<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 June 30, 1994.................
OR
/ / 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 August 8,
1994.
<PAGE>
AMERICAN INDUSTRIAL PROPERTIES REIT
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1994
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Statements of Operations for the three months and six months
ended June 30, 1994 and 1993.................................. 3
Balance Sheets as of June 30, 1994 and December 31, 1993...... 4
Statements of Cash Flows for the six months ended
June 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 1. Legal Proceedings............................................ 10
Item 4. Submission of Matters to a Vote of Security Holders.......... 10
Item 6. Exhibits and Reports on Form 8-K............................. 10
SIGNATURES.............................................................. 11
</TABLE>
2
<PAGE>
AMERICAN INDUSTRIAL PROPERTIES REIT
STATEMENT OF OPERATIONS
(Unaudited, dollars in thousands except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- -------------------
1994 1993 1994 1993
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
REVENUES
Rents $2,117 $1,858 $4,074 $3,663
Tenant Reimbursements 670 604 1,353 1,127
Interest Income 89 132 172 276
--------- --------- --------- ---------
2,876 2,594 5,599 5,066
--------- --------- --------- ---------
REAL ESTATE EXPENSES
Amortization of original issue
discount on Zero Coupon Notes
due 1997 376 347 751 680
Depreciation and amortization 846 930 1,665 1,593
Interest on 8.8% notes payable
due 1997 992 993 1,974 1,974
Interest on mortgages payable 171 116 349 291
Property taxes 431 397 729 789
Property management fees 105 102 225 214
Utilities 108 104 227 207
Repairs and maintenance 242 256 498 540
Other property operating
expenses 111 59 248 121
--------- --------- --------- ---------
3,382 3,304 6,666 6,409
Trust administrative expenses:
Trust administration and
overhead 784 554 1,398 838
Fees paid to Advisor _ 534 _ 659
--------- --------- --------- ---------
4,166 4,392 8,064 7,906
Loss from real estate operations (1,290) (1,798) (2,465) (2,840)
Gain (loss) on sales of real
estate _ 4 _ (234)
--------- --------- --------- ---------
NET LOSS ($1,290) ($1,794) ($2,465) ($3,074)
========= ========= ========= =========
PER SHARE DATA
Loss from real estate
operations ($0.14) ($0.20) ($0.27) ($0.31)
Gain (loss) on sales of real
estate _ 0.00 _ (0.03)
--------- --------- --------- ---------
Net Loss ($0.14) ($0.20) ($0.27) ($0.34)
========= ========= ========= =========
Distributions Paid _ $0.04 _ $0.08
========= ========= ========= =========
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>
JUNE 30, DECEMBER 31,
ASSETS 1994 1993
-------- ------------
<S> <C> <C>
Real Estate, at cost net of writedowns for permanent impairments in value $104,579 $103,710
Accumulated depreciation (20,836) (19,315)
-------- --------
Net real estate 83,743 84,395
Cash and Cash Equivalents, unrestricted 1,083 1,119
Other Assets:
Issuance costs of Zero Coupon Notes due 1997, net 116 131
Other assets, net 2,632 2,652
-------- --------
$ 87,574 $ 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 5,274 4,682
Mortgage notes payable 7,088 7,157
Accrued interest on 8.8% Notes payable 1,345 371
Accounts payable, accrued expenses and other liabilities 1,725 1,503
Tenant security deposits 517 494
-------- --------
Total Liabilities 61,188 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) (42,560) (40,095)
Accumulated net gain on sales of real estate 1,162 1,162
-------- --------
Total Shareholders' Equity 26,386 28,851
-------- --------
$ 87,574 $ 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 Six Months Ended
June 30,
------------------------
1994 1993
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss ($2,465) ($3,074)
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 751 680
Depreciation and amortization 1,664 1,593
Decrease (increase) in other assets (108) (221)
Increase in accrued interest on 8.8%
Notes Payable 974 _
Increase (decrease) in accounts payable,
accrued expenses and other liabilities
and tenant security deposits 245 (1,569)
Loss (gain) on sales of real estate _ 234
----------- -----------
Net Cash Provided By (Used In) Operating
Activities 1,061 (2,357)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net proceeds from sales of real estate _ 6,723
Capitalized improvements and leasing
commissions (869) (624)
----------- -----------
Net Cash (Used In) Provided By Investing
Activities (869) 6,099
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Partial retirement of mortgages payable _ (4,802)
Partial repurchase of Zero Coupon Notes (159) _
Principal repayments on mortgage notes payable (69) _
Distributions to Shareholders _ (726)
----------- -----------
Net Cash Used in Financing Activities (228) (5,528)
----------- -----------
Net Decrease in Cash and Cash Equivalents (36) (1,786)
Cash and Cash Equivalents at Beginning of Period 1,119 17,779
----------- -----------
Cash and Cash Equivalents at End of Period $1,083 $15,993
=========== ===========
Cash Paid for Interest $1,349 $2,265
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
AMERICAN INDUSTRIAL PROPERTIES REIT
NOTES TO FINANCIAL STATEMENTS
JUNE 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 June 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 six month periods ended June 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-management 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.
Pursuant to an Annual Meeting of Shareholders 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 six months ended June 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 Six Months Ended
June 30, June 30,
1994 1993 1994 1993
----------- -------------- ---------- -------------
<S> <C> <C> <C> <C>
FUNDS FROM OPERATIONS $(68,000) $(521,000)(a) $(49,000) $(567,000)(a)
PER SHARE $ (0.01) $ (0.06) $ (0.01) $ (0.06)
</TABLE>
(a) Funds from operations for the three months and six months ended
June 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 six months ended June 30, 1994 were approximately $114,000
and $233,000, respectively.
Funds from operations for the three months and six months ended June 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.
Revenues increased by approximately 8% on a same property basis when
comparing the six months ended June 30, 1994 to the same period in 1993 due to
higher occupancy and rental rates. The overall occupancy of the Trust's
portfolio on June 30, 1994 was 92%. On a same property basis, overall
occupancy increased from 87% at June 30, 1993 to 91% at June 30, 1994.
Operating expenses decreased by approximately 3% on a same property basis when
comparing the six months ended June 30, 1994 to the same period in 1993.
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, 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.
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. Based upon current
forecasts, the Trust anticipates that it will have sufficient funds to meet
the deferred payment due in August 1994. The Trust also anticipates that a
similar arrangement with the noteholder will be required with respect to the
regular interest payment due in November 1994. There is no assurance that the
Trust will be able to obtain such agreement from 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 that 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 June 30, 1994, the Trust has
repurchased a substantial amount of the Zero Coupon Notes, decreasing the face
amount of the remaining outstanding Zero Coupon Notes to approximately
$19,253,000. Management believes that the defeasance of the remaining Zero
Coupon Notes is necessary in order to provide growth and financing
alternatives to the Trust. It is anticipated that funds for such a defeasance
will be provided by a refinancing of the Trust's properties.
In acquiring its existing properties, the Trust assumed a total of
$8,075,000 in mortgage debt, of which $7,088,000 remained outstanding as of
June 30, 1994. The debt service on these mortgages amounted to $202,000 for
the quarter ended June 30, 1994.
Capitalized improvements and leasing commissions were $869,000 for the six
months ended June 30, 1994 as compared to $624,000 for the same period in
1993. The higher amount in 1994 is primarily related to continued leasing
activity which has led to higher occupancy rates in the Trust's properties.
OTHER MATTERS
Consistent with its strategy, the Trust solicited shareholder approval at a
Special Meeting of Shareholders on May 10, 1994 to merge the Trust with and
into a Maryland corporation which is a wholly owned subsidiary of the Trust.
Among other things, this merger proposal would have resulted in five
outstanding shares of the Trust being converted into one share of common stock
in the corporation, significant increases in the authorized shares of common
stock, the authorization of preferred stock, and implementation of a staggered
board of directors. The largest shareholder of the Trust solicited proxies in
opposition to this plan. On May 24, 1994, it was announced that insufficient
votes had been cast for approval of the proposal.
9
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Trust is not a party to any pending material legal proceeding.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS.
Pursuant to a Special Meeting of Shareholders held May 10, 1994, a proposal
to merge the Trust with and into a Maryland corporation which is a wholly
owned subsidiary of the Trust was voted on. The certified vote total,
presented at a continuance of the Shareholder Meeting on May 24, 1994, was
as follows: 3,555,423 For, 3,043,781 Against, and 124,711 Abstain. The
proposal, which required approval by two-thirds of all outstanding
shareholders, did not pass.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
None
(b) Reports on Form 8-K
Item 5. On April 7, 1994, a Form 8-K was filed related to an
amendment to the Trust's By-Laws eliminating the requirement for annual
appraisals of the market value of the Trust's real estate investments.
No financial statements were filed in connection therewith.
Item 4. On May 26, 1994, a Form 8-K was filed indicating that the
Trust had hired Ernst & Young as its new independent auditors. There
were no disagreements with the predecessor auditors on any matter of
accounting principles or practices, financial statement disclosure, or
auditing scope or procedure.
Item 5. On May 26, 1994, a Form 8-K was filed regarding an
agreement with the major unsecured lender to the Trust. The agreement
stipulated that approximately one-half of the $1,974,164 semi-annual
interest payment due May 24, 1994 could be deferred until August 26, 1994
and that certain additional interest would accrue if the payment of the
deferred amount was made after June 27, 1994.
Item 5. On June 7, 1994, a Form 8-K was filed relating to an
increase in the number of Trust Managers to four, an amendment to the
Trust's By-Laws clarifying that existing Trust Managers may fill a Trust
Manager vacancy created by an increase in the number of Trust Managers,
and the appointment of Raymond A. Hay as a Trust Manager. These actions
were contingent upon the acceptance by Mr. Hay of his appointment as a
Trust Manager. Mr. Hay accepted his appointment on June 6, 1994.
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: August 12, 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
