<PAGE> 1
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________
COMMISSION FILE NUMBER 1-9016
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AMERICAN INDUSTRIAL PROPERTIES REIT
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
TEXAS 75-6335572
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6210 NORTH BELTLINE ROAD, SUITE 170
IRVING, TEXAS 75063-2656
(Address of principal executive offices) (Zip Code)
</TABLE>
(972) 756-6000
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year, if changed since last
report)
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 [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date: 20,968,006 Shares of
Beneficial Interest were outstanding as of May 11, 2000.
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<PAGE> 2
AMERICAN INDUSTRIAL PROPERTIES REIT
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2000
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I -- FINANCIAL INFORMATION
Item
1. Financial Statements
Consolidated Statements of Operations for the three months
ended March 31, 2000 and 1999 (unaudited)................... 1
Consolidated Balance Sheets as of March 31, 2000 (unaudited)
and December 31, 1999....................................... 2
Consolidated Statements of Cash Flows for the three months
ended March 31, 2000 and 1999 (unaudited)................... 3
Notes to Consolidated Financial Statements (unaudited)...... 5
Item
2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 14
Item
3. Quantitative and Qualitative Disclosures About Market
Risk........................................................ 18
PART II -- OTHER INFORMATION
Item
1. Legal Proceedings........................................... 19
Item
2. Changes in the Rights of the Company's Security Holders..... 19
Item
6. Exhibits and Reports on Form 8-K............................ 19
SIGNATURES............................................................ 20
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN INDUSTRIAL PROPERTIES REIT
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED, IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------
2000 1999
----------- -----------
<S> <C> <C>
Property Revenues
Rents..................................................... $ 17,810 $ 16,952
Tenant reimbursements and other income.................... 4,302 3,283
----------- -----------
Total Property Revenues........................... 22,112 20,235
----------- -----------
Property Expenses
Property taxes............................................ 2,407 2,015
Property management fees.................................. 596 607
Utilities................................................. 884 820
General operating......................................... 972 914
Repairs and maintenance................................... 662 519
Other property operating expenses......................... 1,056 1,286
----------- -----------
Total Property Expenses........................... 6,577 6,161
----------- -----------
Income from Property Operations........................ 15,535 14,074
Trust administration and overhead......................... (1,224) (1,090)
Depreciation.............................................. (3,368) (3,335)
Amortization.............................................. (245) (138)
Interest income........................................... 108 88
Interest on notes payable................................. -- (111)
Interest on mortgages payable............................. (6,550) (6,159)
----------- -----------
Income from operations.................................... 4,256 3,329
Minority interests in consolidated subsidiaries........... (90) (80)
Gain on sales of real estate.............................. 3,116 --
Income in equity of joint venture......................... 70 --
----------- -----------
Income before extraordinary items........................... 7,352 3,249
Extraordinary items:
Loss on extinguishment of debt............................ (329) --
----------- -----------
NET INCOME.................................................. $ 7,023 $ 3,249
=========== ===========
PER SHARE DATA (Basic and Diluted)
Income before extraordinary items......................... $ 0.35 $ 0.16
Extraordinary loss........................................ (0.01) --
----------- -----------
Net income................................................ $ 0.34 $ 0.16
=========== ===========
Distributions declared.................................... $ 0.22 $ 0.22
=========== ===========
Weighted average Shares outstanding....................... 20,941,906 19,939,209
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
1
<PAGE> 4
AMERICAN INDUSTRIAL PROPERTIES REIT
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Real estate:
Held for investment....................................... $628,786 $627,831
Held for sale............................................. 459 14,355
-------- --------
Total real estate......................................... 629,245 642,186
Accumulated depreciation.................................. (48,373) (46,931)
-------- --------
Net real estate........................................... 580,872 595,255
Cash and cash equivalents:
Unrestricted.............................................. 4,848 2,504
Restricted................................................ 5,453 5,716
-------- --------
Total cash and cash equivalents........................... 10,301 8,220
Other assets, net........................................... 18,266 17,207
-------- --------
Total Assets...................................... $609,439 $620,682
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Mortgage notes payable.................................... $324,583 $334,873
Accrued interest.......................................... 1,980 2,229
Accounts payable, accrued expenses and other
liabilities............................................ 13,558 15,587
Tenant security deposits.................................. 2,922 2,954
-------- --------
Total Liabilities................................. 343,043 355,643
-------- --------
Minority interests.......................................... 4,988 6,551
Shareholders' Equity:
Shares of beneficial interest, $0.10 par value; authorized
500,000,000 shares; issued and outstanding 21,115,458
shares at March 31, 2000 and 21,091,853 shares at
December 31, 1999...................................... 2,111 2,109
Additional paid-in capital................................ 385,584 385,293
Less 165,755 shares in treasury at March 31, 2000 and
December 31, 1999, at cost............................. (2,226) (2,226)
Accumulated distributions................................. (90,498) (86,102)
Accumulated deficit....................................... (33,563) (40,586)
-------- --------
Total Shareholders' Equity........................ 261,408 258,488
-------- --------
Total Liabilities and Shareholders' Equity........ $609,439 $620,682
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE> 5
AMERICAN INDUSTRIAL PROPERTIES REIT
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
2000 1999
-------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 7,023 $ 3,249
Adjustments to reconcile net income to net cash provided
by operating activities:
Loss on extinguishment of debt......................... 109 --
Gain on sales of real estate........................... (3,116) --
Minority interest in consolidated subsidiaries......... 90 80
Depreciation........................................... 3,368 3,335
Amortization of deferred financing costs............... 352 280
Other amortization..................................... 117 (9)
Issuance of Shares to Trust Managers................... 24 54
Changes in operating assets and liabilities:
Other assets and restricted cash..................... (1,268) 6,316
Accounts payable, other liabilities and tenant
security deposits................................... (1,978) (3,761)
Accrued interest..................................... (228) 534
-------- ---------
Net Cash Provided By Operating Activities......... 4,493 10,078
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net proceeds from sales of real estate.................... 15,145 --
Capitalized expenditures.................................. (1,409) (2,946)
Acquisition of real estate and related working capital.... -- (127,168)
-------- ---------
Net Cash Provided By (Used In) Investing
Activities...................................... 13,736 (130,114)
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal repayments on mortgage notes payable............ (15,161) (59,056)
Proceeds from mortgage financing.......................... 5,000 136,985
Payment of deferred loan costs............................ 51 (1,387)
Proceeds from sale of Shares.............................. 27 50,095
Distributions to Shareholders............................. (4,391) (3,411)
Redemption of limited partnership unit holders............ (1,411) --
Distributions to limited partnership unit holders......... -- (87)
-------- ---------
Net Cash Provided By (Used In) Financing Activities......... (15,885) 123,139
-------- ---------
Net Increase in Cash and Cash Equivalents................... 2,344 3,103
Cash and Cash Equivalents at Beginning of Period............ 2,504 6,145
-------- ---------
Cash and Cash Equivalents at End of Period.................. $ 4,848 $ 9,248
======== =========
Cash Paid for Interest...................................... $ 6,426 $ 5,583
======== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
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NON-CASH INVESTING AND FINANCING ACTIVITIES:
Property Operations. As a result of the acquisition of nine properties and
an undeveloped tract of land in the first quarter of 1999, American Industrial
Properties REIT (the "Trust") received approximately $1.8 million of accounts
payable and tenant security deposits.
Real Estate Held for Sale. As of March 31, 2000, the Trust has two tracts
of unimproved land classified as held for sale with a cost basis of $0.5
million. During the first quarter of 1999, the Trust reclassified two properties
and one tract of land with a cost basis of $12.1 million to real estate held for
sale.
4
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AMERICAN INDUSTRIAL PROPERTIES REIT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES:
The accompanying consolidated financial statements are presented in
accordance with the requirements of Form 10-Q and consequently do not include
all of the disclosures required by generally accepted accounting principles or
those contained in the Trust's Annual Report on Form 10-K for the fiscal year
ended December 31, 1999. Accordingly, these financial statements should be read
in conjunction with the audited financial statements of the Trust for the year
ended December 31, 1999 included in the Trust's Annual Report on Form 10-K.
The financial information included herein has been prepared in accordance
with the Trust's customary accounting practices and has not been audited. In the
opinion of management, the information presented reflects all adjustments
necessary for a fair presentation of interim results. All such adjustments are
of a normal and recurring nature.
General. The Trust is a self-administered Texas real estate investment
trust ("REIT") which, as of March 31, 2000, directly or indirectly owns and
operates 71 commercial real estate properties consisting of 55 industrial
properties, 14 office buildings and 2 retail properties.
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.
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.
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 $3,129,000 and
$2,916,000 at March 31, 2000 and December 31, 1999, 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 $53,000 and
$18,000 for the quarters ended March 31, 2000 and 1999, 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.
Concentrations. As of March 31, 2000, the Trust owns 71 real estate
properties in 11 states. The Trust's industrial properties are concentrated in
the Texas market with 23 of the 55 properties located in the Dallas, Houston and
Austin areas. The office buildings are primarily located in the West with 7 of
the 14 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.
Reclassification. Certain amounts in prior years financial statements have
been reclassified to conform with the current year presentation.
5
<PAGE> 8
AMERICAN INDUSTRIAL PROPERTIES REIT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2 -- REAL ESTATE AND PROVISIONS FOR POSSIBLE LOSSES ON REAL ESTATE:
At March 31, 2000 and December 31, 1999, real estate was comprised of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, 2000 1999
-------------- ------------
<S> <C> <C>
Held for investment:
Land................................................... $155,264,000 $155,264,000
Buildings and improvements............................. 473,522,000 472,567,000
------------ ------------
628,786,000 627,831,000
------------ ------------
Held for sale:
Land................................................... 459,000 4,302,000
Buildings and improvements............................. -- 10,053,000
------------ ------------
459,000 14,355,000
------------ ------------
Total.......................................... $629,245,000 $642,186,000
============ ============
</TABLE>
In the first quarter of 2000, the Trust sold two light industrial
properties, one office property and one tract of unimproved land. Total proceeds
from the sale of these assets were approximately $16.2 million and resulted in a
net gain on sales of real estate of approximately $3.1 million. The four assets
sold in the first quarter of 2000 were previously classified as held for sale at
December 31, 1999. As of March 31, 2000, two tracts of unimproved land not
located in target markets currently identified by the Trust for future
investment are classified as held for sale. The Trust's intent is to sell the
remaining tracts of unimproved land in 2000.
The Trust did not acquire any real estate assets in the first quarter of
2000.
During 1999, the Trust purchased a portfolio of nine real estate properties
for $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 proceeds of $51.8 million from the issuance of common
shares ("Shares") to Developers Diversified Realty Corporation ("DDR"). The
Trust also acquired two additional properties in 1999 for $15.8 million. The
purchase price was primarily funded under a secured line of credit with Bank
One, Texas, N.A. ("Bank One") and $5.5 million in proceeds from Shares issued to
DDR.
During 1999, the Trust reclassified six properties and four tracts of land
from held for investment to held for sale. Three of the industrial properties
and one tract of land were sold in 1999 resulting in a net loss on sales of real
estate of approximately $0.2 million. The remaining three properties and three
tracts of unimproved land were not located in target markets identified by the
Trust for future investment.
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.
NOTE 3 -- MORTGAGE NOTES PAYABLE:
At March 31, 2000, 70 of the Trust's 71 properties were subject to liens
securing mortgage notes payable with principal balances totaling $324,583,000,
including $1,334,000 of debt premiums. Of this amount, approximately
$259,730,000 was represented by mortgage notes with stated fixed interest rates
ranging from 7.18% to 9.13%, a stated weighted average interest rate of 7.39%,
and maturity dates from 2001 to 2016. Mortgage notes payable with variable
interest rates total approximately $63,519,000. The variable rate debt consists
of $48,019,000 under the Trust's PSCC secured acquisition credit line as well as
$15,500,000 under the Bank One line of credit. The acquisition credit line bears
interest at the 30 day LIBOR plus 1.55% and
6
<PAGE> 9
AMERICAN INDUSTRIAL PROPERTIES REIT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
matures in October 2000, as extended (see Note 12). The Bank One line of credit,
which provides for a variable rate spread based upon the Trust's overall debt
leverage, currently bears interest at the 30 day LIBOR plus 1.75% and matures in
January 2001. The interest rates on the acquisition credit line and the line of
credit at March 31, 2000 are 7.33% and 7.78%, respectively.
Debt premiums are amortized into interest expense over the terms of the
related mortgages using the effective interest method. As of March 31, 2000, and
December 31, 1999, the unamortized debt premiums were $1,334,000 and $1,463,000,
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 the line of credit, also contain various borrowing
restrictions and operating performance covenants. The Trust is in compliance
with all such restrictions and covenants as of March 31, 2000.
For the three months ended March 31, 2000, the Trust recognized
extraordinary loss on extinguishment of debt of $329,000 resulting from
prepayment penalties and the write off of deferred financing costs on the early
retirement of mortgage debt resulting from the sale of two industrial properties
(see Note 2). During 1999, the Trust recognized an extraordinary loss on the
extinguishment of debt of $513,000 resulting from prepayment penalties and the
write off of deferred financing costs on the early retirement of $88,000,000 of
mortgage debt.
NOTE 4 -- UNSECURED NOTES PAYABLE -- RELATED PARTY:
The Trust did not incur any related party borrowings during the three
months ended March 31, 2000.
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%.
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.
7
<PAGE> 10
AMERICAN INDUSTRIAL PROPERTIES REIT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Litigation
The Trust has not been notified, and is not otherwise aware, of any
on-going or potential litigation that could result in a material adverse effect
on the consolidated financial position or results of operations of the Trust.
NOTE 6 -- MINORITY INTEREST:
Operating Partnerships. AIP-SWAG Operating L.P. has 89,543 limited
partnership units outstanding as of March 31, 2000 (excluding limited
partnership units held by the Trust). AIP Operating, L.P. limited partnership
units (excluding limited partnership units held by the Trust) have all been
redeemed as of March 31, 2000. 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 January 2000, 89,542 AIP-SWAG Operating L.P. limited
partnership units were redeemed for approximately $1,094,000 resulting in an
increase in Shareholders' equity of $157,000. In March 2000, the remaining
29,166 AIP Operating L.P. limited partnership units were redeemed for
approximately $316,000 resulting in an increase in Shareholders' equity of
$85,000.
AIP-SWAG Operating L.P. and AIP Operating, L.P. had 179,085 and 29,166
limited partnership units outstanding, respectively, as of December 31, 1999.
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 March 31, 2000, 20,949,703
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 March 31, 2000, no Preferred Shares of Beneficial Interest were issued.
As of March 31, 2000 the Trust has 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 Share Purchase Agreement (the "Agreement"), the transaction has
three stages. The first stage, effective as of July 30, 1998, resulted in DDR
acquiring 2,207,618 Shares at a price of $15.50 per Share.
8
<PAGE> 11
AMERICAN INDUSTRIAL PROPERTIES REIT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In January 1999, DDR completed the second stage of the Agreement, resulting
in the purchase of 5,226,589 Shares for $15.50 per Share (for total
consideration of approximately $81.0 million) to fund property acquisitions in
1998 and 1999.
In the third stage, the Trust has the option to require DDR, under certain
circumstances, to purchase additional Shares with a total purchase price not to
exceed $200 million to fund property acquisitions. DDR's obligation to purchase
Shares, the price of the Shares and the amount to be invested in the third stage
are contingent upon several factors, including the trading prices of DDR common
stock and the Trust Shares, the market capitalization of DDR and whether common
or preferred shares are issued to DDR. As of March 31, 2000, DDR has purchased
2,222,449 Shares related to the third stage (for total consideration of
approximately $33.4 million). In total, DDR has purchased 9,656,656 Shares,
representing 46.1% of the outstanding Shares of the Trust.
For the quarter ended March 31, 2000, the Trust issued 21,521 Shares under
the Dividend Reinvestment Plan and 2,084 Shares to Trust Managers that elected
base fee compensation in Shares. In total, the Trust issued 23,605 Shares in the
first quarter on 2000.
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. A "change in control", as defined in agreements
between the Trust and four senior officers, 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.
At March 31, 2000, 726,000 options are outstanding of which 688,000 are
fully vested. The remaining 38,000 options vest annually through February 2003.
The terms of these options range from June 2007 through December 2009. As of
March 31, 2000, no options had been exercised.
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 distribution of $0.22 per Share was paid on April 14, 2000, to
shareholders of record on April 5, 2000. On May 4, 2000, the Trust declared a
distribution of $0.22 per Share, payable on July 14, 2000 to shareholders of
record on July 5, 2000. (See Note 12).
Distributions totaling $0.84 per Share were paid in 1999.
9
<PAGE> 12
AMERICAN INDUSTRIAL PROPERTIES REIT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 9 -- TRANSACTIONS WITH RELATED PARTIES:
In the first quarter of 1999, the Trust repaid $111,000 of interest and the
balance of unsecured borrowings from DDR. The borrowings bore a fixed interest
rate of 10.25%, provided for quarterly payments of interest and were due thirty
days after demand. The Trust did not enter into any such borrowings in the first
quarter of 2000.
Certain real estate investments are managed by Quorum Real Estate Services
Corporation ("Quorum"), an affiliate of USAA Real Estate Company ("Realco"), and
DDR, both of which are 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. For the three months ended March 31,
2000, the Trust paid Quorum management fees of $188,000, leasing commissions of
$69,000 and construction management fees of $33,000. For the three months ended
March 31, 1999, management fees and leasing commissions paid by the Trust to
Quorum were $171,000 and $121,000, respectively. The Trust paid DDR management
fees of $6,000 for the quarter ended March 31, 2000 and $4,700 for the quarter
ended March 31, 1999.
The Trust currently leases approximately 2,000 square feet to an individual
serving as a Trust Manager at competitive market rates. For the three months
ended March 31, 2000 and March 31, 1999, this Trust Manager paid $6,200 and
$5,800 in lease payments to the Trust, respectively.
At March 31, 2000, DDR and Realco owned approximately 46.1% and 8.0% of the
Shares outstanding, respectively.
NOTE 10 -- PER SHARE DATA:
The following table sets forth the computation of basic and diluted
earnings per Share:
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED MARCH 31,
--------------------------------
2000 1999
-------------- --------------
<S> <C> <C>
Basic and diluted earnings per share:
Numerator:
Income before extraordinary items......................... $ 7,352,000 $ 3,249,000
Extraordinary items..................................... (329,000) --
----------- -----------
Net income...................................... $ 7,023,000 $ 3,249,000
=========== ===========
Denominator:
Weighted average shares................................. 20,941,906 19,939,209
----------- -----------
Basic and diluted earnings per share:
Income before extraordinary items......................... $ 0.35 $ 0.16
Extraordinary items....................................... (0.01) --
----------- -----------
Net income...................................... $ 0.34 $ 0.16
=========== ===========
</TABLE>
Options to purchase 726,000 shares at prices ranging from $11.125 to $15.00
per Share were outstanding at March 31, 2000. There were no options issued
during the three months ended March 31, 2000. The options were not included in a
computation of diluted earnings per share because the options' exercise price
was greater than the average market price of the Shares for the respective years
and, therefore, the effect would be antidilutive.
At March 31, 2000, warrants to acquire 40,000 shares were outstanding. The
warrants have an exercise price of $17.50 per Share and expire in October 2000.
Because the warrants' exercise price was greater than the average market price
of the Shares, the effect would be antidilutive and are not included in the
computation of diluted earnings per share.
10
<PAGE> 13
AMERICAN INDUSTRIAL PROPERTIES REIT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 11 -- SEGMENT REPORTING
The Trust classifies its reportable segments by property type: light
industrial, office, and retail. For the quarter ended March 31, 2000, light
industrial represents 61% of property revenue. Office and retail represent 35%
and 4%, respectively, for the same period. For the quarter ended March 31, 1999,
light industrial, office and retail represented property revenue of 67%, 28%,
and 5%, 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 March 31, 2000, 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. Based on net rentable square feet, as of March 31, 1999,
approximately 76% of the Trust's portfolio was represented by light industrial
properties, 21% by office properties and 3% 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.
11
<PAGE> 14
AMERICAN INDUSTRIAL PROPERTIES REIT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table sets forth the Trust's property revenues by reporting
segment, for each of the three months ended March 31, 2000 and 1999 (in
thousands). Property revenues and expenses include both real estate held for
investment and real estate held for sale.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 2000
-----------------------------------------------------------
LIGHT OFFICE CORPORATE
INDUSTRIAL BUILDINGS RETAIL AND OTHER CONSOLIDATED
---------- --------- ------- --------- ------------
<S> <C> <C> <C> <C> <C>
Property revenues.................. $ 13,382 $ 7,803 $ 927 $ -- $ 22,112
Property expenses.................. 3,627 2,626 324 -- 6,577
-------- -------- ------- -------- --------
Income from property operations.... 9,755 5,177 603 -- 15,535
Administrative expenses............ -- -- -- (1,224) (1,224)
Depreciation and amortization...... -- -- -- (3,613) (3,613)
Interest and other income.......... -- -- -- 108 108
Interest expense................... -- -- -- (6,550) (6,550)
-------- -------- ------- -------- --------
Income (loss) from operations...... 9,755 5,177 603 (11,279) 4,256
Minority interests in consolidated
subsidiaries..................... -- -- -- (90) (90)
Gain on sales of real estate....... -- -- -- 3,116 3,116
Income in equity of joint
venture.......................... -- -- -- 70 70
Extraordinary items................ -- -- -- (329) (329)
-------- -------- ------- -------- --------
Net income (loss).................. $ 9,755 $ 5,177 $ 603 $ (8,512) $ 7,023
======== ======== ======= ======== ========
Total real estate......... $386,470 $203,760 $36,816 $ 2,199 $629,245
======== ======== ======= ======== ========
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 1999
-----------------------------------------------------------
LIGHT OFFICE CORPORATE
INDUSTRIAL BUILDINGS RETAIL AND OTHER CONSOLIDATED
---------- --------- ------- --------- ------------
<S> <C> <C> <C> <C> <C>
Property revenues.................. $ 13,581 $ 5,566 $ 1,088 $ -- $ 20,235
Property expenses.................. 3,734 1,998 429 -- 6,161
-------- -------- ------- -------- --------
Income from property operations.... 9,847 3,568 659 -- 14,074
Administrative expenses............ -- -- -- (1,090) (1,090)
Depreciation and amortization...... -- -- -- (3,473) (3,473)
Interest and other income.......... -- -- -- 88 88
Interest expense................... -- -- -- (6,270) (6,270)
-------- -------- ------- -------- --------
Income (loss) from operations...... 9,847 3,568 659 (10,745) 3,329
Minority interests in consolidated
subsidiaries..................... -- -- -- (80) (80)
Gain on sales of real estate....... -- -- -- -- --
Income in equity of joint
venture.......................... -- -- -- -- --
Extraordinary items................ -- -- -- -- --
-------- -------- ------- -------- --------
Net income (loss).................. $ 9,847 $ 3,568 $ 659 $(10,825) $ 3,249
======== ======== ======= ======== ========
Total real estate......... $423,455 $175,940 $35,799 $ 1,352 $636,546
======== ======== ======= ======== ========
</TABLE>
12
<PAGE> 15
AMERICAN INDUSTRIAL PROPERTIES REIT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 12--SUBSEQUENT EVENTS:
In April 2000, the Trust negotiated an extension of the maturity of its
PSCC secured acquisition line to October 27, 2000. The interest rate remained at
LIBOR plus 1.55%. The Trust currently has $48.0 million outstanding under this
acquisition line.
On April 27, 2000, the Trust sold one tract of vacant land, previously
categorized as held for sale for total consideration of approximately $0.3
million resulting in a gain on sale of $0.1 million.
On May 4, 2000, the Trust declared a distribution of $0.22 per Share
payable on July 14, 2000 to shareholders of record on July 5, 2000.
13
<PAGE> 16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the
Consolidated Financial Statements of the Trust and accompanying Notes included
elsewhere in this report as well as the audited financial statements appearing
in the Trust's 1999 Annual Report to Shareholders. 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 Three Months Ended March 31, 2000 to March 31, 1999
The weighted average property square footage owned by the Trust decreased
to 7,949,000 during the three months ended March 31, 2000 from 8,198,000 for the
same period in 1999, a decrease of 3.0%. Property revenues increased 9% to
$22,112,000 in 2000 from $20,235,000 in 1999, and income from property
operations (which is defined as property revenues less property operating
expenses, excluding depreciation and amortization, interest expense, and Trust
administration and overhead expenses) increased 10% to $15,535,000 in 2000 from
$14,074,000 in 1999. On a same property basis, for properties owned as of
January 1, 1999 and March 31, 2000, property revenues increased to $16,767,000
in 2000 from $15,643,000, an increase of 7.2%, comprised of a 7.9% increase in
revenue related to industrial properties, a 10.6% increase in revenue related to
office properties and a 13.9% decrease in revenue at the Trust's retail
properties. The increases in revenue stemmed principally from an increase in
rental rates and/or an increase in overall occupancy at a number of the
properties. The decrease in revenues at the retail properties relates primarily
to a reduction in occupancy at the Colorado retail property. Overall leased
occupancy of the Trust's portfolio was 93.2% at March 31, 2000 compared to 93.5%
at March 31, 1999.
On a same property basis, income from property operations increased to
$11,509,000 in 2000 from $10,613,000 in 1999, an increase of 8.4%, and is
comprised of a 9.6% increase related to industrial properties, a 9.0% increase
related to office properties and a 6.4% decrease related to the Trust's retail
properties. This overall increase is the net result of the revenue activity
explained above offset by additional operating expense activity related to
increases in occupancy and higher property taxes at various properties.
Income from operations increased to $4,256,000 during the three months
ended March 31, 2000 from $3,329,000 for the same period in 1999 as a result of
the acquisition of 11 properties since the fourth quarter of 1998 and the
increase in income from property operations explained above, offset by the sale
of 6 properties since the first quarter of 1999 and an increase in total
interest expense of $280,000 due to an increase in variable rate interest and a
full quarter of interest expense on the 11 properties acquired since December
1998. In addition, Trust administration and overhead expenses increased $134,000
due to an increase in full time employees and higher general costs due to the
increased activity of the Trust. Depreciation increased $140,000 due to the
acquisition of 11 properties since December 1998 offset by the sale of 6
properties since the first quarter of 1999.
Analysis of Cash Flows -- Comparison of Three Months Ended March 31, 2000 to
March 31, 1999
Cash flow provided by operating activities in the first quarter of 2000 was
$4,493,000. This results from the Trust's net income of $7,023,000 increased by
net non-cash charges totaling $920,000 related to the loss on the extinguishment
of debt, gains on the sales of real estate properties, minority interests,
depreciation and amortization. Issuance of Shares to Trust Managers of $24,000
and a reduction in restricted cash of $263,000 further increased cash flow
provided by operating activities. An increase in other assets of $1,531,000, a
decrease in accounts payable, other liabilities and tenant security deposits of
$1,978,000 and a decrease in accrued interest of $228,000 reduced cash flow
provided by operating activities.
14
<PAGE> 17
Cash flow provided by investing activities in the first quarter of 2000 was
$13,736,000, representing net proceeds for the sales of real estate $15,145,000
offset by capitalized expenditures of $1,409,000.
Cash flow used in financing activities in the first quarter of 2000 was
$15,885,000. This amount reflects principal repayments on mortgage notes payable
of $15,161,000, distributions to shareholders and limited partnership unit
holders of $4,391,000 and redemption of limited partnership units totaling
$1,411,000 offset by proceeds from the mortgage financing totaling $5,000,000,
net proceeds from the private placement of Shares of $27,000 and the proceeds
related to deferred loan costs of $51,000.
Cash flow provided by operating activities in the first quarter of 1999 was
$10,078,000. This resulted from the Trust's net income of $3,249,000 increased
by non-cash charges totaling $3,740,000 related to minority interests,
depreciation and amortization and issuance of Shares to Trust Managers and a
reduction in other assets and restricted cash of $5,391,000 and $925,000,
respectively. In addition, accrued interest increased $534,000, while accounts
payable, accrued expenses and other liabilities decreased $3,761,000.
Cash flow used in investing activities in the first quarter of 1999 was
$130,114,000, representing amounts expended on the acquisition of real estate
and related working capital totaling $127,168,000, and capitalized expenditures
of $2,946,000.
Cash flow provided by financing activities in the first quarter of 1999 was
$123,139,000. This amount reflected proceeds from the mortgage financing on the
properties acquired in the first quarter of 1999 and refinancing of existing
properties totaling $136,985,000, net proceeds from the private placement of
Shares of $50,095,000, principal repayments on mortgage and notes payable
(including refinancings) totaling approximately $59,056,000, payments of loan
costs of $1,387,000, and distributions to shareholders and limited partnership
unit holders totaling $3,498,000.
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 should not be considered in arriving
at FFO. Accordingly, the Trust does not include extraordinary items in the
calculation of FFO.
Effective January 1, 2000, NAREIT 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 the sales of
depreciable operating properties. The Trust's FFO calculation for the three
months ended March 31, 1999 was not affected by the revised FFO calculation.
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
approximately $2.0 million at March 31, 2000 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. 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 GAAP 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.
15
<PAGE> 18
The following table shows the Trust's cash flows from its operating,
investing and financing activities prepared in accordance with GAAP:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
2000 1999
-------- ---------
(IN THOUSANDS)
<S> <C> <C>
Net cash provided by operating activities................... $ 4,493 $ 10,078
Net cash provided by (used in) investing activities......... 13,736 (130,114)
Net cash provided by (used in) financing activities......... (15,885) 123,139
</TABLE>
The following table shows the Trust's calculation of FFO:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------
2000 1999
----------- -----------
(IN THOUSANDS, EXCEPT
NUMBER OF SHARES)
<S> <C> <C>
NET INCOME................................................. $ 7,023 $ 3,249
Exclude effects of:
Extraordinary items:
Loss on extinguishment of debt...................... 329 --
Gain on sales of real estate........................ (3,116) --
Real estate depreciation and amortization........... 3,486 3,384
Income in equity of joint venture................... (70) --
Minority interest in operating partnerships........... 45 38
----------- -----------
Funds from Operations...................................... $ 7,697 $ 6,671
=========== ===========
Weighted average Shares and operating partnership units
outstanding.............................................. 21,074,502 20,176,627
=========== ===========
</TABLE>
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 March 31, 2000, the Trust had $4.8
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 agreement,
DDR was obligated to purchase $115 million of equity and up to $200 million in
additional equity (Shares up to 49.9% ownership and preferred shares
thereafter), subject to certain conditions, to fund property acquisitions
approved by the Trust's Board. As of March 31, 2000, DDR has purchased 9.7
million Shares for $148.6 million. Proceeds related to these Share purchases
were used to fund property acquisitions in 1998 and 1999.
In addition to the equity raised, the Trust utilized both long term and
short term secured financing to fund property acquisitions. 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 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%, a maximum loan to value of 60%, and a maturity in
January 2001. As of March 31, 2000, the Trust has $15.5 million outstanding
under this credit line, which bears interest at LIBOR plus 1.75%, currently
7.78%.
16
<PAGE> 19
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 7.33%, and a maturity date of October
27, 2000, as extended. The Trust anticipates 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 March 31, 2000, the Trust had $324.6 million in mortgage debt
outstanding, of which approximately $261.1 million was represented by fixed rate
debt, including $1.3 million in unamortized debt premiums, with a weighted
average interest rate of 7.39%, and $63.5 million was represented by variable
rate debt with a weighted average interest rate of 7.44%. 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 March 31, 2000, the Trust's total market capitalization (based upon a
March 31, 2000 closing Share price of $11.813 per Share) was approximately
$566.4 million. Based upon this amount, the Trust's debt to total market
capitalization at March 31, 2000 was 56.2%. 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 recent acquisition
growth 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.
On a long term basis, the Trust expects to meet liquidity requirements
generated by property operating expenses, debt service, and future distributions
to shareholders 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 level
of 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
$1,342,000 in the quarter ended March 31, 2000, compared to $2,946,000 in the
quarter ended March 31, 1999. 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 April 14, 2000 to
shareholders of record on April 5, 2000. On May 4, 2000, the Trust declared a
distribution of $0.22 per Share payable on July 14, 2000 to shareholders of
record on July 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 registration statement
with the Securities and Exchange Commission which would provide for the issuance
of up to $500 million in Shares, Preferred Shares of Beneficial Interest,
unsecured senior debt securities and/or warrants to purchase such securities in
amounts, at prices and on terms to be determined by market conditions at the
time of future offerings. To date, this registration statement has not been
utilized.
17
<PAGE> 20
RECENT DEVELOPMENTS
In April 2000, the Trust negotiated an extension of the maturity of its
PSCC secured acquisition line to October 27, 2000. The interest rate remained at
LIBOR plus 1.55%. The Trust currently has $48.0 million outstanding under this
acquisition line.
On April 27, 2000, the Trust sold one tract of vacant land, previously
categorized as held for sale for total consideration of approximately $0.3
million resulting in a gain on sale of $0.1 million.
On May 4, 2000, the Trust declared a distribution of $0.22 per Share
payable on July 14, 2000 to shareholders of record on July 5, 2000.
ITEM 3. 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 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 the first quarter of 2000, the Trust's interest expense would have
been increased or decreased by approximately $173,000. 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.
18
<PAGE> 21
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Trust has not been notified, and is not otherwise aware, of any
on-going or potential litigation that could result in a material adverse effect
on the consolidated financial position or results of operations of the Trust.
ITEM 2. CHANGES IN THE RIGHTS OF THE COMPANY'S SECURITY HOLDERS
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, effective as of
July 30, 1998, resulted in DDR acquiring 2,207,618 shares at a price of $15.50
per Share.
In January 1999, DDR completed the second stage of the Agreement, resulting
in the purchase of 5,226,589 shares for $15.50 per Share (for total
consideration of approximately $81.0 million) to fund property acquisitions in
1998 and 1999.
In the third stage, the Trust has the option to require DDR, under certain
circumstances, to purchase additional Shares with a total purchase price not to
exceed $200 million to fund property acquisitions. DDR's obligation to purchase
Shares, the price of the Shares and the amount to be invested in the third stage
are contingent upon several factors, including the trading prices of DDR and
Trust Shares, the market capitalization of DDR and whether common or preferred
shares are issued to DDR. As of March 31, 2000, DDR has purchased 2,222,449
shares related to the third stage (for total consideration of approximately
$33.4 million). In total, DDR has purchased 9,656,656 shares, representing 46.1%
of the outstanding Shares of the Trust.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
27.1* Financial Data Schedule
</TABLE>
- ---------------
* Filed herewith
(b) Reports on Form 8-K
The following information summarizes the events reported on Form 8-K during
the quarter ended March 31, 2000:
(1) Current Report on Form 8-K filed with the Commission on February 17,
2000.
19
<PAGE> 22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
<TABLE>
<S> <C>
AMERICAN INDUSTRIAL PROPERTIES REIT
(Registrant)
Date: May 15, 2000 /s/ MARC A. SIMPSON
------------------------------------------------------
Marc A. Simpson
Senior Vice President and Chief Financial Officer
(principal financial officer)
Date: May 15, 2000 /s/ GARY A. WILLIAMS
------------------------------------------------------
Gary A. Williams
Vice President and Chief Accounting Officer
(principal accounting officer)
</TABLE>
20
<PAGE> 23
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <S>
27.1* Financial Data Schedule
</TABLE>
- ---------------
* Filed herewith
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 10,301
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 629,245
<DEPRECIATION> (48,373)
<TOTAL-ASSETS> 609,439
<CURRENT-LIABILITIES> 343,043
<BONDS> 0
0
0
<COMMON> 2,111
<OTHER-SE> 259,297
<TOTAL-LIABILITY-AND-EQUITY> 609,439
<SALES> 0
<TOTAL-REVENUES> 22,220
<CGS> 0
<TOTAL-COSTS> 11,414
<OTHER-EXPENSES> (3,096)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,550
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 7,352
<DISCONTINUED> 0
<EXTRAORDINARY> (329)
<CHANGES> 0
<NET-INCOME> 7,023
<EPS-BASIC> .34
<EPS-DILUTED> .34
</TABLE>
