UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995 .......
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 1-9016
___________________________
AMERICAN INDUSTRIAL PROPERTIES REIT
(Exact name of registrant as specified in its charter)
Texas 75-6335572
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6220 North Beltline Road, Suite 205
Irving, Texas 75063-2656
Address of principal executive offices) (Zip code)
(214) 550-6053
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No _____
9,075,400 Shares of Beneficial Interest were outstanding as
of May 11, 1995.
American Industrial Properties REIT
Form 10-Q
For the Quarter Ended March 31, 1995
INDEX
Page
Part I - Financial Information
Item 1. Financial Statements
Consolidated Statements of Operations for the
three months ended March 31, 1995 and 1994 3
Consolidated Balance Sheets as of March 31, 1995
and December 31, 1994 4
Consolidated Statements of Cash Flows for the
three months ended March 31, 1995 and 1994 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
American Industrial Properties REIT
Consolidated Statements of Operations
(unaudited, in thousands except share and per share data)
Three Months Ended March 31,
1995 1994
<TABLE>
<S> <C> <C>
REVENUES
Rents $2,104 $1,957
Tenant reimbursements 675 683
Interest income 67 83
2,846 2,723
REAL ESTATE EXPENSES
Property operating expenses:
Property taxes 337 298
Property management fees 107 120
Utilities 114 119
Repairs and maintenance 250 256
Other property operating expenses 106 137
Depreciation and amortization 725 819
Interest on 8.8% notes payable due 1997 982 982
Interest on mortgages payable 479 178
Amortization of original issue discount on
Zero Coupon Notes due 1997 0 375
Administrative expenses:
Trust administration and overhead 491 614
3,591 3,898
Loss from real estate operations (745) (1,175)
Loss on sales of real estate (191) 0
NET LOSS $(936) $(1,175)
PER SHARE DATA
Loss from real estate operations $ (0.08) $ (0.13)
Loss on sales of real estate (0.02) 0
Net Loss $ (0.10) $ (0.13)
Distributions Paid 0 0
Number of shares outstanding 9,075,400 9,075,400
</TABLE>
The accompanying notes are an integral part of these financial statements.
American Industrial Properties REIT
Consolidated Balance Sheets
(in thousands, except share and per share data)
March 31, December 31,
1995 1994
(unaudited)
<TABLE>
<S> <C> <C>
ASSETS
Real estate:
Held for investment $ 95,155 $ 95,033
Held for sale 5,406 8,810
100,561 103,843
Accumulated depreciation (21,599) (21,859)
Net real estate 78,962 81,984
Cash and cash equivalents:
Unrestricted 8,497 6,919
Restricted 514 602
Total cash and cash equivalents 9,011 7,521
Other assets, net 2,853 3,045
Total Assets $ 90,826 $ 92,550
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
8.8% notes payable due 1997 $ 45,239 $ 45,239
Mortgage notes payable 19,119 20,374
Accrued interest 1,477 504
Accounts payable, accrued expenses 1,220 1,682
and other liabilities
Tenant security deposits 511 555
Total Liabilities 67,566 68,354
Shareholders' Equity:
Shares of beneficial interest, $0.10 par value authorized
10,000,000 Shares; issued and outstanding
9,075,400 Shares 908 908
Additional paid-in capital 124,605 124,605
Retained earnings (deficit) (102,253) (101,317)
Total Shareholders' Equity 23,260 24,196
Total Liabilities and Shareholders'
Equity $ 90,826 $ 92,550
</TABLE>
The accompanying notes are an integral part of these financial statements.
American Industrial Properties REIT
Consolidated Statements of Cash Flows
(unaudited, in thousands)
<TABLE>
Three Months Ended
March 31, March 31,
1995 1994
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss (936) (1204)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Amortization of original issue discount
on Zero Coupon Notes due 1997 0 375
Depreciation and amortization 725 819
Loss on sales of real estate 191 0
Changes in operating assets and liabilities:
Decrease (increase) in other assets (53) 20
Increase in accrued interest 973 982
Increase (decrease) in accounts payable,
accrued expenses and other liabilities
and tenant security deposits (471) (262)
Net Cash Provided By Operating Activities 429 730
CASH FLOWS FROM INVESTING ACTIVITIES:
Capitalized improvements and leasing commissions (160) (334)
Net proceeds from sales of real estate 1276 0
Net Cash Provided By (Used In) Investing Activities 1116 (334)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal repayments on mortgage notes payable (55) (38)
Partial repurchase of Zero Coupon Notes 0 (152)
Net Cash Used In Financing Activities (55) (190)
Net Increase in Cash and Cash Equivalents 1490 206
Cash and Cash Equivalents at Beginning of Period 7521 1119
Cash and Cash Equivalents at End of Period 9011 1325
Cash Paid for Interest 488 178
</TABLE>
The accompanying notes are an integral part of these financial statements.
American Industrial Properties REIT
Notes to Consolidated Financial Statements
March 31, 1995
(unaudited)
Note 1 - Basis of Presentation
The accompanying consolidated financial statements are
presented in accordance with the requirements of Form 10-Q
and consequently do not include all of the disclosures
required by generally accepted accounting principles or
those contained in the Trust's Annual Report on Form 10-K.
Accordingly, these financial statements should be read in
conjunction with the audited financial statements of the
Trust for the year ended December 31, 1994, included in the
Trust's Annual Report on Form 10-K.
The financial information included herein has been prepared
in accordance with the Trust's customary accounting
practices and has not been audited. In the opinion of
management, the information presented reflects all
adjustments necessary for a fair presentation of interim
results. All such adjustments are of a normal and recurring
nature.
Note 2 - Significant Accounting Policies
Principles of Consolidation. The consolidated financial
statements of the Trust include the accounts of American
Industrial Properties REIT and its wholly-owned
subsidiaries. Significant intercompany balances and
transactions have been eliminated in consolidation.
Real Estate. The Trust carries its real estate at the lower
of depreciated cost or net realizable value. Management
considers net realizable value for assets held for
investment as the total of the estimated undiscounted future
cash flows from the property. For assets held for sale,
management considers net realizable value as estimated
market value. Provisions for possible losses on real estate
are recorded when management determines that the net book
value of a specific real estate property is less than its
net realizable value. At March 31, 1995, thirteen
properties were classified as held for investment and one
property was classified as held for sale. Should unforeseen
factors cause additional properties to be classified as held
for sale, significant adjustments to reduce the net book
value of such properties could be required.
Property improvements are capitalized while maintenance and
repairs are expensed as incurred. Depreciation of buildings
and capital improvements is computed using the straight-line
method over forty years. Depreciation of tenant
improvements is computed using the straight-line method over
ten years.
Other Assets. Other assets consists primarily of deferred
rent receivable, prepaid leasing commissions and loan fees.
Deferred rent receivable arises as the Trust recognizes
rental income, including contractual rent increases or
delayed rent starts, on a straight-line basis over the lease
term. Leasing commissions are capitalized and amortized on
a straight-line basis over the life of the lease. Loan fees
are capitalized and amortized on a level yield basis over
the term of the related loan. The Trust has recorded
deferred rent receivable of $918,000 and $1,157,000 at March
31, 1995 and December 31, 1994, respectively.
Income Taxes. The Trust qualifies as a real estate
investment trust (a "REIT") under Federal income tax law as
long as it meets certain asset, income, and ownership tests
and it distributes 95% of its taxable income annually. No
provisions for Federal income taxes have been required or
recorded to date.
Note 3 - Zero Coupon Notes
In December 1993 and November 1994, the Trust partially in-
substance defeased certain of its Zero Coupon Notes due 1997
(the "Notes") totaling $16,365,000 (face amount at
maturity). At March 31, 1995, the accreted value of these
Notes was $12,007,000.
Note 4 - Sale of Property
On February 27, 1995, the Trust sold its Quadrant Center
property in Deerfield Beach, Florida for $2,650,000. Net
proceeds from the sale, after payoff of the related mortgage
indebtedness, was approximately $1,250,000. After selling
costs and adjustment for deferred rent receivable, the Trust
recognized a loss of $191,000 on the sale.
Note 5 - Subsequent Events
On April 21, 1995, the Trust received a notice of default
from The Manufacturers Life Insurance Company ("MLI")
pursuant to the Note Purchase Agreement between the Trust
and MLI dated February 27, 1992. MLI, which holds unsecured
notes payable by the Trust in the amount of $45,239,000,
claimed in the notice of default that the Trust had violated
certain covenants and agreements of a non-monetary nature,
including the failure to consent to a proposed transfer of
the notes to a third party. The notice of default also
states that, in the event the alleged violations are not
cured within thirty days, MLI may declare the entire
principal amount, together with accrued interest thereon,
immediately due and payable. The Trust strongly disagrees
with MLI's allegations of default and intends to vigorously
oppose the action by MLI.
On May 1, 1995, the Trust filed a lawsuit against MLI in
State Court in Dallas, Texas. The Trust's lawsuit alleges
that MLI, by declaring the Trust in default and threatening
acceleration of the notes, has unlawfully sought to coerce
the Trust into relinquishing certain of its rights. The
lawsuit further alleges that MLI has engaged in acts of bad
faith and conspiracy in an attempt to coerce the Trust into
taking actions that would be detrimental to the interests of
the Trust and its shareholders. The Trust is seeking
recovery of damages and injunctive relief to prevent MLI
from continuing to violate the Trust's rights.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
The table below provides a reconciliation of net loss, funds
from operations ("FFO") and funds available for distribution
("FAD") for the three months ended March 31, 1995 and 1994.
Management believes that the presentation of FFO and FAD will
enhance the reader's understanding of the Trust's financial
condition as well as provide comparability to other real estate
investment trusts. Neither FFO or FAD should be considered an
alternative to net income as an indicator of the Trust's
operating performance or to cash flows from operations as a
measure of liquidity. The determination of FFO is based on the
definition adopted by the National Association of Real Estate
Investment Trusts which is net income (computed in accordance
with generally accepted accounting principles), adjusted to
exclude gains or losses from debt restructuring and sales of
property, depreciation and amortization and to include
adjustments for unconsolidated partnerships and joint ventures.
FAD is generally more indicative of the Trust's ability to make
distributions as it includes the effect of the Trust's capital
expenditures.
(000)
Three Months Ended
March 31,
<TABLE>
<S> <C> <C>
1995 1994
Net loss $(936) $(1,175)
Loss on sales of real 191 0
estate
Depreciation and 725 819
amortization
Amortization of original 0 375
issue discount on Zero
Coupon Notes due 1997
Funds from operations (20) 19
("FFO")
Capitalized improvements (160) (334)
and leasing commissions
Funds available for
distribution ("FAD") $(180) $(315)
</TABLE>
The net loss of the Trust decreased by $239,000 when
comparing the first quarter 1995 results to the same quarter in
1994. This decrease resulted from the following: i) an increase
in property revenues due to increased overall occupancy and
improving rental rates; ii) a decrease in Trust administrative
expenses due primarily to contested proxy costs incurred in the
first quarter of 1994; iii) a decrease in depreciation and
amortization expense due to the sale of the Quadrant property in
February 1995; iv) the effect of the November 1994 financing and
the defeasance of the Trust's zero coupon notes; and v) the loss
related to the sale of the Quadrant property in February 1995.
FFO for the three months ended March 31, 1995 decreased by
$39,000 from the same period in 1994 primarily due to the
increased property revenues, the decrease in the Trust
administrative expenses, and the November 1994 financing
discussed previously. FAD improved significantly from the year
earlier period due to the factors affecting FFO and the timing of
capital expenditures. Such expenditures are indicative of the
level of leasing and, over time, will decrease as the portfolio
occupancy stabilizes.
The overall occupancy of the Trust's portfolio on March 31,
1995 was 93.1%. On a same property basis, overall occupancy
increased to 93.1% at March 31, 1995 from 92.4% at March 31,
1994. Same property revenue increased by 5.6% and net operating
income increased by 8.6% when comparing the first quarter 1995 to
the same period in 1994. The increase in net operating income
resulted from increased revenues due to improving occupancy and
rental rates, as well as a decrease in operating expenses which
was primarily attributable to lower property tax expense.
Liquidity and Capital Resources
At March 31, 1995, the Trust had approximately $8.5 million
in unrestricted cash reserves. The Trust generates such reserves
through the operations of its assets and certain infrequent
capital transactions such as property sales or debt refinancing.
These reserves could be decreased significantly should the Trust
elect to purchase additional real estate properties or effect a
refinancing or reduction of existing debt. Also, as described in
Recent Developments below, the Trust filed a lawsuit against its
unsecured lender on May 1, 1995. In the event the lender
proceeds pursuant to the notice of default and declares the
entire principal amount of $45,239,000 and accrued interest
immediately due and payable, the Trust will pursue such actions
it deems necessary to protect the interests of the Trust and its
shareholders. In addition, the costs of defending against the
actions of this unsecured lender and the costs of pursuing the
litigation currently instituted are expected to be significant
and will serve to decrease the Trust's resources and its
liquidity.
In December 1993, the Trust announced the suspension of
quarterly distributions until such time as the Trust's Zero
Coupon Notes were fully defeased and such distributions could be
made from the positive cash flow of the Trust. The Trust does
not anticipate having the sustainable positive cash flow with
which to initiate a distribution during calendar year 1995. It
is uncertain when, and in what amount, such distributions will
resume in the future.
The initial capitalization of the Trust included
$179,698,000 face amount at maturity of Zero Coupon Notes due
1997 (the "Notes") secured by first or second liens on all of the
Trust's properties. In November 1994, the Trust completed a
$14,500,000 refinancing of two properties. The proceeds of this
refinancing were used to partially in-substance defease a portion
of the outstanding Notes. This partial defeasance resulted in
the release to the Trust of approximately $7.1 million in
restricted funds previously held by the Trustee as well as the
release of the liens securing the Notes which encumbered the
Trust's properties. The defeasance of the Notes, while having a
favorable effect upon the net losses of the Trust, will have a
negative impact on the Trust's FFO and FAD as the amortization of
the original issue discount on the Notes, which did not effect
FFO or FAD, was effectively replaced with interest expense on the
new financing, which does impact FFO and FAD. At March 31, 1995,
the face amount at maturity and the accreted value of the
defeased Notes were $16,365,000 and $12,007,000, respectively.
The Trust intends to continue efforts to recapitalize its
debt structure. Should such an opportunity materialize, the
Trust may seek to retire existing debt obligations with proceeds
from secured debt financing, property sales, cash on hand or a
combination of these sources. Such a transaction may require the
Trust to utilize the majority of its cash reserves.
Pursuant to previously expressed intentions to
geographically focus on the interior of the country, the Trust
sold the Quadrant Center industrial property in Deerfield Beach,
Florida on February 27, 1995 for $2,650,000. The Trust received
net sales proceeds of approximately $1,250,000 after sales costs
and the payoff of the mortgage on the property.
At March 31, 1995, the Trust had $19,119,000 in mortgage
debt outstanding. Of this amount, $16,414,000 represented
variable rate financing (with a weighted average interest rate of
9.6%) and $2,705,000 represented fixed rate financing (with a
weighted average interest rate of 10.5%). Of the variable rate
debt, $14,465,000 is subject to a maximum interest rate of
11.375%.
Capitalized improvements and leasing commissions were
$160,000 for the three months ended March 31, 1995 as compared to
$334,000 for the same period in 1994. This decrease is primarily
related to the significant increase in overall occupancy which
occurred during early 1994.
Recent Developments
On April 21, 1995, the Trust received a notice of default
from The Manufacturers Life Insurance Company ("MLI") pursuant to
the Note Purchase Agreement between the Trust and MLI dated
February 27, 1992. MLI, which holds unsecured notes payable by
the Trust in the amount of $45,239,000, claimed in the notice of
default that the Trust had violated certain covenants and
agreements of a non-monetary nature, including the failure to
consent to a proposed transfer of the notes to a third party.
The notice of default also states that, in the event the alleged
violations are not cured within thirty days, MLI may declare the
entire principal amount, together with accrued interest thereon,
immediately due and payable. The Trust strongly disagrees with
MLI's allegations of default and intends to vigorously oppose the
action by MLI.
On May 1, 1995, the Trust filed a lawsuit against MLI in
State Court in Dallas, Texas. The Trust's lawsuit alleges that
MLI, by declaring the Trust in default and threatening
acceleration of the notes, has unlawfully sought to coerce the
Trust into relinquishing certain of its rights. The lawsuit
further alleges that MLI has engaged in acts of bad faith and
conspiracy in an attempt to coerce the Trust into taking actions
that would be detrimental to the interests of the Trust and its
shareholders. The Trust is seeking recovery of damages and
injunctive relief to prevent MLI from continuing to violate the
Trust's rights.
PART II. OTHER INFORMATION
Item 6.Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit No. Description
27.1* Financial Data Schedule
* Filed herewith
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
AMERICAN INDUSTRIAL PROPERTIES REIT
(Registrant)
Date: May 15, 1995 /s/ MARC A. SIMPSON
Marc A. Simpson,
Vice President and Chief Financial Officer
(principal accounting and financial
officer)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 9,011
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 100,561
<DEPRECIATION> 21,599
<TOTAL-ASSETS> 90,826
<CURRENT-LIABILITIES> 0
<BONDS> 0
<COMMON> 908
0
0
<OTHER-SE> 22,352
<TOTAL-LIABILITY-AND-EQUITY> 90,826
<SALES> 0
<TOTAL-REVENUES> 2,846
<CGS> 0
<TOTAL-COSTS> 3,591
<OTHER-EXPENSES> 191
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,461
<INCOME-PRETAX> (936)
<INCOME-TAX> 0
<INCOME-CONTINUING> (936)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (936)
<EPS-PRIMARY> (.10)
<EPS-DILUTED> (.10)
</TABLE>
