904 Units having a value, on such basis, of approximately $3.3
million in exchange for partnership interests in the C-M Property Partnerships
and Cabot Partners, which had an aggregate cost of $62,000. In addition, the
Company reimbursed or will reimburse Cabot Partners for approximately $1.2 mil-
lion of out-of-pocket expenses incurred by Cabot Partners in connection with
the formation of the Company pursuant to the terms of the Contribution Agree-
ment, dated October 10, 1997, entered into in connection with the formation of
the Company.
In addition, the Contributing Investors received a total of 22,598,735 Units
and 8,961,714 Common Shares in exchange for their interests in the properties
that were contributed to the Company and/or the Operating Partnership in con-
nection with their formation. These Units and Common Shares (representing
approximately 72.5% of the common equity of the Company, assuming all out-
standing Units not held by the Company are exchanged for Common Shares on a
one-for-one basis.) had a total value of approximately $631.2 million based on
the IPO Price, compared to the aggregate cost of such properties of approxi-
mately $655.9 million. The Contributing Investors include CP Investment Proper-
ties, Inc. (the title holding entity of IBM Retirement Plan Trust), nine title
holding entities of New York Teachers' Retirement System, State of Wisconsin
Investment Board, CP REPROP Corp. (the title holding entity of the Leland Stan-
ford Jr. Endowment Fund), West Coast Industrial, L.L.C. (the title holding
entity of Argo Partnership II, L.P.), Keystone-New Jersey Property Holding
Corp., Keystone-Ohio Property Holding Corp. and Keystone-Illinois Property
Holding Corp. (the title holding entities of Pennsylvania Public School
Employes' Retirement System), Herrod Associates and The Prudential Insurance
Company of America.
The Units received by the Cabot Group Participants and the Contributing
Investors in connection with the formation of the Company and the Operating
Partnership may, in accordance with the Operating Partnership Agreement, be
exchanged in whole or in part for Common Shares on a one-for-one basis or, at
the election of the Company, the cash equivalent thereof, at any time com-
mencing February 4, 1999. The Company currently expects that it will not elect
to pay cash for Units in connection with any such exchange request, but instead
will issue Common Shares in exchange for such Units. The receipt and retention
of the Units in exchange for contributed assets may provide the Cabot Group
Participants and certain of the Contributing Investors with continued deferral
of the taxable gain associated with dispositions of those assets.
In connection with the formation of the Management Company in December 1997,
Cabot Partners contributed to the Management Company certain advisory contracts
and other assets relating to properties that were not contributed to the Com-
pany or the Operating Partnership. The Operating Partnership owns all of the
non-voting preferred stock of the Management Company, is entitled to receive
quarterly cash dividends equal to 95% of the Management Company's net operating
cash flow and is senior in liquidation or dissolution to the extent of the liq-
uidation preference of the preferred stock to the Management Company's common
equity. Ferdinand Colloredo-Mansfeld acquired all of the voting common stock of
the Management Company for a cash purchase price of $100,000 and is entitled to
receive quarterly cash dividends equal to 5% of the Management Company's net
operating cash flow.
68
<PAGE>
REPAYMENT OF DEBT
Approximately $18.4 million of indebtedness secured by the Properties contrib-
uted by the C-M Property Partnerships was assumed by the Operating Partnership
and approximately $13.2 million of such indebtedness was repaid from the pro-
ceeds of the Company's IPO and Concurrent Placement.
OPTIONS GRANTED
The Company granted options to purchase an aggregate of 1,675,000 Units that
are convertible into an equal number of Common Shares under the Company's Long
Term Incentive Plan at the IPO Price to senior executive officers of the Com-
pany, subject to certain vesting requirements. See "Management--Long Term
Incentive Plan."
69
<PAGE>
PRINCIPAL AND MANAGEMENT SHAREHOLDERS
The following table sets forth, as of June 30, 1998, the beneficial ownership
of Common Shares of (i) each person known by the Company to own more than 5% of
the Common Shares, (ii) each Trustee and nominee, (iii) each of the Named Exec-
utive Officers; and (iv) all Trustees and executive officers of the Company as
a group. The table also sets forth the number of Units of each beneficial owner
of Units who, upon exchange of Units for Common Shares, would own more than 5%
of the Common Shares, and by the persons and group specified in clauses (ii)
through (iv) above. Pursuant to the Operating Partnership Agreement, the Units
are exchangeable for Common Shares on a one-for-one basis or the cash equiva-
lent thereof (as determined by the Company) beginning February 4, 1999, or such
earlier date as the Company may authorize. Unless otherwise indicated, the per-
sons and entities named below have sole voting and investment power with
respect to all Common Shares and Units shown as beneficially owned by them.
<TABLE>
<CAPTION>
---------------------------------------------
PERCENT OF
ALL COMMON PERCENT OF
COMMON SHARES ALL COMMON
NAMES AND ADDRESS OF BENEFICIAL OWNERS(1) SHARES UNITS AND UNITS(2) SHARES(3)
- ----------------------------------------- --------- ---------- ------------ ----------
<S> <C> <C> <C> <C>
Ferdinand Colloredo-Mansfeld 1,050 1,331,657 3.1% 6.7%
Robert E. Patterson(4) 14,000 128,590 * *
Franz Colloredo-Mansfeld 4,000 25,991 * *
Andrew D. Ebbott 1,000 36,499 * *
Howard B. Hodgson, Jr. 1,000 36,499 * *
Eugene F. Reilly -- 30,416 * *
Neil E. Waisnor -- 36,499 * *
Noah T. Herndon 5,000 -- * *
Christopher C. Milliken 100 -- * *
Maurice Segall 2,500 -- * *
W. Nicholas Thorndike 5,000 -- * *
Ronald L. Skates(5) 10,000 -- * *
IBM Retirement Plan Trust(6) -- 10,246,244 23.5 35.5
Pennsylvania Public School
Employes' Retirement System(7) -- 5,502,973 12.6 22.8
New York State Teachers'
Retirement System(8) 2,186,947 3,764,579 13.7 26.6
State of Wisconsin Investment
Board(9) 2,959,534 -- 6.8 15.9
Leland Stanford Jr. Endowment
Fund(10) -- 2,367,923 5.4 11.3
The Prudential Insurance Company
of America(11) 2,504,699 -- 5.8 13.5
Argo Partnership II, L.P.(12) 1,586,484 -- 3.6 8.5
Morgan Stanley Asset Management
Inc.(13) 1,000,000 -- 2.3 5.4
All Trustees, and executive
officers as a group (12
persons) 43,650 1,626,151 3.8 8.3
</TABLE>
- -------
* Less than 1%.
(1) Unless otherwise indicated, the address of each named person or title
holding entity is c/o Cabot Industrial Trust, Two Center Plaza, Suite 200, Bos-
ton, Massachusetts 02108. Does not include options to purchase Common Shares or
Units held by officers and Trustees of the Company. See "Management"
(2) Assumes that all Units are exchanged for Common Shares on a one-for-one
basis (without regard to the prohibition on exchange of 22,699,884 and
2,228,719 Units until February 4, 1999 and 2000, respectively).
(3) Assumes that all Units beneficially owned by the identified person or group
(and no other person) are exchanged for Common Shares on a one-for-one basis
(without regard to the prohibition on exchange of 22,699,884 and 2,228,719
Units until February 4, 1999 and 2000, respectively).
(4) Includes 2,000 Common Shares held by Mr. Patterson's children and 12,000
Common Shares held by trust with respect to which he has shared voting and
investment power. Mr. Patterson disclaims beneficial ownership of these Common
Shares.
(5) Includes 2000 Common Shares in which Mr. Skates has shared voting and
investment powers, owned by family trusts of which Mr. Skates is co-trustee and
in which each trustee has the power without the other to both vote and dispose
of trust assets.
(6) Information based on a Schedule 13G dated April 22, 1998 filed with the
Securities and Exchange Commission. The address of IBM Retirement Plan Trust is
3001 Summer Street, Stamford, Connecticut 06905.
70
<PAGE>
(7) Units held of record by Keystone-Illinois Property Holding Corp., Keystone-
New Jersey Property Holding Corp. and Keystone-Ohio Property Holding Corp.
which are each wholly owned by Pennsylvania Public School Employes' Retirement
System. The business address of these unitholders is 875 North Michigan Avenue,
Suite 4114, Chicago, Illinois 60611.
(8) Common Shares and Units held of record by three title holding entities and
six title holding entities, respectively, which are each wholly owned by New
York State Teachers' Retirement Systems. The business address of these entities
is c/o Bankers Trust Company, 14 Wall Street, New York, New York 10005.
(9) Information based on a Schedule 13G dated March 10, 1998 filed with Securi-
ties and Exchange Commission. The address of State of Wisconsin Investment
Board is P.O. Box 7842, Madison, Wisconsin 53707.
(10) Units held of record by CP REPROP Corp., which is wholly owned by the
Leland Stanford Jr. Endowment Fund. The business address of these entities is
c/o Stanford Management Company, 2770 Sand Hill Road, Menlo Park, California
94025.
(11) Includes 950 shares with respect to which The Prudential Insurance Company
of America ("Prudential") has shared voting and investment power. Information
based on a Schedule 13G dated March 9, 1998 filed with the Securities and
Exchange Commission. Prudential's address is 751 Broad Street, Newark, New
Jersey 07102-3777.
(12) Common Shares held of record by West Coast Industrial, L.L.C. which are
beneficially owned by its managing member, Argo Partnership II, L.P., whose
business address is c/o The O'Connor Group, 399 Park Avenue, New York, New York
10022.
(13) Common Shares held of record by Morgan Stanley Asset Management Inc.
("MSAM") as advisor to Stichting Bedrijspensioenfonds Voor De
Metaalnijhverheid, Stichting Pensioenfonds ABP, MS Real Estate Special Situa-
tions Inc., The Morgan Stanley Real Estate Special Situations Funds I, L.P.,
The Morgan Stanley Real Estate Special Situations Fund II, L.P., Morgan Stanley
Real Estate Special Situations Real Estate Investors, L.P. MSAM and Morgan
Stanley, Dean Witter, Discover & Co., as the owner of all of the common stock
of MSAM, are deemed beneficially to own the Common Shares beneficially owned by
these entities. MSAM maintains its principal office at 1221 Avenue of the Amer-
icas, New York, New York 10020 and Morgan Stanley, Dean Witter, Discover & Co.
disclaim beneficial ownership of such Common Shares.
71
<PAGE>
SELLING SHAREHOLDERS
The following table sets forth the names of the Selling Shareholders and the
respective numbers of Common Shares that may be sold by each pursuant to this
Prospectus.
<TABLE>
<CAPTION>
------------------------------
COMMON SHARES COMMON SHARES
OWNED PRIOR THAT MAY BE
SELLING SHAREHOLDER TO THE OFFERING SOLD HEREUNDER
- ------------------- --------------- --------------
<S> <C> <C>
Robert M. Angland(1) 74,683 74,683
Morgan Stanley Real Estate Special Situations
Real Estate Investors, L.P. 17,185 17,185
MS Real Estate Special Situations Inc. 178,102 178,102
Morgan Stanley Special Situations Fund I, L.P. 202,020 202,020
Morgan Stanley Special Situations Fund II, L.P. 269,360 269,360
Stichting Bedrijspensioenfonds Voor De
Metaalnijhverheid 133,333 133,333
Stichting Pensionfonds ABP 200,000 200,000
</TABLE>
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(1) Mr. Angland retired from his position as an officer of Cabot Partners,
which was the sponsor and organizer of the Company, in December, 1997.
For a description of certain contractual arrangements pursuant to which the
Company agreed to effect the registration of the Common Shares covered hereby
under the Securities Act, see "Shares Available for Future Sale."
The Common Shares are being registered to permit public sales of the Common
Shares from time to time by the Selling Shareholders. All of the Common Shares
covered hereby were sold by the Company to the Selling Shareholders in private
placement transactions pursuant to certain agreements (the "Purchase Agree-
ments") with the Company dated December 1997 and February 1998 or, in the case
of Mr. Angland, are issuable upon exchange of Units issued in connection with
the Formation Transactions.
The Company agreed, among other things, to bear all expenses (other than under-
writing discounts, selling commissions, and fees and expenses of counsel and
other advisors to the Selling Shareholders) in connection with the registration
and sale of the Common Shares issued to Selling Shareholders pursuant to the
Purchase Agreements. The Company has agreed to prepare and file such amendments
and supplements to the Registration Statement of which this Prospectus forms a
part as may be necessary to keep the Registration Statement effective until all
the Common Shares offered hereby have been sold pursuant thereto or until such
Shares are no longer, by reason of Rule 144(k) under the Securities Act or any
other rule of similar effect, required to be registered for the public sale
thereof by the Selling Shareholders.
PLAN OF DISTRIBUTION
The Company has been advised that the Selling Shareholders may sell Common
Shares covered hereby from time to time in transactions on the NYSE, in negoti-
ated transactions, or a combination of such methods of sale, at fixed prices
which may be changed from time to time, at market prices prevailing at the time
of sale, at prices related to such prevailing market prices or at negotiated
prices. The Selling Shareholders may effect such transactions directly or
through broker-dealers, and such broker-dealers may receive compensation in the
form of discounts, concessions or commissions from the Selling Shareholders
and/or the purchasers of the Common Shares for whom such broker-dealers may act
as agent or to whom they may sell as principal, or both. Such compensation to a
particular broker-dealer may exceed customary brokerage commissions.
Any agents or broker-dealers that participate in a distribution of Common
Shares hereunder may be deemed to be "underwriters" within the meaning of the
Securities Act, and any commissions received or any profit realized by them on
the resale of the Common Shares may be deemed to be underwriting commissions or
discounts under the Securities Act. The Company has agreed to indemnify the
Selling Shareholders against certain liabilities, including certain liabilities
arising under the Securities Act.
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DESCRIPTION OF SHARES OF BENEFICIAL INTEREST
The following summary of the terms of the shares of beneficial interest of the
Company does not purport to be complete and is subject to and qualified in its
entirety by reference to Maryland law and to the Declaration of Trust and
Bylaws of the Company.
GENERAL
The Declaration of Trust of the Company provides that the Company may issue up
to 150,000,000 shares of beneficial interest (the "Shares"), which may consist
of Common Shares and preferred shares of beneficial interest, $.01 par value
per share ("Preferred Shares"), in such combination as the Trustees may deter-
mine. At June 30, 1998, the Company had issued and outstanding 18,586,764
Common Shares and had issued no Preferred Shares. As permitted by Title 8 of
the Corporations and Associations Article of the Annotated Code of Maryland, as
amended (the "Maryland REIT Law"), the Declaration of Trust contains a provi-
sion permitting the Board of Trustees, without any action by the shareholders
of the Company, to amend the Declaration of Trust to increase or decrease the
aggregate number of shares of beneficial interest or the number of shares of
any class of shares of beneficial interest that the Trust has authority to
issue. The Company believes that the power of the Board of Trustees to issue
additional shares of beneficial interest provides the Company with increased
flexibility in structuring possible future financings and acquisitions and in
meeting other needs that might arise. The additional shares of beneficial
interest, including possibly Common Shares, will be available for issuance
without further action by the Company's shareholders, unless action by the
shareholders 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. Acting pursuant to this authority, the Board has authorized the
issuance of a new class of Preferred Shares in connection with its adoption of
the Shareholder Rights Plan described below. See "--Shareholder Rights Plan."
Although the Board of Trustees currently has no intention of doing so, it could
also authorize the Company to issue a class or series of shares of beneficial
interest that could, depending on 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 the Common Shares or might otherwise be in the best
interests of the shareholders.
Both the Maryland REIT Law and the Company's Declaration of Trust provide that
no shareholder of the Company will be personally liable for any obligation of
the Company solely as a result of such shareholder's status as a shareholder of
the Company. The Company's Declaration of Trust further provides that the Com-
pany will indemnify and hold each shareholder harmless against any claim or
liability to which the shareholder may become subject by reason of such share-
holder's being or having been a shareholder or former shareholder, subject to
such shareholder providing prompt notice to the Company. The Company must also
pay or reimburse each shareholder or former shareholder for all legal and other
expenses reasonably incurred by such shareholder in connection with any claim
or liability unless it is established by a court that such claim or liability
arose out of such shareholder's bad faith, willful misconduct or gross negli-
gence. In addition, the Company, as a matter of general practice, includes pro-
visions in its contracts to the effect that its shareholders assume no personal
liability for obligations entered into on behalf of the Company. Nevertheless,
with respect to tort claims, contractual claims where shareholder liability is
not so negated, claims for taxes and certain statutory liabilities, judicial
decisions relating to business trusts organized under the laws of certain
jurisdictions other than Maryland might be asserted in such jurisdictions as a
basis for personal liability of shareholders of the Company to the extent that
any such claims are not satisfied by the Company. Inasmuch as the Company car-
ries public liability insurance, which it considers adequate, any risk of per-
sonal liability to shareholders is limited to situations in which the Company's
assets plus its insurance coverage would be insufficient to satisfy the claims
against the Company and its shareholders.
COMMON SHARES
All of the Common Shares covered hereby are duly authorized, fully paid and
nonassessable. Subject to the preferential rights of any other shares or series
of beneficial interest and to the provisions of the Company's Declaration of
Trust regarding the restriction on transfer of Common Shares, holders of Common
Shares are entitled to receive dividends on such shares if, as and when autho-
rized and declared by the Board of Trustees of the Company out of assets
legally available therefor and to share ratably in the assets of the Company
legally available for distribution to its shareholders in the event of its liq-
uidation, dissolution or winding-up after payment of, or adequate provision
for, all known debts and liabilities of the Company.
Each outstanding Common Share entitles the holder of such Common Share to one
vote on all matters submitted to a vote of shareholders, including the election
of Trustees, and, except as provided with respect to any other class or series
of shares of beneficial interest, the holders of such Common Shares possess the
exclusive voting power. There is no cumulative voting in the election of Trust-
ees, which means that the holders of a majority of the outstanding Common
Shares can
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elect all of the Trustees then standing for election and the holders of the
remaining shares will not be able to elect any Trustees. Holders of Common
Shares have no preference, conversion, sinking fund, redemption or appraisal
rights and have no preemptive rights to subscribe for any securities of the
Company. Subject to the provisions of the Declaration of Trust regarding the
restriction on transfer of Common Shares, Common Shares have equal dividend,
distribution, liquidation and other rights.
Under the Maryland REIT Law, a Maryland real estate investment trust generally
cannot amend its declaration of trust or merge unless approved by the affirma-
tive vote of shareholders 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 the votes entitled to be cast on the matter) is set forth in the real
estate investment trust's declaration of trust. The Company's Declaration of
Trust provides for approval by a majority of the votes cast by holders of
Common Shares entitled to vote on the matter in all situations permitting or
requiring action by the shareholders, except with respect to: (i) the election
of Trustees (which requires a plurality of all the votes cast at a meeting of
shareholders of the Company at which a quorum is present), (ii) the removal of
Trustees (which requires the affirmative vote of the holders of two-thirds of
the outstanding shares of beneficial interest of the Company entitled to vote
generally in the election of Trustees, which action can only be taken by vote
at a shareholder meeting), (iii) the merger of the Company into a new entity,
consolidation or sale (or other disposition) of all or substantially all of the
assets of the Company (which requires the affirmative vote of the holders of
two-thirds of the outstanding shares entitled to vote on the matter, which
action can only be taken by vote at a shareholder meeting), (iv) the amendment
of the Declaration of Trust by shareholders, including the amendment or repeal
of the Independent Trustee provision (which requires the affirmative vote of a
majority of votes entitled to be cast on the matter, except under certain cir-
cumstances specified in the Declaration of Trust which require the affirmative
vote of two-thirds of all the votes entitled to be cast on the matter), and (v)
the dissolution of the Company (which requires the affirmative vote of two-
thirds of the outstanding shares entitled to vote on the matter). The Company
has agreed pursuant to the Operating Partnership Agreement that Limited Part-
ners also have voting rights with respect to certain of the foregoing actions
for a limited period. See "Partnership Agreement of Operating Partnership--Man-
agement." As allowed under the Maryland REIT Law, the Company's Declaration of
Trust permits the Trustees by a two-thirds vote to amend the Declaration of
Trust from time to time to qualify as a real estate investment trust under the
Code or the Maryland REIT Law without the approval of the shareholders. As per-
mitted by the Maryland REIT Law, the Declaration of Trust contains a provision
permitting the Board of Trustees, without any action by the shareholders of the
Company, to amend the Declaration of Trust to increase or decrease the aggre-
gate number of shares of beneficial interest or the number of shares of any
class of shares of beneficial interest that the Company has authority to issue.
SHAREHOLDER RIGHTS PLAN
The Board of Trustees of the Company has adopted a Shareholder Rights Plan pur-
suant to which one preferred share purchase right (a "Right") has been distrib-
uted with respect to each outstanding Common Share of the Company. Holders of
additional Common Shares issued after the date of such distribution and before
the expiration of the Rights (or the Distribution Date, as defined below) will
receive one Right for each such additional Common Share. The Rights will expire
on June 11, 2008 unless earlier redeemed or exchanged by the Company. Each
Right entitles the registered holder, under certain circumstances, to purchase
from the Company one one-hundredth of a Series A Junior Participating Preferred
Share, par value $0.01 per share, of the Company (the "Participating Preferred
Shares") at a price of $85.00 per one one-hundredth of a Participating Pre-
ferred Share, subject to adjustment. The terms of the Rights are set forth in a
Rights Agreement, dated as of June 11, 1998, between the Company and
BankBoston, N.A., as Rights Agent (the "Rights Agreement").
The Participating Preferred Shares will not be redeemable by the Company and
will each be entitled to minimum preferential quarterly dividends, when and if
declared by the Board of Trustees out of funds legally available therefor,
equal to the greater of $1.00 per share and 100 times any dividend or other
distribution declared per Common Share. Each Participating Preferred Share will
entitle the holder thereof to 100 votes, voting together with the Common
Shares, on all matters presented for consideration by the holders of the Common
Shares. In addition, each Participating Preferred Share will be entitled to a
minimum preferential liquidation payment equal to the greater of $1.00 per
share and 100 times any liquidation payment made per Common Share and will be
entitled to receive 100 times the amount received per common share in the event
of any merger, consolidation or other transaction in which Common Shares are
exchanged. The terms of the Participating Preferred Shares are set forth in
Articles Supplementary to the Declaration of Trust of the Company which are
included as exhibits to the Registration Statement of which this Prospectus
forms a part and which should be read for a complete statement of such terms.
The Shareholder Rights Plan is intended to discourage coercive or unfair take-
over tactics and to encourage any potential acquirer of the Company to nego-
tiate directly with the Company's Board of Trustees. The Rights issued pursuant
to the
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Shareholder Rights Plan are intended to achieve this result by raising the pos-
sibility of substantial dilution to a person or group of persons that attempts
to acquire the Company on terms not approved by the Board of Trustees.
Initially the rights will be attached to and evidenced solely by the certifi-
cates evidencing Common Shares. The Rights will become exercisable and will be
evidenced by separate certificates only after the earliest to occur of (i) 10
days following public announcement that a person or group of affiliated or
associated persons has acquired beneficial ownership of 15% or more of the out-
standing Common Shares (thereby becoming an "Acquiring Person"), (ii) fifteen
business days following the commencement of, or the announcement of an inten-
tion to commence, a tender or exchange offer the consummation of which would
result in the beneficial ownership by any person of 15% or more of the out-
standing Common Shares or (iii) 10 business days after the filing of any appli-
cation, request or other document with a governmental agency seeking approval
of, attempting to rebut any presumption of control upon, or indicating an
intention to enter into, any transaction or series of transactions that would
result in any person becoming the beneficial owner of 15% or more of the out-
standing Common Shares (the first of such dates to occur being referred to as
the "Distribution Date"). Certain existing holders of Common Shares specified
in the Rights Agreement (the "Grandfathered Persons") who may be deemed benefi-
cially to own 15% or more of the Common Shares as of the date of the initial
distribution of the Rights will not be deemed to be an Acquiring Person unless
such Grandfathered Person becomes the beneficial owner of an additional 1% of
the outstanding Common Shares without the prior written approval of the Com-
pany.
If any person or group of affiliated or associated persons becomes an Acquiring
Person, each holder of a Right, other than Rights beneficially owned by the
Acquiring Person, will have the right to receive, upon exercise thereof, a
number of Common Shares having a market value equal to two times the exercise
price of the Rights. In lieu of the issuance of Common Shares upon the exercise
of Rights, the Board of Trustees may under certain circumstances, and if there
is an insufficient number of Common Shares authorized but unissued to permit
the exercise of the Rights in full, the Board is required to, take such action
as may be necessary to cause the Company to issue or pay upon the exercise of
Rights, cash (including by way of a reduction of the Purchase Price), property,
other securities or any combination of the foregoing having an aggregate value
equal to that of the Common Shares which otherwise would have been issuable
upon exercise of the Rights. The Company may permit the Rights to be exercised
for 50% of the Common Shares (or cash, property or other securities that may be
substituted for Common Shares) that would otherwise be purchasable upon exer-
cise thereof in consideration of the surrender of the Rights so exercised and
without other payment of the exercise price of the Rights. If the Company is
acquired in a merger or other business combination transaction, or 50% or more
of its consolidated assets or earning power are sold after any person or group
has become an Acquiring Person, the Rights Agreement requires that proper pro-
vision be made so that each holder of a Right will thereafter have the right to
receive, upon exercise thereof, a number of shares of common stock of the
acquiring company having a market value equal to two times the exercise price
of the Rights.
At any time after any person or group becomes an Acquiring Person and prior to
the acquisition by that person or group of 50% or more of the outstanding
Common Shares, the Board of Trustees may exchange the Rights (other than Rights
owned by that person or group), in whole or in part, at an exchange ratio of
one Common Share (or one one-hundredth of a Participating Preferred Share) per
Right.
At any time before a person or group of persons becomes an Acquiring Person,
the Board of Trustees may redeem the Rights, in whole but not in part, at a
redemption price of $0.01 per Right (the "Redemption Price"), payable in cash,
Common Shares or any other form of consideration deemed appropriate by the
Board of Trustees. The redemption of the Rights may be made effective at such
time, on such basis and with such conditions as the Board of Trustees in its
sole discretion may establish.
CLASSIFICATION OR RECLASSIFICATION OF COMMON SHARES OR PREFERRED SHARES
The Declaration of Trust authorizes the Board of Trustees to classify any
unissued Shares and to reclassify any previously classified but unissued Shares
of any series from time to time in one or more series, as authorized by the
Board of Trustees. Prior to issuance of shares of each series, the Board of
Trustees is required by the Maryland REIT Law and the Company's Declaration of
Trust to set for each such class or series, subject to the provisions of the
Company's Declaration of Trust regarding the restriction on transfer of shares
of beneficial interest, the terms, the preferences, conversion or other rights,
voting powers, restrictions, limitations as to dividends or other distribu-
tions, qualifications and terms or conditions of redemption for each such
series. Thus, the Board of Trustees could authorize the issuance of Preferred
Shares 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 Common Shares or otherwise
might be in their best interest.
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RESTRICTIONS ON TRANSFER
For the Company to qualify as a REIT under the Code, it must meet certain
requirements concerning the ownership of its outstanding shares of beneficial
interest. Specifically, not more than 50% in value of the Company's outstanding
shares of beneficial interest may be owned, directly or indirectly, by five or
fewer individuals (as defined in the Code to include certain entities) at any
time during the last half of a taxable year (other than the first year the
election to be a REIT has been made), and the Company must be beneficially
owned by 100 or more persons during at least 335 days of a taxable year of
twelve months or during a proportionate part of a shorter taxable year. See
"Federal Income Tax Consequences--Taxation of the Company."
For this reason, among others, the Declaration of Trust, subject to certain
exceptions described below and to possible limited exceptions regarding certain
Contributing Investors, provides that no person may own, or be deemed to own by
virtue of the attribution provisions of the Code, more than (i) 9.8% of the
Company's issued and outstanding Shares, or (ii) 9.8% of the total value of
such Shares (the "Ownership Limit"). Any transfer of Common or Preferred Shares
that would (i) result in any person owning, directly or indirectly, Common or
Preferred Shares in excess of the Ownership Limit, (ii) result in the Common
and Preferred Shares being owned by fewer than 100 persons (determined without
reference to any rules of attribution), or (iii) result in the Company being
"closely held" within the meaning of Section 856(h) of the Code, shall be null
and void, and the intended transferee will acquire no rights in such Common or
Preferred Shares.
Subject to certain exceptions described below, if any purported transfer of
Common or Preferred Shares would (i) result in any person owning, directly or
indirectly, Common or Preferred Shares in excess of the Ownership Limit, or
(ii) result in the Company being "closely held" within the meaning of Section
856(h) of the Code, the Common or Preferred Shares will be designated as excess
shares (the "Excess Shares") and transferred automatically to a trust (the
"Share Trust") effective as of the close of business on the business day before
the purported transfer of such Common or Preferred Shares. The record holder of
the Common or Preferred Shares that are designated as Excess Shares (the "Pur-
ported Transferee") will have no rights in such shares except as described
below. The trustee of the Share Trust (the "Share Trustee") will be designated
by the Company, but will not be affiliated with the Company. The beneficiary of
the Share Trust (the "Beneficiary") will be one or more charitable organiza-
tions that are named by the Company.
Excess Shares will remain issued and outstanding Common or Preferred Shares and
will be entitled to the same rights and privileges as all other shares of the
same class or series. The Share Trust will receive all dividends and distribu-
tions on the Excess Shares and will hold such dividends and distributions in
trust for the benefit of the Beneficiary. The Share Trustee will vote all
Excess Shares. At the direction of the Company, the Share Trustee must transfer
the Shares held in the Excess Share Trust to a person whose ownership of the
Shares will not violate the Ownership Limit. Such transfer must be made within
60 days after the latest of (i) the date of the transfer that resulted in such
Excess Shares and (ii) the date that the Board of Trustees determines in good
faith that a transfer resulting in Excess Shares has occurred, if the Company
does not receive notice of such transfer (as described below). Upon such a
transfer, which is subject to the Company waiving its purchase right described
below, the Purported Transferee generally will receive from the Share Trustee
the lesser of (i) the price per share such Purported Transferee paid for the
Common or Preferred Shares that were designated as Excess Shares (or, in the
case of a gift or devise, the Market Price (as defined below) per share on the
date of such transfer) and (ii) the price per share received by the Share
Trustee from the sale of such Excess Shares. Any amounts received by the Share
Trustee in excess of the amounts to be paid to the Purported Transferee will be
distributed to the Beneficiary.
The Excess Shares will be deemed to have been offered for sale to the Company,
or its designee, at a price per share equal to the lesser of (i) the price per
share in the transaction that created such Excess Shares (or, in the case of a
gift or devise, the Market Price per share on the date of such transfer) and
(ii) the Market Price per share on the date that the Company, or its designee,
accepts such offer. The Company will have the right to accept such offer for a
period of ninety days after the later of (i) the date of the purported transfer
which resulted in such Excess Shares and (ii) the date the Company determines
in good faith that a transfer resulting in such Excess Shares occurred.
"Market Price" means the last reported sales price reported on the NYSE for a
particular class of Shares on the trading day immediately preceding the rele-
vant date, or if not then traded on the NYSE, the last reported sales price for
such class of Shares on the trading day immediately preceding the relevant date
as reported on any exchange or quotation system over or through which such
class of Shares may be traded, or if not then traded over or through any
exchange or quotation system, then the market price of such class of Shares on
the relevant date as determined in good faith by the Board of Trustees.
Any person who acquires or attempts to acquire Common or Preferred Shares in
violation of the foregoing restrictions, or any person who owned Common or Pre-
ferred Shares that were transferred to a Share Trust, will be required (i) to
give
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immediately written notice to the Company of such event or, in the event of a
proposed or attempted transfer, must give at least 15 days prior written notice
to the Company of such event, and (ii) to provide to the Company such other
information as the Company may request in order to determine the effect, if
any, of such transfer on the Company's status as a REIT.
The Declaration of Trust requires all persons who own, directly or indirectly,
more than 5% (or such lower percentages as required pursuant to regulations
under the Code) of the number or value of the outstanding Common and Preferred
Shares, within 30 days after January 1 of each year, to provide to the Company
a written statement stating the name and address of such direct or indirect
owner, the number of Common and Preferred Shares owned directly or indirectly,
and a description of how such shares are held. In addition, each direct or
indirect shareholder shall provide to the Company such additional information
as the Company may request in order to determine the effect, if any, of such
ownership on the Company's status as a REIT and to ensure compliance with the
Ownership Limit.
The Ownership Limit generally will not apply to the acquisition of Common or
Preferred Shares by an underwriter that participates in a public offering of
such shares. In addition, the Board of Trustees, upon receipt of a ruling from
the Service or an opinion of counsel and upon such other conditions as the
Board of Trustees may direct, may exempt a person from the Ownership Limit
under certain circumstances. However, the Board may not grant an exemption from
the Ownership Limit to any proposed transferee whose ownership, direct or indi-
rect, of shares of beneficial interest of the Company in excess of the Owner-
ship Limit would result in the termination of the Company's status as a REIT.
The foregoing restrictions will continue to apply until the Board of Trustees
determines that it is no longer in the best interests of the Company to attempt
to qualify, or to continue to qualify, as a REIT.
The Ownership Limit could have the effect of delaying, deferring or preventing
a transaction or a change in control of the Company that might involve a pre-
mium price for the Common Shares or otherwise be in the best interest of the
shareholders of the Company.
All certificates representing Common or Preferred Shares bear a legend refer-
ring to the restrictions described above.
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CERTAIN PROVISIONS OF MARYLAND LAW AND OF
THE COMPANY'S DECLARATION OF TRUST AND BYLAWS
The following summary of certain provisions of Maryland law and of the Declara-
tion of Trust and Bylaws of the Company does not purport to be complete,
although the Company believes all material provisions thereof are described,
and is qualified in its entirety by reference to Maryland law and to the Decla-
ration of Trust and Bylaws of the Company, copies of which were exhibits to a
Registration Statement previously filed. See "Additional Information."
CLASSIFICATION OF THE BOARD OF TRUSTEES
The Company's Declaration of Trust provides that the number of Trustees of the
Company cannot be less than three nor more than 15. As of June 30, 1998, there
are seven Trustees. The Trustees are divided into three classes, with terms of
three years each and with one class to be elected at each annual meeting of
shareholders. The classified Board of Trustees could have the effect of making
the removal of incumbent Trustees time-consuming and difficult, which could
discourage a third party from making a tender offer or otherwise attempting to
effect a change in control of the Company that a majority of shareholders may
believe to be beneficial to the Company and its shareholders.
VACANCIES
Any vacancy on the Board of Trustees arising for any cause other than an
increase in the number of Trustees may be filled by a majority of the remaining
Trustees, even if less than a quorum, or by a sole remaining Trustee. Any
vacancy created by an increase in the number of Trustees may be filled by a
majority of the entire Board of Trustees. Only the Independent Trustees may
nominate a replacement for a vacancy in an Independent Trustee position. Any
Trustee elected to fill a vacancy will hold office until the next annual
meeting of shareholders. A Trustee elected at an annual meeting of shareholders
to fill a vacancy will have the same remaining term as that of his or her pred-
ecessor.
REMOVAL OF TRUSTEES
The Declaration of Trust provides that a Trustee may be removed with or without
cause upon the affirmative vote of at least two-thirds of the votes entitled to
be cast in the election of Trustees, but only by a vote taken at a shareholder
meeting. This provision has the effect of limiting shareholders' power to
remove incumbent Trustees to cases in which a substantial majority of share-
holders approve such removal.
BUSINESS COMBINATIONS
Under the MGCL, as applicable to Maryland real estate investment trusts, cer-
tain "business combinations" (including mergers, consolidations, share
exchanges and asset transfers and certain issuances or reclassifications of
equity securities) between a Maryland real estate investment trust and any
person who beneficially owns ten percent or more of the voting power of the
trust's shares or an affiliate of the trust who, at any time within the two-
year period prior to the date in question, was the beneficial owner of ten per-
cent or more of the voting power of the then outstanding voting stock of the
trust (an "Interested Shareholder"), or an affiliate of such an Interested
Shareholder, are prohibited for five years after the most recent date on which
the Interested Shareholder became an Interested Shareholder. Thereafter, any
such business combination must be recommended by the board of trustees of such
trust and approved by the affirmative vote of at least (i) 80% of the votes
entitled to be cast by holders of outstanding voting shares of beneficial
interest of the trust and (ii) two-thirds of the votes entitled to be cast by
holders of voting shares of the trust other than shares held by the Interested
Shareholder with whom (or with whose affiliate) the business combination is to
be effected, unless, among other conditions, the trust's common shareholders
receive at least a minimum price (as defined in the MGCL) for their shares and
the consideration is received in cash or in the same form as previously paid by
the Interested Shareholder for its shares. These provisions of Maryland law do
not apply, however, to business combinations that are approved or exempted by
the board of trustees of the trust prior to the time that the Interested Share-
holder becomes an Interested Shareholder.
CONTROL SHARE ACQUISITIONS
The MGCL, as applicable to Maryland real estate investment trusts, provides
that "control shares" (as defined below) of a Maryland real estate investment
trust acquired in a "control share acquisition" (as defined below) have no
voting rights except to the extent approved by a vote of two-thirds of the
votes entitled to be cast on the matter, excluding shares of beneficial
interest owned by the acquirer, by officers or by trustees who are employees of
the trust. "Control Shares" are voting shares of beneficial interest which, if
aggregated with all other such shares of beneficial interest previously
acquired
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by the acquirer or in respect of which the acquirer is able to exercise or
direct the exercise of voting power (except solely by virtue of a revocable
proxy), would entitle the acquirer to exercise voting power in electing
trustees within one of the following ranges of voting power: (i) one-fifth or
more but less than one-third, (ii) one-third or more but less than a majority,
or (iii) a majority or more of all voting power. Control Shares do not include
shares the acquiring person is then entitled to vote as a result of having pre-
viously obtained shareholder approval. A "control share acquisition" means the
acquisition of Control Shares, subject to certain exceptions.
A person who has made or proposes to make a Control Share Acquisition, upon
satisfaction of certain conditions (including an undertaking to pay expenses),
may compel the board of trustees of the trust to call a special meeting of
shareholders to be held within 50 days of demand to consider the voting rights
of the shares. If no request for a meeting is made, the trust may itself
present the question at any shareholders meeting.
If voting rights are not approved at the meeting or if the acquiring person
does not deliver an acquiring person statement as required by the statute,
then, subject to certain conditions and limitations, the trust may redeem any
or all of the Control Shares (except those for which voting rights have previ-
ously been approved) at their fair value, determined without regard to the
absence of voting rights for the Control Shares, as of the date of the last
Control Share Acquisition by the acquirer or of any meeting of shareholders at
which the voting rights of such shares are considered and not approved. If
voting rights for Control Shares are approved at a shareholders meeting and the
acquirer becomes entitled to vote a majority of the shares entitled to vote,
all other shareholders may exercise appraisal rights. The fair value of the
shares as determined for purposes of such appraisal rights may not be less than
the highest price per share paid by the acquirer in the control share acquisi-
tion.
The Control Share Acquisition statute does not apply (a) to shares acquired in
a merger, consolidation or share exchange if the trust is a party to the trans-
action or (b) to acquisitions approved or exempted by the declaration of trust
or bylaws of the trust.
SHAREHOLDERS' MEETINGS
The Declaration of Trust and Bylaws provide for an annual meeting of Share-
holders to be held upon proper notice and within a reasonable period, but not
less than 30 days, following delivery of the Company's annual report. Special
meetings of Shareholders may be called by a majority of the Trustees, a
majority of the Independent Trustees or by an executive officer of the Company
and must be called upon the written request of Shareholders holding in the
aggregate not less than 25% of the outstanding shares of the Company entitled
to vote. Written notice stating the place, date and hour of the Shareholders'
meeting and, in the case of a special meeting, the purpose or purposes for
which the meeting is called, is required to be delivered not less than 10 nor
more than 60 days before the day of the meeting to each holder of record.
Unless requested by shareholders entitled to cast a majority of all the votes
entitled to be cast at such meeting, a special meeting need not be called to
consider any matter which is substantially the same as the matter voted on at
any meeting of the shareholders held during the preceding twelve months.
ANNUAL REPORT
Under the Maryland REIT Law, the Company is required to deliver to shareholders
an annual report concerning its operations for the preceding fiscal year con-
taining financial statements prepared in accordance with GAAP which are audited
and reported on by independent certified public accountants. The report must
include a balance sheet, an income statement and a surplus statement. Annual
reports must be mailed or delivered to each shareholder and must be placed on
file at the principal office of the Company within the time prescribed by the
Maryland REIT Law.
AMENDMENT
The Trustees, by a two-thirds vote, may amend the provisions of the Company's
Declaration of Trust, without shareholder approval, to qualify the Company as a
REIT under the Code or under the Maryland REIT Law. The Board of Trustees may
also amend the Declaration of Trust, without shareholder approval, to increase
or decrease the aggregate number of Shares that the Company has the authority
to issue. Otherwise, the Company's Declaration of Trust may be amended only by
the affirmative vote or written consent of the holders of not less than a
majority of the Shares then outstanding and entitled to vote thereon, except
with respect to provisions therein relating to (i) removal of Trustees and (ii)
certain reorganization transactions of the Company. The provisions described in
clauses (i) and (ii) in the preceding sentence may be amended only by the
affirmative vote or, in certain instances, written consent of the holders of
not less than two-thirds of the Shares then outstanding. The Company's Bylaws
may only be amended by the Board of Trustees.
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LIMITATION OF LIABILITY AND INDEMNIFICATION
The Maryland REIT Law permits a Maryland real estate investment trust to
include in its declaration of trust a provision limiting the liability of its
trustees and officers to the trust and its shareholders for money damages
except for liability resulting from (i) actual receipt of an improper benefit
or profit in money, property or services or (ii) active and deliberate dishon-
esty established by a final judgment as being material to the cause of action.
The Company's Declaration of Trust contains such a provision limiting such lia-
bility to the maximum extent permitted by the Maryland REIT Law.
The Declaration of Trust provides that the Company, to the fullest extent per-
mitted by Maryland law, must indemnify each Trustee and officer in connection
with any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative, by reason of the fact that
such person was a Trustee or officer of the Company or is or was serving at the
request of the Company as a director, officer, partner, employee or agent of
another foreign or domestic corporation, partnership, joint venture, trust,
other enterprise or employee benefit plan, from all claims and liabilities to
which such person may become subject by reason of service in that capacity and
to pay or reimburse reasonable expenses, as such expenses are incurred, of each
Trustee or officer in connection with any such action, suit or proceeding. The
Bylaws of the Company obligate it, to the fullest extent permitted by Maryland
law, to indemnify and to pay or reimburse reasonable expenses in advance of
final disposition of a proceeding to (i) each Trustee and officer from and
against all claims and liabilities, whether they proceed to judgment or are
settled, in connection with any threatened, pending or completed action, suit
or proceeding, whether civil, criminal, administrative or investigative to
which such Trustee or officer may become subject by reason of such person being
or having been a Trustee or officer, or by reason of any action alleged to have
been taken or omitted by such person as a Trustee or officer, and will reim-
burse such person for all reasonable legal and other expenses incurred by such
person in connection with such claim or liability, including any claim or lia-
bility arising under the provisions of federal or state securities laws, or
(ii) any such Trustee or officer who at the request of the Company serves or
has served another foreign or domestic corporation, partnership, joint venture,
trust, employee benefit plan or any other enterprise as a director, trustee,
officer or partner, employee or agent of such foreign or domestic entity and
who is made a party to the proceeding by reason of such person's service in
that capacity against any claim or liability to which such person may become
subject by reason of such status.
The Maryland REIT Law permits a Maryland real estate investment trust to indem-
nify, and to advance expenses to, its trustees, officers, employees and agents
to the same extent as permitted by the MGCL for directors and officers of Mary-
land corporations. The MGCL permits a corporation to indemnify its present and
former directors and officers, among others, against judgments, penalties,
fines, settlements and reasonable expenses actually incurred by them in connec-
tion 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. However, a Maryland
corporation may not indemnify for an adverse judgment in a suit by or in the
right of the corporation or for a judgement of liability on the basis that per-
sonal benefit was improperly received, unless in either case a court orders
indemnification and then only for expenses. In addition, the MGCL permits a
corporation to advance reasonable expenses to a director or officer upon the
corporation's receipt of (a) a written affirmation by the director or officer
of such person's good faith belief that he or she has met the standard of con-
duct necessary for indemnification by the corporation and (b) a written under-
taking by or on behalf of such person to repay the amount paid or reimbursed by
the corporation if it shall ultimately be determined that the standard of con-
duct was not met. Insofar as indemnification for liability arising under the
Securities Act may be permitted to Trustees, 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.
OPERATIONS; MARYLAND ASSET REQUIREMENTS
The Company is generally prohibited from acquiring or holding property or
engaging in any activity that would cause the Company to fail to qualify as a
real estate investment trust. To maintain its qualification as a Maryland real
estate investment trust, the Maryland REIT Law requires that the Company hold,
either directly or indirectly, at least 75% of the value of its assets in real
estate assets, mortgages or mortgage related securities, government securities,
cash and cash equivalent items, including high-grade short-term securities and
receivables. The Maryland REIT Law also prohibits using or applying land for
farming, agriculture, horticulture or similar purposes.
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TERMINATION OF THE TRUST AND REIT STATUS
The Company's Declaration of Trust permits (i) the termination of the Company
and the discontinuation of the operations of the Company by the affirmative
vote or written consent of the holders of not less than two-thirds of the
Company's outstanding Shares of all classes and (ii) the termination of the
Company's qualification as a REIT if such qualification, in the opinion of the
Board of Trustees, is no longer advantageous to the shareholders.
ADVANCE NOTICE OF TRUSTEE NOMINATIONS AND NEW BUSINESS
The Bylaws of the Company provide that (i) with respect to an annual meeting of
shareholders, nominations of persons for election to the Board of Trustees and
the proposal of business to be considered by shareholders may be made only
(a) pursuant to the Company's notice of the meeting, (b) by or at the direction
of the Board of Trustees or (c) by a shareholder 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 shareholders, only the
business specified in the Company's notice of meeting may be brought before the
meeting of shareholders and nominations of persons for election to the Board of
Trustees may be made only (a) pursuant to the Company's notice of the meeting,
(b) by the Board of Trustees, or (c) provided that the Board of Trustees has
determined that Trustees shall be elected at such meeting, by a shareholder who
is entitled to vote at the meeting and has complied with the advance notice
provisions set forth in the Bylaws.
POSSIBLE ANTITAKEOVER EFFECT OF CERTAIN PROVISIONS OF MARYLAND LAW AND OF THE
DECLARATION OF TRUST AND BYLAWS
The provisions of the Declaration of Trust on classification of the Board of
Trustees, the removal of Trustees and the restrictions on the transfer of
shares of beneficial interest and the advance notice provisions of the Bylaws
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 Common Shares or otherwise be considered by shareholders to be in their best
interest.
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SHARES AVAILABLE FOR FUTURE SALE
At June 30, 1998, the Company had 18,586,764 Common Shares issued and outstand-
ing. In addition, 24,928,603 authorized but unissued Common Shares were
reserved at that date for issuance upon conversion of Units and 2,142,000
Common Shares were reserved for issuance pursuant to options granted under the
Company's Long Term Incentive Plan. The Common Shares registered hereby will be
freely tradable without restriction, subject to certain limitations on owner-
ship set forth in the Declaration of Trust. See "Description of Shares of Bene-
ficial Interest--Restrictions on Transfer."
Pursuant to the Operating Partnership Agreement, the Limited Partners have
Exchange Rights which, beginning February 4, 1999 (or earlier with the consent
of the Company), enable them to exchange their Units for Common Shares on a
one-for-one basis, subject to the right of the Company to pay cash in lieu of
issuing Common Shares. Each of the Limited Partners agreed under the Operating
Partnership Agreement (and each of the other Contributing Investors agreed sep-
arately) that until February 4, 1999 (or February 4, 2000 in the case of any
Limited Partner that was a partner of Cabot Partners or C-M Holdings), such
Limited Partner (or Contributing Investor) would not dispose of any Common
Shares or Units without the prior consent of the Company, provided that any
Limited Partner or Contributing Investor (other than a partner of Cabot Part-
ners or C-M Holdings) may make a private resale to a Qualified Institutional
Buyer (as defined in Commission Rule 144A) beginning November 4, 1998. The Com-
pany also agreed not to offer for sale or sell any Common Shares (except in
certain circumstances) for a period of 12 months after February 4, 1998, the
closing date of the Company's initial public offering of Common Shares (the
"IPO Closing Date"), without the prior written consent of J.P. Morgan Securi-
ties Inc., which firm was the managing underwriter in the Company's IPO.
The Common Shares issued to the Contributing Investors and the Concurrent
Investor and the Common Shares that are issuable to holders of Units upon exer-
cise of the Exchange Rights are "restricted" securities under the meaning of
Rule 144 promulgated under the Securities Act ("Rule 144") and may not be sold,
in the absence of registration under the Securities Act, unless an exemption
from the registration requirements of the Securities Act is available,
including exemptions pursuant to Rule 144. As described below, the Company has
granted registration rights with respect to such Common Shares to the holders
thereof.
In general, under Rule 144 as currently in effect, if one year has elapsed
since the later of the date of acquisition of restricted shares from the Com-
pany or any Affiliate of the Company, the acquirer or subsequent holder thereof
will be entitled to sell within any three-month period a number of shares that
does not exceed the greater of 1% of the then outstanding Common Shares or the
average weekly trading volume of the Common Shares during the four calendar
weeks preceding the date on which an appropriate notice of the sale is filed
with the Securities and Exchange Commission (the "Commission"). Sales under
Rule 144 also are subject to certain manner of sale provisions, notice require-
ments and the availability of current public information about the Company. If
two years have elapsed since the date of acquisition of restricted shares from
the Company or from any Affiliate, and the acquirer or subsequent holder
thereof is deemed not to have been an Affiliate at any time during the three
months preceding a sale, such person would be entitled to sell such shares in
the public market under Rule 144(k) without regard to the volume limitations,
manner of sale provisions, public information requirements or notice require-
ments.
The Company agreed to file a registration statement with the Commission on the
first business day after the first anniversary of the IPO Closing Date for the
purpose of registering the sale, subject to certain exceptions, of all, but not
less than all, of the Common Shares (including Common Shares issued on conver-
sion of Units) issued to the Contributing Investors or, commencing on the
second anniversary of the Closing Date, Cabot Partners (or issued upon conver-
sion of Units issued to such persons). The Company also agreed to file a regis-
tration statement with the Commission 180 days after the IPO Closing Date for
the purpose of registering the sale, subject to certain exceptions, of the
Common Shares issued to the Concurrent Investor in the Concurrent Placement.
The Company further agreed to use its best efforts to have such registration
statements declared effective as soon as practical after filing and to keep
them effective for a period expiring on the earlier of (i) the date on which
all such securities have been sold and (ii) the date on which all such securi-
ties are in the opinion of legal counsel for the Company eligible for sale
under Rule 144(k) or, in the case of any Affiliate of the Company, under Rule
144 and could be sold in one transaction in accordance with the volume limita-
tions contained therein. Upon the effectiveness of the registration statement
relating thereto, those persons holding Common Shares received upon exercise of
the Exchange Rights relating to their Units who are not Affiliates of the Com-
pany may sell such shares without being subject to the volume limitations or
other requirements of Rule 144. The Operating Partnership has agreed to bear
the expenses incident to these registration requirements, except that such
expenses shall not include any underwriting discounts or commissions, the fees
and disbursements of any counsel to a selling shareholder, transfer taxes or
certain other fees or taxes relating to such shares. Registration rights may be
granted to future sellers of properties to the
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Operating Partnership who agree to receive Common Shares, Units, or other secu-
rities convertible into Common Shares, in lieu of cash.
No prediction can be made as to the effect, if any, that future sales of
shares, or the availability of shares for future sale, will have on the market
price of the Common Shares prevailing from time to time. Sales of substantial
amounts of Common Shares, or the perception that such sales could occur, may
affect adversely prevailing market prices of the Common Shares. See "Risk Fac-
tors--Possible Adverse Effect on Price of Common Shares of Shares Available for
Future Sale."
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PARTNERSHIP AGREEMENT OF OPERATING PARTNERSHIP
GENERAL
The Properties are owned by the Operating Partnership. By contributing their
interests in the C-M Property Partnerships and Cabot Partners to the Operating
Partnership, the Cabot Group Participants are, among other things, permitted to
defer until a later date a portion of the tax liabilities that they otherwise
would have incurred if they had received Common Shares. In addition, through
the Operating Partnership the Company has acquired and may acquire in the
future interests in additional industrial properties in transactions that may
defer such tax consequences for the contributors.
Substantially all of the Company's assets (including the Company's interest in
the Properties) are held by, and its operations are conducted through, the
Operating Partnership. At June 30, 1998, the Company held Units equal to 42.7%
of the economic interest in the Operating Partnership and the Company controls
the Operating Partnership in its capacity as the sole general partner. The
Company's interest in the Operating Partnership entitles it to share in cash
distributions from, and in the profits and losses of, the Operating Partnership
in proportion to the Company's percentage ownership of the Operating Partner-
ship (apart from tax allocations of profits and losses to take into account
pre-contribution property appreciation). The Limited Partners own the economic
interest in the Operating Partnership not held by the Company. For a period of
one year (or two years for any partner of Cabot Partners or C-M Holdings) fol-
lowing February 4, 1998, the holders of Units or Common Shares will not be per-
mitted to offer, pledge, sell, contract to sell, grant any options for the sale
of or otherwise dispose of any such Units or Common Shares without the permis-
sion of the Company (except (i) in the case of a holder that is a natural per-
son, to certain family members of such holder or upon death of such holder, to
such holder's estate, personal representative or beneficiaries, (ii) in the
case of a business entity, to another entity wholly owned thereby or as a dis-
tribution to the equity owners thereof, (iii) in the case of a master pension
or profit sharing trust or group trust, to one or more of its participating
trusts or to a successor trust, (iv) as a bona fide gift, or (v) pursuant to a
pledge, grant of a security interest or other encumbrance effected in a bona
fide transaction with an unrelated and unaffiliated pledgee). After the first
anniversary after the closing of the IPO (or second anniversary for any partner
of Cabot Partners or C-M Holdings) Units or Common Shares may be transferred by
a Limited Partner without restriction (except if such transfer would (i) vio-
late any securities laws, (ii) result in the Operating Partnership being
treated as an association taxable as a corporation, (iii) be effectuated
through an "established securities market" or a "secondary market (or the sub-
stantial equivalent thereof)" within the meaning of Section 7709 of the Code,
or (iv) be to a lender to the Operating Partnership or related person holding
nonrecourse liability), although the transferee will only be admitted as a Lim-
ited Partner subject to furnishing certain specified or requested instruments
or documents to the Company in its capacity as general partner. Also, after the
first anniversary after the closing of the IPO (or earlier with the consent of
the Company in its capacity as general partner), any holder of Units may
exchange Units for an equal number of Common Shares, subject to the Company's
right to pay cash in lieu of issuing Common Shares. With each exchange of
Units, the Company's interest in the Operating Partnership will increase.
The Company holds one Unit in the Operating Partnership for each Common Share
that it has issued. The net proceeds of issuance of Common Shares of the Com-
pany have been contributed to the Operating Partnership in exchange for an
equivalent number of Units.
As the general partner of the Operating Partnership, the Company has the exclu-
sive power under the Operating Partnership Agreement to manage and conduct the
business of the Operating Partnership. The Board of Trustees of the Company
manages the affairs of the Company by directing the affairs of the Operating
Partnership. The Operating Partnership is responsible for, and pays when due,
its share of all administrative and operating expenses of the Properties.
The following summary of the Operating Partnership Agreement, including the
descriptions of certain provisions set forth elsewhere in this Prospectus, is
qualified in its entirety by reference to the Operating Partnership Agreement,
which was filed as an exhibit to a Registration Statement previously filed.
MANAGEMENT
The Operating Partnership has been organized as a Delaware limited partnership
pursuant to the terms of the Operating Partnership Agreement. The Company, as
the sole general partner of the Operating Partnership, generally has full,
exclusive and complete discretion in managing and controlling the Operating
Partnership. The Contributing Investors who received Units, as the Limited
Partners of the Operating Partnership, have no authority to transact business
for, or to participate in the management activities or decisions of, the Oper-
ating Partnership, except as provided in the Operating Partnership Agreement
and as provided by applicable law. However, the consent of all the Limited
Partners is required to
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(i) take any action that would make it impossible to carry on the ordinary
business of the Operating Partnership, except as otherwise provided in the
Operating Partnership Agreement; (ii) possess Operating Partnership property,
or assign any rights to specific Operating Partnership property for other than
an Operating Partnership purpose, except as otherwise provided in the Operating
Partnership Agreement; (iii) admit a person as a partner, except as otherwise
provided in the Operating Partnership Agreement; or (iv) perform any act that
would subject a Limited Partner to liability as a general partner in any juris-
diction or any other liability except as provided in the Operating Partnership
Agreement or under the laws of the State of Delaware. In addition, the Company
has agreed pursuant to the Operating Partnership Agreement that it will not
take any of the following actions prior to February 4, 1999 without the consent
of Limited Partners holding a majority of the outstanding Units: (i) a merger,
consolidation or share exchange of the Company requiring the approval of the
Company's shareholders or any merger, consolidation or partnership interest
exchange of the Operating Partnership, (ii) a sale, lease, transfer or other
disposition of all or substantially all of the Company's assets requiring the
approval of the Company's shareholders, a sale, lease, transfer or other dispo-
sition of all or substantially all of the operating assets, or any election to
dissolve the Company requiring the approval of the Company's shareholders, or
(iii) an amendment to the Declaration of Trust requiring the approval of the
Company's shareholders.
INDEMNIFICATION
The Operating Partnership Agreement provides that each individual made a party
to a proceeding by reason of his status as a general partner or an officer of
the Operating Partnership or a trustee or officer of the Company or any other
person as the Company may designate from time to time in its sole and absolute
discretion (each, an "Indemnitee") will be indemnified and held harmless by the
Operating Partnership for any act relating to the operation of Operating Part-
nership unless it is established that (i) the act or omission of the Indemnitee
was material to the matter giving rise to the proceeding and either was com-
mitted in bad faith or was the result of active and deliberate dishonesty; (ii)
the Indemnitee actually received an improper personal benefit of money, prop-
erty or services; or (iii) in the case of any criminal proceeding, the Indem-
nitee had reasonable cause to believe that the act or omission was unlawful.
The Operating Partnership Agreement further provides that the termination of
any proceeding by judgment, order or settlement does not create a presumption
that the Indemnitee did not meet the requisite standard of conduct set forth
above. The termination of any proceeding by conviction or upon a plea of nolo
contendere or its equivalent, or an entry of an order of probation prior to
judgment, would, under the Operating Partnership Agreement, create a rebuttable
presumption that the individual acted in a manner contrary to that specified
above. Any indemnification so made shall be made only out of the assets of the
Operating Partnership.
CAPITAL CONTRIBUTIONS
When the Company contributes additional capital to the Operating Partnership
from the proceeds of Common Shares (or preferred shares of beneficial interest)
issued by the Company, the Company's interest in the Operating Partnership will
be increased on a proportionate basis based upon the number of Common Shares
(or preferred shares of beneficial interest) issued to the extent the net pro-
ceeds from, or the property received in consideration for, the issuance thereof
are used to fund the contribution.
TAX MATTERS
Pursuant to the Operating Partnership Agreement, the Company is the tax matters
partner of the Operating Partnership and, as such, has authority to make cer-
tain tax related decisions and tax elections under the Code on behalf of the
Operating Partnership.
OPERATIONS
The Operating Partnership Agreement allows the Company to operate the Operating
Partnership in a manner that enables the Company to satisfy the requirements
for being classified as a REIT. The Operating Partnership Agreement also
requires the distribution of the cash available for distribution of the Oper-
ating Partnership quarterly on a basis in accordance with the Operating Part-
nership Agreement.
DUTIES AND CONFLICTS
The Operating Partnership Agreement provides that the Company shall not enter
into or conduct any business other than in connection with its ownership,
acquisition and disposition of partnership interests in the Operating Partner-
ship and the management of the business and incidental activities of the Oper-
ating Partnership. Therefore, all activities pertaining to the acquisition,
development, management and operation of any properties, must be conducted
through the Operating Partnership.
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TERM
The Operating Partnership will continue in full force and effect until December
31, 2097 or until sooner dissolved upon (i) the withdrawal of the Company as a
general partner (unless all of the Limited Partners elect to continue the Oper-
ating Partnership), or (ii) by the election of the Company, with the consent of
a majority in interest of Limited Partners, or (iii) in connection with a
merger or other combination of the Operating Partnership, or (iv) by the sale
or other disposition of all or substantially all of the assets of the Operating
Partnership, or (v) entry of a decree of judicial dissolution of the Operating
Partnership, or (vi) bankruptcy or insolvency of the Company.
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FEDERAL INCOME TAX CONSEQUENCES
The Company intends to operate in a manner that permits it to satisfy the
requirements for taxation as a REIT under the applicable provisions of the
Code. No assurance can be given, however, that such requirements will be met.
The following is a summary of the federal income tax considerations for the
Company and its shareholders with respect to the treatment of the Company as a
REIT. The information set forth below, to the extent that it constitutes mat-
ters of law, summaries of legal matters or legal conclusions, is based on the
opinion of Mayer, Brown & Platt, counsel to the Company, as to the material
Federal income tax consequences relevant to purchasers of the Common Shares.
Based upon the matters described below, in the opinion of Mayer, Brown & Platt,
counsel to the Company, the Company has been organized in conformity with the
requirements for qualification as a REIT beginning with its taxable year ending
December 31, 1998, and its actual and proposed method of operation as repre-
sented by the Company to Mayer, Brown & Platt and similarly described in this
Prospectus will enable it to satisfy the requirements for such qualification.
This opinion is based on certain assumptions relating to the organization and
operation of the Company, the Operating Partnership and the Management Company
as set forth in this Prospectus, including that the Formation Transactions were
consummated in accordance with the operative documents and such documents accu-
rately reflect the material facts of such transactions, and that the Company,
the Operating Partnership, and the Management Company will each be operated in
the manner described in their applicable organizational documents and in this
Prospectus, and that all terms and provisions of such documents will be com-
plied with by all parties thereto. This opinion is also conditioned upon cer-
tain representations as set forth in this Prospectus made by the Company as to
certain factual matters relating to the Company's organization and its actual
and proposed method of operation. In addition, this opinion is based on the law
existing and in effect on the date hereof and the Company's qualification and
taxation as a REIT will depend on compliance with such law existing and in
effect on the date hereof and as the same may hereafter be amended. The
Company's qualification and taxation as a REIT will further depend upon the
Company's ability to meet, on a continuing basis through actual operating
results, asset composition, distribution levels and diversity of share owner-
ship, the various qualification tests imposed under the Code discussed below.
Counsel will not review compliance with these tests on a continuing basis, and
thus no assurance can be given that the Company will satisfy such tests on a
continuing basis.
In brief, a corporation that invests primarily in real estate can, if it meets
the REIT provisions of the Code described below, claim a tax deduction for the
dividends it pays to its shareholders. Such a corporation generally is not
taxed on its "REIT taxable income" to the extent such income is currently dis-
tributed to shareholders, thereby substantially eliminating the "double taxa-
tion" (i.e., at both the corporate and shareholder levels) that generally
results from an investment in a corporation. However, as discussed in greater
detail below, such an entity remains subject to tax in certain circumstances
even if it qualifies as a REIT. Further, if the entity were to fail to qualify
as a REIT in any year, it would not be able to deduct any portion of the divi-
dends it paid to its shareholders and would be subject to full federal income
taxation on its earnings, thereby significantly reducing or eliminating the
cash available for distribution to its shareholders. See "--Taxation of the
Company--General" and "--Taxation of the Company--Failure to Qualify."
The Board of Trustees of the Company currently expects that the Company will
operate in a manner that permits it to elect, and that it will timely and
effectively elect, REIT status for its taxable year ending December 31, 1998,
and in each taxable year thereafter. There can be no assurance, however, that
this expectation will be fulfilled since qualification as a REIT depends on the
Company continuing to satisfy the numerous asset, income and distribution tests
described below, which in turn will be dependent on the Company's operating
results.
The following summary is based on existing law, is not exhaustive of all pos-
sible tax considerations and does not give a detailed discussion of any state,
local or foreign tax considerations, nor does it discuss all of the aspects of
federal income taxation that may be relevant to a prospective shareholder in
light of his or her particular circumstances or to certain types of share-
holders (including insurance companies, financial institutions and broker-deal-
ers, foreign corporations and persons who are not the citizens or residents of
the United States) subject to special treatment under the federal income taxa-
tion laws.
TAXATION OF THE COMPANY
General
In any year in which the Company qualifies as a REIT, in general it will not be
subject to federal income tax on that portion of its REIT taxable income or
capital gain which is distributed to shareholders. The Company may, however, be
subject to tax at normal corporate rates upon any taxable income or capital
gain not distributed. Under recently enacted
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legislation to the extent the Company elects to retain and pay income tax on
its net long-term capital gains, shareholders are required to include their
proportionate share of the Company's undistributed long-term capital gain in
income but receive a credit for their share of any taxes paid on such gain by
the Company.
Notwithstanding its qualification as a REIT, the Company also may be subject to
taxation in certain other circumstances. If the Company should fail to satisfy
either the 75% or the 95% gross income test (each as discussed below), and
nonetheless maintain its qualification as a REIT because certain other require-
ments are met, it will be subject to a 100% tax on the greater of the amount by
which the Company fails either the 75% or the 95% test, multiplied by a frac-
tion intended to reflect the Company's profitability. The Company will also be
subject to a tax of 100% on net income from any "prohibited transaction" (as
described below), and if the Company has (i) net income from the sale or other
disposition of "foreclosure property" which is held primarily for sale to cus-
tomers in the ordinary course of business or (ii) other non-qualifying income
from foreclosure property, it will be subject to tax on such income from fore-
closure property at the highest corporate rate. In addition, 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
years, the Company would be subject to a 4% excise tax on the excess of such
required distribution over the amounts actually distributed. To the extent that
the Company elects to retain and pay income tax on its net long-term capital
gains, such retained amounts will be treated as having been distributed for
purposes of the 4% excise tax. The Company also may be subject to the corporate
alternative minimum tax, as well as to tax in certain situations not presently
contemplated. The Management Company will be taxed on its income at regular
corporate rates. The Company will use the calendar year both for federal income
tax purposes, as is required of a newly organized REIT, and for financial
reporting purposes.
In order to qualify as a REIT, the Company must meet, among others, the fol-
lowing requirements:
Share Ownership Tests
The Company's shares of beneficial interest (which term, in the case of the
Company, currently means the Common Shares) must be held by a minimum of 100
persons for at least 335 days in each taxable year (or a proportional number of
days in any short taxable year). In addition, at all times during the second
half of each taxable year, no more than 50% in value of the outstanding shares
of beneficial interest of the Company may be owned, directly or indirectly and
including the effects of certain constructive ownership rules, by five or fewer
individuals, which for this purpose includes certain tax-exempt entities. How-
ever, for purposes of this test, any shares of beneficial interest held by a
qualified domestic pension or other retirement trust will be treated as held
directly by its beneficiaries in proportion to their actuarial interest in such
trust rather than by such trust. These share ownership requirements need not be
met until the second taxable year of the Company for which a REIT election is
made. The Company has represented to Mayer, Brown & Platt that it will satisfy
these requirements.
In order to attempt to ensure compliance with the foregoing share ownership
tests, the Company has placed certain restrictions on the ownership and
transfer of its shares of beneficial interest to prevent additional concentra-
tion of stock ownership. Moreover, to evidence compliance with these require-
ments, Treasury regulations require the Company to maintain records which dis-
close the actual ownership of its outstanding shares of beneficial interest. In
fulfilling its obligations to maintain records, the Company must and will
demand written statements each year from the record holders of designated per-
centages of its shares of beneficial interest disclosing the actual owners of
such shares of beneficial interest (as prescribed by Treasury regulations). A
list of those persons failing or refusing to comply with such demand must be
maintained as part of the Company's records. A shareholder failing or refusing
to comply with the Company's written demand must submit with his tax return a
similar statement disclosing the actual ownership of Company shares of benefi-
cial interest and certain other information. In addition, the Company's Decla-
ration of Trust provides restrictions regarding the ownership and transfer of
its shares of beneficial interest that are intended to assist the Company in
continuing to satisfy the share ownership requirements. See "Description of
Shares of Beneficial Interest--Restrictions on Transfer."
Asset Tests
At the close of each quarter of the Company's taxable year, the Company must
satisfy two tests relating to the nature of its assets (determined in accor-
dance with generally accepted accounting principles). First, at least 75% of
the value of the Company's total assets must be represented by interests in
real property, interests in mortgages on real property, shares in other REITs,
cash, cash items, government securities and qualified temporary investments.
Second, although the remaining 25% of the Company's assets generally may be
invested without restriction, securities in this class may not exceed (i) in
the case of securities of any one non-government issuer, 5% of the value of the
Company's total assets (the "Value Test") or (ii) 10% of the outstanding voting
securities of any one such issuer (the "Voting Stock Test"). The Company has
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represented to Mayer, Brown & Platt that it will satisfy the 75% asset test,
the Value Test, and the Voting Test at the close of each quarter of its taxable
years ending 1998 and thereafter. Where the Company invests in a partnership
(such as the Operating Partnership), it will be deemed to own a proportionate
share of the partnership's assets and the partnership interest does not consti-
tute a security for purposes of these tests. See "--Tax Aspects of the
Company's Investments in Partnerships--General." Accordingly, the Company's
investment in the Properties through its interest in the Operating Partnership
is intended to constitute an investment in qualified assets for purposes of the
75% asset test.
The Operating Partnership owns 100% of the non-voting preferred stock of the
Management Company, and by virtue of its partnership interest in the Operating
Partnership, the Company is deemed to own initially a pro rata share of such
non-voting preferred stock. Because the Operating Partnership owns none of the
voting common stock of the Management Company and the non-voting preferred
stock's approval right is limited to certain fundamental corporate actions that
could adversely affect the preferred stock as a class, the Voting Stock Test
should be satisfied.
Based upon its analysis of the estimated value of the stock of the Management
Company owned by the Operating Partnership relative to the estimated value of
the total assets owned by the Operating Partnership, the Company believes that
its pro rata share of the stock of the Management Company held by the Operating
Partnership does not exceed on the date of this Prospectus 5% of the value of
the Company's total assets. Mayer, Brown & Platt, in rendering its opinion as
to the qualification of the Company as a REIT, is relying on representations of
the Company to such effect with respect to the value of such stock and assets.
The Value Test must be satisfied at the end of any quarter in which the Company
increases its interest in the Management Company or acquires other property. In
this respect, if any Limited Partner exercises its conversion option to
exchange Units for Common Shares, the Company will thereby increase its propor-
tionate (indirect) ownership interest in the Management Company, thus requiring
the Company to meet the Value Test in any quarter in which such conversion
option is exercised. A similar result will follow in the case of any exchange
of Units by the Operating Partnership or the Management Company employees that
they received pursuant to the Company's Long Term Incentive Plan. See "Manage-
ment--Long Term Incentive Plan." Although the Company plans to take steps to
ensure that it satisfies the Value Test for any quarter with respect to which
retesting is to occur, there can be no assurance that such steps will always be
successful and will not require a reduction in the Operating Partnership's
overall interest in the Management Company.
Gross Income Tests
There are two separate percentage tests relating to the sources of the
Company's gross income which must be satisfied for each taxable year. For pur-
poses of these tests, where the Company invests in a partnership, the Company
will be treated as receiving its share of the income and loss of the partner-
ship, and the gross income of the partnership will retain the same character in
the hands of the Company as it has in the hands of the partnership. See "--Tax
Aspects of the Company's Investments in Partnerships--General" below. The two
tests are separately described below:
The 75% Test At least 75% of the Company's gross income for the taxable year
must be "qualifying income." Qualifying income generally includes: (i) rents
from real property (except as modified below); (ii) interest on obligations
secured by mortgages on, or interests in, real property; (iii) gains from the
sales or other disposition of interests in real property and real estate mort-
gages, other than gain from property bought primarily for sale to customers in
the ordinary course of the Company's trade or business ("dealer property");
(iv) dividends or other distributions on shares in other REITs, as well as gain
from the sale of such shares; (v) abatements and refunds of real property
taxes; (vi) income from the operation, and gain from the sale, of property
acquired at or in lieu of a foreclosure of the mortgage secured by such prop-
erty ("foreclosure property"); and (vii) commitment fees received for agreeing
to make loans secured by mortgages on real property or to purchase or lease
real property.
Rents received from a customer will not, however, qualify as rents from real
property in satisfying the 75% gross income test (or the 95% gross income test
described below) if the Company, or an owner of 10% or more of the Company,
directly or constructively owns 10% or more of such customer. In addition, if
rent attributable to personal property leased in connection with a lease of
real property is greater that 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. Moreover, an amount received or accrued
will not qualify as rents from real property (or as interest income) for pur-
poses of the 75% and 95% gross income tests if it is based in whole or in part
on the income or profits of any person, although an amount received or accrued
generally will not be excluded from "rents from real property" solely by reason
of being based on a fixed percentage or percentages of receipts or sales.
Finally, for rents received to qualify as rents from real property for purposes
of the 75% and 95% gross income tests, the Company generally must not operate
or manage the property or furnish or render services to customers, other than
through an "independent contractor" from whom the Company derives no income,
except that the
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"independent contractor" requirement does not apply to the extent that the
services provided by the Company are "usually or customarily rendered" in con-
nection with the rental of space for occupancy only, or are not otherwise con-
sidered "rendered to the occupant for his convenience."
The Company monitors its operations in the context of these standards so as to
satisfy the 75% and 95% gross income tests and has represented to Mayer, Brown
& Platt that it will satisfy these tests for its taxable years ending 1998 and
thereafter. The Operating Partnership provides certain services at the Proper-
ties that it owns and possibly at any newly acquired Properties of the Oper-
ating Partnership. The Company believes that for purposes of the 75% and 95%
gross income tests the services provided at such Properties and any other
services and amenities provided by the Operating Partnership or its agents
with respect to such Properties is or will be of the type usually or custom-
arily rendered in connection with the rental of space for occupancy only and
not rendered to the occupant for his convenience. Mayer, Brown & Platt, in
rendering its opinion as to the qualification of the Company as a REIT, is
relying on representations of the Company to such effect. The Company intends
that services that cannot be provided directly by the Operating Partnership,
the Management Company or other agents will be performed by independent con-
tractors. The Company anticipates that the dividend income on its indirect
investment in the Management Company will not cause it to fail to satisfy the
75% gross income test.
The 95% Test In addition to deriving 75% of its gross income from the sources
listed above, at least 95% of the Company's gross income for the taxable year
must be derived from the above-described qualifying income or from dividends,
interest, or gains from the sale or other disposition of stock or other secu-
rities that are not dealer property. Dividends and interest on any obligations
not collateralized by an interest in real property are included for purposes
of the 95% test, but not for purposes of the 75% gross income test. The Com-
pany closely monitors its non-qualifying income and anticipates that non-qual-
ifying income from its other activities will not result in the Company failing
to satisfy either the 75% or 95% gross income test.
For purposes of determining whether the Company complies with the 75% and the
95% gross income tests, gross income does not include income from prohibited
transactions. A "prohibited transaction" is a sale of dealer property (ex-
cluding foreclosure property); however, a sale of property will not be a pro-
hibited transaction if such property is held by the Company for at least four
years and certain other requirements (relating to the number of properties
sold in a year, their tax bases, and the cost of improvements made thereto)
are satisfied. See "--Taxation of the Company--General" and "--Tax Aspects of
the Company's Investments in Partnerships--Sale of the Properties."
The Company believes that, for purposes of both the 75% and the 95% gross
income tests, its investment in the Properties through the Operating Partner-
ship in major part gives rise to qualifying income in the form of rents, and
that gains on sales of the Properties, or of the Company's interest in the
Operating Partnership, generally will also constitute qualifying income.
Even if the Company fails to satisfy one or both of the 75% and 95% gross
income tests for any taxable year, it may still qualify as a REIT for such
year if it is entitled to relief under certain provisions of the Code. These
relief provisions will generally be available if: (i) the Company's failure to
comply is due to reasonable cause and not to willful neglect; (ii) the Company
reports the nature and amount of each item of its income included in the tests
on a schedule attached to its tax return; and (iii) any incorrect information
on this schedule is not due to fraud with intent to evade tax. If these relief
provisions apply, however, the Company will nonetheless be subject to a 100%
tax on the greater of the amount by which it fails either the 75% or 95% gross
income test, multiplied by a fraction intended to reflect the Company's
profitability.
Annual Distribution Requirements
In order to qualify as a REIT, the Company is required to distribute dividends
to its shareholders each year in an amount at least equal to (A) the sum of
(i) 95% of the Company's REIT taxable income (computed without regard to the
dividends received deduction and the Company's net capital gain) and (ii) 95%
of the net income (after tax), if any, for foreclosure property, minus (B) the
sum of certain items of non-cash income. 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 the declaration. 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 on the undistributed amount at regular
capital gain or ordinary corporate tax rates, as the case may be.
The Company intends to make timely distributions sufficient to satisfy the
annual distribution requirements described in the first sentence of the pre-
ceding paragraph and has represented to Mayer, Brown & Platt that it will so
satisfy these distribution requirements for its taxable years ending 1998 and
thereafter. In this regard, the Operating Partnership
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Agreement authorizes the Company in its capacity as general partner to take
such steps as may be necessary to cause the Operating Partnership to dis-
tribute to its partners an amount sufficient to permit the Company to meet the
distribution requirements. It is possible that the Company may not have suffi-
cient cash or other liquid assets to meet the 95% distribution requirement,
due to timing differences between the actual receipt of income and actual pay-
ment of expenses on the one hand, and the inclusion of such income and deduc-
tion of such expense in computing the Company's REIT taxable income on the
other hand; due to the Operating Partnership's inability to control cash dis-
tributions with respect to any properties as to which its does not have deci-
sion making control; or for other reasons. The Company will closely monitor
the relationship between its REIT taxable income and cash flow and, if neces-
sary, intends to borrow funds (or cause the Operating Partnership or other
affiliates to borrow funds) in order to satisfy the distribution requirement.
However, there can be no assurance that such borrowing would be available at
such time.
If the Company fails to meet the 95% distribution requirement as a result of
an adjustment to the Company's tax return by the Service, the Company may ret-
roactively cure the failure by paying a "deficiency dividend" (plus applicable
penalties and interest) within a specified period.
Failure to Qualify
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 shareholders in any year which the
Company fails to qualify as a REIT will not be deductible by the Company, nor
generally will they be required to be made under the Code. In such event, to
the extent of current and accumulated earnings and profits, all distributions
to shareholders will be taxable as ordinary income, and subject to certain
limitations in the Code, corporate distributees may be eligible for the
dividends received deduction. Unless entitled to relief under specific
statutory provisions, the Company also will be disqualified from re-electing
taxation as a REIT for the four taxable years following the year during which
qualification was lost.
TAX ASPECTS OF THE COMPANY'S INVESTMENTS IN PARTNERSHIPS
General. The Company holds a partnership interest in the Operating Partner-
ship. In general, a partnership is a "pass-through" entity which is not sub-
ject to federal income tax. Rather, partners are allocated their proportionate
shares of the items of income, gain, loss, deduction and credit of a partner-
ship, and are potentially subject to tax thereon, without regard to whether
the partnership received a distribution from the partnership. The Company will
include its proportionate share of the foregoing partnership items for pur-
poses of the various REIT gross income tests and in the computation of its
REIT taxable income. See "--Taxation of the Company--General" and "--Gross
Income Tests."
Each partner's share of a partnership's tax attributes is determined in accor-
dance with the partnership agreement, although the allocations will be
adjusted for tax purposes if they do not comply with the technical provisions
of Code Section 704(b) and the regulations thereunder. The Operating Partner-
ship's allocations of tax attributes are intended to comply with these provi-
sions. Notwithstanding these allocation provisions, for purposes of complying
with the gross income and asset tests discussed above, the Company will be
deemed to own its proportionate share of each of the assets of the partnership
and will be deemed to have received a share of the income of the Partnership
based on its capital interest in the Operating Partnership.
Accordingly, any resultant increase in the Company's REIT taxable income from
its interest in the Operating Partnership (whether or not a corresponding cash
distribution is also received from the Operating Partnership) will increase
its distribution requirements (see "--Taxation of the Company--Annual Distri-
bution Requirements"), but will not be subject to federal income tax in the
hands of the Company provided that an amount equal to such income is distrib-
uted by the Company to its shareholders. Moreover, for purposes of the REIT
asset tests (see "--Taxation of the Company--Asset Tests"), the Company will
include its proportionate share of assets held by the Operating Partnership.
Entity Classification Based on the representations of the Company that the
Operating Partnership will satisfy certain conditions to comply with a safe
harbor from "publicly traded partnership" status under the Code, in the
opinion of Mayer, Brown & Platt, under existing federal income tax law and
regulations, the Operating Partnership will be treated for federal income tax
purposes as a partnership, and not as an association taxable as a corporation.
Such opinion, however, is not binding on the Service.
Tax Allocations with Respect to the Properties Pursuant to Section 704(c) of
the Code, income, gain, loss and deductions attributable to appreciated or
depreciated property that is contributed to a partnership in exchange for an
interest in the
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partnership (such as certain of the Properties or interests therein) 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 the contributed property at the time of contribution,
and the adjusted tax basis of such property at the time of contribution (a
"Book-Tax Difference"). Such allocations are solely for federal income tax pur-
poses and do not affect the book capital amounts or other economic arrangements
among the partners. The formation of the Operating Partnership included contri-
butions of appreciated property (including certain of the Properties or inter-
ests therein). Consequently, the Partnership Agreement requires certain alloca-
tions to be made in a manner consistent with Section 704(c) of the Code.
In general, certain of the Limited Partners as contributors of certain of the
Properties or interests therein will be allocated lower amounts of depreciation
deductions for tax purposes and increased taxable income and gain on sale by
the Operating Partnership on the contributed assets (including certain of such
Properties). This 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 rectify the Book-Tax Difference on an annual
basis or with respect to a specific taxable transaction such as a sale, and
accordingly variations from normal Section 704(c) principles may arise, which
could result in the allocation of additional taxable income to the Company in
excess of corresponding cash proceeds in certain circumstances.
Treasury regulations under Section 704(c) provide partnerships with a choice of
several methods of accounting for Book-Tax Differences. The Operating Partner-
ship and the Company have not yet determined which of the alternative methods
of accounting for Book-Tax Differences will be elected, and accordingly, such
determination could have differing timing and other effects on the Company.
Certain of the Properties acquired in taxable transactions will in general have
a tax basis equal to their fair market value. Section 704(c) of the Code will
not apply in such cases.
Sale of the Properties The Company's share of any gain realized by the Oper-
ating Partnership on the sale of any "dealer property" generally will be
treated as income from a prohibited transaction that is subject to 100% penalty
tax. See "--Taxation of the Company--General" and "--Gross Income Tests--The
95% Test." Under existing law, whether property is dealer property is a ques-
tion of fact that depends on all the facts and circumstances with respect to
the particular transaction. The Operating Partnership intends to hold (and, to
the extent within its control, to have any joint venture to which the Operating
Partnership is a partner so hold) the Properties for investment with a view to
long-term appreciation, to engage in the business of acquiring, owning, oper-
ating and developing the Properties and other industrial properties, and to
make such occasional sales of the Properties and other properties acquired sub-
sequent to the date hereof as are consistent with the Company's investment
objectives. Based upon the Company's investment objectives, the Company
believes that overall, the Properties should not be considered dealer property
and that the amount of income from prohibited transactions, if any, will not be
material.
TAXATION OF SHAREHOLDERS
Taxation of Taxable Domestic Shareholders As long as the Company qualifies as a
REIT, distributions made to the Company's taxable domestic shareholders out of
current or accumulated earnings and profits (and not designated as capital gain
dividends) generally will be taxed to such shareholders as ordinary dividend
income and will not be eligible for the dividends received deduction for corpo-
rations. Distributions of net capital gain designated by the Company as capital
gain dividends will be taxed to such shareholders as long-term capital gain (to
the extent they do not exceed the Company's actual net capital gain for the
fiscal year) without regard to the period for which the shareholder has held
its shares of beneficial interest of the Company. However, corporate share-
holders may be required to treat up to 20% of capital gain dividends as ordi-
nary income. To the extent that the Company makes distributions in excess of
current and accumulated earnings and profits, such distributions will be
treated first as a tax-free return of capital to the shareholder, reducing the
tax basis of a shareholder's Common Shares by the amount of such excess distri-
bution (but not below zero), with distributions in excess of the shareholder's
tax basis being taxed as capital gains (if the Common Shares are held by the
shareholder as a capital asset). See "Distribution Policy." In addition, any
dividend declared by the Company in October, November or December of any year
that is payable to a shareholder of record on a specific date in any such month
shall be treated as both paid by the Company and received by the shareholder on
December 31 of such year, provided that the dividend is actually paid by the
Company during January of the following calendar year. Shareholders may not
include in their individual income tax returns any net operating losses of the
Company. Federal income tax rules may also require that certain minimum tax
adjustments and preferences be apportioned to Company shareholders.
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The Company is permitted under the Code to elect to retain and pay income tax
on its net capital gain for any taxable year. Under the Taxpayer Relief Act of
1997 (the "1997 Act"), however, if the Company so elects, a shareholder must
include in income such shareholder's proportionate share of the Company's
undistributed capital gain for the taxable year, and will be deemed to have
paid such shareholder's proportionate share of the income tax paid by the Com-
pany with respect to such undistributed capital gain. Such tax would be cred-
ited against the shareholder's tax liability and subject to normal refund pro-
cedures. In addition, each shareholder's basis in such shareholder's shares of
Common Shares would be increased by the amount of undistributed capital gain
(less the tax paid by the Company) included in the shareholder's income.
The Internal Revenue Service Restructuring and Reform Act of 1998 (the "1998
Act"), which was recently passed by Congress and signed into law by the Presi-
dent, alters the holding period for capital gain income for individuals (and
for certain trusts and estates). Pursuant to the 1997 Act, gain from the sale
or exchange of certain investments held for more than 18 months was taxed at a
maximum capital gain rate of 20%. Gain from the sale or exchange of such
investments held for 18 months or less, but for more than one-year, was taxed
at a maximum capital gain rate of 28%. The 1997 Act also provided a maximum
rate of 25% for "unrecaptured section 1250 gain" recognized on the sale or
exchange of certain real estate assets. Pursuant to the 1998 Act, property held
for more than one year (rather than for more than 18 months) will be eligible
for the 20% and 25% capital gains rates discussed above. The 1998 Act applies
to amounts taken into account on or after January 1, 1998. On November 10,
1997, the Service issued Notice 97-64, which provides generally that the Com-
pany may classify portions of its designated capital gain dividend as (i) a 20%
rate gain distribution (which would be taxed as capital gain in the 20% group),
(ii) an unrecaptured Section 1250 gain distribution (which would be taxed as
capital gain in the 25% group), or (iii) a 28% rate gain distribution (which
would be taxed as capital gain in the 28% group). Under Notice 97-64, if no
designation is made, the entire designated capital gain dividend will be
treated as a 28% rate capital gain distribution. Notice 97-64 provides that a
REIT must determine the maximum amounts that it may designate as 20% and 25%
rate capital gain dividends by performing the computation required by the Code
as if the REIT were an individual whose ordinary income was subject to a mar-
ginal tax rate of at least 28%. Notice 97-64 has not yet been modified to
incorporate the changes made to holding period requirements under the 1998 Act.
In general, any loss upon a sale or exchange of Common Shares by a shareholder
who has held such Common Shares for six months or less (after applying certain
holding period rules) will be treated as a long-term capital loss, to the
extent distributions from the Company were required to be treated by such
shareholders as long-term capital gains.
Backup Withholding The Company will report to its domestic shareholders and to
the Service the amount of dividends paid for each calendar year, and the amount
of tax withheld, if any, with respect thereto. Under the backup withholding
rules, a shareholder may be subject to backup withholding at a rate of 31% with
respect to dividends paid unless such shareholder (i) is a corporation or comes
with 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 shareholder that does not pro-
vide the Company with its correct taxpayer identification number may also be
subject to penalties imposed by the Service. Any amount paid as backup with-
holding is available as a credit against the shareholder's income tax liabil-
ity. In addition, the Company may be required to withhold a portion of capital
gain distributions made to any shareholders who fail to certify their non-for-
eign status to the Company. See "--Taxation of the Shareholders--Taxation of
Foreign Shareholders" below.
Taxation of Tax-Exempt Shareholders The Service has issued a revenue ruling in
which it held that amounts distributed by a REIT to a tax-exempt employees'
pension trust do not constitute unrelated business taxable income ("UBTI").
Subject to the discussion below regarding a "pension-held REIT," based upon
such ruling and the statutory framework of the Code, distributions by the Com-
pany to a shareholder that is a tax-exempt entity should not constitute UBTI,
provided that the tax-exempt entity has not financed the acquisition of its
shares with "acquisition indebtedness" within the meaning of the Code, that the
shares are not otherwise used in an unrelated trade or business of the tax-
exempt entity, and that the Company, consistent with its present intent, does
not hold a residual interest in a real estate mortgage investment conduit
("REMIC") that is an entity or arrangement that satisfies the standards set
forth in Section 860D of the Code.
If any pension or other retirement trust that qualifies under Section 401(a) of
the Code (a "qualified pension trust") holds more than 10% by value of the
interests in a "pension-held REIT" at any time during a taxable year, a portion
of the dividends paid to the qualified pension trust by such REIT may consti-
tute UBTI. For these purposes, a "pension-held REIT" is defined as a REIT (i)
which would not have qualified as a REIT but for the provisions of the Code
which look through such a qualified pension trust in determining ownership of
shares of the REIT and (ii) as to which at least one qualified pension trust
holds more than 25% by value of the interests of such REIT or one or more qual-
ified pension trusts
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(each owning more than a 10% interest by value in the REIT) hold in the aggre-
gate more than 50% by value of the interests in such REIT.
Significant amounts of Units of the Operating Partnership, which may, subject
to certain limitations, be exchanged for Common Shares, are held by pension
funds. As a result, the Company may in the future be deemed to constitute a
"pension-held REIT" as a result of exchanges of Units for Common Shares or
market purchases of Common Shares by pension funds. In addition, no assurance
can be given that the Company will not become a "pension-held REIT" in the
future.
Taxation of Foreign Shareholders The rules governing United States federal
income taxation of nonresident alien individuals, foreign corporations, for-
eign partnerships and other foreign shareholders (collectively, "Non-U.S.
Shareholders") are highly complex and the following is only a summary of such
rules. Prospective Non-U.S. Shareholders should consult with their own tax
advisors to determine the impact of federal, state and local income tax laws
with regard to an investment in Common Shares, including any reporting
requirements. The Company will qualify as a "domestically-controlled REIT" so
long as less than 50% in value of its shares of beneficial interest are held
by foreign persons (i.e., non-resident aliens, and foreign corporations, part-
nerships, trusts and estates). The Company currently anticipates that it will
qualify as a domestically-controlled REIT. Under these circumstances, gain
from the sale of Common Shares by a foreign person should not be subject to
United States taxation, unless such gain is effectively connected with such
person's United States trade or business or, in the case of an individual for-
eign person, such person is present within the United States for more than 182
days during the taxable year. However, notwithstanding the Company's current
anticipation that the Company will qualify as a domestically-controlled REIT,
because the Common Shares will be publicly traded no assurance can be given
that the Company will continue to so qualify.
Distributions of cash generated by the Company's real estate operations (but
not by the sale or exchange of properties) that are paid to foreign persons
generally will be subject to United States withholding tax at a rate of 30%,
unless (i) an applicable tax treaty reduces that tax and the foreign share-
holder files with the Company the required form evidencing such lower rate, or
(ii) the foreign shareholder files an Internal Revenue Service Form 4224 with
the Company claiming that the distribution is "effectively connected" income.
Distributions of proceeds attributable to the sale or exchange of United
States real property interests by the Company are subject to income and with-
holding taxes pursuant to the Foreign Investment in Real Property Tax Act of
1980 ("FIRPTA"), and may also be subject to branch profits tax in the hands of
a shareholder which is a foreign corporation if it is not entitled to treaty
relief or exemption. The Company is required by applicable Treasury regula-
tions to withhold 35% of any distribution to a foreign person that could be
designated by the Company as a capital gain dividend. This amount is credit-
able against the foreign shareholder's FIRPTA tax liability.
The federal income taxation of foreign persons is a highly complex matter that
may be affected by other considerations. Accordingly, foreign investors in the
Company should consult their own tax advisor regarding the income and with-
holding tax considerations with respect to their investments in the Company.
OTHER TAX CONSIDERATIONS
Management Company The income of the Management Company will be subject to
federal and state income tax at full corporate rates, and the Management Com-
pany cannot claim a deduction for the dividends it pays to its shareholders,
including the Operating Partnership. To the extent that the Management Company
pays federal, state or local taxes, it will have less cash available to dis-
tribute to its shareholders, thereby reducing cash available for distribution
by the Company to its shareholders. The Management Company will attempt to
minimize the amount of such taxes, but there can be no assurance whether or
the extent to which the measures it takes to minimize taxes will be success-
ful.
The 1997 Act The 1997 Act modifies many of the provisions relating to the
requirements for qualification as, and the taxation of, a REIT. Among other
things, the 1997 Act (i) replaces the rule that disqualifies a REIT for any
year in which the REIT fails to comply with United States Treasury regulations
that are intended to enable a REIT to ascertain its ownership, with an inter-
mediate penalty for failing to do so; (ii) permits a REIT to render a de
minimis amount of impermissible services to tenants, or in connection with the
management of property, and still treat amounts received with respect to that
property as rents from real property; (iii) permits a REIT to elect to retain
and pay income tax on net long-term capital gains; (iv) repeals a rule that
required that less than 30% of a REIT's gross income be derived from gain from
the sale or other disposition of stock or securities held for less than one
year, certain real property held for less than four years, and property that
is sold or disposed of in a prohibited transaction; (v) lengthens the original
grace period for foreclosure
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property from two years after the REIT acquired the property to a period
ending on the last day of the third full taxable year following the taxable
year in which the property was acquired; (vi) treats income from all hedges
that reduce the interest rate risk of REIT liabilities, not just interest rate
swaps and caps, as qualifying income under the 95% gross income test; and
(vii) permits any corporation wholly-owned by a REIT to be treated as a quali-
fied subsidiary, regardless of whether the corporation has always been owned
by a REIT. The changes are effective for taxable years beginning after the
date of enactment. Thus, these changes will apply to the operation of the Com-
pany.
Possible Legislative or Other Actions Affecting Tax Consequences Prospective
shareholders should recognize that the present federal income tax treatment of
an investment in the Company may be modified by legislative, judicial or
administrative action at any time and that any such action may affect invest-
ments and commitments previously made. The rules dealing with federal income
taxation are constantly in review by persons involved in the legislative
process and by the Service and the Treasury Department resulting in revisions
of regulations and revised interpretations of established concepts as well as
statutory changes. No assurance can be given as to the form or content (in-
cluding with respect to effective dates) of any tax legislation which may be
enacted. Revisions in federal tax laws and interpretations thereof can
adversely affect the tax consequences of an investment in the Company.
State and Local Taxes The Company and its shareholders may be subject to state
or local taxation, the Company and the Operating Partnership may be subject to
state or local tax withholding requirements in various jurisdictions,
including those in which it or they transact business or reside. The state and
local tax treatment of the Company and its shareholders may not conform to the
federal income tax consequences discussed above. Consequently, prospective
shareholders should consult their own tax advisors regarding the effect of
state and local tax laws on an investment in Common Shares.
IT IS SUGGESTED THAT EACH PROSPECTIVE PURCHASER CONSULT WITH SUCH PURCHASER'S
TAX ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO SUCH PURCHASER OF THE
PURCHASE, OWNERSHIP AND SALE OF COMMON SHARES IN AN ENTITY ELECTING TO BE
TAXED AS A REAL ESTATE INVESTMENT TRUST, INCLUDING THE FEDERAL, STATE, LOCAL,
FOREIGN AND OTHER TAX CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP, SALE AND ELEC-
TION AND OF POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
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ERISA CONSIDERATIONS
THE FOLLOWING IS INTENDED TO BE A SUMMARY ONLY AND IS NOT A SUBSTITUTE FOR
CAREFUL PLANNING WITH A PROFESSIONAL. Employee benefit plans subject to ERISA
("ERISA Plans"), governmental plans, Individual Retirement Accounts and Indi-
vidual Retirement Annuities ("IRAs") and certain other non-ERISA plans (collec-
tively, "Plans") considering purchasing Common Shares should consult with their
own legal counsel regarding specific considerations arising under ERISA, the
Code or state law with respect to their purchase of the Common Shares.
GENERAL FIDUCIARY CONSIDERATIONS
The fiduciary requirements of Title I of ERISA require the investments of an
ERISA Plan to be (i) prudent and in the best interest of the ERISA Plan, its
participants and beneficiaries; (ii) diversified in order to avoid the risk of
large losses, unless it is clearly prudent not to do so; and (iii) authorized
under the terms of the governing documents of the ERISA Plan. Each fiduciary of
an ERISA Plan should carefully consider whether an investment in the Common
Shares is consistent with his or her fiduciary duties.
PROHIBITED TRANSACTIONS
ERISA and the Code prohibit certain transactions that involve an ERISA Plan and
a "party in interest" or "disqualified person" (collectively referred to herein
as a "party in interest") with respect to the plan. A party in interest who
engages in a prohibited transaction with a plan is subject to an excise tax of
15% of the amount involved in the prohibited transaction. If the prohibited
transaction is not corrected by undoing the transaction to the extent possible
and, in any case, putting the plan in a financial position not worse than that
in which it would have been had the party in interest acted in accordance with
the requirements of ERISA, the party in interest is subject to a further excise
tax of 100%. Cabot Partners is a party in interest with respect to one ERISA
plan that is a Contributing Investor. It is not clear that the Formation Trans-
actions would have constituted a prohibited transaction with respect to such
plan. Nevertheless, such plan has informed the Company that it relied on Pro-
hibited Transaction Exemption 84-14 ("PTE 84-14") and retained a Qualified Pro-
fessional Asset Manager ("QPAM") to decide whether or not to enter into the
Formation Transactions. The applicability of such exemption in certain circum-
stances has been questioned by the Department of Labor. If it were ultimately
determined that the Formation Transactions constituted a prohibited transac-
tion, and also that PTE 84-14 did not apply to such plan's participation in the
Formation Transactions, then sanctions could be imposed on Cabot Partners and
the fiduciaries of such plan that could include reallocation of Units between
Cabot Partners and such plan or other remedies, possibly including rescission
of the Property transfers from such plan, intended to put such plan in a finan-
cial position not worse than that in which it would have been if the parties
had acted in accordance with the requirements of ERISA. Cabot Partners and the
Company have received an opinion from Mayer, Brown & Platt in connection with
the Formation Transactions that PTE 84-14 applied to the Formation Transactions
with respect to such plan; however, such opinion is not binding on the Depart-
ment of Labor, the Service or any court.
PLAN ASSETS ISSUES
A regulation promulgated by the Department of Labor (the "Regulation") provides
that, except under certain circumstances set forth therein, investment by an
ERISA Plan in a corporation, partnership or other entity may result in the
assets of that entity being treated as the assets of the investing ERISA Plan.
The Regulation provides that an entity's assets will not be treated as "plan
assets" because of an ERISA Plan's investment if the ERISA Plan acquires an
equity interest in the entity which is a "publicly offered security." Under the
Regulation, a "publicly-offered security" is a security that is freely trans-
ferable, part of a class of securities that is widely held and either (i) part
of a class of securities that is registered under section 12(b) or 12(g) of the
Exchange Act, or (ii) sold pursuant to an effective registration statement
under the Securities Act (provided that the securities are registered under the
Exchange Act within 120 days after the end of the fiscal year of the issuer
during which the offering occurred). The Common Shares are expected to be reg-
istered under section 12(b) of the Exchange Act.
A security is "widely held" if it is part of a class of securities owned by 100
or more investors independent of the issuer and of each other.
Whether a security is considered "freely transferable" is a factual question
that is determined based upon the relevant facts and circumstances. The Regula-
tion provides that when a security is part of an offering in which the minimum
investment is $10,000 or less, certain restrictions ordinarily will not affect,
alone or in combination, the finding that the
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securities are freely transferable. The Company believes that the restrictions
imposed under the Company's Declaration of Trust on the transfer of the Common
Shares are limited to restrictions on transfer generally permitted under the
Regulation and will not result in the failure of the Common Shares to be
"freely transferable." The Company also believes that the restrictions that
apply to the Common Shares that derive from contractual arrangements requested
by the underwriters in connection with the IPO will not result in the failure
of the Common Shares to be "freely transferable." The Regulation only estab-
lishes a presumption in favor of free transferability, and no assurance can be
given that the Department of Labor or the U.S. Treasury Department will not
reach a contrary conclusion.
Assuming that the Common Shares are "widely held" and that no facts and circum-
stances other than those referred to in the preceding paragraph exist that
restrict transferability, the Company believes that, while the issue is not
entirely free of doubt because of its factual nature, the Common Shares are
publicly offered securities and the assets of the Company will not be deemed to
be "plan assets" of any Plan which invests in the Common Shares.
The Regulation also provides exceptions to the rule that an entity will hold
plan assets if the entity qualifies as an operating company or a real estate
operating company ("REOC"). A REOC is an entity which, on certain specified
valuation dates, has at least 50 percent of it assets, valued at cost (other
than short term investments pending long term commitment or distribution)
invested in real estate which is managed or developed and with respect to which
the REOC has the right to substantially participate in the management or devel-
opment activities; and which throughout the year(s) is engaged directly in real
estate management or development. As the Company is self-managed, it may
qualify under the Regulation as a REOC. The Company may also constitute an "op-
erating company" within the meaning of the Regulation.
Notwithstanding the foregoing, if the assets of the Company were deemed to be
"plan assets" under ERISA, the Company's ability to engage in business transac-
tions could be hampered because (i) certain persons exercising discretion as to
the Company's assets might be considered fiduciaries of the ERISA Plans; and
(ii) transactions involving the Company undertaken at their discretion or
transactions that the Company might enter into in the ordinary course of its
business might constitute prohibited transactions under ERISA and the Code.
LEGAL MATTERS
Certain legal matters, including the validity of the Common Shares offered
hereby have been passed upon for the Company by Mayer, Brown & Platt, Chicago,
Illinois. Mayer, Brown & Platt has relied on Ballard Spahr Andrews & Ingersoll,
LLP, Baltimore, Maryland, as to certain matters of Maryland law. The descrip-
tion of Federal income tax consequences contained in the Prospectus, to the
extent that it constitutes matters of law, summaries of legal matters or legal
conclusions, constitutes the opinion of Mayer, Brown & Platt as to such mat-
ters.
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EXPERTS
The audited financial statements and schedules (if applicable) of Cabot Indus-
trial Trust, Cabot Partners Limited Partnership, Existing Investors Property
Group, Knickerbocker Properties, Inc. II, Prudential Properties Group, West
Coast Industrial, LLC, The 4B's, Seefried Properties Group, Prudential Proper-
ties Group II, DFW Trade Center I, L.P., Buildings 1, 2 and 3, 1055 Dornoch
Court, San Diego, CA, Hampden I and II Properties Group, South Royal Associates
Properties Group, Joseph A. Leroy Family LP Property, Raco/Melaver, L.L.C.,
TLI/Cahill Partnership--Spiral Drive, Terraden/Ontario, I L.P., Kojo Building
Property Group, Everest Investments Limited Partnership Property Group and The
Phoenix Group included in the Registration Statement have been audited by
Arthur Andersen LLP, independent public accountants, as of and for the periods
indicated in their reports and are included herein in reliance upon the
authority of said firm as experts in accounting and auditing in giving said
reports.
The financial statements and related schedule of Pennsylvania Public School
Employes' Retirement System Industrial Properties Portfolio included in this
Prospectus and elsewhere in the Registration Statement, have been audited by
KPMG Peat Marwick LLP, independent certified public accountants, to the extent
and for the periods indicated in their report thereon also appearing elsewhere
herein and in the Registration Statement. Such financial statements and related
schedule have been included herein in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
The historical cost basis combined statements of assets and liabilities of
Orlando Central Park and 500 Memorial Drive as of December 31, 1997 and 1996
and the related historical cost basis combined statements of income, changes in
net assets, and cash flows for each of the three years in the period then
ended, included in this Prospectus, have been included herein in reliance on
the report of PricewaterhouseCoopers LLP independent accountants, given on the
authority of that firm as experts in accounting and auditing.
The historical cost basis balance sheet of Knickerbocker Properties, Inc. II as
of December 31, 1996 and the related historical cost basis statements of opera-
tions, stockholder's equity and cash flows for each of the two years in the
period ended December 31, 1996 included in this Prospectus, have been included
herein in reliance on the report of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of that firm as experts in accounting and
auditing.
ADDITIONAL INFORMATION
The Company has filed a Registration Statement with the Commission on Form S-11
under the Securities Act with respect to the Common Shares offered hereby. In
accordance with the rules and regulations of the Commission, this Prospectus
does not contain all of the information set forth in the Registration Statement
and the exhibits and financial statement schedules thereto. Statements con-
tained in this Prospectus as to the contents of any contract or other document
that is filed as an exhibit to the Registration Statement are not necessarily
complete, and each such statement is qualified in its entirety by reference to
the full text of such contract or document. For further information with
respect to the Company and the Common Shares, reference is made to the Regis-
tration Statement and such exhibits and financial statement schedules, copies
of which may be examined without charge at or obtained upon payment of pre-
scribed fees from, the Public Reference Section of the Commission at Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and will also be avail-
able for inspection and copying at the regional offices of the Commission
located at 13th Floor, 7 World Trade Center, New York, New York 10048 and at
500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. The Commis-
sion also maintains a Website at http://www.sec.gov, and reports, proxy and
information statements and other information regarding registrants, including
the Company, that file electronically with the Commission can be obtained from
that site. The Registration Statement, including exhibits and financial state-
ments thereto, is available at such Website.
The Company is required to file reports and other information with the Commis-
sion pursuant to the Securities Exchange Act of 1934. Reports, proxy statements
and other information concerning the Company filed with the Commission pursuant
to the Exchange Act may be inspected and copied, or obtained from, the above
described offices of the Commission. In addition, the Common Shares are listed
on, and the Company is required to file reports, proxy statements and other
information with, the NYSE. Such materials may be inspected at the offices of
the NYSE, located at 20 Broad Street, New York, New York 10005.
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GLOSSARY
Unless the context otherwise requires, the following capitalized terms shall
have the meanings set forth below for the purposes of this Prospectus.
"ACMs" means asbestos-containing materials.
"Acquisition Facility" means a revolving credit facility, which the Company has
obtained from Morgan Guaranty Trust Company of New York, under which the Com-
pany is permitted to borrow up to $325 million.
"ADA" means the Americans with Disabilities Act of 1990.
"Advisory Contracts" means the investment advisory and property management con-
tracts entered into between Cabot Partners and certain advisory clients.
"Affiliate" means (i) any person that, directly or indirectly, controls or is
controlled by or is under common control with such person, (ii) any other
person that owns, beneficially, directly or indirectly, five percent or more of
the outstanding capital stock, shares or equity interests of such person, or
(iii) any officer, director, employee, partner or trustee of such person or any
person controlling, controlled by or under common control with such person (ex-
cluding trustees and persons serving in similar capacities who are not other-
wise an Affiliate of such person). The term "person" means and includes indi-
viduals, corporations, general and limited partnerships, stock companies or
associations, joint ventures, associations, companies, trusts, banks, trust
companies, land trusts, business trusts or other entities and governments and
agencies and political subdivisions thereof. For the purposes of this defini-
tion, "control" (including the correlative meanings of the terms "controlled
by" and "under common control with"), as used with respect to any person, shall
mean the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of such person, through the owner-
ship of voting securities, partnership interests or other equity interests.
"Annualized Base Rent" means annual contractual rent.
"Annualized Net Rent" means annualized monthly Net Rent from leases in effect
as of June 30, 1998.
"Base Line Properties" means properties that were held during the entire period
for both periods being compared in "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
"Beneficiary" means the beneficiary of the Share Trust.
"Book-Tax Difference" means the difference between the fair market value of the
contributed property at the time of contribution, and the adjusted tax basis of
such property at the time of contribution.
"Board of Trustees" means Board of Trustees of the Company.
"Bylaws" means the Company's Bylaws.
"Cabot Advisors" means Cabot, Cabot & Forbes Realty Advisors, Inc.
"Cabot Group" means Cabot Partners and certain affiliated partnerships.
"Cabot Group Participants" means Ferdinand Colloredo-Mansfeld and his wife,
Franz Colloredo-Mansfeld and his siblings, Robert E. Patterson, Andrew D.
Ebbott, Howard B. Hodgson, Jr., Eugene F. Reilly, Neil E. Waisnor, Gerald F.
Ianetta, John F. Malloy and Peter F. Tague.
"Cabot Partners" means Cabot Partners Limited Partnership, a Massachusetts lim-
ited partnership.
"CC&F" means Cabot, Cabot & Forbes Company.
"Closing Date" means the date of the closing of the IPO.
"C-M Holdings" means C-M Holdings L.P.
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"C-M Property Partnerships" means C-M Holdings and its affiliated partnerships,
in which Ferdinand Colloredo-Mansfeld owned 97% of the partnership interests,
Franz Colloredo-Mansfeld owned 1% of the partnership interests and members of
their immediate family owned in the aggregate 2% of the partnership interests.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission.
"Common Shares" means common shares of beneficial interest, $.01 par value per
share, of the Company.
"Company" means Cabot Industrial Trust and its operating subsidiaries,
including the Operating Partnership, of which the Company is the sole general
partner, and the Management Company.
"Compensation Committee" means the committee comprised of two or more of the
Independent Trustees established by the Board of Trustees to determine compen-
sation for the Company's executive officers and to implement the Company's Long
Term Incentive Plan.
"Concurrent Investor" means the following investors, for whom Morgan Stanley
Asset Management Inc. acts as advisor in connection with the Concurrent Place-
ment: Stichting Bedrijspensioenfonds Voor De Metaalnijhverheid, Stichting
Pensioenfonds ABP, MS Real Estate Special Situations Inc., The Morgan Stanley
Real Estate Special Situations Funds I, L.P., The Morgan Stanley Real Estate
Special Situations Fund II, L.P. and Morgan Stanley Real Estate Special Situa-
tions Real Estate Investors, L.P.
"Concurrent Placement" means the Company's sale of $20 million of Common Shares
at the IPO Price to the Concurrent Investor in a private placement concurrently
with the sale of the Common Shares in the IPO.
"Contributing Investors" means (i) the following Cabot Partners advisory cli-
ents who contributed Properties in the Formation Transactions: CP Investment
Properties, Inc. (the title holding entity of IBM Retirement Plan Trust), nine
title holding entities of New York State Teachers' Retirement System, State of
Wisconsin Investment Board, CP REPROP Corp. (the title holding entity of the
Leland Stanford Jr. Endowment Fund), (ii) the following additional entities
that contributed Properties in the Formation Transactions: West Coast Indus-
trial, L.L.C. (the title holding entity of Argo Partnership II, L.P.), Key-
stone-New Jersey Property Holding Corp., Keystone-Ohio Property Holding Corp.
and Keystone-Illinois Property Holding Corp. (the title holding entities of
Pennsylvania Public School Employes' Retirement System), Herrod Associates, and
The Prudential Insurance Company of America and (iii) the C-M Property Partner-
ships.
"Contribution Agreement" means the Contribution Agreement relating to the Capi-
talization of Cabot Industrial Trust, dated as of October 10, 1997, among the
Company, the Operating Partnership, Cabot Partners and various Contributing
Investors identified therein.
"Control Share Acquisition" means the acquisition of Control Shares, subject to
certain exceptions.
"Control Shares" means shares of beneficial interest that, if aggregated with
all other such shares of beneficial interest of the Company previously acquired
by the acquirer, would entitle the acquirer to exercise voting power in
electing trustees within one of the following ranges of voting power: (i) one-
fifth or more but less than one-third, (ii) one-third or more but less than a
majority, or (iii) a majority of all voting power, but does not include shares
which the acquiring person is then entitled to vote as a result of having pre-
viously obtained shareholder approval.
"Debt Limitation" means the Company's policy limiting its Debt-to-Total Market
Capitalization Ratio to 40%.
"Debt-to-Total Market Capitalization Ratio" means a ratio calculated based on
the Company's total consolidated and unconsolidated debt as a percentage of the
market value of outstanding Common Shares and Units (not owned by the Company)
plus total consolidated and unconsolidated debt, but excluding (i) all nonre-
course consolidated debt in excess of the Company's proportionate shares of
such debt and (ii) all nonrecourse unconsolidated debt of partnerships in which
the Company is a limited partner.
"Declaration of Trust" means the Amended and Restated Declaration of Trust of
the Company.
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended.
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"ERISA Plans" means employee benefit plans subject to ERISA.
"Excess Shares" means Common or Preferred Shares which are transferred automat-
ically to the Share Trust.
"Exchange Rights" means the right, which is subject to certain exceptions, of
Limited Partners to exchange all or a portion of their Units for Common Shares
on a one-for-one basis pursuant to the terms of the Operating Partnership
Agreement.
"Existing Investors" means those Contributing Investors that contributed Prop-
erties which were managed by Cabot Partners as of February 3, 1998 consisting
of IBM Retirement Plan Trust, New York State Teachers' Retirement System, State
of Wisconsin Investment Board, Leland Stanford Jr. Endowment Fund, and C-M
Property Partnerships.
"Existing Investors Property Group" means the Properties of the Contributing
Investors that were managed by Cabot Partners as of February 3, 1998.
"FIRPTA" means the Foreign Investment in Real Property Tax Act of 1980, as
amended.
"Formation Transactions" means the transactions relating to the formation of
the Company and the acquisition of certain of the Properties and certain other
assets.
"FFO" means Funds from Operations which represents net income before minority
interests and extraordinary items, adjusted for depreciation on real property
and amortization of tenant improvements costs and lease commissions, gains from
the sale of properties and FFO attributable to minority interests in consoli-
dated joint ventures whose interests are not convertible into shares of Common
Stock. In addition to cash flow and net income, management generally considers
FFO to be one additional measure of the performance of an equity REIT because
together with net income and cash flows, FFO provides investors with an addi-
tional basis to evaluate the ability of an entity to incur and service debt and
to fund acquisitions and other capital expenditures. However, FFO does not
measure whether cash flow is sufficient to fund all of an entity's cash needs
including principal amortization, capital improvements and distributions to
stockholders. FFO also does not represent cash generated from operating,
investing or financing activities as determined in accordance with GAAP. FFO
should not be considered as an alternative to net income as an indicator of an
entity's operating performance or as an alternative to cash flow as a measure
of liquidity. Further, FFO as disclosed by other REITs may not be comparable to
the Company's calculation of FFO. The Company calculates FFO in accordance with
the White Paper on Funds from Operations approved by the Board of Governors of
NAREIT in March 1995.
"GAAP" means generally accepted accounting principles.
"GP Units" means general partnership interests in the Operating Partnership.
"IPO" means the initial public offering of Common Shares by the Company com-
pleted on February 4, 1998.
"IPO Price" means $20.00, which was the initial public offering price of the
Common Shares in the IPO.
"Indemnitee" means each individual made a party to a proceeding by reason of
his status as a general partner or an officer of the Operating Partnership or a
trustee or officer of the Company or any other Person as the Company may desig-
nate from time to time in its sole and absolute discretion.
"Independent Trustee" means a Trustee of the Company who is not an officer or
employee of the Company.
"Interested Shareholder" means a beneficial owner of ten percent or more of the
voting power of the then outstanding voting shares of beneficial interest of a
trust or an Affiliate thereof.
"IRAs" means government plans, Individual Retirement Accounts and Individual
Retirement Annuities.
"Limited Partners" means the limited partners of the Operating Partnership.
"Long Term Incentive Plan" means the Long Term Incentive Plan of the Company.
"Management Company" means Cabot Advisors, Inc., a Delaware corporation.
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"Market Price" means the last reported sales price reported on the NYSE for a
particular class of Shares on the trading day immediately preceding the rele-
vant date, or if not then traded on the NYSE, the last reported sales price for
such class of Shares on the trading day immediately preceding the relevant date
as reported on any exchange or quotation system over or through which such
class of Shares may be traded, or if not then traded over or through any
exchange or quotation system, then the market price of such class of Shares on
the relevant date as determined in good faith by the Board of Trustees.
"Maryland REIT Law" means Title 8 of the Corporations and Associations Article
of the Annotated Code of Maryland, as amended.
"MGCL" means the Maryland General Corporation Law, as amended.
"Named Executive Officers" means Ferdinand Colloredo-Mansfeld, Robert E.
Patterson, Franz Colloredo-Mansfeld, Andrew D. Ebbott, Howard B. Hodgson, Jr.,
Neil E. Waisnor and Eugene F. Reilly.
"NAREIT" means National Association of Real Estate Investment Trusts, Inc.
"New Investors Property Group" means the Properties of Contributing Investors
which were not property management clients of Cabot Partners at or prior to
September 30, 1997.
"Net Rent" means contractual rent, excluding any reimbursements for real estate
taxes or operating expenses.
"Non-employee Trustees" means members of the Board of Trustees who are not
employees of the Company.
"Non-U.S. Shareholders" means nonresident alien individuals, foreign corpora-
tions, foreign partnerships and other foreign shareholders.
"NYSE" means the New York Stock Exchange.
"Operating Partnership" means Cabot Industrial Properties, L.P., a Delaware
limited partnership.
"Operating Partnership Agreement" means the Amended and Restated Agreement of
Limited Partnership of the Operating Partnership.
"Ownership Limit" means the direct or indirect ownership of no more than 9.8%
of the Company's number of issued and outstanding shares of beneficial interest
or 9.8% of the total equity value of such shares.
"Participants" means the individuals who will participate in the Plan.
"Party in Interest" means persons who have specified relationships with a Plan,
"Parties in Interest" under ERISA and "Disqualified Persons" under the Code.
"Phase I ESAs" means Phase I environmental site assessments.
"Plans" means certain employee benefit plans and individual retirement accounts
and individual retirement arrangements.
"Preferred Shares" means the preferred shares of beneficial interest, $.01 par
value per share, of the Company.
"Properties" means, collectively, the industrial buildings acquired by or con-
tributed to the Company or the Operating Partnership in the Formation Transac-
tions and industrial buildings acquired subsequently.
"Prudential Properties Group" means a combination of assets, liabilities and
operations for seven Properties that were owned by The Prudential Insurance
Company of America on behalf of single client separate accounts which The Pru-
dential Insurance Company of America agreed to contribute to the Company in the
Formation Transactions.
"Prudential Properties Group II" means a combination of assets, liabilities and
operations for two Properties that were owned by The Prudential Insurance Com-
pany of America on behalf of single client separate accounts and one Property
owned by a title holding corporation, for which The Prudential Insurance Com-
pany of America provided advisory services.
"Prudential Securities" means Prudential Securities Incorporated.
102
<PAGE>
"PTE 84-14" means Prohibited Transaction Exemption.
"Purported Transferee" means the record holder of the Common or Preferred
Shares that are designated as Excess Shares.
"QPAM" means Qualified Professional Asset Manager.
"Qualified pension trust" means a pension or other retirement trust that quali-
fies under Section 401(a) of the Code.
"R&D" means research and development.
"REIT" means a real estate investment trust.
"REOC" means a real estate operating company.
"Regulation" means the United States Department of Labor regulation which pro-
vides that, except under certain circumstances set forth therein, investment by
an ERISA Plan in a corporation, partnership or other entity may result in the
assets of that entity being treated as the assets of the investing ERISA Plan.
"REMIC" means a Real Estate Mortgage Investment Conduit that is an entity or
arrangement that satisfies the standards set forth in Section 860D of the Code.
"Restricted Shares" means restricted Common Shares of the Company.
"Rule 144" means Rule 144 promulgated under the Securities Act.
"Securities Act" means the Securities Act of 1933, as amended.
"Service" means the U.S. Internal Revenue Service.
"Share Trust" means a trust which holds Common or Preferred Shares of the Com-
pany which have been designated as Excess Shares.
"Share Trustee" means the trustee of the Share Trust.
"Shareholder Rights Plan" means the Rights Agreement, dated June 11, 1998,
entered into between the Company and BankBoston, N.A., as Rights Agent.
"Shares" means shares of beneficial interest of the Company.
"The 1997 Act" means the Taxpayer Relief Act of 1997.
"Trustees" means trustees of the Company.
"UBTI" means unrelated business taxable income.
"Units" means limited partnership interests in the Operating Partnership.
"UPREIT" means the structure of the Company as a REIT that owns all of its
properties through the Operating Partnership.
"Value Test" means 5% of the value of the Company's total assets in the case of
securities of any one non-government issuer.
"Voting Stock Test" means 10% of the outstanding voting securities of any one
non-government issuer.
"White Paper" means the White Paper on Funds from Operations approved by the
Board of Governors of NAREIT in March 1995.
"Workspace" means light assembly and flex/R&D.
103
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
CABOT INDUSTRIAL TRUST
Pro Forma Condensed Combined Financial Statements (unaudited)............ 30
Pro Forma Condensed Combined Statement of Operations for the six months
ended June 30, 1998................................................... 31
Pro Forma Condensed Combined Statement of Operations for the year ended
December 31, 1997..................................................... 32
Notes to Pro Forma Condensed Combined Statements of Operations......... 33
Historical:
Report of Independent Public Accountants............................... F-4
Balance Sheet as of December 31, 1997.................................. F-5
Notes to Balance Sheet................................................. F-6
Balance Sheet as of June 30, 1998 (unaudited) ......................... F-9
Statement of Operations for the three months ended June 30, 1998
(unaudited)........................................................... F-10
Statement of Operations for the six months ended June 30, 1998
(unaudited)........................................................... F-11
Statement of Cash Flows for the six months ended June 30, 1998
(unaudited)........................................................... F-12
Notes to Consolidated Financial Statements............................. F-13
CABOT PARTNERS LIMITED PARTNERSHIP
Report of Independent Public Accountants................................. F-16
Balance Sheets as of December 31, 1997 and 1996.......................... F-17
Statements of Operations for the years ended December 31, 1997, 1996 and
1995.................................................................... F-18
Statements of Partners' Capital for the years ended December 31, 1997,
1996 and 1995........................................................... F-19
Statements of Cash Flows for the years ended December 31, 1997, 1996 and
1995.................................................................... F-20
Notes to Financial Statements............................................ F-21
EXISTING INVESTORS PROPERTY GROUP
Report of Independent Public Accountants................................. F-24
Combined Balance Sheets as of December 31, 1997 and 1996................. F-25
Combined Statements of Income for the years ended December 31, 1997, 1996
and 1995................................................................ F-26
Combined Statements of Owners' Equity for the years ended December 31,
1997, 1996 and 1995..................................................... F-27
Combined Statements of Cash Flows for the years ended December 31, 1997,
1996 and 1995........................................................... F-28
Notes to Combined Financial Statements................................... F-29
Schedule III -- Real Estate and Accumulated Depreciation as of December
31, 1997................................................................ F-33
NEW INVESTORS PROPERTY GROUP
ORLANDO CENTRAL PARK AND 500 MEMORIAL DRIVE
Report of Independent Accountants........................................ F-37
Combined Statements of Assets and Liabilities as of December 31, 1997 and
1996.................................................................... F-38
Combined Statements of Income for the years ended December 31, 1997, 1996
and 1995................................................................ F-39
Combined Statement of Changes in Net Assets for the years ended December
31, 1997, 1996 and 1995................................................. F-40
Combined Statements of Cash Flows for the years ended December 31, 1997,
1996 and 1995........................................................... F-41
Notes to Combined Financial Statements................................... F-42
KNICKERBOCKER PROPERTIES, INC. II
Reports of Independent Public Accountants................................ F-44
Balance Sheets as of December 31, 1997 and 1996.......................... F-46
Statements of Operations for the years ended December 31, 1997, 1996 and
1995.................................................................... F-47
Statements of Stockholder's Equity for the years ended December 31, 1997,
1996 and 1995........................................................... F-48
Statements of Cash Flows for the years ended December 31, 1997, 1996 and
1995.................................................................... F-49
Notes to Financial Statements............................................ F-50
</TABLE>
F-1
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PENNSYLVANIA PUBLIC SCHOOL EMPLOYES' RETIREMENT SYSTEM INDUSTRIAL
PROPERTIES PORTFOLIO
Independent Auditors' Report.............................................. F-53
Combined Balance Sheets as of December 31, 1997 and 1996.................. F-54
Combined Statements of Operations for the years ended December 31, 1997
and 1996 and the period from July 6, 1995 (date of Acquisition) to
December 31, 1995........................................................ F-55
Combined Statement of Owner's Equity for the years ended December 31, 1997
and 1996 and the period from July 6, 1995 (date of Acquisition) to
December 31, 1995........................................................ F-56
Combined Statements of Cash Flows for the years ended December 31, 1997
and 1996 and the period from July 6, 1995 (date of Acquisition) to
December 31, 1995........................................................ F-57
Notes to Combined Financial Statements.................................... F-58
Schedule III -- Combined Real Estate and Accumulated Depreciation as of
December 31, 1997........................................................ F-61
PRUDENTIAL PROPERTIES GROUP
Report of Independent Public Accountants.................................. F-62
Combined Balance Sheets as of December 31, 1997 and 1996.................. F-63
Combined Statements of Operations for the years ended December 31, 1997,
1996 and 1995............................................................ F-64
Combined Statements of Owners' Equity for the years ended December 31,
1997, 1996 and 1995...................................................... F-65
Combined Statements of Cash Flows for the years ended December 31, 1997,
1996 and 1995............................................................ F-66
Notes to Combined Financial Statements.................................... F-67
Schedule III -- Real Estate and Accumulated Depreciation as of December
31, 1997................................................................. F-70
WEST COAST INDUSTRIAL, LLC
Report of Independent Public Accountants.................................. F-71
Combined Statement of Revenue and Certain Expenses for the year ended
December 31, 1997........................................................ F-72
Notes to Combined Statement of Revenue and Certain Expenses............... F-73
THE 4 B'S
Report of Independent Public Accountants.................................. F-75
Statement of Revenue and Certain Expenses for the period from September 1,
1997 (inception) through December 31, 1997............................... F-76
Notes to Statement of Revenue and Certain Expenses........................ F-77
FINANCIAL STATEMENTS FOR PROPERTY ACQUISITIONS
SEEFRIED PROPERTIES GROUP
Report of Independent Public Accountants.................................. F-78
Combined Statement of Revenue and Certain Expenses for the year ended
December 31, 1997........................................................ F-79
Notes to Combined Statement of Revenue and Certain Expenses............... F-80
PRUDENTIAL PROPERTIES GROUP II
Report of Independent Public Accountants.................................. F-82
Combined Statement of Revenue and Certain Expenses for the year ended
December 31, 1997........................................................ F-83
Notes to Combined Statement of Revenue and Certain Expenses............... F-84
DFW TRADE CENTER I, L.P., BUILDINGS 1, 2 AND 3
Report of Independent Public Accountants.................................. F-85
Combined Statement of Revenue and Certain Expenses for the year ended
December 31, 1997........................................................ F-86
Notes to Combined Statement of Revenue and Certain Expenses............... F-87
1055 DORNOCH COURT, SAN DIEGO, CA
Report of Independent Public Accountants.................................. F-88
Statement of Revenue and Certain Expenses for the year ended December 31,
1997..................................................................... F-89
Notes to Statement of Revenue and Certain Expenses........................ F-90
</TABLE>
F-2
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
HAMPDEN I AND II PROPERTIES GROUP
Report of Independent Public Accountants................................ F-91
Combined Statement of Revenue and Certain Expenses for the year ended
December 31, 1997...................................................... F-92
Notes to Combined Statement of Revenue and Certain Expenses............. F-93
SOUTH ROYAL ASSOCIATES PROPERTIES GROUP
Report of Independent Public Accountants................................ F-94
Combined Statement of Revenue and Certain Expenses for the year ended
December 31, 1997...................................................... F-95
Notes to Combined Statement of Revenue and Certain Expenses............. F-96
JOSEPH A. LEROY FAMILY LP PROPERTY
Report of Independent Public Accountants................................ F-97
Statement of Revenue and Certain Expenses for the year ended December
31, 1997............................................................... F-98
Notes to Statement of Revenue and Certain Expenses...................... F-99
RACO/MELAVER, L.L.C.
Report of Independent Public Accountants................................ F-100
Combined Statement of Revenue and Certain Expenses for the year ended
December 31, 1997...................................................... F-101
Notes to Combined Statement of Revenue and Certain Expenses............. F-102
TLI/CAHILL PARTNERSHIP--SPIRAL DRIVE
Report of Independent Public Accountants................................ F-103
Combined Statement of Revenue and Certain Expenses for the year ended
December 31, 1997...................................................... F-104
Notes to Combined Statement of Revenue and Certain Expenses............. F-105
TERRADEN/ONTARIO, I L.P.
Report of Independent Public Accountants................................ F-106
Combined Statement of Revenue and Certain Expenses for the year ended
December 31, 1997...................................................... F-107
Notes to Combined Statement of Revenue and Certain Expenses............. F-108
KOJO BUILDING PROPERTY GROUP
Report of Independent Public Accountants................................ F-109
Statement of Revenue and Certain Expenses for the year ended December
31, 1997............................................................... F-110
Notes to Statement of Revenue and Certain Expenses...................... F-111
EVEREST INVESTMENTS LIMITED PARTNERSHIP PROPERTY GROUP
Report of Independent Public Accountants................................ F-112
Combined Statement of Revenue and Certain Expenses for the year ended
December 31, 1997...................................................... F-113
Notes to Combined Statement of Revenue and Certain Expenses............. F-114
THE PHOENIX GROUP
Report of Independent Public Accountants................................ F-115
Combined Statement of Revenue and Certain Expenses for the year ended
December 31, 1997...................................................... F-116
Notes to Combined Statement of Revenue and Certain Expenses............. F-117
</TABLE>
F-3
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Trustees
of Cabot Industrial Trust:
We have audited the accompanying balance sheet of Cabot Industrial Trust (the
Company), a Maryland real estate investment trust, as of December 31, 1997.
This balance sheet is the responsibility of the Company's management. Our
responsibility is to express an opinion on this balance sheet based on our
audit.
We conducted our audit in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material mis-
statement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by man-
agement, as well as evaluating the overall balance sheet presentation. We
believe that our audit of the balance sheet provides a reasonable basis for our
opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Cabot Industrial Trust as of
December 31, 1997, in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Boston, Massachusetts
March 27, 1998
F-4
<PAGE>
CABOT INDUSTRIAL TRUST
BALANCE SHEET
<TABLE>
<CAPTION>
------------
DECEMBER 31,
1997
------------
<S> <C>
ASSETS
Cash 1,000
Deferred offering and acquisition costs 3,480,000
<CAPTION>
------------
<S> <C>
Total Assets $3,481,000
<CAPTION>
============
<S> <C>
LIABILITIES AND SHAREHOLDER'S EQUITY
Accounts payable $2,255,000
Due to related party 1,225,000
<CAPTION>
------------
<S> <C>
Total Liabilities 3,480,000
Commitments (Note 4)
SHAREHOLDER'S EQUITY
Common Shares, $0.01 par value; 150,000,000 shares authorized, 50
shares issued and outstanding $ 1
Additional Paid in Capital 999
<CAPTION>
------------
<S> <C>
Total Shareholder's Equity 1,000
<CAPTION>
------------
<S> <C>
Total Liabilities and Shareholder's Equity $3,481,000
<CAPTION>
============
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-5
<PAGE>
CABOT INDUSTRIAL TRUST
NOTES TO BALANCE SHEET
1. ORGANIZATION
Cabot Industrial Trust (the Company), a Maryland real estate investment trust,
was formed on October 10, 1997. The Company is the managing general partner of
a newly formed limited partnership, Cabot Industrial Properties, L. P. (the
Operating Partnership), and will conduct substantially all of its business
through the Operating Partnership. The Company will be a fully integrated,
internally managed real estate company formed to continue and expand the
national real estate business of Cabot Partners Limited Partnership. The Com-
pany expects to qualify as a real estate investment trust (a REIT) for federal
income tax purposes.
The Company and the Operating Partnership have had no operations from inception
through December 31, 1997.
2. THE FORMATION TRANSACTIONS, THE OFFERINGS AND THE ACQUISITION FACILITY
The Formation Transactions
On February 4, 1998, under a Contribution Agreement executed by the Company,
the Operating Partnership, Cabot Partners, L.P. and various other contributors,
122 real estate properties, real estate advisory contracts and other assets
were i) contributed to the Operating Partnership in exchange for Units in the
Operating Partnership that may, subject to certain restrictions, be exchanged
for common shares of the Company or ii) contributed to the Company in exchange
for common shares. The properties contributed to the Company were contributed
to the Operating Partnership in exchange for the number of general partnership
Units in the Operating Partnership equal to the number of common shares
exchanged for the property.
The Operating Partnership contributed the real estate investment advisory con-
tracts to Cabot Advisors, Inc. (the Management Company) and received 100% of
the non-voting preferred stock of the Management Company, which entitles it to
95% of the Management Company's net operating cash flow. All of the common
stock of the Management Company is owned by an officer of the Company.
The Offerings
On February 4, 1998, the Company completed the offering of 8,625,000 common
shares of beneficial interest (Common Shares) at an offering price of $20.00
per share. In addition, the Company issued 1,000,000 Common Shares to a single
investor in a private offering at $20.00 per share (Collectively, the Offer-
ings). The Company contributed the net proceeds of the Offerings to the Oper-
ating Partnership in exchange for the number of general partnership interests
in the Operating Partnership equal to the number of Common Shares sold in the
Offerings.
As of December 31, 1997, the Company has incurred costs related to the Forma-
tion Transactions and the Offerings totaling $3.5 million. Approximately $1.2
million of these costs are payable to Cabot Partners, L.P. as direct reimburse-
ment for costs paid to third parties relating to the transactions.
The Acquisition Facility
On March 16, 1998, the Operating Partnership entered into a $325 million
unsecured revolving line of credit (the Acquisition Facility). The Acquisition
Facility matures on March 16, 2001. The interest rate ranges from LIBOR plus 75
basis points to LIBOR plus 125 basis points depending on the Operating Partner-
ship's loan-to-value ratio. The Acquisition Facility is intended to be used to
acquire and develop properties and for working capital purposes.
3. INCOME TAXES
The Company intends to make an election to be taxed as a REIT under Sections
856 through 860 of the Internal Revenue Code of 1986, as amended (the Code). As
a REIT, the Company generally will not be subject to federal income tax if it
distributes at least 95% of its taxable income for each tax year to its share-
holders. REITs are subject to a number of organizational and operational
requirements. If the Company fails to qualify as a REIT in any taxable year,
the Company will be subject to federal income tax (including any applicable
alternative minimum tax) on its taxable income at regular corporate tax rates.
Even if the Company qualifies for taxation as a REIT, the Company may be sub-
ject to state and local income taxes and to federal income tax and excise tax
on its undistributed income.
F-6
<PAGE>
CABOT INDUSTRIAL TRUST
NOTES TO BALANCE SHEET--(CONTINUED)
4. COMMITMENTS
Subsequent to December 31, 1997, the Operating Partnership acquired the fol-
lowing industrial properties with proceeds from the Offerings:
<TABLE>
<CAPTION>
--------------------------------------------------------
SQUIARE ACQUISITION
PROPERTY LOCATION BULDING TYPE FEET COST
- ----------------- ------------ --------- -----------
(000'S)
<S> <C> <C> <C>
Grapevine, TX Bulk Distribution/Workspace 1,182,361 $ 52,207
Mira Loma, CA, Dacula,
GA,
Mechanicsburg, PA Bulk Distribution 916,603 34,621
Mechanicsburg, PA Bulk Distribution 494,400 17,102
San Diego, CA Bulk Distribution 220,000 10,905
Orlando, FL Workspace Properties 213,430 11,027
Tucker, GA Workspace Properties 134,163 5,560
Atlanta, GA Workspace Properties 128,000 5,370
Florence, KY Workspace Properties 61,555 4,050
Tempe, AZ Workspace Properties 81,817 3,295
Phoenix, AZ Multitenant Distribution 144,602 4,035
Tolleson, AZ Bulk Distribution 278,142 6,730
<CAPTION>
--------- -----------
<S> <C> <C> <C>
Total square feet/acquisition cost 3,855,073 154,902
<CAPTION>
=========
<S> <C> <C> <C>
Less: Debt assumed 8,392
<CAPTION>
-----------
<S> <C> <C> <C>
Proceeds used to fund acquisitions $146,510
<CAPTION>
===========
</TABLE>
As of March 24, 1998, the Company has entered into separate agreements to
acquire four additional properties with an estimated total acquisition cost of
$39.8 million. The acquisitions are expected to close within 30 days.
5. LONG TERM INCENTIVE PLAN
The Company has adopted the Cabot Industrial Trust Long Term Incentive Plan
(the Plan) for the purpose of attracting and retaining highly qualified execu-
tive officers, Trustees and employees. The Plan will be administered by the
Compensation Committee of the Board of Trustees, except that the Board of
Directors of the Management Company or a committee thereof will select those
employees of the Management Company who are eligible for awards under the Plan
(in either case, the Administrator). Officers and other employees of the Com-
pany, the Operating Partnership and designated subsidiaries and members of the
Board of Trustees who are not employees of the Company will also be eligible to
participate.
Options will be awarded to Trustees or employees of the Company in the form of
Common Shares and to employees of the Operating Partnership or the Management
Company in the form of Units. The Plan currently authorizes the issuance of up
to 4,347,500 Common Shares and Units. The number of Common Shares and Units
available may increase each January 1 to an amount equal to 10% of the aggre-
gate number of outstanding Common Shares and Units on such date. The Plan pro-
vides for the grant of (i) Common Share options intended to qualify as incen-
tive options under Section 422 of the Code, (ii) Common Share options and Unit
options not intended to qualify as incentive options under Section 422 of the
Code and (iii) dividend equivalent rights and distribution equivalent rights
which entitle a Participant to be credited with additional Common Share or Unit
Rights.
In connection with the grant of options under the Plan, other than options to
Non-employee Trustees, the Administrator will determine the terms of the
option, including the option exercise price, any vesting requirements and
whether a dividend equivalent right or a distribution equivalent right shall be
awarded. The Administrator has authority to award options at less than fair
market value (as defined in the Plan) but at this time has no intention of
doing so.
Effective as of the closing of the Offering, options for a total of 2,188,500
Common Shares and Units have been granted to employees, officers and Non-
employee Trustees with an exercise price of $20 per share. The initial options
granted under the Plan have ten-year terms and become exercisable in four equal
annual installments commencing on the first anniver-
F-7
<PAGE>
CABOT INDUSTRIAL TRUST
NOTES TO BALANCE SHEET--(CONTINUED)
sary of the date of grant, subject to acceleration of vesting upon a change in
control of the Company (as defined in the Plan).
To the extent an option has not become exercisable at the time of the holder's
termination of employment, it will be forfeited unless the Administrator has
previously exercised its reasonable discretion to make such option exercisable,
and all vested options which are not exercised by the expiration date described
in the Plan will be forfeited. Any Common Shares or Units subject to an option
which is forfeited (or which expires without exercise) will again be available
for grant under the Plan.
F-8
<PAGE>
CABOT INDUSTRIAL TRUST
CONSOLIDATED CONDENSED BALANCE SHEET
AS OF JUNE 30, 1998
(UNAUDITED, IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
--------
JUNE 30,
1998
--------
<S> <C>
ASSETS:
Investment in Real Estate:
Rental Properties $917,720
Less: Accumulated Depreciation (6,933)
Properties under Development 3,457
<CAPTION>
--------
<S> <C>
$914,244
<CAPTION>
--------
<S> <C>
Other Assets:
Cash and Cash Equivalents $ 5,386
Rents and Other Receivables 1,102
Deferred Rent Receivable 1,090
Deferred Lease Acquisition Costs, Net 13,721
Deferred Financing Costs, Net 1,514
Due from Related Party 542
Other Assets 1,147
<CAPTION>
--------
<S> <C>
Total Assets $938,746
<CAPTION>
========
<S> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY:
Liabilities:
Mortgage Debt $ 17,533
Line of Credit Borrowings 68,000
Accounts Payable 230
Due to Related Party --
Accrued Real Estate Taxes 5,877
Other Liabilities 15,130
<CAPTION>
--------
<S> <C>
$106,770
<CAPTION>
--------
<S> <C>
Minority Interest $476,722
<CAPTION>
--------
<S> <C>
Shareholders' Equity:
Common Shares, $0.01 par value, 150,000,000 shares authorized,
18,586,764 shares issued and outstanding at June 30, 1998 and 50
shares issued and outstanding at December 31, 1997 $ 186
Paid in Capital 349,264
Retained Earnings 5,804
<CAPTION>
--------
<S> <C>
Total Shareholders' Equity $355,254
<CAPTION>
--------
<S> <C>
Total Liabilities and Shareholders' Equity $938,746
<CAPTION>
========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-9
<PAGE>
CABOT INDUSTRIAL TRUST
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1998
(UNAUDITED IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
-------------
THREE MONTHS
ENDED
JUNE 30, 1998
-------------
<S> <C>
REVENUES:
Rental Income $22,813
Tenant Reimbursements 3,346
<CAPTION>
-------------
<S> <C>
$26,159
EXPENSES:
Property Operating $ 1,474
Property Taxes 3,100
Depreciation and Amortization 5,072
General and Administrative 1,722
Interest Expense 797
<CAPTION>
-------------
<S> <C>
Total Expenses $12,165
Interest and Other Income $ 248
<CAPTION>
-------------
<S> <C>
Income Before Minority Interest Expense $14,242
Minority Interest Expense (8,161)
<CAPTION>
-------------
<S> <C>
Net Income $ 6,081
<CAPTION>
=============
<S> <C>
Earnings per Share:
Basic $ 0.33
<CAPTION>
=============
<S> <C>
Diluted $ 0.33
<CAPTION>
=============
<S> <C>
Weighted Average Shares:
Basic 18,587
<CAPTION>
=============
<S> <C>
Diluted 18,587
<CAPTION>
=============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-10
<PAGE>
CABOT INDUSTRIAL TRUST
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 (NOTE 1)
(UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
-------------
SIX MONTHS
ENDED
JUNE 30, 1998
-------------
<S> <C>
REVENUES:
Rental Income $35,655
Tenant Reimbursements 5,237
<CAPTION>
-------------
<S> <C>
$40,892
EXPENSES:
Property Operating $ 2,516
Property Taxes 4,742
Depreciation and Amortization 8,246
General and Administrative 2,790
Interest Expense 952
<CAPTION>
-------------
<S> <C>
Total Expenses $19,246
Interest and Other Income $ 722
<CAPTION>
-------------
<S> <C>
Income Before Minority Interest Expense $22,368
Minority Interest Expense (12,809)
<CAPTION>
-------------
<S> <C>
Net Income $ 9,559
<CAPTION>
=============
<S> <C>
Earnings per Share:
Basic $ 0.51
<CAPTION>
=============
<S> <C>
Diluted $ 0.51
<CAPTION>
=============
<S> <C>
Weighted Average Shares:
Basic 18,587
<CAPTION>
=============
<S> <C>
Diluted 18,587
<CAPTION>
=============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-11
<PAGE>
CABOT INDUSTRIAL TRUST
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 (NOTE 1)
(UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
-------------
SIX MONTHS
ENDED
JUNE 30, 1998
-------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 9,559
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation and Amortization 8,246
Straight Line Rent Adjustment (1,090)
Amortization of Deferred Financing Costs 140
Minority Interest Expense 12,809
Increase in Rents and Other Receivables (1,102)
Increase in Accounts Payable 196
Increase in Other Assets (1,622)
Increase in Accrued Real Estate Taxes 5,877
Increase in Other Liabilities 4,841
<CAPTION>
-------------
<S> <C>
Net Cash Provided by Operating Activities 37,854
<CAPTION>
-------------
<S> <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and Lease Acquisition Costs (253,189)
Improvements to Real Estate (751)
<CAPTION>
-------------
<S> <C>
Net Cash Used in Investing Activities (253,940)
<CAPTION>
-------------
<S> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in Deferred Financing Costs (1,654)
Debt Principal Repayments (13,427)
Line of Credit Advances, net 68,000
Proceeds from the Issuance of Common Shares and Partnership
Units, net 178,559
Repurchase of Partnership Units (1,217)
Distributions paid to Common Shareholders (3,755)
Distribution paid to Minority Interest (5,035)
<CAPTION>
-------------
<S> <C>
Net Cash Provided by Financing Activities 221,471
<CAPTION>
-------------
<S> <C>
Net Increase in Cash and Cash Equivalents 5,385
Cash and cash equivalents--beginning of period 1
<CAPTION>
-------------
<S> <C>
Cash and cash equivalents--end of period $ 5,386
<CAPTION>
=============
<S> <C>
Cash paid for interest, net of amounts capitalized $ 640
<CAPTION>
=============
</TABLE>
DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
In conjunction with the Offering and Formation Transactions, the Company
assumed $18,413 of indebtedness and issued 33,850,000 Common Shares and Part-
nership Units in exchange for real estate assets and the advisory business of
Cabot Partners valued at $659,072 and $77, respectively.
In conjunction with the acquisition of certain real estate, the Company assumed
$12,547 of indebtedness and issued Units valued at $2,268.
At June 30, 1998, accrued capital expenditures (including amounts included in
accounts payable) totaled $8,374, and accrued offering costs totaled $1,898.
F-12
<PAGE>
CABOT INDUSTRIAL TRUST
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 1998
(IN THOUSANDS, EXCEPT SHARE, PER SHARE AND SQUARE FOOTAGE DATA)
1. GENERAL
Introduction
The accompanying unaudited consolidated condensed financial statements should
be read in conjunction with the 1997 Form 10-K of the registrant (the "Compa-
ny"). These consolidated condensed statements have been prepared in accordance
with the instructions of the Securities and Exchange Commission for Form 10-Q
and do not include all the information and footnotes required by generally
accepted accounting principles for complete financial statements.
In the opinion of the Company's management, all material adjustments (con-
sisting solely of items of a normal, recurring nature) considered necessary for
a fair presentation of results of operations for the interim period have been
included. The results of consolidated operations for the period from January 1,
1998 through June 30, 1998 are not necessarily indicative of the results that
may be expected for the period from January 1, 1998 through December 31, 1998.
Organization
Cabot Industrial Trust (the Company), a Maryland real estate investment trust,
was formed on October 10, 1997. The Company is the managing general partner of
a newly formed limited partnership, Cabot Industrial Properties, L.P. (the
Operating Partnership), and will conduct substantially all of its business
through the Operating Partnership. As the general partner of the Operating
Partnership, the Company has the exclusive power under the agreement of limited
partnership to manage and conduct the business of the Operating Partnership,
and therefore the Company consolidates the results of the Operating Partnership
for financial reporting purposes. The Company is a fully integrated, internally
managed real estate company formed to continue and expand the national real
estate business of Cabot Partners Limited Partnership (Cabot Partners). The
Company expects to qualify as a real estate investment trust (a REIT) for fed-
eral income tax purposes.
The Company and the Operating Partnership had no operations from inception
through February 4, 1998 (See Note 2).
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash Equivalents
The Company considers all short-term investments with an original maturity of
three months or less to be cash equivalents.
Rental Income
All leases are classified as operating leases. Certain leases provide for min-
imum rent payments that increase during the term of the lease and tenant occu-
pancy during periods for which no rent is due. The Company records rental
income for the full term of each lease on a straight-line basis. As of June 30,
1998, the receivables from tenants, net of reserves, which the Company expects
to collect over the remaining life of the leases rather than currently (De-
ferred Rent) was $1,090. Deferred Rent is not recognized for income tax pur-
poses until received.
2. THE FORMATION TRANSACTIONS, THE OFFERINGS AND OWNERSHIP
Initial Capitalization
The initial capitalization of the Company consisted of 50 shares of common
stock, par value $.01 per share, issued for a total consideration of $1. In
connection with the Formation Transactions and Offerings (described below), the
Company issued an additional 18,586,714 shares of common stock.
The Formation Transactions
On February 4, 1998, under a Contribution Agreement executed by the Company,
the Operating Partnership, Cabot Partners, and various other contributors, 122
real estate properties, certain real estate advisory contracts and other assets
were (i) contributed to the Operating Partnership in exchange for Units in the
Operating Partnership that may, subject to certain
F-13
<PAGE>
CABOT INDUSTRIAL TRUST
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AS OF JUNE 30, 1998
(IN THOUSANDS, EXCEPT SHARE, PER SHARE AND SQUARE FOOTAGE DATA)
restrictions, be exchanged for common shares of the Company or (ii) contributed
to the Company in exchange for common shares. The properties contributed to the
Company were contributed to the Operating Partnership in exchange for the
number of general partnership Units in the Operating Partnership equal to the
number of common shares exchanged for the property.
The Operating Partnership contributed the real estate advisory contracts to
Cabot Advisors, Inc. (the Management Company) and received 100% of the non-
voting preferred stock of the Management Company, which entitles it to 95% of
the Management Company's net operating cash flow. All of the common stock of
the Management Company is owned by an officer of the Company.
At June 30, 1998, the Company owned 42.7% of the Operating Partnership. The
remaining 57.3%, which is owned by investors that elected to receive Operating
Partnership Units, is considered minority interest.
The Offerings
On February 4, 1998, the Company completed the offering of 8,625,000 common
shares of beneficial interest (Common Shares) at an offering price of $20.00
per share. In addition, the Company issued 1,000,000 Common Shares to a single
investor in a private offering at $20.00 per share (collectively, the Offer-
ings). The Company contributed the net proceeds of the Offerings to the Oper-
ating Partnership in exchange for the number of general partnership interests
in the Operating Partnership equal to the number of Common Shares sold in the
Offerings.
Distributions
On April 8, 1998 the Company and the Operating Partnership declared distribu-
tions payable on April 30, 1998 to Shareholders or Unitholders of record as of
April 22, 1998, of $.202 per Share/Unit, and on June 11, 1998 the Company and
the Operating Partnership declared distributions payable on July 30, 1998 to
Shareholders or Unitholders of record as of July 10, 1998, of $.325 per
Share/Unit.
3. INVESTMENT IN REAL ESTATE
In accordance with generally accepted accounting principles, the Company has
accounted for the Formation Transactions using the purchase method of account-
ing. As such, the assets and liabilities acquired in connection with the Forma-
tion Transactions are recorded at the fair value of the consideration surren-
dered and liabilities assumed, except for the net assets contributed by Cabot
Partners, the sponsor and organizer, which were recorded at carryover histor-
ical cost basis. The acquisition cost was then allocated to all identifiable
assets based upon their individual estimated fair market values. The following
is a summary of the acquisition cost recorded in connection with the Formation
Transactions:
<TABLE>
<CAPTION>
--------
<S> <C>
Fair value of the Company's Common Shares and the Operating
Partnership's Units, based on the February 4, 1998 value of $20 per
share/unit, issued to the Contributing Investors (except Cabot
Partners) $640,608
Value of Partnership Units issued to Cabot Partners, recorded at
carryover historical cost basis 77
Mortgage debt assumed 18,413
Other acquisition costs and liabilities assumed 8,713
<CAPTION>
--------
<S> <C>
Acquisition cost basis $667,811
<CAPTION>
========
<S> <C>
Acquisition cost basis allocated to:
Land $125,850
Buildings 529,498
Lease Acquisition Costs 12,412
<CAPTION>
--------
<S> <C>
Acquisition cost basis allocated to Real Estate as a result of the
Formation Transactions $667,760
Acquisition cost basis allocated to Other Net Assets 51
<CAPTION>
--------
<S> <C>
Total cost basis allocated $667,811
<CAPTION>
========
</TABLE>
F-14
<PAGE>
CABOT INDUSTRIAL TRUST
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
AS OF JUNE 30, 1998
(IN THOUSANDS, EXCEPT SHARE, PER SHARE AND SQUARE FOOTAGE DATA)
Investments in real estate are depreciated over 40 years using the straight-
line method. Expenditures for ordinary maintenance and repairs are charged to
operations as incurred. Significant building renovations and improvements that
improve or extend the useful life of the assets are capitalized. Tenant
improvements and leasing commissions are capitalized and amortized on the
straight-line method over the terms of the related lease.
4. PROPERTY ACQUISITIONS
During the period from April 1, through June 30, 1998 the Company has acquired
the following industrial properties:
<TABLE>
<CAPTION>
----------------------------------------------
ACQUISITION
PROPERTY LOCATION BUILDING TYPE SQ. FEET COST
----------------- ------------- --------- -----------
<S> <C> <C> <C>
Sun Valley, CA Bulk Distribution 181,670 $ 9,770
Otay Mesa, CA Workspace 123,136 7,752
Ontario, CA Multitenant Distribution 161,180 6,310
Mt. Prospect, IL Workspace 43,250 3,617
Cincinnati, OH Bulk Distribution 403,406 12,320
Plano, TX Multitenant Distribution 206,939 8,393
Huntington Beach, CA Workspace 125,000 7,960
Piscataway, NJ Workspace 101,553 4,081
Phoenix, AZ Multitenant Distribution 89,423 6,744
Simi Valley, CA Workspace 112,271 8,735
<CAPTION>
--------- -----------
<S> <C> <C> <C>
1,547,828 $75,682
<CAPTION>
========= ===========
</TABLE>
5. EARNINGS PER SHARE
In accordance with Statement of Financial Accounting Standards No. 128, "Earn-
ings per Share", basic earnings per share have been computed by dividing net
income by the weighted average number of shares outstanding during the period.
Diluted earnings per share have been computed considering the dilutive effect
of the exercise of Unit options granted by the Operating Partnership. Basic and
diluted earnings per share were calculated as follows:
<TABLE>
<CAPTION>
----------------------------
SIX MONTHS THREE MONTHS
ENDED ENDED
JUNE 30, 1998 JUNE 30, 1998
------------- -------------
<S> <C> <C>
Basic:
Net Income $ 9,559 $ 6,081
<CAPTION>
------------- -------------
<S> <C> <C>
Weighted Average Shares 18,587 18,587
<CAPTION>
------------- -------------
<S> <C> <C>
Basic Earnings per Share $ .51 $ . 33
<CAPTION>
============= =============
<S> <C> <C>
Diluted:
Net Income $ 9,559 $ 6,081
Effect of Unit Options (43) (28)
<CAPTION>
------------- -------------
<S> <C> <C>
Income available to Common Shareholders,
as adjusted $ 9,516 $ 6,053
<CAPTION>
------------- -------------
<S> <C> <C>
Weighted Average Shares 18,587 18,587
<CAPTION>
------------- -------------
<S> <C> <C>
Diluted Earnings per share $ .51 $ .33
<CAPTION>
============= =============
</TABLE>
F-15
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
Cabot Partners Limited Partnership:
We have audited the accompanying balance sheets of Cabot Partners Limited Part-
nership as of December 31, 1997 and 1996, and the related statements of opera-
tions, partners' capital, and cash flows for each of the three years in the
period ended December 31, 1997. These financial statements are the responsi-
bility of the management of the Partnership. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of mate-
rial misstatement. An audit includes examining, on a test basis, evidence sup-
porting 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 pre-
sentation. We believe that our audits provide a reasonable basis for our opin-
ion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Cabot Partners Limited Part-
nership as of December 31, 1997 and 1996, 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.
Arthur Andersen LLP
Boston, Massachusetts
March 27, 1998
F-16
<PAGE>
CABOT PARTNERS LIMITED PARTNERSHIP
BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
-------------------------
YEARS ENDED DECEMBER 31,
-------------------------
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 509 $ 1,709
Accounts receivable 2,689 1,637
Accounts receivable from related party 1,225 --
Investments 39 836
Cost of investment advisory contracts acquired, net
of accumulated amortization of $824 and $2,425,
respectively 780 1,729
Other assets 97 164
<CAPTION>
------------ ------------
<S> <C> <C>
Total Assets $ 5,339 $ 6,075
<CAPTION>
============ ============
<S> <C> <C>
LIABILITIES AND PARTNERS' CAPITAL
Accrued compensation $ 373 $ 385
Accounts payable and accrued liabilities 387 100
<CAPTION>
------------ ------------
<S> <C> <C>
Total Liabilities 760 485
<CAPTION>
------------ ------------
<S> <C> <C>
Commitments (Note 4)
Partners' Capital 4,579 5,590
<CAPTION>
------------ ------------
<S> <C> <C>
Total Liabilities and Partners' Capital $ 5,339 $ 6,075
<CAPTION>
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-17
<PAGE>
CABOT PARTNERS LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
---------------------------
YEARS ENDED DECEMBER 31,
---------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
REVENUES
Advisory fees $ 9,010 $ 7,871 $ 6,482
Other income 70 37 34
<CAPTION>
-------- -------- --------
<S> <C> <C> <C>
Total Revenues 9,080 7,908 6,516
<CAPTION>
-------- -------- --------
<S> <C> <C> <C>
EXPENSES
Compensation 4,685 3,887 3,416
Other general and administrative 2,360 2,001 1,653
Depreciation and amortization 977 419 453
<CAPTION>
-------- -------- --------
<S> <C> <C> <C>
Total Expenses 8,022 6,307 5,522
<CAPTION>
-------- -------- --------
<S> <C> <C> <C>
Income before income (loss) from unconsolidated
subsidiary 1,058 1,601 994
Equity in income (loss) from unconsolidated
subsidiary -- (7) 63
<CAPTION>
-------- -------- --------
<S> <C> <C> <C>
Net income $ 1,058 $ 1,594 $ 1,057
<CAPTION>
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-18
<PAGE>
CABOT PARTNERS LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
----------------------------------------
GENERAL LIMITED PARTNERS PARTNERS'
PARTNER CLASS A CLASS B CAPITAL
------- --------- -------- ---------
<S> <C> <C> <C> <C>
Partners' Capital, December 31,
1994 $ -- $ 4,008 $ -- $ 4,008
Net income for the year ended
December 31, 1995 -- 1,057 -- 1,057
<CAPTION>
------- --------- -------- ---------
<S> <C> <C> <C> <C>
Partners' Capital, December 31,
1995 -- 5,065 -- 5,065
Net income for the year ended
December 31, 1996 10 1,194 390 1,594
Distributions -- (1,069) -- (1,069)
<CAPTION>
------- --------- -------- ---------
<S> <C> <C> <C> <C>
Partners' Capital, December 31,
1996 10 5,190 390 5,590
Net income for the year ended
December 31, 1997 -- 1,058 -- 1,058
Distributions (10) (1,669) (390) (2,069)
<CAPTION>
------- --------- -------- ---------
<S> <C> <C> <C> <C>
Partners' Capital, December 31,
1997 $ -- $ 4,579 $ -- $ 4,579
<CAPTION>
======= ========= ======== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-19
<PAGE>
CABOT PARTNERS LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
----------------------------
YEARS ENDED DECEMBER 31,
----------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 1,058 $ 1,594 $ 1,057
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 977 419 453
Unrealized equity in (income) loss of investment -- 7 (63)
(Increase) in accounts receivable (1,052) (695) (315)
Increase (Decrease) in accrued liabilities 37 (70) 265
(Decrease) Increase in accounts payable (5) (9) 6
Decrease (Increase) in other assets 47 37 (52)
<CAPTION>
-------- -------- --------
<S> <C> <C> <C>
Net cash provided by operating activities 1,062 1,283 1,351
<CAPTION>
-------- -------- --------
<S> <C> <C> <C>
INVESTING ACTIVITIES
Increase in accounts receivable from related
parties (984) -- --
Dividends received 797 183 77
Purchase of furniture, fixtures and equipment (6) (50) (63)
Additional cost-basis investments -- (20) (20)
<CAPTION>
-------- -------- --------
<S> <C> <C> <C>
Net cash provided by (used in) investing
activities (193) 113 (6)
<CAPTION>
-------- -------- --------
<S> <C> <C> <C>
FINANCING ACTIVITIES
Distributions to partners (2,069) (1,069) --
<CAPTION>
-------- -------- --------
<S> <C> <C> <C>
Net (decrease) increase in cash and cash
equivalents (1,200) 327 1,345
Cash and cash equivalents, beginning of period 1,709 1,382 37
<CAPTION>
-------- -------- --------
<S> <C> <C> <C>
Cash and cash equivalents, end of period $ 509 $ 1,709 $ 1,382
<CAPTION>
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-20
<PAGE>
CABOT PARTNERS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. ORGANIZATION
Cabot Partners Limited Partnership (the Partnership), a Massachusetts limited
partnership, was formed as of July 11, 1990 to provide a variety of real estate
investment advisory and management services, primarily to a small number of
pension and profit-sharing plans and other institutional investors. Eight
investors represented 70% of fee revenues for 1997, nine investors represented
77% of fee revenues for 1996 and eleven investors represented 81% of fee reve-
nues for 1995.
The Partnership has two classes of limited partners. The Class A limited part-
ners contributed cash on a disproportionate basis to their ownership interest
and are entitled to a cumulative guaranteed return on their Adjusted Capital
Contributions, as defined, of 10% through December 31, 1995 and 5% thereafter,
payable only out of available cash. In addition, the Class A limited partners
are entitled to a 5% return of their Adjusted Capital Contributions prior to
distributions of available cash to all the partners in accordance with their
ownership interest. As of December 31, 1997, the cumulative unpaid and unrecog-
nized return was $2,795.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Income Taxes
No provision for federal and state income taxes has been recorded relating to
the Partnership, as the partners report their respective shares of the net tax-
able income on their individual tax returns. The tax basis of assets and lia-
bilities does not significantly differ from their historical cost basis.
Furniture, Fixtures and Equipment
Furniture and equipment additions are recorded at cost and are depreciated over
an estimated useful life of five years. Fixtures include leasehold improvements
that are recorded at cost and amortized over the shorter of their useful life
or the remaining lease term.
Cost of Investment Advisory Contracts Acquired
The investment advisory contracts acquired are recorded at their fair market
value at the date of acquisition, based on independent appraisals, and are
being amortized over their estimated lives, which range from eight to sixteen
years.
Allocation of Profits and Losses
Income and losses have been allocated to the partners in accordance with the
provisions of the partnership agreement.
Cash Equivalents
At December 31, 1997, the Partnership had invested excess funds in money market
mutual funds, which have an original maturity of less than three months. For
purposes of the statement of cash flows, this investment has been considered a
cash equivalent.
Pervasiveness of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Fair Value of Financial Instruments
The carrying amounts reported on the accompanying balance sheets for cash and
cash equivalents, receivables, accounts payable and accrued expenses approxi-
mate fair value, due to the short-term nature of these investments.
3. INVESTMENTS
The Partnership owns a 1% managing general partnership interest in a real
estate operating company, CP Private Partners, L.P.-I (Private Partners), and
accounts for this investment under the equity method. Under this method of
accounting, the Partnership's pro rata share of Private Partners' income (loss)
is recorded each year as an increase (decrease) in the carrying value of its
investment, and any distributions received are recorded as decreases in the
carrying value.
F-21
<PAGE>
CABOT PARTNERS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
3. INVESTMENTS (CONTINUED)
The condensed unaudited historical cost balance sheets of Private Partners at
December 31, 1997 and December 31, 1996 are as follows:
<TABLE>
<CAPTION>
--------------
DECEMBER 31,
--------------
1997 1996
------ -------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 576 $ 186
Real estate assets, net 3,140 58,776
Other assets 179 18,203
<CAPTION>
------ -------
<S> <C> <C>
Total Assets $3,895 $77,165
<CAPTION>
====== =======
<S> <C> <C>
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued liabilities $ 29 $ 453
<CAPTION>
------ -------
<S> <C> <C>
PARTNERS' CAPITAL
The Partnership 39 767
Other Partners 3,827 75,945
<CAPTION>
------ -------
<S> <C> <C>
Total Partners' Capital 3,866 76,712
<CAPTION>
------ -------
<S> <C> <C>
Total Liabilities and Partners' Capital $3,895 $77,165
<CAPTION>
====== =======
</TABLE>
The difference between the Partnership's share of the 1996 historical partners'
capital and the investment on the balance sheets is due to stating the invest-
ment at fair market value at the time of purchase.
The condensed unaudited historical cost income statements of Private Partners
for the years ended December 31, 1997, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
---------------------------
YEARS ENDED DECEMBER 31,
---------------------------
1997 1996 1995
-------- -------- -------
<S> <C> <C> <C>
Sale of real estate assets $ 60,268 $ 20,817 $ --
Rental revenues 6,448 11,726 12,778
Cost of real estate sold (51,728) (20,411) --
Note receivable reduction (2,078) (7,688) --
Operating expenses (1,213) (5,163) (6,483)
Write down of real estate to net
realizable value (4,860) -- --
<CAPTION>
-------- -------- -------
<S> <C> <C> <C>
Net income (loss) $ 6,837 $ (719) $ 6,295
<CAPTION>
======== ======== =======
<S> <C> <C> <C>
Dividends paid $ 79,683 $ 18,292 $ 7,700
<CAPTION>
======== ======== =======
<S> <C> <C> <C>
The Partnership's share of:
Net income (loss) $ 68 $ (7) $ 63
<CAPTION>
======== ======== =======
<S> <C> <C> <C>
Dividends paid $ 797 $ 183 $ 77
<CAPTION>
======== ======== =======
</TABLE>
Private Partners' remaining real estate is vacant land which is held for sale.
As of December 31, 1997, its carrying cost has been reduced to its estimated
net realizable value.
F-22
<PAGE>
CABOT PARTNERS LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
4. MINIMUM FUTURE LEASE OBLIGATIONS
Minimum future lease obligations under noncancelable operating leases for each
of the next five years ending December 31 and thereafter are as follows:
<TABLE>
<CAPTION>
---------
<S> <C>
1998 $ 298
1999 313
2000 325
2001 310
</TABLE>
The Partnership incurred rental expense of $332, $304 and $242 for the years
ended December 31, 1997, 1996 and 1995, respectively. The Partnership's only
significant lease is for its office space. The lease provides for the payment
of base rent and operating expenses and real estate taxes over stated base
amounts.
5. RELATED PARTY TRANSACTIONS
Under two separate agreements, the Partnership provides acquisition, asset man-
agement and property management services to a partnership and a company sepa-
rately controlled by two Class A limited partners. The agreements are cancel-
able by either party with 30 days notice. After a recent amendment, one agree-
ment provides for annual fixed fees of $158. The other agreement provides for
an acquisition fee of .25% of acquisition cost and an asset management fee of
5% of net operating income. The Partnership received acquisition fees from
related parties of $345 for the year ended December 31, 1997, and other related
party fees of $287, $164 and $153 for the years ended December 31, 1997, 1996
and 1995, respectively.
As of December 31, 1997, the Partnership had incurred costs related to the For-
mation Transactions described below of $1,225, of which $241 is unpaid and
included in accounts payable and accrued expenses. These costs are to be reim-
bursed by Cabot Industrial Trust subsequent to the Formation Transactions.
6. SUBSEQUENT EVENTS
Formation Transactions
Under the provisions of an agreement executed by the Partnership and several
other investors, Cabot Partners contributed its Advisory Contracts and certain
of its other net assets to Cabot Industrial Properties, L.P. (the Operating
Partnership), a subsidiary partnership of Cabot Industrial Trust (the Company)
and received 1,819,587 Units from the Operating Partnership. The Units are con-
vertible into common shares of the Company on a one-to-one basis subject to
certain limitations. As of February 4, 1998, the common shares had a fair
market value of $20 per share. The remainder of the Partnership's net assets
will be distributed to its partners. The impact of these proposed transactions
is not reflected in the accompanying financial statements.
The cumulative unpaid and unrecognized return discussed in Note 1 was settled
through the distribution of Units received in conjunction with these transac-
tions.
Sales of Assets Under Management
Under the terms of the investment advisory agreements, investors have the right
to terminate the Partnership as advisor with 30 days notice. In addition, a
significant portion of the Partnership's assets under management may be trans-
ferred to other advisors or sold as a part of the investor's investment strat-
egy.
During 1997, all the properties of three portfolios have been sold. These port-
folios accounted for advisory and property management fees of $2,985, $3,249
and $3,295 for the years ended December 31, 1997, 1996 and 1995, respectively.
F-23
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Owners of the
Existing Investors Property Group:
We have audited the accompanying combined balance sheets of the Existing
Investors Property Group, as defined in Note 1, as of December 31, 1997 and
1996, and the related combined statements of income, owners' equity and cash
flows for each of the three years in the period ended December 31, 1997. These
combined financial statements are the responsibility of the management of the
Existing Property Investors. 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 stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of mate-
rial misstatement. An audit includes examining, on a test basis, evidence sup-
porting 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 pre-
sentation. We believe that our audits provide a reasonable basis for our opin-
ion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the combined financial position of the Existing
Investors Property Group at December 31, 1997 and 1996, and the combined
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 com-
bined financial statements taken as a whole. The schedule listed in the index
of financial statements is presented for the purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic finan-
cial 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
Boston, Massachusetts
July 13, 1998
F-24
<PAGE>
EXISTING INVESTORS PROPERTY GROUP
COMBINED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
--------------------------
YEARS ENDED DECEMBER 31,
--------------------------
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
Rental properties $ 417,138 $ 336,836
Accumulated depreciation (39,525) (32,528)
<CAPTION>
------------ ------------
<S> <C> <C>
377,613 304,308
Cash and Cash Equivalents 2,742 2,423
Rents and other receivables, net of allowance for
doubtful accounts of $0 and $339, respectively 6,210 4,810
Restricted cash 27 71
Lease acquisition costs, net of accumulated
amortization of $7,467 and $5,721, respectively 6,459 6,808
Other assets 217 312
<CAPTION>
------------ ------------
<S> <C> <C>
Total Assets $ 393,268 $ 318,732
<CAPTION>
============ ============
<S> <C> <C>
LIABILITIES AND OWNERS' EQUITY
Mortgage debt $ 18,433 $ 19,292
Due to Related Parties 27,476 3,668
Accounts payable and accrued expenses 4,713 3,608
Other liabilities 1,046 878
<CAPTION>
------------ ------------
<S> <C> <C>
Total Liabilities 51,668 27,446
<CAPTION>
------------ ------------
<S> <C> <C>
Contingencies (Note 8)
Owners' Equity 341,600 291,286
<CAPTION>
------------ ------------
<S> <C> <C>
Total Liabilities and Owners' Equity $ 393,268 $ 318,732
<CAPTION>
============ ============
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-25
<PAGE>
EXISTING INVESTORS PROPERTY GROUP
COMBINED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
---------------------------
YEARS ENDED DECEMBER 31,
---------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
REVENUES
Rental $ 33,417 $ 29,736 $ 24,691
Tenant reimbursements 6,388 4,917 3,759
Other rental 611 334 199
Interest 138 193 145
<CAPTION>
-------- -------- --------
<S> <C> <C> <C>
Total Revenues 40,554 35,180 28,794
<CAPTION>
-------- -------- --------
<S> <C> <C> <C>
EXPENSES
Real estate taxes 5,932 5,037 3,979
Management fees 2,352 1,889 1,522
Property operating costs 520 755 648
Maintenance and repairs 550 504 393
Grounds care 274 298 218
Professional services 302 214 194
Insurance 298 210 151
Bad debt, net of recoveries (247) 383 156
Other 223 70 75
Interest 2,134 1,931 2,097
Depreciation and amortization 8,953 7,966 7,118
<CAPTION>
-------- -------- --------
<S> <C> <C> <C>
Total Expenses 21,291 19,257 16,551
<CAPTION>
-------- -------- --------
<S> <C> <C> <C>
Net income $ 19,263 $ 15,923 $ 12,243
<CAPTION>
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-26
<PAGE>
EXISTING INVESTORS PROPERTY GROUP
COMBINED STATEMENTS OF OWNERS' EQUITY
FOR THE YEARS ENDED
DECEMBER 31, 1997, 1996 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
--------
<S> <C>
Owners' Equity, December 31, 1994 $213,203
Contributions 50,326
Distributions (14,143)
Net income for the year ended December 31, 1995 12,243
<CAPTION>
--------
<S> <C>
Owners' Equity, December 31, 1995 261,629
Contributions 35,228
Distributions (21,494)
Net income for the year ended December 31, 1996 15,923
<CAPTION>
--------
<S> <C>
Owners' Equity, December 31, 1996 291,286
Contributions 55,973
Distributions (24,922)
Net income for the year ended December 31, 1997 19,263
<CAPTION>
--------
<S> <C>
Owners' Equity, December 31, 1997 $341,600
<CAPTION>
========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-27
<PAGE>
EXISTING INVESTORS PROPERTY GROUP
COMBINED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
----------------------------
YEARS ENDED DECEMBER 31,
----------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 19,263 $ 15,923 $ 12,243
Adjustments to reconcile net income to net cash
provided by operating activities--
Depreciation and amortization adjustments 8,953 7,966 7,118
Rent normalization adjustments (346) (519) (993)
Changes in assets--(increase) decrease
Rents and other receivables (1,054) 1,750 196
Restricted cash 44 282 265
Other assets 20 25 184
Changes in liabilities--increase (decrease)
Accounts payable and accrued liabilities 1,105 2 705
Other liabilities 168 266 (317)
<CAPTION>
-------- -------- --------
<S> <C> <C> <C>
Net cash provided by operations 28,153 25,695 19,401
<CAPTION>
-------- -------- --------
<S> <C> <C> <C>
INVESTING ACTIVITIES
Property acquisitions (77,264) (33,485) (49,677)
Payments for capital expenditures and lease
acquisition costs (4,570) (5,581) (4,038)
Deferred financing costs -- (8) (153)
<CAPTION>
-------- -------- --------
<S> <C> <C> <C>
Net cash (used in) investing activities (81,834) (39,074) (53,868)
<CAPTION>
-------- -------- --------
<S> <C> <C> <C>
FINANCING ACTIVITIES
Capital contributions 55,973 35,228 50,326
Distributions (24,922) (21,494) (14,143)
Mortgage loan proceeds -- -- 10,865
Repayments of mortgage loans (859) (791) (11,390)
Advances from related parties, net 23,808 261 22
<CAPTION>
-------- -------- --------
<S> <C> <C> <C>
Net cash provided by financing activities 54,000 13,204 35,680
<CAPTION>
-------- -------- --------
<S> <C> <C> <C>
Net (decrease) increase in Cash and Cash
Equivalents 319 (175) 1,213
Cash and Cash Equivalents, Beginning of Year 2,423 2,598 1,385
<CAPTION>
-------- -------- --------
<S> <C> <C> <C>
Cash and Cash Equivalents, End of Year $ 2,742 $ 2,423 $ 2,598
<CAPTION>
======== ======== ========
<S> <C> <C> <C>
Supplemental Information, Interest paid during
the year $ 1,718 $ 1,730 $ 1,909
<CAPTION>
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-28
<PAGE>
EXISTING INVESTORS PROPERTY GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. BUSINESS AND ORGANIZATION
Existing Investors Property Group (EIP Group) is not a legal entity but rather
a combination of all the assets, liabilities and operations for 79 industrial
buildings (as of December 31, 1997) that are owned by certain real estate title
holding corporations, general partnerships and a retirement plan. EIP Group
properties are located in selected markets in the United States and were man-
aged, leased and renovated by Cabot Partners Limited Partnership (Cabot Part-
ners), the investment manager, under separate investment management agreements
with each owner through February 3, 1998 (see Note 2). The accompanying finan-
cial statements include all of the direct and indirect costs of the business of
EIP Group. Refer to Schedule III for a detailed listing of the industrial prop-
erties included in the financial statements for the year ended December 31,
1997. A summary of EIP Group as of December 31, 1997 is as follows:
<TABLE>
<CAPTION>
---------------------
NUMBER OF
PROPERTY OWNER BUILDINGS SQUARE FEET
- -------------- --------- -----------
<S> <C> <C>
CP Investment Properties, Inc. 47 5,376,068
CP REPROP, Corp. 9 1,800,400
Properties owned by two real estate title holding
companies and a limited partnership by the New York
State Teachers' Retirement System 14 2,767,182
Six general partnerships owned by C-M Holdings Limited
Partnership 7 895,169
State of Wisconsin Investment Board 2 376,440
<CAPTION>
--------- -----------
<S> <C> <C>
Total 79 11,215,259
<CAPTION>
========= ===========
</TABLE>
2. FORMATION TRANSACTIONS
Under the provisions of the Contribution Agreement executed by each property
owner, on February 4, 1998, EIP Group contributed all of its properties to
Cabot Industrial Trust (the Company) or a subsidiary partnership, Cabot Indus-
trial Properties, L.P. (the Operating Partnership) and received common shares
from the Company or units from the Operating Partnership. It is anticipated
that the Company will seek to qualify as a real estate investment trust under
the Internal Revenue Code of 1986, as amended. The impact of these transactions
is not reflected in the accompanying combined financial statements.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Combination
The accompanying financial statements have been presented on a combined basis,
at historical cost, because EIP Group was under the common management of Cabot
Partners through investment advisory agreements. All significant intercompany
transactions and balances have been eliminated in combination.
Rental Properties
Rental properties, which consist of industrial warehouses, are stated at cost.
Expenditures for ordinary maintenance and repairs are expensed to operations as
incurred. Significant renovations and improvements that improve or extend the
useful life of the assets are capitalized. Except for amounts attributed to
land, rental property and improvements are depreciated over their estimated
useful lives using the straight-line method. The estimated useful lives by
asset category are as follows:
<TABLE>
<CAPTION>
-------------
ESTIMATED
ASSET CATEGORY USEFUL LIFE
-------------- -------------
<S> <C>
Buildings and improvements 10 - 40 years
Tenant improvements Life of lease
</TABLE>
F-29
<PAGE>
EXISTING INVESTORS PROPERTY GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
Properties consisted of the following at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
-----------------
DECEMBER 31,
-----------------
1997 1996
-------- --------
<S> <C> <C>
Land $ 84,462 $ 74,939
Buildings and improvements 332,676 261,897
<CAPTION>
-------- --------
<S> <C> <C>
Total $417,138 $336,836
<CAPTION>
======== ========
</TABLE>
EIP Group adopted the provisions of Statement of Financial Accounting Standards
(SFAS) No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets To Be Disposed Of, on January 1, 1996. This statement
requires that long-lived assets and certain identifiable intangibles be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Adoption of this
statement did not have an impact on EIP Group's financial position, results of
operations or liquidity.
Lease Acquisition Costs
Capitalized lease acquisition costs are recorded at cost. These costs are amor-
tized over the respective lives of the leases. Unamortized costs are charged to
expense in the event of any early termination of the lease.
Loan Costs
Capitalized loan costs are recorded at cost and are included in other assets.
These costs are amortized over the term of the respective financings on a
straight-line basis. Loan costs, net of accumulated amortization of $328 and
$253 as of December 31, 1997 and December 31, 1996, respectively, were approxi-
mately $119 and $194, respectively.
Rental Income
All leases are classified as operating leases. Certain leases provide for min-
imum rent payments that increase during the term of the lease and tenant occu-
pancy during periods for which no rent is due. EIP Group records rental income
for the full term of each lease on a straight-line basis. As of December 31,
1997 and December 31, 1996, the receivables from tenants, net of reserves,
which EIP Group expects to collect over the remaining life of these leases
rather than currently, were approximately $4,444 and $4,098, respectively (De-
ferred Rent). The amounts included in rental income for the years ended
December 31, 1997, 1996 and 1995, which are not currently due, were approxi-
mately $346, $519 and $993, respectively. Deferred Rent is not recognized for
income tax purposes until received.
Cash Equivalents
EIP Group invests excess funds in short-term investments with original maturi-
ties of less than three months. For the purpose of the statements of cash
flows, all such investments are considered cash equivalents.
Restricted Cash
Restricted cash represents amounts committed for security deposits and utility
deposits. Certain of these amounts may be reduced upon the fulfillment of cer-
tain obligations.
Fair Value of Financial Instruments
Management believes that the carrying basis of EIP Group mortgage loans approx-
imated their respective fair market values as of December 31, 1997 and 1996.
The current value of debt was computed by discounting the projected debt
service payments for each loan based on the spread between the market rate and
the effective rate, including the amortization of loan origination costs, for
each year. In addition, the carrying values of cash and cash equivalents,
restricted cash, escrow deposits, rents receivable (excluding Deferred Rent),
accounts payable and accrued expenses are reasonable estimates of their fair
value.
Income Taxes
The properties were owned in tax-exempt real estate title holding companies,
general partnerships or directly by qualified pension plans. Since the taxable
operating results of EIP Group are either included in the income tax returns of
tax-
F-30
<PAGE>
EXISTING INVESTORS PROPERTY GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
exempt entities or the owners, no provision for state and federal income taxes
has been reflected in these combined financial statements.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting periods.
Actual results could differ from those estimates.
Reclassifications
Certain reclassifications have been made to the prior year financial statements
to make them consistent with current year presentation.
4. MORTGAGE DEBT
As of, December 31, 1997 and 1996, EIP Group had outstanding fixed rate mort-
gage indebtedness as follows:
<TABLE>
<CAPTION>
---------------
DECEMBER 31,
---------------
1997 1996
------- -------
<S> <C> <C>
Three mortgage loans at fixed interest rate of 8.375%, due
February 1, 1998 $13,193 $13,813
Three mortgage loans at fixed interest rates ranging from
7.95% to 8.05%,
due January 1, 2003 5,240 5,479
<CAPTION>
------- -------
<S> <C> <C>
Total mortgage loans payable $18,433 $19,292
<CAPTION>
======= =======
</TABLE>
Payments on mortgage debt are due in monthly installments of principal and
interest. The weighted average interest rate was approximately 8.3% as of
December 31, 1997 and 1996. The mortgage loans are secured by deeds of trust on
six properties and all the loans are subject to prepayment penalties based on a
yield maintenance formula in the event of early repayment.
Scheduled payments of principal on mortgage debt as of December 31, 1997 are
summarized as follows:
<TABLE>
<CAPTION>
-------
<S> <C>
1998 $13,452
1999 281
2000 304
2001 329
2002 4,067
</TABLE>
All EIP Group outstanding mortgage indebtedness was repaid or assumed by the
Company or the Operating Partnership in conjunction with the Formation Transac-
tions (see Note 2).
5. FUTURE MINIMUM RENTS
Future minimum rental receipts due on noncancellable operating leases for the
industrial properties as of December 31, 1997 were as follows:
<TABLE>
<CAPTION>
--------
<S> <C>
1998 $ 37,634
1999 31,807
2000 24,812
2001 19,147
2002 13,904
Thereafter 37,134
<CAPTION>
--------
<S> <C>
$164,438
<CAPTION>
========
</TABLE>
The above amounts do not include additional rental receipts that will become
due as a result of the expense pass-through and escalation provisions in the
leases. EIP Group is subject to the usual business risks associated with the
collection of the above scheduled rents.
F-31
<PAGE>
EXISTING INVESTORS PROPERTY GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
6. TRANSACTIONS WITH THE INVESTMENT MANAGER
Under the provisions of the separate investment management agreements, EIP
Group is obligated to pay Cabot Partners acquisition, asset management and
property management fees. Acquisition fees are payable based on a percentage of
acquisition cost (ranging from .90 to 1.50%), asset management fees are payable
based on a percentage (ranging from .4 to .6%) of the properties' fair market
value or a percentage (ranging from 6 to 7%) of the properties' net operating
income and property management fees are payable on certain properties based on
2.25% of gross receipts. Fees incurred under the agreements were as follows:
<TABLE>
<CAPTION>
----------------------------------
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
1997 1996 1995
----------- ----------- ----------
<S> <C> <C> <C>
FEE INCURRED
Asset management $ 1,529 $ 1,244 $ 981
Acquisition 720 360 504
Property management 596 482 437
</TABLE>
At December 31, 1997 and 1996, total fees payable to Cabot Partners were $546
and $343, respectively.
Acquisition fees are capitalized to Rental Properties in the accompanying com-
bined balance sheets and property and asset management fees are expensed as
incurred and included in Management Fees in the accompanying combined state-
ments of income.
7. DUE TO RELATED PARTIES
Four properties held in general partnerships incurred capital expenditures,
leasing costs and operating deficits that were funded through cash advances
from the general partners. The advances accrue interest at prime plus 1.5%
(10.0% as of December 31, 1997) and are payable out of cash flows after third-
party debt service of the property. Five properties held by tax exempt entities
had debt payable to their sole shareholder. Such debt accrues interest at the
prime rate (8.5% as of December 31, 1997). Interest expense related to the
advances was $570, $299 and $314 for the years ended December 31, 1997, 1996
and 1995, respectively.
8. COMMITMENTS AND CONTINGENCIES
Concentration of Credit Risk
EIP Group maintains its cash and cash equivalents at financial institutions.
The combined account balances at each institution periodically exceed FDIC
insurance coverage, and as a result, there is a concentration of credit risk
related to amounts on deposit in excess of FDIC insurance coverage. Management
of EIP Group believes the risk is not significant.
Environmental
EIP Group, as an owner of real estate, is subject to various environmental laws
of federal and local governments. EIP Group made certain representations and
warranties to the Company in the Contribution Agreement entered into among the
parties in connection with the Formation Transactions (see Note 2), with
respect to environmental and certain other matters. Compliance by EIP Group
with existing laws has not had a material adverse effect on EIP Group's finan-
cial condition and results of operations, and management does not believe it
will have such an impact in the future.
Litigation
Management of EIP Group does not believe there is any litigation threatened
against it other than routine litigation arising out of the ordinary course of
business, some of which is expected to be covered by liability insurance, none
of which is expected to have a material adverse effect on the operating results
or financial position of EIP Group.
F-32
<PAGE>
SCHEDULE III
EXISTING INVESTORS PROPERTY GROUP
REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COSTS
CAPITALIZED GROSS AMOUNT
SUBSEQUENT CARRIED AS OF
INITIAL COST TO ACQUISITION DECEMBER 31, 1997
--------------------- ------------------ ------------------------------
BUILDINGS AND BUILDINGS AND BUILDINGS AND
PROPERTY NAME(8) LOCATION ENCUMBRANCES LAND IMPROVEMENTS LAND IMPROVEMENTS LAND IMPROVEMENTS TOTAL(7)
- ---------------- -------- ------------ ------- ------------- ---- ------------- ------- ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
South 63rd
Avenue Phoenix, AZ -- $ 528 $ 3,953 -- $ -- $ 528 $ 3,953 $ 4,481
North 104th
Avenue Tolleson, AZ -- 651 5,948 -- 33 651 5,981 6,632
South 84th
Avenue Tolleson, AZ -- 553 5,116 -- 187 553 5,303 5,856
South 55th
Avenue Phoenix, AZ -- 261 2,161 -- -- 261 2,161 2,422
North 47th
Avenue Phoenix, AZ -- 423 3,492 -- 41 423 3,533 3,956
Brisbane
Industrial
Park(1) Brisbane, CA -- 10,519 17,011 -- 717 10,519 17,728 28,247
South Vintage
Avenue(2) Ontario, CA -- 2,896 15,836 -- 96 2,896 15,932 18,828
East Jurupa
Street Ontario, CA -- 409 2,217 -- 284 409 2,501 2,910
Santa Anita
Avenue Rancho Cucamonga, CA -- 1,200 6,491 -- 81 1,200 6,572 7,772
East Dyer Road Santa Ana, CA -- 8,160 10,432 -- 2,162 8,160 12,594 20,754
Huntwood Avenue Hayward, CA -- 880 3,463 -- -- 880 3,463 4,343
South
Rockefeller
Avenue Ontario, CA -- 870 5,056 -- -- 870 5,056 5,926
Pepes Farm Road Milford, CT -- 1,637 8,787 -- 622 1,637 9,409 11,046
Kingspointe
Parkway Orlando, FL -- 600 2,581 -- 87 600 2,668 3,268
West 73rd
Street, Building
1 Bedford Park, IL -- 1,333 4,819 -- 56 1,333 4,875 6,208
West 73rd
Street, Building
2 Bedford Park, IL -- 2,148 8,258 -- 69 2,148 8,327 10,475
West 73rd
Street, Building
3 Bedford Park, IL -- 986 5,395 -- 82 986 5,477 6,463
Harvester Drive Chicago, IL -- 763 5,604 -- 156 763 5,760 6,523
Arthur Avenue Elk Grove, IL -- 2,160 4,777 -- 912 2,160 5,689 7,849
Western Avenue Lisle, IL -- 700 1,922 -- 131 700 2,053 2,753
Mark Street Wood Dale, IL -- 2,844 9,668 -- -- 2,844 9,668 12,512
High Grove Lane Naperville, IL -- 800 3,334 -- 6 800 3,340 4,140
Ambassador Road Naperville, IL -- 1,060 6,942 -- -- 1,060 6,942 8,002
Remington Street Bolingbrook, IL -- 980 7,685 -- -- 980 7,685 8,665
North State Road
#9(6) Howe, IN $4,412 239 6,112 -- 28 239 6,140 6,379
Holton Drive Independence, KY -- 2,100 8,294 -- 3 2,100 8,297 10,397
Empire Drive Florence, KY -- 212 2,456 -- 57 212 2,513 2,725
<CAPTION>
----------------------------------------------
DEPRECI-
DATE ABLE
ACCUMULATED CONSTRUCTED/ DATE LIVES
PROPERTY NAME(8) DEPRECIATION RENOVATED ACQUIRED IN YEARS(9)
- ---------------- ------------ ------------ -------- -----------
<S> <C> <C> <C> <C>
South 63rd
Avenue $ 361 1990 05/27/94 10-40
North 104th
Avenue 165 1995 11/26/96 10-40
South 84th
Avenue 365 1989 04/03/95 10-40
South 55th
Avenue 40 1986 03/27/97 10-40
North 47th
Avenue 65 1986 03/27/97 10-40
Brisbane
Industrial
Park(1) 3,209 1965 08/10/90 10-40
South Vintage
Avenue(2) 3,528 1986 11/20/89 10-40
East Jurupa
Street 70 1986 11/19/96 10-40
Santa Anita
Avenue 258 1988 06/27/96 10-40
East Dyer Road 2,491 1954/1965 04/24/89 10-40
Huntwood Avenue 29 1982 09/12/97 10-40
South
Rockefeller
Avenue 52 1986 07/23/97 10-40
Pepes Farm Road 2,047 1980 11/07/88 10-40
Kingspointe
Parkway 67 1991 12/30/96 10-40
West 73rd
Street, Building
1 880 1982 09/13/90 10-40
West 73rd
Street, Building
2 1,506 1986 09/13/90 10-40
West 73rd
Street, Building
3 992 1979 09/13/90 10-40
Harvester Drive 1,437 1974 07/05/88 10-40
Arthur Avenue 1,322 1978 06/27/88 10-40
Western Avenue 474 1970/1985 06/27/88 10-40
Mark Street 1,712 1985 12/14/90 10-40
High Grove Lane 250 1994 01/11/95 10-40
Ambassador Road 34 1997 10/09/97 10-40
Remington Street 36 1996 10/07/97 10-40
North State Road
#9(6) 1,237 1988 12/01/89 10-40
Holton Drive 207 1996 07/6/96 10-40
Empire Drive 300 1991 04/06/93 10-40
</TABLE>
F-33
<PAGE>
SCHEDULE III--(CONTINUED)
EXISTING INVESTORS PROPERTY GROUP
REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COSTS
CAPITALIZED GROSS AMOUNT
SUBSEQUENT CARRIED AS OF
INITIAL COST TO ACQUISITION DECEMBER 31, 1997
-------------------- ------------------ -----------------------------
BUILDINGS AND BUILDINGS AND BUILDINGS AND
PROPERTY NAME(8) LOCATION ENCUMBRANCES LAND IMPROVEMENTS LAND IMPROVEMENTS LAND IMPROVEMENTS TOTAL(7)
- ---------------- -------- ------------ ------ ------------- ---- ------------- ------ ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Technology Drive Auburn, MA -- $ 663 $ 2,050 -- $ 344 $ 663 $2,394 $ 3,057
First Avenue Needham, MA -- 2,530 3,120 -- 873 2,530 3,993 6,523
John Hancock
Road(6) Taunton, MA $1,560 257 1,753 -- 133 257 1,886 2,143
Tar Bay Drive Jessup, MD -- 1,415 5,111 -- 13 1,415 5,124 6,539
The Crysen
Center(3) Jessup, MD -- 1,662 4,470 -- 232 1,662 4,702 6,364
Oceano Avenue Jessup, MD -- 1,629 7,940 -- 49 1,629 7,989 9,618
Sysco Court(6) Grand Rapids, MI 2,187 354 2,452 -- -- 354 2,452 2,806
Lakefront Drive Earth City, MO -- 1,320 4,799 -- -- 1,320 4,799 6,119
Industrial Drive
South(6) Gluckstadt, MS 3,574 320 4,325 -- -- 320 4,325 4,645
Old Charlotte
Highway(4)(6) Monroe, NC 5,207 2,311 6,137 -- -- 2,311 6,137 8,448
Reames Road Charlotte, NC -- 365 2,939 -- -- 365 2,939 3,304
Birch Creek Road Bridgeport, NJ -- 24 4,858 $330 1,824 354 6,682 7,036
South Middlesex
Avenue, Building
1 Cranbury, NJ -- 1,300 6,817 -- 42 1,300 6,859 8,159
South Middlesex
Avenue, Building
2 Cranbury, NJ -- 1,400 5,470 -- 40 1,400 5,510 6,910
Pierce Street Franklin Township, NJ -- 1,400 5,635 -- 64 1,400 5,699 7,099
Herrod Boulevard South Brunswick, NJ -- 2,600 15,721 -- -- 2,600 15,721 18,321
International
Street Columbus, OH -- 517 3,537 -- -- 517 3,537 4,054
Twin Creek Drive Columbus, OH -- 705 4,071 -- 30 705 4,101 4,806
Lake Forest
Drive, Building
1 Blue Ash, OH -- 460 5,920 -- -- 460 5,920 6,380
Lake Forest
Drive, Building
2 Blue Ash, OH -- 420 4,357 -- -- 420 4,357 4,777
Creek Road Blue Ash, OH -- 439 3,950 -- -- 439 3,950 4,389
Ritter Road(6) Mechanicsburg, PA 1,493 332 1,460 -- -- 332 1,460 1,792
Pilot Drive Memphis, TN -- 1,364 6,334 -- -- 1,364 6,334 7,698
113th Street Arlington, TX -- 506 1,855 -- 17 506 1,872 2,378
Airline Drive,
Building 1 Coppell, TX -- 316 1,850 -- -- 316 1,850 2,166
Airline Drive,
Building 2 Coppell, TX -- 696 3,491 -- -- 696 3,491 4,187
<CAPTION>
----------------------------------------------
DEPRECI-
DATE ABLE
ACCUMULATED CONSTRUCTED/ DATE LIVES
PROPERTY NAME(8) DEPRECIATION RENOVATED ACQUIRED IN YEARS(9)
- ---------------- ------------ ------------ -------- -----------
<S> <C> <C> <C> <C>
Technology Drive $ 505 1973 01/30/89 10-40
First Avenue 737 1961/1992 01/16/90 10-40
John Hancock
Road(6) 363 1986 12/01/89 10-40
Tar Bay Drive 897 1990 12/20/90 10-40
The Crysen
Center(3) 845 1985 08/09/90 10-40
Oceano Avenue 1,491 1987 06/28/90 10-40
Sysco Court(6) 492 1985 12/01/89 10-40
Lakefront Drive 310 1995 06/15/95 10-40
Industrial Drive
South(6) 868 1988 12/01/89 10-40
Old Charlotte
Highway(4)(6) 1,232 1957/1972 12/01/89 10-40
Reames Road 147 1994 02/22/96 10-40
Birch Creek Road 668 1991/1997 10/22/92 10-40
South Middlesex
Avenue, Building
1 512 1989 01/17/95 10-40
South Middlesex
Avenue, Building
2 411 1982 06/02/95 10-40
Pierce Street 282 1984 08/18/95 10-40
Herrod Boulevard 76 1989 10/22/97 10-40
International
Street 185 1988 11/21/95 10-40
Twin Creek Drive 314 1989 12/01/94 10-40
Lake Forest
Drive, Building
1 11 1978 12/18/97 10-40
Lake Forest
Drive, Building
2 9 1979 12/18/97 10-40
Creek Road 8 1983 12/18/97 10-40
Ritter Road(6) 293 1986 12/01/89 10-40
Pilot Drive 370 1987 09/05/95 10-40
113th Street 261 1979 07/20/92 10-40
Airline Drive,
Building 1 218 1991 04/23/93 10-40
Airline Drive,
Building 2 411 1990 04/23/93 10-40
</TABLE>
F-34
<PAGE>
SCHEDULE III--(CONTINUED)
EXISTING INVESTORS PROPERTY GROUP
REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COSTS
CAPITALIZED GROSS AMOUNT
SUBSEQUENT CARRIED AS OF
INITIAL COST TO ACQUISITION DECEMBER 31, 1997
--------------------- ------------------ ------------------------------
BUILDINGS AND BUILDINGS AND BUILDINGS AND ACCUMULATED
PROPERTY NAME(8) LOCATION ENCUMBRANCES LAND IMPROVEMENTS LAND IMPROVEMENTS LAND IMPROVEMENTS TOTAL(7) DEPRECIATION
- ---------------- -------- ------------ ------- ------------- ---- ------------- ------- ------------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
North Lake Drive Coppell, TX -- $ 1,165 $ 3,636 $ 68 -- $ 1,233 $ 3,636 $ 4,869 $ 428
Diplomat Drive Carrollton, TX -- 110 2,447 -- -- 110 2,447 2,557 20
Luna Road Carrollton, TX -- 1,020 6,506 -- -- 1,020 6,506 7,526 31
Oakville
Industrial
Park(5) Alexandria, VA -- 10,552 19,806 -- $ 2,578 10,552 22,384 32,936 3,996
------- ------- -------- ---- ------- ------- -------- -------- -------
Totals $18,433 $84,064 $320,627 $398 $12,049 $84,462 $332,676 $417,138 $39,525
======= ======= ======== ==== ======= ======= ======== ======== =======
<CAPTION>
---------------------------------
DEPRECI-
DATE ABLE
CONSTRUCTED/ DATE LIVES
PROPERTY NAME(8) RENOVATED ACQUIRED IN YEARS(9)
- ---------------- ------------ -------- -----------
<S> <C> <C> <C>
North Lake Drive 1982 05/12/93 10-40
Diplomat Drive 1997 09/19/97 10-40
Luna Road 1997 10/17/97 10-40
Oakville
Industrial
Park(5) 1948 02/28/90 10-40
Totals
</TABLE>
- ----
(1) Brisbane Industrial Park consists of fourteen buildings.
(2) South Vintage Avenue consists of two buildings.
(3) The Crysen Center consists of two buildings.
(4) Old Charlotte Highway consists of two buildings.
(5) Oakville Industrial Park consists of six buildings.
(6) The loans encumbering these properties are subject to cross default provi-
sions.
(7) The aggregate cost for federal income tax purposes as of December 31, 1997
was approximately $417 million.
(8) All buildings within schedule are industrial properties.
(9)Buildings are depreciated over 40 years and certain improvements are depre-
ciated over their expected life.
F-35
<PAGE>
SCHEDULE III--(CONTINUED)
EXISTING INVESTORS PROPERTY GROUP
REAL ESTATE AND ACCUMULATED DEPRECIATION
(DOLLARS IN THOUSANDS)
The changes in the total investment in real estate for the years ended December
31, 1997, 1996, 1995 are as follows:
<TABLE>
<CAPTION>
--------------------------
DECEMBER 31,
--------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Balance, beginning of the year $336,836 $301,059 $250,387
Acquisitions 77,264 33,485 49,677
Improvements 3,038 2,292 995
<CAPTION>
-------- -------- --------
<S> <C> <C> <C>
Balance, end of year $417,138 $336,836 $301,059
<CAPTION>
======== ======== ========
</TABLE>
The changes in accumulated depreciation for the years ended December 31, 1997,
1996 and 1995 are as follows:
<TABLE>
<CAPTION>
-----------------------
DECEMBER 31,
-----------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Balance, beginning of the year $32,528 $26,430 $20,936
Depreciation 6,997 6,098 5,494
<CAPTION>
------- ------- -------
<S> <C> <C> <C>
Balance, end of year $39,525 $32,528 $26,430
<CAPTION>
======= ======= =======
</TABLE>
F-36
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Members of the State of
Wisconsin Investment Board:
We have audited the accompanying historical cost basis combined statements of
assets and liabilities of ORLANDO CENTRAL PARK and 500 MEMORIAL DRIVE (the
"Properties") as of December 31, 1997 and 1996, and the related historical cost
basis combined statements of income, changes in net assets and cash flows for
each of the three years in the period ended December 31, 1997. These financial
statements are the responsibility of the Properties' investment advisor. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of mate-
rial misstatement. An audit includes examining, on a test basis, evidence sup-
porting 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 pre-
sentation. We believe that our audits provide a reasonable basis for our opin-
ion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the historical cost basis combined financial
position of Orlando Central Park and 500 Memorial Drive as of December 31, 1997
and 1996, and the historical cost basis combined results of their operations
and their combined cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
As indicated in Note 2, these financial statements have been prepared on the
historical cost basis to comply with Regulation S-X of the Securities and
Exchange Commission.
PricewaterhouseCoopers LLP
New York, New York
July 1, 1998
F-37
<PAGE>
ORLANDO CENTRAL PARK AND 500 MEMORIAL DRIVE
COMBINED STATEMENTS OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
--------------------------
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
Real estate investments:
Land $ 8,847,965 $ 8,847,965
Building and improvements 40,729,028 40,720,252
Accumulated depreciation (7,348,285) (6,316,118)
<CAPTION>
------------ ------------
<S> <C> <C>
42,228,708 43,252,099
Cash and cash equivalents 61,257 591,653
Accounts receivable and accrued investment income 41,610 109,938
Deferred leasing costs, net of accumulated
amortization of $2,930,662 and $2,135,209 at
December 31, 1997 and December 31, 1996,
respectively 2,861,922 3,392,025
Deferred rent concessions 1,067,652 838,408
Other assets 49,207 62,815
<CAPTION>
------------ ------------
<S> <C> <C>
Total Assets $46,310,356 $48,246,938
<CAPTION>
============ ============
<S> <C> <C>
LIABILITIES AND NET ASSETS
Accounts payable and accrued expenses $ 288,309 $ 597,561
Security deposits 216,875 211,363
Unearned rental income 210,363 247,756
<CAPTION>
------------ ------------
<S> <C> <C>
Total Liabilities 715,547 1,056,680
<CAPTION>
------------ ------------
<S> <C> <C>
Net Assets 45,594,809 47,190,258
<CAPTION>
------------ ------------
<S> <C> <C>
Total Liabilities and Net Assets $46,310,356 $48,246,938
<CAPTION>
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-38
<PAGE>
ORLANDO CENTRAL PARK AND 500 MEMORIAL DRIVE
COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
--------------------------------
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
REVENUE
Rental income $5,943,235 $5,521,188 $5,757,490
Other income 21,395 99,749 233,998
<CAPTION>
---------- ---------- ----------
<S> <C> <C> <C>
Total Revenue 5,964,630 5,620,937 5,991,488
<CAPTION>
---------- ---------- ----------
<S> <C> <C> <C>
EXPENSES
Property taxes 646,169 653,797 640,810
Operating expenses 991,441 1,045,704 928,209
Depreciation and amortization 1,827,620 1,745,376 1,693,022
<CAPTION>
---------- ---------- ----------
<S> <C> <C> <C>
Total Expenses 3,465,230 3,444,877 3,262,041
<CAPTION>
---------- ---------- ----------
<S> <C> <C> <C>
Net income $2,499,400 $2,176,060 $2,729,447
<CAPTION>
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-39
<PAGE>
ORLANDO CENTRAL PARK AND 500 MEMORIAL DRIVE
COMBINED STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
-----------
<S> <C>
Net assets, January 1, 1995 $49,237,627
Asset advisory fees paid by owner 281,062
Distributions (3,946,000)
Net income for the year ended December 31, 1995 2,729,447
<CAPTION>
-----------
<S> <C>
Net assets, January 1, 1996 48,302,136
Asset advisory fees paid by owner 275,062
Distributions (3,563,000)
Net income for the year ended December 31, 1996 2,176,060
<CAPTION>
-----------
<S> <C>
Net assets, January 1, 1997 47,190,258
Asset advisory fees paid by owner 308,809
Contributions 397,342
Distributions (4,801,000)
Net income for the year ended December 31, 1997 2,499,400
<CAPTION>
-----------
<S> <C>
Net assets, December 31, 1997 $45,594,809
<CAPTION>
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-40
<PAGE>
ORLANDO CENTRAL PARK AND 500 MEMORIAL DRIVE
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
-------------------------------------
YEARS ENDED DECEMBER 31,
-------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,499,400 $ 2,176,060 $ 2,729,447
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization 1,827,620 1,745,376 1,693,022
Asset advisory fees paid by owner 308,809 275,062 281,062
Changes in operating assets and
liabilities
Accounts receivable 68,328 (17,833) 85,920
Other assets 13,608 (40,886) 344
Deferred rent concessions (229,244) 146,767 (197,855)
Accounts payable and accrued expenses (309,252) 420,666 (73,095)
Security deposits 5,512 (61,742) 5,919
Unearned rental income (37,393) 127,600 (3,394)
<CAPTION>
----------- ----------- -----------
<S> <C> <C> <C>
Net cash provided by operations 4,147,388 4,771,070 4,521,370
<CAPTION>
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES
Payments for capital expenditures and
leasing commissions (274,126) (845,679) (908,717)
<CAPTION>
----------- ----------- -----------
<S> <C> <C> <C>
Net cash used in investing activities (274,126) (845,679) (908,717)
<CAPTION>
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Contributions 397,342 -- --
Distributions (4,801,000) (3,563,000) (3,946,000)
<CAPTION>
----------- ----------- -----------
<S> <C> <C> <C>
Net cash used in financing activities (4,403,658) (3,563,000) (3,946,000)
<CAPTION>
----------- ----------- -----------
<S> <C> <C> <C>
Net increase (decrease) in cash (530,396) 362,391 (333,347)
Cash and cash equivalents, beginning of
year 591,653 229,262 562,609
<CAPTION>
----------- ----------- -----------
<S> <C> <C> <C>
Cash and cash equivalents, end of year $ 61,257 $ 591,653 $ 229,262
<CAPTION>
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-41
<PAGE>
ORLANDO CENTRAL PARK AND 500 MEMORIAL DRIVE
NOTES TO COMBINED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION
The properties known as Orlando Central Park and 500 Memorial Drive (the "Prop-
erties") are owned by the State of Wisconsin Investment Fixed Retirement Trust
Fund ("SWIB") which was established for the benefit of the participants in the
Wisconsin Retirement System. The State of Wisconsin Investment Board has exclu-
sive control over all monies in the Fixed Retirement Trust Fund. Clarion Part-
ners ("Clarion"), manages the Properties under an investment advisory agree-
ment. These financial statements include the combined assets, liabilities and
operations of the Properties which comprise Orlando Central Park (six indus-
trial bulk warehouse buildings and associated land located in an industrial
park in Orlando, Florida) and 500 Memorial Drive (an industrial building and
associated land located in an industrial park in Franklin Township, New Jer-
sey). On February 4, 1998 SWIB sold the Properties to Cabot Industrial Trust
for $45,016,645.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
These financial statements of the Properties have been combined since they are
under common ownership and management and they were acquired in a business com-
bination by Cabot Industrial Trust, a newly formed real estate investment
trust, in connection with a public offering of securities.
SWIB is a pension fund and prepares the financial statements, including those
of the Properties, on the fair value basis pursuant to Statement of Financial
Accounting Standards No. 35 and Statement of Government Accounting Standards
No. 25. However, these financial statements have been restated using the his-
torical cost basis in accordance with the requirement of Regulation S-X of the
Securities and Exchange Commission.
Real Estate and Deferred Costs
Rental property is presented in the balance sheet at cost, which includes fees
for services related to the acquisition of the rental property. Depreciation of
the buildings is computed using the straight-line method over the estimated
useful lives of the property, generally 40 years. Depreciation of improvements
to the rental property is computed using the straight-line method over the
remaining useful lives of the buildings, or the useful life of the improvement,
if shorter. Tenant improvements, including commissions paid for services
related to the signing of new leases, are amortized using the straight-line
method over the lesser of their useful lives or the remaining term of the lease
to which they relate.
Expenditures for major renewals and betterments are capitalized and expendi-
tures for repairs and maintenance are expensed when incurred. Sales and dispo-
sitions of assets are recorded by removing the related costs and accumulated
depreciation amounts with any resulting gain or loss reflected in income.
Revenue Recognition
The Properties earn rental income from tenants under leasing arrangements which
generally provide for minimum rents, escalations and charges to tenants for
their pro rata share of real estate taxes and operating expenses. All leases
have been accounted for as operating leases.
The Properties recognize rental income from leases with scheduled rent
increases on a straight-line basis over the lease term. Deferred rent conces-
sions represent the difference between the straight-line rent and amounts cur-
rently due.
Investment Advisory Fees
Fees earned by Clarion in its role as investment advisor are paid directly by
SWIB. These financial statements reflect those fees as expenses with a
corresponding capital contribution. The asset management fees for the years
ended December 31, 1997, 1996 and 1995 were $308,809, $275,062 and $281,062,
respectively.
Income Taxes
SWIB and the entities through which the Properties are owned are not subject to
income taxes, therefore no income taxes have been provided in the accompanying
financial statements.
Cash and Cash Equivalents
The Properties consider all highly liquid investments purchased with original
maturities of three months or less, at the date of purchase, to be cash equiva-
lents. At times, cash and cash equivalent balances at a limited number of banks
and financial institutions may exceed insurable amounts. The Properties' Man-
agement believes it mitigates its risks by depositing cash with or investing
cash equivalents through major financial institutions.
F-42
<PAGE>
ORLANDO CENTRAL PARK AND 500 MEMORIAL DRIVE
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities, disclosure of con-
tingent assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. The most
significant estimates relate to the recoverability of the real estate invest-
ments. Actual results could differ from those estimates.
3. LEASES
Minimum future rental receipts under noncancelable operating leases which
extend for more than one year at December 31, 1997 are as follows:
<TABLE>
<CAPTION>
-----------
<S> <C>
1998 $ 4,609,000
1999 3,921,000
2000 2,277,000
2001 1,765,000
2002 1,268,000
Thereafter 2,559,000
<CAPTION>
-----------
<S> <C>
$16,399,000
<CAPTION>
===========
</TABLE>
Minimum rentals above do not include recoveries of operating expenses and real
estate taxes. Recoveries of operating expenses and real estate taxes, included
in base rental income, amounted to approximately $946,000, $1,068,000 and
$1,015,000 for the years ended December 31, 1997, 1996 and 1995, respectively.
4. PROPERTY MANAGEMENT FEES
Orlando Central Park
SWIB has retained Trammell Crow Realty Associates, Inc. ("Trammell Crow") to
provide management services to Orlando Central Park on a year-to-year basis
ending March 4, 1998. For its services, Trammell Crow receives a base manage-
ment fee equal to 3% of base rents collected, as defined. SWIB has the right to
terminate the agreement, with written notice, under certain conditions, as
defined in the management agreement. For the years ended December 31, 1997,
1996 and 1995, fees incurred under this agreement were $112,000, $105,000 and
$112,000, respectively.
Trammell Crow earns leasing commissions when it provides services in negoti-
ating and obtaining, on behalf of SWIB, leases with tenants for Orlando Central
Park in accordance with provisions of the management agreement.
Trammell Crow also earns fees for providing construction management services at
the request of SWIB. The Construction Management fee is equal to (i) 8% of the
construction costs of each capital repair in excess of $10,000, as defined in
the agreement, and (ii) 8% of the construction costs of alterations, additions
and improvement work made by SWIB on behalf of tenants, as defined in the
agreement.
500 Memorial Drive
Prior to December 31, 1996, SWIB retained Jones Lang Wooton USA ("JLW USA"), a
former affiliate of Clarion, to provide management services to 500 Memorial
Drive on a year-to-year basis. For its services, JLW USA received a management
fee equal to 3% of gross income collected, as defined in the management agree-
ment. For the years ended December 31, 1996 and 1995, fees incurred under these
agreements were approximately $39,000 and $37,000, respectively.
Effective January 1, 1997, SWIB entered into an agreement with Clarion Realty
Services, LLC, ("Realty Services"), an affiliate of Clarion, to provide manage-
ment services to 500 Memorial Drive on a month-to-month basis which is cancel-
able by either party with 30 days written notice. During 1997, fees incurred
under this agreement were approximately $37,000.
Realty Services earns fees from leasing commissions when it provides services
in negotiating and obtaining, on behalf of SWIB, leases with tenants for 500
Memorial Drive in accordance with provisions of the management agreement as
defined. No such fees for leasing commissions were incurred in 1997 and 1996.
F-43
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholder of
Knickerbocker Properties, Inc.
II:
We have audited the accompanying historical cost basis balance sheet of Knick-
erbocker Properties, Inc. II as of December 31, 1996 and the related historical
cost basis statements of income, stockholder's equity, and cash flows for each
of the two years in the period ended December 31, 1996. These financial state-
ments are the responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of mate-
rial misstatement. An audit includes examining, on a test basis, evidence sup-
porting 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 pre-
sentation. We believe that our audits provide a reasonable basis for our opin-
ion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the historical cost basis financial position of Knicker-
bocker Properties, Inc. II at December 31, 1996, and the historical cost basis
results of its operations and its cash flows for each of the two years in the
period ended December 31, 1996, in conformity with generally accepted
accounting principles.
PricewaterhouseCoopers LLP
Atlanta, Georgia
April 25, 1997
F-44
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholder of
Knickerbocker Properties, Inc.
II:
We have audited the accompanying historical cost balance sheet of Knickerbocker
Properties, Inc. II, a wholly owned subsidiary of the New York State Teachers'
Retirement System, as of December 31, 1997, and the related historical cost
statements of operations, shareholder's equity, and cash flows for the year
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of mate-
rial misstatement. An audit includes examining, on a test basis, evidence sup-
porting 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 pre-
sentation. We believe that our audit provides a reasonable basis for our opin-
ion.
As described in Note 2, the Company was acquired in a business combination with
a newly formed public real estate investment trust in February 1998. Accord-
ingly, the accompanying financial statements were prepared under the historical
cost basis of accounting for the purpose of complying with the rules and regu-
lations of the Securities and Exchange Commission.
In our opinion, the historical cost financial statements referred to above
present fairly, in all material respects, the financial position of Knicker-
bocker Properties, Inc. II as of December 31, 1997, and the results of its
operations and its cash flows for the year then ended on the historical cost
basis of accounting described in Note 2.
Arthur Andersen LLP
New York, New York
July 20, 1998
F-45
<PAGE>
KNICKERBOCKER PROPERTIES, INC. II
BALANCE SHEETS
<TABLE>
<CAPTION>
------------------------
DECEMBER 31,
------------------------
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
Real estate investments
Land $ 3,691,118 $ 3,691,118
Building and improvements 16,969,431 16,865,157
Tenant improvements 119,484 --
<CAPTION>
----------- -----------
<S> <C> <C>
Rental Property 20,780,033 20,556,275
Accumulated depreciation and amortization (3,280,374) (2,888,428)
<CAPTION>
----------- -----------
<S> <C> <C>
Net Rental Property 17,499,659 17,667,847
<CAPTION>
----------- -----------
<S> <C> <C>
Cash and cash equivalents 93,198 80,186
Deferred rent receivable 110,501 148,959
Other assets 43,547 13,414
<CAPTION>
----------- -----------
<S> <C> <C>
Total Assets $17,746,905 $17,910,406
<CAPTION>
=========== ===========
<S> <C> <C>
LIABILITIES AND STOCKHOLDER'S EQUITY
Accounts payable and accrued expenses $ 34,736 $ 33,125
Security deposits 148,812 146,996
Unearned rental income 62,073 58,930
<CAPTION>
----------- -----------
<S> <C> <C>
Total Liabilities 245,621 239,051
<CAPTION>
----------- -----------
<S> <C> <C>
Stockholder's Equity
Common Stock $1 par value; 500 shares authorized,
issued and outstanding 500 500
Additional Paid in Capital 17,500,784 17,670,855
Retained Earnings -- --
<CAPTION>
----------- -----------
<S> <C> <C>
Total Stockholder's Equity 17,501,284 17,671,355
<CAPTION>
----------- -----------
<S> <C> <C>
Total Liabilities and Stockholder's Equity $17,746,905 $17,910,406
<CAPTION>
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-46
<PAGE>
KNICKERBOCKER PROPERTIES, INC. II
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
--------------------------------
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
REVENUE
Rental income $1,769,280 $1,696,847 $1,771,216
Escalation and reimbursement income 491,384 474,598 479,274
Other income 5,790 1,372 1,371
<CAPTION>
---------- ---------- ----------
<S> <C> <C> <C>
Total Revenue 2,266,454 2,172,817 2,251,861
<CAPTION>
---------- ---------- ----------
<S> <C> <C> <C>
EXPENSES
Property taxes 299,337 296,291 291,804
Operating expenses 208,671 178,487 195,505
Depreciation and amortization 494,777 496,096 460,397
<CAPTION>
---------- ---------- ----------
<S> <C> <C> <C>
Total Expenses 1,002,785 970,874 947,706
<CAPTION>
---------- ---------- ----------
<S> <C> <C> <C>
Net income $1,263,669 $1,201,943 $1,304,155
<CAPTION>
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-47
<PAGE>
KNICKERBOCKER PROPERTIES, INC. II
STATEMENTS OF STOCKHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
--------------------------------------------
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance at December 31, 1994 $500 $18,619,408 $ -- $18,619,908
Net income 1,304,155 1,304,155
Dividends (471,372) (1,304,155) (1,775,527)
<CAPTION>
------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance at December 31, 1995 500 18,148,036 -- 18,148,536
Net income 1,201,943 1,201,943
Capital contributions 139,904 139,904
Dividends (617,085) (1,201,943) (1,819,028)
<CAPTION>
------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance at December 31, 1996 500 17,670,855 -- 17,671,355
Net income 1,263,669 1,263,669
Capital contributions 283,435 -- 283,435
Dividends (453,506) (1,263,669) (1,717,175)
<CAPTION>
------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance at December 31, 1997 $500 $17,500,784 $ -- $17,501,284
<CAPTION>
====== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-48
<PAGE>
KNICKERBOCKER PROPERTIES, INC. II
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
----------------------------------
FOR THE
YEARS ENDED DECEMBER 31,
----------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $1,263,669 $1,201,943 $1,304,155
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization 494,777 496,096 460,397
Changes in assets--(Increase) Decrease:
Other assets 5,569 (13,414) 8,029
Deferred rent receivable 38,458 14,985 71,580
Changes in liabilities--Increase
(Decrease):
Accounts payable and accrued expenses 1,611 (14,634) 12,835
Unearned rental income 3,143 41,467 (42,622)
Security deposits 1,816 469 (1,596)
<CAPTION>
---------- ---------- ----------
<S> <C> <C> <C>
Net cash provided by operating
activities 1,809,043 1,726,912 1,812,778
<CAPTION>
---------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES
Capital and tenant improvements (362,291) (9,365) (83,030)
<CAPTION>
---------- ---------- ----------
<S> <C> <C> <C>
Net cash used in investing activities (362,291) (9,365) (83,030)
<CAPTION>
---------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Capital contributions 283,435 139,904 --
Dividends (1,717,175) (1,844,118) (1,750,437)
<CAPTION>
---------- ---------- ----------
<S> <C> <C> <C>
Net cash used in financing activities (1,433,740) (1,704,214) (1,750,437)
<CAPTION>
---------- ---------- ----------
<S> <C> <C> <C>
Net increase (decrease) in cash 13,012 13,333 (20,689)
Cash and cash equivalents at beginning
of year 80,186 66,853 87,542
<CAPTION>
---------- ---------- ----------
<S> <C> <C> <C>
Cash and cash equivalents at end of year $ 93,198 $ 80,186 $ 66,853
<CAPTION>
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-49
<PAGE>
KNICKERBOCKER PROPERTIES, INC. II
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
The Company
Knickerbocker Properties, Inc. II (the "Company") was incorporated under the
laws of the State of Delaware on May 16, 1990. The Company is wholly owned by
the New York State Teachers' Retirement System ("NYSTRS"), a pension benefit
organization for New York State teachers. The Company owns Kent West Corporate
Park (the "Rental Property"), a multi-building industrial park located in
Kent, Washington. Cash flow in excess of operating requirements is distributed
to NYSTRS.
The Company entered into an agreement in October 1997 with a newly formed
public real estate investment trust to be acquired in a business combination.
The transaction was consummated in February 1998.
ERE Yarmouth, Inc. was the investment advisor for NYSTRS with respect to the
Rental Property. On July 13, 1998, Lend Lease Corporation Limited changed the
name of its wholly owned subsidiary, ERE Yarmouth, Inc. to Lend Lease Real
Estate Investments, Inc. ("Lend Lease").
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The Company was acquired in a business combination with a newly formed real
estate investment trust in February 1998. Accordingly, the financial state-
ments were prepared under the historical cost basis of accounting for the pur-
pose of complying with the rules and regulations of the Securities and
Exchange Commission.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period. The
most significant estimates relate to the recoverability of the operating prop-
erty and the deferred rent receivable. Actual results could differ from these
estimates.
Cash and Cash Equivalents
The Company classifies as cash equivalents any investments which can be
readily converted to cash and have an original maturity of less than three
months. Financial instruments which potentially subject the Company to concen-
trations of credit risk consist principally of cash balances held with finan-
cial institutions which at times exceed federally insurable limits.
Rental Property
Rental Property is presented in the balance sheets at cost, which includes
fees for services related to the acquisition of the Rental Property. Deprecia-
tion of the buildings is computed using the straight-line method over the
estimated useful lives of the property, generally 40 years. Depreciation of
improvements to the Rental Property is computed using the straight-line method
over the useful life of the improvement. Tenant improvements and commissions
paid for services related to the signing of new leases, are amortized using
the straight-line method over the remaining term of the lease to which they
relate.
Expenditures for major renewals and betterments are capitalized and expendi-
tures for repairs and maintenance are expensed when incurred. Sales and dis-
posals of assets are recorded by removing the related cost and accumulated
depreciation amounts with any resulting gain or loss reflected in income.
Revenue Recognition
The Company recognizes base rental income on straight-line basis over the
terms of the related leases. The effect of this straight-lining is recorded as
deferred rent receivable on the accompanying balance sheets. Additional rents
which are provided for in individual tenant leases primarily relate to the
reimbursement of certain operating expenses of the Rental Property. The Com-
pany recognizes such reimbursements of expenses by tenants as revenue when
earned, and the amounts can be reasonably estimated.
Income Taxes
The Company is exempt from income taxation pursuant to Section 501(c)(25) of
the Internal Revenue Code. Accordingly, no income taxes have been provided in
the accompanying financial statements.
Investment Advisors Fees
Fees earned by Lend Lease in 1997 and Equitable Real Estate Management, Inc.
("Equitable") in 1996 and 1995, in their roles as investment advisor, were
paid directly by NYSTRS and, therefore, are not included in the Statements of
Operations. Certain other expenses were paid by Equitable and reimbursed by
the Company.
F-50
<PAGE>
KNICKERBOCKER PROPERTIES, INC. II
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Financial Instruments
The fair value of the Company's financial instruments, including cash and cash
equivalents, approximates carrying value. Fair values were estimated based on
quoted market prices, where available.
Reclassification
Certain reclassifications have been made to the 1995 financial statements to
conform to the 1996 presentation.
3. RENTAL PROPERTY
Rental Property consists of five office buildings aggregating approximately
400,000 square feet. As of December 31, 1997, the Rental Property was 100%
occupied.
The Company's Rental Property is being leased to tenants under operating leases
that expire at various dates through 2001. For the year ended December 31,
1997, three tenants in the warehouse/distribution, medical laboratory and dis-
tribution industry accounted for approximately 42%, 24% and 18%, respectively,
of base rental income.
Future minimum rents to be received from tenants under noncancelable leases in
effect at December 31, 1997 are as follows:
<TABLE>
<CAPTION>
----------
<S> <C>
1998 $1,430,741
1999 808,518
2000 99,321
2001 7,194
<CAPTION>
----------
<S> <C>
$2,345,774
<CAPTION>
==========
</TABLE>
The Company is also entitled to additional rents, which are not included above,
and which are primarily based upon escalations of real estate taxes and oper-
ating expenses over base period amounts.
4. RELATED PARTY TRANSACTIONS
Certain officers of the Company are also officers or employees of Lend Lease.
Certain officers of Equitable were also officers of the Company.
5. LOCAL IMPROVEMENT DISTRICT COSTS
The Rental Property has been assessed local improvement district costs of
$194,758, of which $95,426 is outstanding at December 31, 1997, by the local
county authorities. These costs are payable through 2009. The Company's policy
is to bill tenants for their pro rata share of these assessments. To the extent
the Rental Property is not fully leased, the Company would have to incur a pro
rata portion of these costs. Since the Company anticipates having the ability
to bill all costs, these amounts are not included as liabilities on the balance
sheets. The payments, including interest ranging from 7.85% to 7.98%, for each
of the next five years and thereafter are as follows:
<TABLE>
<CAPTION>
--------
<S> <C>
1998 $ 15,778
1999 15,128
2000 14,468
2001 13,817
2002 13,167
Thereafter 71,742
<CAPTION>
--------
<S> <C>
$144,100
<CAPTION>
========
</TABLE>
The total amount of interest included in the above minimum payments is $48,674,
to be paid through May 2009.
F-51
<PAGE>
KNICKERBOCKER PROPERTIES, INC. II
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
For the year ended December 31, 1997, the Company paid $15,268 of such costs,
which are included in property taxes on the accompanying statement of opera-
tions.
6. MANAGEMENT AGREEMENT
The Company entered into a Real Estate Management Agreement with Crow-Wash-
ington Management Limited Partnership ("Crow") to manage the operations of the
property. In accordance with this agreement, Crow is paid a management fee
based on the rental income collected, as defined. Total management fees for the
years ended December 31, 1997, 1996 and 1995 amounted to $63,686, $61,832 and
$63,440, respectively.
F-52
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Retirement Board Pennsylvania Public
School Employes' Retirement System:
We have audited the accompanying combined balance sheets of Pennsylvania Public
School Employes' Retirement System Industrial Properties Portfolio Managed by
RREEF America L.L.C. (the Portfolio, as defined in Note 1) as of December 31,
1997 and 1996, and the related combined statements of operations, combined own-
er's equity, and combined cash flows for the years then ended and the period
from July 6, 1995 (date of acquisition) to December 31, 1995. In connection
with our audits of the aforementioned combined financial statements, we have
also audited the accompanying Schedule III, Combined Real Estate and Accumu-
lated Depreciation as of December 31, 1997. These combined financial statements
and combined financial statement schedule are the responsibility of the Portfo-
lio's management. 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 stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of mate-
rial misstatement. An audit includes examining, on a test basis, evidence sup-
porting 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 pre-
sentation. We believe that our audits provide a reasonable basis for our opin-
ion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of the Port-
folio as of December 31, 1997 and 1996, and the combined results of its opera-
tions and its combined cash flows for the years then ended and for the period
from July 6, 1995 (date of acquisition) to December 31, 1995 in conformity with
generally accepted accounting principles. Also in our opinion, the related com-
bined financial statement schedule, when considered in relation to the basic
combined financial statements taken as a whole, presents fairly, in all mate-
rial respects, the information set forth therein.
KPMG Peat Marwick LLP
Chicago, Illinois
July 2, 1998
F-53
<PAGE>
PENNSYLVANIA PUBLIC SCHOOL
EMPLOYES' RETIREMENT SYSTEM
INDUSTRIAL PROPERTIES PORTFOLIO
MANAGED BY RREEF AMERICA L.L.C.
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
--------------------------
DECEMBER 31,
--------------------------
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
Real estate:
Land $ 21,148,662 $ 21,148,662
Building and improvements 84,932,488 83,748,432
Accumulated depreciation (7,228,786) (4,142,761)
<CAPTION>
------------ ------------
<S> <C> <C>
98,852,364 100,754,333
Cash and cash equivalents 1,253,007 1,431,677
Rents and other tenant receivables, net 252,299 462,457
Accrued rents receivable (note 4) 2,360,015 1,901,037
Deferred expenses (note 3) 482,860 331,426
Other assets 149,804 184,028
<CAPTION>
------------ ------------
<S> <C> <C>
Total Assets $103,350,349 $105,064,958
<CAPTION>
============ ============
<S> <C> <C>
LIABILITIES AND OWNER'S EQUITY
Accounts payable and accrued expenses $ 2,358,078 $ 1,255,294
Tenant security deposits 364,047 327,400
Other liabilities 40,739 42,344
<CAPTION>
------------ ------------
<S> <C> <C>
Total Liabilities 2,762,864 1,625,038
<CAPTION>
------------ ------------
<S> <C> <C>
Owner's Equity 100,587,485 103,439,920
<CAPTION>
------------ ------------
<S> <C> <C>
Total Liabilities and Owner's Equity $103,350,349 $105,064,958
<CAPTION>
============ ============
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-54
<PAGE>
PENNSYLVANIA PUBLIC SCHOOL
EMPLOYES' RETIREMENT SYSTEM
INDUSTRIAL PROPERTIES PORTFOLIO
MANAGED BY RREEF AMERICA, L.L.C.
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
--------------------------------------
PERIOD FROM
YEARS ENDED DECEMBER 31, JULY 6, TO
------------------------- DECEMBER 31,
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
REVENUE
Rental income (note 4) $ 12,427,862 $ 12,348,207 $5,859,691
Tenant reimbursements 1,122,405 1,389,320 333,724
Interest 82,480 139,190 95,901
Other 124,888 633,066 2,667
<CAPTION>
------------ ------------ ------------
<S> <C> <C> <C>
Total Income 13,757,635 14,509,783 6,291,983
EXPENSES
Property taxes 963,073 1,234,230 271,316
Operating expenses (note 5) 951,396 853,074 271,920
Advisor fees (note 5) 2,327,357 731,836 339,440
Depreciation and amortization 3,183,564 2,858,119 1,304,717
<CAPTION>
------------ ------------ ------------
<S> <C> <C> <C>
Total Expenses 7,425,390 5,677,259 2,187,393
<CAPTION>
------------ ------------ ------------
<S> <C> <C> <C>
Net income $ 6,332,245 $ 8,832,524 $4,104,590
<CAPTION>
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-55
<PAGE>
PENNSYLVANIA PUBLIC SCHOOL
EMPLOYES' RETIREMENT SYSTEM
INDUSTRIAL PROPERTIES PORTFOLIO
MANAGED BY RREEF AMERICA L.L.C.
COMBINED STATEMENT OF OWNER'S EQUITY
YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1996, AND THE PERIOD FROM JULY
6, TO DECEMBER 31, 1995
<TABLE>
<CAPTION>
------------
<S> <C>
Beginning Balance $ --
Contributions 98,561,147
Distributions (4,050,000)
Net income 4,104,590
<CAPTION>
------------
<S> <C>
Balance at December 31, 1995 98,615,737
Contributions 7,147,878
Distributions (11,156,219)
Net income 8,832,524
<CAPTION>
------------
<S> <C>
Balance at December 31, 1996 103,439,920
Contributions 745,320
Distributions (9,930,000)
Net income 6,332,245
<CAPTION>
------------
<S> <C>
Balance at December 31, 1997 $100,587,485
<CAPTION>
============
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-56
<PAGE>
PENNSYLVANIA PUBLIC SCHOOL
EMPLOYES' RETIREMENT SYSTEM
INDUSTRIAL PROPERTIES PORTFOLIO
MANAGED BY RREEF AMERICA, L.L.C.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
---------------------------------------
PERIOD FROM
YEARS ENDED DECEMBER 31, JULY 6 TO
------------------------- DECEMBER 31,
1997 1996 1995
----------- ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 6,332,245 $ 8,832,524 $ 4,104,590
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 3,183,564 2,858,119 1,304,717
Accrued rents receivable (458,978) (1,201,791) (699,246)
Changes in:
Rents and other tenant receivables,
net 210,158 (162,845) (299,613)
Other assets 34,224 (90,876) (93,152)
Accounts payable and accrued
expenses 1,102,784 754,998 500,296
Tenant security deposits 36,647 23,796 303,604
Other liabilities (1,605) (125,335) 167,679
<CAPTION>
----------- ------------ ------------
<S> <C> <C> <C>
Net cash provided by operating
activities 10,439,039 10,888,590 5,288,875
<CAPTION>
----------- ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of real estate investment
property (note 1) -- (6,268,069) (96,049,051)
Additions and improvements to real
estate (1,184,056) (1,518,383) (1,061,591)
Payment of deferred expenses (248,973) (350,140) (1,360)
<CAPTION>
----------- ------------ ------------
<S> <C> <C> <C>
Net cash used in investing activities (1,433,029) (8,136,592) (97,112,002)
<CAPTION>
----------- ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Contributions 745,320 7,147,878 98,561,147
Distributions (9,930,000) (11,156,219) (4,050,000)
<CAPTION>
----------- ------------ ------------
<S> <C> <C> <C>
Net cash (used in) provided by
financing activities (9,184,680) (4,008,341) 94,511,147
<CAPTION>
----------- ------------ ------------
<S> <C> <C> <C>
Net increase (decrease) in cash and
cash equivalents (178,670) (1,256,343) 2,688,020
Cash and cash equivalents, at
beginning of period 1,431,677 2,688,020 --
<CAPTION>
----------- ------------ ------------
<S> <C> <C> <C>
Cash and cash equivalents, at end of
period $ 1,253,007 $ 1,431,677 $ 2,688,020
<CAPTION>
=========== ============ ============
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-57
<PAGE>
PENNSYLVANIA PUBLIC SCHOOL
EMPLOYES' RETIREMENT SYSTEM
INDUSTRIAL PROPERTIES PORTFOLIO
MANAGED BY RREEF AMERICA L.L.C.
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
1. ORGANIZATION
The accompanying combined financial statements include the accounts of the
industrial real estate investment properties and related title holding compa-
nies, collectively referred to as the Portfolio, which are managed by RREEF
America L.L.C. (Advisor) for Pennsylvania Public School Employes' Retirement
System (PSERS). At December 31, 1997, the Portfolio included the following
wholly owned real estate investment properties:
<TABLE>
<CAPTION>
-----------------------
NAME OF PROPERTIES IN PORTFOLIO LOCATION
------------------------------- -----------------------
<S> <C>
Medinah Roselle, Illinois
Port Jersey Jersey City, New Jersey
Westbelt Columbus, Ohio
</TABLE>
On July 6, 1995, PSERS acquired industrial properties aggregating to approxi-
mately 2,881,000 square feet located in Roselle, Illinois, Jersey City, New
Jersey and Columbus, Ohio for a cash purchase price including closing costs of
approximately $96,049,000.
On January 30, 1996, the Portfolio acquired a 225,000 square foot industrial
property located in Bayonne, New Jersey for a cash purchase price including
closing costs of approximately $6,268,000. The property is included in the Port
Jersey Industrial Properties.
2. EXCHANGE OF PORTFOLIO OWNERSHIP INTEREST
On February 4, 1998, PSERS exchanged its ownership in the Portfolio for common
shares in the newly formed Cabot Industrial Trust.
3. SIGNIFICANT ACCOUNTING POLICIES
Depreciation of buildings and improvements was provided using a 30-year life on
a straight-line basis for financial reporting purposes.
Tenant improvement costs, included in buildings and improvements in the accom-
panying balance sheets, were amortized using the straight-line method over the
term of the lease to which they related.
Maintenance and repair expenses were charged to operations as incurred. Expen-
ditures which extend the economic life or represent additional capital invest-
ments benefiting future periods, including tenant improvements and leasing com-
missions, were capitalized.
Deferred expenses were comprised of leasing commissions and other costs
directly attributable to obtaining tenants were amortized over the terms of the
leases to which they related.
For purposes of the combined statements of cash flows, the Portfolio considered
all highly liquid marketable securities purchased with a maturity of three
months or less to be cash equivalents.
The preparation of combined financial statements in conformity with generally
accepted accounting principles required management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and dis-
closure 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.
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments," requires all entities to disclose the SFAS 107
value of all financial assets and liabilities for which it is practicable to
estimate. Value is defined in the Statement as the amount at which the instru-
ment could be exchanged in a current transaction
F-58
<PAGE>
PENNSYLVANIA PUBLIC SCHOOL
EMPLOYES' RETIREMENT SYSTEM
INDUSTRIAL PROPERTIES PORTFOLIO
MANAGED BY RREEF AMERICA L.L.C.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997 AND 1996
between willing parties, other than in a forced or liquidation sale. The Port-
folio believed the carrying amount of its financial instruments approximated
SFAS 107 value due to the relatively short maturity of these instruments.
The Portfolio adopted the provisions of Statement of Financial Accounting Stan-
dards No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to be Disposed of, (SFAS 121), on January 1, 1996. This Statement
requires that long-lived assets and certain identifiable intangibles be
reviewed for impairment whenever events or change in circumstances indicate
that the carrying amount of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the carrying amount
of an asset to future net cash flows expected to be generated by the asset. If
such assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceed the
fair value of the assets. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less costs to sell. Adoption of this State-
ment did not have an impact on the Portfolio's combined financial position,
combined results of operations, or liquidity.
Pennsylvania Public School Employes' Retirement System and the Portfolio's
title holding companies were exempt from taxes, and accordingly, no income tax
provision was required.
4. LEASES
The Portfolio determined that all leases relating to the Portfolio's investment
properties were to be classified as operating leases; therefore, rental income
was reported when earned. Leases ranged from two to thirteen years and provide,
with the exception of one tenant, for fixed base rent, partial reimbursement of
operating costs, including real estate taxes. The lease of one tenant provides
for the payment of base rent, additional rents related to increases in the Con-
sumer Price Index and the direct payment of all operating costs, real estate
taxes and insurance related to the property.
The approximate future minimum rentals on noncancelable long-term operating
leases in effect at December 31, 1997 (exclusive of expense reimbursements)
were as follows:
<TABLE>
<CAPTION>
-----------
CALENDAR YEAR AMOUNT
------------- -----------
<S> <C>
1998 $12,151,511
1999 11,661,702
2000 9,843,562
2001 7,441,810
2002 3,889,381
Thereafter 10,577,301
<CAPTION>
-----------
<S> <C>
Total $55,565,267
<CAPTION>
===========
</TABLE>
A number of tenant leases contained provisions for scheduled rent increases
during the term of the lease. Generally accepted accounting principles require
that rental income be recorded for the period of occupancy using the effective
monthly rent, which is the average monthly rent for the entire period of occu-
pancy during the term of the lease. Accrued rents receivable represent future
amounts receivable related to scheduled future rent increases. The net
increases in accrued rents receivable during the years ended December 31, 1997
and 1996 and the period from July 6, 1995 to December 31, 1995, of $458,978,
$1,201,791 and $699,246, respectively, represented increases to base rent reve-
nue.
5. ADVISOR'S AND AFFILIATES FEES
The annual advisor's fee for the Portfolio was calculated in accordance with
the agreement as a percentage of PSERS' original cash investment for those
properties. All fees were paid quarterly in arrears.
F-59
<PAGE>
PENNSYLVANIA PUBLIC SCHOOL
EMPLOYES' RETIREMENT SYSTEM
INDUSTRIAL PROPERTIES PORTFOLIO
MANAGED BY RREEF AMERICA L.L.C.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1997 AND 1996
An affiliate of the Advisor acted as the property manager, as well as performed
leasing and construction supervisory services. A property management fee was
paid based upon methods and rates that the Advisor believed was consistent with
industry practice. Management fees for the years ended December 31, 1997 and
1996 and the period from July 6, 1995 to December 31, 1995 amounted to
$238,465, $287,879, and $119,055, respectively. Leasing commissions for the
years ended December 31, 1997, 1996 and the period from July 6, 1995 to
December 31, 1995 amounted to $459,820, $216,380, and $1,360, respectively.
Construction supervisory services for the years ended December 31, 1997, 1996
and the period from July 6, 1995 to December 31, 1995 amounted to $98,587,
$53,981, and $0, respectively.
The Advisor was also entitled to receive an incentive fee based primarily on
cumulative unrealized appreciation related to the Portfolio. During 1997, the
amount of the incentive fee became determinable and $1,581,369 was accrued and
included in accounts payable and accrued expenses. Such amount was unpaid at
December 31, 1997.
F-60
<PAGE>
SCHEDULE III
PENNSYLVANIA PUBLIC SCHOOL EMPLOYES' RETIREMENT
INDUSTRIAL PROPERTIES PORTFOLIO
MANAGED BY RREEF AMERICA L.L.C.
COMBINED REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1997
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------
COSTS CAPITALIZED
SUBSEQUENT TO GROSS AMOUNT AT WHICH CARRIED
INITIAL COST(A) ACQUISITION AT CLOSE OF PERIOD
------------------------- ----------------- -------------------------------------
LAND
BUILDINGS AND BUILDING AND BUILDING AND ACCUMULATED DATE
DESCRIPTION LAND IMPROVEMENTS IMPROVEMENTS LAND IMPROVEMENTS TOTAL(B) DEPRECIATION(C) ACQUIRED
- ----------- ----------- ------------- ------------ ----------- ------------ ------------ --------------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Industrial
Property:
Medinah
Industrial Park
(Roselle,
Illinois) $ 3,120,000 $17,668,584 $ 195,457 $ 3,120,000 $17,864,041 $ 20,984,041 $1,488,130 7/6/95
Port Jersey
Industrial Park
(Jersey City,
New Jersey) 15,230,059 37,593,965 1,546,509 15,230,059 39,140,474 54,370,533 3,249,150 7/6/95
Westbelt
Business Park
(Columbus,
Ohio) 2,798,603 25,905,909 2,022,064 2,798,603 27,927,973 30,726,576 2,491,506 7/6/95
<CAPTION>
----------- ------------- ----------------- ----------- ------------ ------------ ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$21,148,662 $81,168,458 $3,764,030 $21,148,662 $84,932,488 $106,081,150 $7,228,786
<CAPTION>
=========== ============= ================= =========== ============ ============ ===============
<CAPTION>
LIFE ON
WHICH
DEPRECIATION
IN STATEMENT
OF OPERATIONS
DESCRIPTION IS COMPUTED
- ----------- -------------
<S> <C>
Industrial
Property:
Medinah
Industrial Park
(Roselle,
Illinois) 30 years
Port Jersey
Industrial Park
(Jersey City,
New Jersey) 2-30 years
Westbelt
Business Park
(Columbus,
Ohio) 2-30 years
<CAPTION>
<S> <C>
<CAPTION>
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------
1997 1996 1995
------------ ------------ -----------
<S> <C> <C> <C>
Balance at beginning of period $104,897,094 $ 97,110,642 $97,110,642
Additions during period 1,184,056 7,786,452 --
<CAPTION>
------------ ------------ -----------
<S> <C> <C> <C>
Balance at end of period $106,081,150 $104,897,094 $97,110,642
<CAPTION>
============ ============ ===========
-------------------------------------
<S> <C> <C> <C>
Balance at beginning of period $4,142,761 $1,304,717 $ --
Depreciation expense 3,086,025 2,838,044 1,304,717
<CAPTION>
------------ ------------ -----------
<S> <C> <C> <C>
Balance at end of period $7,228,786 $4,142,761 $1,304,717
<CAPTION>
============ ============ ===========
</TABLE>
- ----
Notes
(A) The initial cost to the Portfolio represents the original purchase price of
the properties.
(B) Reconciliation of real estate owned:
(C) Reconciliation of accumulated depreciation:
F-61
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Owners of thePrudential
Properties Group:
We have audited the accompanying combined balance sheets of Prudential Proper-
ties Group, as defined in Note 1, as of December 31, 1997 and 1996, and the
related combined statements of operations, owners' equity and cash flows for
the each of the three years in the period ended December 31, 1997. These com-
bined financial statements are the responsibility of the management of the Pru-
dential Properties Group. 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 stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of mate-
rial misstatement. An audit includes examining, on a test basis, evidence sup-
porting 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 pre-
sentation. We believe that our audits provide a reasonable basis for our opin-
ion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the combined financial position of the Prudential Prop-
erties Group at December 31, 1997 and 1996, and the combined 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 com-
bined financial statements taken as a whole. The schedule listed in the index
of financial statements is presented for the purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic finan-
cial 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
Boston, Massachusetts
July 13, 1998
F-62
<PAGE>
PRUDENTIAL PROPERTIES GROUP
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
------------------------
DECEMBER 31,
------------------------
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
Real Estate:
Land $ 8,302,419 $ 8,302,419
Buildings and improvements 35,656,389 35,656,389
Accumulated depreciation (4,889,338) (3,997,931)
<CAPTION>
----------- -----------
<S> <C> <C>
39,069,470 39,960,877
Cash and Cash Equivalents 210,152 61,377
Accounts Receivable and Accrued Investment
Income 105,472 53,272
Deferred Leasing Costs 690,126 181,461
Deferred Rent Concessions 354,180 345,406
Other Assets 6,280 6,284
<CAPTION>
----------- -----------
<S> <C> <C>
Total assets $40,435,680 $40,608,677
<CAPTION>
=========== ===========
<S> <C> <C>
LIABILITIES
Accounts Payable and Accrued Expenses $ 558,803 $ 557,563
Other Liabilities 262,040 75,000
<CAPTION>
----------- -----------
<S> <C> <C>
Total liabilities 820,843 632,563
<CAPTION>
----------- -----------
<S> <C> <C>
Owners' Equity 39,614,837 39,976,114
<CAPTION>
----------- -----------
<S> <C> <C>
Total Liabilities and Owners' Equity $40,435,680 $40,608,677
<CAPTION>
=========== ===========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-63
<PAGE>
PRUDENTIAL PROPERTIES GROUP
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
--------------------------------
YEARS ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
REVENUE
Rental income $4,771,907 $4,433,557 $3,776,468
Other income 59,311 1,975 --
<CAPTION>
---------- ---------- ----------
<S> <C> <C> <C>
Total revenue 4,831,218 4,435,532 3,776,468
EXPENSES
Property taxes 343,993 371,771 290,962
Operating expenses 638,128 823,830 482,778
Depreciation and amortization 975,664 928,406 686,548
<CAPTION>
---------- ---------- ----------
<S> <C> <C> <C>
Total expenses 1,957,785 2,124,007 1,460,288
<CAPTION>
---------- ---------- ----------
<S> <C> <C> <C>
Net income $2,873,433 $2,311,525 $2,316,180
<CAPTION>
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-64
<PAGE>
PRUDENTIAL PROPERTIES GROUP
COMBINED STATEMENTS OF OWNERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
-----------
<S> <C>
Owners' Equity, December 31, 1994 $29,998,086
Net transfers to owners (3,061,947)
Net income for the year ended December 31, 1995 2,316,180
<CAPTION>
-----------
<S> <C>
Owners' Equity, December 31, 1995 29,252,319
Net transfers from owners 8,412,270
Net income for the year ended December 31, 1996 2,311,525
<CAPTION>
-----------
<S> <C>
Owners' Equity, December 31, 1996 39,976,114
Net transfers to owners (3,234,710)
Net income for the year ended December 31, 1997 2,873,433
<CAPTION>
-----------
<S> <C>
Owners' Equity, December 31, 1997 $39,614,837
<CAPTION>
===========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-65
<PAGE>
PRUDENTIAL PROPERTIES GROUP
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
-----------------------------------
YEARS ENDED DECEMBER 31,
-----------------------------------
1997 1996 1995
---------- ----------- ----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $2,873,433 $ 2,311,525 $2,316,180
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization 975,664 928,406 686,548
Changes in assets--(increase) decrease
Accounts receivable (52,200) 35,811 (122,243)
Other assets 3 22 (1,621)
Deferred rent concessions (8,774) (155,098) (83,760)
Changes in liabilities--increase
(decrease):
Accounts payable and accrued expenses 1,240 175,689 193,561
Other liabilities 187,040 -- --
<CAPTION>
---------- ----------- ----------
<S> <C> <C> <C>
Net cash provided by operating activities 3,976,406 3,296,355 2,988,665
<CAPTION>
---------- ----------- ----------
<S> <C> <C> <C>
INVESTING ACTIVITIES
Property acquisitions -- (11,574,600) --
Payments for capital and tenant
improvements (592,921) (167,809) --
<CAPTION>
---------- ----------- ----------
<S> <C> <C> <C>
Net cash used in investing activities (592,921) (11,742,409) --
<CAPTION>
---------- ----------- ----------
<S> <C> <C> <C>
FINANCING ACTIVITIES
Net transfers (to) from owners (3,234,710) 8,412,270 (3,061,947)
<CAPTION>
---------- ----------- ----------
<S> <C> <C> <C>
Net increase (decrease) in cash 148,775 (33,784) (73,282)
Cash and cash equivalents, beginning of
year 61,377 95,161 168,443
<CAPTION>
---------- ----------- ----------
<S> <C> <C> <C>
Cash and cash equivalents, end of year $ 210,152 $ 61,377 $ 95,161
<CAPTION>
========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-66
<PAGE>
PRUDENTIAL PROPERTIES GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION
Prudential Properties Group (Prudential Group) is not a legal entity but rather
a combination of all the assets, liabilities and operations for seven warehouse
buildings; some of which were owned by a title holding corporation and some of
which are owned by The Prudential Insurance Company of America on behalf of a
single-client separate account. As of October 1, 1997, title to the properties
owned by the title holding corporation was transferred to The Prudential Insur-
ance Company of America on behalf of a single-client separate account. Pruden-
tial Group properties were managed, leased and operated by The Prudential's
Private Asset Management Group--Real Estate Division (PAMG), the investment
manager, pursuant to contracts with its pension fund clients. The accompanying
financial statement include all of the direct and indirect costs of the busi-
ness of Prudential Group. A summary of the holdings of Prudential Group is as
follows (each location has one building):
<TABLE>
<CAPTION>
---------------------
NUMBER OF
BULK DISTRIBUTION PROPERTIES TENANTS SQUARE FEET
---------------------------- --------- -----------
<S> <C> <C>
Ontario, CA 1 284,599
Hebron, KY 1 192,000
Cincinnati, OH 1 192,000
Cincinnati, OH 1 204,800
Columbus, OH 3 205,109
Columbus, OH 1 156,000
Fulton County, GA 1 231,835
<CAPTION>
-----------
<S> <C> <C>
1,466,343
<CAPTION>
===========
</TABLE>
2. FORMATION TRANSACTION
Under the provisions of the Contribution Agreement executed by each property
owner, Prudential Group contributed all of its properties to Cabot Industrial
Trust (the Company) on February 4, 1998 and received common shares from the
Company. The impact of this transaction is not reflected in the accompanying
financial statements.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Combination
The accompanying financial statements have been presented on a combined basis,
at historical cost, because Prudential Group is under the common management of
PAMG through investment advisory agreements. All significant intercompany
transactions and balances have been eliminated in combination.
Real Estate Investments
Real estate investments, which consist of industrial warehouses, are stated at
cost. Expenditures for ordinary maintenance and repairs are expensed to opera-
tions as incurred. Significant renovations and improvements that improve or
extend the useful life of the assets are capitalized. Except for amounts
attributed to land, rental property and improvements are depreciated over their
estimated useful lives using the straight-line method. The estimated useful
lives by asset category are as follows:
<TABLE>
<CAPTION>
-------------
ESTIMATED
ASSET CATEGORY USEFUL LIFE
- -------------- -------------
<S> <C>
Buildings and improvements 40 years
Tenant improvements Life of lease
</TABLE>
Prudential Group adopted the provisions of Statement of Financial Accounting
Standards (SFAS) No. 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets To Be Disposed of, on January 1, 1996. This statement
requires that long-lived assets and certain identifiable intangibles be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Adoption of this
statement did not have an impact on Prudential Group's financial position,
results of operations or liquidity.
F-67
<PAGE>
PRUDENTIAL PROPERTIES GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Lease Acquisition Costs
Capitalized lease acquisition costs are recorded at cost. These costs are amor-
tized over the respective lives of the leases. Unamortized costs are charged to
expense in the event of any early termination of the lease.
Rental Income
All leases are classified as operating leases. Certain leases provide for min-
imum rent payments that increase during the term of the lease and tenant occu-
pancy during periods for which no rent is due. Prudential Group records rental
income for the full term of each lease on a straight-line basis. As of December
31, 1997 and 1996, the receivables from tenants, net of reserves, which Pruden-
tial Group expects to collect over the remaining life of these leases rather
than currently, were approximately $354,000 and $345,000, respectively (De-
ferred Rent). The amounts included in rental income for the years ended
December 31, 1997, 1996 and 1995, which are not currently due, were approxi-
mately $9,000, $155,000 and $84,000, respectively. Deferred Rent is not recog-
nized for income tax purposes until received.
Fair Value of Financial Instruments
The carrying values of cash and cash equivalents, rents receivable (excluding
Deferred Rent), accounts payable and accrued expenses are reasonable estimates
of their fair value.
Income Taxes
The properties are owned in tax-exempt real estate title holding companies or
directly by other legal entities not subject to tax. Since the taxable oper-
ating results of Prudential Group are either included in the income tax returns
of tax-exempt entities or the owners, no provision for state and federal income
taxes has been reflected in these financial statements.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting periods.
Actual results could differ from those estimates.
4. FUTURE MINIMUM RENTS
Future minimum rental receipts due on noncancelable operating leases for the
industrial properties as of December 31, 1997 were as follows:
<TABLE>
<CAPTION>
-----------
<S> <C>
1998 $ 4,329,812
1999 3,472,172
2000 2,942,526
2001 2,003,584
2002 1,552,436
Thereafter 2,474,062
<CAPTION>
-----------
<S> <C>
$16,774,592
<CAPTION>
===========
</TABLE>
The above amounts do not include additional rental receipts that will become
due as a result of the expense pass-through and escalation provisions in the
leases. Prudential Group is subject to the usual business risks associated with
the collection of the above scheduled rents.
F-68
<PAGE>
PRUDENTIAL PROPERTIES GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
5. TRANSACTIONS WITH THE INVESTMENT MANAGER
Under the provisions of the separate investment management agreements, Pruden-
tial Group is obligated to pay PAMG acquisition and asset management fees.
Acquisition fees are payable based on a percentage of acquisition cost (ranging
from .75% to .80%), and asset management fees are payable based on a percentage
(ranging from .20% to .40%) of the properties' net cost and/or a percentage
(ranging from 0% to 7.5%) of the properties' net operating income. Incentive
fees are based on performance in excess of various levels of internal rates of
return. Fees incurred under the agreements were as follows:
<TABLE>
<CAPTION>
--------------------------------
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
FEE INCURRED 1997 1996 1995
------------ ---------- ---------- ----------
<S> <C> <C> <C>
Asset management $251,018 $ 274,410 $ 168,796
Acquisition -- 93,000 --
Property management 73,172 62,835 60,302
Incentive -- 76,514 3,400
</TABLE>
At December 31, 1997, December 31, 1996 and December 31, 1995, total fees pay-
able to PAMG were $251,018, $308,103 and $124,505, respectively.
All property and asset management fees are expensed as incurred and included in
management fees in the accompanying statements of operations.
6. COMMITMENTS AND CONTINGENCIES
Environmental
Prudential Group, as an owner of real estate, is subject to various environ-
mental laws of federal and local governments. Prudential Group made certain
representations and warranties to the Company in the Contribution Agreement
entered into among the parties in connection with the Formation Transactions
(see Note 2), with respect to environmental and certain other matters. Compli-
ance by the Prudential Group with existing laws has not had a material adverse
effect on either financial condition or results of operations, and management
does not believe it will have such an impact in the future. However, Prudential
Group cannot predict the impact of new or changed laws or regulations on its
current properties or on properties that it may acquire in the future.
6. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Litigation
Management of Prudential Group does not believe there is any litigation threat-
ened against it other than routine litigation arising out of the ordinary
course of business, some of which is expected to be covered by liability insur-
ance, none of which is expected to have a material adverse effect on the oper-
ating results or financial position of Prudential Group.
F-69
<PAGE>
SCHEDULE III
PRUDENTIAL PROPERTIES GROUP
REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
---------------------------------------------------------------------------
COSTS CAPITALIZED
INITIAL COST TO GROUP SUBSEQUENT TO ACQUISITION
------------------------- ------------------------------
BUILDINGS BUILDINGS
AND AND
DESCRIPTION(1) LOCATION LAND IMPROVEMENTS LAND IMPROVEMENTS
- -------------- ----------- ---------- -------------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
Vintage Avenue Ontario CA $ 3,761 $ 6,918 -- --
Fulton Co.
Westgate Parkway GA 1,619 4,196 -- --
International
Way Hebron KY 663 4,483 -- --
International Blvd., Cincinnati
Building 1 OH 564 4,858 -- --
International Blvd., Cincinnatti
Building 2 OH 464 4,858 -- --
Port Road,
Building 1 Columbus OH 651 5,974 -- --
Port Road,
Building 2 Columbus OH 580 4,370 -- --
<CAPTION>
---------- -------------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
$ 8,302 $ 35,657 -- --
<CAPTION>
========== ============== ============ ================
<CAPTION>
GROSS AMOUNT
CARRIED AT DECEMBER 31,1997
-----------------------------------------
BUILDINGS
AND ACCUMULATED DATE DATE DEPRECIABLE
DESCRIPTION(1) LAND IMPROVEMENTS TOTAL(2) DEPRECIATION CONSTRUCTED ACQUIRED LIVES
- -------------- ------ ------------ -------- ------------ ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Vintage Avenue $3,761 $ 6,918 $10,679 $1,557 1988 1998 40
Westgate Parkway 1,619 4,196 5,815 944 1988 1998 40
International
Way 663 4,483 5,146 598 1990 1992 40
International Blvd.,
Building 1 564 4,858 5,422 647 1990 1992 40
International Blvd.,
Building 2 464 4,858 5,322 647 1990 1992 40
Port Road,
Building 1 651 5,974 6,625 286 1995 1996 40
Port Road,
Building 2 580 4,370 4,950 210 1995 1996 40
<CAPTION>
------ ------------ -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
$8,302 $35,657 $43,959 $4,889
<CAPTION>
====== ============ ======== ============
</TABLE>
<TABLE>
<CAPTION>
---------------
DECEMBER 31,
---------------
1997 1996
------- -------
<S> <C> <C>
Balance, beginning of the year $43,959 $32,384
Acquisitions -- 11,575
<CAPTION>
------- -------
<S> <C> <C>
Balance, end of year $43,959 $43,959
<CAPTION>
======= =======
---------------
DECEMBER 31,
---------------
1997 1996
------- -------
<S> <C> <C>
Balance, beginning of the year $ 3,998 $ 3,128
Depreciation 891 870
<CAPTION>
------- -------
<S> <C> <C>
Balance, end of year $ 4,889 $ 3,998
<CAPTION>
======= =======
</TABLE>
- ----
(1) All properties consist of single buildings which are considered to be
Industrial
(2) The aggregate cost for Federal Income Tax purposes as of December 31, 1996
was approximately $44 million
The changes in the total Investment in real estate for the years ended December
31, 1997 and 1996 are as follows:
The changes in accumulated depreciation for the years ended December 31, 1997
and 1996 are as follows:
F-70
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Owners of West Coast
Industrial, LLC:
We have audited the accompanying Combined Statement of Revenue and Certain
Expenses of West Coast Industrial, LLC (the Portfolio) for the year ended
December 31, 1997. The Combined Statement of Revenue and Certain Expenses is
the responsibility of the Portfolio's management. Our responsibility is to
express an opinion on the Combined Statement of Revenue and Certain Expenses
based on our audit.
We conducted our audit in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the Combined Statement of Revenue and Cer-
tain Expenses is free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures made in the Com-
bined Statement of Revenue and Certain Expenses. An audit also includes
assessing the accounting principles used and significant estimates made by man-
agement, as well as evaluating the overall presentation of the Combined State-
ment of Revenue and Certain Expenses. We believe that our audit provides a rea-
sonable basis for our opinion.
The accompanying Combined Statement of Revenue and Certain Expenses was pre-
pared for the purpose of complying with the rules and regulations of the Secu-
rities and Exchange Commission for inclusion in the registration statement on
Form S-11 of Cabot Industrial Trust as described in Note 2 and is not intended
to be a complete presentation of the Portfolio's revenue and expenses.
In our opinion, the Combined Statement of Revenue and Certain Expenses referred
to above presents fairly, in all material respects, the revenue and certain
expenses of the Portfolio described in Note 2 for the year ended December 31,
1997, in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Boston, Massachusetts
June 30, 1998
F-71
<PAGE>
WEST COAST INDUSTRIAL, LLC
COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES
<TABLE>
<CAPTION>
------------
YEAR ENDED
DECEMBER 31,
1997
------------
<S> <C>
REVENUES
Base Rent $3,269,657
Tenant Reimbursements 301,019
Other Income 16,770
<CAPTION>
------------
<S> <C>
Total Revenues 3,587,446
<CAPTION>
------------
<S> <C>
EXPENSES
Property, Operating and Maintenance 144,184
Real Estate Taxes 366,042
Management Fees 63,285
Insurance 237,148
<CAPTION>
------------
<S> <C>
Total Expenses 810,659
<CAPTION>
------------
<S> <C>
Revenue in Excess of Certain Expenses $2,776,787
<CAPTION>
============
</TABLE>
The accompanying notes are an integral part of this combined financial
statement.
F-72
<PAGE>
WEST COAST INDUSTRIAL, LLC
NOTES TO COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES
1. BUSINESS
The accompanying Combined Statement of Revenue and Certain Expenses relates to
the operations of West Coast Industrial, LLC (the Portfolio). The Portfolio
consists of nine buildings totaling approximately 700,000 rentable square feet,
which are located at the following addresses:
<TABLE>
<CAPTION>
--------------
<S> <C> <C>
East Howell Avenue, Building 1 Anaheim CA
East Howell Avenue, Building 2 Anaheim CA
Commonwealth Avenue Fullerton CA
Artesia Avenue, Building 1 Fullerton CA
Artesia Avenue, Building 2 Fullerton CA
Avenida Encinas, Building 1 Carlsbad CA
Avenida Encinas, Building 2 Carlsbad CA
Reed Avenue, Building 1 Sacramento CA
Reed Avenue, Building 2 Sacramento CA
</TABLE>
These properties were acquired by the Portfolio on August 12, 1997, from an
unrelated party and were contributed to Cabot Industrial Trust on February 4,
1998 as part of the Formation Transactions.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying Combined Statement of Revenue and Certain Expenses was pre-
pared for the purpose of complying with the rules and regulations of the Secu-
rities and Exchange Commission for inclusion in the registration statement on
Form S-11 of Cabot Industrial Trust. The statement is not representative of the
actual operations of the Portfolio for the period presented nor indicative of
future operations as certain expenses, primarily depreciation, amortization and
interest expenses, which may not be comparable to the expenses expected to be
incurred by Cabot Industrial Trust in future operations of the Portfolio, have
been excluded.
Revenue and Expense Recognition
Revenue is recognized on a straight-line basis over the terms of the related
leases. Expenses are recognized in the period in which they are incurred.
Use of Estimates
The preparation of the Combined Statement of Revenue and Certain Expenses in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.
3. RENTAL REVENUES
All leases are classified as operating leases. The portfolio has entered into
tenant leases that provide for tenants to share in the operating expenses and
real estate taxes on a pro rata basis, as defined.
F-73
<PAGE>
WEST COAST INDUSTRIAL, LLC
NOTES TO COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES--(CONTINUED)
4. FUTURE MINIMUM RENTS
Future minimum rental receipts due on noncancelable operating leases for the
Portfolio as of December 31, 1997 were as follows:
<TABLE>
<CAPTION>
-----------
<S> <C>
1998 $ 3,057,505
1999 2,740,537
2000 2,607,223
2001 2,598,079
2002 1,742,238
Thereafter 9,578,300
<CAPTION>
-----------
<S> <C>
$22,323,882
<CAPTION>
===========
</TABLE>
The above amounts do not include additional rental receipts that will become
due as a result of the expense pass-through and escalation provisions in the
leases. The Portfolio is subject to the usual business risks associated with
the collection of the above scheduled rents.
F-74
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Owners of The 4B's:
We have audited the accompanying Statement of Revenue and Certain Expenses of
The 4B's (the Property) for the period from inception (September 1, 1997)
through December 31, 1997. The Statement of Revenue and Certain Expenses is the
responsibility of the Property's management. Our responsibility is to express
an opinion on the Statement of Revenue and Certain Expenses based on our audit.
We conducted our audit in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the Statement of Revenue and Certain
Expenses is free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures made in the State-
ment of Revenue and Certain Expenses. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall presentation of the Statement of Revenue and
Certain Expenses. We believe that our audit provides a reasonable basis for our
opinion.
The accompanying Statement of Revenue 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
Cabot Industrial Trust as described in Note 2 and is not intended to be a com-
plete presentation of the Property's revenue and expenses.
In our opinion, the Statement of Revenue and Certain Expenses referred to above
presents fairly, in all material respects, the revenue and certain expenses of
the Property described in Note 2 for the period from inception (September 1,
1997) through December 31, 1997, in conformity with generally accepted
accounting principles.
Arthur Andersen LLP
Boston, Massachusetts
August 3, 1998
F-75
<PAGE>
THE 4 B'S
STATEMENT OF REVENUE AND CERTAIN EXPENSES
<TABLE>
<CAPTION>
------------
PERIOD FROM
INCEPTION
THROUGH
DECEMBER 31,
1997
------------
<S> <C>
REVENUES
Base Rent $337,120
Tenant Reimbursements 71,694
<CAPTION>
------------
<S> <C>
Total Revenues 408,814
<CAPTION>
------------
<S> <C>
EXPENSES
Property, Operating and Maintenance 27,129
Real Estate Taxes 41,509
Professional Fees 47,009
Insurance 7,344
<CAPTION>
------------
<S> <C>
Total Expenses 122,991
<CAPTION>
------------
<S> <C>
Revenue in Excess of Certain Expenses $285,823
<CAPTION>
============
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-76
<PAGE>
THE 4 B'S
NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES
1. BUSINESS
The accompanying Statement of Revenue and Certain Expenses relates to the oper-
ations of The 4 B's (the Property). The Property consists of one building
totaling approximately 355,732 rentable square feet, located at 2000 Landstreet
Road in Orlando, Florida.
The Property commenced operations on September 1, 1997 and was contributed to
Cabot Industrial Trust on February 4, 1998 as part of the Formation Transac-
tions.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying Statement of Revenue 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
Cabot Industrial Trust. The statement is not representative of the actual oper-
ations of the Property for the period presented nor indicative of future opera-
tions as certain expenses, primarily depreciation, amortization and interest
expenses, which may not be comparable to the expenses expected to be incurred
by Cabot Industrial Trust in future operations of the Property, have been
excluded.
Revenue and Expense Recognition
Revenue is recognized on a straight-line basis over the terms of the related
leases. Expenses are recognized in the period in which they are incurred.
Use of Estimates
The preparation of the Statement of Revenue and Certain Expenses in conformity
with generally accepted accounting principles requires management to make esti-
mates and assumptions that affect the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those estimates.
3. RENTAL REVENUES
All leases are classified as operating leases. The portfolio has entered into
tenant leases that provide for tenants to share in the operating expenses and
real estate taxes on a pro rata basis, as defined. Approximately $153,000 of
the base rental revenue earned during the period was from a related party.
4. FUTURE MINIMUM RENTS
Future minimum rental receipts due on noncancelable operating leases for the
Property as of December 31, 1997 were as follows:
<TABLE>
<CAPTION>
----------
<S> <C>
1998 $ 551,976
1999 551,976
2000 551,976
2001 551,976
2002 99,816
<CAPTION>
----------
<S> <C>
$2,307,720
<CAPTION>
==========
</TABLE>
The above amounts do not include additional rental receipts that will become
due as a result of the expense pass-through and escalation provisions in the
leases. The Property is subject to the usual business risks associated with the
collection of the above scheduled rents. Subsequent to December 31, 1997, the
Property entered into another leasing agreement which provides for an aggregate
of $6,306,840 of future minimum rental receipts over the term of the lease.
F-77
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Owners of the Seefried
Properties Group:
We have audited the accompanying Combined Statement of Revenue and Certain
Expenses of Seefried Properties Group (the Portfolio) for the year ended
December 31, 1997. The Combined Statement of Revenue and Certain Expenses is
the responsibility of the Portfolio's management. Our responsibility is to
express an opinion on the Combined Statement of Revenue and Certain Expenses
based on our audit.
We conducted our audit in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the Combined Statement of Revenue and Cer-
tain Expenses is free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures made in the Com-
bined Statement of Revenue and Certain Expenses. An audit also includes
assessing the accounting principles used and significant estimates made by man-
agement, as well as evaluating the overall presentation of the Combined State-
ment of Revenue and Certain Expenses. We believe that our audit provides a rea-
sonable basis for our opinion.
The accompanying Combined Statement of Revenue and Certain Expenses was pre-
pared for the purpose of complying with the rules and regulations of the Secu-
rities and Exchange Commission for inclusion in the registration statement on
Form S-11 of Cabot Industrial Trust as described in Note 2 and is not intended
to be a complete presentation of the Portfolio's revenue and expenses.
In our opinion, the Combined Statement of Revenue and Certain Expenses referred
to above presents fairly, in all material respects, the revenue and certain
expenses of the Portfolio described in Note 2 for the year ended December 31,
1997, in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Boston, Massachusetts
June 30, 1998
F-78
<PAGE>
SEEFRIED PROPERTIES GROUP
COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES
<TABLE>
<CAPTION>
------------
YEAR ENDED
DECEMBER 31,
1997
------------
<S> <C>
REVENUES
Base Rent $827,732
Tenant Reimbursements 98,584
Other Income 443
<CAPTION>
------------
<S> <C>
Total Revenues 926,759
<CAPTION>
------------
<S> <C>
EXPENSES
Property Operating Costs 103,763
Maintenance and Repairs 12,783
Real Estate Taxes 68,499
Management Fees 27,154
Professional Services 11,809
Insurance 12,154
<CAPTION>
------------
<S> <C>
Total Expenses 236,162
<CAPTION>
------------
<S> <C>
Revenue in Excess of Certain Expenses $690,597
<CAPTION>
============
</TABLE>
The accompanying notes are an integral part of this combined financial
statement.
F-79
<PAGE>
SEEFRIED PROPERTIES GROUP
NOTES TO COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES
DECEMBER 31, 1997
1. BUSINESS
Seefried Properties Group (the Portfolio) is not a legal entity but rather a
combination of the operations of four warehouse buildings that were owned by a
real estate title holding corporation and purchased by Cabot Industrial Trust
on February 13, 1998. The accompanying financial statement includes all of the
direct costs of the business (as defined in Note 2) of the Portfolio. A summary
of the holdings of the Portfolio is as follows:
<TABLE>
<CAPTION>
---------------------
NUMBER OF
PROPERTY LOCATION TENANTS SQUARE FEET
----------------- --------- -----------
<S> <C> <C>
Boggy Creek--Building 1, Orlando, FL 6 52,500
Boggy Creek--Building 2, Orlando, FL 2 55,456
Landstreet--Building 2, Orlando, FL 2 55,456
Landstreet--Building 3, Orlando, FL 1 50,018
<CAPTION>
-----------
<S> <C> <C>
213,430
<CAPTION>
===========
</TABLE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying Combined Statement of Revenue and Certain Expenses was pre-
pared for the purpose of complying with the rules and regulations of the Secu-
rities and Exchange Commission for inclusion in the registration statement on
Form S-11 of Cabot Industrial Trust. The statement is not representative of the
actual operations of the Portfolio for the period presented nor indicative of
future operations as certain expenses, primarily depreciation, amortization and
interest expenses, which may not be comparable to the expenses expected to be
incurred by Cabot Industrial Trust in future operations of the Portfolio, have
been excluded.
Revenue and Expense Recognition
Revenue is recognized on a straight-line basis over the terms of the related
leases. Expenses are recognized in the period in which they are incurred.
Use of Estimates
The preparation of the Combined Statement of Revenue and Certain Expenses in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.
3. RENTAL REVENUES
All leases are classified as operating leases.
F-80
<PAGE>
SEEFRIED PROPERTIES GROUP
NOTES TO COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES--(CONTINUED)
DECEMBER 31, 1997
4. FUTURE MINIMUM RENTAL RECEIPTS
Future minimum rental receipts due on noncancelable operating leases for the
Portfolio as of December 31, 1997 were as follows:
<TABLE>
<CAPTION>
----------
<S> <C>
1998 $1,098,197
1999 1,081,034
2000 954,552
2001 764,034
2002 438,344
Thereafter 40,532
<CAPTION>
----------
<S> <C>
$4,376,693
<CAPTION>
==========
</TABLE>
The above amounts do not include additional rental receipts that will become
due as a result of the expense pass-through and escalation provisions in the
leases. The Portfolio is subject to the usual business risks associated with
the collection of the above scheduled rents.
F-81
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Owners of the Prudential Properties Group II:
We have audited the accompanying Combined Statement of Revenue and Certain
Expenses of Prudential Properties Group II (the Portfolio) for the year ended
December 31, 1997. The Combined Statement of Revenue and Certain Expenses is
the responsibility of the Portfolio's management. Our responsibility is to
express an opinion on the Combined Statement of Revenue and Certain Expenses
based on our audit.
We conducted our audit in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the Combined Statement of Revenue and Cer-
tain Expenses is free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures made in the Com-
bined Statement of Revenue and Certain Expenses. An audit also includes
assessing the accounting principles used and significant estimates made by man-
agement, as well as evaluating the overall presentation of the Combined State-
ment of Revenue and Certain Expenses. We believe that our audit provides a rea-
sonable basis for our opinion.
The accompanying Combined Statement of Revenue and Certain Expenses was pre-
pared for the purpose of complying with the rules and regulations of the Secu-
rities and Exchange Commission for inclusion in the registration statement on
Form S-11 of Cabot Industrial Trust as described in Note 2 and is not intended
to be a complete presentation of the Portfolio's revenue and expenses.
In our opinion, the Combined Statement of Revenue and Certain Expenses referred
to above presents fairly, in all material respects, the revenue and certain
expenses of the Portfolio described in Note 2 for the year ended December 31,
1997, in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Boston, Massachusetts
June 30, 1998
F-82
<PAGE>
PRUDENTIAL PROPERTIES GROUP II
COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES
<TABLE>
<CAPTION>
------------
YEAR ENDED
DECEMBER 31,
1997
------------
<S> <C>
REVENUES
Base Rent $2,976,688
Tenant Reimbursements 227,622
<CAPTION>
------------
<S> <C>
Total Revenues 3,204,310
<CAPTION>
------------
<S> <C>
EXPENSES
Property Operating Costs 18,565
Maintenance and Repairs 39
Real Estate Taxes 203,420
Management Fees 17,521
Professional Services 5,076
Insurance 1,451
<CAPTION>
------------
<S> <C>
Total Expenses 246,072
<CAPTION>
------------
<S> <C>
Revenue in Excess of Certain Expenses $2,958,238
<CAPTION>
============
</TABLE>
The accompanying notes are an integral part of this combined financial
statement.
F-83
<PAGE>
PRUDENTIAL PROPERTIES GROUP II
NOTES TO COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES
DECEMBER 31, 1997
1. BUSINESS
Prudential Properties Group II (the Portfolio) is not a legal entity but rather
a combination of the operations for three warehouse buildings that were owned
by a title holding corporation. As of October 1, 1997, title to two of these
properties was transferred to The Prudential Insurance Company of America on
behalf of a single client separate account. Prudential Group II properties were
managed, leased and operated by The Prudential's Private Asset Management
Group--Real Estate Division (PAMG), the investment manager, pursuant to con-
tracts with its pension fund clients. The Portfolio was purchased by Cabot
Industrial Trust on February 6, 1998. The accompanying financial statement
includes all of the direct costs of the business of the Portfolio (as defined
in Note 2). A summary of the holdings of the Portfolio is as follows (each
location has one building):
<TABLE>
<CAPTION>
---------------------
NUMBER OF
PROPERTY LOCATION TENANTS SQUARE FEET
----------------- --------- -----------
<S> <C> <C>
Dacula, GA 1 326,019
Mira Loma, CA 1 250,584
Mechanicsburg, PA 1 340,000
<CAPTION>
-----------
<S> <C> <C>
916,603
<CAPTION>
===========
</TABLE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying Combined Statement of Revenue and Certain Expenses was pre-
pared for the purpose of complying with the rules and regulations of the Secu-
rities and Exchange Commission for inclusion in the registration statement on
Form S-11 of Cabot Industrial Trust. The statement is not representative of the
actual operations of Prudential Group II for the period presented nor indica-
tive of future operations as certain expenses, primarily depreciation, amorti-
zation and interest expenses, which may not be comparable to the expenses
expected to be incurred by Cabot Industrial Trust in future operations of the
Portfolio, have been excluded.
Revenue and Expense Recognition
Revenue is recognized on a straight-line basis over the terms of the related
leases. Expenses are recognized in the period in which they are incurred.
Use of Estimates
The preparation of the Combined Statement of Revenue and Certain Expenses in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.
3. RENTAL REVENUE
All leases are classified as operating leases.
4. FUTURE MINIMUM RENTAL RECEIPTS
Future minimum rental receipts due on noncancelable operating leases for the
Portfolio as of December 31, 1997 were as follows:
<TABLE>
<CAPTION>
-----------
<S> <C>
1998 $ 3,044,796
1999 3,044,796
2000 3,044,796
2001 3,044,796
2002 1,648,208
<CAPTION>
-----------
<S> <C>
$13,827,392
<CAPTION>
===========
</TABLE>
The above amounts do not include additional rental receipts that will become
due as a result of the expense pass-through and escalation provisions in the
leases. The Portfolio is subject to the usual business risks associated with
the collection of the above scheduled rents.
F-84
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Owners of the
DFW Trade Center I, L.P., Buildings 1, 2 and 3:
We have audited the accompanying Combined Statement of Revenue and Certain
Expenses of DFW Trade Center I, L.P., Buildings 1, 2 and 3 (the Portfolio) for
the year ended December 31, 1997. The Combined Statement of Revenue and Certain
Expenses is the responsibility of the Portfolio's management. Our responsi-
bility is to express an opinion on the Combined Statement of Revenue and Cer-
tain Expenses based on our audit.
We conducted our audit in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the Combined Statement of Revenue and Cer-
tain Expenses is free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures made in the Com-
bined Statement of Revenue and Certain Expenses. An audit also includes
assessing the accounting principles used and significant estimates made by man-
agement, as well as evaluating the overall presentation of the Combined State-
ment of Revenue and Certain Expenses. We believe that our audit provides a rea-
sonable basis for our opinion.
The accompanying Combined Statement of Revenue and Certain Expenses was pre-
pared for the purpose of complying with the rules and regulations of the Secu-
rities and Exchange Commission for inclusion in the registration statement on
Form S-11 of Cabot Industrial Trust as described in Note 2 and is not intended
to be a complete presentation of the Portfolio's revenue and expenses.
In our opinion, the Combined Statement of Revenue and Certain Expenses referred
to above presents fairly, in all material respects, the revenue and certain
expenses of the Portfolio described in Note 2 for the year ended December 31,
1997, in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Boston, Massachusetts
June 30, 1998
F-85
<PAGE>
DFW TRADE CENTER I, L.P., BUILDINGS 1, 2 AND 3
COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES
<TABLE>
<CAPTION>
------------
YEAR ENDED
DECEMBER 31,
1997
------------
<S> <C>
REVENUES
Base Rent $2,189,853
Tenant Reimbursements 380,345
<CAPTION>
------------
<S> <C>
Total Revenues 2,570,198
<CAPTION>
------------
<S> <C>
EXPENSES
Property Operating Costs 161,915
Maintenance and Repairs 27,968
Real Estate Taxes 431,061
Management Fees 76,721
Insurance 36,321
<CAPTION>
------------
<S> <C>
Total Expenses 733,986
<CAPTION>
------------
<S> <C>
Revenue in Excess of Certain Expenses $1,836,212
<CAPTION>
============
</TABLE>
The accompanying notes are an integral part of this combined financial
statement.
F-86
<PAGE>
DFW TRADE CENTER I, L.P., BUILDINGS 1, 2 AND 3
NOTES TO COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES
DECEMBER 31, 1997
1. BUSINESS
The accompanying Combined Statement of Revenue and Certain Expenses relates to
the operations of DFW Trade Center I, L.P., Buildings 1, 2 and 3 (the Portfo-
lio). The Portfolio consists of three buildings in Grapevine, Texas totaling
approximately 1,182,361 rentable square feet as follows:
<TABLE>
<CAPTION>
----------------------------------------
NUMBER OF
PROPERTY TYPE TENANTS DATE OF INCEPTION SQUARE FEET
------------- --------- ----------------- -----------
<S> <C> <C> <C>
Workspace Industrial 3 February 7, 1997 202,361
Bulk Warehouse 2 July 1, 1996 540,000
Bulk Warehouse 2 June 30, 1997 440,000
<CAPTION>
-----------
<S> <C> <C> <C>
1,182,361
<CAPTION>
===========
</TABLE>
The Portfolio was purchased by Cabot Industrial Trust on February 4, 1998.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying Combined Statement of Revenue and Certain Expenses was pre-
pared for the purpose of complying with the rules and regulations of the Secu-
rities and Exchange Commission for inclusion in the registration statement on
Form S-11 of Cabot Industrial Trust. The statement is not representative of the
actual operations of the Portfolio for the period presented nor indicative of
future operations as certain expenses, primarily depreciation, amortization and
interest expenses, which may not be comparable to the expenses expected to be
incurred by Cabot Industrial Trust in future operations of the Portfolio, have
been excluded.
Revenue and Expense Recognition
Revenue is recognized on a straight-line basis over the terms of the related
leases. Expenses are recognized in the period in which they are incurred.
Use of Estimates
The preparation of the Combined Statement of Revenue and Certain Expenses in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.
3. RENTAL REVENUE
All leases are classified as operating leases.
4. FUTURE MINIMUM RENTAL RECEIPTS
Future minimum rental receipts due on noncancelable operating leases for the
Portfolio as of December 31, 1997 were as follows:
<TABLE>
<CAPTION>
-----------
<S> <C>
1998 $ 4,052,194
1999 4,189,944
2000 4,275,444
2001 3,906,861
2002 3,193,088
Thereafter 12,548,385
<CAPTION>
-----------
<S> <C>
$32,165,916
<CAPTION>
===========
</TABLE>
The above amounts do not include additional rental receipts that will become
due as a result of the expense pass-through and escalation provisions in the
leases. The Portfolio is subject to the usual business risks associated with
the collection of the above scheduled rents.
F-87
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Owners of
1055 Dornoch Court, San Diego, CA:
We have audited the accompanying Statement of Revenue and Certain Expenses of
1055 Dornoch Court, San Diego, CA (the Property) for the year ended December
31, 1997. The Statement of Revenue and Certain Expenses is the responsibility
of the Property's management. Our responsibility is to express an opinion on
the Statement of Revenue and Certain Expenses based on our audit.
We conducted our audit in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the Statement of Revenue and Certain
Expenses is free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures made in the State-
ment of Revenue and Certain Expenses. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall presentation of the Statement of Revenue and
Certain Expenses. We believe that our audit provides a reasonable basis for our
opinion.
The accompanying Statement of Revenue 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
Cabot Industrial Trust as described in Note 2 and is not intended to be a com-
plete presentation of the Property's revenue and expenses.
In our opinion, the Statement of Revenue and Certain Expenses referred to above
presents fairly, in all material respects, the revenue and certain expenses of
the Property described in Note 2 for the year ended December 31, 1997, in con-
formity with generally accepted accounting principles.
Arthur Andersen LLP
Boston, Massachusetts
June 30, 1998
F-88
<PAGE>
1055 DORNOCH COURT, SAN DIEGO, CA
STATEMENT OF REVENUE AND CERTAIN EXPENSES
<TABLE>
<CAPTION>
------------
YEAR ENDED
DECEMBER 31,
1997
------------
<S> <C>
REVENUES
Base Rent $986,160
<CAPTION>
------------
<S> <C>
Total Revenues 986,160
<CAPTION>
------------
<S> <C>
EXPENSES (Note 2) --
<CAPTION>
------------
<S> <C>
Net Income $986,160
<CAPTION>
============
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-89
<PAGE>
1055 DORNOCH COURT, SAN DIEGO, CA
NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES
DECEMBER 31, 1997
1. BUSINESS
1055 Dornoch Court, San Diego, CA (the Property) is not a legal entity but
rather a single tenant, 220,000 square foot warehouse, which was owned by a
Delaware corporation and purchased by Cabot Industrial Trust on February 5,
1998.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying Statement of Revenue 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
Cabot Industrial Trust. The statement is representative of the lease in place
which requires that all expenses be paid directly by the tenant. The statement
is not representative of the actual operations of the Property for the period
presented nor indicative of future operations because certain expenses, pri-
marily depreciation, amortization and interest expenses, which may not be com-
parable to the expenses expected to be incurred by Cabot Industrial Trust in
future operations of the Property, have been excluded.
Revenue and Expense Recognition
Revenue is recognized on a straight-line basis over the term of the related
lease. All expenses are paid by the tenant, and therefore are excluded from the
accompanying financial statement.
Use of Estimates
The preparation of the Statement of Revenue and Certain Expenses in conformity
with generally accepted accounting principles requires management to make esti-
mates and assumptions that affect the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those estimates.
3. RENTAL REVENUES
The lease is classified as an operating lease.
4. FUTURE MINIMUM RENTAL RECEIPTS
Future minimum rental receipts due on the noncancelable operating lease for the
Property as of December 31, 1997 were as follows:
<TABLE>
<CAPTION>
----------
<S> <C>
1998 $1,002,658
1999 1,042,764
2000 1,084,476
2001 1,127,854
2002 971,000
<CAPTION>
----------
<S> <C>
$5,228,752
<CAPTION>
==========
</TABLE>
The above amounts do not include additional rental receipts that may become due
as a result of the escalation provisions in the lease. The Property is subject
to the usual business risks associated with the collection of the above sched-
uled rents.
F-90
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Owners of the
Hampden I and II Properties Group:
We have audited the accompanying Combined Statement of Revenue and Certain
Expenses of Hampden I and II Properties Group (the Portfolio) for the year
ended December 31, 1997. The Combined Statement of Revenue and Certain Expenses
is the responsibility of the Portfolio's management. Our responsibility is to
express an opinion on the Combined Statement of Revenue and Certain Expenses
based on our audit.
We conducted our audit in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the Combined Statement of Revenue and Cer-
tain Expenses is free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures made in the Com-
bined Statement of Revenue and Certain Expenses. An audit also includes
assessing the accounting principles used and significant estimates made by man-
agement, as well as evaluating the overall presentation of the Combined State-
ment of Revenue and Certain Expenses. We believe that our audit provides a rea-
sonable basis for our opinion.
The accompanying Combined Statement of Revenue and Certain Expenses was pre-
pared for the purpose of complying with the rules and regulations of the Secu-
rities and Exchange Commission for inclusion in the registration statement on
Form S-11 of Cabot Industrial Trust as described in Note 2 and is not intended
to be a complete presentation of the Portfolio's revenue and expenses.
In our opinion, the Combined Statement of Revenue and Certain Expenses referred
to above presents fairly, in all material respects, the revenue and certain
expenses of the Portfolio described in Note 2 for the year ended December 31,
1997, in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Boston, Massachusetts
June 30, 1998
F-91
<PAGE>
HAMPDEN I AND II PROPERTIES GROUP
COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES
<TABLE>
<CAPTION>
------------
YEAR ENDED
DECEMBER 31,
1997
------------
<S> <C>
REVENUES
Base Rent $1,616,059
<CAPTION>
------------
<S> <C>
Total Revenues 1,616,059
<CAPTION>
------------
<S> <C>
EXPENSES (Note 2) --
<CAPTION>
------------
<S> <C>
Net Income $1,616,059
<CAPTION>
============
</TABLE>
The accompanying notes are an integral part of this combined financial
statement.
F-92
<PAGE>
HAMPDEN I AND II PROPERTIES GROUP
NOTES TO COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES
DECEMBER 31, 1997
1. BUSINESS
Hampden I and II Properties Group (the Portfolio) is not a legal entity but
rather a combination of the operations of two warehouse buildings that were
owned by a real estate title holding corporation and purchased by Cabot Indus-
trial Trust on February 17, 1998. A summary of the holdings of the Portfolio is
as follows:
<TABLE>
<CAPTION>
-----------------
NUMBER OF SQUARE
PROPERTY LOCATION TENANTS FEET
----------------- --------- -------
<S> <C> <C>
Mechanicsburg, PA 1 259,000
Mechanicsburg, PA 1 235,000
<CAPTION>
-------
<S> <C> <C>
494,000
<CAPTION>
=======
</TABLE>
Both buildings are occupied by the same tenant.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying Combined Statement of Revenue and Certain Expenses was pre-
pared for the purpose of complying with the rules and regulations of the Secu-
rities and Exchange Commission for inclusion in the registration statement on
Form S-11 of Cabot Industrial Trust. The statement is representative of the
leases in place which require that all expenses be paid directly by the tenant.
The statement is not representative of the actual operations of the Portfolio
for the period presented nor indicative of future operations because certain
expenses, primarily depreciation, amortization and interest expenses, which may
not be comparable to the expenses expected to be incurred by Cabot Industrial
Trust in future operations of the Portfolio, have been excluded.
Revenue and Expense Recognition
Revenue is recognized on a straight-line basis over the terms of the related
leases. All expenses are paid by the tenant, and therefore are excluded from
the accompanying financial statement.
Use of Estimates
The preparation of the Combined Statement of Revenue and Certain Expenses in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.
3. RENTAL REVENUES
All leases are classified as operating leases.
4. FUTURE MINIMUM RENTAL RECEIPTS
Future minimum rental receipts due on noncancelable operating leases for the
Portfolio as of December 31, 1997 were as follows:
<TABLE>
<CAPTION>
-----------
<S> <C>
1998 $ 1,600,077
1999 1,670,000
2000 1,670,000
2001 1,670,000
2002 1,670,000
Thereafter 8,210,833
<CAPTION>
-----------
<S> <C>
$16,490,910
<CAPTION>
===========
</TABLE>
The above amounts do not include additional rental receipts that may become due
as a result of the Consumer Price Index escalation provisions in the leases.
The Portfolio is subject to the usual business risks associated with the col-
lection of the above scheduled rents.
F-93
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Owners of the
South Royal Associates Properties Group:
We have audited the accompanying Combined Statement of Revenue and Certain
Expenses of South Royal Associates Properties Group (the Portfolio) for the
year ended December 31, 1997. The Combined Statement of Revenue and Certain
Expenses is the responsibility of the Portfolio's management. Our responsi-
bility is to express an opinion on the Combined Statement of Revenue and Cer-
tain Expenses based on our audit.
We conducted our audit in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the Combined Statement of Revenue and Cer-
tain Expenses is free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures made in the Com-
bined Statement of Revenue and Certain Expenses. An audit also includes
assessing the accounting principles used and significant estimates made by man-
agement, as well as evaluating the overall presentation of the Combined State-
ment of Revenue and Certain Expenses. We believe that our audit provides a rea-
sonable basis for our opinion.
The accompanying Combined Statement of Revenue and Certain Expenses was pre-
pared for the purpose of complying with the rules and regulations of the Secu-
rities and Exchange Commission for inclusion in the registration statement on
Form S-11 of Cabot Industrial Trust as described in Note 2 and is not intended
to be a complete presentation of the Portfolio's revenue and expenses.
In our opinion, the Combined Statement of Revenue and Certain Expenses referred
to above presents fairly, in all material respects, the revenue and certain
expenses of the Portfolio described in Note 2 for the year ended December 31,
1997, in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Boston, Massachusetts
June 30, 1998
F-94
<PAGE>
SOUTH ROYAL ASSOCIATES PROPERTIES GROUP
COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES
<TABLE>
<CAPTION>
------------
YEAR ENDED
DECEMBER 31,
1997
------------
<S> <C>
REVENUES
Base Rent $531,156
Tenant Reimbursements 18,854
<CAPTION>
------------
<S> <C>
Total Revenues 550,010
<CAPTION>
------------
<S> <C>
EXPENSES
Property Operating Costs 22,107
Maintenance and Repairs 16,814
Real Estate Taxes 56,296
Professional Fees 6,891
Management Fees 12,221
Insurance 8,543
<CAPTION>
------------
<S> <C>
Total Expenses 122,872
<CAPTION>
------------
<S> <C>
Revenue in Excess of Certain
Expenses $427,138
<CAPTION>
============
</TABLE>
The accompanying notes are an integral part of this combined financial
statement.
F-95
<PAGE>
SOUTH ROYAL ASSOCIATES PROPERTIES GROUP
NOTES TO COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES
DECEMBER 31, 1997
1. BUSINESS
South Royal Associates Properties Group (the Portfolio) is not a legal entity
but rather a combination of the operations for three warehouse buildings that
were owned by a limited partnership and purchased by Cabot Industrial Trust on
February 27, 1998. The accompanying financial statement includes all of the
direct costs of the business (as defined in Note 2) of the Portfolio. A summary
of the holdings of the Portfolio is as follows:
<TABLE>
<CAPTION>
----------------------
NUMBER OF
PROPERTY LOCATION TENANTS SQUARE FEET
----------------- ---------- -----------
<S> <C> <C>
Tucker, GA 3 37,041
Tucker, GA 3 43,720
Tucker, GA 7 53,402
<CAPTION>
-----------
<S> <C> <C>
134,163
<CAPTION>
===========
</TABLE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying Combined Statement of Revenue and Certain Expenses was pre-
pared for the purpose of complying with the rules and regulations of Securities
and Exchange Commission for inclusion in the registration statement on Form S-
11 of Cabot Industrial Trust. The statement is not representative of the actual
operations of the Portfolio for the period presented nor indicative of future
operations because certain expenses, primarily depreciation, amortization and
interest expenses, which may not be comparable to the expenses expected to be
incurred by Cabot Industrial Trust in future operations of the Portfolio, have
been excluded.
Revenue and Expense Recognition
Revenue is recognized on a straight-line basis over the terms of the related
leases. Expenses are recognized in the period in which they are incurred.
Use of Estimates
The preparation of the Combined Statement of Revenue and Certain Expenses in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.
3. RENTAL REVENUES
All leases are classified as operating leases.
4. FUTURE MINIMUM RENTAL RECEIPTS
Future minimum rental receipts due on noncancelable operating leases for the
Portfolio as of December 31, 1997 were as follows:
<TABLE>
<CAPTION>
----------
<S> <C>
1998 $ 603,520
1999 447,232
2000 300,374
2001 179,094
2002 59,483
Thereafter 3,204
<CAPTION>
----------
<S> <C>
$1,592,907
<CAPTION>
==========
</TABLE>
The above amounts do not include additional rental receipts that will become
due as a result of the expense pass-through provisions in the leases. The Port-
folio is subject to the usual business risks associated with the collection of
the above scheduled rents.
F-96
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Owners of the Joseph A. Leroy Family LP Property:
We have audited the accompanying Statement of Revenue and Certain Expenses of
Joseph A. Leroy Family LP Property (the Property) for the year ended December
31, 1997. The Statement of Revenue and Certain Expenses is the responsibility
of the Property's management. Our responsibility is to express an opinion on
the Statement of Revenue and Certain Expenses based on our audit.
We conducted our audit in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the Statement of Revenue and Certain
Expenses is free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures made in the State-
ment of Revenue and Certain Expenses. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall presentation of the Statement of Revenue and
Certain Expenses. We believe that our audit provides a reasonable basis for our
opinion.
The accompanying Statement of Revenue 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
Cabot Industrial Trust as described in Note 2 and is not intended to be a com-
plete presentation of the Property's revenue and expenses.
In our opinion, the Statement of Revenue and Certain Expenses referred to above
presents fairly, in all material respects, the revenue and certain expenses of
the Property as described in Note 2 for the year ended December 31, 1997, in
conformity with generally accepted accounting principles.
Arthur Andersen LLP
Boston, Massachusetts
June 30, 1998
F-97
<PAGE>
JOSEPH A. LEROY FAMILY LP PROPERTY
STATEMENT OF REVENUE AND CERTAIN EXPENSES
<TABLE>
<CAPTION>
------------
YEAR ENDED
DECEMBER 31,
1997
------------
<S> <C>
REVENUES
Base Rent $305,188
Tenant Reimbursements 127,058
<CAPTION>
------------
<S> <C>
Total Revenues 432,246
<CAPTION>
------------
<S> <C>
EXPENSES
Property Operating Costs 14,799
Maintenance and Repairs 8,017
Real Estate Taxes 80,486
Professional Services 2,654
<CAPTION>
------------
<S> <C>
Total Expenses 105,956
<CAPTION>
------------
<S> <C>
Revenue in Excess of Certain
Expenses $326,290
<CAPTION>
============
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-98
<PAGE>
JOSEPH A. LEROY FAMILY LP PROPERTY
NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES
DECEMBER 31, 1997
1. BUSINESS
Joseph A. Leroy Family LP Property (the Property) is not a legal entity but
rather the operations for one warehouse building that was owned by a real
estate title holding corporation and was purchased by Cabot Industrial Trust on
March 17, 1998. The accompanying financial statement includes all of the direct
costs of the Property (as defined in Note 2). Details concerning the Property
are as follows:
<TABLE>
<CAPTION>
----------------------
NUMBER
PROPERTY LOCATION OF TENANTS SQUARE FEET
----------------- ---------- -----------
<S> <C> <C>
Tempe, AZ 3 81,817
</TABLE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying Statement of Revenue 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
Cabot Industrial Trust. The statement is not representative of the actual oper-
ations of the Property for the period presented nor indicative of future opera-
tions because certain expenses, primarily depreciation, amortization and
interest expenses, which may not be comparable to the expenses expected to be
incurred by Cabot Industrial Trust in future operations of the Property, have
been excluded.
Revenue and Expense Recognition
Revenue is recognized on a straight-line basis over the terms of the related
leases. Expenses are recognized in the period in which they are incurred.
Use of Estimates
The preparation of the Statement of Revenue and Certain Expenses in conformity
with generally accepted accounting principles requires management to make esti-
mates and assumptions that affect the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those estimates.
3. RENTAL REVENUES
All leases are classified as operating leases.
4. FUTURE MINIMUM RENTAL RECEIPTS
Future minimum rental receipts due on noncancelable operating leases for the
Property as of December 31, 1997 were as follows:
<TABLE>
<CAPTION>
--------
<S> <C>
1998 $250,168
1999 51,337
<CAPTION>
--------
<S> <C>
$301,505
<CAPTION>
========
</TABLE>
The above amounts do not include additional rental receipts that will become
due as a result of the expense pass-through provisions in the leases. The Prop-
erty is subject to the usual business risks associated with the collection of
the above scheduled rents.
F-99
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Owners of the
Raco/Melaver, L.L.C.:
We have audited the accompanying Combined Statement of Revenue and Certain
Expenses of Raco/Melaver, L.L.C. (the Portfolio) for the year ended December
31, 1997. The Combined Statement of Revenue and Certain Expenses is the respon-
sibility of the Portfolio's management. Our responsibility is to express an
opinion on the Statement of Revenue and Certain Expenses based on our audit.
We conducted our audit in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the Combined Statement of Revenue and Cer-
tain Expenses is free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures made in the Com-
bined Statement of Revenue and Certain Expenses. An audit also includes
assessing the accounting principles used and significant estimates made by man-
agement, as well as evaluating the overall presentation of the Combined State-
ment of Revenue and Certain Expenses. We believe that our audit provides a rea-
sonable basis for our opinion.
The accompanying Combined Statement of Revenue and Certain Expenses was pre-
pared for the purpose of complying with the rules and regulations of the Secu-
rities and Exchange Commission for inclusion in the registration statement on
Form S-11 of Cabot Industrial Trust as described in Note 2 and is not intended
to be a complete presentation of the Portfolio's revenue and expenses.
In our opinion, the Combined Statement of Revenue and Certain Expenses referred
to above presents fairly, in all material respects, the revenue and certain
expenses of the Portfolio for the year ended December 31, 1997, in conformity
with generally accepted accounting principles.
Arthur Andersen LLP
Boston, Massachusetts
June 30, 1998
F-100
<PAGE>
RACO/MELAVER, L.L.C.
COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES
<TABLE>
<CAPTION>
------------
YEAR ENDED
DECEMBER 31,
1997
------------
<S> <C>
REVENUES
Base Rent $367,226
Tenant Reimbursements 30,591
<CAPTION>
------------
<S> <C>
Total Revenues 397,817
<CAPTION>
------------
<S> <C>
EXPENSES
Property Operating Costs 25,443
Maintenance and Repairs 990
Real Estate Taxes 51,639
Management Fees 10,713
Insurance 4,039
<CAPTION>
------------
<S> <C>
Total Expenses 92,824
<CAPTION>
------------
<S> <C>
Revenue in Excess of Certain
Expenses $304,993
<CAPTION>
============
</TABLE>
The accompanying notes are an integral part of this combined financial
statement.
F-101
<PAGE>
RACO/MELAVER, L.L.C.
NOTES TO COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES
DECEMBER 31, 1997
1. BUSINESS
Raco/Melaver, L.L.C. (the Portfolio) is not a legal entity but rather a combi-
nation of the operations of two warehouse buildings that were owned by a real
estate title holding corporation and purchased by Cabot Industrial Trust on
March 13, 1998. The accompanying financial statement includes all of the direct
costs of the business (as defined in Note 2) of the Portfolio. A summary of the
holdings of Raco/Melaver Group is as follows:
<TABLE>
<CAPTION>
---------------------
NUMBER OF
PROPERTY LOCATION TENANTS SQUARE FEET
----------------- --------- -----------
<S> <C> <C>
Atlanta, GA 4 68,000
Atlanta, GA 5 60,000
<CAPTION>
-----------
<S> <C> <C>
128,000
<CAPTION>
===========
</TABLE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying Combined Statement of Revenue and Certain Expenses was pre-
pared for the purpose of complying with the rules and regulations of the Secu-
rities and Exchange Commission for inclusion in the registration statement on
Form S-11 of Cabot Industrial Trust. The statement is not representative of the
actual operations of the Portfolio for the period presented nor indicative of
future operations because certain expenses, primarily depreciation, amortiza-
tion and interest expenses, which may not be comparable to the expenses
expected to be incurred by Cabot Industrial Trust in future operations of the
Portfolio, have been excluded.
Revenue and Expense Recognition
Revenue is recognized on a straight-line basis over the terms of the related
leases. Expenses are recognized in the period in which they are incurred.
Use of Estimates
The preparation of the Combined Statement of Revenue and Certain Expenses in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.
3. RENTAL REVENUES
All leases are classified as operating leases.
4. FUTURE MINIMUM RENTAL RECEIPTS
Future minimum rental receipts due on noncancelable operating leases for the
Portfolio as of December 31, 1997 were as follows:
<TABLE>
<CAPTION>
----------
<S> <C>
1998 $ 556,543
1999 494,991
2000 439,733
2001 279,122
2002 145,010
<CAPTION>
----------
<S> <C>
$1,915,399
<CAPTION>
==========
</TABLE>
The above amounts do not include additional rental receipts that will become
due as a result of the expense pass-through provisions in the leases. The Port-
folio is subject to the usual business risks associated with the collection of
the above scheduled rents.
F-102
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Owners of the
TLI/Cahill Partnership--Spiral Drive:
We have audited the accompanying Combined Statement of Revenue and Certain
Expenses of TLI/Cahill Partnership-- Spiral Drive (the Portfolio) for the year
ended December 31, 1997. The Combined Statement of Revenue and Certain Expenses
is the responsibility of the Portfolio's management. Our responsibility is to
express an opinion on the Combined Statement of Revenue and Certain Expenses
based on our audit.
We conducted our audit in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the Combined Statement of Revenue and Cer-
tain Expenses is free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures made in the Com-
bined Statement of Revenue and Certain Expenses. An audit also includes
assessing the accounting principles used and significant estimates made by man-
agement, as well as evaluating the overall presentation of the Combined State-
ment of Revenue and Certain Expenses. We believe that our audit provides a rea-
sonable basis for our opinion.
The accompanying Combined Statement of Revenue and Certain Expenses was pre-
pared for the purpose of complying with the rules and regulations of the Secu-
rities and Exchange Commission for inclusion in the registration statement on
Form S-11 of Cabot Industrial Trust as described in Note 2 and is not intended
to be a complete presentation of the Portfolio's revenue and expenses.
In our opinion, the Combined Statement of Revenue and Certain Expenses referred
to above presents fairly, in all material respects, the revenue and certain
expenses of the Portfolio described in Note 2 for the year ended December 31,
1997, in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Boston, Massachusetts
June 30, 1998
F-103
<PAGE>
TLI/CAHILL PARTNERSHIP-SPIRAL DRIVE
COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES
<TABLE>
<CAPTION>
------------
YEAR ENDED
DECEMBER 31,
1997
------------
<S> <C>
REVENUES
Base Rent $536,554
Tenant Reimbursements 68,263
<CAPTION>
------------
<S> <C>
Total Revenues 604,817
<CAPTION>
------------
<S> <C>
EXPENSES
Property Operating Costs 61,196
Maintenance and Repairs 43,491
Real Estate Taxes 41,244
Management Fees 18,614
Professional Services 4,366
Insurance 5,365
<CAPTION>
------------
<S> <C>
Total Expenses 174,276
<CAPTION>
------------
<S> <C>
Revenue in Excess of Certain
Expenses $430,541
<CAPTION>
============
</TABLE>
The accompanying notes are an integral part of this combined financial
statement.
F-104
<PAGE>
TLI/CAHILL PARTNERSHIP-SPIRAL DRIVE
NOTES TO COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES
DECEMBER 31, 1997
1. BUSINESS
TLI/Cahill Partnership-Spiral Drive (the Portfolio) is not a legal entity but
rather a combination of the operations of two warehouse buildings that were
owned by a real estate title holding corporation and purchased by Cabot Indus-
trial Trust on March 18, 1998. A summary of the holdings of the Portfolio is as
follows (each location has one building):
<TABLE>
<CAPTION>
---------------------
NUMBER OF
PROPERTY LOCATION TENANTS SQUARE FEET
----------------- --------- -----------
<S> <C> <C>
Florence, KY 4 26,556
Florence, KY 8 34,999
<CAPTION>
-----------
<S> <C> <C>
61,555
<CAPTION>
===========
</TABLE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying Combined Statement of Revenue and Certain Expenses was pre-
pared for the purpose of complying with the rules and regulations of the Secu-
rities and Exchange Commission for inclusion in the registration statement on
Form S-11 of Cabot Industrial Trust. The statement is not representative of the
actual operations of the Portfolio for the period presented nor indicative of
future operations because certain expenses, primarily depreciation, amortiza-
tion and interest expenses, which may not be comparable to the expenses
expected to be incurred by Cabot Industrial Trust in future operations of the
Portfolio, have been excluded.
Revenue and Expense Recognition
Revenue is recognized on a straight-line basis over the terms of the related
leases. Expenses are recognized in the period in which they are incurred.
Use of Estimates
The preparation of the Combined Statement of Revenue and Certain Expenses in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.
3. RENTAL REVENUES
All leases are classified as operating leases.
4. FUTURE MINIMUM RENTAL RECEIPTS
Future minimum rental receipts due on noncancelable operating leases for the
Portfolio as of December 31, 1997 were as follows:
<TABLE>
<CAPTION>
--------
<S> <C>
1998 $446,700
1999 234,227
2000 143,311
2001 44,127
<CAPTION>
--------
<S> <C>
$868,365
<CAPTION>
========
</TABLE>
The above amounts do not include additional rental receipts that will become
due as a result of the expense pass-through and escalation provisions in the
leases. The Portfolio is subject to the usual business risks associated with
the collection of the above scheduled rents.
F-105
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Owners of the
Terraden/Ontario, I L.P.:
We have audited the accompanying Combined Statement of Revenue and Certain
Expenses of Terraden/Ontario I, L.P. (the Portfolio) for the year ended
December 31, 1997. The Combined Statement of Revenue and Certain Expenses is
the responsibility of the Portfolio's management. Our responsibility is to
express an opinion on the Combined Statement of Revenue and Certain Expenses
based on our audit.
We conducted our audit in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the Combined Statement of Revenue and Cer-
tain Expenses is free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures made in the Com-
bined Statement of Revenue and Certain Expenses. An audit also includes
assessing the accounting principles used and significant estimates made by man-
agement, as well as evaluating the overall presentation of the Combined State-
ment of Revenue and Certain Expenses. We believe that our audit provides a rea-
sonable basis for our opinion.
The accompanying Combined Statement of Revenue and Certain Expenses was pre-
pared for the purpose of complying with the rules and regulations of the Secu-
rities and Exchange Commission for inclusion in the registration statement on
Form S-11 of Cabot Industrial Trust as described in Note 2 and is not intended
to be a complete presentation of the Portfolio's revenue and expenses.
In our opinion, the Combined Statement of Revenue and Certain Expenses referred
to above presents fairly, in all material respects, the revenue and certain
expenses of the Portfolio described in Note 2 for the year ended December 31,
1997, in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Boston, Massachusetts
June 30, 1998
F-106
<PAGE>
TERRADEN/ONTARIO I, L.P.
COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES
<TABLE>
<CAPTION>
------------
YEAR ENDED
DECEMBER 31,
1997
------------
<S> <C>
REVENUES
Base Rent $560,907
Tenant Reimbursements 143,697
<CAPTION>
------------
<S> <C>
Total Revenues 704,604
<CAPTION>
------------
<S> <C>
EXPENSES
Property Operating Costs 23,312
Maintenance and Repairs 17,080
Real Estate Taxes 94,745
Management Fees 13,705
Insurance 27,856
<CAPTION>
------------
<S> <C>
Total Expenses 176,698
<CAPTION>
------------
<S> <C>
Revenue in Excess of Certain
Expenses $527,906
<CAPTION>
============
</TABLE>
The accompanying notes are an integral part of this combined financial
statement.
F-107
<PAGE>
TERRADEN/ONTARIO I, L.P.
NOTES TO COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES
DECEMBER 31, 1997
1. BUSINESS
Terraden/Ontario I, L.P. (the Portfolio) is not a legal entity but rather a
combination of the operations of two warehouse buildings that were owned by a
real estate title holding corporation and purchased by Cabot Industrial Trust
on May 20, 1998. The accompanying financial statement includes all of the
direct costs of the business (as defined in Note 2) of the Portfolio. A summary
of the holdings of the Portfolio is as follows:
<TABLE>
<CAPTION>
-------------------
NUMBER OF
PROPERTY LOCATION TENANTS SQUARE FEET
----------------- ------- -----------
<S> <C> <C>
Ontario, CA 1 98,782
Ontario, CA 1 62,398
<CAPTION>
-----------
<S> <C> <C>
161,180
<CAPTION>
===========
</TABLE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying Combined Statement of Revenue and Certain Expenses was pre-
pared for the purpose of complying with the rules and regulations of the Secu-
rities and Exchange Commission for inclusion in the registration statement on
Form S-11 of Cabot Industrial Trust. The statement is not representative of the
actual operations of the Portfolio for the period presented nor indicative of
future operations because certain expenses, primarily depreciation, amortiza-
tion and interest expenses, which may not be comparable to the expenses
expected to be incurred by Cabot Industrial Trust in future operations of the
Portfolio, have been excluded.
Revenue and Expense Recognition
Revenue is recognized on a straight-line basis over the terms of the related
leases. Expenses are recognized in the period in which they are incurred.
Use of Estimates
The preparation of the Combined Statement of Revenue and Certain Expenses in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.
3. RENTAL REVENUES
All leases are classified as operating leases.
4. FUTURE MINIMUM RENTAL RECEIPTS
Future minimum rental receipts due on noncancelable operating leases for the
Portfolio as of December 31, 1997 were as follows:
<TABLE>
<CAPTION>
----------
<S> <C>
1998 $ 566,730
1999 580,248
2000 541,565
<CAPTION>
----------
<S> <C>
$1,688,543
<CAPTION>
==========
</TABLE>
The above amounts do not include additional rental receipts that will become
due as a result of the expense pass-through provisions in the leases. The Port-
folio is subject to the usual business risks associated with the collection of
the above scheduled rents.
F-108
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Owners of the
Kojo Building Property Group:
We have audited the accompanying Statement of Revenue and Certain Expenses of
Kojo Building Property Group (the Property) for the year ended December 31,
1997. The Statement of Revenue and Certain Expenses is the responsibility of
the Property's management. Our responsibility is to express an opinion on the
Statement of Revenue and Certain Expenses based on our audit.
We conducted our audit in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the Statement of Revenue and Certain
Expenses is free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures made in the State-
ment of Revenue and Certain Expenses. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall presentation of the Statement of Revenue and
Certain Expenses. We believe that our audit provides a reasonable basis for our
opinion.
The accompanying Statement of Revenue 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
Cabot Industrial Trust as described in Note 2 and is not intended to be a com-
plete presentation of the Property's revenue and expenses.
In our opinion, the Statement of Revenue and Certain Expenses referred to above
presents fairly, in all material respects, the revenue and certain expenses of
the Property described in Note 2 for the year ended December 31, 1997, in con-
formity with generally accepted accounting principles.
Arthur Andersen LLP
Boston, Massachusetts
June 30, 1998
F-109
<PAGE>
KOJO BUILDING PROPERTY GROUP
STATEMENT OF REVENUE AND CERTAIN EXPENSES
<TABLE>
<CAPTION>
------------
YEAR ENDED
DECEMBER 31,
1997
------------
<S> <C>
REVENUES
Base Rent $937,087
<CAPTION>
------------
<S> <C>
Total Revenues 937,087
<CAPTION>
------------
<S> <C>
EXPENSES
Management Fees 9,290
Professional Services 1,060
<CAPTION>
------------
<S> <C>
Total Expenses 10,350
<CAPTION>
------------
<S> <C>
Revenue in Excess of Certain
Expenses $926,737
<CAPTION>
============
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-110
<PAGE>
KOJO BUILDING PROPERTY GROUP
NOTES TO STATEMENT OF REVENUE AND CERTAIN EXPENSES
DECEMBER 31, 1997
1. BUSINESS
Kojo Building Property Group (the Property) is not a legal entity but rather a
single tenant, 125,000 square foot warehouse building that was owned by a real
estate title holding corporation and purchased by Cabot Industrial Trust on
June 17, 1998.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying Statement of Revenue 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
Cabot Industrial Trust. The statement is representative of a lease in place
which requires that substantially all expenses be paid directly by the tenant.
The statement is not representative of the actual operations of the Property
for the period presented nor indicative of future operations as certain
expenses, primarily depreciation, amortization and interest expenses, which may
not be comparable to the expenses expected to be incurred by Cabot Industrial
Trust in future operations of the Property, have been excluded.
Revenue and Expense Recognition
Revenue is recognized on a straight-line basis over the terms of the related
lease. All expenses, except for management and professional fees, are paid by
the tenant, and therefore are excluded from the accompanying financial state-
ment.
Use of Estimates
The preparation of the Statement of Revenue and Certain Expenses in conformity
with generally accepted accounting principles requires management to make esti-
mates and assumptions that affect the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those estimates.
3. RENTAL REVENUES
The lease is classified as an operating lease.
4. FUTURE MINIMUM RENTAL RECEIPTS
Future minimum rental receipts due on the noncancelable operating lease for the
Property as of December 31, 1997 were as follows:
<TABLE>
<CAPTION>
----------
<S> <C>
1998 $ 952,952
1999 984,220
2000 976,928
2001 1,028,664
2002 1,056,644
Thereafter 741,736
<CAPTION>
----------
<S> <C>
$5,741,144
<CAPTION>
==========
</TABLE>
The above amounts do not include additional rental receipts that may become due
as a result of the escalation provisions in the lease. The Property is subject
to the usual business risks associated with the collection of the above sched-
uled rents.
F-111
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Owners of the
Everest Investments Limited Partnership Property Group:
We have audited the accompanying Combined Statement of Revenue and Certain
Expenses of Everest Investments Limited Partnership Property Group (the Portfo-
lio) for the year ended December 31, 1997. The Combined Statement of Revenue
and Certain Expenses is the responsibility of the Portfolio's management. Our
responsibility is to express an opinion on the Combined Statement of Revenue
and Certain Expenses based on our audit.
We conducted our audit in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the Combined Statement of Revenue and Cer-
tain Expenses is free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures made in the Com-
bined Statement of Revenue and Certain Expenses. An audit also includes
assessing the accounting principles used and significant estimates made by man-
agement, as well as evaluating the overall presentation of the Combined State-
ment of Revenue and Certain Expenses. We believe that our audit provides a rea-
sonable basis for our opinion.
The accompanying Combined Statement of Revenue and Certain Expenses was pre-
pared for the purpose of complying with the rules and regulations of the Secu-
rities and Exchange Commission for inclusion in the registration statement on
Form S-11 of Cabot Industrial Trust as described in Note 2 and is not intended
to be a complete presentation of the Portfolio's revenue and expenses.
In our opinion, the Combined Statement of Revenue and Certain Expenses referred
to above presents fairly, in all material respects, the revenue and certain
expenses of the Portfolio described in Note 2 for the year ended December 31,
1997, in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Boston, Massachusetts
July 10, 1998
F-112
<PAGE>
EVEREST INVESTMENTS LIMITED PARTNERSHIP PROPERTY GROUP
COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES
<TABLE>
<CAPTION>
------------
YEAR ENDED
DECEMBER 31,
1997
------------
<S> <C>
REVENUES
Base Rent $1,807,989
Tenant Reimbursements 746,992
<CAPTION>
------------
<S> <C>
Total Revenues 2,554,981
<CAPTION>
------------
<S> <C>
EXPENSES
Property Operating Costs 167,779
Real Estate Taxes 533,348
Management Fees 92,412
Insurance 4,116
Maintenance and Repairs 14,986
<CAPTION>
------------
<S> <C>
Total Expenses 812,641
<CAPTION>
------------
<S> <C>
Revenue in Excess of Certain
Expenses $1,742,340
<CAPTION>
============
</TABLE>
The accompanying notes are an integral part of this combined financial
statement.
F-113
<PAGE>
EVEREST INVESTMENTS LIMITED PARTNERSHIP PROPERTY GROUP
NOTES TO COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES
DECEMBER 31, 1997
1. BUSINESS
Everest Investments Limited Partnership Property Group (the Portfolio) is not a
legal entity but rather four warehouse buildings that were owned by a real
estate title-holding corporation and purchased by Cabot Industrial Trust on
March 31, 1998. The accompanying financial statement includes all of the direct
costs of the business (as defined in Note 2) of the Portfolio. A summary of the
holdings of the Portfolio is as follows:
<TABLE>
<CAPTION>
---------------------
NUMBER OF
PROPERTY LOCATION TENANTS SQUARE FEET
----------------- --------- -----------
<S> <C> <C>
Quincy Street, Mounds View, MN 2 55,742
Woodale Drive, Mounds View, MN 6 264,586
<CAPTION>
-----------
<S> <C> <C>
320,328
<CAPTION>
===========
</TABLE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying Combined Statement of Revenue and Certain Expenses was pre-
pared for the purpose of complying with the rules and regulations of the Secu-
rities and Exchange Commission for inclusion in the registration statement on
Form S-11 of Cabot Industrial Trust. The statement is not representative of the
actual operations of the Portfolio for the period presented nor indicative of
future operations as certain expenses, primarily depreciation, amortization and
interest expenses, which may not be comparable to the expenses expected to be
incurred by Cabot Industrial Trust in future operations of the Portfolio, have
been excluded.
Revenue and Expense Recognition
Revenue is recognized on a straight-line basis over the terms of the related
leases. Expenses are recognized in the period in which they are incurred.
Use of Estimates
The preparation of the Combined Statement of Revenue and Certain Expenses in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.
3. RENTAL REVENUES
All leases are classified as operating leases.
4. FUTURE MINIMUM RENTAL RECEIPTS
Future minimum rental receipts due on noncancelable operating leases for the
Portfolio as of December 31, 1997 were as follows:
<TABLE>
<CAPTION>
----------
<S> <C>
1998 $1,797,313
1999 1,724,520
2000 1,665,496
2001 1,582,524
2002 890,083
Thereafter 740,088
<CAPTION>
----------
<S> <C>
$8,400,024
<CAPTION>
==========
</TABLE>
The above amounts do not include additional rental receipts that will become
due as a result of the expense pass-through and escalation provisions in the
leases. The Portfolio is subject to the usual business risks associated with
the collection of the above scheduled rents.
F-114
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Owners of the
The Phoenix Group:
We have audited the accompanying combined statement of revenue and certain
expenses of The Phoenix Group (the "Portfolio", as described in Note 1) for the
year ended December 31, 1997. This financial statement is the responsibility of
the management of the Portfolio. Our responsibility is to express an opinion on
this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the combined statement of revenue and cer-
tain expenses is free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the combined
statement of revenue and certain expenses. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audit provides a reasonable basis for our opinion.
As described in Note 2, the accompanying combined statement of revenue and cer-
tain expenses was prepared for the purpose of complying with the rules and reg-
ulations of the Securities and Exchange Commission for inclusion in the regis-
tration statement on Form S-11 of Cabot Industrial Trust and is not intended to
be a complete presentation of the Portfolio's revenue and expenses.
In our opinion, the combined statement of revenue and certain expenses referred
to above presents fairly, in all material respects, the revenue and certain
expenses of the Portfolio for the year ended December 31, 1997, in conformity
with generally accepted accounting principles.
Arthur Andersen LLP
New York, New York
August 12, 1998
F-115
<PAGE>
THE PHOENIX GROUP
COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES
<TABLE>
<CAPTION>
------------
YEAR ENDED
DECEMBER 31,
1997
------------
<S> <C>
REVENUES
Base Rental Income $3,003,209
Tenant Reimbursements 650,486
Other Income 487
<CAPTION>
------------
<S> <C>
Total Revenues 3,654,182
<CAPTION>
------------
<S> <C>
EXPENSES
Property Operating Costs 104,267
Real Estate Taxes 482,833
Management Fees 123,252
Insurance 52,250
Other 15,684
<CAPTION>
------------
<S> <C>
Total Expenses 778,286
<CAPTION>
------------
<S> <C>
Revenue in Excess of Certain
Expenses $2,875,896
<CAPTION>
============
</TABLE>
The accompanying notes are an integral part of this combined financial
statement.
F-116
<PAGE>
THE PHOENIX GROUP
NOTES TO COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES
DECEMBER 31, 1997
1. BUSINESS
The Phoenix Group (the "Portfolio") is not a legal entity but rather a combina-
tion of the seven industrial properties that are currently owned by affiliated
real estate companies. A summary of the holdings within the Portfolio is as
follows:
<TABLE>
<CAPTION>
---------------------
NUMBER OF
PROPERTY LOCATION TENANTS SQUARE FEET
----------------- --------- -----------
<S> <C> <C>
Phoenix, AZ 3 223,740
Phoenix, AZ 2 127,680
Phoenix, AZ 2 161,230
Phoenix, AZ 2 159,450
Phoenix, AZ 2 126,360
Phoenix, AZ 3 126,360
Phoenix, AZ 1 114,871
<CAPTION>
-----------
<S> <C> <C>
Total 1,039,691
<CAPTION>
===========
</TABLE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying combined statement of revenue and certain expenses was pre-
pared for the purpose of complying with the rules and regulations of the Secu-
rities and Exchange Commission for inclusion in the registration statement on
Form S-11 of Cabot Industrial Trust. The statement is not representative of the
actual operations of the Portfolio for the period presented nor indicative of
future operations as certain expenses, primarily depreciation, amortization and
mortgage interest expenses, which may not be comparable to the expenses
expected to be incurred by Cabot Industrial Trust in future operations of the
Portfolio, have been excluded.
Revenue Recognition
Base rental income is recognized on a straight-line basis over the terms of the
related leases. Tenant reimbursements of property operating expenses that are
provided for in leases are recognized as revenue when earned and their amounts
can be reasonably estimated.
Use of Estimates
The preparation of the combined financial statement in conformity with gener-
ally 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.
3. LEASES
The Portfolio is leased to tenants under operating leases that expire at var-
ious dates through the year 2012. As of December 31, 1997, the average occu-
pancy rate of the Portfolio was 100%. For the year ended December 31, 1997 two
tenants in the warehouse and distribution industry accounted for approximately
19% and 11%, respectively, of base rental income.
Future minimum rents to be received from tenants under noncancelable operating
leases in effect as of December 31, 1997 were as follows:
<TABLE>
<CAPTION>
-----------
<S> <C>
1998 $ 2,900,750
1999 2,663,310
2000 1,873,244
2001 1,428,944
2002 1,451,473
Thereafter 7,306,141
<CAPTION>
-----------
<S> <C>
$17,623,862
<CAPTION>
===========
</TABLE>
F-117
<PAGE>
THE PHOENIX GROUP
NOTES TO COMBINED STATEMENT OF REVENUE AND CERTAIN EXPENSES--(CONTINUED)
DECEMBER 31, 1997
The above amounts do not include tenant reimbursements, which are primarily
based upon the tenant's proportionate share reimbursement of real estate taxes
and operating expenses in accordance with their respective leases. The Port-
folio is subject to the usual business risks associated with the collection of
scheduled rents.
4. RELATED PARTY TRANSACTIONS
The Phoenix Group paid property management fees to an affiliate of the owners
of the Portfolio. The fees were based on 3.5% of rent collections received by
each property within the Portfolio, net of sales tax collections. Such fees
amounted to approximately $123,300 in 1997.
The Portfolio's rent receipts are deposited into a centralized receipt account
of an affiliate and the Portfolio's cash payments are disbursed from a central-
ized disbursement account of that affiliate.
F-118
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 31. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth estimates of the expenses that will be incurred
by the Registrant in connection with the issuance and distribution of the
Common Shares being registered.
<TABLE>
<CAPTION>
--------
AMOUNT
--------
<S> <C>
SEC Registration Fee.................................................. $ 6,074
Legal Fees and Expenses............................................... 100,000
Accounting Fees and Expenses.......................................... 200,000
Printing and Engraving Expenses....................................... 75,000
Miscellaneous......................................................... 68,926
<CAPTION>
--------
<S> <C>
Total............................................................... $450,000
<CAPTION>
========
</TABLE>
ITEM 32. SALES TO SPECIAL PARTIES.
See Item 33.
ITEM 33. RECENT SALES OF UNREGISTERED SECURITIES.
Immediately prior to the consummation of the IPO, and as part of the Formation
Transactions, the Contributing Investors described herein were issued an aggre-
gate of 8,961,714 unregistered Common Shares and 22,598,735 Units. In addition,
concurrently with the consummation of the IPO, the Registrant issued 1,000,000
Common Shares to the Concurrent Investor as part of the Concurrent Placement.
In October 1997 the Registrant issued 50 Common Shares to one of the officers
of the Company, for total consideration of $1,000. All of the foregoing sales
were made to "accredited investors" and "QIBs" as defined in Regulation D and
Rule 144A, respectively, under the Securities Act in transactions not involving
a public offering pursuant to Regulation D. See "Formation and Other Transac-
tions."
On April 13, 1998, the Operating Partnership issued 101,149 Units in connection
with the purchase of an industrial property. Such Units are exchangeable for
Common Shares on the same general basis and subject to the limitations
described in this Registration Statement with respect to the Operating Partner-
ship's outstanding Units. The Units were issued without registration pursuant
to Regulation D under the Securities Act in reliance on the exemption from the
Securities Act registration requirements for transactions not involving a
public offering.
ITEM 34. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article 9, Section 1 of the Registrant's Declaration of Trust provides as fol-
lows with respect to the limitation of liability for Trustees and officers and
indemnification:
"To the maximum extent that Maryland law in effect from time to time per-
mits limitation of the liability of trustees and officers of a REIT, no
trustee or officer of the Trust shall be liable to the Trust or to any
shareholder for money damages. Neither the amendment nor the repeal of this
Section 1, nor the adoption or amendment of any other provision of this
Declaration of Trust inconsistent with this Section 1, shall apply to or
affect in any respect the applicability of the preceding sentence with
respect to any act or failure to act which occurred prior to such amend-
ment, repeal or adoption. In the absence of any Maryland statute limiting
the liability of trustees or officers of a Maryland REIT for money damages
in a suit by or on behalf of the Trust or by any shareholder, no trustee or
officer of the Trust shall be liable to the Trust or to any shareholder for
money damages except to the extent that (a) the trustee or officer actually
received an improper benefit or profit in money, property or services, for
the amount of the benefit or profit in money, property or services actually
received or (b) a judgment or other final adjudication adverse to the
trustee or officer is entered in a proceeding based on a finding in the
proceeding that the trustee's or officer's action or failure to act was the
result of active and deliberate dishonesty and was material to the cause of
the action adjudicated in the proceeding."
II-1
<PAGE>
Article 9, Section 3 of the Registrant's Declaration of Trust provides as fol-
lows with respect to the indemnification of Trustees and officers:
"Notwithstanding any other provisions of this Declaration of Trust, the
Trust, for the purpose of providing indemnification for its Trustees and
officers, shall have the authority, without specific shareholder approval,
to enter into insurance or other arrangements to indemnify all Trustees and
officers of the Trust against any and all liabilities and expenses incurred
by them by reason of their being Trustees or officers of the Trust, whether
or not the Trust would otherwise have the power under this Declaration of
Trust or under Maryland law to indemnify such persons against such liabil-
ity. Without limiting the power of the Trust to procure or maintain any
kind of insurance or other arrangement, the Trust may, for the benefit of
persons indemnified by it, (a) create a trust fund, (b) establish any form
of self-insurance, (c) secure its indemnity obligation by grant of any
security interest or other lien on the assets of the Trust, or (d) estab-
lish a letter of credit, guaranty or surety arrangement. Any such insurance
or other arrangement may be procured, maintained or established within the
Trust or with any insurer or other person deemed appropriate by the Board
regardless of whether all or part of the stock or other securities thereof
are owned in whole or in part by the Trust. In the absence of fraud, the
judgment of the Board as to the terms and conditions of insurance or other
arrangement and the identity of the insurer or other person participating
in any arrangement shall be conclusive, and such insurance or other
arrangement shall not be subject to voidability, nor subject the Trustees
approving such insurance or other arrangement to liability on any ground,
regardless of whether Trustees participating and approving such insurance
or other arrangement shall be beneficiaries thereof."
The Registrant has entered into indemnity agreements with each of its officers
and Trustees which provide for reimbursement of all expenses and liabilities of
such officer or Trustee, arising out of any lawsuit or claim against such
officer or Trustee due to the fact that such person was or is serving as an
officer or Trustee, except for such liabilities and expenses (a) the payment of
which is judicially determined to be unlawful, (b) relating to claims under
Section 16(b) of the Securities Exchange Act of 1934 or (c) relating to judi-
cially determined criminal violations.
It is expected that forms of underwriting agreements that may be filed in con-
nection with this Registration Statement will provide for reciprocal indemnifi-
cation by the underwriters, and their respective directors, officers and con-
trolling persons, against certain liabilities under the Securities Act.
ITEM 35. TREATMENT OF PROCEEDS FROM STOCK BEING REGISTERED
Not applicable.
ITEM 36. FINANCIAL STATEMENTS AND EXHIBITS
See Index to Financial Statement and Index to Exhibits.
ITEM 37. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the Secu-
rities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the reg-
istration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering
range may be reflected in the form of prospectus filed with the Commis-
sion pursuant to Rule 424(b) if, in the aggregate, the changes in volume
and price represent no more than 20 percent change in the maximum-aggre-
gate offering price set forth in the "Calculation of Registration Fee"
table in the effective registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement:
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
registration statement is on Form S-3, Form S-8 or Form F-3, and the informa-
tion required to be included in a post-effective amendment by those paragraphs
is contained
II-2
<PAGE>
in periodic reports filed with or furnished to the Commission by the registrant
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment 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.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination
of the offering.
(4) If the registrant is a foreign private issuer, to file a post-effective
amendment to the registration statement to include any financial statements
required by Rule 3-19 of this chapter at the start of any delayed offering
or throughout a continuous offering. Financial statements and information
otherwise required by Section 10(a)(3) of the Act need not be furnished,
provided, that the registrant includes in the prospectus, by means of a
post-effective amendment, financial statements required pursuant to this
paragraph (a)(4) and other information necessary to ensure that all other
information in the prospectus is at least as current as the date of those
financial statements. Notwithstanding the foregoing, with respect to regis-
tration statements on Form F-3, a post-effective amendment need not be
filed to include financial statements and information required by Section
10(a)(3) of the Act or Rule 3-19 of this chapter if such financial state-
ments and information are contained in periodic reports filed with or fur-
nished to the Commission by the registrant pursuant to Section 13 or Sec-
tion 15(d) of the Securities Exchange Act of 1934 that are incorporated by
reference in the Form F-3.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to trustees, officers, and controlling persons of the
Registrant pursuant to the foregoing provisions, 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 trustee, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
trustee, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of appro-
priate jurisdiction the question whether such indemnification is against public
policy as expressed in the Act and will be governed by the final adjudication
of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant cer-
tifies 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 autho-
rized, in the City of Boston, State of Massachusetts, on August 14, 1998.
CABOT INDUSTRIAL TRUST
/s/ Neil E. Waisnor
By: ____________________________________
Name: Neil E. Waisnor
Title: Senior Vice President--
Finance,
Treasurer and Secretary
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of Cabot Industrial Trust, a Maryland
real estate investment trust, and each of the undersigned Trustees and officers
of Cabot Industrial Trust, hereby constitutes and appoints Ferdinand Colloredo-
Mansfeld, Franz Colloredo-Mansfeld, and Neil E. Waisnor its or his true and
lawful attorneys-in-fact and agents, for it or him and in its or his name,
place and stead, in any and all capacities, each with full power to act alone,
to sign any and all amendments to this registration statement, and to file each
such amendment to this registration statement with all exhibits thereto, and
any and all documents in connection therewith, with the Securities and Exchange
Commission, hereby granting unto said attorneys-in-fact and agents, and each of
them, full power and authority to do and perform any and all acts and things
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as it or he might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents, or any of them, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the dates stated.
<TABLE>
<S> <C>
NAME AND SIGNATURE TITLE
DATE
/s/ Ferdinand Colloredo-Mansfeld Chairman of the August 14,
- ----------------------------------- Board, Chief 1998
FERDINAND COLLOREDO-MANSFELD Executive
Officer, Trustee
(Principal
Executive
Officer)
/s/ Robert E. Patterson President, Trustee August 14,
- ----------------------------------- 1998
ROBERT E. PATTERSON
/s/ Franz Colloredo-Mansfeld Chief Financial August 14,
- ----------------------------------- Officer 1998
FRANZ COLLOREDO-MANSFELD (Principal
Financial
Officer)
/s/ Neil E. Waisnor Senior Vice August 14,
- ----------------------------------- President-- 1998
NEIL E. WAISNOR Finance,
Treasurer and
Secretary
(Principal
Accounting
Officer)
</TABLE>
II-4
<PAGE>
NAME AND SIGNATURE TITLE DATE
/s/ Noah T. Herndon Trustee August 11,
- ----------------------------------- 1998
NOAH T. HERNDON
Trustee
- -----------------------------------
CHRISTOPHER C. MILLIKEN
Trustee
- -----------------------------------
MAURICE SEGALL
/s/ W. Nicholas Thorndike Trustee August 14,
- ----------------------------------- 1998
W. NICHOLAS THORNDIKE
/s/ Ronald L. Skates Trustee August 14,
- ----------------------------------- 1998
RONALD L. SKATES
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
------- -------
<C> <S>
3.1 Amended and Restated Declaration of Trust, dated January 26, 1998, of
the Company. Incorporated by reference to Exhibit 3.1 to the
Registrant's Form S-11 Registration Statement (File No. 333-38383; the
"Form S-11").
3.2 Bylaws of the Company, Incorporated by reference to Exhibit 3.2 to the
Registrant's Form S-11.
3.3 Form of Registration Rights and Lock-Up Agreement, dated as of
February 4, 1998, between the Company, the Contributing Investors and
various other persons identified therein (included as Exhibit B to
Exhibit 4.1). Incorporated by reference to Exhibit 3.3 to the
Registrant's Form S-11.
3.4 Second Amended and Restated Agreement of Limited Partnership Agreement
of Cabot Industrial Properties, L.P., dated February 4, 1998.
Incorporated by reference to Exhibit 3.5 to the Registrant's Form S-
11.
4.1 Contribution Agreement relating to the Capitalization of Cabot
Industrial Trust, dated as of October 10, 1997, among the Company, the
Operating Partnership, Cabot Partners and Various Contributors and
Title Holding Entities Identified Therein. Incorporated by reference
to Exhibit 4.1 to the Registrant's Form S-11.
5.1 Opinion of Mayer, Brown & Platt as to the legality of the Common
Shares.
8.1 Opinion of Mayer, Brown & Platt as to certain tax matters.
10.1 Form of Indemnification Agreement between the Company and the
Trustees. Incorporated by reference to Exhibit 10.1 to the
Registrant's Form S-11.
10.2 Form of Indemnification Agreement between the Company and the officers
of the Company.
10.3 Share Purchase Agreement, dated as of December 17, 1997, between the
Company and Morgan Stanley Asset Management Inc., on behalf of certain
of its institutional investors. Incorporated by reference to Exhibit
10.2 to the Registrant's Form S-11.
10.4 Form of Registration Rights and Lock-up Agreement, between the Company
and Morgan Stanley Asset Management Inc., on behalf of certain of its
institutional investors. Incorporated by reference to Exhibit 10.3 to
the Registrant's Form S-11.
10.5 Cabot Industrial Trust Long Term Incentive Plan. Incorporated by
reference to Exhibit 10.4 to the Registrant's Form S-11.
10.6 Form of Employment Agreement between Cabot Industrial Properties, L.P.
and Ferdinand Colloredo-Mansfeld. Incorporated by reference to Exhibit
10.5 to the Registrant's Form S-11.
10.7 Form of Employment Agreement between Cabot Industrial Properties, L.P.
and Robert E. Patterson. Incorporated by reference to Exhibit 10.6 to
the Registrant's Form S-11.
10.8 Form of Employment Agreement between Cabot Industrial Properties, L.P.
and Franz Colloredo-Mansfeld. Incorporated by reference to Exhibit
10.7 to the Registrant's Form S-11.
10.9 Form of Employment Agreement between Cabot Industrial Properties, L.P.
and, respectively, Andrew D. Ebbott, Howard B. Hodgson, Jr., Neil E.
Waisnor and Eugene F. Reilly. Incorporated by reference to Exhibit
10.8 to the Registrant's Form S-11.
10.10 Revolving Credit Agreement between the Operating Partnership and
Morgan Guaranty Trust Company of New York, dated March 27, 1998.
Incorporated by reference to Exhibit 10.9 to the Registrant's Form 10-
K.
10.11 Rights Agreement, dated as of June 11, 1998, between the Company and
BankBoston, N.A., as Rights Agent, including Exhibit A thereto (Form
of Articles Supplementary relating to the Series A Junior
Participating Preferred Shares) and Exhibit B thereto (Form of Right
Certificate) Incorporated by reference to Exhibit 1 to the
Registrant's Current Report on Form 8-K dated June 11, 1998.
21.1 Subsidiaries of the Company.*
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Arthur Andersen LLP
23.3 Consent of KPMG Peat Marwick LLP
23.3.1 Consent of PricewaterhouseCoopers LLP
23.3.2 Consent of PricewaterhouseCoopers LLP
23.4 Consent of Ballard Spahr Andrews & Ingersoll (included in the opinion
filed as Exhibit A to Exhibit 5.1).
23.5 Consent of Mayer, Brown & Platt (included in the opinions filed as
Exhibits 5.1 and 8.1).
24 Power of Attorney (included on the signature page hereto).
</TABLE>
- -------
* To be filed by Amendment
<PAGE>
Exhibit 5.1
[LETTERHEAD OF MAYER, BROWN & PLATT APPEARS HERE]
August 14, 1998
The Board of Trustees
Cabot Industrial Trust
Two Center Plaza, #200
Boston, MA 02108-1906
Re: Registration Statement on Form S-11
Ladies and Gentlemen:
We have acted as counsel to Cabot Industrial Trust, a Maryland real
estate investment trust (the "Company"), in connection with the offer and sale
of up to 1,074,683 common shares of beneficial interest (the "Common Shares") of
the Company, $.01 par value per share, by certain shareholders of the Company as
described in the Registration Statement on Form S-11 (the "Registration
Statement") filed with the Securities and Exchange Commission (the "SEC") under
the Securities Act of 1933, as amended, to which this opinion is an exhibit.
Capitalized terms used herein, unless otherwise defined, shall have the meanings
set forth in the Registration Statement.
As counsel to the Company, we have examined originals or copies
certified to our satisfaction as being true and complete copies of the Company's
Declaration of Trust, the Company's Bylaws, resolutions of the Company's Board
of Trustees and such records, certificates and other documents and such
questions of law, as we have considered necessary or appropriate for the purpose
of this opinion. As to certain facts relevant to our opinion, we have relied
upon certificates of public officials and officers of the Company. In rendering
such opinion, we have assumed the genuineness of all signatures, the
authenticity of all documents submitted to us as originals and the conformity to
authentic original documents of all documents submitted to us as copies.
Based upon and subject to the foregoing, we are of the opinion that the
issuance of the Common Shares has been duly authorized by all necessary
corporate action and that the Common Shares, when sold as contemplated in the
Registration Statement, will be validly issued, fully paid and nonassessable.
<PAGE>
Insofar as the foregoing opinion involves matters governed by Maryland
law, we have relied, with your approval, upon the opinion of the law firm of
Ballard Spahr Andrews & Ingersoll, a copy of which is attached as Exhibit A, and
our opinion is subject to the assumptions, limitations and qualifications set
forth therein.
We consent to the filing of this opinion as an exhibit to the
Registration Statement and to all references to our firm in the Registration
Statement.
Very truly yours,
MAYER, BROWN & PLATT
<PAGE>
EXHIBIT A
[BALLARD SPAHR ANDREWS & INGERSOLL, LLP LETTERHEAD]
FILE NUMBER
868347
August 14, 1998
Cabot Industrial Trust
Two Center Plaza, Suite 200
Boston, Massachusetts 02108
Re: Registration Statement on Form S-11
-----------------------------------
Ladies and Gentlemen:
We have served as Maryland counsel to Cabot Industrial Trust, a
Maryland real estate investment trust (the "Company"), in connection with
certain matters of Maryland law arising out of the registration of up to (i)
1,000,000 common shares (the "MSAM Shares") of beneficial interest, $.01 par
value per share, of the Company (the "Common Shares"), acquired by certain
entities for whom Morgan Stanley Asset Management, Inc. ("MSAM") acted as
advisor, pursuant to a Share Purchase Agreement, dated December 17, 1997, by and
between the Company and MSAM; and (ii) 74,683 Common Shares (the "Exchange
Shares"), which may be issued to a certain holder of up to 74,683 units of
limited partnership interest in Cabot Industrial Properties, L.P., a Delaware
limited partnership, covered by the above-referenced Registration Statement, and
all amendments thereto (the "Registration Statement"), under the Securities Act
of 1933, as amended (the "1933 Act"). Unless otherwise defined herein,
capitalized terms used shall have the meanings assigned to them in the
Registration Statement.
In connection with our representation of the Company, and as a basis
for the opinion hereinafter set forth, we have examined originals, or copies
certified or otherwise identified to our satisfaction, of the following
documents (hereinafter collectively referred to as the "Documents"):
1. The Registration Statement and the related form of prospectus
included therein in the form in which it was transmitted to the Securities and
Exchange Commission (the "Commission") under the 1933 Act;
2. The Declaration of Trust of the Company, certified as of a recent
date by the State Department of Assessments and Taxation of Maryland (the
"SDAT");
3. The Bylaws of the Company, certified as of the date hereof by its
Secretary;
4. Resolutions adopted by the Board of Trustees of the Company, or a
duly authorized committee thereof, relating to the sale, issuance and
registration of the MSAM Shares and the Exchange Shares, certified as of the
date hereof by the Secretary of the Company;
5. The form of certificate evidencing a Common Share, certified as
of the date hereof by the Secretary of the Company;
6. A certificate of the SDAT as to the good standing of the Company,
dated as of a recent date;
7. A certificate executed by Neil E. Waisnor, Secretary of the
Company, dated August 14, 1998;
8. Such other documents and matters as we have deemed necessary or
appropriate to express the opinion set forth in this letter, subject to the
assumptions, limitations and qualifications stated herein.
<PAGE>
In expressing the opinion set forth below, we have assumed, and so far
as is known to us there are no facts inconsistent with, the following:
1. Each individual executing any of the Documents, whether on behalf
of such individual or any other person, is legally competent to do so.
2. Each individual executing any of the Documents on behalf of a
party (other than the Company) is duly authorized to do so.
3. Each of the parties (other than the Company) executing any of the
Documents has duly and validly executed and delivered each of the Documents to
which such party is a signatory, and such party's obligations set forth therein
are legal, valid and binding.
4. Any Documents submitted to us as originals are authentic. Any
Documents submitted to us as certified or photostatic copies conform to the
original documents. All signatures on all such Documents are genuine. All
public records reviewed or relied upon by us or on our behalf are true and
complete. All statements and information contained in the Documents are true
and complete. There has been no oral or written modification of or amendment to
any of the Documents, and there has been no waiver of any provision of any of
the Documents, by action or omission of the parties or otherwise.
The phrase "known to us" is limited to the actual knowledge, without
independent inquiry, of the lawyers at our firm who have performed legal
services in connection with the issuance of this opinion.
Based upon the foregoing, and subject to the assumptions, limitations
and qualifications stated herein, it is our opinion that:
1. The Company is a real estate investment trust duly formed and
existing under and by virtue of the laws of the State of Maryland and is in good
standing with the SDAT.
2. The MSAM Shares have been duly authorized and, when issued, sold
and delivered against payment therefor in the manner described in the
Registration Statement and in accordance with the resolutions of the Board of
Trustees of the Company, or a duly authorized committee thereof, authorizing
their issuance, will be validly issued, fully paid and nonassessable.
3. The Exchange Shares, upon the due execution, countersignature and
delivery of certificates evidencing the Exchange Shares against payment
therefore in the manner contemplated by the Board of Trustees of the Company, or
duly authorized committee thereof, authorizing their issuance, will be (assuming
that upon issuance, the total number of Common Shares issued and outstanding
will not exceed the total number of Common Shares that the Company is then
authorized to issue) duly authorized, validly issued, fully paid and
nonassessable.
The foregoing opinion is limited to the substantive laws of the State
of Maryland and we do not express any opinion herein concerning any other law.
We express no opinion as to compliance with the securities (or "blue sky") laws
or the real estate syndication laws of the State of Maryland.
We assume no obligation to supplement this opinion if any applicable
law changes after the date hereof or if we become aware of any fact that might
change the opinion expressed herein after the date hereof.
This opinion is being furnished to you for submission to the
Commission as an exhibit to the Registration Statement, and, accordingly, may
not be relied upon by, quoted in any manner to, or delivered to any other person
or entity (except Mayer, Brown & Platt, counsel to the Company) without, in each
instance, our prior written consent.
We consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of the name of our firm in the section
entitled "Legal Matters" in the Registration Statement. In giving this consent,
we do not admit that we are within the category of persons whose consent is
required by Section 7 of the 1933 Act.
Very truly yours,
BALLARD SPAHR ANDREWS & INGERSOLL, LLP
<PAGE>
Exhibit 8.1
[LETTERHEAD OF MAYER, BROWN & PLATT APPEARS HERE]
August 14, 1998
Cabot Industrial Trust
Two Center Plaza, Suite 200
Boston, Massachusetts 02108
RE: Partnership Classification; Status as a Real Estate Investment Trust
("REIT"); Information in the Prospectus under "FEDERAL INCOME
TAX CONSEQUENCES"
--------------------------------------------------------------------
Ladies and Gentlemen:
In connection with the Registration Statement on Form S-11 to be filed
with the Securities and Exchange Commission on August 14, 1998 (the
"Registration Statement") relating to possible sales from time to time by
certain shareholders identified therein of up to 1,074,683 Common Shares in
Cabot Industrial Trust, a Maryland real estate investment trust (the "Company"),
you have requested our opinions concerning (i) the treatment of the Operating
Partnership as a partnership for Federal income tax purposes, and not as an
association taxable as a corporation; (ii) the qualification and taxation for
Federal income tax purposes of the Company as a REIT; and (iii) the information
in the Prospectus under the heading "FEDERAL INCOME TAX CONSEQUENCES."
In formulating our opinions, we have reviewed and relied upon (i) the
Operating Partnership Agreement, the Declaration of Trust and Bylaws of the
Company, the Certificate of Incorporation and the Bylaws of the Management
Company (collectively, the "Organizational Documents"), (ii) the Prospectus and
(iii) such other documents and information provided by you, and such applicable
provisions of law as we have considered necessary for purposes of the opinions
expressed herein.
In addition, we have relied upon the Company's certificate (the
"Officer's Certificate"), executed by a duly appointed officer of the Company,
setting forth certain representations relating to the organization and the
actual and the proposed method of operation of the Company, the Operating
Partnership, and the Management Company. For purposes of our opinions, we have
not made an independent investigation of the facts and representations set forth
in the Officer's Certificate or in the Organizational Documents or any of the
information set forth in the Registration Statement. We have, consequently,
relied upon your representations that the information presented in such
documents accurately and completely describes all
<PAGE>
material facts. No facts have come to our attention, however, that would cause
us to question the accuracy or completeness of such facts or documents in any
material respect.
In rendering these opinions, we have assumed (i) the Company, the
Operating Partnership, and the Management Company will each be operated in the
manner described in the applicable Organizational Documents and in the
Prospectus, and that all terms and provisions of such agreements and documents
will be complied with by all parties thereto; and (ii) each partner in the
Operating Partnership has been motivated in acquiring its partnership interest
by its anticipation of economic rewards apart from tax considerations.
The opinions expressed herein are based on the Code, the Treasury
regulations promulgated thereunder, and interpretations of the Code and such
regulations by the courts and the Internal Revenue Service, all as they are in
effect and exist at the date of this letter. It should be noted that statutes,
regulations, judicial decisions, and administrative interpretations are subject
to change at any time and, in some circumstances, with retroactive effect. A
material change that is made after the date hereof in any of the foregoing bases
for our opinions could adversely affect our conclusions. Other than as expressly
stated below, we express no opinion on any issue relating to the Operating
Partnership, the Company or to any investment therein.
Based upon and subject to the foregoing, it is our opinion that:
1. The Operating Partnership will be treated, for Federal income tax
purposes, as a partnership, and not as an association taxable as a corporation.
2. Beginning with the Company's taxable year ending December 31, 1998,
and assuming that the actions contemplated in the Prospectus are completed in a
timely fashion, the Company has been organized in conformity with the
requirements for qualification as a REIT under the Code, and the Company's
actual and proposed method of operation, as described in the Prospectus and as
represented in the Officer's Certificate, will enable it to satisfy the
requirements for qualification as a REIT.
3. The information in the Prospectus under the heading "FEDERAL INCOME
TAX CONSEQUENCES," to the extent that it constitutes matters of law, summaries
of legal matters, or legal conclusions, has been reviewed by us and is correct
in all material respects.
<PAGE>
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of the name of our firm therein.
Very truly yours,
MAYER, BROWN & PLATT
<PAGE>
EXHIBIT 10.2
FORM OF INDEMNIFICATION AGREEMENT
AGREEMENT, made and entered into as of __________, 199_, between Cabot
Industrial Trust, a Maryland real estate investment trust (the "Trust"), and
_________ ("Indemnitee").
WHEREAS, the Trust is a Maryland real estate investment trust;
WHEREAS, at the request of the Trust, Indemnitee has agreed to serve as an
officer of the Trust (an "Officer") and may, therefore, be subjected to claims,
suits or proceedings arising as a result of his service in such capacity;
WHEREAS, Title 8 of the Corporations and Associations Article of the
Annotated Code of Maryland authorizes the Trust to indemnify and advance
expenses to trustees and officers of Maryland real estate investment trusts to
the same extent as is permitted for directors and officers of a Maryland
corporation under Section 2-418 of the Maryland General Corporation Law (the
"MGCL"); and
WHEREAS, as an inducement to Indemnitee to serve as an Officer of the
Trust, the Trust has agreed to indemnify Indemnitee against such expenses and
costs as may be incurred by Indemnitee in connection with any such claims, suits
or proceedings, to the fullest extent permitted by Maryland; and
WHEREAS, the parties by this Agreement desire to set forth their agreement
regarding such indemnification;
NOW, THEREFORE, the parties hereto agree as follows:
1. Acts or Omissions Covered by This Agreement. This Agreement shall cover
-------------------------------------------
any act or omission by Indemnitee after the date of his commencement of service
as an Officer of the Trust, regardless of whether said act or omission occurred
prior to the date of this Agreement, which act or omission (i) occurs or is
alleged to have occurred by reason of his being or having been an Officer, (ii)
occurs or is alleged to have occurred, during or after the time when Indemnitee
served as an Officer or (iii) gives rise to, or is the direct or indirect
subject of a claim in any threatened, pending or completed action, suit or
proceeding at any time or times whether during or after his service as an
Officer.
2. Indemnity.
---------
(a) The Trust shall indemnify the Indemnitee to the fullest extent
permitted by Maryland law (including, without limitation, indemnification
permitted under Section 2-418(g) of the MGCL), in connection with any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (each a "Proceeding"), by reason of
the fact that he is or was an Officer of the Trust or is or was serving at the
request of the Trust as a director, trustee, officer, partner, employee or agent
of another corporation,
<PAGE>
partnership, joint venture, trust or other enterprise and whether or not such
action is by or in the right of the Trust or such other corporation,
partnership, joint venture, trust or other enterprise with respect to which the
Indemnitee serves or has served.
(b) Notwithstanding anything to the contrary in paragraph (a), the Trust
shall indemnify Indemnitee in a Proceeding initiated by Indemnitee only if
Indemnitee acted with the authorization of the Trust in initiating that
Proceeding, except that any Proceeding brought by the Indemnitee to enforce his
rights under this Agreement shall not be subject to this paragraph (b).
(c) Indemnification under this Agreement shall be provided upon
Indemnitee's written request to the Board of Trustees of the Trust (the "Board
of Trustee"), setting forth the grounds and lawfulness of such indemnification.
(d) For purposes of this Agreement, references to "other enterprises" shall
include, without limitation, employee benefit plans; references to "fines" shall
include any excise taxes assessed on a person with respect to an employee
benefit plan; and references to "serving at the request of the Trust" shall
include any service as a trustee, director, officer, employee or agent of any
other partnership, joint venture, trust or corporation which imposes duties on,
or involves services by, Indemnitee which are requested in writing by the
trustees of, or which involve services by, such trustee, director, officer,
employee or agent with respect to, an employee benefit plan, its participants or
beneficiaries.
3. Burden of Proof. Indemnitee shall be presumed to be entitled to
---------------
indemnification for any act or omission covered in Section 1 or 2 of this
Agreement. The burden of proof of establishing that Indemnitee is not entitled
to indemnification or advancement of expenses because of a failure to fulfill a
requirement of Maryland law, the Trust's Declaration of Trust, as the same may
be amended from time to time (the "Declaration of Trust"), or by-laws as in
effect from time to time or this Agreement, shall be on the Trust. In any
Proceeding brought by or on behalf of or in the right of Indemnitee to obtain
benefits provided to Indemnitee by this Agreement, it shall not be a defense to
such proceeding that the Board of Trustees has previously determined that
Indemnitee is not entitled to such benefits hereunder, it being the intention of
the parties hereto that any such determination shall be required to be made de
novo by the court or other trier of fact in such Proceeding.
4. Notice by Indemnitee. Indemnitee shall notify the Secretary of the Trust
--------------------
of any matter with respect to which Indemnitee intends to seek indemnification
hereunder as soon as reasonably practicable following the receipt by Indemnitee
of written threat thereof; provided that failure to so notify the Secretary of
--------
the Trust shall not constitute a waiver by Indemnitee of his rights hereunder,
except to the extent that the Trust is materially prejudiced thereby.
5. Advancement of Expenses. In the event of any Proceeding involving
-----------------------
Indemnitee which may give rise to a right of indemnification from the Trust
pursuant to this Agreement, the Trust shall advance to Indemnitee such amounts
as shall be sufficient to cover expenses
-2-
<PAGE>
(including fees and disbursements of counsel) incurred by Indemnitee in
connection with any Proceeding as incurred and in advance of final disposition
within five business days after receipt by the Trust of (i) an undertaking by or
on behalf of the Indemnitee to repay the amounts advanced in the event that it
ultimately shall be determined in accordance with this Agreement that he is not
entitled to indemnification by the Trust, (ii) a written affirmation by the
Indemnitee of his or her good faith belief that the standard of conduct
necessary for indemnification by the Trust has been met and (iii) satisfactory
evidence as to the amount of such expenses. Indemnitee's written certification,
together with a copy of the statement paid or to be paid by Indemnitee, shall
constitute satisfactory evidence of the amount of such expenses.
6. Defense of Claim. The Indemnitee shall have the absolute right to employ
----------------
his own counsel in respect of any Proceeding; provided, that in the event that
--------
more than one Officer is entitled to indemnification under this Agreement or a
similar agreement arising out of the same Proceeding, all such Officers,
including Indemnitee, shall, to the extent practicable, endeavor to use the same
counsel; and further provided, that, prior to selection by the Indemnitee, the
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counsel selected by the Indemnitee would not be precluded as a matter of
professional ethics from representing the Trust or a person adverse to the
Trust.
7. Non-Exclusivity of Right of Indemnification. The indemnification rights
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granted to Indemnitee under this Agreement shall not be deemed exclusive of, or
in limitation of, any rights to which Indemnitee may be entitled under Maryland
law, the Declaration of Trust, as amended, or by-laws of the Trust, any other
agreement, vote of shareholders or Trustees or otherwise.
8. Termination of Agreement and Survival of Right of Indemnification. The
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rights granted to Indemnitee hereunder shall continue after termination of this
Agreement as provided in Section 1 and shall inure to the benefit of Indemnitee,
his personal representative, heirs, executors, administrators and beneficiaries,
and this Agreement shall be binding upon the Trust, its successors and assigns.
9. Legal Fees and Expenses. The Trust shall pay all legal fees and
-----------------------
expenses which Indemnitee may incur to collect money due under this Agreement or
as a result of the Trust's contesting the validity or enforceability of this
Agreement.
10. Governing Law. This Agreement shall be governed by the laws of the
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State of Maryland.
11. Severability. If any provision of this Agreement is determined to be
------------
invalid or unenforceable, the invalidity or unenforceability shall not affect
the validity or enforceability of any other provision of this Agreement, and
this Agreement shall be interpreted as though the invalid or unenforceable
provision was not a part of this Agreement.
12. Changes in Law. This Agreement is intended to provide to Indemnitee, to
--------------
the fullest lawful extent permitted by Maryland law as in effect from time to
time, indemnification
-3-
<PAGE>
and advancement of expenses in connection with a Proceeding as described in
Sections 2 and 5 hereof; provided, however, that no change in Maryland law shall
have the effect of reducing the benefits available to Indemnitee hereunder based
on Maryland law as in effect on the date hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above stated.
CABOT INDUSTRIAL TRUST
By:
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Name:
---------------------------
Title:
---------------------------
INDEMNITEE
---------------------------------
Name:
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<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
covering the audited historical financial statements of Knickerbocker Proper-
ties, Inc. II, dated July 20, 1998 and The Phoenix Group, dated August 12,
1998, included in this registration statement of Cabot Industrial Trust on Form
S-11.
Arthur Andersen LLP
New York, New York
August 12, 1998
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
covering the audited historical financial statements of Cabot Industrial Trust,
dated March 27, 1998, Cabot Partners Limited Partnership, dated March 27, 1998,
Existing Investors Property Group, dated July 13, 1998, Prudential Properties
Group, dated July 13, 1998, West Coast Industrial, LLC, dated June 30, 1998,
The 4 B's, dated August 3, 1998, Seefried Properties Group, dated June 30,
1998, Prudential Properties Group II, dated June 30, 1998, DFW Trade Center I,
L.P., Buildings 1, 2 and 3, dated June 30, 1998, 1055 Dornoch Court, San Diego,
CA, dated June 30, 1998, Hampden I and II Properties Group, dated June 30,
1998, South Royal Associates Properties Group, dated June 30, 1998, Joseph A.
Leroy Family LP Property, dated June 30, 1998, Raco/Melaver, L.L.C., dated June
30, 1998, TLI/Cahill Partnership--Spiral Drive, dated June 30, 1998,
Terraden/Ontario, I L.P., dated June 30, 1998, Kojo Building Property Group,
dated June 30, 1998, and Everest Investments Limited Partnership Property
Group, dated July 10, 1998, included in this registration statement of Cabot
Industrial Trust on Form S-11.
Arthur Andersen LLP
Boston, Massachusetts
August 13, 1998
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS'
The Board of Trustees of
Cabot Industrial Trust:
We consent to the use of our report included herein dated July 2, 1998,
relating to the combined balance sheets of the Pennsylvania Public School
Employes' Retirement System Industrial Properties Portfolio as of December 31,
1997 and 1996, and the related combined statements of operations, owner's
equity, and cash flows for the years ended December 31, 1997, 1996 and the
period from July 6, 1995 (date of acquisition) to December 31, 1995, and the
related schedule as of December 31, 1997, included herein, and to the reference
to our firm under the heading "Experts" in this registration statement on Form
S-11 of Cabot Industrial Trust.
KPMG Peat Marwick LLP
Chicago, Illinois
August 13, 1998
<PAGE>
EXHIBIT 23.3.1
CONSENT OF INDEPENDENT AUDITORS'
We consent to the inclusion in this registration statement of Cabot Industrial
Trust on Form S-11 of our report dated July 1, 1998 on our audits of the his-
torical cost basis combined financial statements of Orlando Central Park and
500 Memorial Drive as of December 31, 1997 and 1996 and for each of the three
years in the period ended December 31, 1997. We also consent to the reference
to our firm under the caption "Experts."
PricewaterhouseCoopers LLP
New York, New York
August 14, 1998
<PAGE>
EXHIBIT 23.3.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in the registration statement of Cabot Industrial
Trust on Form S-11 of our report dated April 25, 1997, on our audits of the
historical basis financial statements of Knickerbocker Properties, Inc. II as
of December 31, 1996 and 1995, and for the years ended December 31, 1996 and
1995. We also consent to the reference to our firm under the caption "Experts."
PricewaterhouseCoopers LLP
Atlanta, Georgia
August 14, 1998
