<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________________
FORM 10-Q
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1994................
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________ to _______________
COMMISSION FILE NUMBER 1-9016
_____________________________
AMERICAN INDUSTRIAL PROPERTIES REIT
(Exact name of registrant as specified in its charter)
TEXAS 75-6335572
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6220 NORTH BELTLINE ROAD, SUITE 205
IRVING, TEXAS 75063-2656
(Address of principal executive offices) (Zip code)
(214) 550-6053
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No _____
-------
9,075,400 Shares of Beneficial Interest were outstanding as of October
25, 1994.
<PAGE>
AMERICAN INDUSTRIAL PROPERTIES REIT
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1994
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Statements of Operations for the three months and nine months
ended September 30, 1994 and 1993...............................3
Balance Sheets as of September 30, 1994 and December 31, 1993...4
Statements of Cash Flows for the nine months ended
September 30, 1994 and 1993.....................................5
Notes to Financial Statements...................................6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.......................................8
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Securityholders..............10
Item 6. Exhibits and Reports on Form 8-K................................10
SIGNATURES..................................................................11
</TABLE>
2
<PAGE>
AMERICAN INDUSTRIAL PROPERTIES REIT
STATEMENTS OF OPERATIONS
(Unaudited, dollars in thousands except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------- ----------------------------
1994 1993 1994 1993
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES
Rents $2,103 $1,987 $6,177 $5,649
Tenant Reimbursements 683 612 2,036 1,739
Interest Income 108 138 280 414
------------ ------------ ------------ ------------
2,894 2,737 8,493 7,802
------------ ------------ ------------ ------------
REAL ESTATE EXPENSES
Amortization of original issue discount on
Zero Coupon Notes due 1997 404 351 1,155 1,031
Depreciation and amortization 846 746 2,511 2,340
Interest on 8.8% notes payable due 1997 1,024 1,003 2,998 2,977
Interest on mortgages payable 171 231 520 522
Property taxes 370 356 1,099 1,145
Property management fees 105 100 330 313
Utilities 134 129 361 336
Repairs and maintenance 259 304 757 748
Other property operating expenses 80 206 328 470
------------ ------------ ------------ ------------
3,393 3,426 10,059 9,882
Trust administrative expenses:
Trust administration and overhead 407 392 1,805 1,125
Fees paid to Advisor - - - 716
------------ ------------ ------------ ------------
3,800 3,818 11,864 11,723
Loss from real estate operations (906) (1,081) (3,371) (3,921)
Gain (loss) on sales of real estate - 29 - (205)
------------ ------------ ------------ ------------
NET LOSS ($906) ($1,052) ($3,371) ($4,126)
============ ============ ============ ============
PER SHARE DATA
Loss from real estate operations ($0.10) ($0.12) ($0.37) ($0.43)
Gain (loss) on sales of real estate - 0.00 - (0.02)
------------ ------------ ------------ ------------
Net Loss ($0.10) ($0.12) ($0.37) ($0.45)
============ ============ ============ ============
Distributions Paid - $0.04 - $0.12
============ ============ ============ ============
Number of shares outstanding 9,075,400 9,075,400 9,075,400 9,075,400
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
AMERICAN INDUSTRIAL PROPERTIES REIT
BALANCE SHEETS
(Unaudited, dollars in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
ASSETS 1994 1993
------------ ------------
<S> <C> <C>
Real Estate, at cost net of writedowns for permanent impairments in value $104,661 $103,710
Accumulated depreciation (21,602) (19,315)
------------ ------------
Net real estate 83,059 84,395
Cash and Cash Equivalents, unrestricted 1,192 1,119
Other Assets:
Issuance costs of Zero Coupon Notes due 1997, net 108 131
Other assets, net 2,534 2,652
------------ ------------
$86,893 $88,297
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
8.8% Notes payable due 1997 $45,239 $45,239
Zero Coupon Notes payable due 1997 net of unamortized discount
and in-substance partial defeasance in 1993 5,679 4,682
Mortgage notes payable 7,060 7,157
Accrued interest on 8.8% Notes payable 1,382 371
Accounts payable, accrued expenses and other liabilities 1,509 1,503
Tenant security deposits 544 494
------------ ------------
Total Liabilities 61,413 59,446
------------ ------------
Commitments and Contingencies
Shareholders' Equity:
Shares of Beneficial Interest; authorized 10,000,000 Shares;
issued and outstanding 9,075,400 Shares 125,513 125,513
Accumulated distributions (57,729) (57,729)
Accumulated loss from operations and extraordinary gains (losses) (43,466) (40,095)
Accumulated net gain on sales of real estate 1,162 1,162
------------ ------------
Total Shareholders' Equity 25,480 28,851
------------ ------------
$86,893 $88,297
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
AMERICAN INDUSTRIAL PROPERTIES REIT
STATEMENTS OF CASH FLOWS
(Unaudited, dollars in thousands)
<TABLE>
<CAPTION>
For the Nine Months Ended
September 30,
-------------------------------------
1994 1993
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss ($3,371) ($4,126)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Amortization of original issue discount on Zero
Coupon Notes due 1997 1,155 1,031
Depreciation and amortization 2,511 2,340
Decrease (increase) in other assets (83) (117)
Increase in accrued interest on 8.8% Notes Payable 1,011 -
Increase (decrease) in accounts payable, accrued expenses
and other liabilities and tenant security dep 56 (312)
Loss (gain) on sales of real estate - 205
-------------- --------------
Net Cash Provided By (Used In) Operating Activities 1,279 (979)
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net proceeds from sales of real estate - 6,749
Capitalized improvements (951) (1,107)
------------- --------------
Net Cash (Used In) Provided By Investing Activities (951) 5,642
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Partial retirement of mortgages payable - (4,830)
Partial repurchase of Zero Coupon Notes (158) -
Principal repayments on mortgage notes payable (97) -
Distributions to Shareholders - (1,090)
-------------- -------------
Net Cash Used In Financing Activities (255) (5,920)
-------------- --------------
Net Increase (Decrease) in Cash and Cash Equivalents 73 (1,257)
Cash and Cash Equivalents at Beginning of Period 1,119 17,779
-------------- --------------
Cash and Cash Equivalents at End of Period $1,192 $16,522
============== ==============
Cash Paid for Interest $2,507 $2,497
============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
AMERICAN INDUSTRIAL PROPERTIES REIT
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1994
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The accompanying financial statements are presented in accordance with
the requirements of Form 10-Q and consequently do not include all of
the disclosures required by generally accepted accounting principles or
those contained in the Trust's Annual Report on Form 10-K. Accordingly,
these financial statements should be read in conjunction with the
audited financial statements of the Trust for the year ended December
31, 1993, included in the Trust's Annual Report on Form 10-K.
The financial information included herein has been prepared in
accordance with the Trust's customary accounting practices and has not
been audited. In the opinion of management, the information presented
reflects all adjustments necessary for a fair presentation of interim
results. All such adjustments are of a normal and recurring nature.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
Real Estate and Provisions for Possible Losses on Real Estate. The
Trust carries its real estate at the lower of depreciated cost or net
realizable value, as defined. Management defines net realizable value
of assets held for investment as the total of the estimated
undiscounted future cash flows from the property. For assets held for
sale, management defines net realizable value as estimated market
value. Provisions for possible losses are recorded when management
determines that the recorded value of real estate is less than net
realizable value, as defined. Consistent with management's intention,
all real estate at September 30, 1994 is classified as held for
investment. Should unforeseen factors cause all or part of the real
estate to be classified as held for sale, significant adjustments to
reduce the carrying value of such properties could be required.
Property improvements are capitalized while maintenance and repairs are
expensed as incurred. Depreciation of buildings and capital
improvements is computed using the straight-line method over forty
years. Depreciation of tenant improvements is computed using the
straight-line method over ten years. Lease commissions paid are
capitalized and amortized over the term of the related lease.
Income Taxes. The Trust qualifies as a real estate investment trust (a
"REIT") under Federal income tax law as long as it meets certain asset,
income, and ownership tests and it distributes 95% of its taxable
income annually. No provisions for Federal income taxes have been
required or recorded to date.
6
<PAGE>
NOTE 3 - ACQUISITION OF NORTHVIEW DISTRIBUTION CENTER
In December 1993, the Trust purchased the Northview Distribution
Center, a 175,000 square foot multi tenant industrial distribution
property in Dallas, Texas. The results of operations for this property
are reflected in the three and nine month periods ended September 30,
1994.
NOTE 4 - TERMINATION OF ADVISORY AGREEMENT AND REMOVAL OF FINITE-LIFE PROVISION
In April 1993, the Independent Trust Managers gave formal notice of the
Trust's intent to terminate the Advisory Agreement with Trammell Crow
Ventures, Ltd. (the "Advisor"). The Trust converted to self-
administration in June 1993. Pursuant to the terms of the Advisory
Agreement, the Trust paid to the Advisor a one-time termination fee of
$435,000 in the second quarter of 1993. Most of the Trust's properties
are currently managed by affiliates of the former Advisor. This
relationship is not considered to be a related party or party-in-
interest relationship.
In October 1993, the Trust's Shareholders approved amendments to the
Trust's Declaration of Trust and By-Laws which, among other things,
officially changed the name of the Trust to American Industrial
Properties REIT and removed the limited term restriction of the Trust,
thereby making the life of the Trust perpetual.
NOTE 5 - PARTIAL DEFEASANCE OF ZERO COUPON NOTES
In December 1993, the Trust recognized an in-substance partial
defeasance of the Zero Coupon Notes by offsetting approximately $10.2
million in restricted funds held by the Trustee for the Noteholders
against the balance of the Zero Coupon Notes and by recognizing a loss
on the partial defeasance of $2.5 million.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Below is a summary of Funds From Operations ("FFO") for the Trust for the
three months and nine months ended September 30, 1994 and 1993, respectively.
Management believes that the presentation of FFO will enhance the reader's
understanding of the Trust's financial condition because it provides the reader
with an additional measure of the Trust's operating performance which excludes
non-recurring activities (i.e., gains or losses from debt restructuring and
sales of property) as well as certain non-cash items (i.e., depreciation and
amortization) which generally do not immediately impact a real estate concern's
operations. Many real estate investment trusts disclose FFO in order to provide
readers with additional information with which to compare performance. FFO,
however, should not be considered an alternative to net income as an indicator
of the Trust's operating performance or to cash flows from operations as a
measure of liquidity. The determination of FFO is based on the definition
adopted by the National Association of Real Estate Investment Trusts which is
net income (computed in accordance with generally accepted accounting
principles), excluding gains (or losses) from debt restructuring and sales of
property, plus depreciation and amortization (the Trust adds back the
amortization of the original issue discount on its Zero Coupon Notes due 1997),
and after adjustments for unconsolidated partnerships and joint ventures.
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
1994 1993 1994 1993
---- ---- ----- ----
<S> <C> <C> <C> <C>
FUNDS FROM OPERATIONS $344,000 $16,000 (a) $295,000 $(550,000) (a)
PER SHARE $0.04 $0.00 $0.03 $(0.06)
</TABLE>
(a) Funds from operations for the three months and nine months ended
September 30, 1993 does not reflect the operations of the Northview
Distribution Center which was acquired in December 1993. Funds from
operations related to the Northview Distribution Center for the three
months and nine months ended September 30, 1994 were approximately
$104,000 and $341,000, respectively.
Funds from operations for the nine months ended September 30, 1994
increased from the same period in 1993 primarily due to (a) the payment of a
$435,000 termination fee to the former Advisor to the Trust in the second
quarter of 1993, (b) the acquisition of the Northview Distribution Center in
December 1993, and (c) increased occupancy and rental rates in the Trust's
other properties, notwithstanding an offsetting increase in administrative
expenses of the Trust in 1994 related to the proxy contest incurred in
connection with the May 1994 Special Meeting of Shareholders. Funds from
operations will be negatively impacted by the $14,500,000 financing (described
below under Liquidity and Capital Resources) as it will require current monthly
payments of principal and interest while replacing the Trust's outstanding zero
coupon notes which accrete at 12.7% and do not require current monthly payments.
The overall occupancy of the Trust's portfolio on September 30, 1994 was
93%. On a same property basis, overall occupancy increased from 87% at
September 30, 1993 to 92% at September 30, 1994. Net operating income increased
by approximately 9% on a same property basis when comparing the nine months
ended September 30, 1994 to the same period in 1993. This increase resulted
from increased revenues due to higher occupancy and rental rates as well as
decreased operating expenses.
The Trust was managed by an outside Advisor until June 12, 1993, at which
time the Trust became self-administered. The Trust currently employs six full-
time employees to conduct and manage the business affairs of the Trust. The
overall costs to the Trust over time under self-administration related to
managerial, administrative and other services are expected to be lower than fees
previously paid to the Advisor.
8
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The principal sources of funds for the Trust's liquidity requirements are
funds generated from operations of the Trust's real estate assets and
unrestricted cash reserves. The Trust may utilize proceeds from short term
borrowing arrangements, other refinancing transactions (including the financing
transaction with AMRESCO Capital Corporation described below), or sales of
properties (assuming such alternatives are available and can be consummated) to
provide sufficient funds to meet liabilities and commitments relating to the
Trust's operations. The Trust continues to pursue a strategy which is intended
to lower the Trust's cost of capital and enable the Trust to make additional
investments in industrial real estate.
On October 17, 1994, the Trust announced that it had entered into a
financing commitment with AMRESCO Capital Corporation in the amount of
$14,500,000. The financing, which is contingent upon credit underwriting, due
diligence and other customary closing conditions and criteria, has a maturity of
seven years with a 25-year amortization and provides the Trust with the option
of either a fixed or variable rate of interest. The financing will be secured
by a first lien on two of the Trust's properties. The proceeds from this
financing will be used to defease the Trust's outstanding zero coupon notes and
refinance an existing first lien mortgage. The defeasance of the outstanding
zero coupon notes will provide approximately $7,000,000 in net funds to the
Trust upon release of cash reserves currently securing the zero coupon notes.
The net funds received by the Trust will be available for working capital
requirements and general corporate purposes, including acquisition of additional
industrial properties.
In accordance with the terms of the 8.8% Notes payable due 1997, interest
in the amount of approximately $1,990,000 is payable in May and November of each
year. Due to the Trust's liquidity needs arising from tenant finish costs,
leasing commissions and non-recurring administrative expenses, an agreement was
reached with the noteholder to defer payment of one-half of the interest payment
due in May 1994 for three months. The amount deferred was paid on August 30,
1994. Should the financing transaction with AMRESCO Capital Corporation fail to
close, a similar agreement with the noteholder will be required with respect to
the regular interest payment due in November 1994. At this time, there is no
assurance that such an agreement will be granted by the noteholder. Should the
Trust default on the November 1994 payment, the noteholder could declare an
event of default and seek appropriate remedies available to it in its capacity
as an unsecured creditor and under the note agreement. Such an action may
force the Trust to pursue alternative strategies to protect the interests of the
Shareholders, including seeking protection or other remedies afforded a debtor
under applicable law.
In November 1993, the Trust provided a quarterly distribution to
Shareholders of $363,000 ($0.04 per share). In December 1993, the Trust
announced the suspension of quarterly distributions to Shareholders in order to
utilize cash resources for the defeasance of the remaining Zero Coupon Notes
(see below). Even if the remaining Zero Coupon Notes are fully defeased, there
can be no assurance as to when such distributions will be reinstated nor, if
reinstated, at what amount.
The initial capitalization of the Trust included $179,698,000 face amount
of Zero Coupon Notes due November 27, 1997 secured by first or second liens on
all of the Trust's properties. Amortization of the original issue discount on
the Zero Coupon Notes is a non-cash charge against net income of the Trust,
compounding semiannually at 12%. Through September 30, 1994, the Trust has
repurchased a substantial amount of the Zero Coupon Notes. Management believes
that the defeasance of the remaining Zero Coupon Notes, which will occur under
the financing discussed above, is necessary in order to provide growth and
financing alternatives to the Trust.
In acquiring its existing properties, the Trust assumed a total of
$8,075,000 in mortgage debt, of which $7,060,000 remained outstanding as of
September 30, 1994. The debt service on these mortgages amounted to $199,000
for the quarter ended September 30, 1994. Capitalized improvements and leasing
commissions were $1,263,000 for the nine months ended September 30, 1994 as
compared to $1,639,000 for the same period in 1993. This decrease is primarily
related to higher tenant finish costs and leasing commissions at the Trust's
retail property during 1993.
9
<PAGE>
OTHER MATTERS
The Trust has scheduled its Annual Meeting of Shareholders for November 21,
1994. The items to be voted on by the Shareholders are the election of Trust
Managers and the ratification of Ernst & Young as the independent auditors of
the Trust for 1994. The largest shareholder of the Trust, American Holdings,
Inc., is seeking removal of the existing Trust Managers and has proposed its own
candidates for election as Trust Managers. American Holdings, Inc. is currently
soliciting proxies in connection therewith.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS.
The Trust has scheduled its Annual Meeting of Shareholders for November
21, 1994. The items to be voted on by the Shareholders are election of
Trust Managers and ratification of Ernst & Young as the independent
auditors of the Trust for 1994. The largest shareholder of the Trust,
American Holdings, Inc., is seeking removal of the existing Trust
Managers and has proposed its own candidates for election as Trust
Managers. American Holdings, Inc. is currently soliciting proxies in
connection therewith.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
None
(b) Reports on Form 8-K
Item 5. On July 5, 1994, a Form 8-K was filed stating that the
Trust would not proceed with a proposed financing transaction with
Kidder Peabody Mortgage Capital Corporation which had been
previously announced.
10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: October 28, 1994
AMERICAN INDUSTRIAL PROPERTIES REIT
(Registrant)
/s/ MARC A. SIMPSON
-----------------------------------
Marc A. Simpson,
Vice President and Chief Financial Officer
(principal accounting and financial officer)
11
