<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
<TABLE>
<CAPTION>
(MARK ONE)
<S> <C> <C>
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
</TABLE>
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-9016
AMERICAN INDUSTRIAL PROPERTIES REIT
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C>
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)
</TABLE>
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 $235,685,070 as of March 22, 2000. 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 22, 2000.
20,949,784 Common Shares of Beneficial Interest were outstanding as of
March 22, 2000.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
AMERICAN INDUSTRIAL PROPERTIES REIT
FOR THE YEAR ENDED DECEMBER 31, 1999
TABLE OF CONTENTS
FORM 10-K
<TABLE>
<CAPTION>
SECURITIES AND EXCHANGE COMMISSION ITEM NUMBER AND DESCRIPTION PAGE
-------------------------------------------------------------- ----
<S> <C> <C>
PART I
Item 1. Business.................................................... 2
The Company................................................. 2
Business Objectives and Strategy............................ 2
Recent Developments......................................... 3
Revenue and Loss from Operations............................ 5
Competition................................................. 6
Employees................................................... 6
Item 2. Properties.................................................. 6
Item 3. Legal Proceedings........................................... 13
Item 4. Submission of Matters to a Vote of Shareholders............. 14
PART II
Item 5. Market for Registrant's Common Equity and Related
Shareholder Matters....................................... 14
Item 6. Selected Financial Data..................................... 15
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 15
Results of Operations....................................... 15
Year 2000 Issues............................................ 19
Liquidity and Capital Resources............................. 20
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk...................................................... 21
Item 8. Financial Statements and Supplementary Data................. 22
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................. 22
PART III
Item 10. Trust Managers and Executive Officers of the Registrant..... 22
Item 11. Executive Compensation...................................... 25
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................ 27
Item 13. Certain Relationships and Related Party Transactions........ 29
PART IV
Item 14. Exhibits, Financial Statement Schedule and Reports on Form
8-K....................................................... 30
Index to Consolidated Financial Statements and Financial
Statement Schedule........................................ F-1
</TABLE>
1
<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. On November 27, 1985, the Trust completed an
initial public offering of its common shares of beneficial interest (the
"Shares") and commenced operations. In addition to wholly owned subsidiaries,
the Trust owns a general partner interest and substantially all of the economic
interests, directly or indirectly, in three operating partnerships and a 55.84%
interest in a joint venture owning an office building.
As of December 31, 1999, the Trust directly or indirectly owned a portfolio
of 74 real estate properties, aggregating 8.1 million net rentable square feet
("nrsf"). The Trust's emphasis is in the light industrial sector, which is
characterized 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, 1999,
approximately 72% of the Trust's portfolio is represented by light industrial
properties, 25% of the portfolio is represented by office properties and 3% 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 accounted for more than 10% of the Trust's consolidated gross revenue for
the year ended December 31, 1999. No individual property accounted for more than
10% of total revenues of the Trust for the year ended December 31, 1999.
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. The Trust's web site address is www.aipreit.com.
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 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 may not be currently available. The
Trust's emphasis in the light industrial sector is ideally suited for the
entrepreneurial segment of the economy, which consistently leads the United
States in job growth. This property type is attractive to technology companies,
which typically prefer flexible-use property space. The majority of the Trust's
properties are situated in markets that have a concentration of technology
firms, such as Dallas, San Francisco, San Diego and Northern Virginia.
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 Francisco,
2
<PAGE> 4
Los Angeles, San Diego), Florida (Orlando, Tampa), Phoenix, Denver and Northern
Virginia/ Washington, D.C. The target markets are characterized by above average
population and 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 potential
acquisitions. Management believes it has strong acquisition and networking
capabilities to identify acquisition opportunities on both a single property and
portfolio basis.
Growth from Existing Portfolio. The Trust will pursue increases in cash
flow from its existing portfolio through intensive management of the portfolio
and its tenant base. Portfolio management is focused on tenant service, leasing
the portfolio to stabilized occupancy (generally 94-96%), retaining existing
tenants and increasing rental rates. In addition, the Trust will seek to control
operating expenses and should benefit from economies of scale as the size of its
portfolio increases.
In 1999, the Trust initiated a transition to internalized property
management, accounting and leasing of its properties, thereby significantly
reducing the use of third parties in these areas. To date the Trust has
internalized 40% of the property management and 100% of the property accounting
of its portfolio on a total revenue basis. The Trust does not expect to convert
to internal property management in markets where it does not own a sufficient
critical mass to justify internalization of management. When combined with
expected savings resulting from changes in its property insurance program, the
Trust expects to realize net contribution from these efforts during 2000 in
excess of $1.0 million. In addition to these savings, the Trust expects to
realize future tangible and intangible benefits from a more direct relationship
with its tenants.
Strategic Alternatives. In 1999, the Trust retained Salomon Smith Barney,
Inc. and Prudential Securities Incorporated as financial advisors to assist the
Trust in evaluating strategic alternatives designed to increase shareholder
value. Such alternatives may include, but are not limited to, a merger, sale or
other business combination involving the Trust, a sale of all or a portion of
the Trust's assets or continuing to pursue a growth strategy for the Trust. The
Trust can provide no assurance that a transaction will occur as a result of this
evaluation.
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. During 1999, a
significant reduction in equity capital available to the REIT industry caused
the Trust to scale back its acquisition plans. A total of $143 million in
acquisitions were completed during 1999 compared with $237 million during 1998.
Financial Strategy. On a long term basis, the Trust seeks to lower its cost
of capital through the appropriate use of debt and equity capital. The Trust
continues to operate at higher levels of leverage than it would foresee on a
longer term basis. The Trust believes that its use of leverage, which is 55.7%
on a debt to total market capitalization ratio at December 31, 1999, is
justified given existing acquisition prospects and the benefits of the Trust's
transition to a larger entity. Although there is no assurance of ultimate
availability, the Trust anticipates that future equity offerings will serve to
deleverage the Trust.
RECENT DEVELOPMENTS
For the twelve months ended December 31, 1999, the Trust acquired 11 real
estate properties for approximately $143 million (see "ITEM 2. Properties" for
additional information on the acquired properties). In 1999, the Trust sold
three real estate properties and one tract of vacant land for proceeds totaling
approximately $18.1 million. The Trust also sold a light industrial property in
which the Trust was a 50% joint venture partner during 1999. From January 1,
2000 through March 22, 2000 the Trust sold three real estate
3
<PAGE> 5
properties for proceeds totaling approximately $15.1 million. The Trust did not
acquire any properties during this period. The Trust's acquisitions and sales on
a chronological basis are as follows:
- On January 15, 1999, the Trust purchased a portfolio consisting of six
light industrial and three office buildings totaling approximately
956,000 nrsf for total consideration of $127.3 million. The purchase
price was primarily funded with $75.2 million in borrowings under a
secured bridge loan with Prudential Securities Credit Corporation
("PSCC") and $51.8 million in Shares issued to Developers Diversified
Realty Corporation ("DDR").
- On May 14, 1999, the Trust sold 2.5 acres of vacant land for total
consideration of $0.4 million resulting in a gain on sale of
approximately $37,000.
- On August 18, 1999, the Trust purchased one light industrial and one
office building totaling approximately 96,000 nrsf. The $15.8 million
acquisition price was primarily funded under the Trust's secured line of
credit with Bank One, Texas, N.A. ("Bank One") and $5.5 million in Shares
issued to DDR.
- On August 31, 1999, the Trust sold one light industrial property for
total consideration of $5.8 million resulting in a loss on sale of
approximately $0.2 million.
- On September 9, 1999, the Trust sold one light industrial property for
total consideration of $4.4 million resulting in a gain on sale of
approximately $0.2 million.
- On December 22, 1999, the Trust recognized approximately $0.6 million as
equity in earnings of a joint venture resulting from the sale of a light
industrial property owned by the joint venture in which the Trust was a
50% joint venture partner.
- On December 27, 1999, the Trust sold one light industrial property for
total consideration of $7.5 million resulting in a loss on sale of
approximately $0.2 million.
- On January 31, 2000, the Trust sold one light industrial property for
total consideration of $4.8 million resulting in a gain on sale of
approximately $0.8 million.
- On February 10, 2000, the Trust sold one light industrial property for
total consideration of $6.7 million resulting in a gain on sale of
approximately $2.1 million.
- On March 8, 2000, the Trust sold one light industrial property for total
consideration of $3.6 million resulting in a gain on sale of
approximately $0.2 million.
The Trust completed the following equity and/or financing transactions
during the period January 1, 1999 through March 22, 2000:
- On January 8, 1999, the Trust retired a $42.6 million secured loan with
proceeds from a permanent financing of seven properties. Terms of the
permanent financing include a principal amount of $41.0 million, a fixed
rate of interest of 7.375%, a ten year term and 25 year principal
amortization.
- On January 15, 1999, the Trust issued 3,410,615 Shares to DDR, for
proceeds of $51.8 million, in connection with the $127.3 million nine
property portfolio acquisition.
- On January 19, 1999, the Trust retired existing indebtedness of
approximately $1.8 million on a property acquired in October 1998 with
proceeds from a permanent financing of $7.6 million. Terms of the
permanent financing include a fixed rate of interest of 7.33%, a seven
year term with a three year renewal option, and 30 year principal
amortization.
- On January 29, 1999, the Trust entered into a secured revolving credit
agreement with Bank One. The agreement contemplated a $150,000,000 line
of which Bank One and Wells Fargo Bank have each committed $25,000,000.
The Trust does not currently anticipate further syndication of this line
due to the current lack of equity capital availability and the Trust's
reduced level of acquisitions. The credit line is secured by mortgage
liens on properties, provides for a graduated variable interest rate
(depending on the Trust's overall leverage) of LIBOR plus 1.4% to LIBOR
plus 2.0%, has a maximum
4
<PAGE> 6
loan to value ratio of 60%, and matures in January 2001. As of March 22,
2000, the Trust has $15.5 million outstanding under this credit line.
- On March 26, 1999, the Trust entered into an agreement with PSCC to
extend the maturity of its acquisition credit line to April 27, 2000 and
decrease the interest rate to LIBOR plus 1.55%. As of March 22, 2000, the
Trust has $48.0 million outstanding under this acquisition line. The
Trust is currently negotiating another extension of the maturity date of
the acquisition credit line. The Trust cannot provide any assurance that
such negotiations will result in the extension of this credit line.
- On August 24, 1999, the Trust issued 354,839 Shares to DDR, for proceeds
of $5.5 million, in connection with the acquisition of two properties.
- In December 1999, the Trust redeemed 29,167 AIP Operating L.P. limited
partnership units for approximately $0.3 million.
- In 1999, 113,836 Shares were issued under the dividend reinvestment plan
for proceeds of approximately $1.3 million. On February 2, 2000 an
additional 21,521 Shares were issued under the dividend reinvestment plan
for proceeds of approximately $0.2 million.
- On January 20, 2000, the Trust redeemed 89,542 AIP-SWAG Operating L.P.
limited partnership units for approximately $1.1 million.
- On March 17, 2000, the Trust redeemed 29,166 AIP Operating L.P. limited
partnership units for approximately $0.3 million.
A distribution of $0.20 per Share was paid on January 20, 1999 and April
15, 1999 and a $0.22 per Share distribution was paid on July 14, 1999, October
14, 1999 and January 14, 2000. In addition, the Trust declared a distribution of
$0.22 per Share payable on April 14, 2000 to shareholders of record on April 5,
2000.
REVENUE AND LOSS FROM OPERATIONS
The breakdown of revenue and loss from operations for each of the years
ended December 31, 1999, 1998 and 1997 is as follows (in thousands):
<TABLE>
<CAPTION>
1999(A) 1998(B) 1997(C)
-------- -------- -------
<S> <C> <C> <C>
Property revenues:
Industrial.......................................... $ 52,837 $ 27,013 $ 8,312
Office.............................................. 30,006 17,044 633
Retail.............................................. 4,039 4,300 3,256
-------- -------- -------
Total....................................... 86,882 48,357 12,201
Property operating expenses........................... (26,884) (16,046) (4,315)
-------- -------- -------
Income from property operations....................... 59,998 32,311 7,886
-------- -------- -------
Administrative expenses............................... (4,628) (3,729) (2,504)
Depreciation and amortization......................... (14,535) (8,383) (3,157)
Interest and other income............................. 735 705 546
Interest expense...................................... (26,562) (15,139) (5,778)
Provisions for possible losses on real estate......... -- (10,060) --
-------- -------- -------
Income (loss) from operations......................... $ 15,008 $ (4,295) $(3,007)
======== ======== =======
</TABLE>
- ---------------
(a) For the year ended December 31, 1999, the Trust acquired 11 properties. The
Trust sold 3 properties and one parcel of vacant land in 1999.
(b) For the year ended December 31, 1998, the Trust acquired 29 properties.
There were no properties sold in 1998.
(c) For the year ended December 31, 1997, the Trust acquired 15 properties. The
Trust sold two properties in 1997.
5
<PAGE> 7
COMPETITION
The Trust owns properties in various markets and sub-markets in 11 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 57 people on a full or part-time basis. No
employees are presently covered by collective bargaining agreements. Information
regarding executive officers of the Trust is set forth in "ITEM 10. Trust
Managers and Executive Officers of the Registrant" of Part III of this Form 10-K
and is incorporated herein by reference.
ITEM 2. PROPERTIES
As of December 31, 1999, the Trust owned 74 real estate properties,
consisting of 57 light industrial developments, 15 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 1999, the Trust acquired 11 properties and sold 3
light industrial properties.
The following tables set forth certain information about the light
industrial, office, and retail properties owned as of December 31, 1999. Based
on annualized rental revenues in place as of December 31, 1999, no single tenant
would have accounted for more than 10% of the Company's total annualized light
industrial, office, and retail revenues for 1999. No individual property
accounted for more than 10% of total revenues of the Trust for the twelve months
ended December 31, 1999.
PROPERTY INFORMATION
<TABLE>
<CAPTION>
RENTABLE
ACQUISITION YEAR NUMBER OF AREA
PROPERTY LOCATION DATE CONSTRUCTED BUILDINGS (SQ. FT.)
- -------- -------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C>
LIGHT INDUSTRIAL PROPERTIES
107 Woodmere................. Folsom, CA 1999 1984 1 57,496
2121 Glenville............... Richardson, TX 1998 1984 1 20,645
3100 Alfred.................. Santa Clara, CA 1999 1971 1 33,824
Aerotech..................... Colorado Springs, CO 1998 1985 2 75,892
Alumax....................... Cleveland, OH 1998 1982 1 66,200
Avion Business Center........ Carrollton, TX 1997 1985 3 70,710
Battlefield Business Park.... Manassas, VA 1998 1989 1 154,226
Black Canyon Tech Center..... Phoenix, AZ 1998 1983 2 100,000
Bowater...................... Lakeland, FL 1997 1989 1 111,720
Bridgeway Tech Center........ Newark, CA 1999 1996 2 169,997
Cameron Creek Bus Park....... Austin, TX 1998 1996 1 50,021
Carpenter Center............. Dallas, TX 1997 1983 1 59,056
Carrier Place................ Grand Prairie, TX 1997 1984 1 82,573
Central Park Office Tech..... Richardson, TX 1997 1984 2 68,539
Columbia Corporate Center.... Aliso Viejo, CA 1998 1988 4 128,111
Commerce Center.............. Houston, TX 1997 1974 9 295,410
Commerce Park North.......... Houston, TX 1985 1984 2 87,550
Corporex Plaza I............. Tampa, FL 1997 1982 3 94,357
DFW North.................... Grapevine, TX 1997 1985 2 74,172
Gateway 5 & 6................ Irving, TX 1985 1985 2 79,256
Greenbrier Circle Corp
Center..................... Chesapeake, VA 1998 1981/83 2 231,558
Greenbrier Tech Center....... Chesapeake, VA 1998 1981 1 95,258
</TABLE>
6
<PAGE> 8
<TABLE>
<CAPTION>
RENTABLE
ACQUISITION YEAR NUMBER OF AREA
PROPERTY LOCATION DATE CONSTRUCTED BUILDINGS (SQ. FT.)
- -------- -------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C>
Hardline Services Bldg....... Aurora, OH 1998 1974 1 236,225
Heritage Business I.......... Twinsburg, OH 1998 1990 1 35,555
Humboldt Tech Center......... Sunnyvale, CA 1999 1980 1 60,030
Huntington Drive............. Monrovia, CA 1985 1985 2 62,958
Interlochen Office Park...... Broomfield, CO 1999 1985/88 1 121,970
Inverness Business Park...... Englewood, CO 1997 1980 2 96,386
Junction II Business Park.... San Jose, CA 1999 1984 2 77,374
Kodak........................ San Diego, CA 1997 1976 1 58,800
Meridian Street Warehouse.... Arlington, TX 1995 1981 1 72,072
Metro Business Park.......... Phoenix, AZ 1998 1987 4 109,933
Norfolk Commerce Center...... Norfolk, VA 1998 1981/87 3 331,139
Northgate II................. Dallas, TX 1985 1983 4 235,941
Northgate III................ Dallas, TX 1997 1979/80/86 6 257,944
Northpointe B................ Sterling, VA 1998 1987/88 1 36,655
Northpointe C................ Sterling, VA 1998 1987/88 1 49,039
Northwest Business Pk........ Menomonee Falls, WI 1985 1983/85/86 3 143,114
Parkway Tech Center.......... Plano, TX 1997 1984 1 69,876
Patapsco Industrial Center... Linthicum Heights, MD 1985 1981/85 2 95,151
Plaza Southwest 1-5.......... Houston, TX 1985 1975 5 149,921
President's Plaza............ Tampa, FL 1997 1987 2 42,649
Shady Trail Business
Center..................... Dallas, TX 1997 1984 4 68,163
Skyway Business Center....... Irving, TX 1997 1981 1 66,504
Southeast Commercial
Center..................... Austin, TX 1998 1984 1 34,514
Steris Building.............. Mentor, OH 1998 1980 1 40,200
Stewart Plaza................ Sunnyvale, CA 1999 1970 1 47,054
Summit Park.................. Austin, TX 1998 1985 2 96,950
Tech Center 29 -- Phase I.... Silver Springs, MD 1998 1970 1 176,914
Tech Center 29 -- Phase II... Silver Springs, MD 1998 1991 1 58,280
TechniPark 10 Service
Center..................... Houston, TX 1998 1983/84 2 71,635
Valley View Commerce Park.... Farmers Branch, TX 1997 1986 4 138,374
Valwood II Business Center... Carrollton, TX 1997 1984 1 52,607
VSA Bldg..................... Twinsburg, OH 1998 1989 1 85,800
Washington Bus. Park......... Phoenix, AZ 1998 1985 4 137,018
Westchase Park 1-2........... Houston, TX 1985 1984 2 47,660
Winter Park Business
Center..................... Winter Park, FL 1998 1981/83/85 6 121,084
--- ---------
Total Light Industrial
Properties................. 121 5,792,060
--- ---------
OFFICE PROPERTIES
10505 Sorrento Valley........ San Diego, CA 1997 1982 1 54,095
1881 Pine Street............. St Louis, MO 1997 1987 1 111,047
485 Clyde.................... Mountain View, CA 1999 1970 1 61,600
Academy Point Atrium II...... Colorado Springs, CO 1998 1984 1 90,766
Apollo Drive Office
Building(a)................ Chelmsford, MA 1997 1987 1 291,424
Baytech Park................. San Jose, CA 1999 1997 4 188,825
Beltline Business Center..... Irving, TX 1985 1984 3 61,255
Centre Pointe................ Walnut Creek, CA 1999 1982 6 198,938
Gateway West................. Phoenix, AZ 1997 1964/69/74 3 150,254
Gibraltar Tech Center........ Sunnyvale, CA 1999 1980 2 36,228
Linear Technology............ Milpitas, CA 1997 1987 1 42,130
</TABLE>
7
<PAGE> 9
<TABLE>
<CAPTION>
RENTABLE
ACQUISITION YEAR NUMBER OF AREA
PROPERTY LOCATION DATE CONSTRUCTED BUILDINGS (SQ. FT.)
- -------- -------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C>
Manhattan Towers............. Manhattan Beach, CA 1997 1987 2 308,854
Northview Business Center.... Austin, TX 1998 1970 1 254,705
Spring Valley Business Park
#6......................... Richardson, TX 1998 1980/98 3 94,304
Tech Center 29 -- Phase
III........................ Silver Springs, MD 1998 1988 1 54,951
--- ---------
Total Office Properties...... 31 1,999,376
--- ---------
RETAIL PROPERTIES
Tamarac Square Mall.......... Denver, CO 1985 1976/78 2 196,253
Volusia...................... Daytona Beach, FL 1997 1984 1 75,534
--- ---------
Total Retail Properties...... 3 271,787
--- ---------
Total Light Industrial,
Office,
and Retail Properties...... 155 8,063,223
=== =========
</TABLE>
- ---------------
(a) The Trust owns a 55.84% joint venture interest in the property.
TENANT INFORMATION
<TABLE>
<CAPTION>
AVERAGE BASE
PERCENT NUMBER RENTAL RATE ANNUALIZED
PROPERTY LOCATION LEASED(A) TENANTS(A) PER SQ. FT.(A) BASE RENT(A)
- -------- -------- --------- ---------- -------------- ------------
(000)
<S> <C> <C> <C> <C> <C>
LIGHT INDUSTRIAL PROPERTIES
107 Woodmere.................... Folsom, CA 100.0% 1 $ 9.72 $ 559
2121 Glenville.................. Richardson, TX 100.0% 1 10.00 206
3100 Alfred..................... Santa Clara, CA 100.0% 1 17.64 597
Aerotech........................ Colorado Springs, CO 100.0% 4 14.71 1,116
Alumax.......................... Cleveland, OH 100.0% 1 4.49 297
Avion Business Center........... Carrollton, TX 93.4% 7 10.35 684
Battlefield Business Park....... Manassas, VA 100.0% 1 7.00 1,080
Black Canyon Tech Center........ Phoenix, AZ 69.0% 2 8.63 595
Bowater......................... Lakeland, FL 100.0% 1 3.40 380
Bridgeway Technology Center..... Newark, CA 94.8% 3 11.65 1,877
Cameron Creek Bus Park.......... Austin, TX 100.0% 4 8.15 408
Carpenter Center................ Dallas, TX 64.3% 6 5.09 193
Carrier Place................... Grand Prairie, TX 84.9% 12 5.02 353
Central Park Office Tech........ Richardson, TX 100.0% 9 9.11 625
Columbia Corporate Center....... Aliso Viejo, CA 85.3% 6 11.44 1,250
Commerce Center................. Houston, TX 88.4% 39 5.31 1,387
Commerce Park North............. Houston, TX 100.0% 10 5.24 458
Corporex Plaza I................ Tampa, FL 100.0% 24 6.93 654
DFW North....................... Grapevine, TX 95.8% 7 5.06 360
Gateway 5 & 6................... Irving, TX 100.0% 7 6.63 526
Greenbrier Circle Corp Center... Chesapeake, VA 70.2% 17 10.59 1,722
Greenbrier Tech Center.......... Chesapeake, VA 100.0% 10 8.51 811
Hardline Services Bldg.......... Aurora, OH 100.0% 1 3.15 744
Heritage Business I............. Twinsburg, OH 59.2% 2 7.22 154
Humboldt Tech Center............ Sunnyvale, CA 100.0% 1 18.52 1,112
Huntington Drive................ Monrovia, CA 95.8% 5 16.16 963
Interlocken Office Park......... Broomfield, CO 100.0% 1 12.20 1,488
</TABLE>
8
<PAGE> 10
<TABLE>
<CAPTION>
AVERAGE BASE
PERCENT NUMBER RENTAL RATE ANNUALIZED
PROPERTY LOCATION LEASED(A) TENANTS(A) PER SQ. FT.(A) BASE RENT(A)
- -------- -------- --------- ---------- -------------- ------------
(000)
<S> <C> <C> <C> <C> <C>
Inverness Business Park......... Englewood, CO 100.0% 8 8.30 800
Junction II Business Park....... San Jose, CA 100.0% 3 14.55 1,126
Kodak........................... San Diego, CA 100.0% 2 10.81 635
Meridian Street Warehouse....... Arlington, TX 100.0% 1 2.31 166
Metro Business Park............. Phoenix, AZ 98.5% 25 9.06 981
Norfolk Commerce Center......... Norfolk, VA 91.7% 30 9.70 2,881
Northgate II.................... Dallas, TX 100.0% 11 3.46 818
Northgate III................... Dallas, TX 97.4% 18 5.14 1,292
Northpointe B................... Sterling, VA 100.0% 2 7.74 284
Northpointe C................... Sterling, VA 100.0% 5 8.99 441
Northwest Business Pk........... Menomonee Falls, WI 72.8% 14 5.31 553
Parkway Tech Center............. Plano, TX 100.0% 9 6.07 424
Patapsco Industrial Center...... Linthicum Heights, MD 90.9% 16 6.93 599
Plaza Southwest 1-5............. Houston, TX 99.9% 30 4.50 675
President's Plaza............... Tampa, FL 97.1% 12 8.33 345
Shady Trail Business Center..... Dallas, TX 75.3% 18 4.18 214
Skyway Business Center.......... Irving, TX 100.0% 6 4.88 325
Southeast Commercial Center..... Austin, TX 100.0% 3 7.28 251
Steris Building................. Mentor, OH 100.0% 1 6.75 271
Stewart Plaza................... Sunnyvale, CA 100.0% 3 13.50 635
Summit Park..................... Austin, TX 100.0% 3 6.54 634
Tech Center 29 -- Phase I....... Silver Springs, MD 81.9% 14 9.06 1,313
Tech Center 29 -- Phase II...... Silver Springs, MD 100.0% 3 13.01 758
TechniPark 10 Service Center.... Houston, TX 84.4% 5 6.97 422
Valley View Commerce Park....... Farmers Branch, TX 84.9% 7 6.89 809
Valwood II Business Center...... Carrollton, TX 21.0% 1 6.20 69
VSA Bldg........................ Twinsburg, OH 100.0% 1 4.75 408
Washington Bus. Park............ Phoenix, AZ 99.6% 5 7.98 1,089
Westchase Park 1-2.............. Houston, TX 100.0% 10 6.47 308
Winter Park Business Center..... Winter Park, FL 98.0% 34 9.34 1,108
------ -------
Total Light Industrial
Properties.................... 92.6% 483 7.70 41,233
------ -------
OFFICE PROPERTIES
10505 Sorrento Valley........... San Diego, CA 100.0% 2 11.75 636
1881 Pine Street................ St. Louis, MO 86.0% 3 12.69 1,213
485 Clyde....................... Mountain View, CA 100.0% 1 11.04 680
Academy Point Atrium II......... Colorado Springs, CO 100.0% 16 16.76 1,521
Apollo Drive Office
Building(b)................... Chelmsford, MA 100.0% 1 6.86 2,000
Baytech Park.................... San Jose, CA 100.0% 1 18.60 3,512
Beltline Business Center........ Irving, TX 89.0% 20 13.06 712
Centre Pointe................... Walnut Creek, CA 98.2% 15 19.27 3,732
Gateway West.................... Phoenix, AZ 82.0% 2 17.13 2,111
Gibraltar Tech Center........... Sunnyvale, CA 100.0% 1 17.40 630
Linear Technology............... Milpitas, CA 100.0% 1 9.00 379
Manhattan Towers................ Manhattan Beach, CA 93.6% 9 11.78 3,405
Northview Business Center....... Austin, TX 100.0% 6 11.45 2,917
Spring Valley Business Park
#6............................ Dallas, TX 100.0% 1 11.75 1,108
Tech Center 29 -- Phase III..... Silver Springs, MD 100.0% 8 20.75 1,140
------ -------
Total Office Properties......... 96.4% 87 13.35 25,696
------ -------
</TABLE>
9
<PAGE> 11
<TABLE>
<CAPTION>
AVERAGE BASE
PERCENT NUMBER RENTAL RATE ANNUALIZED
PROPERTY LOCATION LEASED(A) TENANTS(A) PER SQ. FT.(A) BASE RENT(A)
- -------- -------- --------- ---------- -------------- ------------
(000)
<S> <C> <C> <C> <C> <C>
RETAIL PROPERTIES
Tamarac Square Mall(c).......... Denver, CO 76.9% 48 13.59 2,052
Volusia......................... Daytona Beach, FL 91.2% 19 10.15 699
------ --- ------ -------
Total Retail Properties......... 80.9% 67 12.51 2,751
------ --- ------ -------
Total Light Industrial, Office,
and Retail.................... 93.1% 637 $ 9.29 $69,680
====== === ====== =======
</TABLE>
- ---------------
(a) Based on leases executed on or before December 31, 1999.
(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.
INFORMATION BY PROPERTY TYPE
<TABLE>
<CAPTION>
NET RENTABLE
SQUARE FEET ANNUALIZED BASE RENT(A)
------------------- ------------------------------
AMOUNT PERCENT AMOUNT PERCENT PSF
--------- ------- ----------- ------- ------
<S> <C> <C> <C> <C> <C>
Light Industrial.......................... 5,792,060 71.8% $41,233,000 59.2% $ 7.70
Office.................................... 1,999,376 24.8% 25,696,000 36.9% 13.35
Retail.................................... 271,787 3.4% 2,751,000 3.9% 12.51
--------- ------ ----------- ------ ------
Total........................... 8,063,223 100.0% $69,680,000 100.0% $ 9.29
========= ====== =========== ====== ======
</TABLE>
- ---------------
(a) Based on leased net rentable square footage as of December 31, 1999.
Includes revenues from ground leases.
LEASE EXPIRATION DETAIL(a)
<TABLE>
<CAPTION>
PERCENTAGE ANNUALIZED
OF TOTAL ANNUALIZED BASE RENT
NO. OF SQUARE BASE RENT OF OF
LEASES SQUARE FEET EXPIRING EXPIRING
YEAR EXPIRING FEET AVAILABLE LEASES PERCENTAGE LEASES-PSF
- ---- -------- --------- ---------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
2000........................ 165 1,493,985 18.6% $12,106,674 15.6% $ 8.10
2001........................ 150 1,387,489 17.2% 14,227,390 18.3% 10.25
2002........................ 160 1,727,494 21.5% 17,061,903 21.9% 9.88
2003........................ 73 1,065,767 13.2% 11,890,032 15.3% 11.16
2004........................ 94 910,392 11.3% 9,698,043 12.5% 10.65
2005........................ 15 149,324 1.9% 2,796,366 3.6% 18.73
2006........................ 12 151,655 1.9% 1,933,742 2.5% 12.75
2007........................ 13 507,473 6.3% 7,104,386 9.1% 14.00
2008........................ 1 5,030 0.1% 111,113 0.1% 22.09
2009........................ 6 220,288 2.7% 876,353 1.1% 3.98
--- --------- ----- ----------- ------ ------
Total............. 689 7,618,897 94.7% $77,806,002 100.0% $10.21
=== ========= ===== =========== ====== ======
</TABLE>
- ---------------
(a) Includes executed leases not yet occupied as of December 31, 1999.
10
<PAGE> 12
SUMMARY TENANT INFORMATION
<TABLE>
<CAPTION>
LEASED SPACE NO. OF SQUARE
(SQUARE FEET) TENANTS FOOTAGE PERCENTAGE
- ------------- ------- --------- ----------
<S> <C> <C> <C>
0 - 5,000............................................. 374 1,014,213 12.6%
5,001 - 10,000............................................. 145 1,018,983 12.6%
10,001 - 20,000............................................. 84 1,217,952 15.1%
20,001 - 50,000............................................. 67 2,035,367 25.3%
50,001 - +.................................................. 22 2,259,789 28.0%
Vacant Space................................................ - 516,919 6.4%
--- --------- ------
Total............................................. 692 8,063,223 100.0%
=== ========= ======
</TABLE>
MORTGAGE INDEBTEDNESS
<TABLE>
<CAPTION>
PRINCIPAL INTEREST RATE AT MATURITY PRINCIPAL DUE
PROPERTY BALANCE DECEMBER 31, 1999 DATE AT MATURITY
- -------- ------------ ----------------- -------- -------------
<S> <C> <C> <C> <C>
LIGHT INDUSTRIAL PROPERTIES
Battlefield Business Park.............. $ 7,992,984 7.70%(e) Oct-04 $ 7,525,563
Commerce Park North.................... 1,989,973 8.61%(e) Dec-03 1,796,333
Gateway 5 & 6.......................... 2,700,677 8.61%(e) Dec-03 2,437,880
Greenbrier Circle Corp Center.......... 7,090,588 8.13%(e) Jan-02 6,838,342
Greenbrier Tech Center................. 4,205,569 8.05%(e) Jul-07 3,960,554
Huntington Drive....................... 4,335,297 8.61%(e) Dec-03 3,913,439
Meridian Street Warehouse.............. 1,101,592 8.61%(e) Dec-03 994,398
Northgate II........................... 4,903,861 8.61%(e) Dec-03 4,426,677
Patapsco Industrial Center............. 2,949,424 8.61%(e) Dec-03 2,662,422
Plaza Southwest 1-5.................... 3,198,170 8.61%(e) Dec-03 2,886,963
Tech Center 29 -- Phase I.............. 7,513,125 7.33%(e) Feb-09 6,005,865
Tech Center 29 -- Phase II............. 3,825,842 9.05%(e) Sep-06 3,309,462
Westchase Park 1-2..................... 1,257,947 8.61%(e) Dec-03 1,135,539
Mortgage Loan Secured by:.............. 2,715,809 7.38%(e) Mar-16 2,610,181
Northpointe B........................
Northpointe C........................
Mortgage Loan Secured by:.............. 86,133,713 7.18%(e) Jul-09 63,387,284
107 Woodmere.........................
485 Clyde(a).........................
Baytech Park(a)......................
Bridgeway Tech Center................
Centre Pointe(a).....................
Interlochen Office Park..............
Junction II Business Park............
Stewart Plaza........................
Mortgage Loan Secured by:.............. 34,715,928 7.38%(e) Feb-06 30,728,820
Academy Point Atrium II(a)...........
Aerotech.............................
Black Canyon Tech Center.............
Northview Business Center(a).........
Summit Park..........................
</TABLE>
11
<PAGE> 13
<TABLE>
<CAPTION>
PRINCIPAL INTEREST RATE AT MATURITY PRINCIPAL DUE
PROPERTY BALANCE DECEMBER 31, 1999 DATE AT MATURITY
- -------- ------------ ----------------- -------- -------------
<S> <C> <C> <C> <C>
Mortgage Loan Secured by:.............. 29,963,845 7.25%(e) Jan-08 26,416,613
Carpenter Center.....................
Carrier Place........................
Commerce Center......................
DFW North............................
Northgate III........................
Parkway Tech Center..................
Valley View Commerce Park............
Valwood II Business Center...........
Shady Trail Business Center..........
Mortgage Loan Secured by:.............. 24,106,747 7.28%(e) Jun-08 19,567,225
Corporex Plaza I.....................
President's Plaza....................
Central Park Office Tech.............
Skyway Business Center...............
Spring Valley Business Park #6(a)....
Avion Business Center................
Inverness Business Park..............
Line of Credit Secured by:............. 19,500,000 8.47%(f) Jan-01 19,500,000
10505 Sorrento Valley(a).............
2121 Glenville.......................
Alumax...............................
Cameron Creek Bus Park...............
Columbia Corporate Center............
Gibraltar Tech Center(a).............
Hardline Services Bldg...............
Heritage Business I..................
VSA Bldg.............................
Humboldt Tech Center.................
Kodak................................
Linear Technology(a).................
Metro Business Park..................
Northwest Business Pk................
Southeast Commercial Center..........
Steris Building......................
Technipark 10 Service Center.........
Volusia(b)...........................
Washington Bus. Park.................
Acquisition Line Secured by:
Bowater.............................. 2,100,000 8.03%(g) Apr-00 2,100,000
1881 Pine Street(a).................. 3,641,235 8.03%(g) Apr-00 3,641,235
Manhattan Towers(a).................. 20,300,000 8.03%(g) Apr-00 20,300,000
Gateway West(a)...................... 5,978,007 8.03%(g) Apr-00 5,978,007
Norfolk Commerce Center.............. 13,000,000 8.03%(g) Apr-00 13,000,000
Winter Park Business Center.......... 5,100,000 8.03%(g) Apr-00 5,100,000
------------ ------------
Total Light Industrial
Properties................. 300,320,333 260,222,802
------------ ------------
</TABLE>
12
<PAGE> 14
<TABLE>
<CAPTION>
PRINCIPAL INTEREST RATE AT MATURITY PRINCIPAL DUE
PROPERTY BALANCE DECEMBER 31, 1999 DATE AT MATURITY
- -------- ------------ ----------------- -------- -------------
<S> <C> <C> <C> <C>
OFFICE PROPERTIES
Apollo Drive Office Building(c)........ 14,713,159 9.13%(e) Aug-01 14,340,606
Beltline Business Center............... 2,629,607 8.61%(e) Dec-03 2,373,725
Tech Center 29 -- Phase III............ 4,384,548 8.58%(e) May-02 4,227,429
------------ ------------
Total Office Properties...... 21,727,314 20,941,760
------------ ------------
RETAIL PROPERTIES
Tamarac Square Mall.................... 11,363,445 8.40%(e) Dec-01 10,907,186
------------ ------------
Total Retail Properties...... 11,363,445 10,907,186
------------ ------------
Total Light Industrial,
Office and Retail
Properties................. 333,411,092 292,071,748
Debt Premiums(d)....................... 1,462,712 --
------------ ------------
Total mortgage notes
payable.................... $334,873,804 $292,071,748
============ ============
</TABLE>
- ---------------
(a) Office property.
(b) Retail property.
(c) The Trust owns a 55.84% joint venture interest in this property.
(d) Represents the unamortized difference between mortgage debt assumed and
fair value of such debt. (See Note 2 to Consolidated Financial Statements.)
(e) Interest rate is fixed.
(f) Interest rate is variable based on 30 day LIBOR rate plus 2.00%.
(g) Interest rate is variable based on 30 day LIBOR rate plus 1.55%.
ITEM 3. LEGAL PROCEEDINGS
On August 20, 1997, the Trust was named as a defendant in a lawsuit related
to the January 1998 merger between the Trust and four real estate limited
partnerships. The lawsuit purported to be both a class action and a derivative
lawsuit against the defendants. The plaintiffs asserted various claims,
including breach of fiduciary duty and various securities law violations,
against the parties to the merger and certain individuals and were seeking
monetary damages. On February 3, 2000, the Court issued a summary judgment in
favor of the Trust dismissing this securities class action lawsuit. The Court,
in making its ruling, held that the plaintiffs failed to offer admissible
evidence to show they had been damaged. The deadline for the plaintiffs to file
their notice of appeal has passed. At this time, the Trust has not received any
indication that the plaintiffs have pursued an appeal. Although management
cannot predict the outcome of the possible appeal of such litigation, management
does not expect the liabilities, if any, that may ultimately result from such
legal actions to have a material adverse effect on the consolidated financial
position or results of operations of the Trust.
On April 13, 1998, the Trust was named as a defendant in an additional
purported class action lawsuit related to the Trust's merger with the four real
estate limited partnerships. The plaintiffs asserted various claims, including
breach of fiduciary and contractual duties and various securities law
violations, against the parties to the merger. In December 1999, the defendants
settled this lawsuit. The Trust's share of the settlement cost was approximately
$58,000.
13
<PAGE> 15
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS
On December 8, 1999, an Annual Meeting of Shareholders was held for
purposes of electing eleven Trust Managers and to ratify the selection of
independent auditors. Results of the items voted on are as follows:
1. Election of Trust Managers
<TABLE>
<CAPTION>
FOR WITHHELD
---------- --------
<S> <C> <C>
Albert T. Adams............................................. 17,902,277 66,998
William H. Bricker.......................................... 17,897,826 71,450
T. Patrick Duncan........................................... 17,901,772 67,504
Robert H. Gidel............................................. 17,902,310 66,966
Robert E. Giles............................................. 17,902,006 67,270
Edward B. Kelley............................................ 17,530,378 438,898
Stanley J. Kraska, Jr. ..................................... 17,903,212 66,064
J. Timothy Morris........................................... 17,897,277 71,999
James A. Schoff............................................. 17,903,149 66,127
Charles W. Wolcott.......................................... 17,897,371 71,905
Scott A. Wolstein........................................... 17,902,270 67,006
</TABLE>
2. Ratification of Ernst & Young LLP as Independent Auditors
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
- ---------- ------- -------
<S> <C> <C>
17,868,047 71,792 29,437
</TABLE>
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(A)
- ------------- ------ ------ ----------------
<S> <C> <C> <C>
December 31, 1999................................... $12 3/8 $11 7/8 .22
September 30, 1999.................................. 10 5/16 11 13/16 .22
June 30, 1999....................................... 14 3/4 12 7/16 .22
March 31, 1999...................................... 11 5/8 10 15/16 .20
December 31, 1998................................... 11 3/4 11 3/16 .20
September 30, 1998.................................. 10 1/16 9 7/8 .20
June 30, 1998....................................... 13 12 7/16 .20
March 31, 1998...................................... 13 7/8 13 1/4 .18
</TABLE>
- ---------------
(a) Paid in the month following the end of the quarter.
As of March 22, 2000, the closing sale price per Share on the NYSE was
$11.25. On such date, there were 20,949,784 outstanding Shares held by 8,128
shareholders of record.
A distribution of $0.20 per Share was paid on January 20, 1999 and April
15, 1999 and a $0.22 per Share distribution was paid on July 14, 1999, October
14, 1999 and January 14, 2000. In addition, the Trust declared a distribution of
$0.22 per Share payable on April 14, 2000 to shareholders of record on April 5,
2000. Distributions totaling $0.84 and $0.58 were paid in 1999 and 1998,
respectively. The Trust anticipates paying distributions for the foreseeable
future.
14
<PAGE> 16
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,
1999. 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.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- ------- -------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Property revenues....................... $ 86,882 $ 48,357 $ 12,201 $11,320 $11,410
======== ======== ======== ======= =======
Income from property operations......... 59,998 32,311 7,886 7,298 7,559
======== ======== ======== ======= =======
Net income (loss)(a).................... 14,606 (10,070) 1,799 1,255 (4,584)
======== ======== ======== ======= =======
Per share (Basic and Diluted):(b)
Net income (loss)(a).................... $ 0.71 $ (0.82) $ 0.54 $ 0.70 $ (2.55)
======== ======== ======== ======= =======
Distributions declared.................. 0.86 0.78 -- 0.20 0.20
======== ======== ======== ======= =======
BALANCE SHEET DATA:(C)
Total assets............................ $620,682 $500,330 $258,395 $78,936 $89,382
======== ======== ======== ======= =======
Total debt.............................. 334,873 266,539 121,426 53,216 62,815
======== ======== ======== ======= =======
Shareholders' equity.................... 258,488 205,579 121,771 22,683 19,248
======== ======== ======== ======= =======
</TABLE>
- ---------------
(a) Net loss for 1998 and 1995 include provisions for possible losses on real
estate of $10,060 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 $(513), $(5,803) and $2,643
in 1999, 1998 and 1997, respectively.
(b) Diluted earnings per share is the same as basic earnings per share as all
outstanding options were anti-dilutive for each period presented and thus
not included in the calculation of diluted earnings per share.
(c) The Trust acquired $143,000 in assets in 1999 and incurred $94,600 in net
new debt during the year. Net proceeds from private placements of Shares
totaled approximately $55,200 in 1999.
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 1999 to 1998
During 1999, the Trust completed acquisitions with an aggregate purchase
price of $143 million. As a result of these acquisitions, the weighted average
net rentable square footage owned by the Trust increased to 8,286,000 in 1999
from 5,453,000 in 1998, an increase of 52%. Property revenues increased 80% to
$86,882,000 in 1999 from $48,357,000 in 1998, and income from property
operations (which is defined as
15
<PAGE> 17
property revenues less property operating expenses, excluding depreciation and
amortization, interest expense, Trust administration and overhead expenses, or
provision for possible losses on real estate) increased 86% to $59,998,000 in
1999 from $32,311,000 in 1998. On a same property basis, for properties owned as
of January 1, 1998, excluding the two retail properties, property revenues
increased to $30,184,000 in 1999 from $29,029,000 in 1998, an increase of 4.0%,
comprised of a 4.4% increase in revenue related to industrial properties and a
3.4% increase in revenue related to office properties. These increases in
revenue stemmed principally from an increase in rental rates and/or an increase
in overall occupancy at a number of the properties. Overall leased occupancy of
the Trust's portfolio was 93.6% at December 31, 1999 compared to 91.9% at
December 31, 1998.
Same property operating expenses, for properties owned as of January 1,
1998, excluding the two retail properties, increased by 5.5%, primarily as a
result of higher property taxes. Property operating expenses increased 5.0% for
the industrial properties and 6.2% for the office properties. On a same property
basis, for properties owned as of January 1, 1998, excluding the two retail
properties, net operating income (which is defined as property revenue,
excluding straight line rents, less property operating expenses and which does
not include depreciation and amortization, interest expense, or Trust
administration and overhead expenses) increased to $20,397,000 in 1999 from
$19,747,000 in 1998, an increase of 3.3%. This overall increase is a result of
the increase in revenue and expenses explained above and is a 4.1% increase
related to industrial properties and a 1.9% increase related to office
properties. Due to the small number of properties in the same property
comparison, results can be unduly influenced by results from, or non-renewal of,
a single large lease.
Income from operations increased to $15,008,000 in 1999 from a loss on
operations of $4,295,000 in 1998 as a result of the increase in income from
property operations explained above, offset by an increase in total interest
expense of $11,423,000 due to an additional $94,600,000 in property financing in
1999, a full year of interest expense on properties acquired in 1998 and the
provision for losses on real estate of $10,060,000 recorded in 1998 (see below).
In addition, Trust administration and overhead expenses increased $899,000 due
to an increase in full time employees, including the addition of in-house
general counsel, expensing internal acquisition department costs previously
capitalized, costs associated with prospective acquisitions and higher general
costs due to the increased activity of the Trust in 1999. Depreciation and
amortization increased $6,152,000 due to the acquisition of properties in 1999
and a full year of depreciation on properties acquired in 1998.
In 1999, the Trust did not record a provision for possible losses on real
estate. In December 1998, the Trust recorded a provision for possible losses of
$10,060,000 as a result of its decision to sell its retail property in Colorado
in 1999. During 1999, the Trust did not receive an acceptable offer for this
property, therefore, on December 31, 1999 the Trust reclassified this property
to held for investment and recorded depreciation expense for the full year.
In 1999, the Trust recognized $624,000 ($0.03 per Share) as income in
equity of a joint venture resulting from the sale of a light industrial property
that the Trust was a 50% joint venture partner. The Trust did not sell any
properties in 1998. During 1999, the Trust recognized extraordinary losses
totaling $513,000 ($0.03 per Share) from the early extinguishment of debt. In
1998, the Trust recognized extraordinary losses totaling $5,803,000 ($0.47 per
Share) comprised of loss on extinguishment of debt of $23,000 and costs related
to a change in control of $5,780,000. The costs related to the change in control
included approximately $2,484,000 for payments made to the Trust's senior
officers in December 1998 pursuant to severance and change in control agreements
which were triggered when DDR's ownership position exceeded 33%, an accrual of
$2,960,000 related to the estimated fair market value of future payments through
2008 to the senior officers under previously granted dividend equivalent rights,
approximately $300,000 related to vesting of restricted shares previously
granted to the senior officers and $36,000 in payroll taxes associated with the
payments to the senior officers. During 1999, the Trust sold three properties
and one tract of vacant land resulting in a total loss of $200,000 ($0.01 per
Share).
The Trust's emphasis in the light industrial sector is ideally suited for
the entrepreneurial segment of the economy, which consistently leads the United
States in job growth. This property type is attractive to technology companies,
which typically prefer flexible-use property space. The majority of the Trust's
16
<PAGE> 18
properties are situated in markets that have a concentration of technology
firms, such as Dallas, San Francisco, San Diego, and Northern Virginia.
Comparison of 1998 to 1997
During 1998, the Trust completed acquisitions with an aggregate purchase
price of $237 million. As a result of these acquisitions, the weighted average
property square footage owned by the Trust increased to 5,453,000 in 1998 from
1,687,000 in 1997, an increase of 221%. Property revenues increased 296% to
$48,357,000 in 1998 from $12,201,000 in 1997, and income from property
operations (which is defined as property revenues less property operating
expenses, excluding depreciation and amortization, interest expense, Trust
administration and overhead expenses, or provision for possible losses on real
estate) increased 310% to $32,311,000 in 1998 from $7,886,000 in 1997. On a same
property basis, for properties owned as of January 1, 1997, property revenues
increased to $9,916,000 in 1998 from $9,527,000, an increase of 4.1%, comprised
of a 3.2% increase in revenue related to industrial properties, a 16.7% increase
in revenue related to one office property and a 3.3% increase in revenue at the
Trust's retail property in Denver, Colorado. These increases in revenue stemmed
principally from an increase in rental rates and/or an increase in overall
occupancy at a number of the properties. Overall leased occupancy of the Trust's
portfolio was 91.9% at December 31, 1998 compared to 92.4% at December 31, 1997.
Same property operating expenses increased by 6.5%, primarily as a result
of higher property taxes. On a same property basis, income from property
operations increased to $6,073,000 in 1998 from $5,920,000 in 1997, an increase
of 2.6%. This overall increase was a result of the increase in revenue explained
above and was comprised of a 1.0% increase related to industrial properties, a
38.3% increase related to one office property and a 1.7% increase related to the
Trust's retail properties. Due to the small number of properties in the same
property comparison, results can be unduly influenced by results from, or
non-renewal of, a single large lease.
Loss from operations increased to $4,295,000 in 1998 from $3,007,000 in
1997 as a result of the increase in income from property operations explained
above, an increase in total interest expense of $9,361,000 due to an additional
$145,100,000 in property financing in 1998 and a full year of interest expense
on properties acquired in 1997 and a provision for losses on real estate of
$10,060,000 (see below). In addition, Trust administration and overhead expenses
increased $1,225,000 due to a 170% increase in full time employees, expensing
internal acquisition department costs and higher general costs due to the
increased activity of the Trust in 1998. Depreciation and amortization increased
$5,226,000 due to the acquisition of properties in 1998 and a full year of
depreciation on properties acquired in 1997.
In December 1998, the Trust recorded a provision for possible loss of
$10,060,000 as a result of its decision to sell its retail property in Colorado
in 1999. The Trust estimated the net sale proceeds to be received on such sale
and recorded the provision. The estimate of net sale proceeds was based on
subjective judgments.
During 1998, the Trust recognized extraordinary losses totaling $5,803,000
($0.47 per Share) comprised of loss on extinguishment of debt of $23,000 and
costs related to a change in control of $5,780,000. The costs related to change
in control included approximately $2,484,000 for payments made to the Trust's
senior officers in December 1998 pursuant to severance and change in control
agreements which were triggered when DDR's ownership position exceeded 33%, an
accrual of $2,960,000 related to the estimated fair market value of future
payments through 2008 to the senior officers under previously granted dividend
equivalent rights, approximately $300,000 related to vesting of restricted
shares previously granted to the senior officers and $36,000 in payroll taxes
associated with the payments to the senior officers. In 1997, the Trust
recognized extraordinary gains on the extinguishment of debt of $2,643,000
($0.80 per Share). During 1997, the Trust sold two properties for a total gain
of $2,163,000 ($0.65 per Share). The Trust did not sell any properties in 1998.
17
<PAGE> 19
Analysis of Cash Flows
COMPARISON OF 1999 TO 1998
Cash flow provided by operating activities in 1999 was $33,059,000. This
results from the Trust's net income of $14,606,000 offset by net non-cash
charges totaling $16,103,000 related to the loss on the extinguishment of debt,
losses on the sale of real estate properties, minority interests, and
depreciation and amortization. Issuance of Shares to Trust Managers of $129,000,
an increase in restricted cash of $294,000 and a decrease in other assets of
$5,907,000 further increased cash flow provided by operating activities. In
addition, accounts payable, other liabilities and tenant security deposits
decreased $4,144,000 and accrued interest increased $752,000 reducing cash flow
provided by operating activities.
Cash flow used in investing activities in 1999 was $141,150,000,
representing amounts expended on the acquisition of real estate and related
working capital totaling $142,737,000 and capitalized expenditures of
$15,769,000 offset by net proceeds from the sale of real estate properties
totaling $17,356,000.
Cash flow provided by financing activities in 1999 was $104,450,000. This
amount reflects net proceeds from mortgage financings and notes payable of
$68,829,000 and proceeds from the private placements of Shares for net proceeds
of $55,458,000 offset by the payment of loan costs of $3,029,000, the redemption
of limited partnership units totaling $329,000 and distributions to shareholders
and limited partnership unit holders of $16,479,000.
Cash flow provided by operating activities in 1998 was $2,961,000. This
results from the Trust's net loss of $10,070,000 offset by net non-cash charges
totaling $21,672,000 related to change in control costs, provision for possible
real estate losses, minority interests, and depreciation and amortization. This
amount is offset by the issuance of Shares to Trust Managers of $312,000, an
increase in restricted cash of $3,301,000 and other assets of $10,073,000. In
addition, an increase in accounts payable, other liabilities and tenant security
deposits of $3,213,000 and an increase in accrued interest of $1,208,000 further
increased cash flow provided by operating activities.
Cash flow used in investing activities in 1998 was $179,673,000,
representing amounts expended on the acquisition of real estate and related
working capital totaling $172,133,000 and capitalized expenditures of
$7,540,000.
Cash flow provided by financing activities in 1998 was $171,174,000. This
amount reflects net proceeds from mortgage financings and notes payable of
$153,273,000 and proceeds from the private placements of Shares for net proceeds
of $28,578,000 offset by the payment of loan costs of $1,852,000, the repurchase
of Shares totaling $1,600,000 and distributions to shareholders and limited
partnership unit holders of $7,225,000.
FUNDS FROM OPERATIONS
The Board of Governors of the National Association of Real Estate
Investment Trusts, Inc. ("NAREIT") defines Funds from Operations ("FFO") as net
income (loss) computed in accordance with generally accepted accounting
principles ("GAAP"), 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. The Trust
calculates FFO in a manner consistent with the NAREIT definition. 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 extraordinary items or provision for
possible losses on real estate in its calculation of FFO.
Effective January 1, 2000 NAREIT has revised the calculation of FFO to
include all operating results, both recurring and non-recurring, except those
results defined as "extraordinary items" under GAAP and gains and losses from
sales of depreciable operating properties. Although the Trust does not
anticipate a significant impact on current FFO calculations as a result of this
change, the Trust has deferred costs totaling $1,229,000 at December 31, 1999
related to an ongoing strategic review of alternatives for the Trust. Under the
new FFO guidelines, expenses related to these costs cannot be excluded from the
calculation of FFO.
18
<PAGE> 20
Should a strategic transaction not result from this review, the Trust will
expense all such deferred costs during 2000.
The Trust believes FFO is an appropriate measure of its 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 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 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,
--------------------------------
1999 1998 1997
--------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Net cash provided by (used in) operating
activities....................................... $ 33,059 $ 2,961 $ (776)
========= ========= ========
Net cash used in investing activities.............. (141,150) (179,673) (61,898)
========= ========= ========
Net cash provided by financing activities.......... 104,450 171,174 70,347
========= ========= ========
</TABLE>
The following table shows the Trust's calculation of FFO:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1999 1998 1997
------------ ------------ -----------
(IN THOUSANDS, EXCEPT NUMBER OF SHARES)
<S> <C> <C> <C>
Net Income (Loss).............................. $ 14,606 $ (10,070) $ 1,799
Exclude effects of:
Extraordinary items:
(Gain) loss on extinguishment of debt... 513 23 (2,643)
Provision for change in control costs... -- 5,780 --
Gain on sales of real estate.............. 200 -- (2,163)
Provision for possible losses on real
estate.................................. -- 10,060 --
Real estate depreciation and
amortization............................ 14,083 8,108 3,144
Income in equity of joint venture......... (624) -- --
Minority interest in operating
partnerships............................ 169 (188) --
Non-recurring interest accrual assuming
future conversion of debt to equity..... -- -- 1,022
----------- ----------- ----------
Funds from Operations.......................... $ 28,947 $ 13,713 $ 1,159
=========== =========== ==========
Weighted average Shares and operating
partnership units outstanding................ 20,749,030 12,484,472 3,317,004
=========== =========== ==========
</TABLE>
YEAR 2000 ISSUES
To date, the Trust has not experienced any system failures or
miscalculations that could have caused the disruption of operations as a result
of the Year 2000 software issues. The Trust's proactive plan was instrumental in
insuring that there were no Year 2000 issues associated with internally used
hardware and systems. In addition, the Trust is not aware of any Year 2000
issues related to external service providers.
The Trust does not expect historical and future costs related to the Year
2000 issue to have a material effect on the consolidated financial position or
results of operations of the Trust. To date the effect of the Year 2000 problem
has not had a material impact on the Trust, but management cannot provide
assurance
19
<PAGE> 21
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.
In addition, the Trust may from time to time sell properties that do not
complement the Trust's property emphasis or geographic target markets. Proceeds
from such sales could be used for working capital purposes, debt reduction or
reinvested into other properties. As of December 31, 1999, the Trust had $2.5
million in unrestricted cash.
In August 1998, the Trust entered into a definitive agreement providing for
a strategic investment by DDR in the Trust. Under the terms of the Share
Purchase Agreement (the "Agreement"), DDR was obligated to purchase $115 million
of common shares and up to $200 million in additional equity, subject to certain
conditions, to fund property acquisitions approved by the Trust's Board. As of
December 31, 1999, DDR purchased 9.7 million common shares for $148.6 million.
Proceeds related to this agreement were used to fund $143 million in property
acquisitions in 1999 as well as the purchase of properties in 1998.
In addition to the equity raised, the Trust utilized both long term and
short term secured financing to fund property acquisitions. The Trust completed
approximately $135.6 million in permanent fixed rate financings in 1999,
including the $41.0 million refinancing of the Prudential Securities bridge loan
in January 1999. In January 1999, the Trust initiated a secured acquisition
credit facility with Bank One. The agreement contemplated a $150 million credit
line of which Bank One and Wells Fargo Bank have each committed $25 million. The
Trust does not currently anticipate further syndication of this line due to the
current lack of equity capital availability and the Trust's reduced level of
acquisitions. The credit line, which is secured by mortgage liens on properties,
provides for a graduated variable interest rate (depending on the Trust's
overall leverage) of LIBOR plus 1.4% to LIBOR plus 2.0%, has a maximum loan to
value ratio of 60%, and matures in January 2001. As of December 31, 1999, the
Trust has $19.5 million outstanding under this credit line, which bears interest
at LIBOR plus 2.00%. At December 31, 1999, the blended interest rate for the
Bank One credit line is 8.47%.
The Trust also has approximately $48.0 million outstanding under a $75
million PSCC secured acquisition line bearing interest at a variable rate based
on the 30 day LIBOR plus 1.55%, currently 8.03% and a maturity date of April 27,
2000. The Trust is currently negotiating an extension of the maturity date of
the acquisition credit line. The Trust cannot provide any assurance that such
negotiations will result in the extension of the credit line. The Trust
anticipates the retirement of this debt through sales of properties or through
proceeds from long-term mortgage financings.
Including the Bank One credit line and the PSCC secured acquisition credit
line at December 31, 1999, the Trust had $334.9 million in mortgage debt
outstanding, of which approximately $263.8 million was represented by fixed rate
debt, including $1.5 million in unamortized debt premium with a weighted average
interest rate of 7.40%, and $69.6 million was represented by variable rate debt
with a weighted average interest rate of 8.15%. These weighted average interest
rates represent an average of the applicable stated interest rate and do not
include the amortization of deferred loan costs (or debt premiums) which will
produce a higher (or lower) weighted average interest rate.
At December 31, 1999, the Trust's total market capitalization (based upon a
December 31, 1999 closing share price of $12.375 per share) was approximately
$589.9 million. Based upon this amount, the Trust's debt to total market
capitalization at December 31, 1999 was 55.7%. The Trust is currently operating
at higher levels of leverage than it would foresee on a longer term basis. The
Trust believes that the use of leverage is justified given existing acquisition
prospects and the benefits of the Trust's transition to a larger entity.
Although there is no assurance of ultimate availability, the Trust anticipates
that equity will be raised in the future to deleverage the Trust.
20
<PAGE> 22
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. Although the Trust believes that its current leverage is justified,
the risk of financial default could rise substantially if the Trust is unable to
complete future equity offerings or if property operating results decline.
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
annual turnover rate of 20% to 25% of the Trust's tenants and related revenue.
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
$15,769,000 for the year ended December 31, 1999, compared to $7,540,000 for the
year ended December 31, 1998. 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, which are costs necessary to bring acquired properties to intended
leasable condition at the time of acquisition.
A distribution of $0.22 per share was paid on October 14, 1999 and July 14,
1999 and a $0.20 per share distribution was paid on April 15, 1999 and January
20, 1999. The $0.22 per share distribution declared on November 4, 1999 was paid
on January 14, 2000. The Trust declared a distribution of $0.22 per share,
payable on April 14, 2000 to shareholders of record on April 5, 2000. The
Trust's distribution policy is to conserve capital by, over time, lowering its
FFO payout ratio. The Trust believes that the minimum FFO payout ratio in order
to comply with the requirement to distribute 95% of taxable income, is
approximately 50-55% based on the Trust's current capital structure. Future
distributions will be at the discretion of the Board of Trust Managers. The
Trust has approximately $34.3 million in net operating loss carryforwards, a
portion of which could be utilized to reduce the payout of 95% taxable income
required by the Internal Revenue Code.
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 Common Shares of Beneficial Interest, 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. To date, this shelf
registration has not been utilized.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The following discussion about the Trust's risk management includes
forward-looking statements that involve risks and uncertainties. Actual results
could differ materially from the results discussed in the forward-looking
statements.
The Trust's primary market risk exposure is to changes in interest rates.
The Trust is exposed to market risk related to its secured acquisition line with
PSCC and the Bank One credit line as discussed in "Management's Discussion and
Analysis of Financial Condition and Results of Operation -- Liquidity and
Capital Resources." The acquisition line and credit line bear interest at
variable rates and are subject to fluctuations in the market.
The Trust also uses long-term and medium-term secured debt as a source of
capital. These debt instruments are typically issued at fixed interest rates.
When these debt instruments mature, the Trust typically refinances such debt at
then-existing market interest rates which may be more or less than the interest
rates on the maturing debt.
If the interest rate for variable rate debt was 100 basis points higher or
lower during 1999, the Trust's interest expense would have been increased or
decreased by approximately $1,069,000. There is no fixed rate debt maturing in
2000.
The Trust historically has not hedged its exposure to fluctuations in
interest rates and currently has no plans to do so in the future.
21
<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.
PART III.
ITEM 10. TRUST MANAGERS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The persons who serve as Trust Managers and executive officers of the
Trust, their ages and their respective positions are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION(S) AND OFFICE(S) HELD
- ---- --- ------------------------------
<S> <C> <C>
Scott A. Wolstein............ 47 Chairman of the Board of Trust Managers
Albert T. Adams.............. 49 Trust Manager
William H. Bricker........... 68 Trust Manager
T. Patrick Duncan............ 51 Trust Manager
Robert H. Gidel.............. 48 Trust Manager
Robert E. Giles.............. 52 Trust Manager
Edward B. Kelley............. 59 Trust Manager
Stanley J. Kraska, Jr. ...... 40 Trust Manager
J. Timothy Morris............ 33 Trust Manager
James A. Schoff.............. 54 Trust Manager
Charles W. Wolcott........... 47 Trust Manager, President and Chief Executive Officer
Lewis D. Friedland........... 40 Executive Vice President and Chief Operating Officer
Marc A. Simpson.............. 45 Senior Vice President and Chief Financial Officer,
Secretary and Treasurer
David B. Warner.............. 41 Senior Vice President -- Real Estate Operations
</TABLE>
Scott A. Wolstein was appointed as a Trust Manager and as Chairman of the
Board of Trust Managers on July 30, 1998. Mr. Wolstein became Chairman of DDR in
February 1997, and has served as President and Chief Executive Officer of DDR
since its organization in 1992 and February 1993 initial public offering. Mr.
Wolstein was a principal and executive officer of DDR's predecessors prior to
1993. Mr. Wolstein is a graduate of the Wharton School at the University of
Pennsylvania and of the University of Michigan Law School. Following his
graduation from the University of Michigan Law School, Mr. Wolstein was
associated with the Cleveland law firm of Thompson, Hine & Flory. He is
currently a member of the Board of Trustees of the National Association of Real
Estate Investment Trusts and the International Council of Shopping Centers and
serves as the General Co-Chairman of the Cleveland Campaign for the State of
Israel Bonds. He is also a member of the Young Presidents Organization, The
Urban Land Institute, the National Realty Committee and the Wharton Real Estate
Center.
Albert T. Adams was appointed as a Trust Manager on July 30, 1998. Mr.
Adams has been a partner with the law firm of Baker & Hostetler LLP in
Cleveland, Ohio, since 1984, and has been affiliated with the firm since 1977.
Mr. Adams is a graduate of Harvard College, Harvard Business School and Harvard
Law School. He serves as a member of the Board of Trustees of the Greater
Cleveland Roundtable and of the Western Reserve Historical Society. Mr. Adams
also serves as a director of DDR, Associated Estates Realty Corporation, Boykin
Lodging Company, Captec Net Lease Realty, Inc. and Dairy Mart Convenience
Stores, Inc.
William H. Bricker has served as a Trust Manager of the Trust since
September 1985. Mr. Bricker has served as President of DS Energy Services
Incorporated and has consulted in the energy field and on
22
<PAGE> 24
international trade since 1987. In May 1987, Mr. Bricker retired as the Chairman
and Chief Executive Officer of Diamond Shamrock Corporation where he held
various management positions from 1969 through May 1987. Mr. Bricker is also a
director of the LTV Corporation. He received his Bachelor of Science and Master
of Science degrees from Michigan State University.
T. Patrick Duncan has served as a Trust Manager since December 1996. Mr.
Duncan joined USAA Real Estate Company ("Realco") in November 1986 as Chief
Financial Officer. With over 24 years of experience, Mr. Duncan serves as Senior
Vice President of Real Estate Operations with responsibilities which include the
direction of all acquisitions, sales, management and leasing of real estate for
USAA-affiliated companies. Mr. Duncan received degrees from the University of
Arizona in Accounting and Finance. He is a Certified Public Accountant,
Certified Commercial Investment Manager, and holds a Texas Real Estate Broker's
License. Mr. Duncan is also a member of the Board of Directors for the Daughters
of Charity and a member of the Board of Directors of the North San Antonio
Chamber of Commerce.
Robert H. Gidel was appointed as a Trust Manager on July 30, 1998. Mr.
Gidel also serves as a Member of the Board of Directors of Developers
Diversified Realty Corporation, Lone Star Opportunity Funds I and II and
Fortress Investment Trust. Since 1993, Mr. Gidel has been the managing partner
of Liberty Partners, an investment partnership formed to purchase securities
interests in private and public real estate companies. He has assumed management
and governance roles in many of the companies in which the partnership has
invested. He was President of Brazos Partners from 1993 -- 1995, President of
Paragon Group, Inc. from 1996 -- 1997 and President of Meridian Point Realty
Trust VIII from 1997 -- 1998. Prior to 1993, Mr. Gidel was a Managing Director
of Alex. Brown Kleinwort Benson Realty Advisors. He is a graduate of Warrington
College of Business at the University of Florida with a major in real estate.
Robert E. Giles has served as a Trust Manager since March 1996. Mr. Giles
is currently Executive Vice President of Crown Castle UK Ltd., a communication
sites and wireless network services company. From 1995 to 1999, Mr. Giles was
the owner and President of Robert E. Giles Interests, Inc., a real estate
consulting and development firm and President of Title Network, Ltd., a national
title insurance agency. Mr. Giles was a Vice President with the J.E. Robert
Companies, Inc. from 1994 to 1995. From 1990 to 1994, Mr. Giles was President
and a Director of National Loan Bank, a publicly-held company created through
the merger of Chemical Bank and Texas Commerce Bank. Mr. Giles received his
Bachelor of Arts degree from University of Texas -- Austin in 1970 and received
a Master of Arts degree from University of Texas -- Arlington in 1973.
Edward B. Kelley has served as a Trust Manager since December 1996. Mr.
Kelley is President of USAA Real Estate Company and of La Cantera Development
Company. He joined Realco in April 1989 as Executive Vice President and Chief
Operating Officer before assuming his new title in August 1989. Mr. Kelley
received his Bachelor of Business Administration degree from St. Mary's
University in 1964 and a Masters in Business Administration from Southern
Methodist University in 1967, and is a Member of the Appraisal Institute
("MAI"). Mr. Kelley is a member of the Board of Directors of USAA Equity
Advisors, Inc.
Stanley J. Kraska, Jr. has served as a Trust Manager since July 1997,when
he was appointed as an independent Trust Manager at the request of LaSalle
Investment Management (Securities), LP and LaSalle Investment Management. Mr.
Kraska has been employed by La Salle Investment Management (Securities) LP or
its affiliates since February 1988. He currently serves as Managing Director,
with responsibility for private placement investment. Mr. Kraska graduated from
Dartmouth College in 1982 with a Bachelor of Arts degree and received a Master
of Business Administration degree from Harvard University in 1986.
J. Timothy Morris has served as a Trust Manager since January 15, 1999. Mr.
Morris is a Principal at Morgan Stanley Dean Witter and head of Morgan Stanley's
Real Estate Special Situations Program. Mr. Morris has over 12 years of
experience at Morgan Stanley in the investment banking and direct investment
areas. Prior to heading up the Special Situations initiative, Mr. Morris spent
five years in Hong Kong running Morgan Stanley's real estate business for Asia.
Mr. Morris currently serves on the board of Grove Property Trust, as well as on
the boards of two private REITs. He is a graduate of Indiana University and
holds a Bachelor of Science degree in Finance.
23
<PAGE> 25
James A. Schoff was appointed as a Trust Manager on July 30, 1998. Mr.
Schoff is Vice Chairman of the Board and Chief Investment Officer of DDR. Prior
to this, Mr. Schoff served as DDR's Executive Vice President and Chief Operating
Officer from the time of the DDR's initial public offering, and he was a
principal and executive officer of DDR's predecessors. Mr. Schoff is a graduate
of Hamilton College and Cornell University Law School. Mr. Schoff practiced law
with the firm of Thompson, Hine and Flory where he specialized in the
acquisition and syndication of real estate properties. Mr. Schoff currently
serves as a member of the Executive Committee and Board of Trustees of the
Western Reserve Historical Society and the National Committee for Community and
Justice.
Charles W. Wolcott currently serves as Trust Manager, President and Chief
Executive Officer. Mr. Wolcott was hired as the President and Chief Executive
Officer of the Trust in May 1993 and has served as a Trust Manager since August
1993. Mr. Wolcott was President and Chief Executive Officer for Trammell Crow
Asset Services, a real estate asset and portfolio management affiliate of
Trammell Crow Company, from 1990 to 1992. He served as Vice President and Chief
Financial and Operating Officer of the Trust from 1988 to 1991. From 1988 to
1990, Mr. Wolcott was a partner in Trammell Crow Ventures Operating Partnership.
Prior to joining the Trammell Crow Company in 1984, Mr. Wolcott was President of
Wolcott Corporation, a firm engaged in the development and management of
commercial real estate properties. Mr. Wolcott graduated from the University of
Texas at Austin in 1975 with a Bachelor of Science degree and received a Master
of Business Administration degree from Harvard University in 1977.
Lewis D. Friedland currently serves as Executive Vice President and Chief
Operating Officer. He was hired as the Vice President and Chief Investment
Officer of the Trust in 1997. Prior to joining the Trust, Mr. Friedland was a
founding partner of Crimson Partners, an investment firm formed in 1992 that
engaged in the acquisition and development of real estate assets. Prior to
founding this firm, he was a Division Partner and Managing Director of Trammell
Crow Company where he was responsible for that firm's development, leasing, and
property management activities in Richmond, Va. Mr. Friedland graduated from the
Wharton School of the University of Pennsylvania in 1981 with a Bachelor of
Science Degree in Economics and received a Master of Business Administration
degree from Harvard University in 1985.
Marc A. Simpson currently serves as Senior Vice President and Chief
Financial Officer, Secretary and Treasurer. Mr. Simpson was hired as the Vice
President and Chief Financial Officer, Secretary and Treasurer of the Trust in
March 1994. From November 1989 through March 1994, Mr. Simpson was a Manager in
the Financial Advisory Services Group of Coopers & Lybrand L.L.P. Prior to that
time, he served as Controller of Pacific Realty Corporation, a real estate
development company. Mr. Simpson graduated with a Bachelor of Business
Administration degree from Midwestern State University in 1978, and received a
Master of Business Administration degree from Southern Methodist University in
1990.
David B. Warner currently serves as Senior Vice President -- Real Estate
Operations. Mr. Warner was hired as Vice President and Chief Operating Officer
of the Trust in May 1993. From 1989 through the date he accepted a position with
the Trust, Mr. Warner was a Director of the Equity Investment Group for the
Prudential Realty Group. From 1985 to 1989, he served in the Real Estate Banking
Group of NCNB Texas National Bank. Mr. Warner graduated from the University of
Texas at Austin in 1981 with a degree in finance and received a Master of
Business Administration from the same institution in 1984.
COMMITTEES OF THE TRUST MANAGERS
Audit Committee. The Audit Committee of the Trust Managers met seven times
during the 1999 fiscal year. The Audit Committee reviews and approves the scope
and results of any outside audit of the Trust, and the fees therefore, and makes
recommendations to the Trust Managers or management concerning auditing and
accounting matters and the efficacy of the Trust's internal control systems. The
Audit Committee selects the Trust's independent auditors subject to shareholder
ratification. During the 1999 fiscal year, Messrs. Bricker, Kelley, Giles and
Gidel served on the Audit Committee. Current members of the Audit Committee are
Messrs. Bricker, Kelley, Giles and Gidel.
Compensation Committee. The Compensation Committee met five times during
the 1999 fiscal year. The Compensation Committee recommends to the Board of
Trust Managers guidelines for compensation and
24
<PAGE> 26
benefits of the executive officers of the Trust based upon achievement of
objectives and other factors. The Compensation Committee is also responsible for
acting upon all matters concerning, and exercising such authority as is
delegated to it under the provisions of, any benefit, retirement or pension
plan. During the 1999 fiscal year, Messrs. Bricker, Duncan, Giles and Gidel
served on the Compensation Committee. Current members of the Compensation
Committee are Messrs. Bricker, Duncan, Giles and Gidel.
Executive Committee. The Executive Committee was formed in 1998 and granted
the power to authorize acquisitions and dispositions not to exceed $50 million
and to bind the Trust to capital raising transactions not to exceed $100
million. The Executive Committee met 5 times during 1999. During the 1999 fiscal
year, Messrs. Wolstein, Gidel, Duncan, Morris and Wolcott served on the
Executive Committee. Current members of the Executive Committee are Messrs.
Wolstein, Gidel, Duncan, Morris and Wolcott.
Special Committee. The Special Committee was formed in 1999 to review
strategic alternatives. The Special Committee met 5 times during 1999. During
the 1999 fiscal year, Messrs. Bricker, Giles and Morris served on the Special
Committee. Current members of the Special Committee are Messrs. Bricker, Giles
and Morris.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee are Messrs. Bricker, Duncan,
Giles and Gidel. No executive officer of the Trust served as a member of the
Compensation Committee or as a director of any other entity, one of whose
executive officers served on the Compensation Committee or as a Trust Manager of
the Company.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Based solely upon a review of Forms 3, 4 and 5 (and any amendments thereto)
furnished to the Trust with respect to the 1999 Fiscal Year or written
representations from certain reporting persons that no forms were required, no
person failed to disclose on a timely basis, as disclosed in such forms, reports
required by Section 16(a) of the Exchange Act.
ITEM 11. EXECUTIVE COMPENSATION
The following table summarizes the compensation paid by the Trust to the
executive officers of the Trust for the three years ended December 31, 1999:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
------------
ANNUAL COMPENSATION SECURITIES
NAME AND ------------------- ALL OTHER UNDERLYING
PRINCIPAL POSITION YEAR SALARY BONUS(1) COMPENSATION OPTIONS(2)
- ------------------ ---- -------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Charles W. Wolcott..................... 1999 $252,500 $156,000 $ 177,378(3) 250,000
President and CEO 1998 223,750 152,375 1,120,630(4) 250,000
1997 202,500 153,750 8,071(8) 50,000
Lewis D. Friedland..................... 1999 207,500 107,500 93,378(3) 135,000
Executive Vice President and COO(9) 1998 178,750 122,563 816,680(5) 135,000
1997 102,462 72,000 5,168(8) 35,000
Marc A. Simpson........................ 1999 155,000 64,000 51,378(3) 70,000
Senior Vice President and CFO, 1998 135,000 66,150 542,305(6) 70,000
Secretary and Treasurer 1997 117,500 72,000 8,071(8) 20,000
David B. Warner........................ 1999 146,250 60,000 51,378(3) 70,000
Senior Vice President 1998 131,250 63,788 525,430(7) 70,000
Real Estate Operations 1997 117,500 72,000 8,071(8) 20,000
</TABLE>
25
<PAGE> 27
- ---------------
(1) Represents bonus payments for current year paid in January of the following
year.
(2) Represents aggregate amount from initial grant of share options.
(3) Includes Trust's contribution to the Retirement and Profit Sharing Plan for
current year made in January of following year, the Employer Match for the
Trust's 401(k) plan funded in 1999 and payments made under fully vested
dividend equivalent rights granted in April 1998.
(4) Includes change of control payment ($862,500), payments made under fully
vested dividend equivalent rights granted in April 1998 ($116,000), vesting
of restricted shares ($135,100) pursuant to change in control and
contribution to Retirement and Profit Sharing Plan ($7,030).
(5) Includes change of control payment ($693,750), payments made under fully
vested dividend equivalent rights granted in April 1998 ($58,000), vesting
of restricted shares ($57,900) pursuant to change in control and
contribution to Retirement and Profit Sharing Plan ($7,030).
(6) Includes change of control payment ($472,500), payments made under fully
vested dividend equivalent rights granted in April 1998 ($29,000), vesting
of restricted shares ($33,775) pursuant to change in control and
contribution to Retirement and Profit Sharing Plan ($7,030).
(7) Includes change of control payment ($455,625), payments made under fully
vested dividend equivalent rights granted in April 1998 ($29,000), vesting
of restricted shares ($33,775) pursuant to change in control and
contribution to Retirement and Profit Sharing Plan ($7,030).
(8) Trust's contribution to the Retirement and Profit Sharing Plan for current
year made in January of following year.
(9) Hired in May 1997.
SEVERANCE AND CHANGE IN CONTROL AGREEMENTS
On April 29, 1998, the Trust entered into Severance and Change in Control
Agreements with each of Messrs. Wolcott, Friedland, Simpson and Warner, which
agreements replaced and superseded existing Bonus and Severance Agreements with
such officers. Among other things, the agreements provide that, upon a Change in
Control (as defined), the respective officer will receive an amount equal to
2.50 times such officer's annualized base salary rate plus targeted bonus amount
for the fiscal year in which the first event constituting a Change in Control
occurs. In addition, each such officer will receive certain employee benefits
for, in general, a one-year period commencing on the date of a Change in
Control. Each agreement also provides that (1) if any payment made by the Trust
to the respective officer would be subject to the "golden parachute" excise tax
imposed under Section 4999 of the Internal Revenue Code of 1986, as amended, the
Trust will pay to such officer an additional amount to offset the effects of
such excise tax, (2) the Trust agrees to pay certain attorneys' and related fees
and expenses incurred by the respective officer to enforce his rights under the
agreement, and (3) all unvested awards under the Trust's Employee and Trust
Manager Incentive Share Plan shall immediately vest upon a Change in Control and
the officer shall have the right to exercise any vested awards during the
balance of the award's term. Each agreement commenced on April 29, 1998 and
continues for a five-year term and shall automatically renew for one-year terms
unless earlier terminated in accordance with the agreement.
CHANGE IN CONTROL
Per the Severance and Change in Control Agreements, the term "Change in
Control" is defined, among other things, as an acquisition of over 33% of the
Trust's voting securities. On December 10, 1998, a Change in Control occurred
upon the filing by DDR of Amendment No. 3 to Schedule 13D. Accordingly, payments
totaling $2,484,375 to Messrs. Wolcott, Friedland, Simpson and Warner were made.
In addition, outstanding options to purchase Shares held by these employees
became immediately exercisable and the restrictions on any restricted shares
held by these employees were lifted.
OPTION GRANTS
There were no share option grants made in the 1999 Fiscal Year to the
Trust's executive officers.
26
<PAGE> 28
OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES
The following table sets forth certain information concerning the value of
the unexercised options as of December 31, 1999 held by the Trust's executive
officers. No options were exercised in the 1999 Fiscal Year by any of the
executive officers.
AGGREGATE OPTION EXERCISES IN FISCAL 1999 AND FISCAL 1999
YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
OPTIONS AT 12/31/99 12/31/99
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Charles. W. Wolcott........................... 250,000 0 (a) (a)
Lewis D. Friedland............................ 135,000 0 (a) (a)
Marc A. Simpson............................... 70,000 0 (a) (a)
David B. Warner............................... 70,000 0 (a) (a)
</TABLE>
- ---------------
(a) The Trust's share price at December 31, 1999 was $12.375 which is less than
the option exercise prices of either $13.625 or $15.00 per share.
Therefore, the value of unexercised in-the-money options at December 31,
1999 is zero.
TRUST MANAGER COMPENSATION
In fiscal year 1999, the Trust paid an annual retainer of $25,000 to
non-employee Trust Managers plus $1,000 for each Trust Manager meeting attended
in person, $500 for each Trust Manager meeting attended via teleconference, $500
for each committee meeting attended in person and $250 for each committee
meeting attended via teleconference. Additionally, the Trust Managers are
reimbursed for their expenses incurred in connection with their duties as Trust
Managers. Each non-employee Trust Manager has the right to receive his annual
retainer in cash and/or Shares. In addition to the annual retainer, Mr. Bricker
earned $18,750, Mr. Giles earned $10,250, Mr. Kelley earned $4,750, Mr. Duncan
earned $7,750, Mr. Kraska earned $5,750, Mr. Morris earned $7,000, Mr. Wolstein
earned $4,750, Mr. Schoff earned $5,250, Mr. Gidel earned $7,250 and Mr. Adams
earned $5,500 in 1999 for attendance at Board of Trust Managers and committee
meetings. In December 1998, the Trust adopted a deferred compensation plan for
non-employee Trust Managers which gives Trust Managers the option to defer
receipt of fees otherwise payable. Such deferred fees are credited to a deferral
account in units representing Shares. The value of the units is increased or
decreased as measured by the market value of Shares. Deferred compensation at
December 31, 1999 totaled $40,000.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of Common Shares by (i) each Trust Manager, (ii) the Trust's Chief
Executive Officer and each executive officer of the Trust, (iii) all Trust
Managers and executive officers of the Trust as a group, and (iv) to the Trust's
knowledge, by any person owning beneficially more than 5% of the outstanding
shares of such class, in each case at March 21,
27
<PAGE> 29
2000. Except as otherwise noted, each person named in the table has sole voting
and investment power with respect to all Common Shares shown as beneficially
owned by such person.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL PERCENTAGE
BENEFICIAL OWNER OWNERSHIP OF CLASS
- ---------------- ----------------- ----------
<S> <C> <C>
Albert T. Adams..................................... 2,000(1) *
William H. Bricker.................................. 5,400(2) *
T. Patrick Duncan................................... 1,200 *
Robert H. Gidel..................................... 4,048(1) *
Robert E. Giles..................................... 8,012(2) *
Edward B. Kelley.................................... 2,000 *
Stanley J. Kraska, Jr. ............................. 5,000(2) *
J. Timothy Morris................................... 1,000(3) *
James A. Schoff..................................... 2,000(1) *
Charles W. Wolcott.................................. 336,000(4) 1.56%
Scott A. Wolstein................................... 2,006(1)(10) *
Lewis D. Friedland.................................. 160,006(5) *
Marc A. Simpson..................................... 90,898(6) *
David B. Warner..................................... 79,900(6) *
USAA Real Estate Company............................ 1,680,086(7) 7.79%
9830 Colonnade Boulevard, Suite 600
San Antonio, Texas 782302239
Morgan Stanley, Dean Witter, Discover & Co.
The Morgan Stanley Real Estate Special Situations
Fund II, L.P.
Morgan Stanley Asset Management Inc. ............. 1,999,653(8) 9.27%
1585 Broadway New York, New York 10036
LaSalle Investment Management (Securities) LP and
LaSalle Investment Management..................... 1,502,578(9) 6.97%
100 East Pratt Street Baltimore, MD 21202
Scott A. Wolstein and Developers Diversified Realty
Corporation....................................... 9,756,656(10) 45.23%
34555 Chagrin Boulevard Moreland Hills, OH 44022
All Trust Managers and executive officers as a group
(11 persons)...................................... 699,470(1)(2)(3)(4)(5)(6) 3.24%
</TABLE>
- ---------------
* Ownership is less than 1% of outstanding Common Shares.
(1) Includes vested options to purchase 2,000 Common Shares.
(2) Includes vested options to purchase 5,000 Common Shares.
(3) Includes vested options to purchase 1,000 Common Shares.
(4) Includes vested options to purchase 250,000 Common Shares.
(5) Includes vested options to purchase 135,000 Common Shares.
(6) Includes vested options to purchase 70,000 Common Shares.
(7) Based upon Amendment No. 4 to Schedule 13D filed jointly by United Services
Automobile Association ("USAA"), USAA Capital Corporation ("USAA CC"), and
USAA Real Estate Company ("Realco") on August 6, 1998. USAA is the sole
stockholder of USAA CC and USAA CC is the sole stockholder of Realco. Based
upon these relationships, USAA, USAA CC, and Realco have shared voting and
dispositive power over 1,680,086 Common Shares.
(8) Based upon Amendment No. 1 to Schedule 13D filed jointly by Morgan Stanley,
MSAM and Morgan Stanley Real Estate Special Situations Fund II, L.P. on
March 17, 1998 (the "MSAM Schedule 13D"), Morgan Stanley has sole voting
and dispositive power over 120,231 Common Shares and shared voting and
dispositive power over 1,879,422 Common Shares held by the investors for
whom MSAM acts as an investment advisor (the "MSAM Purchasers"). Pursuant
to separate investment
28
<PAGE> 30
management agreements between MSAM and MSRE, MSAM has been granted voting
and dispositive power with respect to the Common Shares held by MSRE. MSAM
has shared voting and dispositive power over 1,879,422 Common Shares held
by the MSAM Purchasers and the Morgan Stanley Real Estate Special
Situations Fund II, L.P. has shared voting and dispositive power over
652,415 of such Common Shares. Pursuant to separate investment management
agreements between MSAM and the MSAM Purchasers, MSAM has been granted
voting and dispositive power with respect to the Common Shares held by each
of the MSAM Purchasers.
(9) Based upon Amendment No. 2 to Schedule 13D filed jointly by LaSalle
Investment Management (Securities) LP and LaSalle Investment Management on
February 10, 1998, (i) LaSalle Investment Management (Securities) LP has
sole voting and dispositive power over 480,213 Common Shares and shared
voting and dispositive power with respect to 480,212 Common Shares; and
(ii) LaSalle Investment Management has shared dispositive power with
respect to 542,153 Common Shares.
(10) Based upon Amendment No. 6 to Schedule 13D filed jointly by Developers
Diversified Realty Corporation and Scott A. Wolstein on August 23, 1999,
DDR has sole voting and dispositive power over 9,756,656 Common Shares and
Mr. Wolstein has sole voting and dispositive power over 6 Common Shares.
Mr. Wolstein, as Chairman of the Board, President and Chief Executive
Officer of DDR, may be deemed to beneficially own all shares held by DDR.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
During 1998, the Trust on occasion entered into unsecured borrowings with
DDR. Such borrowings bore a fixed rate of interest of 10.25%, provided for
quarterly payments of interest and were due thirty days after demand. The Trust
repaid all such borrowings, including payment of $111,000 of interest in the
first quarter of 1999. The total interest on such borrowing was $661,000 for
1998. The Trust did not enter into any such borrowings in 1999.
Certain real estate investments are managed by Quorum Real Estate Services
Corporation ("Quorum"), an affiliate of Realco, and DDR, major shareholders of
the Trust. Quorum and DDR are paid competitive rates for services, including,
but not limited to, construction, tenant finish, leasing and management. The
Trust paid Quorum management fees of $709,000, leasing commissions of $712,000,
brokerage fees of $92,000, and construction management fees of $66,000, for the
year ended December 31, 1999. For the year ended December 31, 1998, management
fees and leasing commissions paid by the Trust to Quorum were $548,000 and
$24,000, respectively. The Trust paid DDR management fees of $17,900 for the
year ended December 31, 1999 and $19,000 for the year ended December 31, 1998.
Effective October 8, 1998, DDR acquired an 89% limited partnership interest
and a 1% general partnership interest in DDR/Tech 29 Limited Partnership, a
limited partnership whose assets consist of two light industrial properties and
one office property totaling 290,991 nrsf located in Silver Springs, Maryland.
Several selling entities and affiliates thereof acquired the remaining
partnership interests. These partnership interests are convertible into DDR
common shares. As of November 20, 1998, the Trust acquired 88.5% of DDR's
limited partnership interest and, in consideration therefore, issued
approximately $16.1 million in Shares to DDR. The acquisition was deemed to be
effective as of October 8, 1998 and the purchase price included interest accrued
from such date.
On November 20, 1998, the Trust purchased undeveloped land from DDR in the
amount of $2.3 million plus interest. The purchase was accomplished through the
issuance of Shares to DDR in accordance with the Share Purchase Agreement dated
July 30, 1998. This land was then contributed by the Trust to a joint venture
with a third party.
The Trust currently leases space to an individual serving as a Trust
Manager at competitive market rates. For the years ended December 31, 1999 and
December 31, 1998, this Trust Manager paid $24,400 and $9,800 in lease payments
to the Trust, respectively.
29
<PAGE> 31
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:
<TABLE>
<CAPTION>
EXHIBIT NO. DOCUMENT
----------- --------
<C> <S>
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 and
incorporated herein by reference)
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)
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)
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)
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)
</TABLE>
30
<PAGE> 32
<TABLE>
<CAPTION>
EXHIBIT NO. DOCUMENT
----------- --------
<C> <S>
2.6 -- Purchase and Sale Agreement dated as of September 24,
1997 by and between Midway/Commerce Center Limited
Partnership, as Seller, and the Trust, as Buyer
(incorporated herein by reference from Exhibit 2.1 to
Form 8-K of the Trust dated October 3, 1997)
2.7 -- First Amendment to Purchase and Sale Agreement dated as
of October 22, 1997 by and between Midway/Commerce Center
Limited Partnership and the Trust (incorporated herein by
reference from Exhibit 2.2 to Form 8-K of the Trust dated
November 13, 1997)
2.8 -- Second Amendment to Purchase and Sale Agreement dated as
of October 31, 1997 by and between Midway/Commerce Center
Limited Partnership and the Trust (incorporated herein by
reference from Exhibit 2.3 to Form 8-K of the Trust dated
November 13, 1997)
2.9 -- Amended and Restated Agreement and Plan of Merger dated
as of June 30, 1998 between the Trust and USAA Real
Estate Income Investments I, a California Limited
Partnership (incorporated herein by reference from
Exhibit 2.1 to Form 8-K of the Trust dated January 20,
1998)
2.10 -- Amended and Restated Agreement and Plan of Merger dated
as of June 30, 1998 between the Trust and USAA Real
Estate Income Investments II Limited Partnership
(incorporated herein by reference from Exhibit 2.2 to
Form 8-K of the Trust dated January 20, 1998)
2.11 -- Amended and Restated Agreement and Plan of Merger dated
as of June 30, 1998 between the Trust and USAA Real
Estate Income Investments III Limited Partnership
(incorporated herein by reference from Exhibit 2.3 to
Form 8-K of the Trust dated January 20, 1998)
2.12 -- Amended and Restated Agreement and Plan of Merger dated
as of June 30, 1998 between the Trust and USAA Real
Estate Income Investments IV Limited Partnership
(incorporated herein by reference from Exhibit 2.4 to
Form 8-K of the Trust dated January 20, 1998)
2.13 -- Agreement and Plan of Merger by and among the Trust,
Developers Diversified Realty Corporation ("DDR") and DDR
Office Flex Corporation ("DDR Flex") dated July 30, 1998
(incorporated herein by reference from Exhibit 2.1 to
Form 8-K of the Trust dated July 30, 1998)
3.1 -- Third Amended and Restated Declaration of Trust
(incorporated herein by reference from Exhibit 3.1 to
Form 10-K of the Trust filed with the Commission on March
30, 1999)
3.2 -- First Amendment to the Third Amended and Restated
Declaration of Trust (incorporated herein by reference
from Exhibit 3.2 to Form 10-K of the Trust filed with the
Commission on March 30, 1999)
3.3 -- Second Amendment to the Third Amended and Restated
Declaration of Trust (incorporated herein by reference
from Exhibit 3.3 to Form 10-K of the Trust filed with the
Commission on March 30, 1999)
3.4 -- Third Amendment to the Third Amended and Restated
Declaration of Trust (incorporated herein by reference
from Exhibit 3.4 to Form 10-K of the Trust filed with the
Commission on March 30, 1999)
3.5 -- Fifth Amended and Restated Bylaws (incorporated herein by
reference from Exhibit 3.5 to Form 10-K of the Trust
filed with the Commission on March 30, 1999)
</TABLE>
31
<PAGE> 33
<TABLE>
<CAPTION>
EXHIBIT NO. DOCUMENT
----------- --------
<C> <S>
3.6 -- Amendment to the Fifth Amended and Restated Bylaws
(incorporated herein by reference from Exhibit 3.6 to
Form 10-K of the Trust filed with the Commission on March
30, 1999)
3.7 -- Statement of Designation of Series A Preferred Shares of
Beneficial Interest of the Trust dated July 30, 1998
(incorporated herein by reference from Exhibit 3.1 to
Form 8-K of the Trust dated July 30, 1998)
4.1 -- Indenture dated November 15, 1985, by and between 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 ("ABKB") 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)
10.4 -- Common Share Purchase Agreement dated as of July 3, 1997,
by and between the Trust and ABKB 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)
10.5 -- Common Share Purchase Agreement dated as of July 3, 1997,
by and between the Trust and ABKB/LaSalle Advisors
Limited Partnership ("LaSalle") 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)
10.6 -- Registration Rights Agreement dated as of July 10, 1997,
by and between the Trust, ABKB 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)
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") (incorporated herein
by reference from Exhibit 10.5 to Form 8-K of the Trust
dated July 22, 1997)
10.8 -- Registration Rights Agreement dated as of June 20, 1997,
by and among the Trust, MSRE and MSAM on behalf of the
MSAM Purchaser (incorporated herein by reference from
Exhibit 10.6 to the Trust's Form 8-K dated July 22, 1997)
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)
</TABLE>
32
<PAGE> 34
<TABLE>
<CAPTION>
EXHIBIT NO. DOCUMENT
----------- --------
<C> <S>
10.10 -- Share Purchase Agreement dated as of December 20, 1996,
by and among the Trust, Realco and AIP Inc. (incorporated
herein by reference from Exhibit 99.7 to Form 8-K of the
Trust dated December 23, 1996)
10.11 -- Share Purchase Agreement dated as of December 13, 1996,
by and between the Trust and Realco (incorporated herein
be reference from Exhibit 99.4 to Form 8-K of the Trust
dated December 23, 1996)
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)
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)
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)
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 the Trust, 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)
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. 2
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)
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 o Form 8-K of the Trust dated
November 22, 1994)
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)
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)
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)
</TABLE>
33
<PAGE> 35
<TABLE>
<CAPTION>
EXHIBIT NO. DOCUMENT
----------- --------
<C> <S>
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)
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)
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)
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)
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)
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)
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 by reference from Exhibit
99.5 to Form 8-K of the Trust dated November 20, 1996)
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)
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)
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)
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)
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)
</TABLE>
34
<PAGE> 36
<TABLE>
<CAPTION>
EXHIBIT NO. DOCUMENT
----------- --------
<C> <S>
10.35 -- Note dated November 15, 1996 in the original principal
amount of $2,100,000 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)
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)
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)
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 99.4 to Form 8-K of the Trust dated November 20,
1996)
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 A. 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)
10.44 -- Common Share Purchase Agreement dated as of January 29,
1998, by and between the Trust and Praedium II Industrial
Associates LLC ("Praedium") (incorporated herein by
reference from Exhibit 10.1 to Form 8-K of the Trust
dated January 29, 1998)
10.45 -- Registration Rights Agreement dated as of January 29,
1998, by and between the Trust and Praedium (incorporated
herein by reference from Exhibit 10.2 to Form 8-K of the
Trust dated January 29, 1998)
10.46 -- Agreement dated as of January 29, 1998, by and among the
Trust, Realco, ABKB (as Agent for and for the benefit of
particular clients), MSRE and MSAM (incorporated herein
by reference from Exhibit 10.3 to Form 8-K of the Trust
dated January 29, 1998)
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)
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)
</TABLE>
35
<PAGE> 37
<TABLE>
<CAPTION>
EXHIBIT NO. DOCUMENT
----------- --------
<C> <S>
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)
10.50 -- Warrant Agreement dated as of October 3, 1997 between the
Trust 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)
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)
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)
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)
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)
10.55 -- 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
99.8 to Form 8-K of the Trust dated October 3, 1997)
10.56 -- Common Share Purchase dated as of January 29, 1998, by
and between the Trust and Praedium (incorporated herein
by reference from Exhibit 10.1 to Form 8-K of the Trust
dated January 29, 1998)
10.57 -- Registration Rights Agreement dated as of January 29,
1998, by and between the Trust and Praedium (incorporated
herein by reference from Exhibit 10.2 to Form 8-K of the
Trust dated January 29, 1998)
10.58 -- Agreement dated as of January 29, 1998, by and among the
Trust, Realco, ABKB (as Agent for and for the benefit of
particular clients), MSRE and MSAM (incorporated herein
by reference from Exhibit 10.3 to Form 8-K dated January
29, 1998)
10.59 -- Contract of Sale by and between Nationwide Life Insurance
Company and ALCU Investments, Inc. (incorporated herein
by reference from Exhibit 10.1 to Form 8-K/A of the Trust
dated February 11, 1998)
10.60 -- Assignment of Contract of Sale dated as of February 11,
1998, by and among ALCU Investments, Ltd., AIP Operating,
L.P. and the Trust (incorporated herein by reference from
Exhibit 10.2 to Form 8-K/A of the Trust dated February
11, 1998)
10.61 -- Contribution and Exchange Agreement dated as of January
29, 1998, by and among ALCU Investments, Ltd., AIP
Operating, L.P., and the Trust (incorporated herein by
reference from Exhibit 10.3 to Form 8-K/A of the Trust
dated February 11, 1998)
10.62 -- Amended and Restated Agreement of Limited Partnership of
AIP Operating, L.P. dated as of February 11, 1998, by and
among the Trust, General Electric Capital Corporation,
and ALCU Investments, Ltd. (incorporated herein by
reference from Exhibit 10.4 to Form 8-K/A of the Trust
dated February 11, 1998)
</TABLE>
36
<PAGE> 38
<TABLE>
<CAPTION>
EXHIBIT NO. DOCUMENT
----------- --------
<C> <S>
10.63 -- Promissory Note by and among the Trust, AIP Operating,
L.P., and Prudential Securities Credit Corporation
(incorporated herein by reference from Exhibit 10.5 to
Form 8-K/A of the Trust dated February 11, 1998)
10.64 -- First Amendment to Credit Agreement dated as of February
11, 1998, by and among the Trust, AIP Operating, L.P.,
and Prudential Securities Credit Corporation
(incorporated herein by reference from Exhibit 10.6 to
Form 8-K/A of the Trust dated February 11, 1998)
10.65 -- Industrial Property Portfolio Agreement of Purchase and
Sale by and between Spieker Northwest, Inc. and the Trust
(incorporated herein by reference from Exhibit 10.65 to
Form 10-K of the Trust filed with the Commission on March
30, 1999)
10.66 -- Purchase and Sale Agreement by and between North Austin
Office, Ltd. and the Trust (incorporated herein by
reference from Exhibit 10.66 to Form 10-K of the Trust
filed with the Commission on March 30, 1999)
10.67 -- Purchase and Sale Agreement and Joint Escrow Instructions
by and between CM Property Management, Inc. and the Trust
dated July 15, 1997 (incorporated herein by reference
from Exhibit 10.1 to Form 8-K/A of the Trust dated March
23, 1998)
10.68 -- Purchase and Sale Agreement and Escrow Instructions by
and between Corporex Properties of Tampa, Inc.,
CFX-Westshore Corporation, and the Trust (incorporated
herein by reference from Exhibit 10.2 to From 8-K/A of
the Trust dated March 23, 1998)
10.69 -- Amendment to Purchase and Sale Agreement and Escrow
Instructions by and between Corporex Properties of Tampa,
Inc., CPX-Westshore Corporation, and the Trust
(incorporated herein by reference from Exhibit 10.3 to
Form 8-K/A of the Trust dated March 23, 1998)
10.70 -- Purchase and Sale Agreement between the Equitable Life
Assurance Society of the United States and the Trust
(incorporated herein by reference from Exhibit 10.4 to
Form 8-K/A of the Trust dated March 23, 1998)
10.71 -- Purchase and Sale Agreement between Nanook Partners, L.P.
and the Trust (incorporated herein by reference from
Exhibit 10.5 to Form 8-K/A of the Trust dated March 23,
1998)
10.72 -- Severance and Change in Control Agreement dated as of
April 29, 1998, by and between Charles W. Wolcott and the
Trust (incorporated herein by reference from Exhibit 10.1
to Form 8-K of the Trust dated April 29, 1998)
10.73 -- Severance and Change in Control Agreement dated as of
April 29, 1998, by and between Marc A. Simpson and the
Trust (incorporated herein by reference from Exhibit 10.2
to Form 8-K of the Trust dated April 29, 1998)
10.74 -- Severance and Change in Control Agreement dated as of
April 29, 1998, by and between David B. Warner and the
Trust (incorporated herein by reference from Exhibit 10.3
to Form 8-K of the Trust dated April 29, 1998)
10.75 -- Severance and Change in Control Agreement dated as of
April 29, 1998, by and between Lewis D. Friedland and the
Trust (incorporated herein be reference from Exhibit 10.4
to Form 8-K of the Trust dated April 29, 1998)
10.76 -- Amendments to the Trust's Employee and Trust Manager
Incentive Share Plan (incorporated herein by reference
from Exhibit 10.5 to Form 8-K of the Trust dated April
29, 1998)
</TABLE>
37
<PAGE> 39
<TABLE>
<CAPTION>
EXHIBIT NO. DOCUMENT
----------- --------
<C> <S>
10.77 -- Share Purchase Agreement by and between the Trust and DDR
dated July 30, 1998 (incorporated herein by reference
from Exhibit 10.1 to Form 8-K of the Trust dated July 30,
1998)
10.78 -- Demand Promissory Note dated July 30, 1998 (incorporated
herein by reference from Exhibit 10.2 to Form 8-K of the
Trust dated July 30, 1998)
10.79 -- Second Amended and Restated Registration Rights Agreement
by and among the Trust, MSRE and MSAM dated July 30, 1998
(incorporated herein by reference from Exhibit 10.3 to
Form 8-K of the Trust dated July 30, 1998)
10.80 -- Second Amended and Restated Registration Rights Agreement
by and between the Trust and Realco July 30, 1998
(incorporated herein by reference from Exhibit 10.4 to
Form 8-K of the Trust dated July 30, 1998)
10.81 -- Registration Rights Agreement by and between the Trust
and DDR dated July 30, 1998 (incorporated herein by
reference from Exhibit 10.5 to Form 8-K of the Trust
dated July 30, 1998)
10.82 -- First Amended and Restated Registration Rights Agreement
by and between the Trust and Praedium dated July 30, 1998
(incorporated herein by reference from Exhibit 10.6 to
Form 8-K of the Trust dated July 30, 1998)
10.83 -- Second Amended and Restated Registration Rights Agreement
by and between the Trust, ABKB and LaSalle dated July 30,
1998 (incorporated herein by reference from Exhibit 10.7
to Form 8-K of the Trust dated July 30, 1998)
10.84 -- Letter Agreement by and between MSRE/MSAM and DDR dated
July 30, 1998 (incorporated herein by reference from
Exhibit 10.8 to Form 8-K of the Trust dated July 30,
1998)
10.85 -- Letter Agreement by and between ABKB, LaSalle and DDR
dated July 30, 1998 (incorporated herein by reference
from Exhibit 10.9 to Form 8-K of the Trust dated July 30,
1998)
10.86 -- Letter Agreement by and between Praedium and DDR dated
July 30, 1998 (incorporated herein by reference from
Exhibit 10.10 to Form 8-K of the Trust dated July 30,
1998)
10.87 -- Letter Agreement by and between Realco and DDR dated July
30, 1998 (incorporated herein by reference from Exhibit
10.11 to Form 8-K of the Trust dated July 30, 1998)
10.88 -- Amendment No. One, dated as of September 14, 1998, to the
Share Purchase Agreement, dated as of July 30, 1998,
between the Trust and DDR (incorporated herein by
reference from Exhibit 10.1 to Form 8-K of the Trust
dated September 16, 1998)
10.89 -- Purchase and Sale Agreement, dated as of April 3, 1998,
by and between the Norfolk Commerce Center Limited
Partnership and DDR (incorporated herein by reference
from Exhibit 10.1 to Form 8-K of the Trust dated July 30,
1998 and filed October 23, 1998)
10.90 -- Amendment to Purchase and Sale Agreement dated June 19,
1998, by and between the Norfolk Commerce Center Limited
Partnership and DDR (incorporated herein by reference
from Exhibit 10.2 to Form 8-K of the Trust dated July 30,
1998 and filed October 23, 1998)
10.91 -- Purchase and Sale Agreement, dated as of May 10, 1998, by
and between A&A Greenbrier, Inc., A&A Northpointe B,
Inc., A&A Northpointe C, Inc. and A&A Greenbrier Tech,
Inc. and DDR Flex (incorporated herein by reference from
Exhibit 10.1 to Form 8-K of the Trust dated October 14,
1998)
</TABLE>
38
<PAGE> 40
<TABLE>
<CAPTION>
EXHIBIT NO. DOCUMENT
----------- --------
<C> <S>
10.92 -- Purchase and Sale Agreement, dated as of May 10, 1998, by
and between Battlefield/Virginia, Inc. and DDR Flex
(incorporated herein by reference from Exhibit 10.2 to
Form 8-K of the Trust dated October 14, 1998)
10.93 -- Amendment to Purchase and Sale Agreement dated July 8,
1998 by and between A&A Greenbrier, Inc., A&A Northpointe
B, Inc., A&A Northpointe C, Inc. and A&A Greenbrier Tech,
Inc. and DDR Flex (incorporated herein by reference from
Exhibit 10.3 to Form 8-K of the Trust dated October 14,
1998)
10.94 -- Amendment to Purchase and Sale Agreement dated July 8,
1998, by and between Battlefield/Virginia, Inc., and DDR
Flex (incorporated herein by reference from Exhibit 10.4
to Form 8-K of the Trust dated October 14, 1998)
10.95 -- Second Amendment to Purchase and Sale Agreement dated
September 30, 1998 by and between A&A Greenbrier, Inc.,
A&A Northpointe B, Inc., A&A Northpointe C, Inc. and A&A
Greenbrier Tech, Inc. and DDR Flex (incorporated herein
by reference from Exhibit 10.5 to Form 8-K of the Trust
dated October 14, 1998)
10.96 -- Second Amendment to Purchase and Sale Agreement dated
September 30, 1998, by and between Battlefield/Virginia,
Inc. and DDR Flex (incorporated herein by reference from
Exhibit 10.6 to Form 8-K of the Trust dated October 14,
1998)
10.97 -- Special Warranty Deed, dated as of October 14, 1998, by
and between A&A Greenbrier, Inc. and the Trust
(incorporated herein by reference from Exhibit 10.7 to
Form 8-K of the Trust dated October 14, 1998)
10.98 -- Special Warranty Deed, dated as of October 14, 1998, by
and between A&A Northpointe B, Inc. and the Trust
(incorporated herein by reference from Exhibit 10.8 to
Form 8-K of the Trust dated October 14, 1998)
10.99 -- Special Warranty Deed, dated as of October 14, 1998, by
and between A&A Northpointe C, Inc. and the Trust
(incorporated herein by reference from Exhibit 10.9 to
Form 8-K of the Trust dated October 14, 1998)
10.100 -- Special Warranty Deed, dated as of October 14, 1998, by
and between A&A Greenbrier Tech, Inc. and the Trust
(incorporated herein by reference from Exhibit 10.10 to
Form 8-K of the Trust dated October 14, 1998)
10.101 -- Agreement of Purchase and Sale, dated as of November 12,
1998, by and between Lincoln-Whitehall Realty, L.L.C.,
Lincoln-Whitehall Pacific, L.L.C., WHLNF Real Estate
Limited Partnership, WHSUM Real Estate Limited
Partnership (collectively, "Whitehall") (incorporated
herein by reference from Exhibit 10.1 to Form 8-K/A of
the Trust filed with the Commission on March 31, 1999)
10.102 -- Amendment to Agreement of Purchase and Sale, dated
November 23, 1998, by and among Whitehall and the Trust
(incorporated herein by reference from Exhibit 10.2 to
Form 8-K/A of the Trust filed with the Commission on
March 31, 1999)
10.103 -- Second Amendment to Agreement of Purchase and Sale, dated
December 11, 1998, by and among Whitehall and the Trust
(incorporated herein by reference from Exhibit 10.3 to
Form 8-K/A of the Trust filed with the Commission on
March 31, 1999)
10.104 -- Amended and Restated Second Amendment to Agreement of
Purchase and Sale dated December 11, 1998, by and among
Whitehall and the Trust (incorporated herein by reference
from Exhibit 10.4 to Form 8-K/A of the Trust filed with
the Commission on March 31, 1999)
</TABLE>
39
<PAGE> 41
<TABLE>
<CAPTION>
EXHIBIT NO. DOCUMENT
----------- --------
<C> <S>
10.105 -- Third Amendment to Agreement of Purchase and Sale, dated
as of December 22, 1998, by and among Whitehall and the
Trust (incorporated herein by reference from Exhibit 10.5
to Form 8-K/A of the Trust filed with the Commission on
March 31, 1999)
10.106 -- Fourth Amendment to Agreement of Purchase and Sale, dated
as of January 7, 1999, by and among Whitehall and the
Trust (incorporated herein by reference from Exhibit 10.6
to Form 8-K/A of the Trust filed with the Commission on
March 31, 1999)
10.107 -- Fifth Amendment to Agreement of Purchase and Sale, dated
as of January 11, 1999, by and among Whitehall and the
Trust (incorporated herein by reference from Exhibit 10.7
to Form 8-K/A of the Trust filed with the Commission on
March 31, 1999)
10.108 -- Sixth Amendment to Agreement of Purchase and Sale, dated
as of January 13, 1999, by and among Whitehall and the
Trust (incorporated herein by reference from Exhibit 10.8
to Form 8-K/A of the Trust filed with the Commission on
March 31, 1999)
*21.1 -- Listing of Subsidiaries
*23.1 -- Consent of Ernst & Young LLP
*24.1 -- Power of Attorney (Included on signature page hereto)
*27.1 -- Financial Data Schedule
</TABLE>
- ---------------
* Filed herewith
(b) Reports on Form 8-K:
There were no events reported on Form 8-K during the quarter ended December
31, 1999.
40
<PAGE> 42
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 29, 2000.
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
---------- ----- ----
<C> <S> <C>
/s/ ALBERT T. ADAMS Trust Manager March 29, 2000
- -----------------------------------------------------
Albert T. Adams
/s/ WILLIAM H. BRICKER Trust Manager March 29, 2000
- -----------------------------------------------------
William H. Bricker
/s/ T. PATRICK DUNCAN Trust Manager March 29, 2000
- -----------------------------------------------------
T. Patrick Duncan
/s/ ROBERT H. GIDEL Trust Manager March 29, 2000
- -----------------------------------------------------
Robert H. Gidel
Trust Manager March 29, 2000
- -----------------------------------------------------
Robert E. Giles
/s/ EDWARD B. KELLEY Trust Manager March 29, 2000
- -----------------------------------------------------
Edward B. Kelley
/s/ STANLEY J. KRASKA, JR. Trust Manager March 29, 2000
- -----------------------------------------------------
Stanley J. Kraska, Jr.
</TABLE>
41
<PAGE> 43
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<C> <S> <C>
/s/ J. TIMOTHY MORRIS Trust Manager March 29, 2000
- -----------------------------------------------------
J. Timothy Morris
/s/ JAMES A. SCHOFF Trust Manager March 29, 2000
- -----------------------------------------------------
James A. Schoff
/s/ CHARLES W. WOLCOTT Trust Manager, President and March 29, 2000
- ----------------------------------------------------- Chief Executive Officer
Charles W. Wolcott (Principal Executive Officer)
Trust Manager and Chairman of March 29, 2000
- ----------------------------------------------------- the Board of Trust Managers
Scott A. Wolstein
/s/ MARC A. SIMPSON Senior Vice President and Chief March 29, 2000
- ----------------------------------------------------- Financial Officer, Secretary
Marc A. Simpson and Treasurer (Principal
Accounting and Financial
Officer)
</TABLE>
42
<PAGE> 44
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, 1999, 1998, and 1997...................... F-3
Consolidated Balance Sheets as of December 31, 1999 and
1998................................................... F-4
Consolidated Statements of Changes in Shareholders' Equity
for the years ended December 31, 1999, 1998 and 1997... F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997....................... F-6
Notes to Consolidated Financial Statements................ F-8
Financial Statement Schedule:
Schedule III -- Consolidated Real Estate and Accumulated
Depreciation........................................... F-23
Notes to Schedule III..................................... F-25
</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> 45
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, 1999 and 1998, and
the related consolidated statements of operations, shareholders' equity, and
cash flows for each of the three years in the period ended December 31, 1999.
Our audits also included the financial statement schedule listed in the Index at
Item 14(a)(2). 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 auditing standards generally
accepted in the United States. 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
American Industrial Properties REIT at December 31, 1999 and 1998, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States. Also, in our opinion, the
related financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, present fairly in all material respects
the information set forth therein.
/s/ ERNST & YOUNG LLP
------------------------------------
Dallas, Texas
February 3, 2000,
except for Note 17, as to which the date is
March 17, 2000
F-2
<PAGE> 46
AMERICAN INDUSTRIAL PROPERTIES REIT
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1999 1998 1997
----------- ----------- ----------
<S> <C> <C> <C>
Property Revenues
Rents................................................ $ 71,028 $ 39,559 $ 9,367
Tenant reimbursements................................ 15,854 8,798 2,834
----------- ----------- ----------
Total Property Revenues...................... 86,882 48,357 12,201
----------- ----------- ----------
Property Expenses
Property taxes....................................... 9,453 4,980 1,607
Property management fees............................. 1,678 1,474 418
Utilities............................................ 4,051 2,673 480
General operating.................................... 3,864 2,489 891
Repairs and maintenance.............................. 3,330 2,218 524
Other property operating expenses.................... 4,508 2,212 395
----------- ----------- ----------
Total Property Expenses...................... 26,884 16,046 4,315
----------- ----------- ----------
Income from Property Operations........................ 59,998 32,311 7,886
Trust administration and overhead...................... (4,628) (3,729) (2,504)
Depreciation........................................... (13,819) (7,928) (2,774)
Amortization........................................... (716) (455) (383)
Interest and other income.............................. 735 705 546
Interest on notes payable.............................. (111) (869) (1,462)
Interest on mortgages payable.......................... (26,451) (14,270) (4,316)
Provision for possible losses on real estate........... -- (10,060) --
----------- ----------- ----------
Income (Loss) from operations.......................... 15,008 (4,295) (3,007)
Minority interests in consolidated subsidiaries........ (313) 28 --
Gain (Loss) on sales of real estate.................... (200) -- 2,163
Income in equity of joint venture...................... 624 -- --
----------- ----------- ----------
Gain (Loss) before extraordinary items................. 15,119 (4,267) (844)
Extraordinary items:
Gain (Loss) on extinguishment of debt.................. (513) (23) 2,643
Provision for change in control costs.................. -- (5,780) --
----------- ----------- ----------
NET INCOME (LOSS)...................................... $ 14,606 $ (10,070) $ 1,799
=========== =========== ==========
PER SHARE DATA (BASIC AND DILUTED)
Gain (Loss) before extraordinary items............... $ 0.74 $ (0.35) $ (0.26)
Extraordinary gain (loss)............................ (0.03) (0.47) 0.80
----------- ----------- ----------
Net income (loss).................................... $ 0.71 $ (0.82) $ 0.54
=========== =========== ==========
Distributions declared............................... $ 0.86 $ 0.78 $ --
=========== =========== ==========
Weighted average Shares outstanding.................. 20,513,356 12,251,591 3,316,788
=========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 47
AMERICAN INDUSTRIAL PROPERTIES REIT
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
Real estate:
Held for investment....................................... $627,831 $476,641
Held for sale............................................. 14,355 28,491
-------- --------
Total real estate......................................... 642,186 505,132
Accumulated depreciation.................................. (46,931) (33,449)
-------- --------
Net real estate........................................... 595,255 471,683
Cash and cash equivalents:
Unrestricted.............................................. 2,504 6,145
Restricted................................................ 5,716 5,422
-------- --------
Total cash and cash equivalents........................... 8,220 11,567
Other assets, net........................................... 17,207 17,080
-------- --------
Total Assets...................................... $620,682 $500,330
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Mortgage notes payable.................................... $334,873 $252,481
Unsecured notes payable to related parties................ -- 14,058
Accrued interest.......................................... 2,229 1,477
Accounts payable, accrued expenses and other
liabilities............................................ 15,587 17,651
Tenant security deposits.................................. 2,954 2,138
-------- --------
Total Liabilities................................. 355,643 287,805
-------- --------
Minority interests.......................................... 6,551 6,946
Shareholders' Equity:
Shares of beneficial interest, $0.10 par value; authorized
500,000,000
Shares; issued and outstanding 21,091,853 shares at 1999
and 17,201,591
Shares at 1998............................................ 2,109 1,721
Additional paid-in capital................................ 385,293 330,031
Less 165,755 shares in treasury at 1999 and 165,886 shares
at 1998, at cost....................................... (2,226) (2,226)
Accumulated distributions................................. (86,102) (68,756)
Accumulated deficit....................................... (40,586) (55,191)
-------- --------
Total Shareholders' Equity........................ 258,488 205,579
-------- --------
Total Liabilities and Shareholders' Equity........ $620,682 $500,330
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 48
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 AMOUNT CAPITAL (DEFICIT) NUMBER AMOUNT TOTAL
---------- ------ ---------- --------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997............ 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
Issuance of additional Shares....... 7,384,420 739 105,042 -- -- -- 105,781
Repurchase of Shares................ -- -- -- -- 123,783 (1,600) (1,600)
Net income.......................... -- -- -- (10,070) -- -- (10,070)
Distributions to Shareholders....... -- -- -- (10,303) -- -- (10,303)
---------- ------ -------- --------- ------- ------- --------
Balance at December 31, 1998.......... 17,201,591 1,721 330,031 (123,947) 165,886 (2,226) 205,579
Issuance of additional Shares....... 3,890,262 388 55,262 -- (131) -- 55,650
Net income.......................... -- -- -- 14,606 -- -- 14,606
Distributions to Shareholders....... -- -- -- (17,347) -- -- (17,347)
---------- ------ -------- --------- ------- ------- --------
Balance at December 31, 1999.......... 21,091,853 $2,109 $385,293 $(126,688) 165,755 $(2,226) $258,488
========== ====== ======== ========= ======= ======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 49
AMERICAN INDUSTRIAL PROPERTIES REIT
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
--------- --------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................................... $ 14,606 $ (10,070) $ 1,799
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
(Gain) Loss on extinguishment of debt.................. 90 -- (2,643)
Change in control costs................................ -- 2,960 --
(Gain) Loss on sales of real estate.................... 200 -- (2,163)
Provisions for possible loss on real estate............ -- 10,060 --
Minority interest in consolidated subsidiaries......... 313 (28) --
Depreciation........................................... 13,819 7,928 2,774
Amortization of deferred financing costs............... 1,461 584 195
Other amortization..................................... 220 168 383
Issuance of Shares to Trust Managers................... 129 312 115
Interest accrued assuming future conversion of debt to
equity............................................... -- -- 1,022
Changes in operating assets and liabilities:
Other assets and restricted cash....................... 5,614 (13,374) (2,337)
Accounts payable, other liabilities and tenant security
deposits............................................. (4,144) 3,213 147
Accrued interest....................................... 752 1,208 (68)
--------- --------- --------
Net Cash Provided By (Used In) Operating
Activities...................................... 33,059 2,961 (776)
--------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net proceeds from sales of real estate.................... 17,356 -- 7,129
Capitalized expenditures.................................. (15,769) (7,540) (1,911)
Acquisition of real estate and related working capital.... (142,737) (172,133) (67,116)
--------- --------- --------
Net Cash Used In Investing Activities............. (141,150) (179,673) (61,898)
--------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal repayments on mortgage notes payable............ (197,968) (49,163) (6,340)
Proceeds from mortgage financing.......................... 266,797 202,436 44,001
Payment of deferred loan costs............................ (3,029) (1,852) (169)
Proceeds from sale of common shares....................... 55,458 28,578 33,481
Purchase of treasury shares............................... -- (1,600) (626)
Distributions to Shareholders............................. (16,164) (6,880) --
Redemption of limited partnership units................... (329) -- --
Distributions to limited partnership unit holders......... (315) (345) --
--------- --------- --------
Net Cash Provided By Financing Activities................... 104,450 171,174 70,347
--------- --------- --------
Net (Decrease) Increase in Cash and Cash Equivalents........ (3,641) (5,538) 7,673
Cash and Cash Equivalents at Beginning of Year.............. 6,145 11,683 4,010
--------- --------- --------
Cash and Cash Equivalents at End of Year.................... $ 2,504 $ 6,145 $ 11,683
========= ========= ========
Cash Paid for Interest...................................... $ 24,349 $ 13,634 $ 4,629
========= ========= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 50
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Property Operations. As a result of the acquisition of 11 properties and an
undeveloped tract of land in 1999, the Trust assumed approximately $1.9 million
of accounts payable and tenant security deposits.
As a result of the acquisition of 29 properties in 1998, the Trust issued
$34.2 million in common shares, $0.9 million in limited partnership units,
received approximately $0.6 million in other assets and assumed approximately
$1.2 million of accounts payable and tenant security deposits.
During 1997, in connection with the merger with four real estate limited
partnerships, the Trust issued Shares valued at $57.9 million and $3.7 million
in limited partnership units. The Trust also assumed $31.2 million in mortgage
notes payable and $7.2 million in unsecured notes payable. In addition, with the
acquisition of other properties, the Trust issued $2.7 million in limited
partnership units.
In 1999 the Trust redeemed 29,167 limited partnership units resulting in an
increase to Shareholder's equity of $0.06 million.
Real Estate Held for Sale. During 1999, the Trust reclassified six
properties and four tracts of land with a cost basis of $33.5 million to real
estate held for sale. As of December 31, 1999, three of the industrial
properties and one tract of land have been sold. During 1999, the Trust did not
receive an acceptable offer for the retail property classified as held for sale
at December 31, 1998. This property, with a cost basis of $29.4 million, was
reclassified to held for investment at December 31, 1999 and depreciation
expense was recorded for the full year.
Debt Conversion. During 1998, the Trust issued $42.7 million of Shares to
DDR in exchange for unsecured notes payable to DDR. During 1997, the Trust
issued $5.5 million of Shares to Realco in exchange for unsecured notes payable
to Realco.
F-7
<PAGE> 51
AMERICAN INDUSTRIAL PROPERTIES REIT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES:
General. American Industrial Properties REIT is a self-administered Texas
real estate investment trust which, as of December 31, 1999, directly or
indirectly owns and operates commercial real estate properties consisting of
industrial properties, office buildings and 2 retail properties. The Trust was
formed September 26, 1985 and commenced operations on November 27, 1985.
Principles of Consolidation. The consolidated financial statements of the
Trust include the accounts of American Industrial Properties REIT and its
wholly-owned subsidiaries and controlled subsidiaries. Significant intercompany
balances and transactions have been eliminated in consolidation. Joint ventures
and other non-controlled subsidiaries are accounted for under the equity method
of accounting. The Trust recognizes its proportionate share of earnings as
income in equity in joint ventures in the accompanying statements of operations.
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
value less costs to sell. 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. Certain escrow deposits held by third
parties are non-interest bearing.
Other Assets. Other assets primarily consist of direct costs related to
potential property acquisitions, deferred rents receivable, deferred commissions
and loan fees. Potential third party property acquisition costs are capitalized
and depreciated on a straight-line basis over the life of the asset when the
asset is acquired. 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.
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 $2,916,000 and
$1,398,000 at December 31, 1999 and 1998, 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
F-8
<PAGE> 52
AMERICAN INDUSTRIAL PROPERTIES REIT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$234,000, $172,000 and $94,000 for the years ended December 31, 1999, 1998 and
1997, 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.
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 taxable income for the
years ended December 31, 1998 and December 31, 1997 and expects to report
taxable income for the year ending December 31, 1999.
The Trust has a net operating loss carry forward from 1998 and prior years
of approximately $34,301,000. The net operating losses are subject to
restrictions on their use due to an ownership change, 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.
Earnings Per Share. Basic earnings per share excludes any dilutive effects
of options, warrants and convertible securities. The computation of diluted
earnings per share does not include common share equivalents where the inclusion
of such does not result in dilution (based upon application of the "treasury
stock" method) or, in periods where there is a net loss from operations, is
anti-dilutive.
Share Compensation. The Trust accounts for its share compensation
arrangements using the intrinsic value method.
Concentrations. As of December 31, 1999, the Trust owns 74 real estate
properties in 11 states. The Trust's industrial properties are concentrated in
the Texas market with 23 of the 57 properties located in the Dallas, Houston and
Austin areas. The office buildings are primarily located in the west with 7 of
the 15 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.
Segment Reporting. The Trust classifies its reportable segments by property
type. See Note 15 for the Trust's segment disclosures.
F-9
<PAGE> 53
AMERICAN INDUSTRIAL PROPERTIES REIT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2 -- REAL ESTATE AND PROVISIONS FOR POSSIBLE LOSSES ON REAL ESTATE:
At December 31, 1999 and 1998, real estate was comprised of the following:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Held for investment:
Land................................................... $155,264,000 $102,891,000
Buildings and improvements............................. 472,567,000 373,750,000
------------ ------------
627,831,000 476,641,000
------------ ------------
Held for sale:
Land................................................... 4,302,000 6,000,000
Buildings and improvements............................. 10,053,000 22,491,000
------------ ------------
14,355,000 28,491,000
------------ ------------
Total.......................................... $642,186,000 $505,132,000
============ ============
</TABLE>
During 1999, the Trust purchased a portfolio of nine properties for $127.3
million. The purchase price was primarily funded with $75.2 million in
borrowings secured under a secured bridge loan with PSCC and $51.8 million in
common shares issued to DDR. During 1999, the Trust also acquired a portfolio of
two properties for $15.8 million. The purchase price was primarily funded under
a secured line of credit with Bank One and $5.5 million in common shares issued
to DDR.
During 1999, the Trust reclassified six industrial properties and four
tracts of land from held for investment to held for sale. One tract of land was
sold in the second quarter of 1999 for $350,000 resulting in a $37,000 gain. The
Trust sold two industrial properties in the third quarter of 1999 resulting in a
net loss of approximately $59,000. The Trust sold an industrial property in the
fourth quarter of 1999 resulting in a net loss of approximately $178,000. The
remaining three industrial properties and three tracts of vacant land are not
located in target markets currently identified by the Trust for future
investment. At December 31, 1999, the Trust has contracts pending to sell two of
the three remaining industrial properties and anticipates consummation these
sales in the first quarter of 2000. The Trust's intent is to sell the remaining
industrial property and three tracts of vacant land in 2000. These properties
are included in the "Industrial" operating segment and reported net operating
income of $1.3 million for the year ended December 31, 1999 and $1.3 million for
the year ended December 31, 1998.
During 1999, a joint venture, 50% owned by the Trust, sold a light
industrial property. The Trust's investment in the joint venture was
approximately $2.5 million. The Trust earned approximately $0.6 million from
this joint venture.
During 1998, the Trust acquired 29 real estate properties for approximately
$237 million. To fund these acquisitions, the Trust paid approximately $37.8
million in cash, obtained $28.3 million and $42.7 million of financing under its
acquisition line of credit and secured bridge loan, respectively, assumed
approximately $32.7 million in mortgage debt with a fair value of $34.9 million,
obtained $47.2 million of financing through unsecured borrowings with DDR,
issued $0.9 million of limited partnership units and issued $47.7 million in
common shares to DDR. The difference between the assumed amount and the fair
value of the mortgage debt assumed was recorded as debt premium.
At December 31, 1998, the Trust recorded a $10.1 million write down of its
retail property in Denver, Colorado and reclassified the property from held for
investment to held for sale. The Trust's intent was to sell this property in
1999, thereby allowing the Trust to continue its focus on the light industrial
sector of the real estate market. Although offers were received, none of the
offers were deemed acceptable and the property has
F-10
<PAGE> 54
AMERICAN INDUSTRIAL PROPERTIES REIT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
been reclassified back to held for investment as of December 31, 1999 to reflect
the Trust's intent to hold this property. The Trust recaptured depreciation
expense for the full year of 1999 for this property.
The Trust did not sell any properties in 1998.
The Trust has changed its capitalization policy with respect to internal
acquisition costs. On March 19, 1998, the Trust ceased the capitalization of
costs related to its internal acquisition department. The Trust capitalized
$160,000 of such costs through March 19, 1998.
NOTE 3 -- MORTGAGE NOTES PAYABLE:
At December 31, 1999, 73 of the Trust's 74 properties were subject to liens
securing mortgage notes payable with principal balances totaling $334,873,000
including $1,463,000 of debt premiums (see Note 2). Of this amount,
approximately $263,792,000 was represented by mortgage notes with stated fixed
interest rates ranging from 7.18% to 9.13%, a stated weighted average interest
rate of 7.40%, and maturity dates in 2001 to 2016. Mortgage notes payable with
variable interest rates total approximately $69,619,000. The variable rate debt
consists of $50,119,000 under the Trust's PSCC secured acquisition credit line
as well as $19,500,000 under its Bank One secured line of credit. The
acquisition credit line bears interest at the 30 day LIBOR plus 1.55% and
matures in April 2000. The Trust is currently negotiating an extension of the
maturity date of the acquisition credit line. The Trust cannot provide any
assurance that such negotiations will result in the extension of the credit
line. The Bank One line of credit, which provides for a variable rate spread
based upon the company's overall debt leverage, currently bears interest at the
30 day LIBOR plus 2.00% and matures in January 2001. The interest rates on the
acquisition credit line and the line of credit at December 31, 1999 are 8.03%
and 8.47%, respectively.
Debt premiums are amortized into interest expense over the terms of the
related mortgages using the effective interest method. As of December 31, 1999
and December 31, 1998, the unamortized debt premiums were $1,463,000 and
$1,958,000, respectively.
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
acquisition credit line and 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, 1999.
Principal payments during each of the next five years are as follows:
$54,767,000 in 2000, $52,170,000 in 2001, $19,549,000 in 2002, $27,355,000 in
2003, $11,884,000 in 2004, and $167,685,000 thereafter. Of the amount due in
2000, $50,119,000 is due under the Trust's acquisition credit line. The Trust is
currently negotiating an extension of the maturity date of the acquisition
credit line. The Trust cannot provide any assurance that on-going negotiations
will result in the extension on this credit line.
During 1999 the Trust recognized an extraordinary loss on extinguishment of
debt of $513,000 resulting from prepayment penalties and the write off of
deferred financing costs on the early retirement of $88 million of mortgage
debt.
At December 31, 1998, 51 of the Trust's 65 properties were subject to liens
securing mortgage notes payable with principal balances totaling $252,481,000,
including $1,958,000 of debt premiums (see Note 2). Of this amount,
approximately $141,308,000 was represented by mortgage notes with stated fixed
interest rates ranging from 7.25% to 9.13%, a stated weighted average interest
rate of 8.01% and maturity dates in 2001 to 2016. Mortgage notes payable with
variable interest rates consisted of $68,523,000 and $42,650,000 under the
Trust's secured acquisition credit line and secured bridge loan, respectively.
The acquisition credit line and bridge loan bear interest at the 30 day LIBOR
plus 1.75% and mature in April, 1999 and January, 1999 as extended,
respectively. The interest rate on these loans at December 31, 1998 was 7.38%.
F-11
<PAGE> 55
AMERICAN INDUSTRIAL PROPERTIES REIT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During 1998 the Trust recognized extraordinary loss on extinguishment of
debt of $23,000 resulting from prepayment penalties on the early retirement of
$1.2 million of mortgage debt.
NOTE 4 -- UNSECURED NOTES PAYABLE -- RELATED PARTY:
In January 1999, the Trust repaid in full three unsecured loans from DDR
used to finance acquisitions. The Trust paid interest of $111,000 to DDR at the
time of repayment. The interest rate on these demand notes was 10.25%. At
December 31, 1998, the Trust had three unsecured notes outstanding totaling
$14,058,000. The Trust paid interest of $660,850 to DDR for the year ended
December 31, 1998.
NOTE 5 -- COMMITMENTS AND CONTINGENCIES:
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
Colorado retail property. The source of the contamination is apparently related
to underground storage tanks ("USTs") located on an 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 an
amended corrective Action Plan to the Colorado Department of Public Health and
Environment and awaits permission to upgrade its remediation system to address
the contamination.
The Trust has been notified of the existence of limited cleaning solvents
("mineral spirits") contamination at Tech Center 29 Phase I. The contamination
is the apparent result of a service center operated on the property until 1996.
The tenant's primary operations consisted of the distribution of parts, cleaning
equipment and cleaning solvents to industrial customers. Two USTs used in the
operation were removed in 1996. The former tenant has been working with the
Maryland Department of the Environment since the onset and has issued a standby
letter of credit as financial assurance for remediation of the site. The
Maryland Department of the Environment is beneficiary under the standby letter
of credit.
With the exception of Tamarac Square and Tech 29 Phase I, 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.
Litigation
On August 20, 1997, the Trust was named as a defendant in a lawsuit related
to the January 1998 merger between the Trust and four real estate limited
partnerships. The lawsuit purported to be both a class action and a derivative
lawsuit against the defendants. The plaintiffs asserted various claims,
including breach of fiduciary duty and various securities law violations,
against the parties to the merger and certain individuals and were seeking
monetary damages. On February 3, 2000, the Court issued a summary judgment in
favor of the Trust dismissing this securities class action lawsuit. The Court,
in making its ruling, held that the plaintiffs failed to offer admissible
evidence to show they had been damaged. The deadline for the plaintiffs to file
their notice of appeal has passed. At this time, the Trust has not received any
indication that the plaintiffs have pursued an appeal. Although management
cannot predict the outcome of the possible appeal of such litigation, management
does not expect the liabilities, if any, that may ultimately result from such
legal actions to have a material adverse effect on the consolidated financial
position or results of operations of the Trust.
On April 13, 1998, the Trust was named as a defendant in an additional
purported class action lawsuit related to the Trust's merger with the four real
estate limited partnerships. The plaintiffs asserted various claims, including
breach of fiduciary and contractual duties and various securities law
violations, against the parties to the merger. In December 1999, the defendants
settled this lawsuit. The Trust's share of the settlement cost was approximately
$58,000.
F-12
<PAGE> 56
AMERICAN INDUSTRIAL PROPERTIES REIT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 -- MINORITY INTEREST:
Operating Partnerships. AIP-SWAG Operating L.P. and AIP Operating, L.P.
have 179,085 and 29,166 limited partnership units outstanding, respectively, as
of December 31, 1999 (excluding limited partnership units held by the Trust).
Pursuant to the limited partnership agreement for each partnership, the limited
partners received rights (the "Redemption Rights") that enable them to cause the
partnership to redeem each limited partnership unit 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 or the shareholders of the Trust. The limited
partners' interest in each partnership is reflected as minority interest in the
accompanying consolidated financial statements. In December 1999, 29,167 AIP
Operating L.P. limited partnership units were redeemed for approximately
$330,000 resulting in an increase in Shareholders' equity of $63,000.
AIP-SWAG Operating L.P. and AIP Operating, L.P. had 179,085 and 58,333
limited partnership units outstanding, respectively, as of December 31, 1998.
Other Partnerships. In connection with the merger of four real estate
limited partnerships, effective December 31, 1997, the Trust acquired a 55.84%
interest in Chelmsford Associates LLC, formerly Chelmsford Associates Joint
Venture, a joint venture owning one office property. The remaining 44.16%
interest is owned by 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. The other venturer's interest in
the partnership is reflected as minority interest in the accompanying
consolidated financial statements.
NOTE 7 -- 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, 1999, 20,926,098
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, 1999, no Preferred Shares of Beneficial Interest were issued.
The 1998 Share repurchase program resulted in the Trust purchasing 123,783
Shares in the open market, for an aggregate cost of $1,598,000. These Shares are
held in Treasury. As of December 31, 1999, the Trust has a total of 165,755
Shares held in Treasury.
Private Placement. On August 3, 1998, the Trust entered into a definitive
agreement providing for a strategic investment by DDR in the Trust. Under the
terms of the Agreement, the transaction has three stages. The first stage of
equity investment, effective as of July 30, 1998, resulted in DDR acquiring
2,207,618 common shares at a price of $15.50 per share in exchange for
consideration valued at approximately $34.2 million. As of December 31, 1998,
the Trust had issued an additional 3,683,584 common shares related to the second
stage of the Agreement at a price of $15.50 per share to fund property
acquisitions. The common shares issued in the first and second stages are of the
same class as the Trust's existing common shares and are entitled to the same
voting and distribution rights as all common shares, subject to certain
restrictions on the resale of the common shares. The remainder of the second
stage, 1,543,005 common shares at $15.50 per share, and the entire third stage,
which provided for a potential $200 million of equity investment, had not
occurred as of December 31, 1998.
F-13
<PAGE> 57
AMERICAN INDUSTRIAL PROPERTIES REIT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During the twelve months ended December 31, 1999, the Trust issued
3,765,454 common shares to DDR in connection with the purchase of 11 properties
(see Note 2), 113,836 common shares were issued in connection with the Dividend
Reinvestment Plan and 11,103 common shares were issued to Trust Managers that
elected to receive base fee compensation in common shares. In total the Trust
issued 3,890,393 common shares 1999. In accordance with the Agreement, the
Shares issued to DDR in 1999 were at an average price of $15.22 per share.
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
Trust Managers. A maximum limit of 10% of the total number of Shares outstanding
at any time 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. In connection with the Agreement with DDR, on July 29,
1998, the Trust granted share options to purchase 100,000 Shares to the Chairman
of the Board of Trust Managers, who, in accordance with DDR's request,
transferred the options to his employer, DDR. The exercise price of the options
was $12.625 (the market price of the Trust's Shares on the date of the grant)
and the fair value of the options was $221,000. The options vested on November
20, 1998.
On an annual basis, each non-employee Trust Manager shall receive a
non-qualified share option to purchase 1,000 common 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 1999, 1998
and 1997, 10,000, 10,000 and 7,000 common shares were granted, respectively.
During 1998, pursuant to the plan, the Trust Managers granted share options
to purchase 460,000 common shares to 12 members of management. The exercise
price of the options granted is $13.625. In addition, the Board approved the
award of 27,000 restricted shares to the Trust's senior officers. The restricted
shares vest annually beginning on the first anniversary date of the date of
grant.
In 1999, 10,000 share options were granted to a new member of management
and 10,000 share options, originally issued in 1998, were canceled due to
employee terminations. All options vest annually over a five year period,
beginning on the date of grant.
Pursuant to agreements between the Trust and four senior officers, a
"change in control" occurred on December 10, 1998 when DDR's ownership position
exceeded 33% of the Trust's voting shares. As a result, all options held by
these officers became fully vested and the restrictions on 27,000 restricted
shares held by these officers were lifted. A total of 395,000 previously
unvested options became vested on this date.
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
F-14
<PAGE> 58
AMERICAN INDUSTRIAL PROPERTIES REIT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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, 1999, 726,000 options are outstanding of which 688,000 are
fully vested. The remaining 38,000 options vest annually through February 2003.
The term of these options range from June 2007 through December 2009.
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 1999: risk-free interest rates of 4.80% to
6.52%; a dividend yield of 4.96% to 7.50%; volatility factors of the expected
market price of the Trust's Shares of .288; and a weighted-average expected life
of the options of 7 years.
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 1998: risk-free interest rates of 4.80% to 6.50%; a dividend
yield of 4.96% to 5.50%; volatility factors of the expected market price of the
Trust's Shares of .275 to .283; and a weighted-average expected life of the
options 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>
1999 1998
----------------------- -----------------------
AS REPORTED PRO FORMA AS REPORTED PRO FORMA
----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Pro forma net income..................... $14,606 $14,579 $(10,070) $(10,350)
======= ======= ======== ========
Pro forma earnings/(loss) per
Share -- basic and diluted............. $ 0.71 $ 0.71 $ (0.82) $ (0.84)
======= ======= ======== ========
</TABLE>
F-15
<PAGE> 59
AMERICAN INDUSTRIAL PROPERTIES REIT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of the Trust's share option activity, and related information for
the year ended December 31 follows:
<TABLE>
<CAPTION>
1999 1998
-------------------------- --------------------------
WEIGHTED-AVERAGE WEIGHTED-AVERAGE
OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE
------- ---------------- ------- ----------------
(000) (000)
<S> <C> <C> <C> <C>
Outstanding-beginning of year........ 716 $13.71 139 $14.99
Granted.............................. 20 11.75 577 13.42
Exercised............................ -- -- -- --
Forfeited............................ (10) 13.63 -- --
----- ------ ----- ------
Outstanding-end of year.............. 726 $13.67 716 $13.71
===== ====== ===== ======
Exercisable at end of year........... 688 $13.70 668 $14.85
===== ====== ===== ======
Weighted-average fair value of
options granted during the year.... $1.70 $2.74
===== =====
</TABLE>
The options outstanding at December 31, 1999 have exercise prices ranging
from $11.125 to $15.00 per share and have a weighted average contractual
remaining life of 8.25 years. At December 31, 1999, there were 1,366,610 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.
NOTE 8 -- DISTRIBUTIONS:
A $0.22 per share distribution was paid on October 14, 1999 and on July 14,
1999. A $0.20 per share distribution was paid on April 15, 1999 and on January
20, 1999. On November 4, 1999, the Trust declared a distribution of $0.22 per
share, payable on January 14, 2000 to shareholders of record on January 6, 2000.
On February 24, 2000, the Trust declared a distribution of $0.22 per Share
payable on April 14, 2000, to shareholders of record on April 5, 2000 (See Note
17). Distributions totaling $0.84 per share were paid in 1999.
NOTE 9 -- OPERATING LEASES:
The Trust's properties are leased to others under operating leases with
expiration dates ranging from 2000 to 2011. Future minimum rentals on
noncancellable tenant leases at December 31, 1999 are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
- ---- ------------
<S> <C>
2000.................................................. $ 75,743,000
2001.................................................. 63,874,000
2002.................................................. 49,121,000
2003.................................................. 35,396,000
2004.................................................. 24,203,000
Thereafter............................................ 33,091,000
------------
$281,428,000
============
</TABLE>
NOTE 10 -- TRANSACTIONS WITH RELATED PARTIES:
During 1998, the Trust on occasion entered into unsecured borrowings with
DDR. Such borrowings bear a fixed rate of interest of 10.25%, provide for
quarterly payments of interest and were due thirty days after
F-16
<PAGE> 60
AMERICAN INDUSTRIAL PROPERTIES REIT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
demand. The Trust repaid all such borrowings, including payment of $111,000 of
interest in the first quarter of 1999. The total interest on such borrowing was
$661,000 for 1998. The Trust did not enter into any such borrowings in 1999.
Certain real estate investments are managed by Quorum, an affiliate of
Realco, and DDR, major shareholders of the Trust. Quorum and DDR are paid
competitive rates for services, including, but not limited to, construction,
tenant finish, leasing and management. The Trust paid Quorum management fees of
$709,000, leasing commissions of $712,000, brokerage fees of $92,000, and
construction management fees of $66,000, for the year ended December 31, 1999.
For the year ended December 31, 1998, management fees and leasing commissions
paid by the Trust to Quorum were $548,000 and $24,000, respectively. The Trust
paid DDR management fees of $17,900 for the year ended December 31, 1999 and
$19,000 for the year ended December 31, 1998.
Effective October 8, 1998, DDR acquired an 89% limited partnership interest
and a 1% general partnership interest in DDR/Tech 29 Limited Partnership, a
limited partnership whose assets consist of two light industrial properties and
one office property totaling 290,991 nrsf located in Silver Springs, Maryland.
Several selling entities and affiliates thereof acquired the remaining
partnership interests. These partnership interests are convertible into DDR
common shares. As of November 20, 1998, the Trust acquired 88.5% of DDR's
limited partnership interest and, in consideration therefore, issued
approximately $16.1 million in Shares to DDR. The acquisition was deemed to be
effective as of October 8, 1998 and the purchase price included interest accrued
from such date.
On November 20, 1998, the Trust purchased undeveloped land from DDR in the
amount of $2.3 million plus interest. The purchase was accomplished through the
issuance of Shares to DDR in accordance with the Share Purchase Agreement dated
July 30, 1998. This land was then contributed by the Trust to a joint venture
with a third party.
The Trust currently leases space to an individual serving as a Trust
Manager at competitive market rates. For the years ended December 31, 1999 and
December 31, 1998, this Trust Manager paid $24,400 and $9,800 in lease payments
to the Trust, respectively.
At December 31, 1999, DDR and Realco owned approximately 46.1% and 8.0% of
the common shares outstanding, respectively.
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. In 1999, the Trust amended the plan to
provide for non-discretionary employer matching contributions. Subject to
certain limitations, the Trust will match up to 50% of the first 6% contributed
by an employee. Discretionary contributions by the Trust related to the years
ended December 31, 1999, 1998 and 1997 were $43,000, $70,000 and $40,000,
respectively. Non-discretionary employer matching contributions in 1999 were
approximately $71,000.
NOTE 12 -- CHANGE IN CONTROL COSTS:
During 1998, the Trust recognized costs related to a change in control of
$5,780,000. The costs related to change in control include approximately
$2,484,000 for payments made to the Trust's senior officers pursuant to
severance and change in control agreements which were triggered when DDR's
ownership position exceeded 33%, an accrual of $2,960,000 related to the
estimated fair market value of future payments through 2008 to the senior
officers under previously granted dividend equivalent rights, approximately
$300,000 related
F-17
<PAGE> 61
AMERICAN INDUSTRIAL PROPERTIES REIT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
to vesting of restricted shares previously granted to the senior officers and
$36,000 in payroll taxes associated with the payments to the senior officers.
The Trust amortizes the accrual for dividend equivalent rights as dividends
are paid by the Trust. As of December 31, 1999 the unamortized accrual is
$2,612,800.
NOTE 13 -- 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,
---------------------------------------
1999 1998 1997
----------- ------------ ----------
<S> <C> <C> <C>
Basic and diluted earnings per share:
Numerator:
Income/(loss) before extraordinary items.... $15,119,000 $ (4,267,000) $ (844,000)
Extraordinary items......................... (513,000) (5,803,000) 2,643,000
----------- ------------ ----------
Net income/(loss)................... $14,606,000 $(10,070,000) $1,799,000
=========== ============ ==========
Denominator:
Weighted average shares..................... 20,513,356 12,251,591 3,316,788
----------- ------------ ----------
Basic and diluted earnings per share:
Income/(loss) before extraordinary items.... $ 0.74 $ (0.35) $ (0.26)
Extraordinary items......................... (0.03) (0.47) 0.80
----------- ------------ ----------
Net income/(loss)................... $ 0.71 $ (0.82) $ 0.54
=========== ============ ==========
</TABLE>
Options to purchase 726,000 common shares at prices ranging from $11.125 to
$15.00 per Share were outstanding at December 31, 1999. During 1999, 20,000
share options were granted (10,000 to a new member of management, and 10,000 to
Trust Managers) and 10,000 share options, originally issued in 1998, were
canceled due to employee terminations.
Options to purchase 716,000 Shares at prices ranging from $11.6875 to
$15.00 per Share were outstanding at December 31, 1998 and options to purchase
139,000 Shares at prices ranging from $13.625 to $15.00 were outstanding at
December 31, 1997.
Options were not included in a computation of diluted earnings per share
for 1999, 1998 and 1997 because the options' exercise price was greater than the
average market price of the Shares for the respective years and, therefore, the
effect would be antidilutive.
At December 31, 1999, 40,000 warrants were outstanding. The warrants have
an exercise price of $17.50 per common share and expire in October 2000. Because
the warrants' exercise price was greater than the average market price of the
common shares, the effect would be antidilutive and are not included in the
computation of diluted earnings per share.
NOTE 14 -- 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.
F-18
<PAGE> 62
AMERICAN INDUSTRIAL PROPERTIES REIT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 15 -- SEGMENT REPORTING
The Trust classifies its reportable segments by property type: light
industrial, office, and retail. Light industrial represents 61% of property
revenue. Office and retail represent 35% and 4%, respectively.
The Trust's emphasis is in the light industrial sector, which is
characterized as office showroom, service center and flex properties, low rise
offices, and small bay distribution properties. Based on net rentable square
feet, as of December 31, 1999, approximately 72% of the Trust's portfolio is
represented by light industrial properties, 25% of the portfolio is represented
by office properties and 3% of the portfolio is represented by retail
properties.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. Senior management evaluates
performance based on net operating income from the combined properties in each
segment.
The Trust's reportable segments are a consolidation of related properties
which offer different products. They are managed separately because each segment
requires different operating, pricing and leasing strategies. All of the
properties have been acquired separately and are incorporated into the
applicable segment.
<TABLE>
<CAPTION>
1999
-----------------------------------------------------------
LIGHT OFFICE CORPORATE
INDUSTRIAL BUILDINGS RETAIL AND OTHER CONSOLIDATED
---------- --------- ------- --------- ------------
<S> <C> <C> <C> <C> <C>
Property revenues............................ $ 52,837 $ 30,006 $ 4,039 $ -- $ 86,882
Property expenses............................ 15,238 9,947 1,699 -- 26,884
-------- -------- ------- -------- --------
Income from property operations.............. 37,599 20,059 2,340 -- 59,998
Administrative expenses...................... -- -- -- (4,628) (4,628)
Depreciation and amortization................ -- -- -- (14,535) (14,535)
Interest and other income.................... -- -- -- 735 735
Interest expense............................. -- -- -- (26,562) (26,562)
-------- -------- ------- -------- --------
Income (loss) from operations................ 37,599 20,059 2,340 (44,990) 15,008
Minority interests in consolidated
subsidiaries............................... -- -- -- (313) (313)
Loss on sales of real estate................. -- -- -- (200) (200)
Income in equity of joint venture............ -- -- -- 624 624
Extraordinary items.......................... -- -- -- (513) (513)
-------- -------- ------- -------- --------
Net income (loss)............................ $ 37,599 $ 20,059 $ 2,340 $(45,392) $ 14,606
======== ======== ======= ======== ========
Total real estate.................. $385,282 $207,942 $46,874 $ 2,088 $642,186
======== ======== ======= ======== ========
</TABLE>
F-19
<PAGE> 63
AMERICAN INDUSTRIAL PROPERTIES REIT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1998
------------------------------------------------------------
LIGHT OFFICE CORPORATE
INDUSTRIAL BUILDINGS RETAIL AND OTHER CONSOLIDATED
---------- --------- -------- --------- ------------
<S> <C> <C> <C> <C> <C>
Property revenues...................... $ 27,013 $ 17,044 $ 4,300 $ -- $ 48,357
Property expenses...................... 7,908 6,362 1,776 -- 16,046
-------- -------- -------- -------- --------
Income from property operations........ 19,105 10,682 2,524 -- 32,311
Administrative expenses................ -- -- -- (3,729) (3,729)
Depreciation and amortization.......... -- -- -- (8,383) (8,383)
Other income........................... -- -- -- 705 705
Interest expense....................... -- -- -- (15,139) (15,139)
Provision for possible losses on real
estate............................... -- -- (10,060) -- (10,060)
-------- -------- -------- -------- --------
Income (loss) from operations.......... 19,105 10,682 (7,536) (26,546) (4,295)
Minority interests in consolidated
subsidiaries......................... -- -- -- 28 28
Extraordinary items.................... -- -- -- (5,803) (5,803)
-------- -------- -------- -------- --------
Net income (loss)...................... $ 19,105 $ 10,682 $ (7,536) $(32,321) $(10,070)
======== ======== ======== ======== ========
Total real estate............ $334,503 $133,643 $ 35,769 $ 1,217 $505,132
======== ======== ======== ======== ========
</TABLE>
F-20
<PAGE> 64
AMERICAN INDUSTRIAL PROPERTIES REIT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 16 -- QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following table sets forth the quarterly results of operations for the
years ended December 31, 1999 and 1998 (in thousands, except per Share amounts):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------
DECEMBER 31 SEPTEMBER 30 JUNE 30 MARCH 31
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
1999
Revenues......................... $ 23,128 $ 22,141 $ 21,378 $ 20,235
Gain/(loss) of sale of real
estate......................... (124) (114) 38 --
Income before extraordinary
items.......................... 3,657 4,049 4,164 3,249
Extraordinary gain/(loss)........ 72 (585) -- --
----------- ----------- ----------- -----------
Net income....................... 3,729 3,464 4,164 3,249
=========== =========== =========== ===========
Per Share Data (Basic and
Diluted)
Income before extraordinary
items....................... $ 0.18 $ 0.20 $ 0.20 $ 0.16
Extraordinary loss............. -- (0.03) -- --
----------- ----------- ----------- -----------
Net income..................... $ 0.18 $ 0.17 $ 0.20 $ 0.16
=========== =========== =========== ===========
Weighted average number of shares
outstanding:
Basic and diluted.............. 20,917,684 20,686,717 20,509,613 19,939,209
=========== =========== =========== ===========
1998
Revenues......................... $ 16,740 $ 12,521 $ 11,075 $ 8,726
Income (loss) before
extraordinary items(a)......... (7,755) 1,289 1,101 1,098
Extraordinary loss............... (5,780) (23) -- --
----------- ----------- ----------- -----------
Net income/(loss)................ $ (13,535) $ 1,266 $ 1,101 $ 1,098
=========== =========== =========== ===========
Per Share Data (Basic and
Diluted)
Income/(loss) before
extraordinary items............ $ (0.52) $ 0.10 $ 0.10 $ 0.10
Extraordinary loss............... (0.39) -- -- --
----------- ----------- ----------- -----------
Net income/(loss)................ $ (0.91) $ 0.10 $ 0.10 $ 0.10
=========== =========== =========== ===========
Weighted average number of shares
outstanding:
Basic.......................... 14,783,824 12,470,471 11,080,452 10,617,617
=========== =========== =========== ===========
Diluted........................ 14,783,824 12,497,471 11,107,452 10,617,617
=========== =========== =========== ===========
</TABLE>
- ---------------
(a) In the fourth quarter of 1998 the Trust recognized a $10,060,000 provision
for real estate losses for a property held for sale.
NOTE 17 -- SUBSEQUENT EVENTS:
On January 20, 2000, the Trust redeemed 89,542 AIP-SWAG Operating L.P.
limited partnership units for approximately $1.1 million.
On January 31, 2000, the Trust sold one light industrial property for total
consideration of $4.8 million resulting in a gain on sale of approximately $0.8
million.
F-21
<PAGE> 65
AMERICAN INDUSTRIAL PROPERTIES REIT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On February 10, 2000, the Trust sold one light industrial property for
total consideration of $6.7 million resulting in a gain on sale of approximately
$2.1 million.
On February 24, 2000, the Trust declared a distribution of $0.22 per Share
payable on April 14, 2000, to shareholders of record on April 5, 2000.
On March 8, 2000, the Trust sold one light industrial property for total
consideration of $3.6 million resulting in a gain on sale of approximately $0.2
million.
On March 17, 2000, the Trust redeemed 29,166 AIP Operating L.P. limited
partnership units for approximately $0.3 million.
The Trust is currently negotiating an extension of the maturity date of the
Trust's PSCC secured acquisition credit line of $50.1 million expiring in April
2000. The Trust cannot provide any assurance that on-going negotiations will
result in the extension on this credit line.
F-22
<PAGE> 66
SCHEDULE III
AMERICAN INDUSTRIAL PROPERTIES REIT
CONSOLIDATED REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
GROSS AMOUNT CARRIED
AT
COSTS CAPITALIZED DECEMBER 31, 1999
SUBSEQUENT TO -----------------------
INITIAL COSTS ACQUISITION RETIREMENTS BUILDINGS,
------------------------ LAND, BUILDINGS, WRITEDOWNS FURNITURE,
BUILDINGS AND FURNITURE, FIXTURES AND FIXTURES AND
LAND IMPROVEMENTS AND EQUIPMENT ALLOWANCES LAND EQUIPMENT TOTAL
-------- ------------- ------------------- ----------- -------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
LIGHT INDUSTRIAL PROPERTIES
107 Woodmere................... $ 952 $ 4,454 $ -- $ 952 $ 4,454 $ 5,406
2121 Glenville................. 426 1,392 8 426 1,400 1,826
3100 Alfred.................... 2,500 3,326 -- 2,500 3,326 5,826
Aerotech....................... 914 5,735 147 914 5,882 6,796
Alumax......................... 260 2,820 21 260 2,841 3,101
Avion Business Center.......... 770 4,006 76 $ -- 770 4,082 4,852
Battlefield Business Park...... 2,020 11,635 113 2,020 11,748 13,768
Black Canyon Tech Center....... 1,052 6,846 31 1,052 6,877 7,929
Bowater........................ 581 2,535 62 -- 581 2,597 3,178
Bridgeway Technology Center.... 7,500 13,533 1 7,500 13,534 21,034
Broadbent Land................. 1,589 -- -- 1,589 -- 1,589
Cameron Creek Bus Park......... 524 3,379 330 524 3,709 4,233
Cameron Creek Land............. 840 -- -- -- 840 -- 840
Carpenter Center............... 650 1,354 93 -- 650 1,447 2,097
Carrier Place.................. 560 2,682 186 -- 560 2,868 3,428
Central Park Office Tech....... 840 3,361 148 -- 840 3,509 4,349
Columbia Corporate Center...... 5,000 8,144 50 5,000 8,194 13,194
Commerce Center................ 4,420 6,328 1,385 -- 4,420 7,713 12,133
Commerce Park North............ 1,108 4,431 707 (2,014) 705 3,527 4,232
Corporex Plaza I............... 998 4,130 266 -- 998 4,396 5,394
DFW IV......................... 470 3,364 200 -- 470 3,564 4,034
Gateway 5 & 6.................. 935 3,741 1,004 (1,861) 563 3,256 3,819
Greenbrier Circle Corp
Center........................ 1,930 12,787 866 1,930 13,653 15,583
Greenbrier Tech Center......... 1,060 6,293 64 1,060 6,357 7,417
Hardline Services Bldg......... 1,040 6,935 95 1,040 7,030 8,070
Heritage Business I............ 360 2,141 6 360 2,147 2,507
Humboldt Tech Center........... 7,000 2,413 -- 7,000 2,413 9,413
Huntington Drive............... 1,559 6,237 861 -- 1,559 7,098 8,657
Interlocken Office Park........ 3,430 11,291 67 3,430 11,358 14,788
Inverness...................... 1,532 6,054 345 -- 1,532 6,399 7,931
Junction II Business Park...... 4,000 7,449 29 4,000 7,478 11,478
Kodak.......................... 1,749 2,998 582 -- 1,749 3,580 5,329
Meridian Street Warehouse...... 262 1,047 1 -- 262 1,048 1,310
Metro Business Park............ 2,050 7,957 112 2,050 8,069 10,119
Norfolk Commerce Center........ 2,400 19,093 288 2,400 19,381 21,781
Northgate II................... 2,153 8,612 946 (4,122) 1,329 6,260 7,589
Northgate III.................. 1,280 10,013 461 -- 1,280 10,474 11,754
Northpointe B.................. 260 2,406 22 260 2,428 2,688
Northpointe C.................. 380 2,846 213 380 3,059 3,439
Northwest Business Park........ 1,296 5,184 917 (131) 1,296 5,970 7,266
Parkway Tech Center............ 440 2,795 169 -- 440 2,964 3,404
Patapsco....................... 1,147 4,588 559 (1,250) 897 4,147 5,044
Plaza Southwest 1-5............ 1,312 5,248 1,372 -- 1,312 6,620 7,932
President's Plaza.............. 491 1,932 244 -- 491 2,176 2,667
Shady Trail Business Center.... 530 1,738 97 -- 530 1,835 2,365
Skyway Business Center......... 444 1,778 103 -- 444 1,881 2,325
Southeast Commercial Center.... 303 1,515 119 303 1,634 1,937
Steris Building................ 300 2,251 7 300 2,258 2,558
<CAPTION>
ACCUMULATED YEAR ACQ. ENCUM-
DEPRECIATION CONSTRUCTED DATE BRANCES
------------ ----------- ---- -------
<S> <C> <C> <C> <C>
LIGHT INDUSTRIAL PROPERTIES
107 Woodmere................... $ (111) 1984 1999 (d)
2121 Glenville................. (47) 1984 1998 (c)
3100 Alfred.................... (83) 1971 1999 (f)
Aerotech....................... (252) 1985 1998 (e)
Alumax......................... (100) 1982 1998 (c)
Avion Business Center.......... (208) 1985 1997 (b)
Battlefield Business Park...... (365) 1989 1998 7,993
Black Canyon Tech Center....... (288) 1983 1998 (e)
Bowater........................ (129) 1989 1997 2,100
Bridgeway Technology Center.... (339) 1996 1999 (d)
Broadbent Land................. -- -- 1998 (f)
Cameron Creek Bus Park......... (178) 1996 1998 (c)
Cameron Creek Land............. -- -- 1998 (c)
Carpenter Center............... (93) 1983 1997 (a)
Carrier Place.................. (189) 1984 1997 (a)
Central Park Office Tech....... (210) 1984 1997 (b)
Columbia Corporate Center...... (222) 1988 1998 (c)
Commerce Center................ (503) 1974 1997 (a)
Commerce Park North............ (1,518) 1984 1985 1,990
Corporex Plaza I............... (260) 1982 1997 (b)
DFW IV......................... (219) 1985 1997 (a)
Gateway 5 & 6.................. (1,598) 1985 1985 2,701
Greenbrier Circle Corp
Center........................ (474) 1981/83 1998 7,090
Greenbrier Tech Center......... (197) 1981 1998 4,205
Hardline Services Bldg......... (251) 1974 1998 (c)
Heritage Business I............ (76) 1990 1998 (c)
Humboldt Tech Center........... (23) 1980 1999 (c)
Huntington Drive............... (2,694) 1985 1985 4,335
Interlocken Office Park........ (289) 1985/88 1999 (d)
Inverness...................... (323) 1980 1997 (b)
Junction II Business Park...... (189) 1984 1999 (d)
Kodak.......................... (227) 1976 1997 (c)
Meridian Street Warehouse...... (114) 1981 1995 1,101
Metro Business Park............ (257) 1987 1998 (c)
Norfolk Commerce Center........ (684) 1981/87 1998 13,000
Northgate II................... (2,862) 1983 1985 4,904
Northgate III.................. (638) 1979/80/86 1997 (a)
Northpointe B.................. (82) 1987/88 1998 (g)
Northpointe C.................. (91) 1987/89 1998 (g)
Northwest Business Park........ (2,237) 1983/85/86 1985 (c)
Parkway Tech Center............ (180) 1984 1997 (a)
Patapsco....................... (1,533) 1981/85 1985 2,949
Plaza Southwest 1-5............ (2,447) 1975 1985 3,198
President's Plaza.............. (141) 1987 1997 (b)
Shady Trail Business Center.... (113) 1984 1997 (a)
Skyway Business Center......... (112) 1981 1997 (b)
Southeast Commercial Center.... (72) 1984 1998 (c)
Steris Building................ (80) 1980 1998 (c)
</TABLE>
F-23
<PAGE> 67
<TABLE>
<CAPTION>
GROSS AMOUNT CARRIED
AT
COSTS CAPITALIZED DECEMBER 31, 1999
SUBSEQUENT TO -----------------------
INITIAL COSTS ACQUISITION RETIREMENTS BUILDINGS,
------------------------ LAND, BUILDINGS, WRITEDOWNS FURNITURE,
BUILDINGS AND FURNITURE, FIXTURES AND FIXTURES AND
LAND IMPROVEMENTS AND EQUIPMENT ALLOWANCES LAND EQUIPMENT TOTAL
-------- ------------- ------------------- ----------- -------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
Stewart Plaza.................. 3,000 3,122 12 3,000 3,134 6,134
Summit Park.................... 2,232 5,734 140 2,232 5,874 8,106
Summit Park Land............... 732 -- -- 732 -- 732
Tech Center 29 -- Phase I...... 3,900 6,968 715 3,900 7,683 11,583
Tech Center 29 -- Phase II..... 2,000 5,998 144 2,000 6,142 8,142
TechniPark 10 Service Center... 920 3,211 9 920 3,220 4,140
Valley View Commerce Park...... 1,460 6,648 98 -- 1,460 6,746 8,206
Valley View Land............... 1,024 -- -- -- 1,024 -- 1,024
Valwood II Business Center..... 420 2,021 204 -- 420 2,225 2,645
VSA Building................... 205 3,928 30 205 3,958 4,163
Washington Business Park....... 1,850 7,453 415 2,080 7,638 9,718
Westchase Park 1-2............. 697 2,787 449 (1,232) 465 2,236 2,701
Winter Park Business Center.... 2,000 7,198 439 2,000 7,637 9,637
-------- -------- ------- -------- -------- ------------ --------
Total Light
Industrial............. $ 94,057 $295,865 $16,028 $(10,610) $ 92,206 $ 303,134 $395,340
OFFICE PROPERTIES
10505 Sorrento Valley.......... $ 879 $ 3,691 $ 143 $ -- $ 879 $ 3,834 $ 4,713
1881 Pine Street............... 776 5,924 247 -- 776 6,171 6,947
485 Clyde...................... 3,100 4,809 -- 3,100 4,809 7,909
Academy Point Atrium II........ 881 7,832 307 881 8,139 9,020
Apollo Drive Office Building... 6,106 17,901 1,397 -- 6,106 19,298 25,404
Baytech Park................... 10,500 25,060 10,500 25,060 35,560
Beltline Business Center....... 1,303 5,213 755 (3,521) 600 3,150 3,750
Centre Pointe.................. 11,800 9,539 145 11,800 9,684 21,484
Gateway West................... 1,923 8,451 525 -- 1,923 8,976 10,899
Gibraltar Tech Center.......... 4,800 1,610 19 4,800 1,629 6,429
Linear Technology.............. 1,235 3,231 78 -- 1,235 3,309 4,544
Manhattan Towers............... 5,156 23,053 2,601 -- 5,156 25,654 30,810
Northview Business Center...... 7,600 14,676 10 7,600 14,686 22,286
Spring Valley Business Park
#6............................ 959 8,362 259 959 8,621 9,580
Tech Center 29 -- Phase III.... 1,600 6,840 168 1,600 7,008 8,608
-------- -------- ------- -------- -------- ------------ --------
Total Office
Properties............. $ 58,618 $146,192 $ 6,654 $ (3,521) $ 57,915 $ 150,028 $207,943
RETAIL PROPERTIES
Tamarac Square Mall............ $ 6,799 $ 27,194 $ 5,465 $(10,060) $ 6,000 $ 23,398 $ 29,398
Volusia........................ 3,445 3,826 145 -- 3,445 3,971 7,416
-------- -------- ------- -------- -------- ------------ --------
Total Retail
Properties............. $ 10,244 $ 31,020 $ 5,610 $(10,060) $ 9,445 $ 27,369 $ 36,814
Trust.......................... -- -- 2,089 -- -- 2,089 2,089
-------- -------- ------- -------- -------- ------------ --------
Total All Properties.... $162,919 $473,077 $30,381 $(24,191) $159,566 $ 482,620 $642,186
<CAPTION>
ACCUMULATED YEAR ACQ. ENCUM-
DEPRECIATION CONSTRUCTED DATE BRANCES
------------ ----------- ---- -------
<S> <C> <C> <C> <C>
Stewart Plaza.................. (79) 1970 1999 (d)
Summit Park.................... (254) 1985 1998 (e)
Summit Park Land............... -- -- 1998 (e)
Tech Center 29 -- Phase I...... (248) 1970 1998 7,513
Tech Center 29 -- Phase II..... (189) 1991 1998 3,826
TechniPark 10 Service Center... (101) 1983/84 1998 (c)
Valley View Commerce Park...... (394) 1986 1997 (a)
Valley View Land............... -- 1986 1997 (a)
Valwood II Business Center..... (132) 1984 1997 (a)
VSA Building................... (141) 1989 1998 (c)
Washington Business Park....... (199) 1985 1998 (c)
Westchase Park 1-2............. (977) 1984 1985 1,258
Winter Park Business Center.... (225) 1981/83/85 1998 5,100
--------
Total Light
Industrial............. $(26,237)
OFFICE PROPERTIES
10505 Sorrento Valley.......... $ (193) 1982 1997 (c)
1881 Pine Street............... (324) 1987 1997 $ 3,641
485 Clyde...................... (120) 1970 1999 (d)
Academy Point Atrium II........ (357) 1984 1998 (e)
Apollo Drive Office Building... (944) 1987 1997 14,713
Baytech Park................... (627) 1997 1999 (d)
Beltline Business Center....... (1,640) 1984 1985 2,629
Centre Pointe.................. (253) 1982 1999 (d)
Gateway West................... (445) 1964/69/74 1997 5,978
Gibraltar Tech Center.......... (16) 1980 1999 (c)
Linear Technology.............. (164) 1987 1997 (c)
Manhattan Towers............... (1,509) 1987 1997 20,300
Northview Business Center...... (612) 1970 1998 (e)
Spring Valley Business Park
#6............................ (413) 1980/98 1998 (b)
Tech Center 29 -- Phase III.... (218) 1988 1998 4,384
--------
Total Office
Properties............. $ (7,835)
RETAIL PROPERTIES
Tamarac Square Mall............ $(12,335) 1976/78 1985 11,363
Volusia........................ (197) 1984 1997 (c)
--------
Total Retail
Properties............. $(12,532)
Trust.......................... (327)
--------
Total All Properties.... $(46,931)
</TABLE>
- ---------------
(a) Property encumbered by a first mortgage loan of $29,963 at December 31,
1999.
(b) Property encumbered by a first mortgage loan of $24,107 at December 31,
1999.
(c) Property encumbered by a secured line of credit of $19,500 at December 31,
1999.
(d) Property encumbered by a first mortgage loan of $86,134 at December 31,
1999.
(e) Property encumbered by a first mortgage loan of $34,716 at December 31,
1999.
(f) Property unencumbered at December 31, 1999.
(g) Property encumbered by a first mortgage loan of $2,716 at December 31,
1999.
F-24
<PAGE> 68
AMERICAN INDUSTRIAL PROPERTIES REIT
NOTES TO SCHEDULE III
DECEMBER 31, 1999
(IN THOUSANDS)
RECONCILIATION OF REAL ESTATE:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Balance at beginning of year......................... $505,132 $265,312 $ 94,472
Additions during period:
Improvements....................................... 11,953 6,659 1,366
Acquisitions....................................... 145,418 243,231 175,469
-------- -------- --------
662,503 515,202 271,307
Deductions during period:
Dispositions....................................... 20,317 -- 5,995
Writedowns......................................... -- 10,060 --
Asset retirements............................... -- 10 --
-------- -------- --------
Balance at end of year............................... $642,186 $505,132 $265,312
======== ======== ========
</TABLE>
RECONCILIATION OF ACCUMULATED DEPRECIATION:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Balance at beginning of year............................ $33,449 $25,521 $23,973
Additions during period:
Depreciation expense for period....................... 13,819 7,928 2,774
------- ------- -------
47,268 33,449 26,747
Deductions during period:
Accumulated depreciation of real estate sold.......... 337 -- 1,226
Asset retirements.................................. -- -- --
------- ------- -------
Balance at end of year.................................. $46,931 $33,449 $25,521
======= ======= =======
</TABLE>
TAX BASIS:
The income tax basis of real estate, net of accumulated tax depreciation,
is approximately $622,648 at December 31, 1999.
DEPRECIABLE LIFE:
Depreciation is provided by the straight-line method over the estimated
useful lives which are as follows:
<TABLE>
<S> <C>
Buildings and capital improvements:....................... 40 years
Tenant improvements:
Term of the lease not to exceed......................... 10 years
</TABLE>
F-25
<PAGE> 69
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DOCUMENT
----------- --------
<C> <S>
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 and
incorporated herein by reference)
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)
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)
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)
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)
2.6 -- Purchase and Sale Agreement dated as of September 24,
1997 by and between Midway/Commerce Center Limited
Partnership, as Seller, and the Trust, as Buyer
(incorporated herein by reference from Exhibit 2.1 to
Form 8-K of the Trust dated October 3, 1997)
2.7 -- First Amendment to Purchase and Sale Agreement dated as
of October 22, 1997 by and between Midway/Commerce Center
Limited Partnership and the Trust (incorporated herein by
reference from Exhibit 2.2 to Form 8-K of the Trust dated
November 13, 1997)
</TABLE>
<PAGE> 70
<TABLE>
<CAPTION>
EXHIBIT NO. DOCUMENT
----------- --------
<C> <S>
2.8 -- Second Amendment to Purchase and Sale Agreement dated as
of October 31, 1997 by and between Midway/Commerce Center
Limited Partnership and the Trust (incorporated herein by
reference from Exhibit 2.3 to Form 8-K of the Trust dated
November 13, 1997)
2.9 -- Amended and Restated Agreement and Plan of Merger dated
as of June 30, 1998 between the Trust and USAA Real
Estate Income Investments I, a California Limited
Partnership (incorporated herein by reference from
Exhibit 2.1 to Form 8-K of the Trust dated January 20,
1998)
2.10 -- Amended and Restated Agreement and Plan of Merger dated
as of June 30, 1998 between the Trust and USAA Real
Estate Income Investments II Limited Partnership
(incorporated herein by reference from Exhibit 2.2 to
Form 8-K of the Trust dated January 20, 1998)
2.11 -- Amended and Restated Agreement and Plan of Merger dated
as of June 30, 1998 between the Trust and USAA Real
Estate Income Investments III Limited Partnership
(incorporated herein by reference from Exhibit 2.3 to
Form 8-K of the Trust dated January 20, 1998)
2.12 -- Amended and Restated Agreement and Plan of Merger dated
as of June 30, 1998 between the Trust and USAA Real
Estate Income Investments IV Limited Partnership
(incorporated herein by reference from Exhibit 2.4 to
Form 8-K of the Trust dated January 20, 1998)
2.13 -- Agreement and Plan of Merger by and among the Trust,
Developers Diversified Realty Corporation ("DDR") and DDR
Office Flex Corporation ("DDR Flex") dated July 30, 1998
(incorporated herein by reference from Exhibit 2.1 to
Form 8-K of the Trust dated July 30, 1998)
3.1 -- Third Amended and Restated Declaration of Trust
(incorporated herein by reference from Exhibit 3.1 to
Form 10-K of the Trust filed with the Commission on March
30, 1999)
3.2 -- First Amendment to the Third Amended and Restated
Declaration of Trust (incorporated herein by reference
from Exhibit 3.2 to Form 10-K of the Trust filed with the
Commission on March 30, 1999)
3.3 -- Second Amendment to the Third Amended and Restated
Declaration of Trust (incorporated herein by reference
from Exhibit 3.3 to Form 10-K of the Trust filed with the
Commission on March 30, 1999)
3.4 -- Third Amendment to the Third Amended and Restated
Declaration of Trust (incorporated herein by reference
from Exhibit 3.4 to Form 10-K of the Trust filed with the
Commission on March 30, 1999)
3.5 -- Fifth Amended and Restated Bylaws (incorporated herein by
reference from Exhibit 3.5 to Form 10-K of the Trust
filed with the Commission on March 30, 1999)
3.6 -- Amendment to the Fifth Amended and Restated Bylaws
(incorporated herein by reference from Exhibit 3.6 to
Form 10-K of the Trust filed with the Commission on March
30, 1999)
3.7 -- Statement of Designation of Series A Preferred Shares of
Beneficial Interest of the Trust dated July 30, 1998
(incorporated herein by reference from Exhibit 3.1 to
Form 8-K of the Trust dated July 30, 1998)
4.1 -- Indenture dated November 15, 1985, by and between 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)
</TABLE>
<PAGE> 71
<TABLE>
<CAPTION>
EXHIBIT NO. DOCUMENT
----------- --------
<C> <S>
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 ("ABKB") 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)
10.4 -- Common Share Purchase Agreement dated as of July 3, 1997,
by and between the Trust and ABKB 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)
10.5 -- Common Share Purchase Agreement dated as of July 3, 1997,
by and between the Trust and ABKB/LaSalle Advisors
Limited Partnership ("LaSalle") 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)
10.6 -- Registration Rights Agreement dated as of July 10, 1997,
by and between the Trust, ABKB 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)
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") (incorporated herein
by reference from Exhibit 10.5 to Form 8-K of the Trust
dated July 22, 1997)
10.8 -- Registration Rights Agreement dated as of June 20, 1997,
by and among the Trust, MSRE and MSAM on behalf of the
MSAM Purchaser (incorporated herein by reference from
Exhibit 10.6 to the Trust's Form 8-K dated July 22, 1997)
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)
10.10 -- Share Purchase Agreement dated as of December 20, 1996,
by and among the Trust, Realco and AIP Inc. (incorporated
herein by reference from Exhibit 99.7 to Form 8-K of the
Trust dated December 23, 1996)
10.11 -- Share Purchase Agreement dated as of December 13, 1996,
by and between the Trust and Realco (incorporated herein
be reference from Exhibit 99.4 to Form 8-K of the Trust
dated December 23, 1996)
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)
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)
</TABLE>
<PAGE> 72
<TABLE>
<CAPTION>
EXHIBIT NO. DOCUMENT
----------- --------
<C> <S>
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)
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 the Trust, 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)
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. 2
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)
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 o Form 8-K of the Trust dated
November 22, 1994)
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)
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)
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)
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)
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)
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)
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)
</TABLE>
<PAGE> 73
<TABLE>
<CAPTION>
EXHIBIT NO. DOCUMENT
----------- --------
<C> <S>
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)
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)
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 by reference from Exhibit
99.5 to Form 8-K of the Trust dated November 20, 1996)
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)
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)
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)
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)
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)
10.35 -- Note dated November 15, 1996 in the original principal
amount of $2,100,000 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)
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)
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)
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 99.4 to Form 8-K of the Trust dated November 20,
1996)
</TABLE>
<PAGE> 74
<TABLE>
<CAPTION>
EXHIBIT NO. DOCUMENT
----------- --------
<C> <S>
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 A. 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)
10.44 -- Common Share Purchase Agreement dated as of January 29,
1998, by and between the Trust and Praedium II Industrial
Associates LLC ("Praedium") (incorporated herein by
reference from Exhibit 10.1 to Form 8-K of the Trust
dated January 29, 1998)
10.45 -- Registration Rights Agreement dated as of January 29,
1998, by and between the Trust and Praedium (incorporated
herein by reference from Exhibit 10.2 to Form 8-K of the
Trust dated January 29, 1998)
10.46 -- Agreement dated as of January 29, 1998, by and among the
Trust, Realco, ABKB (as Agent for and for the benefit of
particular clients), MSRE and MSAM (incorporated herein
by reference from Exhibit 10.3 to Form 8-K of the Trust
dated January 29, 1998)
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)
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)
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)
10.50 -- Warrant Agreement dated as of October 3, 1997 between the
Trust 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)
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)
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)
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)
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)
</TABLE>
<PAGE> 75
<TABLE>
<CAPTION>
EXHIBIT NO. DOCUMENT
----------- --------
<C> <S>
10.55 -- 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
99.8 to Form 8-K of the Trust dated October 3, 1997)
10.56 -- Common Share Purchase dated as of January 29, 1998, by
and between the Trust and Praedium (incorporated herein
by reference from Exhibit 10.1 to Form 8-K of the Trust
dated January 29, 1998)
10.57 -- Registration Rights Agreement dated as of January 29,
1998, by and between the Trust and Praedium (incorporated
herein by reference from Exhibit 10.2 to Form 8-K of the
Trust dated January 29, 1998)
10.58 -- Agreement dated as of January 29, 1998, by and among the
Trust, Realco, ABKB (as Agent for and for the benefit of
particular clients), MSRE and MSAM (incorporated herein
by reference from Exhibit 10.3 to Form 8-K dated January
29, 1998)
10.59 -- Contract of Sale by and between Nationwide Life Insurance
Company and ALCU Investments, Inc. (incorporated herein
by reference from Exhibit 10.1 to Form 8-K/A of the Trust
dated February 11, 1998)
10.60 -- Assignment of Contract of Sale dated as of February 11,
1998, by and among ALCU Investments, Ltd., AIP Operating,
L.P. and the Trust (incorporated herein by reference from
Exhibit 10.2 to Form 8-K/A of the Trust dated February
11, 1998)
10.61 -- Contribution and Exchange Agreement dated as of January
29, 1998, by and among ALCU Investments, Ltd., AIP
Operating, L.P., and the Trust (incorporated herein by
reference from Exhibit 10.3 to Form 8-K/A of the Trust
dated February 11, 1998)
10.62 -- Amended and Restated Agreement of Limited Partnership of
AIP Operating, L.P. dated as of February 11, 1998, by and
among the Trust, General Electric Capital Corporation,
and ALCU Investments, Ltd. (incorporated herein by
reference from Exhibit 10.4 to Form 8-K/A of the Trust
dated February 11, 1998)
10.63 -- Promissory Note by and among the Trust, AIP Operating,
L.P., and Prudential Securities Credit Corporation
(incorporated herein by reference from Exhibit 10.5 to
Form 8-K/A of the Trust dated February 11, 1998)
10.64 -- First Amendment to Credit Agreement dated as of February
11, 1998, by and among the Trust, AIP Operating, L.P.,
and Prudential Securities Credit Corporation
(incorporated herein by reference from Exhibit 10.6 to
Form 8-K/A of the Trust dated February 11, 1998)
10.65 -- Industrial Property Portfolio Agreement of Purchase and
Sale by and between Spieker Northwest, Inc. and the Trust
(incorporated herein by reference from Exhibit 10.65 to
Form 10-K of the Trust filed with the Commission on March
30, 1999)
10.66 -- Purchase and Sale Agreement by and between North Austin
Office, Ltd. and the Trust (incorporated herein by
reference from Exhibit 10.66 to Form 10-K of the Trust
filed with the Commission on March 30, 1999)
10.67 -- Purchase and Sale Agreement and Joint Escrow Instructions
by and between CM Property Management, Inc. and the Trust
dated July 15, 1997 (incorporated herein by reference
from Exhibit 10.1 to Form 8-K/A of the Trust dated March
23, 1998)
10.68 -- Purchase and Sale Agreement and Escrow Instructions by
and between Corporex Properties of Tampa, Inc.,
CFX-Westshore Corporation, and the Trust (incorporated
herein by reference from Exhibit 10.2 to From 8-K/A of
the Trust dated March 23, 1998)
</TABLE>
<PAGE> 76
<TABLE>
<CAPTION>
EXHIBIT NO. DOCUMENT
----------- --------
<C> <S>
10.69 -- Amendment to Purchase and Sale Agreement and Escrow
Instructions by and between Corporex Properties of Tampa,
Inc., CPX-Westshore Corporation, and the Trust
(incorporated herein by reference from Exhibit 10.3 to
Form 8-K/A of the Trust dated March 23, 1998)
10.70 -- Purchase and Sale Agreement between the Equitable Life
Assurance Society of the United States and the Trust
(incorporated herein by reference from Exhibit 10.4 to
Form 8-K/A of the Trust dated March 23, 1998)
10.71 -- Purchase and Sale Agreement between Nanook Partners, L.P.
and the Trust (incorporated herein by reference from
Exhibit 10.5 to Form 8-K/A of the Trust dated March 23,
1998)
10.72 -- Severance and Change in Control Agreement dated as of
April 29, 1998, by and between Charles W. Wolcott and the
Trust (incorporated herein by reference from Exhibit 10.1
to Form 8-K of the Trust dated April 29, 1998)
10.73 -- Severance and Change in Control Agreement dated as of
April 29, 1998, by and between Marc A. Simpson and the
Trust (incorporated herein by reference from Exhibit 10.2
to Form 8-K of the Trust dated April 29, 1998)
10.74 -- Severance and Change in Control Agreement dated as of
April 29, 1998, by and between David B. Warner and the
Trust (incorporated herein by reference from Exhibit 10.3
to Form 8-K of the Trust dated April 29, 1998)
10.75 -- Severance and Change in Control Agreement dated as of
April 29, 1998, by and between Lewis D. Friedland and the
Trust (incorporated herein be reference from Exhibit 10.4
to Form 8-K of the Trust dated April 29, 1998)
10.76 -- Amendments to the Trust's Employee and Trust Manager
Incentive Share Plan (incorporated herein by reference
from Exhibit 10.5 to Form 8-K of the Trust dated April
29, 1998)
10.77 -- Share Purchase Agreement by and between the Trust and DDR
dated July 30, 1998 (incorporated herein by reference
from Exhibit 10.1 to Form 8-K of the Trust dated July 30,
1998)
10.78 -- Demand Promissory Note dated July 30, 1998 (incorporated
herein by reference from Exhibit 10.2 to Form 8-K of the
Trust dated July 30, 1998)
10.79 -- Second Amended and Restated Registration Rights Agreement
by and among the Trust, MSRE and MSAM dated July 30, 1998
(incorporated herein by reference from Exhibit 10.3 to
Form 8-K of the Trust dated July 30, 1998)
10.80 -- Second Amended and Restated Registration Rights Agreement
by and between the Trust and Realco July 30, 1998
(incorporated herein by reference from Exhibit 10.4 to
Form 8-K of the Trust dated July 30, 1998)
10.81 -- Registration Rights Agreement by and between the Trust
and DDR dated July 30, 1998 (incorporated herein by
reference from Exhibit 10.5 to Form 8-K of the Trust
dated July 30, 1998)
10.82 -- First Amended and Restated Registration Rights Agreement
by and between the Trust and Praedium dated July 30, 1998
(incorporated herein by reference from Exhibit 10.6 to
Form 8-K of the Trust dated July 30, 1998)
10.83 -- Second Amended and Restated Registration Rights Agreement
by and between the Trust, ABKB and LaSalle dated July 30,
1998 (incorporated herein by reference from Exhibit 10.7
to Form 8-K of the Trust dated July 30, 1998)
10.84 -- Letter Agreement by and between MSRE/MSAM and DDR dated
July 30, 1998 (incorporated herein by reference from
Exhibit 10.8 to Form 8-K of the Trust dated July 30,
1998)
</TABLE>
<PAGE> 77
<TABLE>
<CAPTION>
EXHIBIT NO. DOCUMENT
----------- --------
<C> <S>
10.85 -- Letter Agreement by and between ABKB, LaSalle and DDR
dated July 30, 1998 (incorporated herein by reference
from Exhibit 10.9 to Form 8-K of the Trust dated July 30,
1998)
10.86 -- Letter Agreement by and between Praedium and DDR dated
July 30, 1998 (incorporated herein by reference from
Exhibit 10.10 to Form 8-K of the Trust dated July 30,
1998)
10.87 -- Letter Agreement by and between Realco and DDR dated July
30, 1998 (incorporated herein by reference from Exhibit
10.11 to Form 8-K of the Trust dated July 30, 1998)
10.88 -- Amendment No. One, dated as of September 14, 1998, to the
Share Purchase Agreement, dated as of July 30, 1998,
between the Trust and DDR (incorporated herein by
reference from Exhibit 10.1 to Form 8-K of the Trust
dated September 16, 1998)
10.89 -- Purchase and Sale Agreement, dated as of April 3, 1998,
by and between the Norfolk Commerce Center Limited
Partnership and DDR (incorporated herein by reference
from Exhibit 10.1 to Form 8-K of the Trust dated July 30,
1998 and filed October 23, 1998)
10.90 -- Amendment to Purchase and Sale Agreement dated June 19,
1998, by and between the Norfolk Commerce Center Limited
Partnership and DDR (incorporated herein by reference
from Exhibit 10.2 to Form 8-K of the Trust dated July 30,
1998 and filed October 23, 1998)
10.91 -- Purchase and Sale Agreement, dated as of May 10, 1998, by
and between A&A Greenbrier, Inc., A&A Northpointe B,
Inc., A&A Northpointe C, Inc. and A&A Greenbrier Tech,
Inc. and DDR Flex (incorporated herein by reference from
Exhibit 10.1 to Form 8-K of the Trust dated October 14,
1998)
10.92 -- Purchase and Sale Agreement, dated as of May 10, 1998, by
and between Battlefield/Virginia, Inc. and DDR Flex
(incorporated herein by reference from Exhibit 10.2 to
Form 8-K of the Trust dated October 14, 1998)
10.93 -- Amendment to Purchase and Sale Agreement dated July 8,
1998 by and between A&A Greenbrier, Inc., A&A Northpointe
B, Inc., A&A Northpointe C, Inc. and A&A Greenbrier Tech,
Inc. and DDR Flex (incorporated herein by reference from
Exhibit 10.3 to Form 8-K of the Trust dated October 14,
1998)
10.94 -- Amendment to Purchase and Sale Agreement dated July 8,
1998, by and between Battlefield/Virginia, Inc., and DDR
Flex (incorporated herein by reference from Exhibit 10.4
to Form 8-K of the Trust dated October 14, 1998)
10.95 -- Second Amendment to Purchase and Sale Agreement dated
September 30, 1998 by and between A&A Greenbrier, Inc.,
A&A Northpointe B, Inc., A&A Northpointe C, Inc. and A&A
Greenbrier Tech, Inc. and DDR Flex (incorporated herein
by reference from Exhibit 10.5 to Form 8-K of the Trust
dated October 14, 1998)
10.96 -- Second Amendment to Purchase and Sale Agreement dated
September 30, 1998, by and between Battlefield/Virginia,
Inc. and DDR Flex (incorporated herein by reference from
Exhibit 10.6 to Form 8-K of the Trust dated October 14,
1998)
10.97 -- Special Warranty Deed, dated as of October 14, 1998, by
and between A&A Greenbrier, Inc. and the Trust
(incorporated herein by reference from Exhibit 10.7 to
Form 8-K of the Trust dated October 14, 1998)
10.98 -- Special Warranty Deed, dated as of October 14, 1998, by
and between A&A Northpointe B, Inc. and the Trust
(incorporated herein by reference from Exhibit 10.8 to
Form 8-K of the Trust dated October 14, 1998)
</TABLE>
<PAGE> 78
<TABLE>
<CAPTION>
EXHIBIT NO. DOCUMENT
----------- --------
<C> <S>
10.99 -- Special Warranty Deed, dated as of October 14, 1998, by
and between A&A Northpointe C, Inc. and the Trust
(incorporated herein by reference from Exhibit 10.9 to
Form 8-K of the Trust dated October 14, 1998)
10.100 -- Special Warranty Deed, dated as of October 14, 1998, by
and between A&A Greenbrier Tech, Inc. and the Trust
(incorporated herein by reference from Exhibit 10.10 to
Form 8-K of the Trust dated October 14, 1998)
10.101 -- Agreement of Purchase and Sale, dated as of November 12,
1998, by and between Lincoln-Whitehall Realty, L.L.C.,
Lincoln-Whitehall Pacific, L.L.C., WHLNF Real Estate
Limited Partnership, WHSUM Real Estate Limited
Partnership (collectively, "Whitehall") (incorporated
herein by reference from Exhibit 10.1 to Form 8-K/A of
the Trust filed with the Commission on March 31, 1999)
10.102 -- Amendment to Agreement of Purchase and Sale, dated
November 23, 1998, by and among Whitehall and the Trust
(incorporated herein by reference from Exhibit 10.2 to
Form 8-K/A of the Trust filed with the Commission on
March 31, 1999)
10.103 -- Second Amendment to Agreement of Purchase and Sale, dated
December 11, 1998, by and among Whitehall and the Trust
(incorporated herein by reference from Exhibit 10.3 to
Form 8-K/A of the Trust filed with the Commission on
March 31, 1999)
10.104 -- Amended and Restated Second Amendment to Agreement of
Purchase and Sale dated December 11, 1998, by and among
Whitehall and the Trust (incorporated herein by reference
from Exhibit 10.4 to Form 8-K/A of the Trust filed with
the Commission on March 31, 1999)
10.105 -- Third Amendment to Agreement of Purchase and Sale, dated
as of December 22, 1998, by and among Whitehall and the
Trust (incorporated herein by reference from Exhibit 10.5
to Form 8-K/A of the Trust filed with the Commission on
March 31, 1999)
10.106 -- Fourth Amendment to Agreement of Purchase and Sale, dated
as of January 7, 1999, by and among Whitehall and the
Trust (incorporated herein by reference from Exhibit 10.6
to Form 8-K/A of the Trust filed with the Commission on
March 31, 1999)
10.107 -- Fifth Amendment to Agreement of Purchase and Sale, dated
as of January 11, 1999, by and among Whitehall and the
Trust (incorporated herein by reference from Exhibit 10.7
to Form 8-K/A of the Trust filed with the Commission on
March 31, 1999)
10.108 -- Sixth Amendment to Agreement of Purchase and Sale, dated
as of January 13, 1999, by and among Whitehall and the
Trust (incorporated herein by reference from Exhibit 10.8
to Form 8-K/A of the Trust filed with the Commission on
March 31, 1999)
*21.1 -- Listing of Subsidiaries
*23.1 -- Consent of Ernst & Young LLP
*24.1 -- Power of Attorney (Included on signature page hereto)
*27.1 -- Financial Data Schedule
</TABLE>
- ---------------
* Filed herewith
<PAGE> 1
EXHIBIT 21.1
AMERICAN INDUSTRIAL PROPERTIES REIT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 Properties #3, GP, Inc., a Texas corporation
99% Limited Partner AIP Properties #3, L.P., a Delaware limited partnership
98% Limited Partner AIP-SWAG Operating Partnership, L.P., a Delaware limited partnership
99% AIP Operating, L.P., a Delaware limited partnership
100% DDR Office Flex I, LLC, an Ohio Limited Liability Company
100% DDR Office Flex II, LLC, an Ohio Limited Liability Company
100% AIP/Battlefield GP, Inc., a Texas Corporation
100% AIP/Greenbrier GP, Inc., a Texas Corporation
100% AIP/Post Office GP, Inc., a Delaware corporation
49% Limited Partner DDR/Post Office L.P., a Delaware corporation
85.5% Limited Partner DDR/Tech 29 Limited Partnership
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>
<PAGE> 2
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>
ENTITY: AIP/POST OFFICE GP, INC., A DELAWARE CORPORATION
<TABLE>
<CAPTION>
Ownership
Percentage Partner
- ---------------------- --------------------------------------------------------------------
<S> <C>
1% General Partner DDR/Post Office L.P., a Delaware corporation
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement on
Form S-3 (No. 333-46699), the Registration Statement on Form S-3 (No.
333-48555), the Registration Statement on Form S-3 (No. 333-52879), and the
Registration Statement on Form S-8 (No. 333-69625) of American Industrial
Properties REIT of our report dated February 3, 2000 except for Note 17, as to
which the date is March 17, 2000 with respect to the consolidated financial
statements and schedule of American Industrial Properties REIT included in
its Annual Report on Form 10-K for the year ended December 31, 1999.
/s/ Ernst & Young LLP
Dallas, Texas
March 23, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 8,220
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 642,186
<DEPRECIATION> (46,931)
<TOTAL-ASSETS> 620,682
<CURRENT-LIABILITIES> 355,643
<BONDS> 0
0
0
<COMMON> 2,109
<OTHER-SE> 256,379
<TOTAL-LIABILITY-AND-EQUITY> 620,682
<SALES> 0
<TOTAL-REVENUES> 87,617
<CGS> 0
<TOTAL-COSTS> 46,047
<OTHER-EXPENSES> (111)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 26,562
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 15,119
<DISCONTINUED> 0
<EXTRAORDINARY> (513)
<CHANGES> 0
<NET-INCOME> 14,606
<EPS-BASIC> .071
<EPS-DILUTED> .071
</TABLE>
