AMERICAN INDUSTRIAL PROPERTIES REIT INC, 10-K, 1994-03-31

AMERICAN INDUSTRIAL PROPERTIES REIT INC
10-K, 1994-03-31
REAL ESTATE INVESTMENT TRUSTS

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(Mark One)

<TABLE>
<S> <C>
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1993
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
</TABLE>

COMMISSION FILE NUMBER 1-9016

AMERICAN INDUSTRIAL PROPERTIES REIT
(Exact name of registrant as specified in its charter)

<TABLE>
<S> <C>
TEXAS 75-6335572
(State of organization) (I.R.S. Employer
Identification Number)
6220 NORTH BELTLINE, SUITE 205 75063
IRVING, TEXAS (Zip Code)
(Address of principal executive offices)
</TABLE>

Registrant's telephone number, including area code: (214) 550-6053

Securities registered pursuant to Section 12(b) of the Act:

<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
- -------------------------------------------- --------------------------------------------
<S> <C>
Shares of Beneficial Interest New York Stock Exchange
Par Value $0.10 Per Share
</TABLE>

Securities registered pursuant to Section 12(g) of the Act:

NONE
(Title of class)

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

INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS
FORM 10-K. X

THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-AFFILIATES OF
THE REGISTRANT WAS $19,285,225 AS OF MARCH 25, 1994. THE AGGREGATE MARKET VALUE
HAS BEEN COMPUTED BY REFERENCE TO THE CLOSING PRICE AT WHICH THE STOCK WAS SOLD
ON THE NEW YORK STOCK EXCHANGE ON MARCH 25, 1994.

9,075,400 SHARES OF BENEFICIAL INTEREST WERE OUTSTANDING AS OF MARCH 25,
1994.

DOCUMENTS INCORPORATED BY REFERENCE

NONE

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AMERICAN INDUSTRIAL PROPERTIES REIT
FOR THE YEAR ENDED DECEMBER 31, 1993

TABLE OF CONTENTS
FORM 10-K

PART I.

<TABLE>
<CAPTION>
ITEM PAGE
- ---- ----
<S> <C> <C>
1. Business........................................................................ 1
General......................................................................... 1
Revenue and Losses from Real Estate Operations.................................. 3
Geographic Analysis of Revenue.................................................. 3
Competition and Conflicts of Interest........................................... 3
Employees....................................................................... 4
2. Properties...................................................................... 4
Property Descriptions........................................................... 4
Other Encumbrances on the Properties............................................ 7
3. Legal Proceedings............................................................... 7
4. Submission of Matters to a Vote of Shareholders................................. 7
PART II.
5. Market for Shares and Related Shareholder Matters............................... 7
6. Selected Financial Data......................................................... 8
7. Managements' Discussion and Analysis of Financial Condition and Results of
Operations...................................................................... 8
Results of Operations........................................................... 8
Liquidity and Capital Resources................................................. 10
Other Matters................................................................... 12
Recent Developments............................................................. 13
8. Financial Statements and Supplementary Data..................................... 13
9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure...................................................................... 13
PART III.
10. Trust Managers and Executive Officers of the Trust.............................. 14
11. Executive Compensation.......................................................... 15
12. Security Ownership of Certain Beneficial Owners and Management.................. 16
13. Certain Relationships and Related Transactions.................................. 16
PART IV.
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K................. 17
Index to Exhibits...............................................................
Signatures......................................................................
Index to Financial Statements and Financial Statement Schedules................. F-1
</TABLE>
<PAGE> 3

PART I

ITEM 1. BUSINESS.

GENERAL

American Industrial Properties REIT (the "Trust"), a Texas equity real
estate investment trust, was organized as Trammell Crow Real Estate Investors on
September 26, 1985. On November 27, 1985, the Trust issued 9,062,000 Shares of
Beneficial Interest (the "Shares") and commenced operations. The Trust's
investment objective is to maximize the total return to its Shareholders through
the acquisition, leasing, management and disposition of industrial and retail
properties. The Trust's original Declaration of Trust provided for a maximum
term of 15 years from inception.

The Trust is engaged in a single industry segment -- operation of developed
industrial and retail real estate properties. The Trust leases space in its
properties to a variety of tenants. The industrial properties are leased for
office, office-showroom, storage, distribution, research and development, and
light assembly purposes. The retail property is leased to retail merchandise
establishments, restaurants, and a cinema. No single tenant accounts for more
than 10% of the Trust's consolidated gross revenue. However, Tamarac Square, the
Trust's only retail property, has rental revenues in excess of 10% of the total
revenues of the Trust.

The Trust initially acquired from entities engaged in the commercial real
estate business under the name "Trammell Crow Company" (the "TCC Entities") 19
commercial real estate properties, consisting of 18 industrial properties
located in California, Florida, Maryland, Minnesota, North Carolina, Texas,
Washington and Wisconsin, and one retail mall located in Colorado. Since 1985,
the Trust has sold five of its original real estate assets: two of the
California properties were sold in 1990, the North Carolina property was sold in
two separate transactions in 1992, one of the Houston, Texas properties was sold
in 1992, and one of the Dallas, Texas properties was sold in early 1993. A
property in Dallas, Texas was acquired by the Trust in December 1993. As a
result of these transactions, the Trust currently owns a total of fifteen
properties, consisting of fourteen industrial properties and one retail
property.

From November 1985 through June 1993, the Trust was advised by Trammell
Crow Ventures, Ltd. (the "Advisor"), an affiliate of Trammell Crow Company,
under an advisory agreement that provided for the payment of an annual advisory
fee and reimbursements for certain expenses as well as transaction fees for
asset acquisitions and dispositions. In June 1993, the Trust terminated its
agreement with the Advisor and converted to self-administration. The name of the
Trust was changed to American Industrial Properties REIT and its ticker symbol
on the New York Stock Exchange was changed to "IND" to reflect the Trust's
industrial property focus. In October 1993, the Shareholders of the Trust
approved a proposal to remove the Trust's limited term restriction, thus making
the life of the Trust perpetual.

As part of its initial capitalization, the Trust also issued $179,698,000
in Zero Coupon Notes due 1997. In 1991, the Trust began to repurchase these Zero
Coupon Notes as part of its financial plan. Since that time, the Trust has
utilized the net proceeds from property sales and issuance of unsecured notes to
repurchase a total of $160,207,000 principal amount at stated maturity ("Face
Amount") of the Zero Coupon Notes, as described below.

- In March 1991, the Trust used the net proceeds from property sales and
cash on hand to repurchase an aggregate of $31,297,000 Face Amount of the
Zero Coupon Notes which had an accreted balance of approximately
$14,415,000, net of unamortized original issue discount. Pursuant to the
terms of the Indenture, $24,800,000 Face Amount of the repurchased Zero
Coupon Notes remains pledged to the Indenture trustee for the security of
the remaining Noteholders. The remaining repurchased Zero Coupon Notes
were surrendered to the Indenture trustee for cancellation.

- In connection with the repurchases discussed above, the Trust also
obtained an option to repurchase an additional $21,371,000 Face Amount of
Zero Coupon Notes at a discount rate of 17.75% compounded semiannually,
exercisable in whole or in part prior to December 31, 1992. In May 1991,
the Trust repurchased an additional $3,000,000 Face Amount of Zero Coupon
Notes having an accreted value of $1,407,000 for an aggregate purchase
price of $993,000, pursuant to the option.

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<PAGE> 4

- On February 27, 1992, the Trust repurchased an aggregate of $106,322,000
Face Amount of Zero Coupon Notes for a purchase price of $53,234,000. The
accreted balance of these Zero Coupon Notes was approximately $54,401.000.
The entire purchase price was financed by issuing new unsecured notes
bearing interest at a rate of 8.8% (the "8.8% Notes") to the seller of the
Zero Coupon Notes. Interest on the 8.8% Notes was deferred initially and
is payable semiannually commencing May 1993. The 8.8% Notes, which are
unsecured, can be prepaid at any time prior to maturity without penalty.
An $8,000,000 mandatory principal repayment was required in November 1993,
with the balance due in November 1997. Pursuant to the terms of the
Indenture, approximately $21,629,000 Face Amount of these repurchased Zero
Coupon Notes are also pledged to the Indenture trustee for the security of
the remaining Noteholders. Additionally, in four other separate
transactions during February and April of 1992, the Trust used cash on
hand to repurchase $697,000 Face Amount of Zero Coupon Notes having an
accreted value of $356,000 for an aggregate purchase price of $237,000.

- On December 30, 1992, the Trust exercised its remaining option to
repurchase an additional $18,371,000 Face Amount of Zero Coupon Notes at a
semiannual discount rate of 17.75%. These Zero Coupon Notes, having an
accreted value of $10,341,000, were repurchased for an aggregate purchase
price of $7,968,000. Pursuant to the terms of the Indenture, these Zero
Coupon Notes are also pledged to the Indenture trustee for the security of
the remaining Noteholders. After the 1992 repurchases, the total Face
Amount of the Zero Coupon Notes still outstanding was $20,011,000.

- On December 31, 1992, the Trust used $11,648,000 of the net sales
proceeds from its 1992 sales of real estate to make a principal and
interest payment on the 8.8% Notes. This payment included the $8,000,000
mandatory repayment which was due in November 1993.

- During 1993, the Trust purchased $520,000 Face Amount of Zero Coupon
Notes at approximately their accreted value.

Pursuant to the terms of the Indenture related to the Zero Coupon Notes,
the Trust is required to deposit certain amounts, including funds from sales of
properties, into a Property Acquisition Account administered by the Trustee.
According to the Indenture, amounts in this account could be used to make
additional investments in accordance with the Trust's By-Laws until November 27,
1993. At that date, any amounts remaining in this account were to be used to
defease the holders of the remaining Zero Coupon Notes. The approximate balance
at November 27, 1993 was $13.6 million.

In accordance with a court order directing the Trustee to release certain
funds from the Property Acquisition Account, the Trust purchased the Northview
Distribution Center in Dallas, Texas for total consideration of approximately
$3.4 million on December 10, 1993. On December 15, 1993, the Trust announced its
intent to redirect its cash resources to the ultimate elimination of the
operating restrictions imposed on the Trust by the terms of the Zero Coupon
Notes through a complete defeasance of the outstanding Notes. This would require
the Trust to deposit approximately $16,289,000 with the Trustee. For this
reason, the Trust determined that it was in the best interest of the Trust and
its Shareholders to suspend quarterly distributions (which had been at $.04 per
quarter) until such time as the remaining Notes are fully defeased and
distributions can be supported from the positive cash flow of the Trust, as
measured by its Funds from Operations. In accordance with this policy and with
terms of the Indenture, the balance of funds held by the Trustee (approximately
$10.2 million) will be used to partially defease the remaining Zero Coupon
Notes.

The Trust has historically qualified as a Real Estate Investment Trust
("REIT") for federal income tax purposes and intends to maintain its REIT
qualification in the future. In order to preserve its REIT status, the Trust
must meet certain criteria with respect to assets, income, and shareholder
ownership. In addition, the Trust is required to distribute at least 95% of
taxable income (as defined) to the shareholders.

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<PAGE> 5

the Company after the merger must either (i) pay to the Company an amount equal
to the fraction necessary to round upward to a whole share of Common Stock times
the opening price of the Company's Common Stock on the first trading date after
the consummation of the merger (the "Opening Price") and the fractional share
shall be rounded upward to the nearest whole share of Common Stock or (ii)
permit the Company to purchase the fractional share at a price equal to the
fraction owned times the Opening Price; (c) all rights and obligations of the
Trust will be assumed by the Company; and (d) the executive officers of the
Trust immediately prior to the merger shall become the executive officers of the
Company and Messrs. Bricker and Wolcott will serve as directors of the Company.
Only Shareholders of record on March 4, 1994 are entitled to notice of and to
vote at the Special Meeting. The consummation of the merger is subject to
receipt of the approval of holders of 66 2/3% of the outstanding Shares.

REVENUE AND LOSSES FROM REAL ESTATE OPERATIONS

The breakdown of revenue and loss from real estate operations for the
fiscal years ended December 31, 1993, 1992, and 1991 is as follows ($ in
thousands):

<TABLE>
<CAPTION>
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
Rents and reimbursements from unaffiliated tenants:
Retail........................................... $ 3,182 $ 3,126 $ 3,320
Industrial....................................... 6,944 11,783 12,885
-------- -------- --------
$ 10,126 $ 14,909 $ 16,205
Short-term investment income....................... 515 230 283
-------- -------- --------
Total revenue...................................... 10,641 15,139 16,488
Real estate expenses............................... (13,329) (18,443) (19,555)
Administrative expenses............................ (2,433) (1,321) (1,348)
Provision for possible losses on real estate....... -- (14,094) (9,371)
-------- -------- --------
Loss from real estate operations................... $ (5,121) $(18,719) $(13,786)
-------- -------- --------
-------- -------- --------
</TABLE>

GEOGRAPHIC ANALYSIS OF REVENUE

The geographic breakdown of the Trust's rents and tenant reimbursements for
the fiscal years ended December 31, 1993, 1992, and 1991 is as follows ($ in
thousands):

<TABLE>
<CAPTION>
MARKET 1993 1992 1991
------------------------------------------------------ ------- ------- -------
<S> <C> <C> <C>
Baltimore industrial.................................. $ 597 $ 578 $ 610
Charlotte industrial(*)............................... (10) 2,866 3,205
Dallas industrial..................................... 1,628 2,626 2,831
Denver retail......................................... 3,182 3,126 3,320
Ft. Lauderdale industrial............................. 451 511 703
Houston industrial.................................... 1,391 2,272 2,481
Los Angeles industrial................................ 916 893 910
Milwaukee industrial.................................. 700 787 869
Minneapolis industrial................................ 684 680 727
Seattle industrial.................................... 587 570 549
------- ------- -------
Total rents and tenant reimbursements................. $10,126 $14,909 $16,205
------- ------- -------
------- ------- -------
</TABLE>

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(*) The Charlotte property was sold during the fourth quarter of 1992.

COMPETITION AND CONFLICTS OF INTEREST

The Trust owns industrial properties in Baltimore, Dallas, Ft. Lauderdale,
Houston, Los Angeles, Milwaukee, Minneapolis, and Seattle, and one retail
property in Denver. The principal methods of competition in these markets are
price, location, quality of space, and amenities. In each case, the Trust owns

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a small portion of the total similar space in the market and competes with
owners of other space for tenants. Each of these markets is highly competitive,
and other owners of property may have competitive advantages not enjoyed by the
Trust.

TCC Entities, which provide leasing and management services for most of the
Trust's properties, also own and/or manage space in each market in which the
Trust owns property. The Trust has access to the managerial skills, experience,
and relationships of TCC Entities in the markets where TCC Entities provide such
services. Although the Trust Managers currently believe that this access will
benefit the Trust, TCC Property Managers also have relationships and interests
that may conflict with the interest of, and may have an adverse impact on, the
Trust in certain circumstances. Various steps have been taken in structuring the
Trust to ameliorate the effect of these potential conflicts of interest while at
the same time preserving the Trust's access to the benefits provided by the
relationship with TCC Entities. In general, the steps taken are: (i) a
requirement that all agreements and other transactions in which TCC Entities
have an interest be approved by the Trust Managers, and (ii) a compensation
system tying the incentives of the TCC Property Managers to the performance of
the properties. There can be no assurance, however, that any potential conflict
between the interests of the Trust and any TCC Entity having a relationship with
the Trust will be resolved in favor of the Trust.

EMPLOYEES

The Trust currently employs six people on a full-time basis. Information
regarding executive officers of the Trust is set forth in Item 10 of Part III of
this Form 10-K and is incorporated in this Item 1 by reference.

ITEM 2. PROPERTIES

As of December 31, 1993, the Trust owned fifteen real estate properties
consisting of fourteen industrial developments and one enclosed specialty retail
mall. The Trust sold a total of three properties during December 1992 and
January 1993 and purchased one property in December 1993. Information related to
the properties owned by the Trust as of December 31, 1993, physical occupancy,
leased occupancy, and related mortgage indebtedness is presented below. Physical
occupancy differs from leased occupancy primarily in that leased occupancy
includes space in the property for which leases have been signed, but the lease
term has not yet commenced.

PROPERTY DESCRIPTIONS

Baltimore Industrial

Patapsco Industrial Center

Patapsco Industrial Center is a five-building, two phase industrial
park located in Linthicum Heights, Maryland, a suburb of Baltimore. The
project comprises approximately 95,000 square feet of net rentable space.
As of December 31, 1993, physical occupancy was 86%. As of March 25, 1994,
the property was 87% occupied and 89% leased.

The Trust is the 99.99% general partner of the limited partnership
that currently owns Patapsco Industrial Center. This interest entitles the
Trust to 100% of the income generated by the project, 100% of any
appreciation in the value of the project, and 99.99% of the return of
capital in any sale of the project. The remaining interest in the limited
partnership is a limited partner's interest. The limited partner has no
rights to participate in the management of Patapsco Industrial Center.

Patapsco Industrial Center is subject to a first mortgage with a
principal amount outstanding of $1,429,000 as of December 31, 1993.

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Dallas Industrial

Beltline Business Center

Beltline Business Center consists of three industrial buildings
located in Irving, Texas, a suburb of Dallas, that are 100% finished for
office space and that together comprise approximately 60,000 square feet of
net rentable space. As of December 31, 1993, physical occupancy was 75%. As
of March 25, 1994, the property was 77% occupied and 77% leased.

Gateway 5 and 6

Gateway 5 and 6 consists of two industrial buildings located in
Irving, Texas comprising approximately 79,000 square feet of net rentable
space. As of December 31, 1993, physical occupancy was 79%. As of March 25,
1994, the property was 72% occupied and 89% leased.

Northgate II

Northgate II consists of four industrial buildings located within a
21-building industrial park in Dallas, Texas. The project consists of
approximately 236,000 square feet of net rentable space. As of December 31,
1993, physical occupancy was 94%. As of March 25, 1994, the property was
100% occupied and 100% leased.

Northview Distribution Center

Northview Distribution Center consists of two industrial buildings
located in Dallas, Texas. The project consists of approximately 175,000
square feet of net rentable space. As of December 31, 1993, physical
occupancy was 100%. As of March 25, 1994, the property was 100% occupied
and 100% leased.

Denver Retail

Tamarac Square

Tamarac Square, located in Denver, Colorado, consists of an enclosed
specialty retail mall of approximately 139,000 net rentable square feet
with an adjacent convenience center of approximately 33,000 net rentable
square feet, two free-standing buildings of approximately 8,000 net
rentable square feet each, a separate free-standing building of
approximately 9,000 net rentable square feet and two ground leases
comprising approximately 4.91 acres. During 1993, the Trust completed a $2
million renovation of Tamarac Square. As of December 31, 1993, physical
occupancy was 88%. As of March 25, 1994, the property was 88% occupied and
89% leased.

Tamarac Square is subject to a mortgage with a principal amount
outstanding of $1,213,000 as of December 31, 1993. The mortgage encumbers
only the convenience center.

Ft. Lauderdale Industrial

Quadrant Center

Quadrant Center consists of two industrial buildings situated on
approximately 5.4 acres of land located in Deerfield Beach, a suburb of Ft.
Lauderdale, Florida. The project comprises approximately 73,000 square feet
of net rentable space. As of December 31, 1993, physical occupancy was
100%. As of March 25, 1994, the property was 92% occupied and 92% leased.

Quadrant is subject to a mortgage with a principal amount outstanding
of $1,200,000 as of December 31, 1993.

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Houston Industrial

Plaza Southwest

Plaza Southwest consists of five industrial buildings in Houston,
Texas comprising approximately 149,000 square feet of net rentable space.
As of December 31, 1993, physical occupancy was 91%. As of March 25, 1994,
the property was 83% occupied and 83% leased.

Commerce Park

Commerce Park consists of two industrial buildings in Houston, Texas
comprising approximately 87,000 square feet of net rentable space. As of
December 31, 1993, physical occupancy was 61%. As of March 25, 1994, the
property was 61% occupied and 61% leased.

Westchase Park

Westchase Park consists of two industrial buildings in Houston, Texas
comprising approximately 47,000 square feet of net rentable space. As of
December 31, 1993, physical occupancy was 100%. As of March 25, 1994, the
property was 77% occupied and 100% leased.

Los Angeles Industrial

Huntington Drive Center

Huntington Drive Center consists of a two-story office building and an
industrial building comprising approximately 62,000 square feet of net
rentable space located in Monrovia, California, a suburb of Los Angeles. As
of December 31, 1993, physical occupancy was 83%. As of March 25, 1994, the
property was 94% occupied and 94% leased.

Milwaukee Industrial

Northwest Business Park

Northwest Business Park consists of three industrial buildings
comprising approximately 143,000 square feet of net rentable space located
in Menomonee Falls, Wisconsin, a suburb of Milwaukee. As of December 31,
1993, physical occupancy was 98%. As of March 25, 1994, the property was
98% occupied and 98% leased.

Phase I of Northwest Business Park is subject to a first mortgage with
a principal amount outstanding of $1,342,000 as of December 31, 1993.

Minneapolis Industrial

Burnsville

Burnsville consists of one industrial building comprising
approximately 46,000 square feet of net rentable space in a three-building
industrial and office park located in Burnsville, Minnesota, a suburb of
Minneapolis. As of December 31, 1993, physical occupancy was 68%. As of
March 25, 1994, the property was 86% occupied and 86% leased.

Burnsville is subject to a first mortgage with a principal amount
outstanding of $1,973,000 as of December 31, 1993. This mortgage is
recourse to the Trust. The mortgage matured in 1992, and the Trust
exercised its option to renew the mortgage for three additional years by
making certain payments to the lender and fulfilling certain other
conditions.

Cahill

Cahill consists of one industrial building comprising approximately
60,000 square feet of net rentable space located in Edina, Minnesota, a
suburb of Minneapolis. As of December 31, 1993, physical occupancy was
100%. As of March 25, 1994, the property was 100% occupied and 100% leased.

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<PAGE> 9

Seattle Industrial

Springbrook Business Park

Springbrook Business Park consists of one industrial building located
in Kent, Washington, a suburb of Seattle, comprising approximately 81,000
square feet of net rentable space. As of December 31, 1993, physical
occupancy was 85%. As of March 25, 1994, the property was 91% occupied and
91% leased.

OTHER ENCUMBRANCES ON THE PROPERTIES

Each of the properties is subject to a mortgage securing the Zero Coupon
Notes (a "Mortgage"), as required by the Indenture. In the case of Tamarac
Square, Burnsville, Northwest Business Park, and Quadrant Center, the Mortgage
is a second lien. In the case of Patapsco Industrial Center, the Mortgage is a
lien on the Trust's partnership interest. For all other properties, the Mortgage
is a first lien.

ITEM 3. LEGAL PROCEEDINGS.

The Trust is not a party to, nor is any of its property the subject of, any
material pending legal proceedings.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS.

No matters were submitted to a vote of the Shareholders of the Trust,
through the solicitation of proxies or otherwise, in the fourth quarter of the
fiscal year ended December 31, 1993.

PART II

ITEM 5. MARKET FOR SHARES AND RELATED SHAREHOLDER MATTERS

The Trust's Shares are listed and traded on the New York Stock Exchange
(the "NYSE") under the symbol IND. The following table sets forth for the
periods indicated the high and low per Share closing sale price of the Trust's
Shares, and the cash distributions declared per Share:

<TABLE>
<CAPTION>
QUARTER ENDED HIGH LOW DISTRIBUTIONS
---------------------------------------------------------- ---- --- -------------
<S> <C> <C> <C>
December 31, 1993......................................... 3 1/4 2 .04
September 30, 1993........................................ 2 3/8 1 7/8 .04
June 30, 1993............................................. 2 1/2 2 .04
March 31, 1993............................................ 3 1 3/4 .04
December 31, 1992......................................... 2 1 1/2 .04
September 30, 1992........................................ 2 1/8 1 3/4 .04
June 30, 1992............................................. 2 1/4 1 7/8 .04
March 31, 1992............................................ 2 5/8 1 3/4 .08
</TABLE>

As of March 25, 1994, the closing sale price per Share on the New York
Stock Exchange was $2.125. On such date, there were 9,075,400 outstanding Shares
held by approximately 2,308 Shareholders of record.

In December 1993, the Trust announced a suspension of quarterly
distributions to Shareholders pending the completion of certain refinancing
transactions (see Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.)

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<PAGE> 10

ITEM 6. SELECTED FINANCIAL DATA

The following table sets forth historical financial information for the
Trust and should be read in conjunction with the Financial Statements of the
Trust and the Notes thereto.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
1993(A) 1992(B) 1991(C) 1990 1989
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
($ IN THOUSANDS EXCEPT PER SHARE DATA)
OPERATING DATA:
Revenues............................................. $ 10,641 $ 15,139 $ 16,488 $ 17,744 $ 17,824
Loss from real estate operations(d).................. (5,121) (18,719) (13,786) (4,484) (2,708)
Net loss(d).......................................... (7,867) (17,593) (9,162) (2,626) (2,708)
BALANCE SHEET DATA:
Total assets......................................... $ 88,297 $110,446 $147,877 $169,465 $173,143
Total long-term debt, net of unamortized discount.... 57,078 68,578 87,141 94,666 90,343
Shareholders' equity................................. 28,851 38,171 57,579 70,507 79,486
OTHER DATA:
Funds from (used by) Operations(e)................... $ (590) $ 2,852 $ 8,308 $ 9,032 $ 9,522
PER SHARE DATA:
Loss from real estate operations..................... $ (0.57) $ (2.06) $ (1.52) $ (0.49) $ (0.30)
Net loss............................................. (0.87) (1.94) (1.01) (0.29) (0.30)
Book value........................................... 3.18 4.21 6.34 7.77 8.76
Distributions paid................................... 0.16 0.20 0.42 0.70 0.98
Number of shares outstanding........................... 9,075,400 9,075,400 9,075,400 9,075,400 9,075,400
</TABLE>

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(a) The Trust sold one of its properties in the first quarter of 1993, thus
operating with only 14 properties until the acquisition of the Northview
Distribution Center in December 1993.
(b) The Trust sold two of its properties in the fourth quarter of 1992, thus
operating with only 15 properties for the remainder of the year.
(c) On December 30, 1990, the Trust sold two of its 19 original properties, thus
operating with only 17 properties during 1991.
(d) Loss from real estate operations and net loss for 1992 and 1991 include
provisions for possible losses on real estate of $14,094,000 and $9,371,000,
respectively.
(e) Funds from (used by) Operations is computed 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, and after adjustments for
unconsolidated partnerships and joint ventures. Funds from (used by)
Operations should not be considered by the reader as 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 1991-1992 changes in the
Trust's debt structure from primarily zero coupon debt to current pay debt
negatively impacts Funds from (used by) Operations as the amortization of
the zero coupon debt has been previously added back to net income in
computing Funds from (used by) Operations, whereas the current pay interest
incurred on the notes replacing the zero coupon debt is not added back. The
two properties sold during the fourth quarter of 1992 contributed a total of
$2,111,000 to the Trust's 1992 Funds from Operations. The property sold in
January of 1993 contributed a total of $815,000 to the Trust's 1992 Funds
from Operations.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

RESULTS OF OPERATIONS

Below is a summary of net income and funds from operations for the Trust
for the years ended December 31, 1993, 1992 and 1991. Management believes that
the presentation of Funds from Operations 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
nonrecurring 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). Funds from Operations is disclosed for the purpose of providing
readers with additional information with which to compare performance. Funds
from Operations, however, should not be considered

8
<PAGE> 11

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 Funds from Operations 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 ("Funds from
Operations").

<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
------------
1993 1992 1991
------- ------------ -------
(AMOUNTS IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C> <C>
Net Loss........................................... $(7,867) $(17,593) $(9,162)
Net Loss Per Share................................. $ (.87) $ (1.94) $ (1.01)
Funds From Operations.............................. $ (590) $ 2,852 $ 8,308
</TABLE>

Comparison of 1993 to 1992

The net loss in 1993 declined to $7,867,000 from $17,593,000 in 1992 due in
part to provisions for possible losses on real estate recognized in 1992 in the
amount of $14,094,000. The benefit from the absence of these provisions in 1993
was partially offset by the extraordinary loss recognized by the Trust in 1993
in the amount of $2,530,000 as a result of a partial in-substance defeasance of
the Trust's Zero Coupon Notes (see discussion under Liquidity and Capital
Resources). In addition, the Trust recognized extraordinary gains in 1992 in the
amount of $1,910,000 related to the repurchase of Zero Coupon Notes which caused
a favorable impact to 1992 net loss when compared to 1993. The remaining
variance in net loss between 1993 and 1992 of approximately $2.5 million
(greater loss in 1993 than 1992 after considering the previous items) can be
attributed to the sales of the Woodland Industrial Park in Charlotte, North
Carolina and the Southland industrial property in Houston, Texas, at the end of
1992, and the sale of the Royal Lane Business Park in Dallas, Texas in January,
1993, as well as the incremental administrative costs attributable to the
termination fee paid to the Advisor in the amount of $435,000 as further
discussed below and the proxy solicitation effort to remove the finite life
restriction of the Trust in the amount of approximately $250,000. On a same
property basis, rental revenues remained flat during the year, although in the
third and fourth quarter, the Trust began to see some strengthening in the
leasing markets in most of the areas in which the Trust operates in terms of
both traffic and rental rates (other than in Southern California). Same property
occupancy improved to 89% at December 31, 1993 from 88% at December 31, 1992.

The Trust terminated its Advisory Agreement with the Advisor effective June
12, 1993. In accordance with the terms of the Advisory Agreement, a one-time
termination fee of $435,000 was paid to the Advisor on June 12, 1993. The Trust
is now self-administered and employs six full-time employees to conduct and
administer 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 under the Advisory Agreement. For example,
under self-administration, the Trust will be able to provide, through its
management group, certain services, including restructuring activities and
certain transaction services, without the need to pay the fees previously
provided for in the Advisory Agreement.

Comparison of 1992 to 1991

The Trust had a net loss of $17,593,000 in 1992 compared to a net loss of
$9,162,000 in 1991. The 1992 net loss included provisions for possible losses in
value of real estate of $14,094,000, an extraordinary gain from partial
repurchases of Zero Coupon Notes of $1,910,000 and a net loss on sales of real
estate of $784,000. Excluding the 1992 and 1991 provisions for possible losses,
the extraordinary gains, and the gain or loss on sales of real estate, the net
loss would have been $4,625,000 and $4,415,000 in 1992 and 1991, respectively.
Net loss before extraordinary gain and gain or loss on sales of real estate was
$18,719,000 in 1992 and $13,786,000 in 1991.

9
<PAGE> 12

In 1992 and 1991, the Trust recorded provisions for possible losses on real
estate of $14,094,000 and $9,371,000, respectively, to reflect the Trust's
assets at the lower of depreciated cost or net realizable value, as defined by
the Trust's accounting policies. Declines in estimated market values were
primarily attributable to declines in rents from several of the Trust's
properties. The decline in rents was attributed to general economic conditions
affecting markets in which the properties owned by the Trust are located. It is
management's belief that such rents have stabilized and that continuing declines
in the near future are unlikely.

Total revenue decreased to $15,139,000 in 1992 from $16,488,000 in 1991.
Average occupancy levels were the same in both years, at 89%; however, the sales
of the Southland and Woodland properties negatively impacted revenue and
earnings. Total real estate expenses, excluding $14,094,000 and $9,371,000 of
provisions for possible losses on real estate, in 1992 and 1991, respectively,
decreased to $19,764,000 in 1992 from $20,903,000 in 1991 primarily as a result
of the sales of the Southland and Woodland properties.

LIQUIDITY AND CAPITAL RESOURCES

The principal source of funds for the Trust's liquidity requirements is
funds generated from operations of the Trust's real estate assets and
unrestricted cash reserves. As of December 31, 1993, the Trust had $1,119,000 in
unrestricted cash on hand. The Trust presently anticipates that cash on hand and
Funds from Operations will provide sufficient funds for all known liabilities
and commitments relating to the Trust's operations during 1994. However, certain
discretionary uses of the Trust's cash, including: (i) the costs of the Trust's
reorganization into a Maryland corporation via merger (estimated at
approximately $400,000, see below); (ii) the loss of the income producing
ability of the $10.2 million expected to be used to defease Zero Coupon Notes
(see discussion below); and (iii) certain capitalized leasing costs (such as
leasing commissions and tenant improvements), will likely require that the Trust
seek alternative sources of financing in 1994.

Management is currently negotiating with lenders in an effort to obtain
debt to refinance the first and second mortgage liens presently encumbering the
Trust's Properties and incremental financing to pursue additional property
acquisitions. Presently, no firm commitments to provide additional capital have
been obtained from these lenders. If successful, management intends to use the
cash to fund current operations and pursue potential debt or equity capital.
Presently, the Trust must seek a waiver from the lender under its 8.8% Notes
Payable in order to borrow funds in excess of those necessary to retire the
principal amount of outstanding secured debt. There can be no assurance that
management will be able to obtain such debt financing and if successful, that
the lender on the 8.8% Notes Payable would consent to the borrowing of funds in
excess of the amount necessary to retire the principal amount of outstanding
secured debt.

The retirement of all secured debt (inclusive of the Zero Coupon Notes due
1997) would make available to the Trust a portion of the cash presently held in
the Defeasance Account by the Indenture Trustee, estimated to be at least $6
million, without requiring the consent of the lender on the 8.8% Notes Payable.
Management may seek the 8.8% Notes Payable lender's consent in order to borrow
additional funds with which to acquire property. There can be no assurance that
the lender would grant such consent.

Based on its current liquidity position, the Trust currently intends to
make the semi-annual interest payment due in May 1994 to the lender on the 8.8%
Notes Payable. In the event the Trust is forced to default on the unsecured debt
obligation, the Trust expects to continue to operate and will continue to seek
to: (a) restructure the terms of the unsecured debt obligation; (b) generate
sufficient funds from operations in order to bring the Trust current on the
unsecured debt obligation; or (c) obtain financing to fund the deficiency in the
debt service on the unsecured obligation. In the event of a default, the lender
on the 8.8% Notes Payable may declare the entire balance of the 8.8% Notes due
and payable and could seek a judgment against the Trust to enforce such a claim.

Distributions made and declared during 1993 in the amount of $1,453,000
($.16 per share), have been paid out of cash reserves of the Trust. In December,
1993, the Trust Managers announced the suspension of the Trust's quarterly
dividend in order to redirect the Trust's resources to the ultimate defeasance
of the Trust's Zero Coupon Notes due in 1997 (see discussion below).

10
<PAGE> 13

The initial capitalization of the Trust included $179,698,000 face amount
of Zero Coupon Notes due November 27, 1997 secured by first liens on all of the
Trust's initial investments. 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% (see the Notes to Financial Statements for
additional detail concerning the Zero Coupon Notes). During 1991 and 1992, the
Trust repurchased a substantial amount of the Zero Coupon Notes, decreasing the
remaining face amount outstanding to a total of $20,011,000. Subsequent to
September 30, 1993, the Trust Managers authorized management to utilize the
Trust's available cash reserves to provide liquidity for the repurchase of
outstanding Zero Coupon Notes at their accreted value from Noteholders desiring
to sell their Notes and unable to find a market for them. In 1993, the Trust
acquired $520,000 face amount of the Zero Coupon Notes at their accreted value.
No other purchases of significance are planned at this time, however, should the
Trust identify an opportunity to purchase significant amounts of the Zero Coupon
Notes at a discount to their defeasance amount (the amount that would be
required to Defease the Notes under the Indenture), additional purchases may be
made out of cash reserves of the Trust.

Pursuant to the terms of the Indenture covering the Trust's Zero Coupon
Notes due 1997, prior to November 27, 1993 (the "Defeasance Commencement Date"),
the Trust was required to deposit the net proceeds of any property sale or
refinancing into a Property Acquisition Account administered by the Trustee to
the extent deemed necessary or appropriate by the Trust Managers to secure the
interests of the Noteholders. Prior to the Defeasance Commencement Date, funds
in the Property Acquisition Account could be used to make additional investments
as allowed under the Trust's By-Laws. After the Defeasance Commencement Date,
any remaining funds in the Property Acquisition Account must be used to defease
the holders of the remaining Zero Coupon Notes. Subsequent to September 30,
1993, the Trust reinvested all of the funds held in the Property Acquisition
Account (approximately $13.6 million) into short-term commercial paper and
Treasury Notes which are pledged as additional collateral to the Noteholders. Of
these invested funds, which matured in February 1994, approximately $10.2
million will be used to partially defease the Zero Coupon Notes. The result of a
partial defeasance of the Zero Coupon Notes would be a reduction in the accreted
value of the Zero Coupon debt on the Trust's balance sheet from approximately
$13.0 million to approximately $4.7 million, with a loss of approximately $2.5
million being recognized by the Trust. As previously discussed above, it is the
Trust's intent to seek additional debt or equity capital to defease the
remaining Zero Coupon Notes (approximately $6,100,000) in 1994. There can be no
assurance, however, that the Trust will be able to raise such debt or equity
capital and, if so, on what terms.

On December 10, 1993, pursuant to a court order directing the Indenture
Trustee to release certain of these funds, the Trust acquired a 175,000 square
foot multi-tenant distribution center in Dallas for a purchase price of
approximately $3,400,000. Consistent with all of the properties owned by the
Trust, the acquired property is pledged under a first mortgage lien and Deed of
Trust to the Noteholders. Management believes the acquisition will further
enhance Funds from Operations of the Trust in fiscal 1994. The property is 100%
occupied and expected 1994 rental revenues are approximately $450,000.

In acquiring its existing Properties, the Trust assumed a total of
$8,075,000 in mortgage debt, of which $7,157,000 remained outstanding as of
December 31, 1993. The debt service on the Trust's mortgages amounts to
approximately $800,000 annually (see the Notes to Financial Statements for
additional detail concerning the terms of the mortgage notes payable).

In accordance with the terms of the Trust's 8.8% Notes payable due 1997,
the Trust paid its first installment of accrued interest on the 8.8% Notes on
May 27, 1993 in the amount of $1,974,000 (see the Notes to Financial Statements
for additional discussion regarding the terms of the 8.8% Notes). Accrued
interest in the amount of approximately $1,990,000 will be payable each May and
November until these 8.8% Notes become due in November 1997.

Tenant and capital improvements were $1,414,000 for the year ended December
31, 1993 as compared to $3,379,000 for the same period of 1992. The improvements
during 1992 primarily related to renovations under way at the Trust's Tamarac
Square retail property in Denver, Colorado. Current year capital expenditures
relate primarily to leasing activity, including tenant improvements and lease
commissions arising from the new lease with The GAP at Tamarac Square. The
nature of the Trust's operating Properties, which generally

11
<PAGE> 14

provide for leases with a term of between three and seven years, results in an
approximate turnover rate of 20% of the Trust's tenants annually (generally
representing a similar proportion of the Trust's rental revenues). This requires
capital outlays for re-leasing related to tenant improvements and leasing
commissions in an amount of approximately $1.3 million annually in order to
maintain the Trust's occupancy at or above historical levels. These costs have
historically been funded out of the Trust's operating cash flow, however, should
cash generated from operations be insufficient to provide the funds necessary to
lease and re-lease the Trust's Properties in 1994, the Trust may seek to obtain
financing for a portion of these costs. The Trust has made no commitments for
additional capital expenditures beyond those related to normal leasing and re-
leasing activity. No capital improvements or renovations of significance are
anticipated in the near future for any of the Trust's Properties.

Management believes that the Trust's successful conversion from a
finite-life entity required to liquidate in 1997 to a perpetual-life entity
(which was announced after the Trust received in excess of the required 80%
positive vote of all Shareholders on October 22, 1993) should enhance the
Trust's ability to take advantage of the capital and investment markets
available to real estate investment trusts. Management intends to pursue a
strategy which should lower the Trust's cost of capital and enable the Trust to
make additional investments in industrial real estate. This can be accomplished
through raising additional equity and/or obtaining financing from various
sources, including the public or private markets. At this time, however,
management has obtained no commitments for funding or underwriting additional
equity or debt financing and there can be no assurances that these sources of
capital will become available in the future. Management believes that the
reorganization of the Trust into a Maryland corporation is a necessary step
towards a future financial restructuring because it removes existing barriers of
the Trust's organization to obtaining additional capital by increasing the
authorized shares and allowing for different classes of equity capital, among
other things. Concurrent with this reorganization, management will continue to
pursue capital raising opportunities. However, there can be no assurances that
such equity capital or debt financing will be available to the Company upon its
reorganization into a Maryland corporation or if available, whether the terms of
such equity capital or debt financing will be acceptable.

On January 12, 1994, the Trust incorporated American Industrial Properties
REIT, Inc. (the "Company"), a Maryland corporation as its wholly owned
subsidiary. The Trust intends to seek the approval of the required 66 2/3% of
its Shareholders to merge with and into the Company (the "Merger"). Management
has estimated the cost of completing the Merger at approximately $400,000.

The Trust Managers have determined that it is in the best interest of the
Trust and its Shareholders to suspend quarterly distributions to Shareholders
until such time as the remaining Zero Coupon Notes are fully defeased and
distributions can be supported from the available Funds from Operations of the
Trust.

OTHER MATTERS

On January 8, 1993, the Trust sold its Royal Lane Business Park in Dallas,
Texas. The sales price was $7,500,000, and the net proceeds of approximately
$1,800,000, after reduction for the existing first mortgage loan and the related
sales costs, were deposited into the Property Acquisition Account under the
terms of the Zero Coupon Note Indenture. In 1992, Royal Lane contributed
approximately $200,000 to the net cash flow of the Trust.

As discussed above, the Trust has suspended quarterly distributions to
Shareholders until such time as the remaining Notes are fully defeased and
distributions can be supported from the available Funds from Operations of the
Trust. In the event that the Trust does not refinance its existing debt or raise
additional equity capital, it is unlikely that the Trust will make any
distributions to Shareholders during 1994. Distributions to Shareholders are
charges against Shareholders' equity, and therefore, Shareholders' equity will
continue to decrease due to distributions made and net losses incurred by the
Trust. Distributions in excess of taxable net income, or to the extent of net
loss, constitute a return of capital to Shareholders. For federal income tax
purposes, the taxable portion of distributions is determined on a calendar year
basis, and is computed based on actual distributions for the year. It is
presently estimated that the entire amount of the distributions paid by the
Trust in 1993 will constitute a return of capital.

12
<PAGE> 15

Management has been notified of the possible existence of underground
contamination at Tamarac Square, the Trust's Denver retail Property. The source
of the possible contamination is apparently related to petroleum underground
storage tanks located on an adjacent property. This adjacent property was placed
on Colorado's list of leaking underground storage tanks. A second potential
source of contamination is a nearby tract on which a service station was
formerly operated. The owner of the adjacent property is currently conducting
studies under the direction of the Colorado Department of Health in an attempt
to define the contamination and institute an appropriate plan to address the
situation. At this time, management does not anticipate any exposure to the
Trust relative to this issue.

RECENT DEVELOPMENTS

Effective February 7, 1994, the Board of Directors of the Company
authorized, contingent upon approval of the Merger, the issuance of rights
("Rights") to each Stockholder following the Merger. As currently contemplated,
each Stockholder will be entitled to receive one Right for each share of Common
Stock owned on a record date to be determined by the Board of Directors. The
Rights, if issued, will entitle the Stockholders to purchase additional shares
of Common Stock at a price below the then-current market price, such price to be
set by the Board of Directors at the time of issuance. Such Rights would be
exercisable for a fixed period of time that has yet to be determined. Although
the Board of Directors has authorized the issuance of the Rights, the Board of
Directors may, in its sole discretion, determine in the future not to issue the
Rights based upon current or anticipated market and economic conditions or other
factors.

Pursuant to proxy materials dated March 25, 1994, the Trust has submitted
for Shareholder approval a proposal to merge the Trust into American Industrial
Properties REIT, Inc., a Maryland corporation and wholly owned subsidiary of the
Trust (the "Company"), at a Special Meeting of Shareholders to be held on May
10, 1994. Under the proposal (a) every five Shares will be converted into one
share of Common Stock of the Company, par value $0.01 per share ("Common
Stock"); (b) persons that will hold a fractional share in the Company after the
merger must either (i) pay to the Company an amount equal to the fraction
necessary to round upward to a whole share of Common Stock times the opening
price of the Company's Common Stock on the first trading date after the
consummation of the merger (the "Opening Price") and the fractional share shall
be rounded upward to the nearest whole share of Common Stock or (ii) permit the
Company to purchase the fractional share at a price equal to the fraction owned
times the Opening Price; (c) all rights and obligations of the Trust will be
assumed by the Company; and (d) the executive officers of the Trust immediately
prior to the merger shall become the executive officers of the Company and
Messrs. Bricker and Wolcott will serve as directors of the Company. Only
Shareholders of record on March 4, 1994 are entitled to notice of and to vote at
the Special Meeting. The consummation of the merger is subject to receipt of the
approval of holders of 66 2/3% of the outstanding Shares.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements and supplementary data are listed in the Index to
Financial Statements and Financial Statement Schedules appearing on Page F-1 of
this Form 10-K.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

During the two most recent fiscal years of the Trust and subsequent
thereto, the Trust has not experienced any changes in or disagreements with its
independent auditors.

13
<PAGE> 16

PART III.

ITEM 10. TRUST MANAGERS AND EXECUTIVE OFFICERS OF THE TRUST

The persons who serve as Trust Managers and executive officers of the
Trust, their ages and their respective positions are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION(S) AND OFFICE(S) HELD
------------------------- --- -------------------------------------------------
<S> <C> <C>
W. H. Bricker 62 Trust Manager
George P. Jenkins 79 Trust Manager
Charles W. Wolcott 41 Trust Manager, President and Chief Executive
Officer
David B. Warner 35 Vice President and Chief Operating Officer
Marc A. Simpson 39 Vice President and Chief Financial Officer,
Secretary and Treasurer
</TABLE>

WILLIAM H. BRICKER, Trust Manager. Mr. Bricker has served as President
of D.S. Energy Services Incorporated and has consulted in the energy field
and international trade since 1987. In May 1987, Mr. Bricker retired as the
Chairman and Chief Executive Officer of Diamond Shamrock Corporation where
he held various management positions from 1969 through May, 1987. Mr.
Bricker is a director of the LTV Corporation, the Eltech Systems
Corporation and the National Paralysis Foundation. He received his Bachelor
of Science and Masters of Science degrees from Michigan State University.

GEORGE P. JENKINS, Trust Manager. Mr. Jenkins is a consultant to W.R.
Grace and Co. In 1980, Mr. Jenkins retired as chairman of Metropolitan Life
Insurance Company. Mr. Jenkins is a director of W.R. Grace and Co.

CHARLES W. WOLCOTT, Trust Manager, President and Chief Executive
Officer. Mr. Wolcott was hired as the President and Chief Executive Officer
of the Trust on May 4, 1993. For the six months immediately prior to his
election as President of the Trust, Mr. Wolcott was engaged in developing
various personal business enterprises. Mr. Wolcott was President and Chief
Executive Officer of Trammell Crow Asset Services, a real estate asset and
portfolio management affiliate of Trammel Crow Company, from 1990 to 1992.
He served as Vice President and Chief Financial and Operating Officer of
the Trust from 1988 to 1991. From 1988 to 1990, Mr. Wolcott was a partner
in Trammell Crow Ventures Operating Partnership. Prior to joining the
Trammell Crow Company in 1984, Mr. Wolcott was President of Wolcott
Corporation, a firm engaged in the development and management of commercial
real estate properties. Mr. Wolcott graduated from the University of Texas
at Austin in 1975 with a Bachelor of Science degree and received a Masters
of Business Administration degree from Harvard University in 1977.

DAVID B. WARNER, Vice President and Chief Operating Officer. Mr.
Warner was hired as Vice President and Chief Operating Officer of the Trust
on May 24, 1993. From 1989 through the date of his accepting a position
with the Trust, Mr. Warner was Director of the Equity Investment Group for
The Prudential Realty Group. From 1985 to 1989, he served in the Real
Estate Banking Group of NCNB Texas National Bank. Mr. Warner graduated from
the University of Texas at Austin in 1981 with a degree in Finance and
received a Masters of Business Administration from the same institution in
1984.

MARC A. SIMPSON, Vice President and Chief Financial Officer, Secretary
and Treasurer. Mr. Simpson was hired as the Vice President and Chief
Financial Officer, Secretary and Treasurer of the Company and the Trust on
March 7, 1994. From November 1989 through March 4, 1994, Mr. Simpson was a
Manager in the Financial Advisory Services Group of Coopers & Lybrand.
Prior to that time, he served as Controller of Pacific Realty Corp., a real
estate development company. Mr. Simpson graduated with a Bachelor of
Business Administration from Midwestern State University in 1978, and
received a Masters of Business Administration from Southern Methodist
University in 1990.

14
<PAGE> 17

The Trust Managers have two committees, the Audit Committee and the
Compensation Committee. Messrs. Bricker and Jenkins are the sole members of each
committee. Both the Audit and Compensation Committees include only members
independent of management who are free from any relationship that, in the
opinion of the Trust Managers, would interfere with the exercise of their
independent judgment. The Audit Committee appoints the independent public
accountants for the Trust subject to the approval of the Shareholders at the
Annual Meeting and consults with the accountants on the Trust's audited
financial statements and on the efficacy of the Trust's internal control
systems. The Compensation Committee establishes guidelines for compensation and
benefits of the executive officers of the Trust based upon achievement of
objectives and other factors, including review of compensation to executive
officers of comparable entities.

ITEM 11. EXECUTIVE COMPENSATION

In fiscal 1993, the Trust paid each of the Trust Managers a fee of $15,000
per year for services as a Trust Manager plus $1,000 for each meeting of the
Trust Managers or a committee of the Trust Managers attended in person. In
addition, the Trust Managers were reimbursed for their expenses incurred in
connection with their duties as Trust Managers. Mr. Wolcott did not receive any
compensation for his services as a Trust Manager.

The following table sets forth certain information regarding the
compensation paid to the Trust's Chief Executive Officer since the commencement
of his employment with the Trust on March 23, 1993 through December 31, 1993:

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL COMPENSATION
NAME AND FISCAL --------------------------------
PRINCIPAL POSITION YEAR SALARY BONUS OTHER
- ------------------------------------------------------ ------ -------- ------- ------
<S> <C> <C> <C> <C>
Charles W. Wolcott
President and Chief Executive Officer............... 1993 $115,000(1) $50,000 $4,463
</TABLE>

- ---------------

(1) Mr. Wolcott's annualized salary for 1993 was $150,000.

No other executive officer's salary and bonus exceeded $100,000 for fiscal
1993. No executive officers or Trust Managers were granted Share options by the
Trust.

The Trust has adopted a Retirement and Profit Sharing Plan (the "Profit
Sharing Plan") for the benefit of employees of the Trust. Employees who were
employed by the Trust on November 1, 1993, and who have attained the age of 21
are immediately eligible to participate in the Profit Sharing Plan. All other
employees of the Trust are eligible to participate in the Plan after they have
completed one year of service with the Trust and attained the age of 21.

15
<PAGE> 18

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information as to the number of
Trust Shares beneficially owned by (a) each person (including any "group" as
that term is used in Section 13(d) of the Exchange Act) who is known by the
Trust to own beneficially 5% or more of the Shares, (b) each Trust Manager, (c)
each executive officer of the Trust, and (d) all executive officers of the Trust
and Trust Managers as a group.

<TABLE>
<CAPTION>
AMOUNT OF SHARES
BENEFICIALLY OWNED
AS OF MARCH 16, PERCENTAGE OF SHARES
NAMES OF BENEFICIAL OWNERS 1994 OUTSTANDING
---------------------------- ------------------ --------------------
<S> <C> <C>
W. H. Bricker............. 2,000 *
George P. Jenkins......... 500 *
Charles W. Wolcott........ 15,500 *
David B. Warner........... -- --
Marc A. Simpson........... -- --
American Holdings, Inc.
376 Main Street
Bedminster, New Jersey
07921.................. 645,000 7.107%(1)
All Trust Managers and
executive officers as a
group.................. 18,000 0.20%
</TABLE>

- ---------------

* Ownership is less than 1% of the outstanding Shares.

(1) This information was obtained from Amendment No. 2 to the Schedule 13D of
American Holdings, Inc. dated March 16, 1994.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The Trust acquired fourteen of its properties from various TCC Entities
during 1985 and 1986. The Trust hires third party property managers to manage
the operations of its properties. Most of the properties owned by the Trust are
managed by TCC Entities.

Pursuant to the property management agreements, the property managers are
paid a base management fee, leasing commissions, compensation for certain other
services provided, and incentive fees. In 1993, the aggregate payments made to
TCC Entities pursuant to such property management agreements totaled
approximately $835,000.

In its capacity as the former Advisor to the Trust, a TCC entity was paid
$716,000 in advisory fees in 1993, including a one-time termination fee of
$435,000.

16
<PAGE> 19

PART IV.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) (1) and (2) Financial Statements and Financial Statement Schedules

See Index to Financial Statements and Financial Statement Schedules
appearing on page F-1 of this Form 10-K.

(b) Reports on Form 8-K:

The following is the date and description of the events reported on Form
8-K during the quarter ended December 31, 1993:

<TABLE>
<CAPTION>
DATE FILED DATE OF EARLIEST EVENT
WITH SEC REPORTED ON FORM 8-K DESCRIPTION
- -------------------------- ----------------------------- --------------------------------
<S> <C> <C>
December 17, 1993 December 2, 1993 Item 5. Property acquisition/
dividend suspension
</TABLE>

17
<PAGE> 20

AMERICAN INDUSTRIAL PROPERTIES REIT

INDEX TO FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES

<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Independent Auditors' Report........................................................... F-2
Financial Statements:
Statements of Operations for the years ended December 31, 1993, 1992, and 1991....... F-3
Balance Sheets as of December 31, 1993 and 1992...................................... F-4
Statements of Changes in Shareholders' Equity for the years ended December 31, 1993,
1992,
and 1991.......................................................................... F-5
Statements of Cash Flows for the years ended December 31, 1993, 1992, and 1991....... F-6
Notes to Financial Statements........................................................ F-7
Financial Statement Schedule:
XI - Real Estate and Accumulated Depreciation........................................ F-15
Notes to Schedule XI................................................................. F-16
</TABLE>

All other financial statements and schedules not listed have been omitted
since the required information is either included in the Financial Statements
and the Notes thereto as included herein or is not applicable or required.

F-1
<PAGE> 21

INDEPENDENT AUDITORS' REPORT

To the Trust Managers and Shareholders of
American Industrial Properties REIT:

We have audited the Financial Statements and the Financial Statement
Schedule of American Industrial Properties REIT (formerly Trammell Crow Real
Estate Investors) (the "Trust"), listed in the Index on page F-1 of this Form
10-K. These financial statements and schedule are the responsibility of the
Trust's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and schedule are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements and
schedule. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement and schedule presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of American Industrial
Properties REIT as of December 31, 1993 and 1992, and the results of its
operations and its cash flows for the years ended December 31, 1993, 1992 and
1991 in conformity with generally accepted accounting principles. In addition,
in our opinion, the financial statement schedule referred to above, when
considered in relation to the financial statements taken as a whole, presents
fairly in all material respects, the information required to be set forth
therein.

KENNETH LEVENTHAL & COMPANY
Dallas, Texas
February 15, 1994

F-2
<PAGE> 22

AMERICAN INDUSTRIAL PROPERTIES REIT

STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
REVENUES
Rents..................................................... $ 7,811 $ 11,908 $ 12,995
Tenant Reimbursements..................................... 2,315 3,001 3,210
Interest Income........................................... 515 230 283
--------- --------- ---------
10,641 15,139 16,488
--------- --------- ---------
REAL ESTATE EXPENSES
Amortization of original issue discount on Zero Coupon
Notes
due 1997............................................... 1,391 3,356 8,456
Depreciation and amortization............................. 3,140 4,190 4,267
Interest on 8.8% Notes payable due 1997................... 3,981 4,024 --
Interest on mortgages payable............................. 683 1,370 1,528
Property Operating Expenses:
Property taxes......................................... 1,408 2,139 2,140
Property management fees, including payments to
affiliates
of the Advisor of $598, and $686 in 1992 and 1991,
respectively......................................... 422 621 686
Utilities.............................................. 458 549 489
Repairs and maintenance................................ 1,248 1,183 1,147
Other property operating expenses...................... 598 1,011 842
Administrative expenses:
Fees paid to Advisor................................... 716 565 594
Trust administration and overhead...................... 1,717 756 754
Provisions for possible losses on real estate............. -- 14,094 9,371
--------- --------- ---------
15,762 33,858 30,274
--------- --------- ---------
Loss from real estate operations.......................... (5,121) (18,719) (13,786)
Gain (loss) on sales of real estate.................... (216) (784) 304
Extraordinary gain from partial repurchase of Zero
Coupon
Notes payable........................................ -- 1,910 4,320
Extraordinary loss on in-substance partial defeasance
of Zero Coupon Notes payable......................... (2,530) -- --
--------- --------- ---------
NET LOSS.................................................... $ (7,867) $ (17,593) $ (9,162)
--------- --------- ---------
--------- --------- ---------
PER SHARE DATA
Loss from real estate operations.......................... $ (0.57) $ (2.06) $ (1.52)
Gain (loss) on sales of real estate....................... (0.02) (0.09) 0.03
Extraordinary gain from partial repurchase of Zero Coupon
Notes payable.......................................... -- 0.21 0.48
Extraordinary loss on in-substance partial defeasance of
Zero Coupon Notes payable.............................. (0.28) -- --
--------- --------- ---------
Net Loss.................................................. $ (0.87) $ (1.94) $ (1.01)
--------- --------- ---------
Distributions Paid........................................ $ 0.16 $ 0.20 $ 0.42
--------- --------- ---------
--------- --------- ---------
Number of shares outstanding.............................. 9,075,400 9,075,400 9,075,400
--------- --------- ---------
--------- --------- ---------
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-3
<PAGE> 23

AMERICAN INDUSTRIAL PROPERTIES REIT

BALANCE SHEETS
(DOLLARS IN THOUSANDS)

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1993 1992
-------- --------
<S> <C> <C>
Real Estate, at cost net of writedowns and allowances for
impairments in value:
Held for investment............................................... $103,710 $ 88,530
Held for sale..................................................... -- 19,506
-------- --------
103,710 108,036
Accumulated depreciation.......................................... (19,315) (18,036)
-------- --------
Net real estate........................................................ 84,395 90,000
-------- --------
Cash and Cash Equivalents:
Unrestricted......................................................... 1,119 5,893
Restricted........................................................... -- 11,886
-------- --------
1,119 17,779
-------- --------
Other assets, net...................................................... 2,783 2,667
-------- --------
$ 88,297 $110,446
-------- --------
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
8.8% Notes payable due 1997.......................................... $ 45,239 $ 45,239
Zero Coupon Notes payable due 1997 ($19,491 and $20,011 due at
maturity for 1993 and 1992, respectively), net of unamortized
discount and
in-substance partial defeasance in 1993........................... 4,682 11,267
Mortgage notes payable............................................... 7,157 12,072
Accrued interest on 8.8% Notes payable............................... 371 371
Accounts payable, accrued expenses and other liabilities............. 1,503 2,835
Tenant security deposits............................................. 494 491
-------- --------
Total Liabilities................................................. 59,446 72,275
-------- --------
Commitments and Contingencies
Shareholders' Equity:
Shares of Beneficial Interest, $0.10 par value; authorized 10,000,000
Shares; issued and outstanding 9,075,400 Shares................... 125,513 125,513
Accumulated distributions............................................ (57,729) (56,276)
Accumulated loss from operations and extraordinary gains (losses).... (40,095) (32,444)
Accumulated net gain on sales of real estate......................... 1,162 1,378
-------- --------
Total Shareholders' Equity........................................ 28,851 38,171
-------- --------
$ 88,297 $110,446
-------- --------
-------- --------
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-4
<PAGE> 24

AMERICAN INDUSTRIAL PROPERTIES REIT

STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
ACCUMULATED
SHARES OF BENEFICIAL LOSS FROM ACCUMULATED
INTEREST OPERATIONS AND NET GAIN ON
--------------------- ACCUMULATED EXTRAORDINARY SALES OF
NUMBER AMOUNT DISTRIBUTIONS GAIN REAL ESTATE TOTAL
--------- -------- ------------- -------------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1990........... 9,075,400 $125,513 $ (50,695) $ (6,169) $ 1,858 $ 70,507
Loss before gain on sales of real
estate and extraordinary gain...... -- (13,786) -- (13,786)
Gain on sales of real estate......... -- -- 304 304
Extraordinary gain on partial
repurchases of Zero Coupon Notes... -- 4,320 -- 4,320
Distributions to Shareholders........ (3,766) -- -- (3,766)
--------- -------- ------------- -------------- ----------- --------
Balance at December 31, 1991........... 9,075,400 125,513 (54,461) (15,635) 2,162 57,579
Loss before loss on sales of real
estate and extraordinary gain...... -- (18,719) -- (18,719)
Loss on sales of real estate......... -- -- (784) (784)
Extraordinary gain on partial
repurchases of Zero Coupon Notes... -- 1,910 -- 1,910
Distributions to Shareholders........ (1,815) -- -- (1,815)
--------- -------- ------------- -------------- ----------- --------
Balance at December 31, 1992........... 9,075,400 125,513 (56,276) (32,444) 1,378 38,171
Loss before loss on sales of real
estate............................. -- (5,121) -- (5,121)
Loss on sales of real estate......... -- -- (216) (216)
Extraordinary loss on partial
defeasance of Zero Coupon Notes.... -- (2,530) -- (2,530)
Distributions to Shareholders........ (1,453) -- -- (1,453)
--------- -------- ------------- -------------- ----------- --------
Balance at December 31, 1993........... 9,075,400 $125,513 $ (57,729) $(40,095) $ 1,162 $ 28,851
--------- -------- ------------- -------------- ----------- --------
--------- -------- ------------- -------------- ----------- --------
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-5
<PAGE> 25

AMERICAN INDUSTRIAL PROPERTIES REIT

STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss............................................. $ (7,867) $(17,593) $ (9,162)
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........................... 1,391 3,356 8,456
Depreciation and amortization..................... 3,140 4,190 4,267
Provisions for possible losses on real estate..... -- 14,094 9,371
Decrease (increase) in other assets............... (68) 435 (150)
Increase (decrease) in accounts payable, accrued
expenses and other liabilities and tenant
security deposits............................... (784) 539 (403)
Extraordinary gain from partial repurchase of Zero
Coupon Notes payable............................ -- (1,910) (4,320)
Extraordinary loss on in-substance partial
defeasance of Zero Coupon Notes payable......... 2,530 -- --
Loss (gain) on sales of real estate............... 216 784 (304)
-------- -------- --------
Net Cash Provided By (Used In) Operating Activities.... (1,442) 3,895 7,755
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net proceeds from sales of real estate............... 6,758 34,125 304
Acquisition of Northview Distribution Center......... (3,289) -- --
Capitalized improvements and leasing commissions,
including payments to affiliates of the Advisor of
approximately $1,041 and $764 in 1992 and 1991,
respectively...................................... (1,814) (3,995) (1,383)
-------- -------- --------
Net Cash Provided By (Used In) Investing Activities.... 1,655 30,130 (1,079)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Partial repayment of 8.8% Note payable............... -- (7,995) --
Debt issuance costs.................................. -- (11) (5)
Partial repurchase and retirement of Zero Coupon
Notes............................................. (316) (8,745) (11,107)
Short-term investment proceeds applied to
in-substance partial defeasance of Zero Coupon
Notes............................................. (10,189) -- --
Principal repayments on mortgage notes payable....... (4,915) (2,054) (160)
Distributions to Shareholders........................ (1,453) (1,815) (3,766)
-------- -------- --------
Net Cash Used In Financing Activities.................. (16,873) (20,620) (15,038)
-------- -------- --------
Net Increase (Decrease) in Cash and Cash Equivalents... (16,660) 13,405 (8,362)
Cash and Cash Equivalents at Beginning of Period....... 17,779 4,374 12,736
-------- -------- --------
Cash and Cash Equivalents at End of Period............. $ 1,119 $ 17,779 $ 4,374
-------- -------- --------
-------- -------- --------
Cash Paid for Interest................................. $ 4,664 $ 5,023 $ 1,528
-------- -------- --------
-------- -------- --------
</TABLE>

The accompanying notes are an integral part of these financial statements.

F-6
<PAGE> 26

AMERICAN INDUSTRIAL PROPERTIES REIT

NOTES TO FINANCIAL STATEMENTS

NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES:

General.

American Industrial Properties REIT (formerly Trammell Crow Real Estate
Investors) (the "Trust") is an equity real estate investment trust which, as of
December 31, 1993, owned and operated 15 commercial real estate properties
consisting of 14 industrial properties and one retail property. The Trust was
formed September 26, 1985, by issuing 13,400 shares to Trammell Crow Company,
Inc. for $201,000. On November 27, 1985, the Trust issued 9,062,000 Shares of
Beneficial Interest (the "Shares") and commenced operations.

On April 13, 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", see Note 2). The Trust converted to self-administration
effective June 13, 1993 and began operating under the name American Industrial
Properties REIT. Pursuant to the Trust's 1993 Annual Meeting of Shareholders,
the Trust's Shareholders approved amendments to the Trust's Declaration of Trust
and By-Laws which, amongst other things, officially changed the name of the
Trust from Trammell Crow Real Estate Investors to American Industrial Properties
REIT and removed the Trust's limited term restriction, converting the Trust from
a finite life entity scheduled to liquidate in 1997, to a perpetual life entity.

Real Estate and Provisions for Possible Losses on Real Estate.

The Trust carries its real estate at lower of depreciated cost or net
realizable value, as defined. Management defines net realizable value for assets
held for sale as estimated market value. In determining estimated market value,
management considers numerous factors, including market evaluations, the cost of
capital, operating cash flows from the property during the projected holding
period, and an expected capitalization rate applied to the estimated stabilized
net operating income of the specific property.

The carrying amount of real estate held for investment is reduced when
management believes the carrying amount is less than net realizable value, as
defined. Management defines net realizable value for assets held for investment
as the total of the estimated undiscounted future cash flows from the property.
These writedowns are reviewed periodically and any additional writedown
determined to be necessary is recorded in the period in which it becomes
reasonably estimable.

Real estate held for investment is reclassified to real estate held for
sale when management determines that there is a reasonable probability that the
asset will no longer be held for long-term investment and activities begin to
offer the property for sale. During 1993, certain properties classified as being
held for sale at December 31, 1992 were reclassified to held for investment,
consistent with management's intent to continue to hold the properties for
investment rather than for sale.

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.

Cash and Cash Equivalents and Restricted Cash.

Cash equivalents include demand deposits and all highly liquid debt
instruments purchased with an original maturity of three months or less.

According to the terms of the Indenture (the "Indenture") securing the
Trust's Zero Coupon Notes due 1997 (the "Zero Coupon Notes"), upon the sale or
refinancing of any property prior to the defeasance commencement date (November
27, 1993), the Trust was required to deposit into a Property Acquisition Account
such portion of the net proceeds received by the Trust that the Trust Managers
deemed necessary or appropriate to protect the interests of the Holders of the
Zero Coupon Notes (see Notes 5 and 6). Such

F-7
<PAGE> 27

AMERICAN INDUSTRIAL PROPERTIES REIT

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

deposits are shown as restricted cash on the accompanying balance sheet. After
November 27, 1993, any proceeds held in the Property Acquisition Account must be
placed in another restricted account and be used solely to defease the holders
of the remaining Zero Coupon Notes. Subsequent to September 30, 1993, the funds
held in the Property Acquisition Account were reinvested by the Trust into
short-term commercial paper and Treasury Bills which are pledged as collateral
to the Zero Coupon Noteholders. In December 1993, management announced its
intent to use the remaining pledged short-term commercial paper and Treasury
Bills upon their maturity in 1994 for the partial defeasance of the Zero Coupon
Noteholders (see Note 6).

Issuance Costs of Zero Coupon Notes Payable.

The issuance costs of the outstanding Zero Coupon Notes are being amortized
over 12 years (the life of the Zero Coupon Notes) and include the difference
between the proceeds received by the Company from the underwriters and the
subsequent offering price to the public for the Zero Coupon Notes.

Rents and Tenant Reimbursements.

The Trust leases its retail and industrial properties to tenants under
operating leases with expiration dates ranging from 1994 to 2005. Several
tenants in the retail property are also required to pay as rent a percentage of
their gross sales volume, to the extent such percentage exceeds their base
rents. In addition to paying base and percentage rents, most tenants are
required to reimburse the Trust for operating expenses in excess of a negotiated
base. Contractual rent increases or delayed rent starts are recognized ratably
over the lease term.

Tamarac Square, the Trust's only retail property, has rental revenues in
excess of 10% of the total revenues of the Trust. Rental revenues and tenant
reimbursements from Tamarac totaled $3,182,000, $3,126,000 and $3,320,000 in
1993, 1992 and 1991, respectively.

Income Tax Matters.

The Trust operates as a real estate investment trust ("REIT") for federal
income tax purposes. Under the REIT provisions the Trust is required to
distribute 95% of REIT taxable income and is allowed a deduction for dividends
paid during the year. The Trust made distributions in 1993, 1992 and 1991, which
were all years in which the Trust incurred a taxable loss. Accordingly, no
provision for income taxes has been reflected in the financial statements.

For the year ended December 31, 1993 the Trust has adopted Statement of
Financial Accounting Standards ("FAS") No. 109, Accounting For Income Taxes.
Since, as discussed above, no tax provision is necessary, the adoption of FAS
No. 109 does not affect the Trust's results from operations or financial
position in the current or prior years.

The Trust has a net operating loss carryforward from 1993 and prior years
of approximately $22,700,000. The losses may be carried forward for up to 15
years. The present losses will expire beginning in the year 2004. Management
intends to operate the Trust in such a manner as to continue to qualify as a
REIT and to continue to distribute cash flow in excess of taxable income.
Therefore, no tax benefit related to the potential utilization of the net
operating loss has been reflected in the financial statements.

Earnings and profits, which will determine the taxability of dividends to
shareholders, will differ from that reported for financial reporting purposes
due primarily to differences in the basis of the assets and the estimated useful
lives used to compute depreciation.

Reclassification.

The Trust has reclassified certain items in the accompanying financial
statements in order to (i) present amounts paid directly to the Advisor
separately from Trust administration and overhead costs and general and

F-8
<PAGE> 28

AMERICAN INDUSTRIAL PROPERTIES REIT

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

administrative costs related to property operations, (ii) separately present
accrued interest on the 8.8% Notes payable, and (iii) reflect the portion of the
principal paydown related to deferred interest on the 8.8% Notes payable as an
interest payment rather than a principal reduction in the 1992 statement of cash
flows.

NOTE 2 -- TRANSACTIONS WITH PARTIES IN INTEREST:

Parties in Interest.

Trammell Crow Ventures, Ltd. acted as advisor (the "Advisor") to the Trust
through June 13, 1993 (see Termination of Advisory Agreement below). Owners of
the Advisor are associated with a group of entities engaged in various real
estate businesses under the name "Trammell Crow Company" (collectively, the "TCC
Entities").

Termination of Advisory Agreement.

Effective June 13, 1993, the Trust terminated the Advisory Agreement with
the Advisor. 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. No
additional amounts are due the Advisor. Certain TCC Entities continue to manage
twelve of the Trust's fifteen properties, however, these are no longer
considered to be related party or party in interest relationships by the Trust.

Advisory Fees.

For its services under an advisory agreement, in 1992 and 1991, the Advisor
received an annual advisory fee equal to .4375% of the sum of (1) the estimated
value of the Trust's real estate investments, as reviewed by an independent
appraiser, less the original mortgage balances upon acquisition, and (2) the
proceeds from the sale of real estate pending reinvestment. Through December 31,
1992, the Advisor was also entitled to an incentive advisory fee in varying
degrees if distributable cash exceeded $11,600,000. For the year commencing
January 1, 1993, the Trust Managers established an advisory fee of $500,000 per
year. As in previous years, the Advisor was also entitled to reimbursement for
costs of providing legal, accounting and financial reporting services.

Disposition Fees.

The Trust paid the Advisor a real estate disposition fee equal to 2% of net
cash proceeds realized by the Trust from the sale or disposition of any Trust
real estate asset, after deduction for any real estate commission paid by the
Trust. Disposition fees paid to the Advisor and charged against the gain or loss
on sales of real estate were $144,500 in 1993, $711,000 in 1992, and $8,000 in
1991.

Management Fees.

Most of the Trust's real estate assets are managed by various TCC Entities
(the "TCC Property Managers"). For their services, the TCC Property Managers
receive base management fees of approximately 4% of gross income, as defined in
the Property Management Agreements, from industrial properties and approximately
5% of gross income, as defined, from the retail property. The TCC Property
Managers also receive leasing commissions based on prevailing market rates of 2%
to 5% of future rentals to be collected from new tenants and 1% to 4.5% of
future rentals from renewal tenants.

Other Fees.

The Advisor also received fees for services provided to the Trust that were
not required pursuant to the terms of the Advisory Agreement. For its services
rendered in connection with the acquisition and refinancing of the Zero Coupon
Notes on February 27, 1992 (see Note 4), the Trust Managers approved and the
Trust

F-9
<PAGE> 29

AMERICAN INDUSTRIAL PROPERTIES REIT

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

paid to the Advisor a fee equal to 1% of the amount paid for the Zero Coupon
Notes. This amount, $532,340, was charged against the extraordinary gain from
partial repurchase of the Zero Coupon Notes.

NOTE 3 -- REAL ESTATE AND PROVISIONS FOR POSSIBLE LOSSES ON REAL ESTATE:

The Trust has previously recorded provisions for possible losses on real
estate of $14,094,000 and $9,371,000 in 1992 and 1991, respectively. In
accordance with the accounting policies of the Trust, such provisions included a
reduction of the depreciated cost of real estate held for sale as well as real
estate held for investment. At December 31, 1993, all of the Trust's properties
were held for investment. If unforeseen factors should cause a reclassification
of the Trust's real estate to held for sale, significant adjustments to reduce
the depreciated cost of the real estate to net realizable value, as defined, for
such assets could be required.

NOTE 4 --8.8% NOTES PAYABLE:

To finance the February 27, 1992 repurchase of $106,322,000 principal
amount at stated maturity ("Face Amount") of Zero Coupon Notes (see Note 5), the
Trust issued $53,234,000 of unsecured notes payable due November 1997 (the "8.8%
Notes Payable"). These notes bear interest at 8.8% per annum, payable
semiannually commencing May 27, 1993. The terms of the 8.8% Notes Payable allow
for prepayment, in full or in part, at any time prior to maturity without
penalty.

On December 31, 1992, the Trust used $11,648,000 of the net sales proceeds
from the 1992 sales of real estate (see Note 11) to repay $11,553,000 principal
amount of the 8.8% Notes Payable. This repayment included the $8,000,000
mandatory repayment which was due in November 1993, and $3,648,000 of accrued
interest.

NOTE 5 --ZERO COUPON NOTES PAYABLE:

The balance of the Zero Coupon Notes due November 27, 1997 increases
annually in an amount equal to the amortization of the original issue discount,
which is computed at 12% compounding semiannually; the balance is reduced for
any Zero Coupon Note repurchases. The Zero Coupon Notes are collateralized by
first and second mortgages on the Trust's properties and a security interest in
the Trust's partnership interest in one property as well as by certain
short-term investments pledged to the Noteholders (see discussion below) as of
December 31, 1993. The issuance costs of the outstanding Zero Coupon Notes are
amortized over 12 years (the life of the Zero Coupon Notes).

On March 18, 1991, in two separate transactions, the Trust repurchased an
aggregate of $31,297,000 Face Amount of Zero Coupon Notes having an accreted
value of $14,415,000 for an aggregate purchase price of $10,060,000. The Trust
also acquired an option to repurchase an additional $21,371,000 Face Amount of
Zero Coupon Notes at a discount rate of 17.75% compounded semiannually,
exercisable in whole or in part prior to December 31, 1992. On May 30, 1991, the
Trust repurchased $3,000,000 Face Amount of Zero Coupon Notes having an accreted
value of $1,407,000 for an aggregate purchase price of $993,000, pursuant to the
option.

F-10
<PAGE> 30

AMERICAN INDUSTRIAL PROPERTIES REIT

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

The Trust recognized extraordinary gains in 1991 of $4,320,000 from the
repurchases of Zero Coupon Notes, determined as follows ($ in thousands):

<TABLE>
<S> <C>
Accreted balance of Zero Coupon Notes repurchased........................... $15,822
Cash paid to repurchase Zero Coupon Notes --
Restricted Proceeds From Previous Property Sales.......................... (7,863)
Unrestricted Cash From Operations......................................... (3,190)
Bond issuance costs, net of accumulated amortization........................ (395)
Expenses related to repurchases............................................. (54)
-------
Extraordinary gain from partial repurchase of Zero Coupon Notes............. $ 4,320
-------
-------
</TABLE>

On February 27, 1992, the Trust repurchased an aggregate of $106,322,000
Face Amount of Zero Coupon Notes for a purchase price of $53,234,000. The
accreted balance of the Zero Coupon Notes was approximately $54,401,000. The
entire purchase price was financed by issuing new 8.8% Notes Payable (see Note
4) to the seller of the Zero Coupon Notes. Pursuant to the terms of the
Indenture, approximately $21,629,000 Face Amount of these repurchased Zero
Coupon Notes are also pledged to the Indenture trustee for the security of the
remaining Noteholders. Additionally, in four other separate transactions during
February and April 1992, the Trust used cash on hand to repurchase $697,000 Face
Amount of Zero Coupon Notes having an accreted value of $356,000 for an
aggregate purchase price of $237,000.

On December 30, 1992, the Trust exercised its remaining option to
repurchase an additional $18,371,000 Face Amount of Zero Coupon Notes
($10,341,000 accreted balance) for an aggregate purchase price of $7,968,000.
Pursuant to the terms of the Indenture, these Zero Coupon Notes are also pledged
to the Indenture trustee for the security of the remaining Noteholders.

The Trust recognized extraordinary gains totalling $1,910,000 from the 1992
repurchases of the Zero Coupon Notes, determined as follows ($ in thousands):

<TABLE>
<S> <C>
Accreted balance of Zero Coupon Notes repurchased.................. $ 65,103
Principal amount of 8.8% Notes Payable............................. (53,234)
Cash paid to repurchase Zero Coupon Notes --
Restricted Proceeds From Previous Property Sales................. (7,968)
Unrestricted Cash From Operations................................ (237)
Bond issuance costs, net of amortization........................... (1,214)
Expenses related to repurchases.................................... (540)
--------
Extraordinary gain from partial repurchases of Zero Coupon Notes... $ 1,910
--------
--------
</TABLE>

During 1993 the Trust repurchased $520,000 face amount of Zero Coupon Notes
for approximately their accreted amounts of $316,000. No gain or loss was
recognized on the transaction.

The By-laws of the Trust, the Indenture, and the Note Purchase Agreement
related to the 8.8% Notes Payable contain various borrowing restrictions and
operating performance covenants. As of December 31, 1993, the Trust is in
compliance with all of these restrictions and covenants.

NOTE 6 -- PARTIAL DEFEASANCE OF ZERO COUPON NOTES:

Due to the restrictions contained in the Zero Coupon Indenture on the use
of the approximately $10,189,000 in short-term investments pledged to the Zero
Coupon Noteholders, the Trust has announced its intent to utilize these funds to
partially defease the Zero Coupon Notes upon maturity of the short-term
investments at the end of February, 1994. This has been recognized as an
in-substance partial defeasance of the Zero Coupon Notes in the accompanying
financial statements as of December 31, 1993, by offsetting the

F-11
<PAGE> 31

AMERICAN INDUSTRIAL PROPERTIES REIT

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

restricted cash balance to be used for the defeasance against the related Zero
Coupon Notes and by recognizing a loss on the partial defeasance of $2,530,000.
It is estimated that an additional $6,100,000 in cash will be required to
defease the remaining recorded amount of Zero Coupon Notes as of December 31,
1993. Upon a full defeasance of the Zero Coupon Notes, the Trust will be
released from most of the restrictive covenants of the Indenture, including the
Zero Coupon Note mortgage liens encumbering substantially all of the Trust's
assets.

NOTE 7 -- MORTGAGES PAYABLE:

Certain of the Trust's properties are subject to first mortgage notes
bearing interest at annual rates of 8% to 11%, requiring monthly payments of
principal and interest aggregating $67,000 in 1993, and coming due in various
years through 2010. Principal payments due for the next five years are $124,000
in 1994, $137,000 in 1995, $1,351,000 in 1996, $166,000 in 1997 and $2,053,000
in 1998. Effective April 30, 1992, the Trust extended, for three years, the
maturity date of the loan on one of its Minneapolis properties. In accordance
with the applicable loan agreement, the Trust paid to the Lender $92,000 of
deferred accrued interest at the date of the Note extension. The principal
amount of this mortgage as of December 31, 1992 was $2,141,000. This Note may be
extended, subject to certain conditions, by the Trust for one additional three
year period. The payoff of this Note in the amount of $1,894,000 is included in
the total principal payments due in 1998. In addition to being collateralized by
a mortgage on the property, this Note is recourse to the Trust.

NOTE 8 -- COMMITMENTS AND CONTINGENCIES:

Environmental Matters.

The Trust has been notified of the possible existence of underground
contamination at Tamarac Square, the Trust's Denver retail property. The source
of the possible contamination is apparently related to underground storage tanks
located on an adjacent property. This adjacent property was placed on Colorado's
list of leaking underground storage tanks. A second potential source of
contamination is a nearby tract on which a service station was formerly
operated. The owner of the adjacent property is currently conducting studies
under the direction of the Colorado Department of Health in an attempt to define
the contamination and institute an appropriate plan to address the situation. At
this time, the Trust does not anticipate any exposure relative to this issue.
The Trust has not been notified (except with respect to Tamarac Square), and is
not otherwise aware of any material non-compliance, liability or claim relating
to hazardous or toxic substances in connection with any of its properties.

Litigation.

The Trust is involved in a property lawsuit arising in the normal course of
business. In management's opinion, the Trust maintains adequate insurance to
cover any potential loss from this suit.

NOTE 9 -- RETIREMENT AND PROFIT SHARING PLAN:

During 1993, the Trust adopted a retirement and profit sharing plan which
qualifies under section 401(k) of the Internal Revenue Code. All existing Trust
employees at adoption and subsequent employees who have completed one year of
service are eligible to participate in the plan. The Trust may make annual
discretionary contributions to the plan. Plan contributions by the Trust in 1993
were $12,000.

F-12
<PAGE> 32

AMERICAN INDUSTRIAL PROPERTIES REIT

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 10 -- RENTAL INCOME:

Minimum future rentals on noncancellable leases at December 31, 1993 were
as follows ($ in thousands):

<TABLE>
<CAPTION>
YEAR
-------
<S> <C>
1994............................................................... $ 7,658
1995............................................................... 6,188
1996............................................................... 4,547
1997............................................................... 3,488
1998............................................................... 2,155
Thereafter......................................................... 3,899
-------
$27,935
-------
-------
</TABLE>

NOTE 11 -- GAIN (LOSS) ON SALES OF REAL ESTATE:

In 1991, $355,000 of a $732,000 escrow established in connection with the
sales of two of the Trust's California properties in 1990 was released to the
Trust since a portion of the required leasing objectives were achieved. An
additional $51,000 in selling expenses was recognized in 1991 associated with
these 1990 sales.

In the second quarter of 1992, the Trust sold one of the 13 buildings in
the Woodland Industrial Park in Charlotte, North Carolina. In the fourth quarter
of 1992, the Trust sold its Southland Industrial property located in Houston,
Texas and the remaining 12 buildings in the Woodland Industrial Park. The net
loss recognized in 1992 on these sales is summarized below ($ in thousands):

<TABLE>
<S> <C>
Gross selling price....................................................... $ 35,823
Cost, net of accumulated depreciation, writedowns and allowances for
impairments............................................................. (35,328)
Selling expenses.......................................................... (1,279)
--------
Loss on sales of real estate.............................................. $ (784)
--------
--------
</TABLE>

The total net sales proceeds after repayment of the $1,800,000 first
mortgage on the Southland property and the related transaction costs were
approximately $32,000,000. Pursuant to the terms of the Indenture, these
proceeds were deposited in the Trust's Property Acquisition Account. A portion
of the proceeds were subsequently used to repurchase a portion of the Trust's
Zero Coupon Notes through the exercise of the remaining repurchase option (see
Note 5) and to repay a portion of the 8.8% Notes Payable (see Note 4).

On January 8, 1993, the Trust sold the Royal Lane Business Park property
(one of its real estate assets Held for Sale) located in Dallas, Texas. The net
sales proceeds totalled approximately $1,800,000 after repayment of
approximately $4,650,000 of first mortgages on the property and the related
transaction costs. Pursuant to the Indenture, these net proceeds were deposited
in the Trust's Property Acquisition Account. The estimated net loss on the sale
of Royal Lane Business Park of $931,000 was reflected in the December 31, 1992
financial statements.

NOTE 12 -- DISTRIBUTIONS:

The Trust's distributions of $1,453,000 ($.16 per Share) in 1993 and
$1,815,000 ($.20 per Share) in 1992 represented a return of capital to
Shareholders, to the extent of the Shareholder's basis in the Shares. Of the
Trust's total distributions of $3,766,000 ($.42 per Share) in 1991, $122,000
($.02 per Share) represented taxable income to Shareholders and $3,644,000 ($.40
per Share) represented a return of capital to Shareholders, to the extent of a
Shareholder's basis in the shares.

F-13
<PAGE> 33

AMERICAN INDUSTRIAL PROPERTIES REIT

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 13 -- PER SHARE DATA:

Net income per Share is based on 9,075,400 Shares outstanding during all
years presented.

NOTE 14 -- PROPERTY ACQUISITION:

On December 10, 1993, the Trust purchased a 175,000 square foot
multi-tenant industrial distribution property in Dallas, Texas for a purchase
price and related expenses of $3,400,000 in cash (the "Northview Distribution
Center"). The property is encumbered by a first mortgage lien for the benefit of
the Zero Coupon Noteholders.

NOTE 15 -- SUBSEQUENT EVENT:

On January 12, 1994, the Trust incorporated American Industrial Properties
REIT, Inc., a Maryland corporation (the "Company") as its wholly owned
subsidiary through the purchase of 100 shares of stock for $1,000. The Trust
intends to seek the approval of the requisite 66 2/3% of all Shareholders to
merge the Trust into the Company through an exchange of the Trust's Shares of
Beneficial Interest for the Common Stock of the Company.

F-14
<PAGE> 34

SCHEDULE XI

AMERICAN INDUSTRIAL PROPERTIES REIT
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1993
($ IN THOUSANDS)
<TABLE>
<CAPTION>
GROSS
AMOUNT
GROSS AMOUNT CARRIED CARRIED
AT
DECEMBER
AT ACQUISITION SUBSEQUENT RETIREMENTS 31, 1993
---------------------- COSTS ---------------------- -------
ENCUM- BUILDINGS CAPITALIZED BUILDINGS WRITEDOWNS
BRANCES AND ------------ AND AND
DESCRIPTION AT 12/31/93 LAND IMPROVEMENTS IMPROVEMENTS LAND IMPROVEMENTS ALLOWANCES LAND
- ------------------------- ----------- ------- ------------ ------------ ------- ------------ ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INDUSTRIAL PROPERTIES:
TEXAS --
Commerce Park North....... $ 1,108 $ 4,431 $ 315 $ (2,014) $ 705
Westchase................. 697 2,787 214 (74) (1,158) 465
Plaza Southwest........... 1,312 5,248 433 (1) 1,312
Beltline Center........... 1,303 5,213 286 (3,516) 600
Gateway 5 & 6............. 935 3,741 478 (1,861) 563
Northgate II.............. 2,153 8,612 622 (4,122) 1,329
Royal Lane Park........... 2,122 8,489 318 (1,574) (6,613) (2,742) 0
Northview................. 658 2,631 658
CALIFORNIA --
Huntington Drive.......... 1,559 6,237 404 1,559
MARYLAND --
Patapsco I & II........... 1,429 1,147 4,588 285 1,147
MINNESOTA --
Cahill.................... 625 2,498 351 625
Burnsville................ 1,973 761 3,045 308 (17) (1,563) 431
WASHINGTON --
Springbrook............... 1,008 4,032 219 (436) 921
WISCONSIN --
Northwest................. 1,342 1,296 5,184 604 (131) 1,296
FLORIDA --
Quadrant.................. 1,200 1,137 4,549 107 (63) (2,337) 670
RETAIL PROPERTY:
COLORADO --
Tamarac Square............ 1,213 6,799 27,194 3,875 6,799
Trust Home Office......... 14 0
----------- ------- ------------ ------ ------- ------------ ---------- -------
7,157 $24,620 $ 98,479 $8,833 $(1,591) $ (6,882) $(19,749) $19,080
------- ------------ ------ ------- ------------ ---------- -------
------- ------------ ------ ------- ------------ ---------- -------
ZERO COUPON NOTES......... 4,682
-----------
$11,839
-----------
-----------

<CAPTION>
BUILDING & CAPITAL TENANT
IMPROVEMENTS IMPROVEMENTS
BUILDINGS LIFE ON WHICH LIFE ON WHICH
AND ACCUMULATED DATE OF DATE DEPRECIATION IS DEPRECIATION IS
DESCRIPTION IMPROVEMENTS TOTAL DEPRECIATION CONSTRUCTION ACQUIRED COMPUTED COMPUTED
- -------------------------- ------------ -------- ----------- ------------ -------- ------------------ ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
INDUSTRIAL PROPERTIES:
TEXAS --
Commerce Park North....... $ 3,135 $ 3,840 $ 934 1984 1985 40 10
Westchase................. 2,001 2,466 595 1983 1985 40 10
Plaza Southwest........... 5,680 6,992 1,194 1970-74 1985 40 10
Beltline Center........... 2,686 3,286 1,080 1984 1985 40 10
Gateway 5 & 6............. 2,730 3,293 887 1984-85 1985 40 10
Northgate II.............. 5,936 7,265 1,898 1982-83 1985 40 10
Royal Lane Park........... 0 0 0 1980-81 1985 40 10
Northview................. 2,631 3,289 6 1980 1993 40 10
CALIFORNIA --
Huntington Drive.......... 6,641 8,200 1,346 1984-85 1985 40 10
MARYLAND --
Patapsco I & II........... 4,873 6,020 984 1980-84 1985 40 10
MINNESOTA --
Cahill.................... 2,849 3,474 612 1981 1986 40 10
Burnsville................ 2,103 2,534 717 1984 1986 40 10
WASHINGTON --
Springbrook............... 3,902 4,823 867 1984 1986 40 10
WISCONSIN --
Northwest................. 5,657 6,953 1,118 1983-86 1986 40 10
FLORIDA --
Quadrant.................. 2,723 3,393 835 1984-86 1986 40 10
RETAIL PROPERTY:
COLORADO --
Tamarac Square............ 31,069 37,868 6,239 1976-79 1985 40 10
Trust Home Office......... 14 14 3 N/A 1993 N/A 10
------------ -------- -----------
$ 84,630 $103,710 $19,315
------------ -------- -----------
------------ -------- -----------
ZERO COUPON NOTES.........
</TABLE>

The accompanying notes are an integral part of this schedule.

F-15
<PAGE> 35

AMERICAN INDUSTRIAL PROPERTIES REIT

NOTES TO SCHEDULE XI
DECEMBER 31, 1993

(1) ACQUISITIONS:

All of the real estate on Schedule XI was acquired for cash, subject to
certain encumbrances shown therein, from TCC Entities, except for the Northview
property acquired in 1993.

(2) RECONCILIATION OF REAL ESTATE:

The following table reconciles the Trust's real estate for the years ended
December 31, 1993 and 1992.

<TABLE>
<CAPTION>
($ IN THOUSANDS)
---------------------
1993 1992
-------- --------
<S> <C> <C>
Balance at beginning of period......................................... $108,036 $159,841
Additions during period:
Improvements......................................................... 887 3,945
Acquisition of Northview Distribution Center......................... 3,289 --
-------- --------
112,212 163,786
Deductions during period:
Cost of real estate sold............................................. 8,187 41,415
Provisions for impairments in value.................................. -- 14,094
Other -- asset retirements........................................... 315 241
-------- --------
Balance at close of period............................................. $103,710 $108,036
-------- --------
-------- --------
</TABLE>

(4) RECONCILIATION OF ACCUMULATED DEPRECIATION:

The following table reconciles the accumulated depreciation for the years
ended December 31, 1993 and 1992.

<TABLE>
<CAPTION>
($ IN THOUSANDS)
-------------------
1993 1992
------- -------
<S> <C> <C>
Balance at beginning of period........................................... $18,036 $20,804
Additions during period:
Depreciation provision for period...................................... 2,830 3,721
------- -------
20,866 24,525
Deductions during period:
Accumulated depreciation of real estate sold........................... 1,551 6,426
Other -- asset retirements............................................. -- 63
------- -------
Balance at close of period............................................... $19,315 $18,036
------- -------
------- -------
</TABLE>

(5) TAX BASIS:

The cost basis of the Trust's real estate for tax purposes at December 31,
1993 is $128,585,000. The basis reported under generally accepted accounting
principles has been reduced by the aggregate amounts collected under developers'
leases, less management fees paid on such developers' leases, and by reductions
for the impairments in value of real estate.

F-16
<PAGE> 36

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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, on March 31, 1994.

AMERICAN INDUSTRIAL PROPERTIES REIT

/s/ CHARLES W. WOLCOTT
Charles W. Wolcott,
Trust Manager, President and
Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ----------------------------------------------- ----------------------------- ---------------
<C> <S> <C>
/s/ CHARLES W. WOLCOTT Trust Manager, President and March 31, 1994
Charles W. Wolcott Chief Executive Officer
(principal executive officer)

* /s/ W. H. BRICKER Trust Manager March 31, 1994
W. H. Bricker

/s/ MARC A. SIMPSON Vice President and Chief March 31, 1994
Marc A. Simpson Financial Officer, Secretary
and Treasurer (principal
financial officer)
</TABLE>