<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1997
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 of Organization) (I.R.S. Employer
Identification Number)
6210 NORTH BELTLINE, SUITE 170
IRVING, TEXAS 75063
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (972) 756-6000
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>
Common 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
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 Regulations 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 $149,148,811 as of March 11, 1998. 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 11, 1998.
11,151,313 Common Shares of Beneficial Interest
were outstanding as of March 11, 1998.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement in connection with its
Annual Meeting of Shareholders to be held in May 1998 are incorporated by
reference in Part III.
<PAGE> 2
AMERICAN INDUSTRIAL PROPERTIES REIT
FOR THE YEAR ENDED DECEMBER 31, 1997
TABLE OF CONTENTS
FORM 10-K
<TABLE>
<CAPTION>
SECURITIES AND EXCHANGE COMMISSION ITEM NUMBER AND DESCRIPTION PAGE
- -------------------------------------------------------------- ----
<S> <C>
PART I.
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
The Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Business Objectives and Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Recent Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Revenue and Loss from Real Estate Operations . . . . . . . . . . . . . . . . . . . . 5
Geographic Analysis of Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Item 4. Submission of Matters to a Vote of Shareholders . . . . . . . . . . . . . . . . . . . 12
PART II.
Item 5. Market for Registrant's Common Equity and Related Shareholder Matters . . . . . . . . 13
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 14
Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Year 2000 Issues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Liquidity and Capital Resources . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Item 7A. Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . 20
Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . 21
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . 21
PART III.
Item 10. Trust Managers and Executive Officers of the Trust . . . . . . . . . . . . . . . . . . 22
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Item 12. Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . 22
Item 13. Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . . 22
PART IV.
Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K . . . . . . . . . . . . 22
Index to Consolidated Financial Statements and Financial Statement Schedule . . . . . . . . . . . F-1
</TABLE>
<PAGE> 3
PART I.
ITEM 1. BUSINESS
THE COMPANY
American Industrial Properties REIT (together with its subsidiaries, the
"Trust" or the "Company") is a Texas real estate investment trust that was
organized on September 26, 1985 by the issuance of Common Shares of Beneficial
Interest (the "Shares"). On November 27, 1985, the Trust completed an initial
public offering 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 real estate properties. The direct and
indirect subsidiaries of the Trust include two operating partnerships of which
the Trust is the sole general partner and owns substantially all of the
economic interests directly or indirectly.
As of December 31, 1997, the Trust directly or indirectly owned a portfolio
of 36 real estate properties aggregating 4.14 million net rentable square feet.
Included in these amounts are 10 properties aggregating 1.4 million net
rentable square feet which the Trust acquired in a merger with four real estate
limited partnerships effective December 31, 1997 (see "Recent Developments"
below). The Trust's emphasis is in the light industrial sector, which it
characterizes as office showroom, service center and flex properties, low rise
offices, and small bay distribution properties (see "Business Objectives and
Strategy" below). Based on net rentable square feet as of December 31, 1997,
approximately 69% of the Trust's portfolio is represented by light industrial
properties, 24% of the portfolio is represented by office properties and 7% of
the portfolio is represented by retail properties. The light industrial
properties are leased for office, office-showroom, warehouse, distribution,
research and development, and light assembly purposes. The retail properties
are leased to retail merchandise establishments, restaurants and a cinema. No
single tenant accounts for more than 10% of the Trust's consolidated gross
revenue. The Trust's retail property in Denver, Colorado had more than 10% of
total revenues of the Trust. Rents and tenant reimbursements related to this
retail property were approximately 27%, 29% and 30% of the Trust's total
revenues in 1997, 1996 and 1995, respectively.
In June 1997, the authorized Shares of the Trust were increased by vote of
the shareholders from 10,000,000 to 500,000,000 Shares, thus allowing the Trust
to initiate a growth strategy. Additionally, the shareholders authorized
50,000,000 Preferred Shares of Beneficial Interest. In October 1997,
shareholders of the Trust approved a one-for-five reverse Share split.
The Trust has qualified as a real estate investment trust ("REIT") for
federal income tax purposes since 1985 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 in the Internal Revenue Code of 1986, as amended
(the "Code")) to its shareholders.
The Trust's executive offices are located at 6210 North Beltline Road,
Suite 170, Irving, Texas 75063. The Trust's main telephone number is
(972)756-6000.
BUSINESS OBJECTIVES AND STRATEGY
The Trust's business objective is to increase shareholder value through
opportunistic investments and efficient operations in the light industrial
property sector, including office showroom, service center and flex properties,
low rise offices, and small bay distribution properties.
Focus on Light Industrial Properties. The Trust intends to focus on the
light industrial sector of the real estate market, believing that this sector
offers a number of compelling benefits. The light industrial property sector
serves the smaller tenant population and, in many instances, serves as a low
cost office space alternative. In general, rents in light industrial office
space offer the opportunity for increased
1
<PAGE> 4
returns as suburban office rents rise. The Trust believes that this sector a)
is characterized by highly fragmented ownership, b) offers current
opportunities to purchase properties at attractive yields and at a discount to
replacement cost, and c) has, to date, avoided much of the institutional
activity leading to higher prices and lower yields common to many other sectors
of the real estate market. The Trust also believes that there are inherent
benefits to its strategy of consolidating ownership in this sector, including
greater returns through economies of scale and the ability to offer space
alternatives to tenants which are not currently available.
Geographic Focus. The Trust will concentrate its efforts in the Southern
and Western regions of the United States with primary target markets in Texas
(Dallas, Houston, Austin), California (San Diego, Los Angeles), Arizona
(Phoenix, Tucson), Colorado (Denver, Colorado Springs) and Atlanta, Georgia.
The Trust also evaluates opportunities in secondary target markets such as
Orlando and Tampa, Florida, Charlotte, North Carolina and Washington, D.C. The
target markets are characterized by above average economic growth, strong
levels of new business formation and favorable supply and demand
characteristics.
Experienced Management. The Trust has seasoned management with extensive
experience in all phases of the real estate cycle. Management utilizes
research-driven analysis of markets and sub-markets to identify targeted
opportunities and intensive due diligence efforts to evaluate the future
potential of possible acquisitions. Management has strong acquisition and
networking capabilities to identify acquisition opportunities on both a single
property and portfolio basis.
Growth from Acquisitions. The Trust believes that it will be able to
acquire properties in the light industrial sector at prices which justify
investment. The Trust evaluates potential acquisitions from both a current
yield and an internal rate of return perspective. The Trust periodically
estimates its cost of capital in an effort to ensure that the internal rate of
return on proposed acquisitions exceeds such cost of capital, thereby ensuring
that an acquisition will be accretive on an equity basis. The Trust will, on
occasion, utilize an operating partnership structure to acquire properties,
which offers certain tax advantages to the seller of such properties.
Growth from Existing Portfolio. The Trust will pursue increases in cash
flow from its existing portfolio through intensive management of the portfolio
and its customer base. Portfolio management is focused on customer service,
leasing the portfolio to stabilized occupancy (generally 94-96%), retaining
existing customers and increasing rental rates. In addition, the Trust will
seek to control operating expenses and should benefit from economies of scale
as its portfolio increases. Although the Trust currently employs third parties
for property management and leasing services, it will begin to manage and lease
its own properties as it achieves critical mass in individual markets. In
addition to cost efficiencies, a direct relationship with the Trust's customers
will provide additional opportunities to the Trust. The Trust expects to begin
the process of converting to self-management and leasing its properties in the
second quarter of 1998.
Financial Strategy. The Trust's financial strategy seeks to lower its cost
of capital through conservative debt levels and through appropriate equity
transactions, including private equity placements and/or public equity
offerings. The Trust intends to maintain a debt to total market capitalization
ratio which will generally not exceed 50%. At December 31, 1997, the Trust's
total market capitalization (based upon a December 31, 1997 Share price of
$13.625 per Share) was approximately $250 million and the debt to total market
capitalization ratio was 46%. On February 18, 1998, the Trust filed a Form S-3
shelf registration with the Securities and Exchange Commission (see "Recent
Developments" below.)
RECENT DEVELOPMENTS
From August 29, 1997 through December 31, 1997, the Trust acquired
approximately $166.7 million in net real estate properties. From January 1,
1998 through March 11, 1998 the Trust acquired approximately $9.2 million of
additional net real estate properties. (See "ITEM 2. Properties" for
additional information on these properties):
2
<PAGE> 5
o On August 29, 1997, the Trust purchased two light industrial properties
with a total of 137,400 net rentable square feet ("nrsf") for $6.4 million.
The properties are located in suburban areas of Dallas, Texas.
o On October 3, 1997, the Trust, as general partner in a limited partnership,
purchased a portfolio of eight properties with 784,590 nrsf located in
Dallas and suburban areas of Dallas, Texas. The purchase price of the
portfolio was $36.8 million. The purchase price was partially financed by
a borrowing of approximately $20.7 million under an acquisition line of
credit and the issuance of approximately $2.8 million of limited
partnership units in AIP-SWAG Operating Partnership L.P. After
satisfaction of certain requirements, each limited partnership unit may be
redeemed in exchange for cash equal to the value, as determined in
accordance with the partnership agreement, of a Share (or, at the Trust's
election, the Trust may purchase each limited partnership unit offered for
redemption for one Share). In addition, the limited partners received
warrants to purchase 40,000 Shares at $17.50 per Share. The warrants
expire on October 3, 2000.
o On November 13, 1997, the Trust purchased one property consisting of nine
office/warehouse buildings with a total of 286,242 nrsf in Houston, Texas.
The Trust borrowed $6.6 million of the $10.7 million purchase price under
its acquisition line of credit.
o On December 23, 1997, the Trust purchased a portfolio of five light
industrial buildings in Tampa, Florida with 135,198 nrsf for a total
consideration of $7.3 million. The Trust borrowed $4.7 million of the
purchase price under its acquisition line of credit.
o On December 30, 1997, the Trust purchased a 96,386 nrsf, two building
property located in Englewood, Colorado for $7.55 million. The Trust
borrowed $4.9 million of the purchase price under its acquisition line of
credit.
o On December 31, 1997, the Trust purchased a 69,694 nrsf property located in
Carrollton, Texas for $4.75 million. The Trust borrowed $3.3 million of
the purchase price under its acquisition line of credit.
o On January 20, 1998, the Trust closed the merger of four real estate
limited partnerships into the Trust. As provided in the merger agreements,
the transaction was effective as of December 31, 1997. The partnerships
were affiliated with USAA Real Estate Company ("Realco"), a significant
shareholder of the Trust. As a result of the merger, the Trust acquired
ownership of seven office properties totaling 1,010,475 nrsf including
three office/research and development properties with 155,824 nrsf and a
55.84% interest in a joint venture owning an office property with 291,424
nrsf. The Trust also acquired two industrial properties with 320,010 nrsf
and one retail property with 70,772 nrsf. The total purchase price was
approximately $93.1 million, inclusive of costs of the merger. Of this
amount, approximately $38.4 million was assumed in debt, $57.9 million was
issued in Shares to the former partners and $3.8 million was received in
cash, relating to net working capital received. The $38.4 million in debt
includes $15 million due to Las Colinas Management Company, an affiliate of
Realco, $7.2 million of unsecured debt owed to Realco, and $16.2 million
due to third party lenders. The acquisition was accounted for on the
purchase method of accounting. Upon completion of the merger, Realco owned
17% of the Trust's outstanding Shares.
o On February 12, 1998, the Trust, through an indirect subsidiary, purchased
a 94,304 nrsf office and service center development in Richardson, Texas, a
suburb of Dallas, for total consideration of $9.25 million. Of the total
consideration, $6,475,000 was borrowed under the Trust's acquisition line
of credit and $875,000 of limited partnership units in AIP Operating, L.P.
was issued to the seller. After satisfaction of certain requirements, each
limited partnership unit may be redeemed in exchange for cash equal to the
value, as determined in accordance with the partnership agreement, of a
Share (or, at the Trust's election, the Trust may purchase each limited
partnership unit offered for redemption for one Share).
o As of March 11, 1998, the Trust has entered into contracts and letters of
intent to purchase approximately $44.0 million and $75.0 million in real
estate properties, respectively. No assurance
3
<PAGE> 6
can be given that properties currently under contract or letter of intent
will be completed or, if completed, that they will be accretive on a per
share basis.
In order to fund its acquisitions, the Trust completed the following equity
and/or financing transactions during the period January 1, 1997 through
February 25, 1998:
o In July 1997, the Trust completed a $35 million private equity placement of
2,857,143 Shares at $12.25 per Share (of which approximately $32.6 million
was funded in July 1997 and $2.4 million in December 1997).
o In October 1997, the Trust obtained a $35 million secured acquisition line
of credit from Prudential Securities Capital Corporation. The acquisition
line of credit provided for a variable interest rate based on the 30 day
LIBOR rate plus 2% and matures in October 1998.
o On December 1, 1997, an unsecured note held by Realco in the amount of $5.4
million was converted into Shares based upon a conversion price of $10.00
per Share.
o In December 1997, the Trust repaid its existing borrowings under the
acquisition line of $27.3 million with proceeds from permanent fixed-rate
financing with Prudential Mortgage Capital Company LLC. The permanent
financing bears an interest rate of 7.25%, amortizes over 30 years, and
matures in January 2008. In addition, the acquisition line of credit was
replaced with a new $35 million acquisition line of credit from Prudential
Securities Capital Corporation with essentially the same terms as the
previous line and a maturity in December 1998.
o Effective December 31, 1997, approximately 4.4 million Shares were issued
as a result of the merger with four Realco related real estate limited
partnerships. The agreed exchange ratio was $13.125 per Share.
o On January 30, 1998, the Trust completed a $10 million private placement of
Shares at $13.625 per Share.
o In February 1998, two shareholders exercised their preemptive rights and
acquired $8.7 million of Shares at $13.625 per Share.
o As of March 11, 1998, the Trust had approximately $23.2 million in
outstanding debt under its acquisition line of credit and expects to retire
this debt with proceeds from permanent financing.
On January 29, 1998, the Board of Trust Managers announced a reinstatement
of quarterly distributions, declaring a distribution of $0.18 per Share,
payable on April 14, 1998 to shareholders of record as of April 3, 1998.
On February 18, 1998, the Trust filed a Form S-3 shelf registration with
the Securities and Exchange Commission which would provide for the issuance of
up to $500 million in Shares, Preferred Shares of Beneficial Interest, and
unsecured senior debt securities and/or warrants to purchase such securities in
amounts, at prices and on terms to be determined by market conditions at the
time of future offerings. The Trust anticipates utilization of this shelf
registration in the future to fund acquisitions and growth of the Company.
On March 9, 1998, the Board of Trust Managers authorized a Share repurchase
program allowing the Trust to purchase up to 1,000,000 Shares from time to time
in open market transactions, as price and market conditions allow, over the
following six months. As of March 11, 1998, the Trust had purchased 6,700
Shares in the open market, for an aggregate cost of $89,397.
4
<PAGE> 7
REVENUE AND LOSS FROM REAL ESTATE OPERATIONS
The breakdown of revenue and loss from real estate operations for each of
the years ended December 31, 1997, 1996 and 1995 is as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Rents and reimbursements from unaffiliated tenants:
Industrial................................................................ $ 8,945 $ 8,012 $ 7,885
Retail.................................................................... 3,256 3,308 3,525
-------- -------- --------
Rents and tenant reimbursements........................................... 12,201 11,320 11,410
Interest income........................................................... 546 158 369
-------- -------- --------
Total revenue............................................................. 12,747 11,478 11,779
Property operating expenses............................................... (4,315) (4,022) (3,851)
Depreciation and amortization............................................. (3,157) (2,909) (2,777)
Interest expense.......................................................... (5,778) (5,901) (6,485)
Administrative expenses................................................... (2,504) (3,378) (2,404)
Provisions for possible losses on real estate............................. -- -- (600)
-------- -------- --------
Loss from real estate operations.......................................... $ (3,007) $ (4,732) $ (4,338)
======== ======== ========
</TABLE>
5
<PAGE> 8
GEOGRAPHIC ANALYSIS OF REVENUE
The geographic breakdown of the Trust's rents and tenant reimbursements for
each of the years ended December 31, 1997, 1996, and 1995 is as follows (in
thousands):
<TABLE>
<CAPTION>
MARKET 1997 1996 1995
- ------------------------------------- ------- ------- -------
<S> <C> <C> <C>
TEXAS
Dallas Industrial (a) .......... $ 4,454 $ 2,863 $ 2,575
Houston Industrial (b) ......... 1,813 1,461 1,387
CALIFORNIA
Industrial ..................... 947 908 922
Office (f) ..................... -- -- --
FLORIDA
Industrial (c) ................. 23 -- 71
Retail (f) ..................... -- -- --
COLORADO
Industrial (g) ................. 6 -- --
Retail ......................... 3,256 3,308 3,525
OTHER INDUSTRIAL
Maryland ....................... 630 541 577
Wisconsin ...................... 950 910 906
Illinois (f) ................... -- -- --
Minnesota (d) .................. 122 805 824
Washington (e) ................. -- 524 623
OTHER OFFICE
Missouri (f) ................... -- -- --
Massachusetts (f) .............. -- -- --
Arizona (f) .................... -- -- --
------- ------- -------
Total rents and tenant reimbursements $12,201 $11,320 $11,410
======= ======= =======
</TABLE>
---------------------
(a) One property was purchased in August 1995; two properties were
purchased in August 1997; nine properties were purchased in November
and December 1997 and one property was sold in
December 1997.
(b) One property was purchased in November 1997.
(c) One property was sold in February 1995 and three properties were
purchased in December 1997.
(d) One property was sold in December 1996 and one property was sold in
March 1997.
(e) The Seattle property was sold in November 1996.
(f) These properties were purchased effective December 31, 1997 as a
result of the merger with four real estate limited partnerships.
(g) One property was purchased in December 1997.
COMPETITION
The Trust owns properties in various markets and sub-markets in ten states
(See "ITEM 2. Properties"). The principal competitive factors in these markets
are price, location, quality of space, and amenities. In each case, the Trust
owns 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 available to
the Trust.
EMPLOYEES
The Trust currently employs 19 people on a full-time basis. Information
regarding executive officers of the Trust is set forth in "ITEM 10. Trust
Managers and Executive Officers of the Trust" of Part III of this Form 10-K and
is incorporated herein by reference.
6
<PAGE> 9
Over time, the Trust expects to internalize the property management and
leasing duties which are currently contracted out to third parties. The number
of employees is expected to increase as more properties are acquired and as the
Trust moves to self management. No employees are presently covered by collective
bargaining agreements.
ITEM 2. PROPERTIES
As of December 31, 1997, the Trust owned 36 real estate properties
consisting of 27 light industrial developments, 7 office buildings, and 2 retail
properties. The Trust's light industrial classification includes office
showroom, service center and flex properties, low rise offices, and small bay
distribution properties. In 1997, the Trust acquired 25 properties and sold two
light industrial centers.
The following tables set forth certain information about the light
industrial, office, and retail properties owned as of December 31, 1997, without
giving effect to 1998 acquisitions. Based on annualized rental revenues in place
as of December 31, 1997, no single tenant would have accounted for more than 10%
of the Company's total annualized light industrial, office, and retail revenues
for 1997. Rents and tenant reimbursements related to the Trust's retail property
in Denver, Colorado were approximately 27% of the Trust's total revenues in
1997.
7
<PAGE> 10
PROPERTY INFORMATION
<TABLE>
<CAPTION>
Net
Rentable
Acq. Year Number Area
Property Location Date Constructed Building (Sq. Ft.)
-------- -------- ---- ----------- -------- ---------
LIGHT INDUSTRIAL PROPERTIES
<S> <C> <C> <C> <C> <C>
Avion Dallas, TX 1997 1984 3 69,694
Beltline Business Ctr Irving, TX 1985 1984 3 59,656
Bowater Lakeland, FL 1997 1989 1 111,720
Carpenter Center Dallas, TX 1997 1983 1 44,114
Carrier Place Grand Prairie, TX 1997 1984 1 82,183
Central Park Richardson, TX 1997 1984 2 70,250
Commerce Center Houston, TX 1997 1971/74 6 286,242
Commerce Park Houston, TX 1985 1984 2 87,279
Continental Plastic Elk Grove Village, IL 1997 1963/96 2 208,290
Corporex Plaza I Tampa, FL 1997 1982 3 93,508
Corporex President's Plaza Tampa, FL 1997 1987 2 41,690
DFW IV Grapevine, TX 1997 1985 2 73,644
Gateway 5 & 6 Irving, TX 1985 1984/85 2 78,786
Huntington Drive Los Angeles, CA 1985 1984/85 2 62,218
Inverness Denver, CO 1997 1980 2 96,386
Meridian Arlington, TX 1995 1981 1 72,072
Northgate II Dallas, TX 1985 1982/83 4 235,827
Northgate III Dallas, TX 1997 1979/86 6 257,505
Northwest Business Pk Milwaukee, WI 1986 1983/86 3 143,120
Parkway Tech Plano, TX 1997 1984 1 69,011
Patapsco Baltimore, MD 1985 1980/84 2 95,151
Plaza Southwest Houston, TX 1985 1970/74 5 149,680
Skyway Circle Irving, TX 1997 1981 1 67,150
Valley View Commerce Dallas, TX 1997 1986 4 137,581
Valwood II Carrollton, TX 1997 1983 1 52,607
Walnut Oaks Dallas, TX 1997 1984 4 67,945
Westchase Houston, TX 1985 1983 2 47,630
-------- -----------
Total Light Industrial Properties 68 2,860,939
-------- -----------
OFFICE PROPERTIES
1881 Pine Street St Louis, MO 1997 1987 1 111,047
Apollo Computer (a) Chelmsford, MA 1997 1987 1 291,424
Eastman Kodak San Diego, CA 1997 1987 1 59,600
Linear Technology Milpitas, CA 1997 1986 1 42,130
Manhattan Towers Manhattan Beach, CA 1997 1985 2 309,484
Skygate Common Phoenix, AZ 1997 1964/73 3 142,696
Systech San Diego, CA 1997 1982 1 54,094
-------- -----------
Total Office Properties 10 1,010,475
-------- -----------
RETAIL PROPERTIES
Tamarac Denver, CO 1985 1976/79 2 196,455
Volusia Point Daytona Beach, FL 1997 1984 1 70,772
-------- -----------
Total Retail Properties 3 267,227
-------- -----------
Total Light Industrial, Office, and Retail
Properties 81 4,138,641
======== ===========
</TABLE>
(a) The Trust owns a 55.84% joint venture interest in the property.
8
<PAGE> 11
TENANT INFORMATION
<TABLE>
<CAPTION>
Average Base
Percent Number Of Rental Rate Annualized
Property Location Leased (a) Tenants (a) Per Sq. Ft. (a) Base Rent
-------- -------- ---------- --------- ---------------- ----------
LIGHT INDUSTRIAL PROPERTIES (000)
<S> <C> <C> <C> <C> <C>
Avion Dallas, TX 94.8% 7 $ 9.84 $ 650
Beltline Business Ctr Irving, TX 92.9 25 6.75 374
Bowater Lakeland, FL 100.0 1 3.20 357
Carpenter Center Dallas, TX 69.6 6 4.51 138
Carrier Place Grand Prairie, TX 96.0 16 4.42 349
Central Park Richardson, TX 100.0 10 8.55 601
Commerce Center Houston, TX 77.7 29 4.75 1,055
Commerce Park Houston, TX 96.3 10 5.33 448
Continental Plastic Elk Grove Village, IL 100.0 2 3.60 749
Corporex Plaza I Tampa, FL 87.9 22 6.61 543
Corporex President's Plaza Tampa, FL 72.7 10 7.51 228
DFW IV Grapevine, TX 91.0 7 5.04 338
Gateway 5 & 6 Irving, TX 100.0 7 5.75 453
Huntington Drive Los Angeles, CA 94.6 5 16.82 990
Inverness Denver, CO 100.0 9 8.01 772
Meridian Arlington, TX 100.0 1 2.31 166
Northgate II Dallas, TX 100.0 13 3.14 740
Northgate III Dallas, TX 92.6 18 4.03 961
Northwest Business Pk Milwaukee, WI 83.1 13 5.84 695
Parkway Tech Plano, TX 93.7 8 4.54 293
Patapsco Baltimore, MD 95.7 20 6.52 594
Plaza Southwest Houston, TX 84.9 28 4.42 561
Skyway Circle Irving, TX 83.4 5 4.71 264
Valley View Commerce Dallas, TX 89.9 6 6.21 769
Valwood II Carrollton, TX 100.0 1 4.48 236
Walnut Oaks Dallas, TX 85.6 20 3.87 225
Westchase Houston, TX 100.0 10 5.34 254
-------- --------- ---------- ------------
Total Light Industrial Properties 91.8% 309 $ 5.25 $13,803
-------- --------- ---------- ------------
OFFICE PROPERTIES
1881 Pine Street St Louis, MO 86.0% 3 $ 12.72 $ 1,215
Apollo Computer (b) Chelmsford, MA 100.0 1 6.86 2,000
Eastman Kodak San Diego, CA 98.7 2 10.44 614
Linear Technology Milpitas, CA 100.0 1 9.00 379
Manhattan Towers Manhattan Beach, CA 98.0 7 12.09 3,670
Skygate Common Phoenix, AZ 89.2 2 14.82 1,887
Systech San Diego, CA 100.0 3 11.25 609
-------- --------- ---------- ------------
Total Office Properties 96.3% 19 $ 10.66 $ 10,374
-------- --------- ---------- ------------
RETAIL PROPERTIES
Tamarac (c) Denver, CO 81.2% 52 $ 13.12 $ 2,093
Volusia Point Daytona Beach, FL 91.3 18 10.95 708
-------- --------- ---------- ------------
Total Retail Properties 83.9% 70 $ 12.50 $ 2,801
-------- --------- ---------- ------------
Total Light Industrial, Office and Retail Properties 92.4% 398 $ 7.05 $ 26,978
======== ========= ========== ============
</TABLE>
(a) Based on leases executed on or before December 31, 1997.
(b) The Trust owns a 55.84% joint venture interest in the property.
(c) The denominator of average base rental rate per square foot calculation for
this property includes ground lease income.
9
<PAGE> 12
INFORMATION BY PROPERTY TYPE
<TABLE>
<CAPTION>
SQUARE FEET (A) ANNUALIZED BASE RENT (A)
---------------------------- ---------------------------------------------
AMOUNT PERCENT AMOUNT PERCENT PSF
------ ------- ------ ------- ---
<S> <C> <C> <C> <C> <C>
Light Industrial 2,627,419 68.7% $13,803,000 51.1% $ 5.25
Office 972,763 25.4 10,374,000 38.5 10.66
Retail 224,136 5.9 2,801,000 10.4 12.50
---------------------------- ---------------------------------------------
Total 3,824,318 100. 0% $26,978,000 100.0% $ 7.05
============================ =============================================
</TABLE>
(a) Based on leased net rentable square footage as of December 31, 1997.
Includes revenues from ground leases.
LEASE EXPIRATION DETAIL
<TABLE>
<CAPTION>
ANNUALIZED
NO. OF ANNUALIZED BASE RENT
LEASES SQUARE BASE RENT OF OF EXPIRING
YEAR EXPIRING FEET PERCENTAGE EXPIRING LEASE PERCENTAGE LEASES - PSF
<S> <C> <C> <C> <C> <C> <C>
1998 85 454,308 13.0% $ 2,621,879 9.9% $ 5.77
1999 89 720,399 20.6 3,788,926 14.3 5.26
2000 100 943,423 27.0 6,308,587 23.8 6.69
2001 25 312,806 9.0 2,139,742 8.1 6.84
2002 48 621,504 17.8 6,505,012 24.5 10.47
2003 7 156,783 4.5 1,862,806 7.0 11.88
2004 8 124,496 3.6 684,150 2.6 5.50
2005 4 10,700 0.3 174,294 0.7 16.29
2006 2 13,239 0.4 81,429 0.3 6.15
2007 2 133,300 3.8 2,343,975 8.8 17.58
-------- ----------- ----------- ----------- ----------- -----------
Total 370 3,490,958 100.0% $26,510,800 100.0% $ 7.59
======== =========== =========== =========== =========== ===========
</TABLE>
SUMMARY LEASE INFORMATION
<TABLE>
<CAPTION>
SIZE OF
LEASE NO. OF SQUARE
(SQUARE FEET) LEASES FOOTAGE PERCENTAGE
------------- -------- --------- ------------
<S> <C> <C> <C>
0 - 5,000 236 618,795 16.2%
5,001 - 10,000 78 530,876 13.9
10,001 - 20,000 44 593,373 15.5
20,001 - 50,000 29 814,694 21.3
50,000 + 11 1,266,580 33.1
-------- ------------- ----------
Total 398 3,824,318 100.0%
======== ============= ==========
</TABLE>
Based on leases executed on or before December 31, 1997.
10
<PAGE> 13
MORTGAGE INDEBTEDNESS
<TABLE>
<CAPTION>
PRINCIPAL INTEREST MATURITY PRINCIPAL DUE
PROPERTY BALANCE RATE DATE AT MATURITY
-------- ------- ---- ---- -----------
<S> <C> <C> <C> <C>
LIGHT INDUSTRIAL PROPERTIES
Beltline Business Ctr $ 2,730,629 8.61%(b) Dec-03 $ 2,373,725
Commerce Park 2,066,422 8.61 (b) Dec-03 1,796,333
Gateway 5 & 6 2,804,430 8.61 (b) Dec-03 2,437,880
Huntington Drive 4,501,848 8.61 (b) Dec-03 3,913,439
Meridian 1,143,912 8.61 (b) Dec-03 994,398
Northgate II 5,092,254 8.61 (b) Dec-03 4,426,677
Northwest Business Park 1,251,318 11.00 (b) Mar-99 1,216,524
Patapsco 3,062,732 8.61 (b) Dec-03 2,662,422
Plaza Southwest 3,321,035 8.61 (b) Dec-03 2,886,963
Westchase 1,306,274 8.61 (b) Dec-03 1,135,539
Mortgage Loan Secured by: 27,275,000 7.25 (b) Jan-08 23,541,148
Carpenter Center
Carrier Place
Commerce Center
DFW IV
Northgate III
Parkway Tech
Valley View Commerce
Valwood II
Walnut Oaks
Acquisition Line Secured by: 16,725,000 7.72 (c) Dec-98 16,725,000
Corporex Plaza I
Corporex President's Plaza
Central Park
Skyway Circle
Avion
Inverness
-------------- -------------
Total Light Industrial Properties $ 71,280,854 $ 64,110,048
-------------- -------------
OFFICE PROPERTIES
Apollo Computer (a) $ 15,113,227 9.13 (b) Aug-01 $ 14,340,606
Eastman Kodak 1,064,787 9.63 (b) Aug-08 --
Manhattan Towers 15,000,000 9.57 (b) Mar-98 15,000,000
-------------- -------------
Total Office Properties $ 31,178,014 $ 29,340,606
-------------- -------------
RETAIL PROPERTIES
Tamarac $ 11,767,596 8.40 (b) Dec-01 $ 10,907,186
-------------- -------------
Total Retail Properties $ 11,767,596 $ 10,907,186
-------------- -------------
Total Light Industrial, Office and Retail Properties $ 114,226,464 $ 104,357,840
============== =============
</TABLE>
(a) Trust owns 55.84% joint venture interest in this property.
(b) Interest rate is fixed.
(c) Interest rate is variable based on 30 day LIBOR rate plus 2%. R rate plus
200 basic point
11
<PAGE> 14
ITEM 3. LEGAL PROCEEDINGS
On August 20, 1997, a lawsuit was filed in the Superior Court of the State
of Arizona against certain entities, including the Trust, alleging among other
things, breaches of fiduciary duty in connection with the transactions
contemplated in the Trust's merger with four real estate limited partnerships.
The lawsuit was subsequently removed to federal court and has been transferred
to the Western District of Texas, San Antonio Division. This lawsuit purports to
be both a class action and a derivative lawsuit against the defendants. The
plaintiffs have asserted various claims, including breach of fiduciary duty and
various securities law violations, against the parties to the merger and certain
individuals. The plaintiffs originally sought to enjoin the merger, but the
court denied their request for injunctive relief. Accordingly, the plaintiffs
now seek monetary damages. The Trust intends to vigorously defend against the
plaintiffs' claims. In management's opinion, the liabilities, if any, that may
ultimately result from such legal action is not expected to have a materially
adverse effect on the consolidated financial position or the results of
operations of the Trust.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS
On October 15, 1997, an Annual Meeting of Shareholders was held for
purposes of electing eight Trust Managers, approving a one-for-five reverse
Share split, approving an amendment to the Employee and Trust Manager Incentive
Share Plan to increase the Shares authorized for issuance under the Plan to an
amount equal to 10% of outstanding Shares, and to ratify the selection of
independent auditors. All proposals were approved by the shareholders. Results
of the items voted on are as follows:
1. Election of Trust Managers
<TABLE>
<CAPTION>
For Withheld
--- --------
<S> <C> <C>
Theodore R. Bigman 19,360,522 234,699
William H. Bricker 19,336,871 258,350
T. Patrick Duncan 19,362,661 232,560
Robert E. Giles 19,362,761 232,460
Edward B. Kelley 19,363,461 231,760
Stanley J. Kraska, Jr. 19,360,881 234,340
Russell C. Platt 19,361,881 233,340
Charles W. Wolcott 19,190,036 405,184
</TABLE>
2. Approval of a One-for- Five Reverse Share Split
<TABLE>
<CAPTION>
For Against Abstain
--- ------- -------
<S> <C> <C>
18,561,352 744,911 288,958
</TABLE>
3. Amendment to Employee and Trust Manager Incentive Share Plan
<TABLE>
<CAPTION>
For Against Abstain
--- ------- -------
<S> <C> <C>
16,207,954 797,623 344,811
</TABLE>
4. Ratification of Ernst & Young LLP as Independent Auditors
<TABLE>
<CAPTION>
For Against Abstain
--- ------- -------
<S> <C> <C>
19,453,799 68,270 73,151
</TABLE>
On December 12, 1997, a Special Meeting of Shareholders was held for the
approval of the issuance of up to $75 million of Shares in a private placement
of securities. This proposal was approved by the shareholders by the following
vote: 3,479,060 for, 25,120 withheld, and 7,280 abstained.
12
<PAGE> 15
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY 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 closing sales 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, 1997 ............ $ 15 5/16 $ 13 1/4 $ .00
September 30, 1997 (a) ....... 15 15/16 14 3/8 .00
June 30, 1997 (a) ............ 15 5/8 11 7/8 .00
March 31, 1997 (a) ........... 13 3/4 11 1/4 .00
December 31, 1996 (a) ........ 11 7/8 9 3/8 .00
September 30, 1996 (a) ....... 10 8 1/8 .00
June 30, 1996 (a) ............ 9 3/8 6 7/8 .00
March 31, 1996 (a) ........... 11 1/4 6 7/8 .20
</TABLE>
(a) On October 15, 1997, the Trust's shareholders approved a
one-for-five reverse Share split. All Share amounts have been
restated to reflect the impact of this reverse Share split.
On January 29, 1998, the Trust's Board of Trust Managers announced a
reinstatement of quarterly cash distributions to shareholders and declared a
distribution of $0.18 per Share, payable on April 14, 1998 to shareholders of
record as of April 3, 1998. Future quarterly distributions will be at the
discretion of the Board of Trust Managers.
As of March 11, 1998, the closing sale price per Share on the NYSE was $13
3/8. On such date, there were 11,151,313 outstanding Shares held by 10,995
shareholders of record.
On December 1, 1997, Realco converted the Trust's $5.4 million unsecured
note into 544,961 Shares, at a conversion price of $10.00 per share. The
issuance of Shares is claimed to be exempt from registration under the
Securities Act by virtue of the provisions of Section 3(a)(9) of the Securities
Act of 1933 (the "Securities Act").
On December 1, 1997, Morgan Stanley Asset Management, Inc. purchased
199,169 Shares for $12.25 per share. The issuance of Shares is claimed to be
exempt from registration under the Securities Act by virtue of the provisions of
Section 4(2) of the Securities Act.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data for the Trust and
its subsidiaries for each of the five years in the period ended December 31,
1997. This information should be read in conjunction with the discussion set
forth in "Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements of the
Trust and accompanying Notes included elsewhere in this Form 10-K.
13
<PAGE> 16
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(in thousands except share and per share data)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Total revenues ........................... $ 12,747 $ 11,478 $ 11,799 $ 11,226 $ 10,641
Loss from real estate operations (a) ..... (3,007) (4,732) (4,338) (4,311) (5,121)
Net income (loss) (a) ................... 1,799 1,255 (4,584) (4,655) (7,867)
Per share (Basic and Diluted): (b)
Loss from real estate operations (a) .. $ (0.91) $ (2.60) $ (2.40) $ (2.35) $ (2.85)
Net income (loss) (a) ................. 0.54 0.70 (2.55) (2.55) (4.35)
Distributions paid ..................... -- 0.20 0.20 -- 0.80
BALANCE SHEET DATA: (C)
Total assets ............................. $ 258,395 $ 78,936 $ 89,382 $ 92,550 $ 88,297
Total debt ............................... 121,426 53,216 62,815 65,613 57,078
Shareholders' equity ..................... 121,771 22,683 19,248 24,196 28,851
</TABLE>
(a) Loss from operations and net loss for 1994 and 1995 include
provisions for possible losses on real estate of $650 and $600,
respectively. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations of the Trust" for a
discussion of extraordinary gains (losses) of $2,643, $5,810,
$(55), $(344), and $(2,530) in 1997, 1996, 1995, 1994 and 1993,
respectively.
(b) The Trust has adopted Statement of Financial Accounting Standards
No. 128, Earnings Per Share and has restated earnings per share
amounts in accordance therewith. Diluted earnings per share is the
same as basic earnings per share as the Trust has a loss from
operations in each period presented. In addition, amounts have
been restated to reflect the one-for-five reverse Share split
approved by the Trust's shareholders on October 15, 1997.
(c) The Trust acquired $166.7 million in assets in 1997 and incurred
or assumed $75.2 million in new debt related to these
acquisitions. Net proceeds for the private placements of Shares
totaled approximately $34.0 million in 1997. Shares valued at
$57.9 million were issued in the merger with four real estate
limited partnerships. The substantial majority of these
transactions occurred during the latter part of the fourth quarter
of 1997, and, as a result, did not materially impact the results
of operations for 1997.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with "Item 6.
Selected Financial Data" and the Consolidated Financial Statements of the Trust
and accompanying Notes included elsewhere in this Form 10-K. The statements
contained in this report that are not historical facts are forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
Actual results may differ materially from those included in the forward-looking
statements. These forward-looking statements involve risks and uncertainties
including, but not limited to, changes in general economic conditions in the
markets that could impact demand for the Trust's properties and changes in
financial markets and interest rates impacting the Trust's ability to meet its
financing needs and obligations.
RESULTS OF OPERATIONS
Comparison of 1997 to 1996
During 1997, the Trust completed acquisitions with an aggregate purchase
price of $166.7 million. The majority of these acquisitions occurred during the
latter part of the fourth quarter of 1997 and, as a result, did not materially
impact the results of operations for 1997. The Trust's weighted average property
square footage increased from 1,577,000 in 1996 to 1,687,000 in 1997, an
increase of 7.0%. Property revenues increased 7.8% to $12,201,000 in 1997 from
$11,320,000 in 1996, and net operating income increased 8.1% to $7,886,000 in
1997 from $7,298,000 in 1996 as a result of these acquisitions. On a same
property basis, property revenues increased from $9,422,000 in 1996 to
$9,814,000 in 1997, an increase of 4.2.%, comprised of a 7.3% increase in
revenue related to industrial properties and a 1.6% decrease in revenue at the
Trust's retail property in Denver, Colorado. The decrease in revenue at the
Trust's retail property stemmed principally from slower than anticipated leasing
of vacancies and higher tenant rollover. The sale of two properties in 1997, one
in the first quarter and one in the fourth quarter, resulted in a net decrease
in 1997 combined property revenue of $229,000 and a net increase in net
operating income of $141,000 when compared to 1996. Overall leased occupancy
of the Trust's portfolio was 92.4% at
14
<PAGE> 17
December 31, 1997 compared to 94.2% at December 31, 1996, reflecting lower
occupancy rates of certain properties acquired during the fourth quarter of
1997.
On a same property basis, net operating income (which is defined as
property revenues less property operating expenses and which does not include
depreciation and amortization, interest expense, Trust administration and
overhead expenses, or provision for possible losses on real estate) increased
from $5,987,000 in 1996 to $6,209,000 in 1997, an increase of 3.7%. This overall
increase is comprised of an 8.0% increase related to industrial properties and a
5.2% decrease related to the Trust's retail properties. The decrease in the
Trust's retail properties is a result of the decrease in revenue explained
above, as well as increase in expenses due to higher repairs and maintenance
costs. Same property operating expenses increased11 by 4.9%, primarily as a
result of higher property taxes.
Loss from operations decreased from $4,732,000 in 1996 to $3,007,000 in
1997 as a result of the increase in net operating income explained above, an
increase in interest income of $388,000 (due to the private equity placements in
1997 of approximately $35 million), a decrease in total interest expense of
$123,000 (due to the paydown of debt during late 1996 and 1997 as offset by an
accrual of $1,022,000 of interest expense related to the conversion of certain
debt to equity in December 1997), a decrease in Trust administration and
overhead expenses of $874,000 (due to the conclusion of shareholder litigation
in 1996 as offset by higher general costs due to the increased activity of the
Trust in 1997), and an increase in depreciation and amortization of $248,000
(due to the acquisition of properties during the fourth quarter of 1997).
During 1997 and 1996, the Trust recognized extraordinary gains on
extinquishment of debt of $2,643,000 ($0.80 per Share) and $5,810,000 ($3.20 per
Share), respectively, resulting from the settlement of litigation. During 1997,
the Trust sold two properties for a total gain of $2,163,000 ($0.65 per Share)
compared to the sale of two properties for a total gain $177,000 ($0.10 per
Share) in 1996.
Comparison of 1996 to 1995
The sale of two properties in late 1996 and the purchase of a property in
August 1995 resulted in a net decrease in 1996 property revenue and net
operating income of $67,000 and $51,000, respectively, when compared to 1995. On
a same property basis, property revenues decreased from $10,209,000 in 1995 to
$10,186,000 in 1996, a decrease of 0.2% comprised of a 2.9% increase in revenue
related to industrial properties and a 6.2% decrease in revenue at the Trust's
retail property. The decrease in revenue at the Trust's retail property stemmed
principally from lower percentage rents ($115,000), slower leasing of vacancies,
and is partially attributable to the opening of a new regional mall in Denver
during the third quarter of 1996. Overall leased occupancy of the Trust's
portfolio was 94.2% at December 31, 1996 compared to 93.7% at December 31, 1995.
On a same property basis, net operating income (which is defined as
property revenues less property operating expenses and which does not include
depreciation and amortization, interest expense, Trust administration and
overhead expenses, or provision for possible losses on real estate) decreased
from $6,704,000 in 1995 to $6,494,000 in 1996, a decrease of 3.1%. This overall
decrease is comprised of a 0.5% increase related to industrial properties and a
10.7% decrease related to the Trust's retail property. The decrease in the
Trust's retail property is a result of the decrease in revenue explained above.
Same property operating expenses increased by 5.3%, reflecting an increase in
repairs and maintenance expenses and tenant refit costs of $98,000 in 1996. On
the same property basis, loss from operations increased from $4,964,000 in 1995
to $5,351,000 in 1996 (see following explanation).
Loss from operations increased from $4,338,000 in 1995 to $4,732,000 in
1996 as a result of the decrease in net operating income explained above, a
decrease in total interest expense of $584,000 (due to the larger accrual of
default rate interest on the MLI Notes in 1995), the provision of $600,000 for
possible losses on real estate in 1995, an increase in litigation, refinancing
and proxy costs of $568,000 (due to the shareholder litigation in 1996), an
increase in Trust administration and overhead expenses of $406,000 (due to the
accrual of $240,000 in incentive compensation, higher legal fees and increased
Trust Manager
15
<PAGE> 18
compensation in 1996), and a decrease in interest income (due to higher invested
balances in 1995 from the nonpayment of interest to the Trust's unsecured
lender).
During 1996, the Trust sold two industrial properties and recognized a gain
on sale of $177,000 ($0.10 per Share) compared to the sale of one property in
1995 resulting in a loss on sale of $191,000 ($0.10 per Share). In 1996, the
Trust recognized an extraordinary gain on extinguishment of debt of $5,810,000,
or $3.20 per share, pursuant to settlement of litigation.
Analysis of Cash Flows
Comparison of 1997 to 1996
Cash flow used in operating activities in 1997 was $945,000. This is
primarily the net result of property operations, interest expense,
administrative expenses, and an increase in restricted cash as a result of the
Trust's property acquisitions and financings in 1997. Other assets increased
$1,487,000 and restricted cash increased $1,019,000 in 1997. In addition,
administrative expenses includes $439,000 in litigation and proxy costs which
management believes is of a non-recurring nature. Management believes that, in
the future, cash flow provided by operations will increase due to the
elimination of such non-recurring items and the Trust's plans to pursue a
growth strategy.
Cash flow used in investing activities in 1997 was $61,898,000,
representing proceeds from the sale of two properties of $7,129,000, amounts
expended on the acquisition of real estate and related working capital totaling
$67,116,000, and capitalized expenditures of $1,911,000.
Cash flow provided by financing activities in 1997 was $70,516,000. This
amount reflects proceeds from the mortgage financing on fifteen properties of
$44,001,000, proceeds from the private placements of Shares in July 1997 and
December 1997 for net proceeds of $33,481,000 and principal repayments on
mortgage and notes payable totaling approximately $6,340,000.
Funds from Operations
In March 1995, the National Association of Real Estate Investment Trusts,
Inc. ("NAREIT") issued its White Paper on Funds from Operations ("FFO") which
clarified the treatment of certain items in determining FFO and recommended
additional supplemental disclosures. The Trust has adopted the recommendations
of NAREIT and restated its FFO calculation for prior years. The NAREIT
definition of FFO 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. Accordingly, the Trust does not include the non-recurring
interest accrual related to the expected future conversion of the modified notes
held by Realco into Shares or the default rate interest accrued on its $45.2
million in unsecured notes payable in the determination of FFO. Funds Available
for Distribution ("FAD") is also presented as it more accurately portrays the
ability of the Trust to make distributions because it reflects recurring capital
expenditures.
The Trust characterizes its capital expenditures as recurring and
nonrecurring. Recurring capital expenditures include 1) tenant improvements and
leasing commissions, which include improvements and prepaid leasing commissions
related to new and renewing tenants; 2) capital repairs and replacements, which
extend the useful life of an asset, such as roofs or parking lots; and 3)
corporate fixed assets, which are primarily related to corporate furniture,
fixtures and equipment. Nonrecurring capital expenditures include 1) initial
capital expenditures, which are costs identified at the time of property
acquisition as costs required to bring the property to intended leasable
condition at the acquisition date; and 2) expansions and renovations, which are
expenditures resulting in additions to leasable square footage or major
renovations which are revenue enhancing.
16
<PAGE> 19
A summary of capital expenditures for each of the three years ended
December 31, 1997 is a follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------------- ----------------- -----------------
AMT PSF(a) AMT PFS(a) AMT PFS(a)
--- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C>
Recurring capital
expenditures:
Tenant improvements and leasing
commissions (b) ................. $ 1,469 $ 0.87 $ 958 $ 0.61 $ 802 $ 0.59
Capital repairs and replacements ...... 203 0.12 189 0.12 47 0.03
Corporate fixed assets ................ 234 0.14 16 0.01 -- --
------- ------ ------ ------ ------ -------
Total ........................... 1,906 1.13 1,163 0.74 849 0.62
------- ------ ------ ------ ------ -------
Nonrecurring capital expenditures:
Initial capital expenditures .......... 5 -- -- -- -- --
Expansions and renovations ............ -- -- 209 0.13 174 0.13
------- ------ ------ ------ ------ -------
Total ........................... 5 -- 209 0.13 174 0.13
------- ------ ------ ------ ------ -------
Total ....................................... $ 1,911 $ 1.13 $1,372 $ 0.87 $1,023 $ 0.75
======= ====== ====== ====== ====== =======
</TABLE>
(a) Based on weighted average square feet owned of 1,687,000 in 1997, 1,577,000
in 1996, and 1,358,000 in 1995.
(b) 1997 amounts reflect $350,000 related to merger with four real estate
limited partnerships.
The Trust believes FFO and FAD are appropriate measures of performance
relative to other REITs. FFO provides investors with an understanding of the
ability of the Trust to incur and service debt and make capital expenditures.
There can be no assurance that FFO and FAD presented by the Trust is comparable
to similarly titled measures of other REITs. While other REITs may not always
use a similar definition, this information does add comparability to those which
have adopted the NAREIT definition. FFO and FAD should not be considered as an
alternative to net income or other measurements under generally accepted
accounting principles as an indicator of the Trust's operating performance or to
cash flows from operating, investing, or financing activities as a measure of
liquidity. FFO does not reflect working capital changes, cash expenditures for
capital improvements, or principal payments on indebtedness.
The following table shows the Trust's cash flows from its operating,
investing, and financing activities prepared in accordance with generally
accepted accounting principles:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1997 1996 1995
----------- ------------- ----------
(in thousands)
<S> <C> <C> <C>
Net cash provided by
(used in) operating activities ......... $ (945) $ (5,658) $ 3,848
Net cash provided by
(used in) investing activities ......... (61,898) 5,173 144
Net cash provided by
(used in) financing activities ......... 70,516 (3,199) (3,217)
</TABLE>
FFO and FAD are calculated as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1997 1996 1995
------ ------- --------
(in thousands)
<S> <C> <C> <C>
NET INCOME (LOSS) ......................................................... $ 1,799 $ 1,255 $(4,584)
Exclude effects of:
Extraordinary (gain) loss on extinguishment of debt ........... (2,643) (5,810) 55
(Gain) loss on sales of real estate .......................... (2,163) (177) 191
Provision for possible losses on real estate .................. -- -- 600
</TABLE>
17
<PAGE> 20
<TABLE>
<S> <C> <C> <C>
Real estate depreciation and amortization ........... 3,144 2,890 2,771
Default rate interest ............................... -- 369 724
Non-recurring interest accrual assuming future
conversion of debt to equity ................. 1,022 -- --
---------- ---------- ----------
Funds from Operations ........................................... $ 1,159 $ (1,473) $ (243)
========== ========== ==========
Funds from Operations ........................................... $ 1,159 $ (1,473) $ (243)
Tenant improvements and leasing commissions ....... (1,469) (958) (802)
Capital repairs and replacements ................... (203) (189) (47)
Corporate fixed assets ............................. (234) (16) --
Non-cash effect of straight-line rents on FFO ...... 71 193 161
---------- ---------- ----------
Funds available for distribution ................................ $ (676) $ (2,443) $ (931)
========== ========== ==========
Weighted average Shares outstanding (a) ......................... 3,316.8 1,821.6 1,815.1
</TABLE>
(a) The 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 on October 15, 1997.
18
<PAGE> 21
YEAR 2000 ISSUES
Some of the Trust's older computer software was written using two digits
rather than four to define the applicable year. As a result, those computer
programs have time-sensitive software that recognize a date using "00" as the
year 1900 rather than the year 2000. This could cause a system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices, or engage
in similar normal business activities.
The Trust has begun a review of its operations to identify areas of risk
associated with its computer systems functioning properly with respect to dates
in the year 2000 and thereafter. Management believes that the Trust utilizes
Year 2000 compliant hardware and systems for its internal use. Although the
Trust is not aware of any Year 2000 problems with third parties that provide
services to the Trust, management is preparing surveys for its vendors to
identify whether such problems exist. The Trust is also reviewing all properties
which may use date sensitive software in elevators and heating and cooling
equipment to confirm no problem exists. Although a potential area of significant
exposure to the Trust is the contracting to third parties of property management
and leasing services, the Trust utilizes thirty-day cancelable contracts and,
should a material risk arise with respect to the Year 2000 problem, anticipates
terminating the contract and hiring a new vendor. In addition, the Trust
currently plans to transition to self-management and leasing of its own
properties, thereby significantly eliminating the use of third parties for
leasing and management. Although management does not currently believe that the
effect of the Year 2000 problem will have a material impact on the Trust, there
is no guarantee that unforeseen circumstances will not arise which could cause a
material adverse effect upon the Trust's operations.
LIQUIDITY AND CAPITAL RESOURCES
The principal sources of funds for the Trust's liquidity requirements are
funds generated from operation of the Trust's real estate assets, equity
offerings, debt financings and/or refinancings, and unrestricted cash reserves.
As of December 31, 1997, the Trust had $11.7 million in unrestricted cash.
In order to fund its growth strategy, the Trust entered into several equity
transactions during 1997 and 1998. In July 1997, the Trust sold $35 million of
Shares for $12.25 per Share in a private placement. This amount was funded in
July 1997 with the exception of approximately $2.4 million, which was funded in
December 1997. On December 1, 1997, pursuant to an earlier agreement, an
unsecured note in the amount of $5.4 million was converted to Shares based upon
$10.00 per Share. Effective December 31, 1997, approximately 4.4 million Shares
were issued as a result of the Trust's merger with four real estate limited
partnerships. The agreed exchange ratio was $13.125 per Share. In January 1998,
the Trust completed a $10 million private placement of Shares at $13.625 per
Share. In February 1998, two shareholders exercised their preemptive rights and
acquired $8.7 million of Shares at $13.625 per Share. The Trust expects to
continue to access the equity markets through private and public offerings to
generate capital in order to continue to meet its obligations and its
acquisition strategy.
During 1997, the Trust also initiated debt transactions as a means of
sourcing capital with which to acquire properties. In October 1997, the Trust
entered into a $35 million secured acquisition line with Prudential Securities
Capital Corporation. The acquisition line currently provides for a variable
interest rate based on the 30 day LIBOR rate plus 2% and a December 1998
maturity. The Trust utilizes this line, which limits borrowing to 70% of the
value of the properties acquired, to fund acquisitions and anticipates the
repayment of this borrowing with proceeds from future equity fundings or
permanent debt financings. In December 1997, the Trust retired the existing
borrowings under the acquisition line of $27.3 million with proceeds from
fixed-rate financing. Terms of the financing included an interest rate of 7.25%,
30 year amortization and a maturity in January 2008.
At December 31, 1997, the Trust had $114.2 million in mortgage debt
outstanding, of which approximately $97.5 million was represented by fixed rate
debt with a weighted average interest rate of 8.47%, and $16.7 million was
represented by floating rate debt with an interest rate at December 31, 1997 of
7.72%. The Trust also assumed $7.2 million of unsecured debt with an interest
rate at December 31, 1997 of 9.0% in the merger with four real estate limited
partnerships. At December 31, 1997, the Trust's
19
<PAGE> 22
total market capitalization (based upon a December 31, 1997 share price of
$13.625 per Share) was approximately $250 million. Based upon this amount, the
Trust's debt to total market capitalization at December 31, 1997 was 46%. The
Trust intends to lower this ratio in the future through additional equity
placements and future purchases of real estate properties with less leverage.
On a long term basis, the Trust expects to meet liquidity requirements
generated by property operating expenses, debt service, and future distributions
with funds generated by the operations of its real properties. Should such funds
not cover these needs, the possibility of future distributions may be reduced or
eliminated. The Trust currently intends to maintain a debt to total market
capitalization ratio which is generally less than 50%. The Trust may increase
this leverage in order to fund growth opportunities in anticipation of reducing
this leverage through future equity offerings. Should the Trust be unable to
complete anticipated equity offerings, the risk of financial default would
increase.
The nature of the Trust's operating properties, which generally provide for
leases with a term of between three and five years, results in an approximate
turnover rate of 15% to 25% of the Trust's tenants and related revenue annually.
Such turnover requires capital expenditures related to tenant improvements and
leasing commissions, capital repairs and replacements, initial capital
expenditures and expansions and renovations related to properties acquired in
order to maintain or improve the Trust's occupancy levels. These costs were
$1,911,000 in the year ended December 31, 1997, compared to $1,372,000 in the
year ended December 31, 1996. These costs have historically been funded out of
the Trust's operating cash flow and cash reserves. The Trust has made no
commitments for additional capital expenditures beyond those related to normal
leasing and releasing activities, related escrows and initial capital
expenditures. No capital improvements or renovations, other than initial capital
expenditures, of significance are anticipated in the near future for any of the
Trust's properties. Initial capital expenditures, which are costs necessary to
bring acquired properties to intended leasable condition at the time of
acquisition, are estimated at $6,500,000 at December 31, 1997. Of this amount,
approximately $3,200,000 was related to properties acquired in the merger with
four real estate limited partnerships and was part of the cash consideration
received by the Trust in the merger.
On January 29, 1998, the Trust announced a reinstatement of quarterly
distributions to shareholders and declared an $0.18 per Share distribution
payable on April 14, 1998 to shareholders of record on April 3, 1998. Future
distributions will be at the discretion of the Board of Trust Managers. The
Trust has approximately $33.9 million in net operating loss carryforwards, a
portion of which could be utilized to reduce the payout required by the Internal
Revenue Code of 95% of taxable income. However, the Trust intends to follow a
distribution policy which targets a payout between 65% and 75% of FFO.
On February 18, 1998, the Trust filed a Form S-3 shelf registration with
the Securities and Exchange Commission which would provide for the issuance of
up to $500 million in Shares, Preferred Shares of Beneficial Interest, unsecured
senior debt securities and/or warrants to purchase such securities in amounts,
at prices and on terms to be determined by market conditions at the time of
future offerings. The Trust anticipates utilization of this shelf registration
in the future to fund acquisitions and growth of the Company.
On March 9, 1998, the Board of Trust Managers authorized a Share repurchase
program allowing the Trust to purchase up to 1,000,000 Shares from time to time
in open market transactions, as price and market conditions allow, over the
following six months. As of March 11, 1998, the Trust had purchased 6,700 Shares
in the open market, for an aggregate cost of $89,397.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
20
<PAGE> 23
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data are listed in the Index to
Financial Statements and Financial Statement Schedule appearing on Page F-1 of
this Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
21
<PAGE> 24
PART III.
Certain information required by Part III is omitted from this Form 10-K in
that the Registrant will file a definitive proxy statement with the Securities
and Exchange Commission (the "Commission") pursuant to Regulation 14A (the
"Proxy Statement") not later than 120 days after the end of the fiscal year
covered by this Form 10-K, and certain information to be included therein is
incorporated herein by reference. Only those sections of the Proxy Statement
which specifically address the items set forth herein are incorporated by
reference. Such incorporation does not include the Compensation Committee Report
or the Performance Graph included in the Proxy Statement.
ITEM 10. TRUST MANAGERS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information concerning the Company's Trust Managers required by this
Item is incorporated by reference from the Company's Proxy Statement to be filed
with the Commission for its annual shareholders' meeting to be held in May 1998.
The information regarding compliance with Section 16 of the Securities Exchange
Act of 1934 is to be set forth in the Proxy Statement and is hereby incorporated
by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference from the
Company's Proxy Statement to be filed with the Commission for its annual
shareholders' meeting to be held in May 1998.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference from the
Company's Proxy Statement to be filed with the Commission for its annual
shareholders' meeting to be held in May 1998.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference from the
Company's Proxy Statement to be filed with the Commission for its annual
shareholders' meeting to be held in May 1998.
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(a) (1) and (2) Financial Statements and Financial Statement Schedule:
See Index to Consolidated Financial Statements and Financial Statement
Schedule appearing on page F-1 of this Form 10-K
(3) Exhibits:
22
<PAGE> 25
<TABLE>
<CAPTION>
EXHIBIT NO. DOCUMENT
----------- ---------
<S> <C>
2.1 Form of Amended and Restated Agreement and Plan of Merger,
dated as of June 30, 1997, by and between the Trust and each
of USAA Real Estate Income Investments I, A California Limited
Partnership, USAA Real Estate Income Investments II Limited
Partnership, USAA Income Properties III Limited Partnership
and USAA Income Properties IV Limited Partnership (Included as
Annex I to the Joint Proxy Statement/ Prospectus of the Trust
included in Form S-4, Registration No. 333-31823)
2.2 Purchase Agreement dated as of July 2, 1997 between Shidler
West Investment Corporation, as Purchaser, and Merit
Industrial Properties Limited Partnership, as Seller, as
amended by (i) First Amendment to Purchase Agreement dated as
of July 30, 1997, (ii) Second Amendment to Purchase Agreement
dated as of July 31, 1997, (iii) Third Amendment to Purchase
Agreement dated as of August 8, 1997, (iv) Fourth Amendment to
Purchase Agreement dated as of August 12, 1997, and (v) Fifth
Amendment to Purchase Agreement dated as of October 2, 1997
(Incorporated herein by reference from Exhibit 2.1 to Form 8-K
of the Trust dated October 3, 1997; File No. 1-9016)
2.3 Purchase Agreement dated as of July 2, 1997 between Shidler
West Investment Corporation, as Purchaser, and Merit 1995
Industrial Portfolio Limited Partnership, as Seller, as
amended by (i) First Amendment to Purchase Agreement dated as
of July 30, 1997, (ii) Second Amendment to Purchase Agreement
dated as of July 31, 1997, (iii) Third Amendment to Purchase
Agreement dated as of August 8, 1997, and (iv) Fourth
Amendment to Purchase Agreement dated as of August 12, 1997
(Incorporated herein by reference from Exhibit 2.2 to Form 8-K
of the Trust dated October 3, 1997; File No. 1-9016)
2.4 Purchase Agreement dated as of July 2, 1997 between Shidler
West Investment Corporation, as Purchaser, and Merit VV 1995
Industrial Portfolio Limited Partnership, as Seller, as
amended by (i) First Amendment to Purchase Agreement dated as
of July 30, 1997, (ii) Second Amendment to Purchase Agreement
dated as of July 31, 1997, (iii) Third Amendment to Purchase
Agreement dated as of July 31, 1997, (iv) Fourth Amendment to
Purchase Agreement dated as of August 12, 1997, and (v) Fifth
Amendment to Purchase Agreement dated as of October 2, 1997
(Incorporated herein by reference from Exhibit 2.3 to Form 8-K
of the Trust dated October 3, 1997; File No. 1-9016)
2.5 Purchase Agreement dated as of June 30, 1997 between Shidler
West Investment Corporation, as Purchaser, and Merit VV Land
1995 Industrial Portfolio Limited Partnership, as Seller, as
amended by (i) First Amendment to Purchase Agreement dated as
of July 30, 1997, (ii) Second Amendment to Purchase Agreement
dated as of July 31, 1997, (iii) Third Amendment to Purchase
Agreement dated as of July 31, 1997, and (iv) Fourth Amendment
to Purchase Agreement dated as of August 12, 1997
(Incorporated herein by reference from Exhibit 2.4 to Form 8-K
of the Trust dated October 3, 1997; File No. 1-9016)
2.6 Purchase and Sale Agreement dated as of September 24, 1997 by
and between Midway/Commerce Center Limited Partnership, as
Seller, and American Industrial Properties REIT, as Buyer
(Incorporated herein by reference from Exhibit 2.1 to Form 8-K
of the Trust dated November 13, 1997; File No. 1-09016)
2.7 First Amendment to Purchase and Sale Agreement dated as of
October 22, 1997 by and between Midway/Commerce Center Limited
Partnership and American Industrial Properties REIT
(Incorporated herein by reference from Exhibit 2.2 to Form 8-K
of the Trust dated November 13, 1997; File No. 1-09016)
2.8 Second Amendment to Purchase and Sale Agreement dated as of
October 31, 1997 by and between Midway/Commerce Center Limited
Partnership and American Industrial Properties REIT
(Incorporated herein by reference from Exhibit 2.3 to Form 8-K
of the Trust dated November 13, 1997; File No. 1-09016)
3.1 Third Amended and Restated Declaration of Trust (Incorporated
by reference from Exhibit 3.1 to Form S-4 of the Trust dated
July 22, 1997; Registration No. 33-31823)
</TABLE>
23
<PAGE> 26
<TABLE>
<S> <C>
3.2 Fifth Amended and Restated Bylaws (Incorporated herein by
reference from the Trust's Form 8-K dated January 29, 1998;
File No. 1-09016)
4.1 Indenture dated November 15, 1985, by and between American
Industrial Properties REIT (the "Trust") and IBJ Schroder Bank
& Trust Company (Incorporated herein by reference from Exhibit
10.4 to Form S-4 of American Industrial Properties REIT, Inc.
("AIP Inc.") dated March 16, 1994; Registration No. 33-74292)
4.2 Form of Common Share Certificate (Incorporated herein by
reference from Exhibit 4.2 to Amendment No. 3 to Form S-4 of
the Trust filed October 28, 1997; Registration No. 333-31823)
10.1 Form of Indemnification Agreement (Incorporated by reference
from Exhibit 10.1 to Form S-4 of the Trust dated July 22,
1997; Registration No. 333-31823)
10.2 Employee and Trust Manager Incentive Share Plan (Incorporated
by reference from Exhibit 10.2 to Form S-4 of the Trust dated
July 22, 1997; Registration No. 333- 31823)
10.3 Common Share Purchase Agreement dated as of July 3, 1997, by
and between the Trust and ABKB/LaSalle Securities Limited
Partnership as Agent for and for the benefit of a particular
client (Incorporated herein by reference from Exhibit 10.7 to
Form 8-K of the Trust dated July 22, 1997; File No. 1-9016)
10.4 Common Share Purchase Agreement dated as of July 3, 1997, by
and between the Trust and ABKB/LaSalle Securities Limited
Partnership as Agent for and for the benefit of a particular
client (Incorporated herein by reference from Exhibit 10.8 to
Form 8-K of the Trust dated July 22, 1997; File No. 1-9016)
10.5 Common Share Purchase Agreement dated as of July 3, 1997, by
and between the Trust and LaSalle Advisors Limited Partnership
as Agent for and for the benefit of a particular client
(Incorporated herein by reference from Exhibit 10.9 to Form
8-K of the Trust dated July 22, 1997; File No. 1-9016)
10.6 Registration Rights Agreement dated as of July 10, 1997, by
and between the Trust, ABKB/LaSalle Securities Limited
Partnership as Agent for and for the benefit of particular
clients and LaSalle Advisors Limited Partnership as Agent for
and for the benefit of a particular client (Incorporated
herein by reference from Exhibit 10.6 to Form 8-K of the Trust
dated July 22, 1997; File No. 1-9016)
10.7 Common Share Purchase Agreement dated as of June 20, 1997, by
and among the Trust, MS Real Estate Special Situations, Inc.
("MSRE") and Morgan Stanley Asset Management, Inc. ("MSAM") as
agent and attorney-in-fact for specified clients (the "MSAM
Purchasers") (Incorporated herein by reference from Exhibit
10.5 to Form 8-K of the Trust dated July 22, 1997; File No.
1-9016)
10.8 Registration Rights Agreement dated as of June 20, 1997, by
and among the Trust, MSRE and MSAM on behalf of the MSAM
Purchasers (Incorporated herein by reference from Exhibit 10.6
to the Trust's Form 8-K dated July 22, 1997; File No. 1-9016)
10.9 Renewal, Extension, Modification and Amendment Agreement dated
February 26, 1997, executed by the Trust in favor of USAA Real
Estate Company ("Realco") (Incorporated herein by reference
from Exhibit 10.1 to Form 8-K of the Trust dated March 4,
1997; File No. 1-9016)
10.10 Share Purchase Agreement dated as of December 20, 1996, by and
among the Trust, Realco and AIP (Incorporated by reference
from Exhibit 99.7 to Form 8-K of the Trust dated December 23,
1996; File No. 1-9016)
10.11 Share Purchase Agreement dated as of December 13, 1996, by and
between the Trust and Realco (Incorporated herein by reference
from Exhibit 99.4 to Form 8-K of the Trust dated December 23,
1996; File No. 1-9016)
10.12 Registration Rights Agreement dated as of December 20, 1996,
by and between the Trust and Realco, as amended (Incorporated
herein by reference from Exhibit 99.9 to Form 8-K of the Trust
dated December 23, 1996; File No. 1-9016)
10.13 Registration Rights Agreement dated as of December 19, 1996,
by and between the Trust and Realco (Incorporated herein by
reference from Exhibit 99.8 to Form 8-K of the Trust dated
December 23, 1996; File No. 1-9016)
10.14 401(k) Retirement and Profit Sharing Plan (Incorporated herein
by reference from Exhibit 10.5 to Amendment No. 1 to Form S-4
of AIP, Inc. dated March 4, 1994; Registration No. 33-74292)
</TABLE>
24
<PAGE> 27
<TABLE>
<S> <C>
10.15 Amendments to 401(k) Retirement and Profit Sharing Plan
(Incorporated herein by reference from Exhibit 10.4 to Form
10-K of the Trust dated March 27, 1995)
10.16 Settlement Agreement by and between American Industrial
Properties REIT, Patapsco #1 Limited Partnership, Patapsco #2
Limited Partnership, The Manufacturers Life Insurance Company
and The Manufacturers Life Insurance Company (U.S.A.) dated as
of May 22, 1996 (incorporated herein by reference from Exhibit
99.1 to Form 8-K of the Trust dated May 22, 1996; File No.
1-9016)
10.17 Agreement and Assignment of Partnership Interest, Amended and
Restated Agreement and Certificate of Limited Partnership and
Security Agreement for Patapsco Center -- Linthicum Heights,
Maryland (incorporated herein by reference from Exhibit 10.8
to Amendment No. 1 to Form S-4 of AIP Inc. dated March 4,
1994; Registration No. 33- 74292)
10.18 Note dated November 15, 1994 in the original principal amount
of $12,250,000 with AIP Properties #1 L.P. as Maker and
AMRESCO Capital Corporation as Payee (Incorporated herein by
reference from Exhibit 99.1 to Form 8-K of the Trust dated
November 22, 1994; File No. 1-9016)
10.19 Mortgage, Deed of Trust and Security Agreement dated November
15, 1994 between AIP Properties #1 L.P. and AMRESCO Capital
Corporation (incorporated herein by reference from Exhibit
99.2 to Form 8-K of the Trust dated November 22, 1994; File
No. 1-9016)
10.20 Loan Modification Agreement modifying the Note dated November
15, 1994 in the original principal amount of $12,250,000
(incorporated herein by reference from Exhibit 99.2 to Form
8-K of the Trust dated June 23, 1995; File No. 1-9016)
10.21 Note dated November 15, 1994 in the original principal amount
of $2,150,000 with AIP Properties #2 L.P. as Maker and AMRESCO
Capital Corporation as Payee (Incorporated herein by reference
from Exhibit 99.3 to Form 8-K of the Trust dated November 22,
1994; File No. 1-9016)
10.22 Mortgage, Deed of Trust and Security Agreement dated November
15, 1994 between AIP Properties #2 L.P. and AMRESCO Capital
Corporation (Incorporated herein by reference from Exhibit
99.4 to Form 8-K of the Trust dated November 22, 1994; File
No. 1-9016)
10.23 Loan Modification Agreement modifying the Note dated November
15, 1994 in the original principal amount of $2,250,000
(Incorporated herein by reference from Exhibit 99.1 to Form
8-K of the Trust dated June 23, 1995; File No. 1-9016)
10.24 Promissory Note dated November 25, 1996, by and between AIP
Inc. and Realco (Incorporated herein by reference from Exhibit
No. 99.5 to Form 8-K of the Trust dated December 23, 1996;
File No. 1-9016)
10.25 Deed of Trust and Security Agreement dated November 15, 1996
between AIP Properties #3, L.P. and Life Investors Insurance
Company of America (Huntington Drive Center) (Incorporated
herein by reference from Exhibit 99.1 to Form 8-K of the Trust
dated November 20, 1996; File No. 1-9016)
10.26 Note dated November 15, 1996 in the original principal amount
of $4,575,000 with AIP Properties #3, L.P. as Maker and Life
Investors Insurance Company as Payee (Huntington Drive Center)
(Incorporated herein by reference from Exhibit 99.2 to Form
8-K of the Trust dated November 20, 1996; File No. 1-9016)
10.27 Deed of Trust and Security Agreement dated November 15, 1996
between AIP Properties #3, L.P. and Life Investors Insurance
Company of America (Patapsco Industrial Center) (Incorporated
herein by reference from Exhibit 99.3 to Form 8-K of the Trust
dated November 20, 1996; File No. 1-9016)
10.28 Note dated November 15, 1996 in the original principal amount
of $3,112,500 with AIP Properties #3, L.P. as Maker and Life
Investors Insurance Company as Payee (Patapsco Industrial
Center) (Incorporated herein by reference from Exhibit 99.4 to
Form 8-K of the Trust dated November 20, 1996; File No.
1-9016)
10.29 Deed of Trust and Security Agreement dated November 15, 1996
between AIP Properties #3, L.P. and Life Investors Insurance
Company of America (Woodlake Distribution Center)
(Incorporated herein be reference from Exhibit 99.5 to Form
8-K of the Trust dated November 20, 1996; File No. 1-9016)
</TABLE>
25
<PAGE> 28
<TABLE>
<S> <C>
10.30 Note dated November 15, 1996 in the original principal amount
of $1,537,500 with AIP Properties #3, L.P. as Maker and Life
Investors Insurance Company as Payee (Woodlake Distribution
Center) (Incorporated herein by reference from Exhibit 99.6 to
Form 8-K of the Trust dated November 20, 1996; File No.
1-9016)
10.31 Deed of Trust and Security Agreement dated November 15, 1996
between AIP Properties #3, L.P. and Life Investors Insurance
Company of America (All Texas properties except Woodlake)
(Incorporated herein by reference from Exhibit 99.7 to Form
8-K of the Trust dated November 20, 1996; File No. 1-9016)
10.32 Note dated November 15, 1996 in the original principal amount
of $1,162,500 with AIP Properties #3, L.P. as Maker and Life
Investors Insurance Company as Payee (Meridian Street
Warehouse) (Incorporated herein by reference from Exhibit 99.8
to Form 8-K of the Trust dated November 20, 1996; File No.
1-9016)
10.33 Note dated November 15, 1996 in the original principal amount
of $2,775,000 with AIP Properties #3, L.P. as Maker and Life
Investors Insurance Company as Payee (Beltline Business
Center) (Incorporated herein by reference from Exhibit 99.9 to
Form 8-K of the Trust dated November 20, 1996; File No.
1-9016)
10.34 Note dated November 15, 1996 in the original principal amount
of $3,375,000 with AIP Properties #3, L.P. as Maker and Life
Investors Insurance Company as Payee (Plaza South)
(Incorporated herein by reference from Exhibit 99.10 to Form
8-K of the Trust dated November 20, 1996; File No. 1-9016)
10.35 Note dated November 15, 1996 in the original principal amount
of $2,100,00 with AIP Properties #3, L.P. as Maker and Life
Investors Insurance Company as Payee (Commerce North Park)
(Incorporated herein by reference from Exhibit 99.11 to Form
8-K of the Trust dated November 20, 1996; File No. 1-9016)
10.36 Note dated November 15, 1996 in the original principal amount
of $2,850,000 with AIP Properties #3, L.P. as Maker and Life
Investors Insurance Company as Payee (Gateway 5 & 6)
(Incorporated herein by reference from Exhibit 99.12 to Form
8-K of the Trust dated November 20, 1996; File No. 1-9016)
10.37 Note dated November 15, 1996 in the original principal amount
of $5,175,000 with AIP Properties #3, L.P. as Maker and Life
Investors Insurance Company as Payee (Northgate II)
(Incorporated herein by reference from Exhibit 99.13 to Form
8-K of the Trust dated November 20, 1996; File No. 1-9016)
10.38 Note dated November 15, 1996 in the original principal amount
of $1,327,500 with AIP Properties #3, L.P. as Maker and Life
Investors Insurance Company as Payee (Westchase Park)
(Incorporated herein by reference from Exhibit 99.14 to Form
8-K of the Trust dated November 20, 1996; File No. 1-9016)
10.39 Bonus and Severance Agreement dated March 13, 1996, by and
between the Trust and Charles W. Wolcott (Incorporated herein
by reference from Exhibit 10.12 to Form 10-K of the Trust for
the year ended December 31, 1996)
10.40 Bonus and Severance Agreement dated March 13, 1996, by and
between the Trust and Marc Simpson (Incorporated herein by
reference from Exhibit 10.13 to Form 10-K of the Trust for the
year ended December 31, 1996)
10.41 Bonus and Severance Agreement dated March 13, 1996, by and
between the Trust and David B. Warner (Incorporated herein by
reference from Exhibit 10.14 to Form 10-K of the Trust for the
year ended December 31, 1996)
10.42 Amendment No. 1 to Share Purchase Agreement dated as of
December 13, 1996 by and between the Trust and Realco
(Incorporated herein by reference from Exhibit 10.2 to Form
8-K of the Trust dated March 4, 1997; File No. 1-9016)
10.43 Bonus and Severance Agreement dated May 12, 1997, by and
between the Trust and Lewis D. Friedland (Incorporated herein
by reference from Exhibit 10.43 to Amendment No. 3 to Form S-4
of the Trust filed October 28, 1997; Registration No.
333-31823)
10.44 Common Share Purchase dated as of January 29, 1988, by and
between American Industrial Properties REIT and Praedium II
Industrial Associates LLC (Incorporated herein by reference
from Exhibit 10.1 to Form 8-K of the Trust dated January 29,
1998; File No. 1-09016)
</TABLE>
26
<PAGE> 29
<TABLE>
<S> <C>
10.45 Registration rights Agreement dated as of January 29, 1998, by
and between American Industrial Properties REIT and Praedium
II Industrial Associates LLC (Incorporated herein by reference
from Exhibit 10.2 to Form 8-K of the Trust dated January 29,
1998; File No. 1-09016)
10.46 Agreement dated as of January 29, 1998, by and among American
Industrial Properties REIT, USAA Real Estate Company,
ABKB/LaSalle Securities Limited Partnership (as Agent for and
for the benefit of particular clients), MS Real Estate Special
Situations, Inc. and Morgan Stanley Asset Management Inc.
(Incorporated herein by reference from Exhibit 10.3 to Form
8-K of the Trust dated January 29, 1998; File No. 1-09016)
10.47 Contribution and Exchange Agreement dated as of September 25,
1997 among Shidler West Investment Corporation, AIP-SWAG
Operating Partnership, L.P. and the Trust (Incorporated herein
by reference from Exhibit 99.1 to Form 8-K of the Trust dated
October 3, 1997; File No. 1-9016)
10.48 Assignment and Assumption of Purchase Agreements dated as of
October 3, 1997 between Shidler West Investment Corporation
and AIP-SWAG Operating Partnership, L.P. (Incorporated herein
by reference from Exhibit 99.2 to Form 8-K of the Trust dated
October 3, 1997; File No. 1-9016)
10.49 Amended and Restated Agreement of Limited Partnership of
AIP-SWAG Operating Partnership, L.P. dated as of October 3,
1997 (Incorporated herein by reference from Exhibit 99.3 to
Form 8-K of the Trust dated October 3, 1997; File No. 1-9016)
10.50 Warrant Agreement dated as of October 3, 1997 between American
Industrial Properties and Shidler West Acquisition Company,
LLC (Incorporated herein by reference from Exhibit 99.4 to
Form 8-K of the Trust dated October 3, 1997; File No. 1-9016)
10.51 Warrant Agreement dated as of October 3, 1997 between the
Trust and AG Industrial Investors, L.P.(Incorporated herein by
reference from Exhibit 99.5 to Form 8-K of the Trust dated
October 3, 1997; File No. 1-9016)
10.52 Registration Rights Agreement dated as of October 3, 1997
between the Trust and Shidler West Acquisition Company, LLC
(Incorporated herein by reference from Exhibit 99.6 to Form
8-K of the Trust dated October 3, 1997; File No. 1-9016)
10.53 Registration Rights Agreement dated as of October 3, 1997
between the Trust and AG Industrial Investors, L.P.
(Incorporated herein by reference from Exhibit 99.7 to Form
8-K of the Trust dated October 3, 1997; File No. 1-9016)
10.54 Credit Agreement dated as of October 3, 1997 between the Trust
and AIP-SWAG Operating Partnership, L.P., as Borrower, and
Prudential Securities Credit Corporation, as Lender
(Incorporated herein by reference from Exhibit 99.9 to Form
8-K of the Trust dated October 3, 1997; File No. 1-9016)
10.55 Credit Agreement dated as of October 3, 1997 between American
Industrial Properties REIT and AIP-SWAG Operating Partnership,
L.P., as Borrower, and Prudential Securities Credit
Corporation, as Lender (Incorporated herein by reference from
Exhibit 99.8 to Form 8-K of the Trust dated October 3, 1997;
File No. 1-9016)
10.56 Contract of Sale by and between Nationwide Life Insurance
Company and ALCU Investments, Inc. (Incorporated herein by
reference from the Trust Form 8-K/A dated February 11, 1998;
File No. 1-09016)
10.57 Assignment of Contract of Sale dated as of February 11, 1998,
by and among Nationwide Life Insurance Company, ALCU
Investments, Inc., and AIP Operating, L.P. (Incorporated
herein by reference from the Trust Form 8-K/A dated February
11, 1998; File No. 1-09016)
10.58 Contribution and Exchange Agreement dated as of January 29,
1998, by and among ALCU Investments, Ltd., AIP Operating,
L.P., and American Industrial Properties REIT. (Incorporated
herein by reference from the Trust Form 8-K/A dated February
11, 1998; File No. 1-09016)
10.59 Amended and Restated Agreement of Limited Partnership of AIP
Operating, L.P. dated as of February 11, 1998, by and among
American Industrial Properties REIT, General Electric Capital
Corporation, and ALCU Investments, Ltd. (Incorporated herein
by reference from the Trust Form 8-K/A dated February 11,
1998; File No. 1-09016)
</TABLE>
27
<PAGE> 30
<TABLE>
<S> <C>
10.60 Promissory Note by and among American Industrial Properties
REIT, AIP Operating, L.P., and Prudential Securities Credit
Corporation. (Incorporated herein by reference from the Trust
Form 8-K/A dated February 11, 1998; File No. 1-09016)
10.61 First Amendment to Credit Agreement dated as of February 11,
1998, by and among American Industrial Properties REIT, AIP
Operating, L.P., and Prudential Securities Credit Corporation.
(Incorporated herein by reference from the Trust Form 8-K/A
dated February 11, 1998; File No. 1-09016)
21.1 * Listing of Subsidiaries
24.1 * Power of Attorney (Included on signature page hereto)
27.1 * Financial Data Schedule
</TABLE>
* Filed herewith
28
<PAGE> 31
(b) Reports on Form 8-K:
The following information summarizes the events reported on Form 8-K during
the quarter ended December 31, 1997:
<TABLE>
<CAPTION>
DATE FILED DATE OF EARLIEST EVENT
WITH SEC REPORTED ON FORM 8-K DESCRIPTION
---------- ---------------------- --------------------------------------------
<S> <C> <C>
October 17, 1997 October 3, 1997 Item 2. Acquisition of Merit portfolio
Item 5. Secured credit line
Item 5. Acquisition of Central Park/Skyway
November 25, 1997 November 13, 1997 Item 2. Acquisition of Commerce Center
December 11, 1997 October 3, 1997 Item 7. Financial Information:
o Combined Historical
Summary of Gross Income and
Direct Operating Expenses for Merit Texas
Properties Portfolio.
o Pro forma financial statements
</TABLE>
29
<PAGE> 32
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 19, 1998.
AMERICAN INDUSTRIAL PROPERTIES REIT
/s/ CHARLES W. WOLCOTT
-----------------------------------
Charles W. Wolcott,
Trust Manager, President and Chief
Executive Officer
POWER OF ATTORNEY
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. Each of the
undersigned officers and Trust Managers of the registrant hereby appoints
Charles W. Wolcott or Marc A. Simpson, either of whom may act, his true and
lawful attorneys-in-fact with full power to sign for him and in his name in the
capacities indicated below and to file any and all amendments to the
registration statement filed herewith, making such changes in the registration
statement as the registrant deems appropriate, and generally to do all such
things in his name and behalf in his capacity as an officer and director to
enable the registrant to comply with the provisions of the Securities Act of
1934 and all requirements of the Securities and Exchange Commission.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
/s/ THEODORE R. BIGMAN Trust Manager March 19, 1998
- -------------------------------------------
Theodore R. Bigman
/s/ WILLIAM H. BRICKER Trust Manager March 19, 1998
- -------------------------------------------
William H. Bricker
/s/ T. PATRICK DUNCAN Trust Manager March 19, 1998
- -------------------------------------------
T. Patrick Duncan
/s/ ROBERT E. GILES Trust Manager March 19, 1998
- -------------------------------------------
Robert E. Giles
/s/ EDWARD B. KELLEY Trust Manager March 19, 1998
- -------------------------------------------
Edward B. Kelley
/s/ STANLEY J. KRASKA, JR. Trust Manager March 19, 1998
- -------------------------------------------
Stanley J. Kraska, Jr.
/s/ RUSSELL C. PLATT Trust Manager March 19, 1998
- -------------------------------------------
Russell C. Platt
/s/ CHARLES W. WOLCOTT Trust Manager, President and Chief March 19, 1998
- ------------------------------------------- Executive Officer (Principal Executive
Charles W. Wolcott Officer)
/s/ MARC A. SIMPSON Vice President and Chief Financial March 19, 1998
- ------------------------------------------- Officer Secretary and Treasurer
Marc A. Simpson Officer)
</TABLE>
<PAGE> 33
AMERICAN INDUSTRIAL PROPERTIES REIT
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULE
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors F-2
Consolidated Financial Statements:
Consolidated Statements of Operations for the years ended
December 31, 1997, 1996, and 1995 F-3
Consolidated Balance Sheets as of December 31, 1997 and 1996 F-4
Consolidated Statements of Changes in Shareholders' Equity
for the years ended December 31, 1997, 1996 and 1995 F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995 F-6
Notes to Consolidated Financial Statements F-7
Financial Statement Schedule:
Schedule III - Consolidated Real Estate and Accumulated Depreciation F-19
Notes to Schedule III F-21
</TABLE>
All other financial statements and schedules not listed have been omitted
because the required information is either included in the Consolidated
Financial Statements and the Notes thereto as included herein or is not
applicable or required.
F-1
<PAGE> 34
REPORT OF INDEPENDENT AUDITORS
Trust Managers and Shareholders
American Industrial Properties REIT:
We have audited the accompanying consolidated balance sheets of American
Industrial Properties REIT (the "Trust") as of December 31, 1997 and 1996, and
the related consolidated statements of operations, shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1997. Our
audits also included the consolidated financial statement schedule listed in the
Index at Item 14(a). 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 are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of the
Trust as of December 31, 1997 and 1996, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
Also, in our opinion, the related financial statement schedule, when considered
in relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
/s/ ERNST & YOUNG LLP
Dallas, Texas Ernst & Young LLP
March 6, 1998
F-2
<PAGE> 35
AMERICAN INDUSTRIAL PROPERTIES REIT
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per Share data)
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES
Rents $ 9,367 $ 8,592 $ 8,676
Tenant reimbursements 2,834 2,728 2,734
Interest income 546 158 369
----------- ----------- -----------
12,747 11,478 11,779
----------- ----------- -----------
EXPENSES
Property operating expenses:
Property taxes 1,607 1,421 1,397
Property management fees 418 430 428
Utilities 480 476 478
General operating 891 849 795
Repairs and maintenance 524 529 431
Other property operating expenses 395 317 322
Depreciation and amortization 3,157 2,909 2,777
Interest on notes payable 1,462 4,003 4,707
Interest on mortgages payable 4,316 1,898 1,778
Administrative expenses:
Trust administration and overhead 2,065 1,830 1,424
Litigation, refinancing and proxy costs 439 1,548 980
Provision for possible losses on real estate -- -- 600
----------- ----------- -----------
15,754 16,210 16,117
----------- ----------- -----------
Loss from operations (3,007) (4,732) (4,338)
Gain (loss) on sales of real estate 2,163 177 (191)
----------- ----------- -----------
Loss before extraordinary items (844) (4,555) (4,529)
Extraordinary gain (loss) on extinguishment of debt 2,643 5,810 (55)
----------- ----------- -----------
NET INCOME (LOSS) $ 1,799 $ 1,255 $ (4,584)
=========== =========== ===========
PER SHARE DATA (BASIC AND DILUTED) (a)
Loss before extraordinary items $ (0.26) $ (2.50) $ (2.50)
Extraordinary gain (loss) on extinguishment of debt 0.80 3.20 (0.05)
----------- ----------- -----------
Net income (loss) $ 0.54 $ 0.70 $ (2.55)
=========== =========== ===========
Distributions paid $ -- $ 0.20 $ 0.20
=========== =========== ===========
Weighted average Shares outstanding 3,316,788 1,821,648 1,815,080
=========== =========== ===========
</TABLE>
(a) The number of Shares outstanding and per share data have been restated to
reflect the impact of the one-for-five reverse Share split, which was
approved by the Trust's shareholders on October 15, 1997.
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 36
AMERICAN INDUSTRIAL PROPERTIES REIT
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per Share data)
<TABLE>
<CAPTION>
December 31,
------------------------
1997 1996
--------- ---------
<S> <C> <C>
ASSETS
Real estate:
Held for investment $ 265,312 $ 84,693
Held for sale -- 9,779
--------- ---------
Total real estate 265,312 94,472
Accumulated depreciation (25,521) (23,973)
--------- ---------
Net real estate 239,791 70,499
Cash and cash equivalents:
Unrestricted 11,683 4,010
Restricted 2,121 1,366
--------- ---------
Total cash and cash equivalents 13,804 5,376
Other assets, net 4,800 3,061
--------- ---------
Total Assets $ 258,395 $ 78,936
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Mortgage notes payable $ 114,226 $ 43,797
Unsecured notes payable 7,200 9,419
Accrued interest 269 602
Accounts payable, accrued expenses
and other liabilities 7,231 1,964
Tenant security deposits 1,254 471
--------- ---------
Total Liabilities 130,180 56,253
--------- ---------
Minority interests 6,444 --
Shareholders' Equity:
Shares of beneficial interest, $0.10 par value; authorized 500,000,000 Shares;
issued and outstanding 9,817,171 Shares at 1997 and 2,000,000 Shares
at 1996 (a) 982 200
Additional paid-in capital 224,989 127,856
Less 42,103 Shares in treasury, at cost (626) --
Accumulated distributions (58,456) (58,456)
Accumulated loss from operations and extraordinary gains (losses) (48,429) (48,065)
Accumulated net realized gain on sales of real estate 3,311 1,148
--------- ---------
Total Shareholders' Equity 121,771 22,683
--------- ---------
Total Liabilities and Shareholders' Equity $ 258,395 $ 78,936
========= =========
</TABLE>
(a) The 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 on October 15, 1997
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 37
AMERICAN INDUSTRIAL PROPERTIES REIT
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(in thousands, except number of Shares)
<TABLE>
<CAPTION>
Shares of Beneficial
Interest Additional Retained Treasury Stock
--------------------- Paid-In Earnings -------------------
Number (a) Amount Capital (Deficit) Number (a) Amount Total
---------- ------ ------- --------- ---------- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1995 1,815,080 $ 182 $ 125,331 $(101,317) -- $ -- $ 24,196
Net loss -- -- -- (4,584) -- (4,584)
Distributions to shareholders -- -- -- (364) -- -- (364)
----------- --------- --------- --------- ------- --------- ---------
Balance at December 31, 1995 1,815,080 182 125,331 (106,265) -- -- 19,248
Issuance of additional Shares 184,920 18 2,525 -- -- -- 2,543
Net income -- -- -- 1,255 -- -- 1,255
Distributions to shareholders -- -- -- (363) -- -- (363)
----------- --------- --------- --------- ------- --------- ---------
Balance at December 31, 1996 2,000,000 200 127,856 (105,373) -- -- 22,683
Issuance of additional Shares 7,817,171 782 97,133 -- -- -- 97,915
Repurchase of Shares -- -- -- -- 42,103 (626) (626)
Net income -- -- -- 1,799 -- -- 1,799
----------- --------- --------- --------- ------- --------- ---------
Balance at December 31, 1997 9,817,171 $ 982 $ 224,989 $(103,574) 42,103 $ (626) $ 121,771
=========== ========= ========= ========= ======= ========= =========
</TABLE>
(a) The number of Shares outstanding have been restated to reflect the impact
of the one-for-five Share split, which was approved by the Trust's
shareholders on October 15, 1997
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 38
AMERICAN INDUSTRIAL PROPERTIES REIT
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 1,799 $ 1,255 $ (4,584)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Extraordinary (gains) losses (2,643) (5,810) 55
(Gains) losses on sales of real estate (2,163) (177) 191
Provisions for possible losses on real estate -- -- 600
Depreciation 2,774 2,577 2,479
Amortization of deferred financing costs 195 70 70
Other amortization 383 332 298
Issue Shares to Trust Managers 115 -- --
Interest accrued assuming future conversion
of debt to equity 1,022 -- --
Changes in operating assets and liabilities:
(Increase) decrease in other assets and
restricted cash (2,506) (1,270) 126
Increase (decrease) in accounts payable, other
liabilities and tenant security deposits 147 351 (61)
(Decrease) increase in accrued interest (68) (2,986) 4,674
-------- -------- --------
Net cash Provided By (Used In) Operating Activities (945) (5,658) 3,848
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net proceeds from sales of real estate 7,129 6,545 2,476
Capitalized expenditures (1,911) (1,372) (1,023)
Acquisition of real estate and
related working capital (67,116) -- (1,309)
-------- -------- --------
Net Cash Provided By (Used In) Investing Activities (61,898) 5,173 144
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal repayments on mortgage notes payable (6,340) (31,832) (2,798)
Proceeds from mortgage financing 44,001 26,453 --
Proceeds from sale of Shares 33,481 2,543 --
Purchase of treasury shares (626) -- --
Distributions to shareholders -- (363) (364)
Prepayment penalty on extinguishment of debt -- -- (55)
-------- -------- --------
Net Cash (Used In) Provided By Financing Activities 70,516 (3,199) (3,217)
-------- -------- --------
Net (Decrease) Increase in Cash and Cash Equivalents 7,673 (3,684) 775
Cash and Cash Equivalents at Beginning of Year 4,010 7,694 6,919
-------- -------- --------
Cash and Cash Equivalents at End of Year $ 11,683 $ 4,010 $ 7,694
======== ======== ========
Cash Paid for Interest $ 4,629 $ 8,817 $ 1,741
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 39
AMERICAN INDUSTRIAL PROPERTIES REIT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES:
General.
American Industrial Properties REIT (the "Trust") is a self-administered
Texas real estate investment trust which, as of December 31, 1997, owns and
operates 36 commercial real estate properties consisting of 27 industrial
properties, 7 office buildings and 2 retail properties. The Trust was formed
September 26, 1985 and commenced operations on November 27, 1985. Pursuant to
the Trust's 1993 Annual Meeting of Shareholders, amendments to the Trust's
Declaration of Trust and Bylaws were approved which, among other things, changed
the name of the Trust to American Industrial Properties REIT and converted the
Trust from a finite life entity to a perpetual life entity.
Principles of Consolidation.
The consolidated financial statements of the Trust include the accounts of
American Industrial Properties REIT and its wholly-owned subsidiaries and
majority-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 held for investment at depreciated cost
unless the asset is determined to be impaired. Real estate classified as held
for sale is carried at lower of depreciated cost or fair market value less costs
to sell. 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 expected undiscounted cash flows estimated to be generated by
those assets are less than the related carrying amounts. If an asset held for
investment is determined to be impaired, the impairment would be measured based
upon the excess of the asset's carrying value over the fair value. In addition,
the Trust records impairment losses on assets held for sale when the estimated
sales proceeds, after estimated selling costs, are less than the carrying value
of the related asset (see Note 2).
Property improvements which extend the useful life 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 the lease term, but not to exceed ten years.
Cash and Cash Equivalents.
Cash equivalents include demand deposits and all highly liquid instruments
purchased with an original maturity of three months or less. Restricted cash
amounts reflect escrow deposits held by third parties for the payment of taxes
and insurance and reserves held by third parties for property repairs or tenant
improvements.
Other Assets.
Other assets primarily consist of deferred rent receivable, prepaid
commissions and loan fees. 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.
F-7
<PAGE> 40
AMERICAN INDUSTRIAL PROPERTIES REIT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Rents and Tenant Reimbursements.
Rental income, including contractual rent increases or delayed rent starts,
is recognized on a straight-line basis over the lease term. The Trust has
recorded deferred rent receivable (representing the excess of rental revenue
recognized on a straight line basis over actual rents received under the
applicable lease provisions) of $525,000 and $599,000 at December 31, 1997 and
1996, respectively.
Several tenants in the Trust's retail properties are also required to pay
as rent a percentage of their gross sales volume, to the extent such percentage
rent exceeds their base rents. Such percentage rents amounted to $94,000,
$154,000 and $269,000 for the years ended December 31, 1997, 1996, and 1995,
respectively. 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 amount.
Tamarac Square, a retail property, has rental revenues in excess of 10% of
the total revenues of the Trust. Rental revenues and tenant reimbursements from
Tamarac totaled $3,256,000, $3,308,000, and $3,525,000 in 1997, 1996, and 1995,
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
distributions paid during the year. The Trust had a taxable loss in each of the
years ending December 31, 1996, and 1995 and expects to report a taxable income
for the year ending December 31, 1997.
After absorbing an expected taxable income of $698,000 in 1997, the Trust
has a net operating loss carryforward from 1996 and prior years of approximately
$33,900,000. The net operating losses are subject to restrictions on their use
due to an ownership change occurring in 1997, and as such, can only be used
against approximately $1,200,000 of taxable income per year. 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.
Earnings and profits, which will determine the taxability of distributions
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.
Reverse Share Split.
On October 15, 1997, the Trust's shareholders approved a one-for-five
reverse share split of its Common Shares of Beneficial Interest ("Shares"). All
references to the number of Shares and per Share amounts have been restated to
reflect the impact of the reverse Share split.
Earnings Per Share.
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, Earnings per Share ("Statement 128".)
Statement 128 replaced the calculation of primary and fully diluted earnings per
share with basic and diluted earnings per share. Unlike primary earnings per
share, basic earnings per share excludes any dilutive effects of options,
warrants and convertible securities. Diluted earnings per share is very similar
to the previously reported fully diluted earnings per share. All earnings per
share amounts for all periods have been restated to conform to the Statement 128
requirements. The computation of diluted earnings per share does not include
common share equivalents as the inclusion of such does not result in dilution
(based upon application of the "treasury stock" method) or, in periods where
there is a loss from operations is anti-dilutive.
F-8
<PAGE> 41
AMERICAN INDUSTRIAL PROPERTIES REIT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Share Compensation.
The Trust accounts for its share compensation arrangements under the
provisions of Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees and intends to continue to do so. See Note 8 for a
discussion of the Trust's share compensation arrangements.
Concentrations.
The Trust owns 36 real estate properties in ten states. The Trust's
industrial properties are concentrated in the Texas market with 19 of the 27
properties located in the Dallas and Houston areas. The office buildings are
primarily located in the west with three of the seven located in California. The
two retail properties are located in Colorado and Florida. The principal
competitive factors in these markets are price, location, quality of space, and
amenities. In each case, the Trust owns 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 available to the Trust. The Trust's retail property,
Tamarac Square, represented approximately 27% of the rent and tenant
reimbursement revenues for the year ended December 31, 1997, and approximately
14% of the investment in net real estate at December 31, 1997.
Reclassification.
Certain amounts in prior years financial statements have been reclassified
to conform with the current year presentation.
NOTE 2 -- REAL ESTATE AND PROVISIONS FOR POSSIBLE LOSSES ON REAL ESTATE:
At December 31, 1997 and 1996, real estate was comprised of the following:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Held for investment:
Land ......................... $ 56,315,000 $ 15,149,000
Buildings and improvements 208,997,000 69,544,000
------------ ------------
265,312,000 84,693,000
------------ ------------
Held for sale:
Land ......................... -- 1,728,000
Buildings and improvements -- 8,051,000
------------ ------------
-- 9,779,000
------------ ------------
Total ........................ $265,312,000 $ 94,472,000
============ ============
</TABLE>
Effective December 31, 1997, the Trust acquired, via a merger, four real
estate limited partnerships. The partnerships were affiliated with USAA Real
Estate Company ("Realco"), a significant shareholder of the Trust. As a result
of the merger, the Trust acquired ownership of seven office properties,
including a 55.84% interest in a joint venture owning an office property. The
Trust also acquired two industrial properties and one retail property. The total
purchase price was approximately $93.1 million, inclusive of costs of the
merger. Of this amount, approximately $38.4 million was assumed in debt, $57.9
million was issued in Shares to the former partners and $3.8 million was
received in cash, relating to the net working capital received. The $38.4
million in debt includes $15 million due to Las Colinas Management Company, an
affiliate of Realco, $7.2 million of unsecured debt owed to Realco, and $16.2
million due to third party lenders. The acquisition was accounted for on the
purchase method of accounting.
F-9
<PAGE> 42
AMERICAN INDUSTRIAL PROPERTIES REIT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A reconciliation of the purchase price of the four real estate limited
partnerships is as follows:
<TABLE>
<S> <C>
Real estate .............................. $ 100,206,000
Other assets ............................. 3,916,000
Less: Mortgage notes payable ........... (31,178,000)
Unsecured notes payable .......... (7,200,000)
Other liabilities ................ (4,194,000)
Minority interests ............... (3,704,000)
=============
Value of Shares issued ................... $ 57,846,000
=============
</TABLE>
From August 29, 1997 through December 31, 1997, exclusive of the merger,
the Trust acquired an additional 15 real estate properties for approximately
$73.5 million. To fund these acquisitions, the Trust paid approximately $30.5
million in cash, incurred approximately $23.5 million of permanent financing,
obtained $16.7 million of financing under the acquisition line of credit and
issued $2.8 million of limited partnership units. In addition, the limited
partners received warrants to purchase 40,000 Shares at $17.50 per Share (see
Note 8).
During 1997, the Trust sold two industrial properties including one of the
two properties classified as held for sale at December 31, 1996. Net proceeds
from this sale totaled $2,029,000 resulting in a gain on sale of $312,000. Net
proceeds received from the sale of the second property sold in 1997 totaled
$5,100,000 resulting in a gain on sale of $1,851,000. The Trust reclassified the
second held for sale property to held for investment in 1997. There were no
properties classified as held for sale at December 31, 1997.
During 1996, the Trust reclassified four properties from held for
investment to held for sale in anticipation of the need to raise capital to
complete the discounted purchase of certain indebtedness. Two of these
properties were sold in the fourth quarter of 1996 for net proceeds of
$6,545,000, resulting in a net gain of $177,000, and two remained classified as
held for sale at December 31, 1996.
If unforeseen factors should cause a reclassification of the Trust's real
estate from held for investment to held for sale, significant adjustments to
reduce the depreciated cost of the real estate to net realizable value could be
required.
NOTE 3 -- MORTGAGE NOTES PAYABLE:
At December 31, 1997, 29 of the Trust's 36 properties were subject to liens
securing mortgage notes payable totaling $114,226,000. Of this amount,
approximately $97,501,000 was represented by mortgage notes ($15,000,000 with a
related party - see Note 9) with fixed interest rates ranging from 7.25% to
11.0% and a weighted average interest rate of 8.47%. Approximately $16,725,000
represented borrowings under the Trust's secured credit line. The secured credit
line bears interest at the 30 day LIBOR rate plus 2% and matures in December
1998. The interest rate on this secured credit line at December 31, 1997 was
7.72%.
Principal payments during each of the next five years are as follows:
$33,906,000 in 1998, $2,425,000 in 1999, $1,308,000 in 2000, $26,541,000 in
2001, $1,000,000 in 2002, and $49,046,000 thereafter. Of the amount due in 1998,
$16,725,000 is due under the Trust's secured line of credit and $15,000,000 is
due to a related party (see Note 9) on a property acquired in the merger with
four real estate limited partnerships. The Trust expects to refinance these
amounts through permanent financing or through a secured financing.
Certain of the mortgage notes payable contain cross default and cross
collateralization provisions whereby a default under one note can trigger a
default under other notes. Certain of the mortgage notes payable, including the
line of credit, also contain various borrowing restrictions and operating
performance covenants. The Trust is in compliance with all such restrictions and
covenants as of December 31, 1997. The unused commitment under the line of
credit at December 31, 1997 is $18,275,000, subject to certain restrictions and
provisions of the line of credit.
F-10
<PAGE> 43
AMERICAN INDUSTRIAL PROPERTIES REIT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 -- UNSECURED NOTES PAYABLE:
As a result of the merger with four real estate limited partnerships (See
Note 2), the Trust assumed an unsecured indebtedness of $7,200,000 payable to
Realco, a significant shareholder of the Trust. The maturity date of this debt
is March 31, 1998. The Trust expects to refinance this amount with proceeds from
a secured financing.
During 1997, Realco acquired certain outstanding indebtedness of the Trust
and converted this indebtedness into Shares (See Note 9).
NOTE 5 -- ZERO COUPON NOTES:
As part of its original capitalization in 1985, the Trust issued
$179,698,000 (face amount at maturity) of Zero Coupon Notes due 1997 (the
"Notes"). These Notes, which were collateralized by first and second mortgage
liens on each of the Trust's real estate properties, accreted at 12%, compounded
semiannually. In 1991, the Trust began a program to retire the outstanding
Notes, resulting in a reduction of the outstanding Notes to $19,491,000 (face
amount at maturity) at December 31, 1993. On December 31, 1993, the Trust
effected a partial in-substance defeasance on $12,696,000 (face amount at
maturity) of the Notes and recorded an extraordinary loss of $2,530,000. In
November 1994, the Trust completed a partial in-substance defeasance on
$3,669,000 (face amount at maturity) of Notes and recorded an extraordinary loss
of $344,000. In December 1994, the Trust purchased the remaining non-defeased
Notes outstanding in the open market and submitted the Notes to the Trustee for
cancellation. The legal defeasance of the Notes resulted in the release of the
Zero Coupon Note mortgage liens which encumbered each of the Trust's properties.
In November 1997, the Notes were retired.
NOTE 6 -- ENVIRONMENTAL MATTERS:
The Trust has been notified of the existence of limited underground
petroleum based contamination at a portion of Tamarac Square, the Trust's Denver
retail property. The source of the contamination is apparently related to
underground storage tanks ("USTs") located on adjacent property. The owner of
the adjacent property has agreed to remediate the property to comply with state
standards and has indemnified the Trust against costs related to its sampling
activity. The responsible party for the adjacent USTs has submitted a corrective
Action Plan to the Colorado Department of Public Health and Environment.
Implementation of the plan is ongoing. The responsible party is negotiating to
obtain access agreements from impacted landowners, including the Trust.
With the exception of Tamarac Square, the Trust has not been notified, 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.
NOTE 7 -- MINORITY INTEREST:
The AIP-SWAG Operating Partnership L.P. ("AIP-SWAG") has 179,085 limited
partnership units outstanding as of December 31, 1997 (excluding limited
partnership units held by AIP). Pursuant to the AIP-SWAG limited partnership
agreement, the limited partners received rights (the "Redemption Rights") that
enable them to cause AIP-SWAG to redeem each limited partnership unit in
exchange for cash equal to the value, as determined in accordance with the
partnership agreement, of a Share (or, at the Trust's election, the Trust may
purchase each limited partnership unit offered for redemption for one Share).
The Redemption Rights generally may be exercised at any time after one year
following the issuance of the limited partnership units. The number of Shares
issuable upon exercise of the Redemption Rights will be adjusted for share
splits, mergers, consolidations or similar pro rata transactions, which would
have the effect of diluting the ownership interests of the limited partners of
AIP-SWAG or the shareholders of the Trust. The limited partners' interest in
AIP-SWAG is reflected as minority interest in the accompanying consolidated
financial statements.
F-11
<PAGE> 44
AMERICAN INDUSTRIAL PROPERTIES REIT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Other Partnerships
In connection with the merger of four real estate limited partnerships, the
Trust acquired a 55.84% interest in USAA Chelmsford Associates Joint Venture, a
joint venture owning one office property. The remaining 44.16% interest is owned
by Realco, a significant shareholder of the Trust. The financial position and
results of operations of the joint venture is included in the consolidated
financial statements of the Trust. Realco's interest in the partnership is
reflected as minority interest in the accompanying consolidated financial
statements.
NOTE 8 -- SHAREHOLDERS' EQUITY:
Capital Stock
The Trust is authorized to issue up to 500,000,000 Shares. The Shares have
dividend, distribution, liquidation and other rights as disclosed in the
Declaration of the Trust. As of December 31, 1997, 9,817,171 Shares are issued
and outstanding.
The Trust is authorized to issue up to 50,000,000 Preferred Shares of
Beneficial Interest in one or more series. The number of shares in each series
and the designation, powers, preferences and rights of each such series and the
qualifications, limitations or restrictions thereof have not been established.
As of December 31, 1997, no Preferred Shares of Beneficial Interest were issued.
As a result of the one-for-five reverse Share split and the odd lot
redemption program, effective on October 15, 1997, the Trust has repurchased
42,103 Shares, as of December 31, 1997, which are held in treasury.
Share Incentive Plans
The Trust adopted the Employee and Trust Managers Incentive Share Plan (the
"Plan") for the purpose of (i) attracting and retaining employees, directors and
others, (ii) providing incentives to those deemed important to the success of
the Trust, and (iii) associating the interests of these individuals with the
interests of the Trust and its shareholders through opportunities for increased
share ownership.
All awards under the Plan are determined by the Compensation Committee of
the Board of Directors and a maximum limit of 10% of the total number of Shares
outstanding at anytime on a fully-diluted basis may be issued under the Plan.
Under the terms of the Plan, any person who is a full-time employee or a
Trust Manager of the Trust or of an affiliate (as defined in the Plan) of the
Trust or a person designated by the Compensation Committee as eligible because
such person performs bona fide consulting or advisory services for the Trust or
an affiliate of the Trust (other than services in connection with the offer or
sale of securities in a capital-raising transaction) and has a direct and
significant effect on the financial development of the Trust or an affiliate of
the Trust, shall be eligible to receive awards under the Plan.
Share Option Awards
The Trust granted to each non-employee Trust Manager an option to purchase
2,000 Shares on June 30, 1997. On an annual basis beginning in 1997, each
non-employee Trust Manager shall receive a non-qualified share option to
purchase 1,000 Shares. Each of these non-employee Trust Manager options is fully
exercisable upon the date of grant and generally terminates (unless sooner
terminated under the terms of the Plan) ten years after the date of grant. The
exercise price is determined by the Compensation Committee and must have an
exercise price equal to not less than 100% of the fair market value of a Share
on the date of grant.
During 1997, pursuant to the Plan, the Trust Managers granted share options
to purchase 125,000 Shares to the Trust's officers. The exercise price of the
options granted to the officers is $15.00 (the market price of the Trust's
Shares on the date of the grant, June 30, 1997). The options to purchase Shares
vest annually over a period of five years, beginning on June 30, 1997.
F-12
<PAGE> 45
AMERICAN INDUSTRIAL PROPERTIES REIT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
As of December 31, 1997, no options had been exercised.
The Trust has elected to follow Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees ("APB 25") and related Interpretations
in accounting for its employee share options because, as discussed below, the
alternative fair value accounting provided for under Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation
("Statement 123") requires use of option valuation models that were not
developed for use in valuing employee share options. Under APB 25, because the
exercise price of the Trust's employee share options equals the market price of
the underlying shares on the date of grant, no compensation expense is
recognized.
At December 31, 1997, 139,000 options are outstanding with a term of ten
years: (i) 125,000 options vest and become fully exercisable 20% annually
beginning on June 30, 1997, and (ii) 14,000 options were vested and fully
exercisable on the date of the grant.
Pro forma information regarding net income and earnings per share is
required by Statement 123. The fair value for these options was estimated at the
date of grant using a Black-Scholes option pricing model with the following
weighted-average assumptions for 1997: risk-free interest rates of 5.98% to
6.50%; a dividend yield of 5.5%; volatility factors of the expected market price
of the Trust's Shares of .283; and a weighted-average expected life of the
option of 7 years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Trust's employee share options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee share options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Trust's
pro forma information follows (in thousands except for earnings per share
information):
<TABLE>
<CAPTION>
1997
------------------------
As Reported Pro forma
----------- ---------
<S> <C> <C>
Pro forma net income ........................... $ 1,799 $ 1,749
Pro forma earnings per share
Basic and diluted ........................... $ 0.54 $ 0.53
</TABLE>
A summary of the Trust's share option activity, and related information for
the year ended December 31 follows:
<TABLE>
<CAPTION>
1997
----------------------------
Options Weighted-Average
(000) Exercise Price
----- --------------
<S> <C> <C>
Outstanding-beginning of year ........ -- $ --
Granted .............................. 139 14.99
Exercised ............................ -- --
Forfeited ............................ -- --
------
Outstanding-end of year .............. 139 $14.99
====== ======
Exercisable at end of year ........... 39 $14.97
====== ======
Weighted-average fair value of
options granted during the year ...... $ 3.10
======
</TABLE>
F-13
<PAGE> 46
AMERICAN INDUSTRIAL PROPERTIES REIT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The options outstanding at December 31, 1997 have exercise prices ranging
from $14.6875 to $15.00 per share and have a weighted average contractual
remaining life of 9.47 years. At December 31, 1997, there were 842,700 options
that have not been granted under the Plan.
The limited partners of AIP-SWAG Operating Partnership L.P. received
warrants to purchase 40,000 Shares at $17.50 per Share. The warrants expire on
October 3, 2000. (See Note 2.)
Private Placement
In July 1997, the Trust completed a $35 million private equity placement of
2,857,143 Shares at $12.25 per Share (of which approximately $32.6 million was
funded in July 1997 and $2.4 million in December 1997). The shares are of the
same class as the Trust's existing shares and are entitled to the same voting
and distribution rights as all Shares, subject to certain restrictions on the
resale of the shares. (See Note 18.)
NOTE 9 -- TRANSACTIONS WITH RELATED PARTIES:
On February 26, 1997, Realco acquired certain outstanding indebtedness of
the Trust with a principal balance of $9,419,000. This indebtedness was then
modified to reduce the outstanding principal balance to $7,041,000, to release
all security for the notes, to provide for monthly payments of interest at 8.8%
and to extend the maturity date from March 31, 1997 to December 31, 2000. In
connection with this modification, the Trust recognized an extraordinary gain of
approximately $2,643,000 in the first quarter of 1997. As part of the
modification, Realco was granted an option to convert the principal amount of
the notes into Shares of the Trust at the conversion rate of $10.00 per Share
(if converted prior to December 31, 1997) or $11.25 per Share (if converted
between December 31, 1997 and December 31, 2000). On December 1, 1997, Realco
converted the then outstanding principal balance of $5,450,000 to 544,961 Shares
at $10.00 per Share. For the year, the Trust incurred $368,000 in interest
expense on the notes payable to Realco.
During 1997, the Trust reflected $1,022,000 as interest expense,
representing the difference between the market trading price of $11.88 per Share
on February 26, 1997 and the $10.00 conversion price. The date of February 26,
1997 was used to measure market value as this is deemed to be the date of
issuance of the modified notes, which contained the convertibility option.
Effective December 31, 1997, the Trust acquired, via merger, four real
estate limited partnerships ("RELPs") with a total purchase price of
approximately $93.1 million, inclusive of costs of the merger (see Note 2). The
RELPs were sponsored by Realco and the general partner of each RELP was a wholly
owned subsidiary of Realco. With the merger, approximately $22.2 million of debt
owed to Realco or affiliates, was assumed including $15 million due to Las
Colinas Management Company, an affiliate, and $7.2 million of unsecured debt
owed to Realco. Quorum Real Estate Services Corporation, an affiliate of Realco,
has been contracted to manage the properties acquired in the merger as well as
certain other properties owned by the Trust.
At December 31, 1997, Realco owned approximately 17% of the Shares
outstanding.
NOTE 10 -- LITIGATION:
The Trust is currently named as a defendant in a lawsuit related to the
Trust's merger with four real estate limited partnerships. The lawsuit purports
to be both a class action and a derivative lawsuit against the defendants. The
plaintiffs have asserted various claims, including breach of fiduciary duty and
various securities law violations, against the parties to the merger and certain
individuals and are seeking monetary damages. The Trust intends to vigorously
defend against the plaintiffs' claims. In management's opinion, the liabilities,
if any, that may ultimately result from such legal action is not expected to
have a materially adverse effect on the consolidated financial position or
results of operations of the Trust.
F-14
<PAGE> 47
AMERICAN INDUSTRIAL PROPERTIES REIT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Although the Trust is not currently involved in any significant litigation
other than that described above, the Trust may, on occasion and in the normal
course of business, be involved in legal actions relating to the ownership and
operations of its properties. In management's opinion, the liabilities, if any,
that may ultimately result from such legal actions are not expected to have a
materially adverse effect on the consolidated financial position or results of
operations of the Trust.
NOTE 11 -- 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 month of
service are eligible to participate in the plan. Subject to certain limitations,
employees may contribute up to 15% of their salary. The Trust may make annual
discretionary contributions to the plan. Contributions by the Trust related to
the years ended December 31, 1997, 1996, and 1995 were $40,000, $30,000, and
$25,000, respectively.
NOTE 12 -- OPERATING LEASES:
The Trust's properties are leased to others under operating leases with
expiration dates ranging from 1998 to 2011. Future minimum rentals on
noncancellable tenant leases at December 31, 1997 are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
---- ------
<S> <C>
1998 .................................. $ 26,104,000
1999 .................................. 23,696,000
2000 .................................. 18,366,000
2001 .................................. 13,765,000
2002 .................................. 9,101,000
Thereafter ............................ 21,146,000
============
$112,178,000
============
</TABLE>
NOTE 13 -- DISTRIBUTIONS:
There were no distributions paid during 1997. The Trust's distributions of
$363,000 ($0.20 per Share) in 1996 and $364,000 ($0.20 per Share) in 1995
represent a return of capital to shareholders (to the extent of the
shareholders' basis in the shares). (See Note 18)
NOTE 14 -- PER SHARE DATA:
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Basic and diluted earnings per share:
Numerator:
Loss before extraordinary items ........ $ (844,000) $(4,555,000) $(4,529,000)
Extraordinary items .................... 2,643,000 5,810,000 (55,000)
----------- ----------- -----------
Net Income (loss) ...................... $ 1,799,000 $ 1,255,000 $(4,584,000)
Denominator:
Weighted average shares ................ 3,316,788 1,821,648 1,815,080
----------- ----------- -----------
Basic and diluted earnings per share:
Loss before extraordinary items ........ $ (0.26) $ (2.50) $ (2.50)
Extraordinary items .................... 0.80 3.20 (0.05)
=========== =========== ===========
Net income (loss) ...................... $ 0.54 $ 0.70 $ (2.55)
=========== =========== ===========
</TABLE>
F-15
<PAGE> 48
AMERICAN INDUSTRIAL PROPERTIES REIT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Diluted earnings per share are the same as basic earnings per share as the
Trust has a loss from operations in each period.
Options to purchase 135,000 Shares at $15.00 per share and 4,000 shares at
$14 11/16 per share were outstanding during 1997 but were not included in a
computation of diluted earnings per share because the options' exercise price
was greater than the average market price of the Shares and, therefore, the
effect would be antidilutive. Options that existed where the options' exercise
price was less than the average market price of the Shares were not included as
the Trust has a loss from operations and, therefore, the effect would be
antidilutive.
At December 31, 1997, 40,000 warrants were outstanding. The warrants have
an exercise price of $17.50 per share and expire in October 2000.
In January and February 1998, the Company issued 1,376,245 Shares (see Note
18).
NOTE 15 -- FAIR VALUE OF FINANCIAL INSTRUMENTS:
Accounts receivable, accounts payable and accrued expenses and other
liabilities are carried at amounts that reasonably approximate their fair
values. The fair values of the Trust's mortgage notes payable are estimated
using discounted cash flow analyses, based on the Trust's incremental borrowing
rates for similar types of borrowing arrangements. The carrying values of such
mortgage notes payable reasonably approximate their fair values.
NOTE 16 -- NON-CASH INVESTING AND FINANCING ACTIVITIES:
In connection with the acquisition of properties in 1997, the following
assets and liabilities were assumed (in thousands):
<TABLE>
<CAPTION>
OTHER
MERGER ACQUISITIONS
------ ------------
<S> <C> <C>
Real estate ..................................................... $100,206 $ 2,740
Other assets .................................................... 508 --
Accounts payable, accrued expenses and other liabilities ........ 3,846 1,362
Tenant security deposits ........................................ 348 567
Mortgage notes payable .......................................... 31,178 --
Unsecured notes payable ......................................... 7,200 --
Minority interests .............................................. 3,704 2,740
Shares of beneficial interest ................................... 441 --
Additional paid in capital ...................................... 57,405 --
</TABLE>
In connection with the conversion of unsecured notes payable in 1997 (in
thousands):
<TABLE>
<S> <C>
Unsecured notes payable ......................................... $5,450
Shares of beneficial interest ................................... 54
Additional paid in capital ...................................... 5,396
</TABLE>
NOTE 17 -- PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
The unaudited pro forma condensed consolidated statements of operations of
the Trust are presented as if (i) the merger with four real estate limited
partnerships; (ii) the acquisition of 15 industrial properties; and (iii) the
disposition of two properties during 1996 and two properties during 1997 had
occurred at the beginning of each period presented. These unaudited pro forma
condensed consolidated statements of operations are not necessarily indicative
of what actual results of operations of the Trust would have been assuming such
transactions had been completed as of the beginning of each period presented,
nor do they purport to represent the results of operations for future periods.
F-16
<PAGE> 49
AMERICAN INDUSTRIAL PROPERTIES REIT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1997 1996
-------- --------
(in thousands, except per share data)
<S> <C> <C>
INCOME
Rents and tenant reimbursements $ 31,073 $ 30,925
Interest and other income 402 210
-------- --------
31,475 31,135
EXPENSES
Property operating expenses 11,618 7,329
Depreciation and amortization 6,173 5,909
Interest expense 11,220 11,902
General and administrative 4,299 5,219
-------- --------
Total expenses 33,310 30,359
-------- --------
Income (loss) before minority interests (1,835) 776
Minority interests 208 (185)
======== ========
Income (loss) from operations $ (1,627) $ 591
======== ========
Income (loss) from operations per share $ (0.17) $ 0.06
======== ========
Weighted average number of common
shares outstanding 9,817 9,817
======== ========
</TABLE>
NOTE 18 -- SUBSEQUENT EVENTS:
On January 29, 1998, the Trust announced a reinstatement of quarterly
distributions and declared a distribution of $0.18 per Share, payable on April
14, 1998 to shareholders of record on April 3, 1998.
On January 30, 1998, the Trust completed a $10 million private equity
placement at $13.625 per Share. In February 1998, two investment groups
exercised their preemptive rights and acquired $5 million and $3.75 million,
respectively, of Shares at $13.625 per Share. ). The shares are of the same
class as the Trust's existing shares and are entitled to the same voting and
distribution rights as all Shares, subject to certain restrictions on the
resale of the shares.
On February 12, 1998, the Trust, through AIP Operating, L.P., a subsidiary,
purchased a 94,304 nrsf office and service center development in Richardson,
Texas, a suburb of Dallas, for total consideration of $9.25 million. Of the
total consideration, $6,475,000 was borrowed under the Trust's acquisition line
of credit, $875,000 was issued in the form of 58,333 limited partnership units
in AIP Operating, L.P. and $1.9 million was paid in cash. Pursuant to the AIP
Operating, L.P. limited partnership agreement, the limited partners received
rights (the "Redemption Rights") that enable them to cause AIP Operating, L.P.
to redeem each limited partnership unit in exchange for cash equal to the value
of a Share (or, at the Trust's election, the Trust may purchase each limited
partnership unit offered for redemption for one Share, as determined in
accordance with the partnership agreement). The Redemption Rights generally may
be exercised at any time after one year following the issuance of the limited
partnership units. The number of Shares issuable upon exercise of the Redemption
Rights will be adjusted for share splits, mergers, consolidations or similar pro
rata transactions, which would have the effect of diluting the ownership
interests of the limited partners of AIP Operating, L.P. or the shareholders of
the Trust.
On February 18, 1998, the Trust filed a Form S-3 shelf registration with
the Securities and Exchange Commission which would provide for the issuance of
up to $500 million in Shares, Preferred Shares of Beneficial Interest, unsecured
senior debt securities, and/or warrants to purchase such securities in amounts,
at prices and on terms to be determined by market conditions at the time of
future offerings. The Trust anticipates utilization of this registration in the
future to fund acquisitions and growth of the Trust.
F-17
<PAGE> 50
AMERICAN INDUSTRIAL PROPERTIES REIT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
On March 9, 1998, the Trust announced a Share repurchase program, wherein
the Trust may purchase up to 1,000,000 Shares over the next six months. These
purchases will be made in open market transactions, as price and market
conditions allow. As of March 11, 1998, the Trust has purchased 6,700 Shares in
the open market, for an aggregate cost of $89,397.
As of March 11, 1998, the Trust has entered into contracts and letters of
intent to purchase approximately $44 million and $75 million in real estate
properties, respectively. No assurance can be given that properties currently
under contract or letter of intent will be completed or, if completed, that they
will be accretive on a per share basis.
F-18
<PAGE> 51
SCHEDULE III
AMERICAN INDUSTRIAL PROPERTIES REIT
CONSOLIDATED REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1997
(dollars in thousands)
<TABLE>
<CAPTION>
Costs
Capitalized
Subsequent to Gross Amount Carried at
Initial Costs Acquisition December 31, 1997
--------------------- ----------- ---------------------
Land, Buildings Buildings,
Improvements, Retirements, Improvements,
Furniture, Writedowns, Furniture,
Buildings and Fixtures and and Fixtures and
Description Land Improvements Equipment Allowances Land Equipment Total
----------- ---- ------------ --------- ---------- ---- --------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
LIGHT INDUSTRIAL PROPERTIES
Avion $ 770 $ 4,006 $ -- $ -- $ 770 $ 4,006 $ 4,776
Beltline Business Ctr 1,303 5,213 586 (3,521) 600 2,981 3,581
Bowater 581 2,535 -- -- 581 2,535 3,116
Carpenter Center 650 1,354 -- -- 650 1,354 2,004
Carrier Place 560 2,682 -- -- 560 2,682 3,242
Central Park 839 3,361 5 -- 839 3,366 4,205
Commerce Center 4,420 6,328 -- -- 4,420 6,328 10,748
Commerce Park 1,108 4,431 548 (2,014) 705 3,368 4,073
Continental Plastic 2,350 5,128 -- -- 2,350 5,128 7,478
Corporex Plaza I 998 4,130 -- -- 998 4,130 5,128
Corporex President's Plaza 491 1,932 -- -- 491 1,932 2,423
DFW IV 470 3,364 -- -- 470 3,364 3,834
Gateway 5 & 6 935 3,741 876 (1,861) 563 3,128 3,691
Huntington Drive 1,559 6,237 732 -- 1,559 6,969 8,528
Inverness 1,532 6,054 -- -- 1,532 6,054 7,586
Meridian 262 1,047 -- -- 262 1,047 1,309
Northgate II 2,153 8,612 765 (4,122) 1,329 6,079 7,408
Northgate III 1,280 10,013 36 -- 1,280 10,049 11,329
Northwest Business Pk 1,296 5,184 770 (131) 1,296 5,823 7,119
Parkway Tech 440 2,795 -- -- 440 2,795 3,235
Patapsco 1,147 4,588 411 (1,250) 897 3,999 4,896
Plaza Southwest 1,312 5,248 1,194 -- 1,312 6,442 7,754
Skyway Circle 444 1,778 -- -- 444 1,778 2,222
Valley View Commerce 1,460 6,648 4 -- 1,460 6,652 8,112
Valley View Land 1,024 -- -- -- 1,024 -- 1,024
Valwood II 420 2,021 -- -- 420 2,021 2,441
Walnut Oaks 530 1,738 -- -- 530 1,738 2,268
Westchase 697 2,787 321 (1,232) 465 2,108 2,573
------- -------- ------- -------- ------- -------- ----------
Total Light Industrial $31,031 $112,955 $ 6,248 $(14,131) $28,247 $107,856 $ 136,103
------- -------- ------- -------- ------- -------- ----------
<CAPTION>
Accumulated Year Acq. Encum-
Description Depreciation Constructed Date brances
----------- ------------ ----------- ---- -------
<S> <C> <C> <C> <C>
LIGHT INDUSTRIAL PROPERTIES
Avion $ -- 1984 1997 $ (b)
Beltline Business Ctr (1,420) 1984 1985 2,731
Bowater -- 1989 1997 --
Carpenter Center (9) 1983 1997 (a)
Carrier Place (17) 1984 1997 (a)
Central Park (28) 1984 1997 (b)
Commerce Center (33) 1971/74 1997 (a)
Commerce Park (1,310) 1984 1985 2,066
Continental Plastic -- 1963/96 1997 --
Corporex Plaza I (2) 1982 1997 (b)
Corporex President's Plaza (1) 1987 1997 (b)
DFW IV (21) 1985 1997 (a)
Gateway 5 & 6 (1,337) 1984/85 1985 2,804
Huntington Drive (2,227) 1984/85 1985 4,502
Inverness (1) 1980 1997 (b)
Meridian (61) 1981 1995 1,144
Northgate II (2,527) 1982/83 1985 5,092
Northgate III (63) 1979/86 1997 (a)
Northwest Business Pk (1,855) 1983/86 1986 1,251
Parkway Tech (17) 1984 1997 (a)
Patapsco (1,274) 1980/84 1985 3,063
Plaza Southwest (1,966) 1970/74 1985 3,321
Skyway Circle (15) 1981 1997 (b)
Valley View Commerce (42) 1986 1997 (a)
Valley View Land -- 1986 1997 (a)
Valwood II (13) 1983 1997 (a)
Walnut Oaks (11) 1984 1997 (a)
Westchase (838) 1983 1985 1,306
---------
Total Light Industrial $ (15,088)
---------
</TABLE>
F-19
<PAGE> 52
SCHEDULE III
AMERICAN INDUSTRIAL PROPERTIES REIT
CONSOLIDATED REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Costs
Capitalized
Subsequent to Gross Amount Carried at
Initial Costs Acquisition December 31, 1997
----------------------- ----------- --------------------
Land, Buildings Buildings,
Improvements, Retirements, Improvements,
Furniture, Writedowns, Furniture,
Buildings and Fixtures and and Fixtures and
Description Land Improvements Equipment Allowances Land Equipment Total
----------- ---- ------------ --------- ---------- ---- --------- ----
<C> <C> <C> <C> <C> <C> <C> <C>
OFFICE PROPERTIES
1881 Pine Street $ 776 $ 5,924 $ -- $ -- $ 776 $ 5,924 $ 6,700
Apollo Computer 6,106 17,901 -- -- 6,106 17,901 24,007
Eastman Kodak 1,749 2,998 279 -- 1,749 3,277 5,026
Linear Technology 1,235 3,231 -- -- 1,235 3,231 4,466
Manhattan Towers 5,156 23,053 -- -- 5,156 23,053 28,209
Skygate Commons 1,923 8,451 -- -- 1,923 8,451 10,374
Systech 879 3,691 -- -- 879 3,691 4,570
------- --------- ------- -------- -------- --------- ---------
Total Office Properties 17,824 65,249 279 -- 17,824 65,528 83,352
------- --------- ------- -------- -------- --------- ---------
RETAIL PROPERTIES
Tamarac 6,799 27,194 4,569 (241) 6,799 31,522 38,321
Volusia Point 3,445 3,826 -- -- 3,445 3,826 7,271
------- --------- ------- -------- -------- --------- ---------
Total Retail Properties 10,244 31,020 4,569 (241) 10,244 35,348 45,592
------- --------- ------- -------- -------- --------- ---------
TRUST -- -- 265 -- -- 265 265
------- --------- ------- -------- -------- --------- ---------
TOTAL ALL PROPERTIES $59,099 $ 209,224 $11,361 $(14,372) $ 56,315 $ 208,997 $ 265,312
======= ========= ======= ======== ======== ========= =========
<CAPTION>
Accumulated Year Acq. Encum-
Description Depreciation Constructed Date brances
----------- ------------ ----------- ---- -------
<S> <C> <C> <C> <C>
OFFICE PROPERTIES
1881 Pine Street $ -- 1987 1997 $ --
Apollo Computer -- 1987 1997 15,113
Eastman Kodak -- 1987 1997 1,065
Linear Technology -- 1986 1997 --
Manhattan Towers -- 1985 1997 15,000
Skygate Commons -- 1964/73 1997 --
Systech -- 1982 1997 --
---------
Total Office Properties --
---------
RETAIL PROPERTIES
Tamarac (10,387) 1976/79 1985 11,768
Volusia Point -- 1984 1997 --
---------
Total Retail Properties (10,387)
---------
TRUST (46)
---------
TOTAL ALL PROPERTIES $ (25,521)
=========
</TABLE>
(a) Property encumbered by a first mortgage loan of $27,275 at December 31,
1997.
(b) Property collateralized by the Trust's borrowing under an acquisition line.
Borrowings under acquisition line totaled $16,725 at December 31, 1997.
F-20
<PAGE> 53
AMERICAN INDUSTRIAL PROPERTIES REIT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AMERICAN INDUSTRIAL PROPERTIES REIT
NOTES TO SCHEDULE III
DECEMBER 31, 1997
(IN THOUSANDS)
RECONCILIATION OF REAL ESTATE:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Balance at beginning of year ...... $ 94,472 $101,897 $103,843
Additions during period:
Improvements ...................... 1,366 982 752
Acquisitions ...................... 175,469 -- 1,309
-------- -------- --------
271,307 102,879 105,904
Deductions during period:
Dispositions ...................... 5,995 8,407 3,402
Writedowns ........................ -- -- 600
Asset retirements ................. -- -- 5
-------- -------- --------
Balance at end of year ............ $265,312 $ 94,472 $101,897
======== ======== ========
</TABLE>
RECONCILIATION OF ACCUMULATED DEPRECIATION:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Balance at beginning of year ..................... $23,973 $23,441 $21,859
Additions during period:
Depreciation expense for period ............... 2,774 2,577 2,479
------- ------- -------
26,747 26,018 24,338
Deductions during period:
Accumulated depreciation of real estate
sold .......................................... 1,226 2,045 897
Asset retirements ............................. -- -- --
------- ------- -------
Balance at end of year ........................... $25,521 $23,973 $23,441
======= ======= =======
</TABLE>
TAX BASIS:
The income tax basis of real estate, net of accumulated tax depreciation, is
approximately $256,575 at December 31, 1997.
DEPRECIABLE LIFE:
Depreciation is provided by the straight-line method over the estimated useful
lives which are as follows:
Buildings and capital improvements: 40 years
Tenant improvements:
Term of the lease not to exceed 10 years
F-21
<PAGE> 54
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
2.1 Form of Amended and Restated Agreement and Plan of Merger,
dated as of June 30, 1997, by and between the Trust and each
of USAA Real Estate Income Investments I, A California Limited
Partnership, USAA Real Estate Income Investments II Limited
Partnership, USAA Income Properties III Limited Partnership
and USAA Income Properties IV Limited Partnership (Included as
Annex I to the Joint Proxy Statement/ Prospectus of the Trust
included in Form S-4, Registration No. 333-31823)
2.2 Purchase Agreement dated as of July 2, 1997 between Shidler
West Investment Corporation, as Purchaser, and Merit
Industrial Properties Limited Partnership, as Seller, as
amended by (i) First Amendment to Purchase Agreement dated as
of July 30, 1997, (ii) Second Amendment to Purchase Agreement
dated as of July 31, 1997, (iii) Third Amendment to Purchase
Agreement dated as of August 8, 1997, (iv) Fourth Amendment to
Purchase Agreement dated as of August 12, 1997, and (v) Fifth
Amendment to Purchase Agreement dated as of October 2, 1997
(Incorporated herein by reference from Exhibit 2.1 to Form 8-K
of the Trust dated October 3, 1997; File No. 1-9016)
2.3 Purchase Agreement dated as of July 2, 1997 between Shidler
West Investment Corporation, as Purchaser, and Merit 1995
Industrial Portfolio Limited Partnership, as Seller, as
amended by (i) First Amendment to Purchase Agreement dated as
of July 30, 1997, (ii) Second Amendment to Purchase Agreement
dated as of July 31, 1997, (iii) Third Amendment to Purchase
Agreement dated as of August 8, 1997, and (iv) Fourth
Amendment to Purchase Agreement dated as of August 12, 1997
(Incorporated herein by reference from Exhibit 2.2 to Form 8-K
of the Trust dated October 3, 1997; File No. 1-9016)
2.4 Purchase Agreement dated as of July 2, 1997 between Shidler
West Investment Corporation, as Purchaser, and Merit VV 1995
Industrial Portfolio Limited Partnership, as Seller, as
amended by (i) First Amendment to Purchase Agreement dated as
of July 30, 1997, (ii) Second Amendment to Purchase Agreement
dated as of July 31, 1997, (iii) Third Amendment to Purchase
Agreement dated as of July 31, 1997, (iv) Fourth Amendment to
Purchase Agreement dated as of August 12, 1997, and (v) Fifth
Amendment to Purchase Agreement dated as of October 2, 1997
(Incorporated herein by reference from Exhibit 2.3 to Form 8-K
of the Trust dated October 3, 1997; File No. 1-9016)
2.5 Purchase Agreement dated as of June 30, 1997 between Shidler
West Investment Corporation, as Purchaser, and Merit VV Land
1995 Industrial Portfolio Limited Partnership, as Seller, as
amended by (i) First Amendment to Purchase Agreement dated as
of July 30, 1997, (ii) Second Amendment to Purchase Agreement
dated as of July 31, 1997, (iii) Third Amendment to Purchase
Agreement dated as of July 31, 1997, and (iv) Fourth Amendment
to Purchase Agreement dated as of August 12, 1997
(Incorporated herein by reference from Exhibit 2.4 to Form 8-K
of the Trust dated October 3, 1997; File No. 1-9016)
2.6 Purchase and Sale Agreement dated as of September 24, 1997 by
and between Midway/Commerce Center Limited Partnership, as
Seller, and American Industrial Properties REIT, as Buyer
(Incorporated herein by reference from Exhibit 2.1 to Form 8-K
of the Trust dated November 13, 1997; File No. 1-09016)
2.7 First Amendment to Purchase and Sale Agreement dated as of
October 22, 1997 by and between Midway/Commerce Center Limited
Partnership and American Industrial Properties REIT
(Incorporated herein by reference from Exhibit 2.2 to Form 8-K
of the Trust dated November 13, 1997; File No. 1-09016)
2.8 Second Amendment to Purchase and Sale Agreement dated as of
October 31, 1997 by and between Midway/Commerce Center Limited
Partnership and American Industrial Properties REIT
(Incorporated herein by reference from Exhibit 2.3 to Form 8-K
of the Trust dated November 13, 1997; File No. 1-09016)
3.1 Third Amended and Restated Declaration of Trust (Incorporated
by reference from Exhibit 3.1 to Form S-4 of the Trust dated
July 22, 1997; Registration No. 33-31823)
</TABLE>
<PAGE> 55
<TABLE>
<S> <C>
3.2 Fifth Amended and Restated Bylaws (Incorporated herein by
reference from the Trust's Form 8-K dated January 29, 1998;
File No. 1-09016)
4.1 Indenture dated November 15, 1985, by and between American
Industrial Properties REIT (the "Trust") and IBJ Schroder Bank
& Trust Company (Incorporated herein by reference from Exhibit
10.4 to Form S-4 of American Industrial Properties REIT, Inc.
("AIP Inc.") dated March 16, 1994; Registration No. 33-74292)
4.2 Form of Common Share Certificate (Incorporated herein by
reference from Exhibit 4.2 to Amendment No. 3 to Form S-4 of
the Trust filed October 28, 1997; Registration No. 333-31823)
10.1 Form of Indemnification Agreement (Incorporated by reference
from Exhibit 10.1 to Form S-4 of the Trust dated July 22,
1997; Registration No. 333-31823)
10.2 Employee and Trust Manager Incentive Share Plan (Incorporated
by reference from Exhibit 10.2 to Form S-4 of the Trust dated
July 22, 1997; Registration No. 333- 31823)
10.3 Common Share Purchase Agreement dated as of July 3, 1997, by
and between the Trust and ABKB/LaSalle Securities Limited
Partnership as Agent for and for the benefit of a particular
client (Incorporated herein by reference from Exhibit 10.7 to
Form 8-K of the Trust dated July 22, 1997; File No. 1-9016)
10.4 Common Share Purchase Agreement dated as of July 3, 1997, by
and between the Trust and ABKB/LaSalle Securities Limited
Partnership as Agent for and for the benefit of a particular
client (Incorporated herein by reference from Exhibit 10.8 to
Form 8-K of the Trust dated July 22, 1997; File No. 1-9016)
10.5 Common Share Purchase Agreement dated as of July 3, 1997, by
and between the Trust and LaSalle Advisors Limited Partnership
as Agent for and for the benefit of a particular client
(Incorporated herein by reference from Exhibit 10.9 to Form
8-K of the Trust dated July 22, 1997; File No. 1-9016)
10.6 Registration Rights Agreement dated as of July 10, 1997, by
and between the Trust, ABKB/LaSalle Securities Limited
Partnership as Agent for and for the benefit of particular
clients and LaSalle Advisors Limited Partnership as Agent for
and for the benefit of a particular client (Incorporated
herein by reference from Exhibit 10.6 to Form 8-K of the Trust
dated July 22, 1997; File No. 1-9016)
10.7 Common Share Purchase Agreement dated as of June 20, 1997, by
and among the Trust, MS Real Estate Special Situations, Inc.
("MSRE") and Morgan Stanley Asset Management, Inc. ("MSAM") as
agent and attorney-in-fact for specified clients (the "MSAM
Purchasers") (Incorporated herein by reference from Exhibit
10.5 to Form 8-K of the Trust dated July 22, 1997; File No.
1-9016)
10.8 Registration Rights Agreement dated as of June 20, 1997, by
and among the Trust, MSRE and MSAM on behalf of the MSAM
Purchasers (Incorporated herein by reference from Exhibit 10.6
to the Trust's Form 8-K dated July 22, 1997; File No. 1-9016)
10.9 Renewal, Extension, Modification and Amendment Agreement dated
February 26, 1997, executed by the Trust in favor of USAA Real
Estate Company ("Realco") (Incorporated herein by reference
from Exhibit 10.1 to Form 8-K of the Trust dated March 4,
1997; File No. 1-9016)
10.10 Share Purchase Agreement dated as of December 20, 1996, by and
among the Trust, Realco and AIP (Incorporated by reference
from Exhibit 99.7 to Form 8-K of the Trust dated December 23,
1996; File No. 1-9016)
10.11 Share Purchase Agreement dated as of December 13, 1996, by and
between the Trust and Realco (Incorporated herein by reference
from Exhibit 99.4 to Form 8-K of the Trust dated December 23,
1996; File No. 1-9016)
10.12 Registration Rights Agreement dated as of December 20, 1996,
by and between the Trust and Realco, as amended (Incorporated
herein by reference from Exhibit 99.9 to Form 8-K of the Trust
dated December 23, 1996; File No. 1-9016)
10.13 Registration Rights Agreement dated as of December 19, 1996,
by and between the Trust and Realco (Incorporated herein by
reference from Exhibit 99.8 to Form 8-K of the Trust dated
December 23, 1996; File No. 1-9016)
10.14 401(k) Retirement and Profit Sharing Plan (Incorporated herein
by reference from Exhibit 10.5 to Amendment No. 1 to Form S-4
of AIP, Inc. dated March 4, 1994; Registration No. 33-74292)
</TABLE>
<PAGE> 56
<TABLE>
<S> <C>
10.15 Amendments to 401(k) Retirement and Profit Sharing Plan
(Incorporated herein by reference from Exhibit 10.4 to Form
10-K of the Trust dated March 27, 1995)
10.16 Settlement Agreement by and between American Industrial
Properties REIT, Patapsco #1 Limited Partnership, Patapsco #2
Limited Partnership, The Manufacturers Life Insurance Company
and The Manufacturers Life Insurance Company (U.S.A.) dated as
of May 22, 1996 (incorporated herein by reference from Exhibit
99.1 to Form 8-K of the Trust dated May 22, 1996; File No.
1-9016)
10.17 Agreement and Assignment of Partnership Interest, Amended and
Restated Agreement and Certificate of Limited Partnership and
Security Agreement for Patapsco Center -- Linthicum Heights,
Maryland (incorporated herein by reference from Exhibit 10.8
to Amendment No. 1 to Form S-4 of AIP Inc. dated March 4,
1994; Registration No. 33- 74292)
10.18 Note dated November 15, 1994 in the original principal amount
of $12,250,000 with AIP Properties #1 L.P. as Maker and
AMRESCO Capital Corporation as Payee (Incorporated herein by
reference from Exhibit 99.1 to Form 8-K of the Trust dated
November 22, 1994; File No. 1-9016)
10.19 Mortgage, Deed of Trust and Security Agreement dated November
15, 1994 between AIP Properties #1 L.P. and AMRESCO Capital
Corporation (incorporated herein by reference from Exhibit
99.2 to Form 8-K of the Trust dated November 22, 1994; File
No. 1-9016)
10.20 Loan Modification Agreement modifying the Note dated November
15, 1994 in the original principal amount of $12,250,000
(incorporated herein by reference from Exhibit 99.2 to Form
8-K of the Trust dated June 23, 1995; File No. 1-9016)
10.21 Note dated November 15, 1994 in the original principal amount
of $2,150,000 with AIP Properties #2 L.P. as Maker and AMRESCO
Capital Corporation as Payee (Incorporated herein by reference
from Exhibit 99.3 to Form 8-K of the Trust dated November 22,
1994; File No. 1-9016)
10.22 Mortgage, Deed of Trust and Security Agreement dated November
15, 1994 between AIP Properties #2 L.P. and AMRESCO Capital
Corporation (Incorporated herein by reference from Exhibit
99.4 to Form 8-K of the Trust dated November 22, 1994; File
No. 1-9016)
10.23 Loan Modification Agreement modifying the Note dated November
15, 1994 in the original principal amount of $2,250,000
(Incorporated herein by reference from Exhibit 99.1 to Form
8-K of the Trust dated June 23, 1995; File No. 1-9016)
10.24 Promissory Note dated November 25, 1996, by and between AIP
Inc. and Realco (Incorporated herein by reference from Exhibit
No. 99.5 to Form 8-K of the Trust dated December 23, 1996;
File No. 1-9016)
10.25 Deed of Trust and Security Agreement dated November 15, 1996
between AIP Properties #3, L.P. and Life Investors Insurance
Company of America (Huntington Drive Center) (Incorporated
herein by reference from Exhibit 99.1 to Form 8-K of the Trust
dated November 20, 1996; File No. 1-9016)
10.26 Note dated November 15, 1996 in the original principal amount
of $4,575,000 with AIP Properties #3, L.P. as Maker and Life
Investors Insurance Company as Payee (Huntington Drive Center)
(Incorporated herein by reference from Exhibit 99.2 to Form
8-K of the Trust dated November 20, 1996; File No. 1-9016)
10.27 Deed of Trust and Security Agreement dated November 15, 1996
between AIP Properties #3, L.P. and Life Investors Insurance
Company of America (Patapsco Industrial Center) (Incorporated
herein by reference from Exhibit 99.3 to Form 8-K of the Trust
dated November 20, 1996; File No. 1-9016)
10.28 Note dated November 15, 1996 in the original principal amount
of $3,112,500 with AIP Properties #3, L.P. as Maker and Life
Investors Insurance Company as Payee (Patapsco Industrial
Center) (Incorporated herein by reference from Exhibit 99.4 to
Form 8-K of the Trust dated November 20, 1996; File No.
1-9016)
10.29 Deed of Trust and Security Agreement dated November 15, 1996
between AIP Properties #3, L.P. and Life Investors Insurance
Company of America (Woodlake Distribution Center)
(Incorporated herein be reference from Exhibit 99.5 to Form
8-K of the Trust dated November 20, 1996; File No. 1-9016)
</TABLE>
<PAGE> 57
<TABLE>
<S> <C>
10.30 Note dated November 15, 1996 in the original principal amount
of $1,537,500 with AIP Properties #3, L.P. as Maker and Life
Investors Insurance Company as Payee (Woodlake Distribution
Center) (Incorporated herein by reference from Exhibit 99.6 to
Form 8-K of the Trust dated November 20, 1996; File No.
1-9016)
10.31 Deed of Trust and Security Agreement dated November 15, 1996
between AIP Properties #3, L.P. and Life Investors Insurance
Company of America (All Texas properties except Woodlake)
(Incorporated herein by reference from Exhibit 99.7 to Form
8-K of the Trust dated November 20, 1996; File No. 1-9016)
10.32 Note dated November 15, 1996 in the original principal amount
of $1,162,500 with AIP Properties #3, L.P. as Maker and Life
Investors Insurance Company as Payee (Meridian Street
Warehouse) (Incorporated herein by reference from Exhibit 99.8
to Form 8-K of the Trust dated November 20, 1996; File No.
1-9016)
10.33 Note dated November 15, 1996 in the original principal amount
of $2,775,000 with AIP Properties #3, L.P. as Maker and Life
Investors Insurance Company as Payee (Beltline Business
Center) (Incorporated herein by reference from Exhibit 99.9 to
Form 8-K of the Trust dated November 20, 1996; File No.
1-9016)
10.34 Note dated November 15, 1996 in the original principal amount
of $3,375,000 with AIP Properties #3, L.P. as Maker and Life
Investors Insurance Company as Payee (Plaza South)
(Incorporated herein by reference from Exhibit 99.10 to Form
8-K of the Trust dated November 20, 1996; File No. 1-9016)
10.35 Note dated November 15, 1996 in the original principal amount
of $2,100,00 with AIP Properties #3, L.P. as Maker and Life
Investors Insurance Company as Payee (Commerce North Park)
(Incorporated herein by reference from Exhibit 99.11 to Form
8-K of the Trust dated November 20, 1996; File No. 1-9016)
10.36 Note dated November 15, 1996 in the original principal amount
of $2,850,000 with AIP Properties #3, L.P. as Maker and Life
Investors Insurance Company as Payee (Gateway 5 & 6)
(Incorporated herein by reference from Exhibit 99.12 to Form
8-K of the Trust dated November 20, 1996; File No. 1-9016)
10.37 Note dated November 15, 1996 in the original principal amount
of $5,175,000 with AIP Properties #3, L.P. as Maker and Life
Investors Insurance Company as Payee (Northgate II)
(Incorporated herein by reference from Exhibit 99.13 to Form
8-K of the Trust dated November 20, 1996; File No. 1-9016)
10.38 Note dated November 15, 1996 in the original principal amount
of $1,327,500 with AIP Properties #3, L.P. as Maker and Life
Investors Insurance Company as Payee (Westchase Park)
(Incorporated herein by reference from Exhibit 99.14 to Form
8-K of the Trust dated November 20, 1996; File No. 1-9016)
10.39 Bonus and Severance Agreement dated March 13, 1996, by and
between the Trust and Charles W. Wolcott (Incorporated herein
by reference from Exhibit 10.12 to Form 10-K of the Trust for
the year ended December 31, 1996)
10.40 Bonus and Severance Agreement dated March 13, 1996, by and
between the Trust and Marc Simpson (Incorporated herein by
reference from Exhibit 10.13 to Form 10-K of the Trust for the
year ended December 31, 1996)
10.41 Bonus and Severance Agreement dated March 13, 1996, by and
between the Trust and David B. Warner (Incorporated herein by
reference from Exhibit 10.14 to Form 10-K of the Trust for the
year ended December 31, 1996)
10.42 Amendment No. 1 to Share Purchase Agreement dated as of
December 13, 1996 by and between the Trust and Realco
(Incorporated herein by reference from Exhibit 10.2 to Form
8-K of the Trust dated March 4, 1997; File No. 1-9016)
10.43 Bonus and Severance Agreement dated May 12, 1997, by and
between the Trust and Lewis D. Friedland (Incorporated herein
by reference from Exhibit 10.43 to Amendment No. 3 to Form S-4
of the Trust filed October 28, 1997; Registration No.
333-31823)
10.44 Common Share Purchase dated as of January 29, 1988, by and
between American Industrial Properties REIT and Praedium II
Industrial Associates LLC (Incorporated herein by reference
from Exhibit 10.1 to Form 8-K of the Trust dated January 29,
1998; File No. 1-09016)
</TABLE>
<PAGE> 58
<TABLE>
<S> <C>
10.45 Registration rights Agreement dated as of January 29, 1998, by
and between American Industrial Properties REIT and Praedium
II Industrial Associates LLC (Incorporated herein by reference
from Exhibit 10.2 to Form 8-K of the Trust dated January 29,
1998; File No. 1-09016)
10.46 Agreement dated as of January 29, 1998, by and among American
Industrial Properties REIT, USAA Real Estate Company,
ABKB/LaSalle Securities Limited Partnership (as Agent for and
for the benefit of particular clients), MS Real Estate Special
Situations, Inc. and Morgan Stanley Asset Management Inc.
(Incorporated herein by reference from Exhibit 10.3 to Form
8-K of the Trust dated January 29, 1998; File No. 1-09016)
10.47 Contribution and Exchange Agreement dated as of September 25,
1997 among Shidler West Investment Corporation, AIP-SWAG
Operating Partnership, L.P. and the Trust (Incorporated herein
by reference from Exhibit 99.1 to Form 8-K of the Trust dated
October 3, 1997; File No. 1-9016)
10.48 Assignment and Assumption of Purchase Agreements dated as of
October 3, 1997 between Shidler West Investment Corporation
and AIP-SWAG Operating Partnership, L.P. (Incorporated herein
by reference from Exhibit 99.2 to Form 8-K of the Trust dated
October 3, 1997; File No. 1-9016)
10.49 Amended and Restated Agreement of Limited Partnership of
AIP-SWAG Operating Partnership, L.P. dated as of October 3,
1997 (Incorporated herein by reference from Exhibit 99.3 to
Form 8-K of the Trust dated October 3, 1997; File No. 1-9016)
10.50 Warrant Agreement dated as of October 3, 1997 between American
Industrial Properties and Shidler West Acquisition Company,
LLC (Incorporated herein by reference from Exhibit 99.4 to
Form 8-K of the Trust dated October 3, 1997; File No. 1-9016)
10.51 Warrant Agreement dated as of October 3, 1997 between the
Trust and AG Industrial Investors, L.P.(Incorporated herein by
reference from Exhibit 99.5 to Form 8-K of the Trust dated
October 3, 1997; File No. 1-9016)
10.52 Registration Rights Agreement dated as of October 3, 1997
between the Trust and Shidler West Acquisition Company, LLC
(Incorporated herein by reference from Exhibit 99.6 to Form
8-K of the Trust dated October 3, 1997; File No. 1-9016)
10.53 Registration Rights Agreement dated as of October 3, 1997
between the Trust and AG Industrial Investors, L.P.
(Incorporated herein by reference from Exhibit 99.7 to Form
8-K of the Trust dated October 3, 1997; File No. 1-9016)
10.54 Credit Agreement dated as of October 3, 1997 between the Trust
and AIP-SWAG Operating Partnership, L.P., as Borrower, and
Prudential Securities Credit Corporation, as Lender
(Incorporated herein by reference from Exhibit 99.9 to Form
8-K of the Trust dated October 3, 1997; File No. 1-9016)
10.55 Credit Agreement dated as of October 3, 1997 between American
Industrial Properties REIT and AIP-SWAG Operating Partnership,
L.P., as Borrower, and Prudential Securities Credit
Corporation, as Lender (Incorporated herein by reference from
Exhibit 99.8 to Form 8-K of the Trust dated October 3, 1997;
File No. 1-9016)
10.56 Contract of Sale by and between Nationwide Life Insurance
Company and ALCU Investments, Inc. (Incorporated herein by
reference from the Trust Form 8-K/A dated February 11, 1998;
File No. 1-09016)
10.57 Assignment of Contract of Sale dated as of February 11, 1998,
by and among Nationwide Life Insurance Company, ALCU
Investments, Inc., and AIP Operating, L.P. (Incorporated
herein by reference from the Trust Form 8-K/A dated February
11, 1998; File No. 1-09016)
10.58 Contribution and Exchange Agreement dated as of January 29,
1998, by and among ALCU Investments, Ltd., AIP Operating,
L.P., and American Industrial Properties REIT. (Incorporated
herein by reference from the Trust Form 8-K/A dated February
11, 1998; File No. 1-09016)
10.59 Amended and Restated Agreement of Limited Partnership of AIP
Operating, L.P. dated as of February 11, 1998, by and among
American Industrial Properties REIT, General Electric Capital
Corporation, and ALCU Investments, Ltd. (Incorporated herein
by reference from the Trust Form 8-K/A dated February 11,
1998; File No. 1-09016)
</TABLE>
<PAGE> 59
<TABLE>
<S> <C>
10.60 Promissory Note by and among American Industrial Properties
REIT, AIP Operating, L.P., and Prudential Securities Credit
Corporation. (Incorporated herein by reference from the Trust
Form 8-K/A dated February 11, 1998; File No. 1-09016)
10.61 First Amendment to Credit Agreement dated as of February 11,
1998, by and among American Industrial Properties REIT, AIP
Operating, L.P., and Prudential Securities Credit Corporation.
(Incorporated herein by reference from the Trust Form 8-K/A
dated February 11, 1998; File No. 1-09016)
21.1 * Listing of Subsidiaries
24.1 * Power of Attorney (Included on signature page hereto)
27.1 * Financial Data Schedule
</TABLE>
* Filed herewith
<PAGE> 1
AMERICAN INDUSTRIAL PROPERTIES REIT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
EXHIBIT 21.1
ENTITY: AMERICAN INDUSTRIAL PROPERTIES REIT, A TEXAS REAL ESTATE INVESTMENT
TRUST
<TABLE>
<CAPTION>
OWNERSHIP
PERCENTAGE SUBSIDIARY/PARTNER
- -------------------------- ------------------------------------------------------------------
<S> <C>
100% American Industrial Properties REIT, Inc., a Maryland corporation
100% AIP Tamarac, Inc., a Texas corporation
99% Limited Partner AIP Properties #1, L.P., a Delaware limited partnership
100% AIP Northview, Inc., a Texas corporation
99% Limited Partner AIP Properties #2, L.P., a Delaware limited partnership
100% AIP Properties #3, GP, Inc., a Texas corporation
99% Limited Partner AIP Properties #3, L.P., a Delaware limited partnership
100% AIP-SWAG GP, Inc., a Texas corporation
55.84% Joint Venture USAA Chelmsford Associates Joint Venture
</TABLE>
ENTITY: AIP TAMARAC, INC., A TEXAS CORPORATION
<TABLE>
<CAPTION>
OWNERSHIP
PERCENTAGE PARTNER
- -------------------------- ----------------------------------------------------------------------
<S> <C>
1% General Partner AIP Properties #1, L.P., a Delaware limited partnership
</TABLE>
ENTITY: AIP NORTHVIEW, INC., A TEXAS CORPORATION
<TABLE>
<CAPTION>
OWNERSHIP
PERCENTAGE PARTNER
- -------------------------- ---------------------------------------------------------------------
<S> <C>
1% General Partner AIP Properties #2, L.P., a Delaware limited partnership
</TABLE>
ENTITY: AIP PROPERTIES #3 GP, INC., A TEXAS CORPORATION
<TABLE>
<CAPTION>
OWNERSHIP
PERCENTAGE PARTNER
- -------------------------- ---------------------------------------------------------------------
<S> <C>
1% General Partner AIP Properties #3, L.P., a Delaware limited partnership
</TABLE>
ENTITY: AIP SWAG GP, INC., A TEXAS CORPORATION
<TABLE>
<CAPTION>
OWNERSHIP
PERCENTAGE PARTNER
- -------------------------- ---------------------------------------------------------------------
<S> <C>
98% General Partner AIP-SWAG Operating Partnership, L.P., a Delaware limited partnership
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 13,804
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 265,312
<DEPRECIATION> (25,521)
<TOTAL-ASSETS> 258,395
<CURRENT-LIABILITIES> 130,180
<BONDS> 0
0
0
<COMMON> 982
<OTHER-SE> 120,789
<TOTAL-LIABILITY-AND-EQUITY> 258,395
<SALES> 0
<TOTAL-REVENUES> 12,747
<CGS> 0
<TOTAL-COSTS> 9,976
<OTHER-EXPENSES> (2,163)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,778
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (844)
<DISCONTINUED> 0
<EXTRAORDINARY> 2,643
<CHANGES> 0
<NET-INCOME> 1,799
<EPS-PRIMARY> .054
<EPS-DILUTED> .054
</TABLE>
