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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1 TO CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): October 3, 1997
AMERICAN INDUSTRIAL PROPERTIES REIT
(Exact Name of Registrant as Specified in Charter)
<TABLE>
<C> <C> <C>
TEXAS 1-9016 75-6335572
(State or Other Jurisdiction of (Commission File Number) (I.R.S. Employer
Incorporation or Organization) Identification Number)
</TABLE>
6210 N. Beltline Road, Suite 170, Irving, Texas 75063
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (972) 756-6000
Not applicable
(Former Name or Former Address, if Changed Since Last Report)
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The undersigned Registrant hereby amends its Current Report on Form 8-K
dated October 3, 1997, which was filed with the Securities and Exchange
Commission on October 17, 1997, to include the financial statements required by
Item 7(a) and the pro forma financial information required by Item 7(b).
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) FINANCIAL STATEMENTS OF THE PROPERTIES ACQUIRED PURSUANT TO RULE 3-14
OF REGULATION S-X.
The financial statements required by this Item 7(a) are included herein on
pages F-1 to F-4.
(b) PRO FORMA FINANCIAL INFORMATION.
The pro forma financial information required by this Item 7(b) is included
herein on pages F-5 to F-11.
1
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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 hereunto duly authorized.
AMERICAN INDUSTRIAL PROPERTIES REIT
By: /s/ CHARLES W. WOLCOTT
------------------------------------
Charles W. Wolcott
President and Chief Executive
Officer
Dated: December 11, 1997
2
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INDEX
<TABLE>
<CAPTION>
PAGES
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<S> <C>
Financial Statements of the Properties Acquired Pursuant to
Rule 3-14 of Regulation S-X............................... F-1 to F-4
Pro Forma Financial Information............................. F-5 to F-11
</TABLE>
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REPORT OF INDEPENDENT AUDITORS
Board of Trust Managers
American Industrial Properties REIT
We have audited the accompanying Combined Historical Summary of Gross
Income and Direct Operating Expenses of Merit Texas Properties Portfolio, which
is comprised of eight industrial properties (the "Properties"), as described in
Note 1 for the year ended December 31, 1996. This Combined Historical Summary is
the responsibility of the Properties' management. Our responsibility is to
express an opinion on this Combined Historical Summary based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the Combined Historical Summary is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the Combined Historical Summary. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of
the Combined Historical Summary. We believe that our audit provides a reasonable
basis for our opinion.
In our opinion, the Combined Historical Summary has been prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission for inclusion in the Current Report on Form 8-K dated
October 3, 1997 of American Industrial Properties REIT, as described in Note 1,
and is not intended to be a complete presentation of the income and expenses of
the Properties.
In our opinion, the Combined Historical Summary referred to above presents
fairly, in all material respects, the combined gross income and direct operating
expenses of Merit Texas Properties Portfolio, as described in Note 1, for the
year ended December 31, 1996, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Dallas, Texas
September 16, 1997
F-1
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MERIT TEXAS PROPERTIES PORTFOLIO
COMBINED HISTORICAL SUMMARY OF
GROSS INCOME AND DIRECT OPERATING EXPENSES
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
(UNAUDITED)
<S> <C> <C>
GROSS INCOME
Rental.................................................... $2,590,842 $3,145,502
Reimbursements............................................ 604,216 782,366
Other..................................................... 15,317 24,605
---------- ----------
Total gross income................................ 3,210,375 3,952,473
DIRECT OPERATING EXPENSES
Repairs and maintenance................................... 215,754 320,226
Utilities and other property operating.................... 142,287 196,148
General and administrative................................ 52,949 108,901
Real estate taxes......................................... 410,309 529,645
Management fees........................................... 144,718 185,894
---------- ----------
Total direct operating expenses................... 966,017 1,340,814
---------- ----------
Excess of gross income over direct operating expenses....... $2,244,358 $2,611,659
========== ==========
</TABLE>
See accompanying notes.
F-2
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MERIT TEXAS PROPERTIES PORTFOLIO
NOTES TO COMBINED HISTORICAL SUMMARY OF GROSS INCOME
AND DIRECT OPERATING EXPENSES
YEAR ENDED DECEMBER 31, 1996 AND
NINE MONTHS ENDED SEPTEMBER 30, 1997 (UNAUDITED)
1. ORGANIZATION AND BASIS OF PRESENTATION
Merit Texas Properties Portfolio is not a legal entity but rather a
combination of affiliated properties that have common ownership and common
management. The accompanying Combined Historical Summary of Gross Income and
Direct Operating Expenses include the accounts of eight industrial properties
located in the Dallas, Texas, metropolitan area (the "Properties"). The
Properties are owned by three limited partnerships (the "Partnerships") all of
which Merit Texas Properties, Inc. is the general partner. The Partnerships and
Properties are as follows:
<TABLE>
<CAPTION>
TOTAL
PROPERTY SQUARE FEET
-------- -----------
<S> <C>
Merit Industrial Properties L.P.
Northgate III............................................. 257,505
DFW IV.................................................... 72,918
Merit 1995 Industrial Portfolio L.P.
Valwood II................................................ 52,607
Walnut Oaks............................................... 67,945
Carpenter Center.......................................... 44,114
Carrier Place............................................. 82,100
Parkway Tech Center....................................... 69,010
Merit VV 1995 Industrial Portfolio L.P.
Valley View Commerce Park................................. 137,581
-------
Portfolio totals............................................ 783,780
=======
</TABLE>
The accompanying Combined Historical Summary has been prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission for inclusion in the Current Report on Form 8-K dated
October 3, 1997 of American Industrial Properties REIT. The Combined Historical
Summary is not intended to be a complete presentation of income and expenses of
the Properties for the year ended December 31, 1996, and the nine months ended
September 30, 1997, as certain costs such as depreciation, amortization,
interest, and other debt service costs have been excluded. These costs are not
considered to be direct operating expenses.
Interim Unaudited Financial Information
The accompanying interim unaudited Combined Historical Summary has been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission and was prepared on the same basis as the Combined Historical Summary
for the year ended December 31, 1996. In the opinion of management of the
Properties, all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of the information for this interim period
have been made. The excess of combined gross income over direct operating
expenses for such interim period is not necessarily indicative of the excess of
gross income over direct operating expenses for the full year.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of the Properties' Combined Historical Summary in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported
F-3
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MERIT TEXAS PROPERTIES PORTFOLIO
NOTES TO COMBINED HISTORICAL SUMMARY OF GROSS INCOME
AND DIRECT OPERATING EXPENSES -- (CONTINUED)
amounts included in the Combined Historical Summary and accompanying notes
thereto. Actual results could differ from those estimates.
Revenue Recognition
Minimum rents are recognized on a straight-line basis; as such, the rental
revenues for leases which contain rent abatements and contractual increases are
recognized on a straight-line basis over the initial term of the related lease.
Property operating cost recoveries from tenants of common area maintenance, real
estate taxes and other recoverable costs, are recognized in the period when the
recoveries are earned.
Capitalization Policy
Ordinary reports and maintenance are expensed as incurred; major
replacements and betterments are capitalized.
3. TRANSACTIONS WITH AFFILIATES
Management Fees
Merit Texas Properties, Inc. currently receives an asset management fee,
operating management fee and a professional fee on all the Properties. The asset
management fee is $1,500 to $6,000 per Property per year. Combined asset
management fees were $19,125 and $25,500, for the nine months ended September
30, 1997 and for the year ended December 31, 1996, respectively. The operating
management fee is four percent of cash receipts per Property per year. Combined
operating management fees were $125,593 and $160,394, for the nine months ended
September 30, 1997 and the year ended December 31, 1996, respectively. The
professional fee is $900 per Property per year. Combined professional fees were
$8,775 and $11,700, for the nine months ended September 30, 1997 and for the
year ended December 31, 1996, respectively, and are included in general and
administrative expense in the accompanying Combined Historical Summary.
4. OPERATING LEASES
The Properties have operating leases with terms ranging from one to 10
years. The minimum future rentals under operating leases as of December 31, 1996
are as follows:
<TABLE>
<S> <C>
1997........................................................ $2,681,009
1998........................................................ 1,802,248
1999........................................................ 1,341,298
2000........................................................ 1,113,392
2001........................................................ 803,794
Thereafter.................................................. 735,578
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$8,477,319
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</TABLE>
5. SUBSEQUENT EVENT
On October 3, 1997, the Properties were sold for a combined purchase price
of $36.8 million to a partnership of which American Industrial Properties REIT
is the general partner and holds a general partner interest of 98%.
F-4
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AMERICAN INDUSTRIAL PROPERTIES REIT
PRO FORMA FINANCIAL INFORMATION
The following Pro Forma Condensed Consolidated Balance Sheet of the Trust
as of September 30, 1997 has been prepared as if each of the following
transactions had occurred as of September 30, 1997: the acquisition (i) through
a partnership in which the Trust has a 98.0% controlling ownership interest, of
Merit Texas Properties Portfolio consisting of eight properties consisting of 20
light industrial and warehouse/ distribution buildings in the Dallas, Texas
area; and (ii) of Commerce Center, an office park consisting of nine buildings
in Houston, Texas (collectively, the "Acquisitions"). The following Pro Forma
Condensed Consolidated Statements of Operations of the Trust for the year ended
December 31, 1996 and the nine months ended September 30, 1997 have been
prepared as if each of the following transactions had occurred as of January 1,
1996: (i) the issuance of 2,657,973 Shares of the Trust at $12.25 per share in
July 1997 (the "Private Placement"); and (ii) the Acquisitions.
The Pro Forma Financial Information is presented for informational purposes
only and is not necessarily indicative of the financial position or results of
operations of the Trust that would have occurred if such transactions had been
completed on the dates indicated, nor does it purport to be indicative of future
financial position or results of operations. In the opinion of the Trust
management, all material adjustments necessary to reflect the effect of these
transactions have been made. The Pro Forma Condensed Consolidated Statement of
Operations for the nine months ended September 30, 1997 is not necessarily
indicative of the results of operations to be expected for the year ending
December 31, 1997.
F-5
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AMERICAN INDUSTRIAL PROPERTIES REIT
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
TRUST PRO FORMA
HISTORICAL ACQUISITIONS TOTAL
---------- ------------ ---------
(A)
<S> <C> <C> <C>
Real estate, net........................................ $ 73,757 $ 37,318(B) $121,830
10,755(C)
Cash -- unrestricted.................................... 25,780 (13,448)(B)
(3,980)(C) 8,352
Cash -- restricted...................................... 1,401 -- 1,401
Other assets, net....................................... 4,151 297(B)
64(C) 4,512
-------- -------- --------
$105,089 $ 31,006 $136,095
======== ======== ========
LIABILITIES AND SHAREHOLDERS' AND PARTNERS' EQUITY
Mortgage notes payable.................................. $ 41,380 $ 20,675(B)
6,600(C) $ 68,655
Notes payable to affiliates............................. 5,450 -- 5,450
Accrued interest payable................................ 1,078 -- 1,078
Accounts payable, accrued expenses and other............ 2,641 752(B)
239(C) 3,632
-------- -------- --------
50,549 28,266 78,815
-------- -------- --------
Minority interest in consolidated subsidiary............ -- 2,740(B) 2,740
Shareholders' and partners' equity:
Shares of beneficial interest ($0.10 par value)....... 466 -- 466
Additional paid-in capital............................ 158,906 -- 158,906
Accumulated distributions............................. (58,456) -- (58,456)
Accumulated loss from operations and extraordinary
gains (losses)..................................... (47,836) -- (47,836)
Accumulated net realized gain on sales of real
estate............................................. 1,460 -- 1,460
-------- -------- --------
Partners' equity...................................... 54,540 -- 54,540
-------- -------- --------
$105,089 $ 31,006 $136,095
======== ======== ========
</TABLE>
F-6
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AMERICAN INDUSTRIAL PROPERTIES REIT
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1997
(IN THOUSANDS EXCEPT SHARE AND UNIT DATA)
(UNAUDITED)
(A) Represents adjustments for the Acquisitions, including the Merit Texas
Properties Portfolio and Commerce Center.
(B) Represents adjustments for the acquisition of the Merit Texas Properties
Portfolio, through a partnership in which the Trust has a 98.0% controlling
partnership interest for which the Trust made an investment, including
closing and transaction costs, of $34,578, comprised of cash of $13,448,
mortgage debt of $20,675, deferred loan costs of $297, and $752 of assumed
liabilities. The limited partner of such partnership made an investment of
$2,740. The mortgage debt bears interest at LIBOR plus 2% with a maturity of
one year.
(C) Represents adjustments for Commerce Center, which was purchased for $10,755,
including closing and transaction costs, comprised of cash of $3,980,
mortgage debt of $6,600, deferred loan costs of $64, and $239 of assumed
liabilities. The mortgage debt bears interest at LIBOR plus 2% with a
maturity of one year.
F-7
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AMERICAN INDUSTRIAL PROPERTIES REIT
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
TRUST PRO FORMA
HISTORICAL ACQUISITIONS TOTAL
---------- ------------ ---------
(A) (B)
<S> <C> <C> <C>
INCOME
Rents and tenant reimbursements............................ $11,320 $5,175 $16,495
Interest income............................................ 158 49 207
------- ------ -------
11,478 5,224 16,702
------- ------ -------
EXPENSES
Property operating expenses................................ 4,022 1,785 5,807
Depreciation and amortization.............................. 2,909 961(C) 3,870
Interest on mortgage notes payable......................... 5,901 2,401(D) 8,302
General and administrative................................. 3,378 -- 3,378
------- ------ -------
16,210 5,147 21,357
------- ------ -------
Income (loss) from operations.............................. $(4,732) $ 77 $(4,655)
======= ====== =======
Income (loss) from operations per share(a)................. $ (2.60) $ (1.04)
======= =======
Weighted average number of Shares outstanding(a)........... 1,822 4,480
======= =======
</TABLE>
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(a) The Share amounts and number of Shares outstanding have been restated to
reflect the impact of the one for five reverse Share split, which was
approved by the Trust's shareholders and became effective on October 15,
1997.
F-8
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AMERICAN INDUSTRIAL PROPERTIES REIT
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
(A) Certain reclassifications have been made to the historical statements of
operations of the Trust to conform to the pro forma financial information
presentation. In addition, excludes gain on sale of real estate of $177 and
extraordinary gain on extinguishment of debt of $5,810.
(B) Represents adjustments for the Acquisitions, based on historical operating
results. Depreciation is based on the allocation of the purchase price and
a 40 year life. Interest expense is based on the borrowings incurred for
the Acquisitions at the related interest rate. The Trust is allocated all
net income under the terms of the partnership agreement until it receives a
cumulative preferred return of 20%, as defined in the partnership
agreement.
(C) Represents depreciation of the Acquisitions. Buildings are depreciated using
the straight-line method over a 40 year period.
(D) Represents interest expense related to borrowings of $27,275 for the
Acquisitions, based on an interest rate of LIBOR plus 2% (7.48% for 1996).
Also includes amortization of deferred loan costs incurred related to the
borrowings of $361.
F-9
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AMERICAN INDUSTRIAL PROPERTIES REIT
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
TRUST PRO FORMA
HISTORICAL ACQUISITIONS TOTAL
---------- ------------ ---------
(A) (B)
<S> <C> <C> <C>
INCOME
Rents and tenant reimbursements............................. $ 7,787 $4,264 $12,051
Interest income............................................. 436 16 452
------- ------ -------
8,223 4,280 12,503
------- ------ -------
EXPENSES
Property operating expenses................................. 2,758 1,288 4,046
Depreciation and amortization............................... 2,105 721(C) 2,826
Interest on mortgage notes payable.......................... 4,015 1,555(D) 5,570
General and administrative.................................. 1,759 -- 1,759
------- ------ -------
10,637 3,564 14,201
------- ------ -------
Income (loss) from operations............................... $(2,414) $ 716 $(1,698)
======= ====== =======
Income (loss) from operations per share(a).................. $ (0.86) $ (0.36)
======= =======
Weighted average number of Shares outstanding(a)............ 2,793 4,658
======= =======
</TABLE>
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(a) The Share amounts and number of Shares outstanding have been restated to
reflect the impact of the one for five reverse Share split, which was
approved by the Trust's shareholders and became effective on October 15,
1997.
F-10
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AMERICAN INDUSTRIAL PROPERTIES REIT
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
(A) Certain reclassifications have been made to the historical statements of
operations of the Trust to conform to the pro forma financial information
presentation. In addition, excludes gain on sale of real estate of $312 and
extraordinary gain on extinguishment of debt of $2,643.
(B) Represents adjustments for the Acquisitions, based on historical operating
results. Depreciation is based on the allocation of the purchase price and
a 40-year life. Interest expense is based on the borrowings incurred for
the Acquisitions at the related interest rate. The Trust is allocated all
net income under the terms of the partnership agreement until it receives a
cumulative preferred return of 20%, as defined in the partnership
agreement.
(C) Represents depreciation of the Acquisitions. Buildings are depreciated using
the straight-line method over a 40 year period.
(D) Represents interest expense related to borrowings at $27,275 for the
Acquisitions, based on an interest rate of LIBOR plus 2% (7.60% for 1997).
F-11
