UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission file number 1-9016
___________________________
AMERICAN INDUSTRIAL PROPERTIES REIT
(Exact name of registrant as specified in its charter)
Texas 75-6335572
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6220 North Beltline Road, Suite 205
Irving, Texas 75063-2656
(Address of principal executive offices) (Zip Code)
(214) 550-6053
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No _____
9,075,400 Shares of Beneficial Interest were outstanding as
of August 9, 1996.
American Industrial Properties REIT
Form 10-Q
For the Quarter Ended June 30, 1996
INDEX
Page
Part I - Financial Information
Item 1. Financial Statements
Consolidated Statements of Operations for the quarter and six
months ended June 30, 1996 and 1995 3
Consolidated Balance Sheets as of June 30, 1996 and December
31, 1995 4
Consolidated Statements of Cash Flows for the six months ended
June 30, 1996 and 1995 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Part II - Other Information
Item 1. Legal Proceedings 12
Item 3. Defaults Upon Senior Securities 12
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
American Industrial Properties REIT
Consolidated Statements of Operations
(unaudited, in thousands except share and per share data)
<TABLE>
Quarter Ended Six Months Ended
June 30, June 30, June 30, June 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
REVENUES
Rents 2,268 2,199 4,418 4,303
Tenant reimbursements 761 771 1,428 1,446
Interest income 52 123 139 190
3,081 3,093 5,985 5,939
REAL ESTATE EXPENSES
Property operating expenses:
Property taxes 366 364 742 701
Property management fees 111 108 217 215
Utilities 110 104 217 218
General operating 191 162 421 339
Repairs and maintenance 116 105 165 224
Other property operating expenses 73 74 145 134
Depreciation and amortization 707 721 1,408 1,446
Interest on 8.8% notes payable 1,029 1,057 2,349 2,039
Interest on mortgages payable 403 444 811 923
Administrative expenses:
Trust administration
and overhead 333 295 890 777
Litigation and proxy costs 400 366 888 375
3,839 3,800 8,253 7,391
Loss from real estate operations (758) (707) (2,268) (1,452)
Loss on sales of real estate 0 0 0 (191)
Extraordinary loss on
extinguishment of debt 0 (55) 0 (55)
Extraordinary gain on
forgiveness of debt 1,367 0 1,367 0
NET LOSS 609 (762) (901) (1,698)
PER SHARE DATA
Loss from real estate operations (0.08) (0.07) (0.25) (0.16)
Loss on sales of real estate 0 0 0 (0.02)
Extraordinary loss on
extinguishment of debt 0 (0.01) 0 (0.01)
Extraordinary gain on
forgiveness of debt 0.15 0 0.15 0
Net Loss 0.07 (0.08) (0.10) (0.19)
Distributions Paid 0 0 0.04 0
Number of shares outstanding 9075400 9075400 9075400 9075400
</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)
<TABLE>
June 30, December 31,
1996 1995
(unaudited)
<S> <C> <C>
ASSETS
Real estate:
Held for investment $ 97,536 $ 97,091
Held for sale 4,832 4,806
102,368 101,897
Accumulated depreciation (24,685) (23,441)
Net real estate 77,683 78,456
Cash and cash equivalents:
Unrestricted 2,155 7,694
Restricted 807 659
Total cash and cash equivalents 2,962 8,353
Other assets, net 2,513 2,573
Total Assets $ 83,158 $ 89,382
LIABILITIES AND
SHAREHOLDERS' EQUITY
Liabilities:
8.8% notes payable $ 45,239 $ 45,239
Mortgage notes payable 17,463 17,576
Accrued interest 517 5,178
Accounts payable, accrued
expenses and other liabilities 1,443 1,620
Tenant security deposits 512 521
Total Liabilities 65,174 70,134
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) (107,529) (106,265)
Total Shareholders' Equity 17,984 19,248
Total Liabilities and
Shareholders' Equity $ 83,158 $ 89,382
</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>
Six Months Ended
June 30,
1996 1995
<S> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net Loss $ (901) $ (1,698)
Adjustments to reconcile net
loss to net cash provided
by operating activities:
Depreciation and amortization 1,408 1,446
Loss on sales of real estate 0 191
Extraordinary loss on
extinguishment of debt 0 55
Extraordinary gain on
forgiveness of debt (1,367) 0
Changes in operating assets
and liabilities:
Decrease
in other assets 43 88
Decrease in
accounts payable, accrued
expenses and other
liabilities and tenant
security deposits (186) (348)
Net Cash Used
In Operating Activities (1,003) (266)
CASH FLOWS FROM
INVESTING ACTIVITIES:
Capitalized improvements
and leasing commissions (618) (496)
Net proceeds from sales
of real estate 0 2,476
Net Cash (Used In) Provided
By Investing Activities (618) 1,980
CASH FLOWS FROM
FINANCING ACTIVITIES:
Distributions to shareholders (363) 0
Principal repayments on
mortgage notes payable (113) (2,689)
Prepayment penalty on
extinguishment of debt 0 (55)
Increase (decrease) in
accrued interest (3,294) 2,008
Net Cash Used In
Financing Activities (3,770) (736)
Net (Decrease) Increase in Cash
and Cash Equivalents (5,391) 978
Cash and Cash Equivalents
at Beginning of Period 8,353 7,521
Cash and Cash Equivalents
at End of Period $ 2,962 $ 8,499
Cash Paid for Interest $ 6,454 $ 954
</TABLE>
The accompanying notes are an integral part of these
financial statements.
American Industrial Properties REIT
Notes to Consolidated Financial Statements
June 30, 1996
(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, 1995, 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.
Certain amounts in prior year financial statements have been
reclassified to conform with the current year presentation.
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.
Use of Estimates. The preparation of financial statements
in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and
accompanying notes. Actual results may differ significantly
from such estimates and assumptions.
Real Estate. The Trust carries its real estate at the lower
of depreciated cost or net realizable value. In accordance
with Statement of Financial Accounting Standards No. 121,
Accounting for Impairment of Long-Lived Assets and for Long-
Lived Assets to Be Disposed Of, the Trust records impairment
losses on long-lived assets used in operations when events
and circumstances indicate that the assets might be impaired
and the undiscounted cash flows estimated to be generated by
those assets are less than the related carrying amounts. In
addition, the Trust records impairment losses on assets held
for sale when the estimated sales proceeds, after estimated
selling costs, is less than the carrying value of the
related asset. At June 30, 1996, fourteen 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.
American Industrial Properties REIT
Notes to Consolidated Financial Statements (continued)
June 30, 1996
(unaudited)
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. The Trust has recorded deferred rent receivable of
$701,000 and $810,000 at June 30, 1996 and December 31,
1995, respectively. Leasing commissions are capitalized and
amortized on a straight-line basis over the life of the
lease. Loan fees are capitalized and amortized to interest
expense on a level yield basis over the term of the related
loan.
Income Taxes. 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. 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
totaling $16,365,000 (face amount at maturity). At June 30,
1996, the accreted value of these Zero Coupon Notes was
$13,889,000.
Note 4 - Litigation
MLI Litigation. On May 1, 1995, the Trust initiated a
lawsuit against the holder of its 8.8% unsecured notes
payable ("MLI"), alleging, among other things, that MLI and
others had engaged in acts of bad faith and conspiracy.
This suit was subsequently amended to name additional
defendants and to specify damages. Based on the facts
surrounding this lawsuit, the Trust elected not to make a
scheduled semi-annual interest payment on May 27, 1995. MLI
thereafter declared the entire principal amount due and
payable and began accruing interest, effective June 13,
1995, at the 11.7% default rate specified in the Note
Purchase Agreement. The Trust entered into an agreement on
May 22, 1996 (the "Settlement Agreement") whereby the Trust
settled this litigation and obtained an option to repay the
$45,239,000 principal amount due and owing on these notes
for $36,800,000 (the "Option Price"). The Trust also paid
$5,200,000 to MLI in satisfaction of $6,567,000 in
outstanding accrued and unpaid interest (which included
default rate interest of $1,095,000) through April 12, 1996,
resulting in an extraordinary gain of $1,367,000.
In order to achieve the discount on the principal balance of
the notes, the Trust will be required to pay at least
$25,000,000 by November 23, 1996, to be applied pro rata to
the outstanding principal balance of the notes and dollar-
for-dollar to the Option Price. The Trust must pay the
remaining amount of the Option Price during extended option
periods ending on March 31, 1997 or June 30, 1997, subject
to the payment of additional principal payments in the
amount of $250,000 and $150,000, respectively (which will be
applied pro rata to the outstanding principal balance of the
notes but not the Option Price). Interest also continues to
accrue at the non-default rate of 8.8% per annum (and at the
default rate upon an event of default), and monthly interest
payments beginning June 3, 1996 must be made in order to
receive the discount. Although interest will accrue against
the outstanding principal balance of the notes, the interest
payments will be calculated against the balance of the
Option Price; the portion of the accrued interest which is
not satisfied by the required monthly payments will be
deferred and due only upon an event of default and will not
be payable if the Trust performs its obligations pursuant to
the Settlement Agreement.
American Industrial Properties REIT
Notes to Consolidated Financial Statements (continued)
June 30, 1996
(unaudited)
The notes remain fully matured, due and payable, subject to
a moratorium on any collection efforts by MLI through
November 23, 1996, with possible extensions through June 30,
1997 as described above, as long as the Trust remains
current in its obligations under the Settlement Agreement.
If the Trust is unable to perform under the Settlement
Agreement, it will be required to pay the outstanding
principal balance of the notes plus the 8.8% interest
thereon, net of interest payments paid on the Option Price
as described above. If the Trust successfully completes the
discounted payment of the notes, this transaction will
result in a total gain to the Trust of approximately
$9,806,000, or $1.08 per share (comprised of approximately
$8,439,000 of reduced principal payments and approximately
$1,367,000 of accrued and unpaid interest).
The Settlement Agreement also provides that the notes will
now be secured by liens on twelve of the Trust's properties
and by the Trust's interests in the partnerships which own
two of the Trust's other properties. The Trust has agreed
not to sell or encumber any of these properties or otherwise
transfer its interests therein except in compliance with the
Settlement Agreement, which requires application of certain
proceeds to the Trust's obligations to MLI.
Although management believes that the payment of these notes
at a discount can be achieved, there can be no assurance
that the Trust will ultimately be able to pay the Option
Price required under the Settlement Agreement to achieve
this discount.
Other Litigation. On January 8, 1996, the Trust filed a
lawsuit in federal court in Dallas, Texas against a major
shareholder of the Trust, alleging, among other things,
violations of federal and state securities laws. On January
30, 1996, the defendants filed a counterclaim against the
Trust, requesting that certain Bylaw amendments be stricken,
that a receiver be appointed for the assets and business of
the Trust and that the Trust recover certain funds from the
Trust Managers. On March 26, 1996, the United State
District Court for the Northern District of Texas denied the
defendants' motion to appoint a receiver for the Trust.
This counterclaim was joined with a class action and
derivative complaint against the Trust and its Trust
Managers filed by another shareholder on February 22, 1996.
Although management believes these suits to be without
merit, no assurance can be given regarding the ultimate
outcome of this litigation.
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 quarter and six months ended June 30, 1996 and
1995. 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. The determination of FFO is based on the
definition adopted by the National Association of Real Estate
Investment Trusts ("NAREIT") which is net income (loss) computed
in accordance with generally accepted accounting principles,
excluding gains or losses from debt restructuring and sales of
property, plus real estate related depreciation and amortization
and after adjustments for unconsolidated partnerships and joint
ventures. In addition, NAREIT recommends that extraordinary
items or significant non-recurring items that distort
comparability should not be considered in arriving at FFO. FAD
is generally more indicative of the Trust's ability to make
distributions as it includes the effect of the Trust's capital
expenditures. 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.
<TABLE>
(000) (000)
Quarter Ended Six Months Ended
June 30, June 30,
<S> <C> <C> <C> <C>
1996 1995 1996 1995
Net loss $ 609 $ (762) $ (901) $ (1,698)
Loss on sales of real estate - - - 191
Extraordinary loss - extinguishment of
debt - 55 - 55
Extraordinary gain - forgiveness of debt (1,367) - (1,367) -
Real estate depreciation 704 702 1,404 1,408
Default rate interest accrual 42 62 369 62
Funds from operation ("FFO") (12) 57 (495) 18
Capitalized improvements and leasing
commissions (424) (336) (618) (496)
Funds available for distribution ("FAD") $ (436) $ (279) $ (1,113) $ (478)
</TABLE>
Quarter Ended June 30, 1996 and 1995
The Trust had a net income of $609,000 for the quarter ended
June 30, 1996 compared to a net loss of $762,000 for the same
quarter in 1995. This change was primarily related to the
extraordinary gain on forgiveness of debt in the amount of
$1,367,000 in the second quarter of 1996. This gain was recorded
upon the settlement of the MLI litigation as previously
discussed. The Trust also had a decrease in interest income due
to the $5.2 million paid to MLI in May 1996 in settlement of
accrued interest, thereby reducing the amount of interest earning
investments during 1996.
The Trust's FFO, which excludes the effect of extraordinary
gains or losses, decreased by $69,000 when comparing the quarter
ended June 30, 1996 to the same quarter in 1995. This is
attributable to the aforementioned decrease in interest income as
well as a slight increase in general and administrative expenses
and an offsetting decrease in interest expense. The increase in
general and administrative expense was primarily related to
higher professional fees and litigation costs while the decrease
in interest expense reflected the payoff of the Patapsco mortgage
in 1995.
FAD decreased by $157,000 due to these same factors
affecting FFO and the higher level of tenant improvements and
leasing commissions in 1996. These expenditures are indicative
of the Trust's higher level of leasing activity during the second
quarter of 1996.
Six Months Ended June 30, 1996 and 1995
When comparing the six months ended June 30, 1996 to the
same period in 1995, the net loss of the Trust decreased from
$1,698,000 in 1995 to $901,000 in 1996. This resulted primarily
from the previously discussed extraordinary gain on forgiveness
of debt of $1,367,000 recorded in the second quarter of 1996 as a
result of the settlement of the MLI litigation. Also included in
these amounts are a $513,000 increase in litigation, refinancing
and proxy costs (primarily due to the costs of defending against
two shareholder lawsuits filed in 1996), a $198,000 increase in
interest expense (due to the larger accrual of default rate
interest on the MLI notes in 1996 and an offsetting decrease in
mortgage interest as a result of the retirements of the Patapsco
and Quadrant mortgage loans in 1995), and a $113,000 increase in
general and administrative expenses (primarily resulting from
higher legal fees in 1996, the addition of a Trust Manager in
March 1996 and a general increase in administrative expenses).
The Trust's FFO, which excludes the effect of extraordinary
gains or losses, decreased by $513,000 when comparing the six
months ended June 30, 1996 to the same period in 1995. This is
primarily attributable to the aforementioned increase in
litigation, refinancing and proxy costs. The increase in general
and administrative expenses described above was largely offset by
the decrease in mortgage interest expense.
FAD decreased by $635,000 due to these same factors
affecting FFO and the higher level of tenant improvements and
leasing commissions in 1996. These expenditures are indicative
of the Trust's higher level of leasing activity in 1996. During
the first six months of 1996, the Trust executed 278,000 square
feet of new leases compared to 203,000 in 1995.
The overall occupancy of the Trust's portfolio on June 30,
1996 was 93.9%. On a same property basis, overall occupancy
decreased to 93.6% at June 30, 1996 from 94.6% a year earlier.
Also on a same property basis, revenue and net operating income
were essentially unchanged when comparing the six months ended
June 30, 1996 to the same period in 1995. These amounts reflect
slightly higher operating expenses in 1996 and the write-off of
certain receivables in 1996 due to tenant defaults.
Liquidity and Capital Resources
On May 22, 1996, the Trust entered into an agreement (the
"Settlement Agreement") to repay the Trust's 8.8% unsecured notes
to The Manufacturers Life Insurance Company ("MLI") and The
Manufacturers Life Insurance Company (U.S.A.) ("MLI-USA") at a
substantial discount in connection with the settlement of the
Trust's litigation with MLI, MLI- USA, and Fidelity Management
and Research Company, Fidelity Galileo Fund, L.P., Belmont
Capital Partners II, L.P., Fidelity Puritan Trust and Fidelity
Management Trust Co. (together, the "Fidelity Entities").
Pursuant to the Settlement Agreement and related documents,
the Trust has been granted the option to repay the approximately
$45,239,000 principal amount due and owing on its outstanding
notes for $36,800,000 (the "Option Price"). As a condition to
entering the Settlement Agreement, the Trust paid $5,200,000 to
MLI in satisfaction of $6,567,000 in outstanding accrued and
unpaid interest (which included default rate interest of
$1,095,000) through April 12, 1996, allowing the Trust to
recognize an immediate gain of $1,367,000. The Trust further
paid approximately $168,000 to MLI in satisfaction of accrued and
unpaid interest through May 1, 1996.
In order to achieve the discount on the principal balance of
the notes, the Trust will be required to pay at least $25,000,000
to MLI and MLI-USA by November 23, 1996, to be applied pro rata
to the outstanding principal balance of the notes and dollar-for-
dollar to the Option Price. The Trust must pay the remaining
amount of the Option Price during extended option periods ending
on March 31, 1997 or June 30, 1997, subject to the payment of
additional principal payments in the amount of $250,000 and
$150,000, respectively (which will be applied pro rata to the
outstanding principal balance of the notes but not the Option
Price). Interest also continues to accrue at the non-default
rate of 8.8% per annum (and at the default rate upon an event of
default), and monthly interest payments beginning June 3, 1996
must be made in order to receive the discount. Although interest
will accrue against the outstanding principal balance of the
notes, the interest payments will be calculated against the
balance of the Option Price. The portion of the accrued interest
which is not satisfied by the required monthly payments will be
deferred and due only upon an event of default; such interest
will be forgiven if the Trust performs its obligations pursuant
to the Settlement Agreement.
The notes remain fully matured, due and payable, subject to
a moratorium on any collection efforts by MLI and MLI-USA through
November 23, 1996, with possible extensions through June 30, 1997
as described above, as long as the Trust remains current in its
obligations under the Settlement Agreement. If the Trust is
unable to perform under the Settlement Agreement, it will be
required to pay the outstanding principal balance of the notes
plus the 8.8% interest thereon, net of interest payments paid on
the Option Price as described above. If the Trust successfully
completes the discounted payment of the notes, this transaction
will result in a total gain to the Trust of approximately
$9,806,000, or $1.08 per share (comprised of approximately
$8,439,000 of reduced principal payments and approximately
$1,367,000 of accrued and unpaid interest). The Trust will also
recognize a gain on the accrued interest which will be forgiven
if the Trust performs its obligations under the Settlement
Agreement (see above).
In addition, the Settlement Agreement provides that the
notes will now be secured by liens on twelve of the Trust's
properties and by the Trust's interests in the partnerships which
own two other of the Trust's properties. The Trust has agreed
not to sell or encumber any of its properties or otherwise
transfer its interests therein except in compliance with the
Settlement Agreement, which requires application of certain
proceeds to the Trust's obligations to MLI and MLI-USA.
The Settlement Agreement also requires that the Trust not
pay distributions to shareholders until the Trust has paid the
Option Price in full. For this reason, the Trust Managers have
determined that it is in the best interests of the Trust and its
shareholders to suspend distributions to shareholders until such
time as the Option Price has been paid and the discount on the
notes fully achieved. Any future distributions to shareholders
will be evaluated by the Trust Managers based on the liquidity of
the Trust, performance of the Trust's portfolio, cash flow of the
Trust and other circumstances existing upon payment of the Option
Price.
The Trust believes it can raise the funds necessary to
complete the discounted payment of the MLI debt through property
financing proceeds and/or the sale of real estate properties.
However, the ultimate success of this transaction is dependent
upon the financial and real estate markets existing at the time
of such financing or property sales. Accordingly, there can be
no assurance that the Trust will ultimately be able to pay the
Option Price as required under the Settlement Agreement to
achieve the discount on the notes. Should the Trust be unable to
perform under the Settlement Agreement, the lender has the right
to immediately begin foreclosure proceedings against the
collateral, which constitutes substantially all of the Trust's
assets.
The initial capitalization of the Trust in 1985 included
$179,698,000 (face amount at maturity) of Zero Coupon Notes due
1997. Pursuant to the retirement of these Zero Coupon Notes, the
Trust partially in-substance defeased certain Zero Coupon Notes
in December 1993 and November 1994. At June 30, 1996, the face
amount at maturity and the accreted value of the defeased Notes
were $16,365,000 and $13,889,000, respectively.
At June 30, 1996, the Trust had $62,702,000 in mortgage debt
outstanding, including the MLI debt of $45,239,000. Of this
amount, $1,934,000 represented variable rate financing (with a
weighted average interest rate of 10.25%) and $60,768,000
represented fixed rate financing (with a weighted average
interest rate of 8.75%).
PART II. OTHER INFORMATION
Item 1.Legal Proceedings.
The Manufacturers Life Insurance Company. As more fully
described in Part I, Liquidity and Capital Resources, the Trust
settled its litigation with The Manufacturers Life Insurance
Company ("MLI") on May 22, 1996 and entered into a Settlement
Agreement with respect to payment of the MLI notes.
Paul O. Koether and Pure World, Inc. On January 8, 1996,
the Trust filed a lawsuit in federal court in Dallas, Texas,
against Pure World, Inc. and Paul O. Koether. The suit alleges,
among other things, violations under federal and state securities
law for material misrepresentations and omissions made by the
defendants in filings made with the Securities and Exchange
Commission including failure to disclose meetings and correspondence
between the defendants and representatives of MLI, the Trust's
largest unsecured creditor, regarding the proposed purchase at a
discount of the Trust's unsecured notes held by MLI. The Trust
seeks injunctive relief preventing future discussions with MLI
regarding the purchase of the Trust's unsecured notes, further
attempts to gain control of the Trust by the defendants and any
further purchases of shares in the Trust by the defendants until
proper disclosures are made. In addition, the Trust seeks a
declaratory judgment regarding enforcement of the share ownership
restrictions contained in the Trust's Bylaws and injunctive
relief preventing the voting of shares accumulated in excess of
the share ownership limitations contained in the Bylaws. The
Trust also seeks recovery of distributions paid on shares
accumulated in excess of these share ownership limitations.
On January 30, 1996, the defendants filed an answer,
counterclaims and a third party complaint. The third party
complaint was filed against the Trust Managers of the Trust. In
their counterclaim and third party claims, the defendants are
requesting that certain Bylaw amendments be stricken, that the
court issue an injunction until an additional independent Trust
Manager is appointed, that a receiver be appointed for the assets
and business of the Trust, that the Trust recover certain funds
from the Trust Managers, and that the defendants recover an
unspecified amount of damages and attorneys' fees. The Trust
filed a Motion to Dismiss, which the court granted in part,
requiring the defendants to replead their counterclaim. On March
26, 1996, the court denied Pure World's motion for partial
summary judgment to appoint a receiver for the Trust. The court
ruled that the failure to elect new Trust Managers or re-elect
the current Trust Managers at the last two annual shareholder
meetings has not resulted in a shareholder deadlock and is
insufficient grounds for the appointment of a receiver. Although
management believes these counterclaims and third party claims to
be without merit, no assurance can be given regarding the
ultimate outcome of this litigation and its financial effect upon
the Trust.
Robert Strougo. On February 22, 1996, a class action and
derivative complaint was filed against the Trust and its Trust
Managers by an alleged shareholder of the Trust, Robert Strougo.
The suit alleges, among other claims, interference with
shareholders' franchise rights and breach of fiduciary duty and
seeks recovery of unspecified damages and attorneys' fees. The
court has since granted the Trust's and the Trust Managers'
motion to dismiss the class action claim, ruling that such claim
was improper. This suit was recently consolidated with the
Trust's litigation described in "Paul O. Koether and Pure World,
Inc." above. Although management believes that this suit is
without merit, no assurance can be given regarding the ultimate
outcome of this litigation and its financial effect upon the
Trust.
The costs of pursuing the above-described litigation and
defending against the actions of the defendants are expected to
be significant and could adversely affect the Trust's resources
and liquidity.
Item 3.Defaults Upon Senior Securities.
As more fully described in Part I, Liquidity and Capital
Resources, the Trust settled its litigation with The
Manufacturers Life Insurance Company ("MLI") on May 22, 1996 and
entered into a Settlement Agreement with respect to payment of
the MLI notes.
Item 6.Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit No. Description
27.1 (filed herewith) Financial Data Schedule
(b) Reports on Form 8-K
Current Report on Form 8-K dated June 5, 1996, reporting
Item 5.
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:August 14, 1996 /s/ MARC A. SIMPSON
Marc A. Simpson,
Vice President and Chief Financial Officer
(principal accounting and financial officer)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 2,962
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,513
<PP&E> 102,368
<DEPRECIATION> (24,685)
<TOTAL-ASSETS> 83,158
<CURRENT-LIABILITIES> 65,174
<BONDS> 0
0
0
<COMMON> 908
<OTHER-SE> 17,076
<TOTAL-LIABILITY-AND-EQUITY> 83,158
<SALES> 0
<TOTAL-REVENUES> 5,985
<CGS> 0
<TOTAL-COSTS> 5,093
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,160
<INCOME-PRETAX> (2,268)
<INCOME-TAX> (2,268)
<INCOME-CONTINUING> (2,268)
<DISCONTINUED> 0
<EXTRAORDINARY> 1,367
<CHANGES> 0
<NET-INCOME> (901)
<EPS-PRIMARY> (0.10)
<EPS-DILUTED> (0.10)
</TABLE>
