<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 2 TO CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): February 11, 1998
AMERICAN INDUSTRIAL PROPERTIES REIT
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<CAPTION>
TEXAS 1-9016 75-6335572
<S> <C> <C>
(State or Other Jurisdiction of (Commission File Number) (I.R.S. Employer
Incorporation or Organization) Identification Number)
</TABLE>
6210 NORTH BELTLINE ROAD, SUITE 170, IRVING, TEXAS 75063
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code: (972) 756-6000
<PAGE> 2
The undersigned Registrant hereby amends its Current Report on Form
8-K dated February 11, 1998, which was filed with the Securities and Exchange
Commission on February 25, 1998, to include the financial statements required
by Item 7 (a) and the pro forma financial information required by Item 7 (b).
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial Statements: See Index to Financial Statements and Pro
Forma Financial Information appearing on page F-1 of this Form 8-K/A.
(b) Pro Forma Financial Information: See Index to Financial
Statements and Pro Forma Financial Information appearing on page F-1 of this
Form 8-K/A.
<PAGE> 3
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
AMERICAN INDUSTRIAL PROPERTIES REIT
By: /s/ CHARLES W. WOLCOTT
------------------------------
Charles W. Wolcott
President and Chief Executive
Officer
March 23, 1998
<PAGE> 4
INDEX TO FINANCIAL STATEMENTS AND PRO FORMA FINANCIAL INFORMATION
<TABLE>
<S> <C>
FINANCIAL STATEMENTS
SPRING VALLEY #6 INDUSTRIAL PROPERTY
Report of Independent Auditors................................... F-2
Historical Summary of Gross Income and Direct
Operating Expenses............................................. F-3
Notes to Historical Summary of Gross Income and
Direct Operating Expenses...................................... F-4
PRO FORMA FINANCIAL INFORMATION........................................... F-6
Pro forma condensed consolidated balance sheet as of
December 31, 1997.............................................. F-8
Pro forma condensed consolidated statement of operations
for the year ended December 31, 1997........................... F-10
</TABLE>
F-1
<PAGE> 5
Report of Independent Auditors
Board of Trust Managers
American Industrial Properties REIT
We have audited the accompanying Historical Summary of Gross Income and Direct
Operating Expenses (the "Historical Summary") of the Spring Valley #6 Industrial
Property (the "Property"), as described in Note 1 for the years ended December
31, 1997 and 1996. This Historical Summary is the responsibility of the
Property's management. Our responsibility is to express an opinion on this
Historical Summary 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 Historical Summary is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the Historical Summary. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the Historical
Summary. We believe that our audits provide a reasonable basis for our opinion.
The Historical Summary has been prepared for the purpose of complying with the
rules and regulations of the Securities and Exchange Commission for inclusion in
the Current Report on Form 8-K of American Industrial Properties REIT, as
described in Note 1 and is not intended to be a complete presentation of the
income and expenses of the Property.
In our opinion, the Historical Summary referred to above presents fairly, in all
material respects, the gross income and direct operating expenses of Spring
Valley #6 Industrial Property, as described in Note 1, for the years ended
December 31, 1997 and 1996, in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
Ernst & Young LLP
Dallas, Texas
February 13, 1998
F-2
<PAGE> 6
Spring Valley #6 Industrial Property
Historical Summary of
Gross Income and Direct Operating Expenses
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1996 1997
----------- ------------
<S> <C> <C>
GROSS INCOME
Rental $ 707,280 $ 707,280
Reimbursements 246,486 295,160
Other 3,414 4,991
---------- ----------
Total gross income 957,180 1,007,431
DIRECT OPERATING EXPENSES
Repairs and maintenance 61,624 131,837
Utilities and other property operating 50,717 53,756
Real estate taxes 100,954 133,680
Management fees 38,418 37,496
---------- ----------
Total direct operating expenses 251,713 356,769
---------- ----------
Excess of gross income over direct operating expenses $ 705,467 $ 650,662
========== ==========
</TABLE>
See accompanying notes.
F-3
<PAGE> 7
Spring Valley #6 Industrial Property
Notes to Historical Summary of Gross Income
and Direct Operating Expenses
Years Ended December 31, 1997 and 1996
1. ORGANIZATION AND BASIS OF PRESENTATION
The Spring Valley #6 Industrial Property (the "Property") is a commercial office
building containing approximately 94,300 square feet located in Richardson,
Texas. As of December 31, 1997 the property was 100% leased to one tenant,
Northern Telecommunications, NORTEL.
The accompanying Historical Summary has been prepared for the purpose of
complying with the rules and regulations of the Securities and Exchange
Commission for inclusion in the Current Report on Form 8-K of American
Industrial Properties REIT. The Historical Summary is not intended to be a
complete presentation of income and expenses of the Property for the years ended
December 31, 1997 and 1996, as certain costs such as depreciation, amortization,
interest, and other debt service costs have been excluded. These costs are not
considered to be direct operating expenses.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of the Historical Summary in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts included in the Historical Summary and accompanying
notes thereto. Actual results could differ from those estimates.
REVENUE RECOGNITION
Minimum rents are recognized on a straight-line basis; as such, the rental
revenues for leases which contain rent abatements and contractual increases are
recognized on a straight-line basis over the initial term of the related lease.
Property operating cost recoveries from tenants of common area maintenance, real
estate taxes and other recoverable costs, are recognized in the period when the
recoveries are earned.
F-4
<PAGE> 8
Spring Valley #6 Industrial Property
Notes to Historical Summary of Gross Income
and Direct Operating Expenses (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CAPITALIZATION POLICY
Ordinary repairs and maintenance are expensed as incurred; major replacements
and improvements are capitalized.
3. MANAGEMENT FEES
The Property is managed by a third party. The management fee is 4.0% of cash
receipts per year.
4. OPERATING LEASES
The Property's operating lease with NORTEL expires on January 31, 2001. The
minimum future rentals under the operating lease as of December 31, 1997 are as
follows:
<TABLE>
<S> <C>
1998 $ 707,280
1999 707,280
2000 707,280
2001 58,940
----------
$2,180,780
==========
</TABLE>
5. TRANSACTIONS WITH RELATED PARTIES
Insurance coverage is provided by the owner of the Property. Amounts incurred
for insurance for the years ended December 31, 1997 and 1996 were $11,778 and
$11,434, respectively.
6. SUBSEQUENT EVENT
On January 12, 1998, the Property was sold for a purchase price of $7.2 million
to American Industrial Properties REIT.
F-5
<PAGE> 9
AMERICAN INDUSTRIAL PROPERTIES REIT
PRO FORMA FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT SHARE DATA)
The following Pro Forma Condensed Consolidated Balance Sheet of the Trust
as of December 31, 1997 has been prepared as if each of the following
transactions had occurred as of December 31, 1997: (i) the acquisition, through
AIP Operating, L.P., a limited partnership in which the Trust has a 99%
controlling ownership interest, of Spring Valley #6 on February 11, 1998 (the
"1998 Acquisition"); (ii) the private placements with three investors of
1,376,245 shares of Common Shares of Beneficial Interest of the Trust (the
"Common Shares") with net proceeds of $18,750 in February 1998 (the "1998
Private Placements"); and (iii) the Trust's repurchase of 6,700 Common Shares,
for an aggregate cost of $89 (the "Common Share Repurchase").
The following Pro Forma Condensed Consolidated Statement of Operations of
the Trust for the year ended December 31, 1997 has been prepared as if each of
the following transactions had occurred as of January 1, 1997: (i) the
acquisition of 15 industrial real estate properties (the "1997 Acquisitions");
(ii) the sale of 2 industrial real estate properties (the "1997 Dispositions");
(iii) the merger (the "Merger") with four publicly traded real estate limited
partnerships (the "RELPs"); and (iv) the 1998 Acquisition.
The Pro Forma Financial Information of the Trust has been prepared using
the purchase method of accounting for the Merger, whereby the assets and
liabilities of the RELPs were adjusted to estimated fair market value, based
upon preliminary estimates, which are subject to change as additional
information is obtained. The allocations of purchase costs are subject to final
determination based upon estimates and other evaluations of fair market value.
Therefore, the allocations reflected in the following Pro Forma Financial
Information may differ from the amounts ultimately determined.
Such Pro Forma Financial Information is based in part upon (i) the
Consolidated Financial Statements of the Trust for the year ended December 31,
1997, incorporated by reference herein; (ii) the Financial Statements of USAA
Real Estate Income Investments I Limited Partnership for the year ended December
31, 1997 filed with Amendment No. 1 to the Trust's Current Report on Form 8-K,
dated January 20, 1998, incorporated by reference herein; (iii) the Financial
Statements of USAA Real Estate Income Investments II Limited Partnership for the
year ended June 30, 1997 and the six months ended December 31, 1997 (unaudited)
filed with Amendment No. 1 to the Trust's Current Report on Form 8-K, dated
January 20, 1998, incorporated by reference herein; (iv) the Financial
Statements of USAA Income Properties III Limited Partnership for the year ended
December 31, 1997 filed with Amendment No. 1 to the Trust's Current Report on
Form 8-K, dated January 20, 1998, incorporated by reference herein; (v) the
Financial Statements of USAA Income Properties IV Limited Partnership for the
year ended December 31, 1997 filed with Amendment No. 1 to the Trust's Current
Report on Form 8-K, dated January 20, 1998, incorporated by reference herein;
(vi) the unaudited Combined Historical
F-6
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Summary of Merit Texas Properties Portfolio for the nine months ended September
30, 1997 filed with Amendment No. 1 to the Trust's Current Report on Form 8-K,
dated October 17, 1997, incorporated by reference herein; (vii) the unaudited
Historical Summary of Commerce Center for the year ended May 31, 1997 and the
three months ended August 31, 1997 filed with Amendment No. 2 to the Trust's
Current Report on Form 8-K, dated November 25, 1997, incorporated by reference
herein; (viii) the Historical Summary of Spring Valley #6 Industrial Property
for the year ended December 31, 1997 filed with Amendment No. 2 to the Trust's
Current Report on Form 8-K, dated February 11, 1998, incorporated by reference
herein; (ix) the unaudited Combined Historical Summary of Skyway and Central
Park Industrial Properties for the six months ended June 30, 1997 filed with the
Trust's Current Report on Form 8-K, dated March 23, 1998 incorporated by
reference herein; (x) the unaudited Historical Summary of Inverness Industrial
Property for the nine months ended September 30, 1997 filed with the Trust's
Current Report on Form 8-K, dated March 23, 1998 incorporated by reference
herein; (xi) the unaudited Combined Statement of Revenues and Certain Expenses
of Corporex Plaza I and Presidents' Plaza Business Center for the nine months
ended September 30, 1997 filed with the Trust's Current Report on Form 8-K,
dated March 23, 1998, incorporated by reference herein; and (xii) the unaudited
Historical Summary of Avion Industrial Property for the nine months ended
September 30, 1997 filed with the Trust's Current Report on Form 8-K, dated
March 23, 1998, incorporated by reference herein.
The Pro Forma Financial Information is presented for information
purposes only and is not necessarily indicative of the financial position or
results of operations of the Trust that would have occurred if such transactions
had been completed on the dates indicated, nor does it purport to be indicative
of future financial position or results of operations. In the opinion of the
Trust's management, all material adjustments necessary to reflect the effect of
these transactions have been made.
F-7
<PAGE> 11
AMERICAN INDUSTRIAL PROPERTIES REIT
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1997
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Trust Recent Pro
Historical (A) Transactions (B) Forma
------------ -------------- ---------
ASSETS
<S> <C> <C> <C>
Real estate, net $ 239,791 $ 9,259 (C) $ 249,050
Cash - unrestricted 11,683 (1,974) (C)
18,002 (D)
(89) (E) 27,622
Cash - restricted 2,121 0 2,121
Other assets, net 4,800 65 (C) 4,865
--------- --------- ---------
$ 258,395 $ 25,263 $ 283,658
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Mortgage notes payable $ 114,226 $ 6,475 (C) $ 120,701
Notes payable to affiliates 7,200 0 7,200
Accrued interest payable 269 0 269
Accounts payable, accrued
expenses and other 7,231 0 7,231
Tenant security deposits 1,254 0 1,254
--------- --------- ---------
130,180 6,475 136,655
Minority interests 6,444 875 (C) 7,319
Shareholders' equity:
Common Shares of beneficial interest
($0.10 par value) 982 138 (D) 1,120
Additional paid-in capital 224,989 17,864 (D) 242,853
Less Common Shares in treasury, at cost (626) (89) (E) (715)
Accumulated distributions (58,456) 0 (58,456)
Accumulated loss from operations
and extraordinary gains (losses) (48,429) 0 (48,429)
Accumulated net realized gain
on sales of real estate 3,311 0 3,311
--------- --------- ---------
121,771 17,913 139,684
--------- --------- ---------
$ 258,395 $ 25,263 $ 283,658
========= ========= =========
</TABLE>
F-8
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AMERICAN INDUSTRIAL PROPERTIES REIT
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1997
(IN THOUSANDS)
(UNAUDITED)
(A) Represents the historical financial position of the Trust as of December
31, 1997.
(B) Represents adjustments for the 1998 Acquisition, the 1998 Private
Placements and the Common Share Repurchase.
(C) Represents adjustments for the 1998 Acquisition, including closing and
transaction costs, of $9,259, comprised of cash of $1,974, borrowings on
the Trust's acquisition line of credit (the "Credit Facility") of $6,475,
deferred loan costs of $65, and the issuance of 58 limited partnership
units in AIP Operating, L.P. with a value of $875. The Credit Facility
bears interest at the 30-day LIBOR rate plus 2%, with a maturity of one
year.
(D) Represents adjustments for the 1998 Private Placements.
(E) Represents adjustments for the Common Share Repurchase.
F-9
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AMERICAN INDUSTRIAL PROPERTIES REIT
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Trust Recent RELPS
Historical (A) Transactions (B) Historical (C)
-------------------- -------------------- --------------------
<S> <C> <C> <C>
INCOME
Rents and tenant reimbursements $ 12,201 $ 8,574 (D) $ 11,888
(730)(E)
Equity in earnings of joint venture - - (108)
Interest and other income 546 25 (D) 527
(164)(E)
-------------------- -------------------- --------------------
12,747 7,705 12,307
-------------------- -------------------- --------------------
EXPENSES
Property operating expenses 4,315 2,649 (D) 5,560
(201)(E)
Depreciation and amortization 3,157 1,370 (D) 4,003
(87)(E)
Interest expense 5,778 3,713 (D) 3,089
(256)(E)
General and administrative 2,504 - 1,518
--------------------- -------------------- --------------------
Total expenses 15,754 7,188 14,170
Income (loss) before
minority interest (3,007) 517 (1,863)
Minority interest - - -
-------------------- -------------------- --------------------
Income (loss) from operations $ (3,007) $ 517 $ (1,863)
==================== ==================== ====================
Income (loss) from operations
per share:
Basic and diluted $ (0.91)
====================
Weighted average number of
Common Shares outstanding 3,317
====================
<CAPTION>
RELPS Pro Forma
Adjustments Adjustments Total
--------------------- -------------------- -------------------
<S> <C> <C> <C>
INCOME
Rents and tenant reimbursements $ 2,036 (F) $ -
(1,894) (G) $ 32,075
Equity in earnings of joint venture 264 (F) -
(156) (H) -
Interest and other income (527) (I) -
407
--------------------- -------------------- --------------------
(277) - 32,482
--------------------- -------------------- --------------------
EXPENSES
Property operating expenses 43 (F) -
(391) (G) 11,975
Depreciation and amortization 1,014 (F) (2,790) (J)
(309) (G) 6,358
Interest expense 1,388 (F) (1,022) (K)
(907) (G) 11,783
General and administrative 63 (F) 335 (L)
(121) (G) 4,299
--------------------- -------------------- --------------------
Total expenses 780 (3,477) 34,415
Income (loss) before
minority interest (1,057) 3,477 (1,933)
Minority interest 208 (F) - 208
--------------------- -------------------- --------------------
Income (loss) from operations $ (849) $ 3,477 $ (1,725)
===================== ==================== ====================
Income (loss) from operations
per share:
Basic and diluted $ (0.15)
====================
Weighted average number of
Common Shares outstanding 11,193 (M)
====================
</TABLE>
F-10
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AMERICAN INDUSTRIAL PROPERTIES REIT
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
(A) Represents the historical results of operations of the Trust for the year
ended December 31, 1997. Certain reclassifications have been made to the
historical statements of operations of the Trust to conform to the pro
forma financial information presentation. In addition, excludes gain on
sale of real estate of $2,163 and extraordinary gain on extinguishment of
debt of $2,643.
(B) Represents adjustments for the 1997 Acquisitions, the 1997 Dispositions,
the Merger, and the 1998 Acquisition.
(C) Represents the combined historical results of operations of the RELPs
acquired in connection with the Merger.
(D) Represents adjustments for the 1997 Acquisitions and the 1998 Acquisition,
based on historical operating results. Depreciation is based on the
preliminary allocation of the purchase price, with buildings depreciated
using the straight-line method over a 40 year period. Interest expense is
based on the borrowings incurred at the related interest rates, which range
from 7.25% (fixed rate under a mortgage note payable) to 7.70% (the average
30-day LIBOR rate plus 2% during the year ended December 31, 1997).
(E) Represents adjustments to remove the historical results of operations of
the 1997 Dispositions.
(F) Represents adjustments, based on historical operating results, for the
investment in USAA Chelmsford Associates Joint Venture (the "Joint
Venture"), accounted by the RELP on the equity method, which is
consolidated by the Trust due to an amendment to the joint venture
agreement subsequent to the Merger providing the Trust with control over
the major decisions of the Joint Venture.
(G) Represents adjustments to eliminate the historical results of operations of
a real estate property which, in conjunction with the Merger, was sold by
the RELP to an affiliate.
(H) Represents adjustment to eliminate the equity in earnings of a joint
venture. In connection with the Merger, the interest in the joint venture
was sold by the RELP to an affiliate.
(I) Represents adjustments to eliminate interest income as a result of cash
distributions to the RELP limited partners prior to the Merger.
F-11
<PAGE> 15
(J) Represents adjustment to reduce the depreciation of real estate. This
adjustment represents increased depreciation resulting from the allocation
of purchase price, reduced by the use of a 40 year period by the Trust,
rather than a 30 year period, as had been the practice by the RELPs.
(K) Represents adjustment to eliminate interest expense accrued by the Trust
related to the notes payable convertible into Common Shares. The amount of
non-recurring interest expense represents the difference between the market
trading price of $11.88 per Common Share on February 26, 1997, the date of
issuance of the modified notes, which contained the convertibility option,
and the $10.00 conversion price.
(L) Represents adjustments for incremental general and administrative costs
estimated to be incurred by the Trust as a result of the recent growth,
including personnel costs.
(M) The pro forma weighted average shares outstanding includes 9,817 Common
Shares outstanding at December 31, 1997 and 1,376 Common Shares issued in
the 1998 Private Placements. Diluted earnings per share are the same as
basic earnings per share as the Trust has a loss from operations.
F-12
